AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 1999
REGISTRATION NO. 333-81235
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------------
ROYSTER-CLARK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2875 76-0329525
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------------------------
10 ROCKEFELLER PLAZA -- SUITE 1120
NEW YORK, NEW YORK 10020
(212) 332-2965
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW
---------------------------------------
FRANCIS P. JENKINS, JR.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ROYSTER-CLARK, INC.
10 ROCKEFELLER PLAZA -- SUITE 1120
NEW YORK, NEW YORK 10020
(212) 332-2965
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------------------
With Copies to:
CRAIG L. GODSHALL, ESQ.
DECHERT PRICE & RHOADS
4000 BELL ATLANTIC TOWER
1717 ARCH STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 994-4000
---------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
---------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
| | PROPOSED MAXIMUM | PROPOSED MAXIMUM |
TITLE OF EACH CLASS OF | AMOUNT TO BE | OFFERING PRICE | AGGREGATE OFFERING | AMOUNT OF
SECURITIES TO BE REGISTERED | REGISTERED | PER UNIT (1) | PRICE (1) | REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/4% First Mortgage Notes Due | | | |
2009............................... | $200,000,000 | 100% | $200,000,000 | $55,600(2)
- ------------------------------------------------------------------------------------------------------------------------
Guarantees........................... | (3) | (3) | (3) | (3)
========================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, solely for purposes of calculating the registration fee.
(2) Previously paid.
(3) Royster-Clark's parent entity, Royster-Clark Group, Inc. and the other
companies listed in the Table of Additional Registrants below have
guaranteed, jointly and severally, the 10 1/4% First Mortgage Notes Due 2009
being registered hereby. The guarantors are registering the guarantees.
Pursuant to Rule 457(n) under the Securities Act of 1933, no registration
fee is required with respect to the guarantees.
---------------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ROYSTER-CLARK, INC.
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
IRS
PRIMARY STANDARD EMPLOYER
STATE OF INDUSTRIAL CLASSIFICATION IDENTIFICATION
NAME INCORPORATION CODE NUMBER NO.
- ---- ------------- ------------------------- --------------
<S> <C> <C> <C>
Royster-Clark Group, Inc.................... Delaware 2875 13-4055347
Royster-Clark AgriBusiness, Inc............. Delaware 5191 58-1599501
Royster-Clark Nitrogen, Inc................. Delaware 2873 36-3536929
Royster-Clark Hutson, Inc................... Kentucky 5191 61-0895190
Royster-Clark Resources LLC................. Delaware 5191 22-3652274
Royster-Clark Realty LLC.................... Delaware 6512 22-3648552
Royster-Clark AgriBusiness Realty LLC....... Delaware 6512 22-3648546
Royster-Clark Hutson's Realty LLC........... Delaware 6512 22-3648548
Royster-Clark Nitrogen Realty LLC........... Delaware 6512 22-3648549
</TABLE>
The address, including zip code, and telephone number, including area code,
of the principal offices of the additional registrants listed above is: 10
Rockefeller Plaza-Suite 1120, New York, New York 10020; the telephone number at
that address is (212) 332-2965.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 24, 1999
PROSPECTUS
Offer to Exchange
10 1/4% First Mortgage Notes Due 2009 for all outstanding
10 1/4% First Mortgage Notes Due 2009
of
ROYSTER-CLARK, INC.
The exchange offer will expire at 5:00 P.M.,
New York City time, on , 1999, unless extended.
---------------------------
TERMS OF THE EXCHANGE OFFER:
-- We will exchange all existing first mortgage notes that are validly
tendered and not withdrawn prior to the expiration of the exchange
offer.
-- You may withdraw tenders of existing first mortgage notes at any time
prior to the expiration of the exchange offer.
-- We believe that the exchange of existing first mortgage notes will not
be a taxable event for U.S. federal income tax purposes, but you should
see "Certain Federal Tax Consequences" on page 116 for more
information.
-- We will not receive any proceeds from the exchange offer.
-- The terms of the exchange first mortgage notes are substantially
identical to the existing first mortgage notes, except that the
exchange first mortgage notes are registered under the Securities Act
of 1933 and the transfer restrictions and registration rights
applicable to the existing first mortgage notes do not apply to the
exchange first mortgage notes.
---------------------------
See "Risk Factors" beginning on page 14 for a discussion of some risks that
should be considered by holders prior to tendering their existing first mortgage
notes.
---------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
---------------------------
The date of this prospectus is , 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
Summary.......................................... 1 Security Ownership of Certain Beneficial Owners.. 67
Risk Factors..................................... 14 Certain Relationships and Related Transactions... 68
The Transactions................................. 22 Description of Certain Other Indebtedness........ 70
Use of Proceeds.................................. 23 Description of First Mortgage Notes.............. 73
Capitalization................................... 24 Certain Federal Tax Consequences................. 118
Selected Historical Financial Data............... 25 Plan of Distribution............................. 122
Management's Discussion and Analysis of Legal Matters.................................... 123
Financial Condition and Results of Operations.. 28 Experts.......................................... 123
The Exchange Offer............................... 38 Forward-Looking Statements....................... 124
Business......................................... 47 Additional Information........................... 125
Management....................................... 61 Index to Financial Statements.................... F-1
</TABLE>
You should rely only on the information contained in this prospectus or to which
we have referred you in this prospectus. We have not authorized anyone to
provide you with information that is different. This prospectus may only be used
where it is legal to sell these securities. The information in this prospectus
may only be accurate on the date of this document.
ii
<PAGE>
SUMMARY
The following summary contains basic information about the exchange offer
and is qualified in its entirety by the more detailed information and financial
statements, including the notes to the financial statements, appearing elsewhere
in this prospectus. Royster-Clark, as used in this prospectus refers to
Royster-Clark, Inc. and its subsidiaries as a combined entity, including the
three subsidiaries of IMC Global, Inc. except where it is made clear that
Royster-Clark refers only to Royster-Clark, Inc. Unless otherwise indicated, the
industry data, including market share information, used in this prospectus comes
from industry trade journals and reports and other sources we believe are
reliable. You are urged to read this prospectus in its entirety before tendering
your notes for exchange.
THE EXCHANGE OFFER
On April 22, 1999, we issued and sold $200.0 million aggregate principal
amount of 10 1/4% First Mortgage Notes Due 2009, which we refer to as the
existing first mortgage notes. Related to that sale, we entered into a
registration rights agreement with the initial purchasers of the existing first
mortgage notes in which we agreed, among other things, to deliver this
prospectus to you and to complete an exchange offer for the existing first
mortgage notes. As required by the registration rights agreement, we are
offering to exchange $200.0 million aggregate principal amount of our 10 1/4%
First Mortgage Notes Due 2009, which have been registered under the Securities
Act, which we refer to as the exchange first mortgage notes, for a like
aggregate principal amount of our existing first mortgage notes. We refer to
this offer to exchange existing first mortgage notes for exchange first mortgage
notes in accordance with the terms in this prospectus and the accompanying
letter of transmittal as the exchange offer. You are entitled to exchange your
existing first mortgage notes for exchange first mortgage notes. The exchange
first mortgage notes have substantially identical terms to the existing first
mortgage notes. We urge you to read the discussions under the headings "The
Exchange Offer" and "The Exchange First Mortgage Notes" in this Summary for
further information regarding the exchange offer and the exchange first mortgage
notes.
THE TRANSACTIONS
On April 22, 1999, 399 Venture Partners, Inc., an affiliate of Citicorp
Venture Capital Ltd., through its newly formed company Royster-Clark Group,
Inc., acquired all of the outstanding shares of Royster-Clark from some members
of its management and Royster-Clark, Inc. acquired all of the outstanding shares
of three operating subsidiaries, IMC AgriBusiness, Inc., IMC Nitrogen Company
and Hutson's AG Service, Inc. from IMC Global, Inc. These three IMC entities are
referred to as "AgriBusiness."
To finance these transactions, some members of our management contributed a
portion of their interests in Royster-Clark for shares of Royster-Clark Group.
As a result of these transactions, 399 Ventures and members of our management
own all of the stock of Royster-Clark Group which owns the combined operations
of Royster-Clark and AgriBusiness.
1
<PAGE>
The following chart sets forth our capital structure and our subsidiaries
who are guarantors of the first mortgage notes upon the completion of the
transactions contemplated in this prospectus.
Royster-Clark Group, Inc.
|
|
|
100%
|
|
|
------------------------ Royster-Clark, Inc. ---------------
| | | |
| 100% | 100% | 100% | 100%
| | | |
Royster-Clark Royster-Clark Royster-Clark Royster-Clark
AgriBusiness, Inc. Nitrogen, Inc. Hutson, Inc. Realty LLC
| | | |
| 100% | 100% | 100% | 100%
| | | |
Royster-Clark Royster-Clark Royster-Clark Royster-Clark
Resources AgriBusiness Nitrogen Hutson's
LLC Realty LLC Realty LLC Realty LLC
SOURCES AND USES OF PROCEEDS
The sources and uses of funds in connection with the transactions
contemplated in this prospectus totaled approximately $403.5 million, consisting
of $315.1 million to purchase AgriBusiness and Royster-Clark, $67.8 million to
refinance existing debt and $20.6 million of transaction fees and expenses. We
have financed these costs with (1) $114.9 million of borrowings under our senior
secured credit facility, (2) $200.0 million of first mortgage notes, and (3) an
equity investment of $88.6 million from the Royster-Clark Group.
The sources and uses are as follows (dollars in millions):
<TABLE>
<CAPTION>
SOURCES USES
------- ----
<S> <C> <C> <C>
Senior Secured Credit Facility(1).. $114.9 Aggregate Purchase Price.......... $315.1
First Mortgage Notes............... 200.0 Refinanced Debt................... 67.8
Equity(2).......................... 88.6 Transaction Fees and Expenses(3).. 20.6
------ ------
Total............................ $403.5 Total............................. $403.5
====== ======
</TABLE>
- ------------------
(1) Reflects a March 31, 1999 effective date.
(2) Includes $19.6 million of management rollover equity and $20.0 million of
Royster-Clark Group junior subordinated non-cash pay notes maturing in 2010,
owned by 399 Ventures and IMC Global, Inc.
(3) Includes transaction costs allocated to the purchase price of AgriBusiness
and Royster-Clark.
The acquisitions of Royster-Clark and AgriBusiness, the financing and all
related transactions are collectively referred to as the "Transactions." For
more information on the Transactions, see "The Transactions," "Use of Proceeds,"
"Certain Relationships and Related Transactions" and "Security Ownership of
Certain Beneficial Owners."
2
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered........................ Up to $200,000,000 aggregate principal amount of
10 1/4% First Mortgage Notes due 2009. The terms of
the exchange first mortgage notes and existing
first mortgage notes are identical in all material
respects, except for some transfer restrictions and
registration rights relating to the existing first
mortgage notes.
The Exchange Offer........................ We are offering the exchange first mortgage notes
to you in exchange for a like principal amount of
existing first mortgage notes. Existing first
mortgage notes may be exchanged only in integral
multiples of $1,000. We intend by the issuance of
the exchange first mortgage notes to satisfy our
obligations contained in the registration rights
agreement entered into with the initial purchasers
of the existing first mortgage notes.
Expiration Date; Withdrawal of Tender..... The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, or a
later date and time to which it may be extended by
us. The tender of existing first mortgage notes
provided by the exchange offer may be withdrawn at
any time prior to the expiration date. Any existing
first mortgage notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder as promptly as practicable after
the expiration or termination of the exchange
offer.
Conditions to the Exchange Offer.......... The exchange offer is subject to some customary
conditions, which we may waive. See "The Exchange
Offer -- Conditions to the Exchange Offer."
Procedures for Tendering Existing First
Mortgage Notes.......................... If you wish to accept the exchange offer and tender
your existing first mortgage notes, you must
complete, sign and date the letter of transmittal,
or a facsimile of the letter, in accordance with
its instructions and the instructions in this
prospectus, and mail or otherwise deliver the
letter of transmittal, or its facsimile, together
with the existing first mortgage notes and any
other required documentation, to the exchange agent
at the address set forth in this prospectus. See
"The Exchange Offer -- Procedures for Tendering
Existing First Mortgage Notes."
Use of Proceeds........................... We will not receive any proceeds from the exchange
offer.
Exchange Agent............................ United States Trust Company of New York is serving
as the exchange agent in connection with the
exchange offer.
Federal Income Tax Consequences........... The exchange of the existing first mortgage notes
for the exchange first mortgage notes in the
exchange offer should not be a taxable event for
federal income tax purposes. See "Certain Federal
Tax Consequences."
</TABLE>
3
<PAGE>
CONSEQUENCES OF EXCHANGING EXISTING FIRST MORTGAGE NOTES
PURSUANT TO THE EXCHANGE OFFER
We are exchanging the existing first mortgage notes for exchange first
mortgage notes based upon the position of the SEC's staff, set forth in
interpretive letters to third parties in other similar transactions. We will not
seek our own interpretive letter. As a result, we cannot assure you that the
SEC's staff will take the same position on this exchange offer as it did in
interpretive letters to other parties. Based on the SEC's staff letters to other
parties, we believe that holders of exchange first mortgage notes, other than
broker-dealers, can offer the exchange first mortgage notes for resale, resell
and otherwise transfer the exchange first mortgage notes without delivering a
prospectus to prospective purchasers, other than as described below.
Any holder of existing first mortgage notes who is an "affiliate" of us or
who intends to distribute exchange first mortgage notes, or any broker-dealer
who purchased existing first mortgage notes from us for resale pursuant to Rule
144A or any other available exemption under the Securities Act:
o cannot rely on the SEC's staff's interpretations in the
above-mentioned interpretive letters;
o cannot tender existing first mortgage notes in the exchange offer;
o must comply with the registration and prospectus delivery
requirements of the Securities Act to transfer the existing first
mortgage notes, unless the sale is exempt.
In addition, if any broker-dealer acquired existing first mortgage notes
for its own account as a result of market-making or other trading activities and
exchanges the existing first mortgage notes for exchange first mortgage notes,
such broker-dealer must deliver a prospectus with any resales of its exchange
first mortgage notes.
If you want to exchange your existing first mortgage notes for exchange
first mortgage notes, you will be required to affirm that:
o you are not an "affiliate" of us;
o you are acquiring the exchange first mortgage notes in the ordinary
course of your business;
o you have no arrangement or understanding with any person to
participate in a "distribution," within the meaning of the
Securities Act, of the exchange first mortgage notes; and
o if you are not a broker-dealer, you are not engaged in, and do not
intend to engage in, a "distribution," within the meaning of the
Securities Act, of the exchange first mortgage notes.
In addition, we may require you to provide information regarding the number
of "beneficial owners," within the meaning of Rule 13d-3 under the Exchange Act,
of the existing first mortgage notes. Each broker-dealer that receives exchange
first mortgage notes for its own account must acknowledge that it acquired its
existing first mortgage notes for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of the exchange first mortgage notes. By making this acknowledgment and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" under the Securities Act. Based on the SEC's staff's
position in some interpretive letters, we believe that broker-dealers who
acquired existing first mortgage notes for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the exchange first mortgage
notes with a prospectus meeting the requirements of the Securities Act.
Accordingly, a broker-dealer may use this prospectus to satisfy such
requirements. We have agreed that, for a period of 210 days after the effective
date of this prospectus, we will make this prospectus, as
4
<PAGE>
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution" for more information. Any
participating broker-dealer who is an "affiliate" of us may not rely on the
SEC's staff's interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act when reselling its
exchange first mortgage notes. See "The Exchange Offer -- Resales of Exchange
First Mortgage Notes."
The existing first mortgage notes are currently eligible for trading in the
Private Offerings, Resales and Trading through Automated Linkages (PORTAL)
market. Following commencement of the exchange offer but prior to its
completion, the existing first mortgage notes may continue to be traded in the
PORTAL market. Following completion of the exchange offer, the exchange first
mortgage notes will not be eligible for PORTAL trading.
5
<PAGE>
THE EXCHANGE FIRST MORTGAGE NOTES
The terms of the exchange first mortgage notes and the existing first
mortgage notes are identical in all material respects, except for some transfer
restrictions and registration rights relating to the existing first mortgage
notes.
<TABLE>
<S> <C>
Issuer....................................... Royster-Clark, Inc.
First Mortgage Notes Offered................. $200,000,000 principal amount of 10 1/4% First
Mortgage Notes due 2009.
Maturity..................................... April 1, 2009.
Interest..................................... Interest on the exchange first mortgage notes
will accrue at the rate of 10 1/4% per year,
payable semiannually in cash in arrears on April
1 and October 1, commencing October 1, 1999.
Ranking...................................... The exchange first mortgage notes are our senior
obligations. The exchange first mortgage notes
will rank equally in right of payment with
claims of our creditors holding indebtedness or
other liabilities that are not expressly
subordinated to the exchange first mortgage
notes and will rank ahead of all of our existing
and future subordinated indebtedness.
At June 30, 1999, we had $2.1 million of
indebtedness outstanding under industrial
revenue bonds and $5.0 million of indebtedness
under a note due to the seller of a
previously-acquired business. All of the
indebtedness ranks equally to the first mortgage
notes and the guarantees of the first mortgage
notes.
To the extent that our senior credit facility, our
industrial revenue bonds, our seller note and our
first mortgage notes are secured by different
collateral, each item of indebtedness has priority
over the others to the extent of the unique
collateral that secures that indebtedness and each
item of indebtedness is effectively subordinated
to the others to the extent of the unique
collateral that secures the other indebtedness.
In addition, the industrial revenue bonds and
seller note were issued by our subsidiaries, and
our senior credit facility and our first mortgage
notes are therefor structurally subordinate to that
indebtedness, but rank equally with the
guarantees given by those subsidiaries.
See also "Risk Factors -- Additional Borrowings
Available."
Security..................................... The exchange first mortgage notes will be
secured by:
(1) first mortgages on seventeen of our and our
subsidiaries' principal properties, related
fixtures and equipment and other related
assets and
(2) a pledge of equity of some of our
newly-formed subsidiaries.
These new subsidiaries are limited purpose
subsidiaries which were formed to own
approximately 280 properties used in the
business. The lenders under our senior secured
credit facility are secured by a first lien on
all of our accounts receivable, inventory,
general intangibles and all other assets, except
for the assets securing the exchange first
mortgage notes, and so have a prior right in
payment to the proceeds of that collateral. The
indenture permits us to sell an additional $10.0
million of first mortgage notes which will rank
equally in right of payment and be equally and
proportionally secured with the existing first
mortgage notes being exchanged in this exchange
offer. In addition, the collateral release
provisions of the indenture permit the release
of nitrogen facilities without substitution of
collateral under some circumstances. See
"Description of First Mortgage Notes --
Repurchase at the Option of Holders -- Sale of
Nitrogen Facility."
Guarantees................................... We and our existing subsidiaries have agreed to
fully and unconditionally guarantee the exchange
first mortgage notes on a joint and several
basis. See "Description of First Mortgage Notes
-- Guarantees."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Except as described below, the exchange first
mortgage notes (and any outstanding existing
first mortgage notes) are not redeemable prior
to April 1, 2004. Thereafter, the first mortgage
notes are redeemable, in whole or in part, at
the redemption prices listed in this prospectus,
plus accrued and unpaid interest and liquidated
damages, if any, to the date of redemption.
On or before April 1, 2002, we may redeem up to
35% of the first mortgage notes originally
issued at the redemption prices described in
"Description of First Mortgage Notes -- Optional
Redemption."
Mandatory Redemption......................... None.
Change of Control............................ If we undergo a change of control, we must offer
to repurchase the first mortgage notes at a
price equal to 101% of the principal amount of
the notes plus accrued and unpaid interest and
liquidated damages, if any, to the date of
repurchase. See "Description of First Mortgage
Notes -- Repurchase at the Option of Holders --
Change of Control."
Covenants.................................... We have agreed to limit our ability and the
ability of our subsidiaries to, among others:
o incur additional indebtedness;
o pay dividends and make other restricted
payments or investments;
o create or incur liens on any of our assets or
property;
o engage in transactions with affiliates;
o make asset sales;
o enter into sale-leaseback transactions; and
o consolidate or merge with or into, or transfer
substantially all of our assets to, another
company.
There are important exceptions and
qualifications to these limitations. For more
details, see "Description of First Mortgage
Notes."
</TABLE>
For a more detailed discussion of the exchange first mortgage notes, see
"Description of the First Mortgage Notes."
7
<PAGE>
THE COMPANY
We are the largest independent retail and wholesale distributor of
agricultural fertilizer, seed, crop protection products and agronomic services
to farmers in the United States. We primarily focus on major farming regions in
the East, South and Midwest. Our distribution business supplies a full range of
products and services to our retail and wholesale customers through 400
facilities consisting of retail farm centers, granulation, blending and seed
processing plants, and a network of storage and distribution terminals and
warehouses. Our network of plants and distribution terminals and warehouses
allows us to efficiently process, distribute and store product close to the
end-user and to supply our customers on a timely basis during the compressed
planting seasons.
Our retail distribution operation includes approximately 330 Farmarkets
retail farm centers, including approximately 30 commission sales stores, located
in the East, South and Midwest. Our retail farm centers sell a complete line of
products to farmers, including fertilizer, seed and crop protection products. In
addition, our retail centers provide increasingly important services to farmers,
including:
o custom blending and application of crop nutrients;
o crop management services such as soil sampling, pest level monitoring and
yield monitoring using satellite grids; and
o services to assist in developing seed technology based on genetic
engineering.
We believe that our position as a "one-stop supplier" has allowed us to achieve
a leading market share in our targeted markets.
We are the largest North American seller of agricultural granulated
fertilizer, operating seven granulation plants that process commodity fertilizer
into granulated fertilizer products with desirable agronomic traits. Granulated
fertilizer products are used by farmers who produce specialty crops such as
citrus fruits, vegetables, tobacco, peanuts and cotton. We offer a full line of
premium branded granulated fertilizer products primarily under the
Rainbow(Registered) name on a wholesale basis to a network of approximately 900
dealers, as well as to some Farmarkets stores. In addition, we operate two
nitrogen manufacturing plants that supply our distribution business with
nitrogen fertilizer products. For more information about Royster-Clark, See
"Business."
8
<PAGE>
INDUSTRY OVERVIEW
The market for crop production inputs, including fertilizer, seed and crop
protection products in the United States was approximately $26.4 billion in
1997. This market has experienced steady growth over time, with a compounded
annual growth rate of approximately 5.6% from 1990 to 1997. Industry observers
believe that a number of fundamental factors will continue to drive the
industry:
o Continued population growth will increase demand for food worldwide;
o The gradual shift to free-market economies along with enhanced wealth in
emerging economies is creating higher standards of living and, thus,
dietary improvements. Improving diets will increase consumption of meat
and dairy products resulting in an increase in worldwide demand for
grain;
o Stable U.S. planted acreage; and
o A limited amount of arable land leads farmers to continue using
fertilizer, biotech seed and crop protection products to obtain maximum
yields on available land.
The crop production inputs distribution industry has consolidated
significantly over the past 10 years. This consolidation has been driven by a
number of factors, many of which are expected to intensify in the coming years:
o Increased farm size due to consolidation;
o Consolidation of the North American producers of fertilizer, seed and
crop protection products;
o Impact of biotechnology on farmers' purchasing requirements for seed;
o Growing acceptance of precision agriculture;
o New role for the farmer in an integrated agricultural chain; and
o Increasingly stringent environmental, health and safety regulations.
We believe that this industry consolidation will result in increasing
demands on crop production input distribution companies. Farmers are using
genetic engineering and advanced crop management techniques in their effort to
increase profitability. Major seed companies continue to introduce evolving,
technologically advanced products. We believe that our full-service distribution
network will be well positioned to provide the key link between the farmer and
the major suppliers of crop production inputs.
------------------
Our principal executive offices are located at 10 Rockefeller Plaza, Suite
1120, New York, New York 10020, and our telephone number is (212) 332-2965.
RISK FACTORS
You should carefully consider all of the information in this prospectus. In
particular, you should evaluate the specific risk factors stated under "Risk
Factors," beginning on page 14 before deciding to tender your existing first
mortgage notes in the exchange offer.
9
<PAGE>
SUMMARY SELECTED AND PRO FORMA HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following tables provide summary pro forma financial data for the six
months ended June 30, 1999 and the fiscal year ended December 31, 1998, and
summary selected historical financial data as of June 30, 1999. The summary
selected historical financial data as of June 30, 1999 have been derived from
the unaudited condensed consolidated balance sheet of Royster-Clark, Inc. and in
the opinion of management, include all normal and recurring adjustments
necessary for a fair presentation of the data. You should read the following
information with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our unaudited pro forma Statements of Operations
and related notes included elsewhere in this prospectus.
The following unaudited pro forma consolidated income statement data and
other data for the fiscal year ended December 31, 1998 and the six months ended
June 30, 1999 give effect to the Transactions and related financing as if they
had occurred at January 1, 1998. The summary unaudited pro forma financial
statement data and other data do not purport to represent our financial position
or results of operations if the transactions had occurred on those dates or to
project the financial position or results of operations as of any future date or
for any future period.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ------------------
<S> <C> <C>
Income Statement Data:
Net sales................................................. $1,019,827 673,695
Gross profit.............................................. 178,145 118,641
Operating income.......................................... 52,597 45,444
Other Data:
EBITDA(a)................................................. $ 76,086 52,334
Adjusted EBITDA(b)........................................ 78,614 52,334
Depreciation and amortization............................. 23,489 6,990
Cash interest expense..................................... 33,475 15,984
Capital expenditures...................................... 32,245 10,956
Credit Ratios:
Adjusted EBITDA to interest expense....................... 2.3x 4.3x
Net debt to Adjusted EBITDA(c)............................ 3.8x 4.5x
Pro forma earnings to fixed charges....................... 1.5x 1.6x
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
AS OF JUNE 30,
1999
--------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents................................. 422
Working capital........................................... 209,491
Property, plant and equipment............................. 175,841
Total assets.............................................. 560,463
Long-term debt, less current portion...................... 303,520
Stockholders' equity...................................... 117,327
</TABLE>
10
<PAGE>
(a) EBITDA represents operating income (loss) plus depreciation and amortization
as calculated from information presented in our unaudited pro forma
financial statements. While EBITDA should not be construed as a substitute
for operating income or a better indicator of liquidity than cash flow from
operating activities, which are determined in accordance with GAAP, it is
included to provide additional information related to our ability to meet
our future debt service, capital expenditure and working capital
requirements. In addition, we believe that certain investors find EBITDA to
be a useful tool for measuring our ability to service our debt. EBITDA is
not necessarily a measure of our ability to fund our cash needs.
(b) Adjusted EBITDA represents the pro forma EBITDA as calculated in (a) above
adjusted to reflect additional adjustments which we believe are relevant in
evaluating our future operating performance. The additional adjustments,
which reflect the estimated impact of our business and operating strategy,
are based on estimates and assumptions we made and believed to be reasonable
but that are inherently uncertain and may change. The following calculation
should not be viewed as indicative of actual or future results. The table
reflects the effect of these items on pro forma EBITDA.
YEAR ENDED
DECEMBER 31, 1998
-----------------
Pro forma EBITDA............................................ $76,086
Additional adjustments:
Improved product purchasing economics..................... 1,133
Revised equipment lease and repair cycle.................. 989
Increased manufacturing output............................ 406
-------
Total additional pro forma adjustments.................... 2,528
-------
Adjusted pro forma EBITDA................................. $78,614
=======
There were no additional adjustments to EBITDA for the six months ended
June 30, 1999, as all actions had been implemented.
(c) Net debt represents total debt less cash and cash equivalents. The ratio of
net debt to Adjusted EBITDA was calculated based on pro forma net debt as of
December 31, 1998 and historical net debt as of June 30, 1999 of $297,875
and $306,100 respectively.
11
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table provides summary historical financial and other data of
Royster-Clark, Inc., Royster-Clark and AgriBusiness as of and for each of the
years in the five year period ended December 31, 1998, and the three months
ended March 31, 1998, March 31, 1999 and June 30, 1999.
Effective April 1, 1999, Royster-Clark Group, which we refer to in this
section as RCG a newly formed entity capitalized with approximately $59,000 in
cash, acquired all of the then outstanding stock of Royster-Clark, Inc., which
we refer to in this section as Old Royster-Clark. As a result, the balance sheet
and income statement data of Royster-Clark, Inc. as of and for the three months
ended June 30, 1999 reflect the acquisition of the Company by RCG as of April 1,
1999.
The balance sheet and income statement data as of and for the three months
ended June 30, 1999 also reflects the Company's acquisitions of IMC
Agribusiness, Inc. and subsidiaries (now a wholly owned subsidiary known as
Royster-Clark AgriBusiness, Inc.) Hutson's AG Service, Inc. and subsidiaries
(now a wholly owned subsidiary known as Royster-Clark Hutson, Inc.) and IMC
Nitrogen Company and subsidiaries (now a wholly owned subsidiary known as
Royster-Clark Nitrogen, Inc.) (collectively referred to as "Agribusiness") from
IMC Global, Inc. which was consummated on April 22, 1999 with an effective date
of April 1, 1999.
The income statement and balance sheet data for fiscal years 1996, 1997 and
1998 were derived from the audited financial statements of Old Royster-Clark and
AgriBusiness appearing elsewhere in this prospectus. The selected financial data
of Royster-Clark, Inc. as of June 30, 1999 and for the three months then ended,
Old Royster-Clark for 1994 and 1995 and at March 31, 1999 and for the three
months ended March 31, 1998 and 1999 and AgriBusiness for 1994 and 1995 and at
March 31, 1999 and for the three months ended March 31, 1998 and 1999 are
derived from unaudited financial statements of the companies, which have been
prepared by the companies on a basis consistent with the audited financial
statements appearing elsewhere in this prospectus and, in the opinion of
management, include all normal and recurring adjustments necessary for a fair
presentation of the data.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
JUNE 30,
ROYSTER-CLARK, INC. 1999
- ------------------- ------------
<S> <C>
INCOME STATEMENT DATA:
Net sales............................ 492,608
Gross profit......................... 96,015
Operating income..................... 55,219
Net earnings......................... 28,728
OTHER DATA:
EBITDA(a)............................ 61,081
Depreciation and amortization........ 5,862
Capital expenditures................. 4,292
<CAPTION>
AT
JUNE 30,
1999
--------
<S> <C>
BALANCE SHEET DATA:
Working capital...................... 209,491
Total assets......................... 560,463
Long-term debt....................... 303,520
</TABLE>
(continued on next page)
12
<PAGE>
<TABLE>
<CAPTION>
OLD ROYSTER-CLARK YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
- ----------------- ---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 03/31/98 03/31/99
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales.............................. $196,391 $207,552 $222,933 $227,613 $218,672 $ 41,284 $ 53,487
Gross profit........................... 26,714 28,504 33,280 34,996 33,026 6,971 9,445
Operating income....................... 4,757 9,571 11,444 11,781 8,544 2,062 2,224
Net earnings........................... 450 2,404 3,814 4,331 1,832 495 366
OTHER DATA:
EBITDA(a).............................. 7,031 11,741 13,615 14,086 11,222 2,673 2,942
Depreciation and amortization.......... 2,274 2,170 2,171 2,305 2,678 611 718
Capital expenditures................... 1,027 1,977 1,442 2,029 2,145 1,021 964
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 6,754 $ 7,372 $ 14,514 $ 26,253 $ 30,726 $ 62,312
Total assets......................... 82,728 85,924 83,547 96,065 120,397 173,407
Long-term debt....................... 9,085 8,701 12,600 23,025 33,817 65,760
Redeemable Preferred Stock........... 14,250 14,250 12,000 12,000 12,000 12,000
</TABLE>
<TABLE>
<CAPTION>
AGRIBUSINESS YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
- ------------ ---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 03/31/98 03/31/99
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales.............................. $707,400 $807,700 $797,800 $872,600 $787,000 $140,300 $127,600
Gross profit........................... 113,500 145,900 153,900 163,700 127,800 18,800 12,800
Operating income (loss)................ 26,900 52,000 35,500 43,600 24,500 (7,500) (15,000)
Net earnings (loss).................... 15,900 24,900 12,800 18,800 5,300 (5,300) (10,600)
OTHER DATA:
EBITDA(a).............................. 41,800 70,300 52,900 64,400 47,800 (1,900) (8,900)
Depreciation and amortization.......... 14,900 18,300 17,400 20,800 23,300 5,600 6,100
Capital expenditures................... 19,300 23,200 23,000 27,800 30,100 6,400 5,700
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $141,200 $174,800 $165,900 $165,900 $141,800 $128,100
Total assets......................... 359,100 406,500 417,100 464,300 440,300 507,200
Long-term debt....................... 12,400 9,800 10,700 4,600 4,600 4,600
</TABLE>
- ------------------
(a) EBITDA represents operating income (loss) plus depreciation and
amortization. While EBITDA should not be construed as a substitute for
operating income or a better indicator of liquidity than cash flow from
operating activities, which are determined in accordance with GAAP, it is
included to provide additional information with respect to our ability to
meet our future debt service, capital expenditure and working capital
requirements. In addition, we believe that some investors find EBITDA to
be a useful tool for measuring our ability to service our debt. EBITDA is
not necessarily a measure of a company's ability to fund its cash needs.
13
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and other
information in this prospectus, including the risks described below, which apply
to the existing first mortgage notes as well as the exchange first mortgage
notes.
FAILURE TO TENDER YOUR EXISTING FIRST MORTGAGE NOTES FOR EXCHANGE FIRST MORTGAGE
NOTES COULD LIMIT YOUR ABILITY TO RESELL THE EXISTING FIRST MORTGAGE NOTES.
The existing first mortgage notes were not registered under the Securities
Act or under the securities laws of any state and may not be resold, offered for
resale or otherwise transferred unless they are subsequently registered or
resold under an exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your existing
first mortgage notes for exchange first mortgage notes under the exchange offer,
you will not be able to resell, offer to resell or otherwise transfer the
existing first mortgage notes unless they are registered under the Securities
Act or unless you resell them, offer to resell or otherwise transfer them under
an exemption from the registration requirements of, or in a transaction not
governed by, the Securities Act. In addition, we will no longer be under an
obligation to register the existing first mortgage notes under the Securities
Act except in the limited circumstances provided under the registration rights
agreement. In addition, if you want to exchange your existing first mortgage
notes in the exchange offer for the purpose of participating in a distribution
of the exchange first mortgage notes, you may be deemed to have received
restricted securities, and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in any
resale transaction.
WE HAVE $306.1 MILLION OF TOTAL INDEBTEDNESS AND A DEBT TO EQUITY RATIO OF 2.6
TO 1.0, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND LIMIT OUR ABILITY
TO GROW AND COMPETE.
We are a highly leveraged company. As of June 30, 1999, we would have had
total indebtedness of $306.1 million, stockholders equity of $117.3 million and
a ratio of debt to equity of 2.6 to 1.0.
The degree to which we are leveraged could have important consequences to
you. For example, it could:
o limit our ability to obtain additional debt financing in the future for
working capital, capital expenditures, acquisitions or general corporate
purposes;
o increase our vulnerability to general adverse economic and industry
conditions;
o require us to dedicate a substantial portion of our cash flow from
operations to make interest payments on our indebtedness, reducing the
availability of our cash flow to fund capital expenditures, working
capital and other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate, including limiting our
ability to take advantage of significant business opportunities; and
o place us at a competitive disadvantage as compared to some of our
competitors that have less debt.
WE MAY NOT BE ABLE TO GENERATE THE NECESSARY AMOUNT OF CASH TO SERVICE OUR
EXISTING DEBT, WHICH MAY REQUIRE US TO REFINANCE OUR DEBT OR DEFAULT ON OUR
SCHEDULED DEBT PAYMENTS.
Our ability to pay interest, principal and liquidated damages, if any, on
the first mortgage notes and principal and interest on our other debt
obligations will depend on our future performance. Our ability to generate cash
will depend on many factors which may be beyond our control, including general
economic, financial and regulatory conditions. If we cannot generate enough cash
flow in the future to service our debt, we may need to delay capital
expenditures, refinance all or a portion of our debt, including the first
mortgage notes, obtain additional financing
14
<PAGE>
or sell assets. We might not be able to implement any of these strategies on
satisfactory terms or on a timely basis, if at all. If we are unable to meet our
debt service obligations or comply with our covenants, a default under our debt
agreements would result. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE ROYSTER-CLARK AND AGRIBUSINESS
OPERATIONS AND THEREFORE OUR OVERALL BUSINESS MAY SUFFER.
Our future performance will depend in part on our ability to integrate the
Royster-Clark and AgriBusiness operations. In order to integrate the newly
acquired business into our business, we must integrate in a timely manner our
financial and management controls, our administrative functions and our
information systems. We cannot assure you that we will successfully integrate
the Royster-Clark and AgriBusiness operations, that we will effectively manage
the combined operations or that cost savings and synergies will be achieved on
the timetable contemplated or at all. The integration of the Royster-Clark and
AgriBusiness operations may also lead to diversion of management attention from
other ongoing business concerns.
In addition, we expect to evaluate and, where appropriate, pursue
additional acquisition opportunities. We cannot assure you, however, that
suitable acquisition candidates will be identified in the future, or that if
identified and acquired, we will be able to successfully integrate future
acquisitions.
WE AND OUR SUBSIDIARIES MAY BE ABLE TO INCUR SUBSTANTIAL ADDITIONAL INDEBTEDNESS
IN THE FUTURE, WHICH WOULD INCREASE OUR LEVERAGE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. Our senior secured credit facility permits
borrowings up to $275.0 million and all of those borrowings would rank equally
with the first mortgage notes and the subsidiary guarantees. If new debt is
added to our and our subsidiaries' current debt levels, the related risks that
we and they now face could intensify.
The indenture allows us to incur up to an additional $10.0 million of first
mortgage notes which will be secured on an equal basis with the first mortgage
notes originally issued in the offering. In addition, the indenture will permit
us, under some circumstances, to incur additional indebtedness, including
indebtedness secured by assets that do not constitute collateral. See
"Description of First Mortgage Notes -- Certain Covenants."
See "Capitalization," "Selected Historical Financial Data" and "Description
of First Mortgage Notes -- Repurchase at the Option of Holders -- Change of
Control" and "Description of Certain Other Indebtedness."
OUR DEBT INSTRUMENTS RESTRICT OUR ABILITY TO ENGAGE IN OR ENTER INTO BUSINESS,
OPERATING AND FINANCING ARRANGEMENTS, WHICH COULD ADVERSELY AFFECT OUR ABILITY
TO TAKE ADVANTAGE OF POTENTIALLY PROFITABLE BUSINESS OPPORTUNITIES.
Our indenture and our senior secured credit facility impose significant
operating and financial restrictions on us, affecting our ability to make
investments or engage in other business activities, create liens, pay dividends,
make asset sales and merge with another company. These limitations, as well as
our highly leveraged position, could significantly limit our ability to respond
to changing business or economic conditions or to substantial declines in
operating results. A breach of any of these limitations could result in an event
of default under the indenture and the senior secured credit facility. Our
ability to comply with these limitations may be affected by events beyond our
control. See "Description of First Mortgage Notes" and "Description of Certain
Other Indebtedness."
15
<PAGE>
OUR BUSINESS IS SUBJECT TO SEASONALITY.
Our business is seasonal, based upon the planting, growing and harvesting
cycles. Typically, over half of our sales occur during the second quarter of
each year during the spring planting season. Since interim period operating
results reflect the seasonal nature of our business, they are not indicative of
results expected for the full fiscal year. In addition, quarterly results can
vary significantly from one year to the next due primarily to weather-related
shifts in planting schedules and purchase patterns. We incur substantial
expenditures for fixed costs throughout the year and substantial expenditures
for inventory in advance of the spring planting season. We cannot assure you
that these seasonal trends will not have a material adverse effect on our
business, operating results or financial condition.
POOR WEATHER CONDITIONS IN ADVANCE OF AND DURING THE SPRING PLANTING SEASON CAN
LEAD TO A DECLINE IN OUR REVENUES.
Weather can have an impact on our business, especially if weather-related
problems occur during our compressed primary planting season between March and
June. Weather-related problems can also have an effect on our fertilizer and
crop protection products volume if farmers are forced to abandon, defer or
change their planting intentions. Grain stocks are, in turn, directly influenced
by weather conditions and worldwide production and consumption.
In 1998, abnormally poor weather conditions in advance of and during the
spring planting season hit virtually all of the major farming regions. El Nino
caused unusually high amounts of precipitation (up to 172% increase over normal
levels in some areas of the U.S. Cornbelt) in our target markets immediately
prior to and throughout the spring planting season. As a result, farmers were
forced to either abandon or delay their planting, which led to lower use of crop
production inputs during the shortened planting season.
THE COLLATERAL SECURING OUR OBLIGATIONS TO REPAY THE FIRST MORTGAGE NOTES IS
LIMITED TO SOME OF OUR REAL PROPERTY WHICH MAY HAVE DEFECTS IN THEIR TITLE.
The first mortgage notes are secured by two types of property interests:
(a) first mortgage liens on seventeen of our principal facilities owned by us
and our subsidiaries, and (b) a pledge of all the membership interests in four
limited liability companies that own or will own approximately 280 other
properties used in our business, including substantially all of the owned
Farmarket retail facilities. The real property and other related assets are
described under "Description of First Mortgage Notes -- Security."
The following risks exist for the seventeen mortgaged properties:
o For each, a title insurance policy insures against losses due to all
mechanics liens and all past tax liens, but does not insure against
losses due to future tax liens which will have priority over the mortgage
and could be foreclosed, unless revenues are available to pay taxes when
due.
o The Marseilles, Illinois title may be affected by an unreleased indenture
of trust in the amount of $1,050,000. We believe that this debt was paid
in full, but have not yet been able to identify the last holder of the
debt in order to obtain a release.
o The properties in Marseilles, Illinois, Columbus, Ohio and Hartsville,
South Carolina are affected by title defects not typical of a first
mortgage financing. These involve possible claims against title by third
parties that could, at worst, result in the loss of portions (but not
all) of the sites, and the need to relocate any improvements that
encroach over redefined property lines. None of these claims is now in
litigation.
o For eleven of the seventeen properties, although the title insurance
policy insures zoning compliance, our improvements are legally
non-conforming. That is, they are not in compliance with zoning but may
continue uncorrected because they pre-date the zoning
16
<PAGE>
code. If they are destroyed by a casualty, we may not be permitted to
restore these improvements in the same location.
The following risks exist for the 280 properties owned by the limited
liability companies:
o At the close of the acquisition of AgriBusiness, we did not complete the
transfer of all of these properties to the limited liability companies
because we had not received title reports for fifty of the AgriBusiness
properties and sixty-five of the Royster-Clark properties. Based on the
title reports subsequently received, we are preparing instruments to
properly convey all of these properties to the limited purpose companies.
We and the seller of AgriBusiness have agreed to use best efforts to
complete the transfer of these properties to the limited liability
companies as soon as possible. There is a risk that the seller of
AgriBusiness will not fulfill its obligation, but it has agreed to a
limited indemnity in favor of the holders of the first mortgage notes for
its failure to properly convey its properties.
o The title reports for many of these properties show outstanding liens,
encumbrances and defects in title. Some of these are material in relation
to the value of the affected site, but none is material in relation to
the entire group of properties. We are working to remove or correct all
of these problems that we deem material, including requiring the seller
of AgriBusiness to correct problems affecting the AgriBusiness
properties. The seller of AgriBusiness has agreed to a limited indemnity
in favor of the holders of the first mortgage notes for losses resulting
from a failure to clear title to the fifty AgriBusiness properties.
THE PROCEEDS FROM THE SALE OF THE COLLATERAL MAY NOT BE SUFFICIENT TO MAKE ALL
PAYMENTS DUE UNDER THE FIRST MORTGAGE NOTES.
We have made no representation as to the value or sufficiency of the
collateral securing the first mortgage notes. Accordingly, we cannot assure you
that the proceeds from the sale of any of the collateral upon the collateral
agent's exercise of remedies following an event of default under the first
mortgage notes will be sufficient to redeem the required principal amount of the
first mortgage notes. In addition, the lenders under our senior secured credit
facility are secured by a first lien on all of our accounts receivable,
inventory, general intangibles and all of our and our subsidiaries' other
assets. Accordingly, the lenders have a prior right in payment to the proceeds
of the sale of any of their collateral. If the proceeds from a sale of the
collateral are not sufficient to make all payments due under the first mortgage
notes, the holders of the first mortgage notes will have only senior unsecured
claims against us.
YOU WILL NOT HAVE CONTROL OF OR THE RIGHT TO CONTROL THE COLLATERAL SECURING THE
FIRST MORTGAGE NOTES IN THE EVENT WE OR OUR CREDITORS COMMENCE BANKRUPTCY.
The right of the collateral agent to repossess and dispose of the
collateral upon acceleration of the first mortgage notes is likely to be
significantly impaired by bankruptcy law if a bankruptcy proceeding were to be
commenced by or against us prior to or possibly even after the collateral agent
has repossessed and disposed of the collateral. Under the bankruptcy code, a
secured creditor such as the collateral agent is prohibited from repossessing
its security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover,
bankruptcy law generally permits the debtor to continue to return and to use
collateral, and the proceeds, products, rents or profits of such collateral,
even though the debtor is in default under the applicable debt instruments,
provided generally that the secured creditor is given "adequate protection."
There is not a definition of the term "adequate protection" and because of the
broad discretionary powers of a bankruptcy court, it is impossible to predict
how long payments under the first mortgage notes could be delayed following
commencement of a bankruptcy case, whether or when the trustee would repossess
or dispose of the collateral or whether or to what extent holders of the first
mortgage notes would be compensated for any delay in payment or loss of value of
the collateral through the requirements of "adequate protection." Furthermore,
in the event the bankruptcy court determines that the value of the collateral is
not
17
<PAGE>
sufficient to repay all amounts due on the first mortgage notes, the holders of
the first mortgage notes would have "undersecured claims." Federal bankruptcy
laws do not permit the payment and/or accrual of interest, costs and attorneys'
fees for "undersecured claims" during the debtor's bankruptcy case.
AS A SECURED LENDER, YOU MAY BE SUBJECT TO CLAIMS AND LIABILITIES UNDER SOME
ENVIRONMENTAL LAWS AND REGULATIONS.
Lenders that hold a security interest in real property may, in some
circumstances, be held liable under certain environmental laws for the costs of
remediating or preventing releases or threatened releases of hazardous
substances at the mortgaged property. While lenders that neither foreclose on
nor participate in the management of a mortgaged property generally have not
been subject to such liability, lenders that take possession of a mortgaged
property or that participate in the management of a mortgaged property must
carefully adhere to federal and state rules to avoid liability. In this regard,
the collateral agent, the trustee or the holders of the first mortgage notes
would need to evaluate the impact of these potential liabilities before
determining to foreclose on the mortgaged properties securing the first mortgage
notes and exercising other available remedies. In addition, the collateral agent
or the trustee, as the case may be, may decline to foreclose upon the mortgaged
properties or exercise remedies available to the extent that they do not receive
indemnification to their satisfaction from the holders of the first mortgage
notes. See "Description of First Mortgage Notes -- Security."
DOWNTURNS IN THE NITROGEN INDUSTRY OR CHANGES IN END USER MARKET DEMANDS COULD
REDUCE THE VALUE OF OUR BUSINESS.
In the recent past, nitrogen fertilizer prices have been volatile with
price changes from one growing season to the next. Nitrogen fertilizer is a
global commodity and can be subject to intense price competition from domestic
and foreign sources. The profitability of the nitrogen fertilizer products we
sell at retail and wholesale, and of our nitrogen manufacturing operations, are
dependent on the nitrogen fertilizer cycle. In 1998, we generated about $68
million of revenue from our own manufactured nitrogen products that contributed
approximately $14 million to our earnings before interest, taxes, depreciation
and amortization. This revenue and income stream would be put directly at risk
by further decreases in nitrogen prices.
We believe that the nitrogen fertilizer industry is currently at a cyclical
low which has resulted primarily from the following three factors. First, the
introduction of new nitrogen plants in 1998 resulted in nitrogen supply being in
excess of demand. Second, since May 1997, China, the largest consumer of
nitrogen fertilizer, significantly decreased purchasing nitrogen products in the
international markets. Third, as a result of the financial crisis in the former
Soviet Union, nitrogen producers have been selling products in the international
market at below market prices in an effort to get hard currency.
OUR OPERATIONS ARE SUBJECT TO RISKS THAT MAY RESULT IN LIABILITY FOR POLLUTION
AND OTHER DAMAGE NOT COVERED BY INSURANCE OR WHICH EXCEED OUR INSURANCE
COVERAGES.
In addition to pollution and other environmental risks discussed further
below, we are subject to risks inherent in the nitrogen industry, such as
explosions, fires and chemical spills or releases. Any significant interruption
of operations at our principal nitrogen facilities could adversely affect us.
Although we maintain general liability insurance and property and business
interruption insurance, because of the nature of industry hazards, it is
possible that liabilities for pollution, property and equipment damages or
liabilities resulting from injury or loss of life arising from a major
occurrence may not be covered by our insurance policies or could exceed
insurance coverages or policy limits. Also, insurance may not be available at
reasonable rates in the future.
18
<PAGE>
WE ENTERED INTO A LONG-TERM SUPPLY CONTRACT WITH IMC GLOBAL IN CONNECTION WITH
THE ACQUISITION OF AGRIBUSINESS, AND THE INABILITY OR ANY DELAY OF IMC GLOBAL OR
ANY OTHER SUPPLIER TO MEET THEIR OBLIGATIONS COULD DISRUPT OUR OPERATIONS.
We are dependent upon third party suppliers for most of the materials used
in our business. We have entered into a long-term, ten year, supply contract
with two divisions of IMC Global to purchase the levels of phosphate and potash
historically delivered to AgriBusiness. We purchase the nitrogen we do not
produce ourselves from several different suppliers in the U.S. Any delay or
extended interruption in the supply of any of these materials or changes in
pricing arrangements with our suppliers could disrupt our operations by
requiring us to purchase our materials from other suppliers at higher prices.
OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE THE
VALUE OF AN INVESTMENT IN OUR COMPANY.
We operate in a highly competitive industry, particularly with respect to
price and service. Our principal competitors in the distribution of crop
production inputs include agricultural cooperatives, which have the largest
market share in a majority of the locations we serve, national fertilizer
producers, major grain companies and independent distributors and brokers. Some
of these have greater financial and marketing resources than we do and can
better withstand adverse economic or market conditions. In addition, as a result
of increased pricing pressures, we may in the future experience reductions in
the profit margins on sales, or may be unable to pass future material price
increases on to our customers, which would also reduce profit margins.
OUR SUCCESS DEPENDS ON A LIMITED NUMBER OF KEY EXECUTIVES AND WE MAY NOT BE ABLE
TO ADEQUATELY REPLACE ANY ONE OF THOSE EXECUTIVES WITH QUALIFIED INDIVIDUALS IN
THE EVENT OF THE LOSS OF A KEY EXECUTIVE.
We believe that the success of our business strategy and our ability to
operate profitably depend on the continued employment of our senior management
team. The loss of the services of some of these key executives could have a
material adverse effect on us. While our chief executive officer has an
employment contract, and we expect to enter into employment contracts with other
key employees, we cannot assure you that in the future we will be able to retain
our existing senior management, attract additional qualified executives or fill
new senior management positions or vacancies created by expansion or turnover.
GOVERNMENT REGULATION AND AGRICULTURAL POLICY MAY AFFECT OUR FINANCIAL
VIABILITY.
Existing and future government regulations and laws may greatly influence
how we operate our business, our business strategy and, ultimately, our
financial viability. Existing and future laws may impact the amounts and
locations of fertilizer application. The federal Clean Water Act and the
equivalent state and local water pollution control laws are designed to protect
water quality. The application of fertilizer has been identified as a
significant source of water pollution and is currently regulated and may be more
closely regulated in the future. This regulation may lead to decreases in the
quantity of fertilizer applied to crops. The application of fertilizers can also
result in the emissions of nitrogen compounds and particulate matter to the air.
Compliance with future requirements to limit these emissions under the federal
Clean Air Act and state equivalents may affect the quantity of fertilizer used.
U.S. governmental policies may directly or indirectly influence the number
of acres planted, the level of grain inventories, the mix of crops planted, crop
prices and the amounts of and locations where fertilizers may be applied. We
cannot predict the future regulatory framework of our business.
WE MAY BE SUBJECT TO CLAIMS AND LIABILITIES UNDER ENVIRONMENTAL HEALTH AND
SAFETY LAWS AND REGULATIONS.
As a producer and distributor of crop production inputs, we must comply
with federal, state and local environmental, health and safety laws and
regulations. These regulations govern our operations and our current and former
use, storage, handling, discharge and disposal of a variety of substances. Under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, we could be held jointly and severally responsible for the removal and
remediation of any hazardous substance contamination at our facilities, at
neighboring properties that migrated from our facilities and at third party
waste disposal sites. We could also be held liable for any consequences arising
out of human exposure to such substances or other environmental damage. We may
incur substantial costs to comply with these environmental, health and safety
law requirements. We may also incur substantial costs for liabilities arising
from past releases of, or
19
<PAGE>
exposure to, hazardous substances. In addition, we may discover currently
unknown environmental problems or conditions. We cannot assure you that the
continued compliance with environmental laws, the discovery of currently unknown
environmental problems or conditions, changes in environmental, health and
safety laws and regulations or other unanticipated events will not give rise to
claims that may involve material expenditures or liabilities by us.
WE COULD SUFFER YEAR 2000 PROBLEMS THAT COULD DISRUPT OUR OPERATIONS.
Our business, financial condition and results of operations may be
adversely impacted by information technology issues related to the Year 2000. We
have completed our assessment of Year 2000 readiness of our information
technology computer hardware and software and non-information technology
equipment and systems. We are currently in the process of upgrading some of our
hardware, software and equipment systems, and we believe that the planned
improvements will result in these systems being substantially Year 2000 ready.
However, we currently do not have formal contingency plans in place if we do not
complete our Year 2000 improvements, or the improvements fail to make our
systems Year 2000 ready. We may not be successful in implementing Year 2000
solutions at a cost that does not materially adversely affect our business,
financial condition and results of operations. Any failure on our part to have
Year 2000 compliant programs and systems in place in a timely manner could
disrupt our operations.
There is uncertainty about the broader scope of the Year 2000 issue as it
may affect third parties, including our suppliers and vendors, which are
critical to our operations. In the event our suppliers and vendors do not have
Year 2000 compliant programs and systems in place, our operations could also be
disrupted.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
WE MAY NOT HAVE SUFFICIENT FUNDS NECESSARY TO FINANCE A CHANGE OF CONTROL OFFER.
Upon the occurrence of some specific kinds of change of control events, we
will be required to offer to repurchase all outstanding first mortgage notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase of first mortgage notes or
that restrictions in our senior secured credit facility will not allow such
repurchases. In addition, some important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a change of control under the indenture. See "Description of First
Mortgage Notes -- Repurchase at the Option of Holders."
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
o received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; or
o was insolvent or rendered insolvent by reason of such incurrence; or
o was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
o intended to incur, or believed that it would incur, debts beyond its
ability to pay the debts as they mature.
In addition, any payment by that guarantor as required by its guarantee
could be voided and required to be returned to the guarantor, or to a fund for
the benefit of the creditors of the guarantor.
20
<PAGE>
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
o the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
o if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of the first mortgage notes, will not be insolvent, will not have
unreasonably small capital for the business in which it is engaged and will not
have incurred debts beyond its ability to pay the debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
such determinations or that a court would agree with our conclusions in this
regard.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING PUBLIC MARKET WILL DEVELOP FOR THE
EXCHANGE FIRST MORTGAGE NOTES CAUSING DIFFICULTIES FOR YOU IF YOU TRY TO RESELL
THE EXCHANGE FIRST MORTGAGE NOTES.
The existing first mortgage notes are currently eligible for trading in the
PORTAL market. The exchange first mortgage notes are new securities for which
there is no established market. We do not intend to list the exchange first
mortgage notes on any national securities exchange or to seek their admission to
trading in the Nasdaq National Market System. The initial purchasers have
advised us that they intend to make a market in the exchange first mortgage
notes (and the existing first mortgage notes), but they are not obligated to
make this market and even if they do they may decide not to in the future.
The liquidity of and the trading market for the exchange first mortgage
notes depends upon the number of holders of the exchange first mortgage notes,
our performance, the market for similar securities, the interest of securities
dealers in making a market in the exchange first mortgage notes, and other
factors. As a result, we cannot assure you as to the development of a liquid
trading market for the exchange first mortgage notes.
21
<PAGE>
THE TRANSACTIONS
We offered the first mortgage notes as part of the financing for a series
of transactions which resulted in members of our current management and 399
Ventures owning Royster-Clark and the AgriBusiness unit of IMC Global, Inc.
Our management and 399 Ventures formed a new company, now known as
Royster-Clark Group, Inc. This company acquired all of the outstanding stock and
stock options of Royster-Clark for approximately $55.6 million, including durect
costs of the acquisitions from its stockholders, including one of its largest
stockholders, Terra International, Inc. Royster-Clark acquired all of the
outstanding stock of IMC AgriBusiness Inc., Hutson's AG Service, Inc. and IMC
Nitrogen Company from IMC Global, Inc. for approximately $265.5 million,
including direct costs of the acquisition. These three IMC entities are referred
to as "AgriBusiness."
In connection with the acquisitions of AgriBusiness and Royster-Clark, 399
Ventures purchased two 4 1/2% convertible subordinated debentures in an
aggregate principal amount of $22.2 million from us on March 31, 1999. These
debentures were contributed by 399 Ventures to the capital of Royster-Clark
Group and in turn contributed by Royster-Clark Group back to us at the closing
of this financing.
In addition, we effected a number of transactions involving holders of our
stock and stock options:
o we redeemed 2,498 shares of stock from a group of stockholders who did not
wish to be continuing investors in Royster-Clark Group for an aggregate
amount of approximately $712,000;
o we redeemed 23,677 common-equivalent shares of our stock held by Mr.
Jenkins for an aggregate amount of approximately $6.8 million;
o we redeemed 5,385 shares of our stock from some stockholders, including
Messrs. Moshenek, Vance and Abood, who wished to remain investors in
Royster-Clark Group for an aggregate amount of approximately $1.5 million;
and
o some members of management who had options to acquire our common stock,
including Messrs. Moshenek, Vance and Abood, elected to exchange their
options for options issued under Royster-Clark Group's 1999 restricted
stock purchase plan.
We also effected a reverse stock split that resulted in cash payments in
lieu of fractional share interests to holders of existing stock options who did
not elect to exchange their options for options in Royster-Clark Group and to
our employee stock ownership plan in aggregate amounts of approximately $649,000
and $2.9 million, respectively. Overall, in connection with the transactions,
Messrs. Jenkins, Moshenek, Vance and Abood each received, or have the right to
receive upon exercise of options, approximately $6.8 million, $42,000, $22,000
and $276,000 in cash, respectively, and $17.5 million, $1.2 million, $335,000
and $1.5 million in securities of our parent, respectively.
399 Ventures invested a total of $59.0 million in Royster-Clark Group
through the purchase of shares of common stock, preferred stock and notes. As a
result of these transactions, Mr. Jenkins, 399 Ventures and some other members
of our management team own all of the stock of Royster-Clark Group which owns
the combined operations of Royster-Clark and AgriBusiness. Management, including
Mr. Jenkins, now owns approximately 20% of our stock and has the right to
acquire an additional 8% through a new stock purchase plan.
The total transaction costs incurred approximate $403.5 million, consisting
of $315.1 million to purchase AgriBusiness and Royster-Clark, $67.8 million to
refinance existing debt and $20.6 million of estimated transaction fees and
expenses. These costs were financed with:
o approximately $114.9 million of borrowings under the senior secured
credit facility,
o $200.0 million of first mortgage notes, and
o an equity investment of $88.6 million from Royster-Clark Group.
Royster-Clark Group financed this equity investment with:
o $59.0 million of cash financing from 399 Ventures,
o $10.0 million of non-cash pay junior subordinated notes purchased by IMC
Global, and
o $19.6 million of rollover equity contributed by some of the members of
our management, including Mr. Jenkins more fully described below.
The $59.0 million from 399 Ventures consisted of:
o $47.4 million of equity contributed by 399 Ventures in the form of
non-cash pay preferred stock,
o $1.6 million contributed by 399 Ventures in the form of common equity,
and
o $10.0 million of non-cash pay junior subordinated notes purchased by 399
Ventures.
Some of the members of Royster-Clark management contributed $19.6 million in
rollover equity which consisted of:
o $14.7 million of non-cash pay preferred stock,
o $4.5 million of zero preferred stock and
o $0.4 million of common equity.
The acquisitions of Royster-Clark and AgriBusiness, the financing and all
related transactions are collectively referred to as "The Transactions." For
more information on the Transactions, see "Use of Proceeds," "Certain
Relationships and Related Transactions," and "Security Ownership of Certain
Beneficial Owners."
22
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the exchange first mortgage notes, we will receive the existing
first mortgage notes in like principal amount in exchange. The existing first
mortgage notes surrendered in exchange for exchange first mortgage notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
exchange first mortgage notes will not result in any increase in our
indebtedness. We have agreed to bear the expenses of the exchange offer. No
underwriter is being used in connection with the exchange offer.
The net proceeds we received from the sale of the existing first mortgage
notes were approximately $190.8 million after deducting discounts and expenses.
We used the gross proceeds from the sale of $200 million, together with $114.9
million of borrowings under the senior secured credit facility and $88.6 million
of equity financing from our parent:
o to pay $315.1 million to consummate the acquisitions of AgriBusiness and
Royster-Clark,
o to refinance existing debt of Royster-Clark of $67.8 million and
o to pay $20.6 million in transaction fees and expenses.
The existing debt that we refinanced in connection with the Transactions
consisted of the following:
o $51.5 million outstanding under our line of credit note with U.S. Bancorp
Ag Credit, Inc. Interest under the line of credit note was payable
monthly at a fluctuating rate equal to the reference rate as quoted by
the U.S. Bank National Association, Minneapolis, Minnesota, plus a
quarter of one percent (0.25%).
o $14.6 million outstanding under a bank term loan bearing interest monthly
at prime plus 0.75%.
o $1.4 million outstanding under a non-negotiable promissory note due to
Weaver Fertilizer Company, Inc.
o $0.3 million owed on a mortgage note payable to a bank.
23
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999 our unaudited
consolidated cash, cash equivalents and capitalization to give effect to the
offering and the application of the net proceeds received. See "Use of
Proceeds." You should read this table along with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Selected Historical
Financial Data" and our unaudited consolidated financial statements and the
related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents..................................................................... $ 422
=========
Long-term debt (including current portion):
Senior secured credit facility(1)........................................................... 98,848
First Mortgage Notes due 2009............................................................... 200,000
Other long-term debt........................................................................ 7,257
---------
Total long-term debt..................................................................... 306,100
Stockholders' equity.......................................................................... 117,327
---------
Total capitalization.......................................................................... $ 423,427
=========
</TABLE>
- ------------------
(1) The facility provides for up to $275.0 million in borrowings, subject to
availability.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables provide selected historical financial and other data
of Royster-Clark and AgriBusiness for each of the years in the five-year period
ended December 31, 1998, and for each of the three month periods ended March 31,
1998 and 1999 which have been derived from the financial statements of
Royster-Clark and AgriBusiness, respectively. The financial statements of
Royster-Clark were audited by KPMG LLP for fiscal years 1996, 1997 and 1998. The
financial statements of AgriBusiness were audited by Ernst & Young LLP for
fiscal years 1996, 1997 and 1998. The selected financial data of Royster-Clark
for 1994 and 1995 and March 31, 1998 and 1999 and AgriBusiness for 1994 and 1995
and March 31, 1998 and 1999 are derived from unaudited financial statements of
the companies, which have been prepared by the companies on a basis consistent
with the audited financial statements appearing elsewhere in this prospectus
and, in the opinion of management, include all normal and recurring adjustments
necessary for a fair presentation of such data. The following information should
be read with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the historical and unaudited pro forma financial
statements of Royster-Clark and AgriBusiness and related notes included
elsewhere.
The following table sets forth summary selected historical financial and
other data of Royster-Clark, Inc., Old Royster-Clark and AgriBusiness for each
of the years in the five-year period ended December 31, 1998, and the three
months ended March 31, 1998 and 1999.
<TABLE>
<CAPTION>
Three
Months
Ended
June 30,
Royster-Clark, Inc. 1999
- ----------------------------------------- ------------
<S> <C>
INCOME STATEMENT DATA:
Net sales.............................. 492,608
Gross profit........................... 96,015
Operating income....................... 55,219
Net earnings........................... 28,728
OTHER DATA:
EBITDA(a).............................. 61,081
Depreciation and amortization.......... 5,862
Capital expenditures................... 4,292
Ratio of earnings to fixed
charges(2)........................... 6.5x
<CAPTION>
At
June 30,
1999
--------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. 422
Working capital........................ 209,491
Total assets........................... 560,463
Long-term debt......................... 303,520
Stockholder's equity................... 117,327
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------------------------------- --------------------
OLD ROYSTER-CLARK 1994 1995 1996 1997 1998 03/31/98 03/31/99
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $196,391 $207,552 $222,933 $227,613 $218,672 $ 41,284 $ 53,487
Gross profit.................... 26,714 28,504 33,280 34,996 33,026 6,971 9,445
Operating expenses.............. 21,957 18,933 21,836 23,215 24,482 4,909 7,221
Operating income................ 4,757 9,571 11,444 11,781 8,544 2,062 2,224
Net earnings.................... 450 2,404 3,814 4,331 1,832 495 366
OTHER DATA:
EBITDA(1)....................... 7,031 11,741 13,615 14,086 11,222 2,673 2,942
Depreciation and amortization... 2,274 2,170 2,171 2,305 2,678 611 718
Capital expenditures............ 1,027 1,977 1,442 2,029 2,145 1,021 964
Ratio of earnings to fixed
charges (2)................... 1.07 1.72 2.15 2.33 1.47 1.61 1.33
</TABLE>
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, MARCH 31,
------------------------------------------------------ ---------
1994 1995 1996 1997 1998 1999
------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 28 $ 28 $ 28 $ 29 $ 42 $62,312
Working capital............................... 6,754 7,372 14,514 26,253 30,726 30,226
Total assets.................................. 82,728 85,924 83,547 96,065 120,397 173,407
Long-term debt, less current portion.......... 9,685 8,701 12,600 23,025 33,817 65,760
Redeemable preferred stock.................... 14,250 14,250 12,000 12,000 12,000 12,000
Common stock subject to ESOP put option....... 1,443 1,647 1,715 1,861 1,864 1,864
Stockholder's equity.......................... 6,536 7,465 11,505 14,745 15,153 15,219
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------------------------------- --------------------
IMC AGRIBUSINESS 1994 1995 1996 1997 1998 03/31/98
- ---------------------------------- -------- -------- -------- -------- -------- --------
03/31/99
--------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $707,400 $807,700 $797,800 $872,600 $787,000 $140,300 $127,600
Gross profit.................... 113,500 145,900 153,900 163,700 127,800 18,800 12,800
Operating expenses.............. 86,600 93,900 118,400 120,100 103,300 26,300 27,800
Operating income (loss)......... 26,900 52,000 35,500 43,600 24,500 (7,500) (15,000)
Net earnings (loss)............. 15,900 24,900 12,800 18,800 5,300 (5,300) (10,600)
Other Data:
EBITDA(1)....................... 41,800 70,300 52,900 64,400 47,800 (1,900) (8,900)
Depreciation and amortization... 14,900 18,300 17,400 20,800 23,300 5,600 6,100
Capital expenditures............ 19,300 23,200 23,000 27,800 30,100 6,400 5,700
Ratio of earnings (loss) to
fixed charges(2).............. 3.37 3.92 2.49 2.96 1.46 (1.70) (3.74)
</TABLE>
For the three months ended March 31, 1998 and 1999, earnings were
inadequate to cover fixed charges by $9,847 and $18,200, respectively.
<TABLE>
<CAPTION>
AT MARCH
AT DECEMBER 31, 31,
-------------------------------------------------------- ---------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 8,800 $ 6,200 $ 2,800 $ 5,400 $ 6,100 $ --
Working capital............................ 141,200 174,800 165,900 165,900 141,800 128,100
Total assets............................... 359,100 406,500 417,100 464,300 440,300 507,200
Long-term debt, less current portion 12,400 9,800 10,700 4,600 4,600 4,600
IMC Global investment (3).................. 220,700 272,200 285,900 338,400 317,800 303,100
</TABLE>
- ------------------
(1) EBITDA represents operating income (loss) plus depreciation and
amortization. While EBITDA should not be construed as a substitute for
operating income or a better indicator of liquidity than cash flow from
operating activities, which are determined in accordance with GAAP, it is
included herein to provide additional information with respect to our
ability to meet our future debt service, capital expenditure and working
capital requirements. In addition, we believe that some investors find
EBITDA to be a useful tool for measuring our ability to service our debt.
EBITDA is not necessarily a measure of our ability to fund our cash needs.
(2) The ratio of earnings (loss) to fixed charges is computed by adding fixed
charges to earnings (loss) before income taxes and dividing that sum by the
fixed charges. Fixed charges consist of interest (including amortization
costs) and a portion of rent expense that management considers to be
interest.
(3) IMC Global investment represents Global's net investment in AgriBusiness and
includes intercompany amounts due to Global.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read along with the audited
financial statements of Royster-Clark and AgriBusiness, including the related
notes, contained elsewhere in this prospectus. In this discussion and analysis,
the word "Royster-Clark" refers only to Royster-Clark, Inc. and not to any of
its subsidiaries. Prior to the transactions described in this prospectus,
Royster-Clark was operated as a stand-alone company and AgriBusiness was
operated as a subsidiary of IMC Global. As described under "The Transactions,"
Royster-Clark and AgriBusiness were combined in the transactions described in
this prospectus. As a result, the historical financial information included in
this prospectus does not necessarily reflect what our financial position and
results of operations would have been had each company been operated as a
combined company during the periods presented. The offering and the transactions
described in this prospectus will prospectively affect our results of operations
and financial position in significant respects.
GENERAL
We are the largest independent retail and wholesale distributor of
fertilizer, seed, crop protection products and agronomic services. We supply a
full range of products and services to our retail and wholesale customers
through 400 facilities consisting of retail farm centers, granulation, blending
and seed processing plants, and an integrated network of storage and
distribution terminals and warehouses. In addition, we operate two nitrogen
manufacturing plants that produce nitrogen-based fertilizer that supply our
distribution business with nitrogen fertilizer products from natural gas and
ammonia.
As a distributor of products, we realize a profit margin on the products
that we supply on a retail or wholesale basis to our customers. However, our
business is affected by a number of factors, including weather conditions and
prevailing prices for fertilizer and other crop production inputs.
Weather conditions can significantly impact our results of operations.
Adverse weather conditions during the planting seasons may force farmers to
either abandon or delay their planting, which may lead to lower use of
fertilizer, seed and crop protection products. During the 1998 spring planting
season, weather conditions were extremely poor due to the El Nino phenomenon
which caused unusually high amounts of precipitation in our target markets
leading to extremely wet field conditions.
Another factor affecting our business is the price for fertilizers. We
purchase nitrogen, phosphate and potash and resell these crop nutrients in
either their original form or after processing into blended and granulated
fertilizer products. Prices for phosphate and potash have been relatively stable
over the past several years. Nitrogen fertilizer prices have exhibited far more
volatility as the balance of supply and demand has a direct impact on products
such as ammonia, urea, ammonium nitrate and nitrogen solutions. In 1995, the
nitrogen industry reached a peak in the latest nitrogen price cycle and began to
decline during 1996. By the end of 1998, nitrogen prices reached their lowest
levels in over ten years. This decline in nitrogen prices is primarily the
result of recent capacity additions, a lack of demand from China, the largest
consumer of nitrogen fertilizer, and economic uncertainty associated with
production coming out of the former Soviet Union, as many producers are selling
at prices below the current market in order to obtain hard currency. Since most
of the fertilizer products we sell include some nitrogen, our net sales are
impacted by the prevailing market price of nitrogen fertilizer. We sell most of
our fertilizer products based on a margin above our raw material input prices.
As a result, as market prices decline in response to prevailing global pricing
conditions, the gross profit margin we realize on each ton sold declines. In
addition, the profitability of our two nitrogen manufacturing plants are
directly impacted by the level of nitrogen prices.
28
<PAGE>
We have been working to combine and integrate the operations of
Royster-Clark and AgriBusiness. Our management plans to implement strategies
that have proven successful in the past, such as the use of teams to organize
field sales, an incentive structure based on return on assets and appropriate
information technology systems. We have identified $14.6 million of annualized
concrete cost savings and synergies which can be achieved as the result of the
merger of Royster-Clark and AgriBusiness. We intend to achieve these cost
savings and synergies by:
o closing and combining locations;
o eliminating redundant senior management and administrative staff;
o streamlining sales management through team approach; and
o managing employee benefits more effectively.
We believe additional savings can be achieved starting in 2000 by:
o reducing equipment rental and operation expenses by changing the
equipment and vehicle replacement cycle and
o improving the margins on crop protection products by using the increased
buying power of our new combined company.
ROYSTER-CLARK -- RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999
The following commentary on our results for the three months ended June 30,
1999 contains comparisons with the same period in 1998. The comparisons being
made are with numbers that we have developed for 1998 by aggregating the
unaudited results for Royster-Clark, Inc. and IMC Agribusiness which were
operating separately at that time under different ownership, using different
accounting practices and operating with different capital structures. We believe
that, in spite of these inconsistencies, these unaudited comparative numbers
provide useful insight into our operating results during the three months ended
June 30, 1999.
Net Sales: Our revenues for the three months ended June 30, 1999 totaled
$492.6 million compared with $555.2 million for the same period in 1998 -- a
decrease of $62.6 million or 11.3%. This decrease in revenue was the net of
several factors that are summarized in the following table:
<TABLE>
<CAPTION>
AMOUNT
DESCRIPTION (IN MILLIONS)
----------- -------------
<S> <C>
Approximate revenue impact of net deflation in our product mix, which we calculate to be
approximately 5% compared to the prior year............................................. (27.3)
Approximate revenue impact of gross margin improvements, which we estimate to have been
about 1.1% of revenue................................................................... 5.4
Actual revenue contribution made by our newly acquired Lebanon outlets, which were not
part of our company in the second quarter of 1998....................................... 27.7
Actual 1998 revenue from certain customers that were served by IMC Agribusiness in 1998
but transferred to IMC Global before the acquisition.................................... (12.3)
Approximate revenue loss from reductions in physical volumes sold compared with the same
period in 1998.......................................................................... (56.1)
-----
Total decrease in revenues in the three months ended June 30, 1999 compared with the
three months ended June 30, 1998..................................................... (62.6)
=====
</TABLE>
As noted in the table above, we experienced a significant decline in the
volume of products sold. We attribute that decline primarily to the poor market
conditions encountered during the three months ended June 30, 1999. In
addition, our efforts to improve gross margins had a negative effect on volumes.
Finally, with farmers experiencing financial pressures, credit concerns have
also reduced volumes.
29
<PAGE>
Gross profit: Cost of goods sold for the three months ended June 30, 1999
totaled $396.6 million compared with $453.5 million for the same period in 1998,
a decrease of $56.9 million or 12.6%. This decrease reflects the same elements
as the revenue decrease described above. As a percent of revenues, the gross
profit level of 19.5% improved significantly from 18.3% in 1998 contributing
approximately $5.4 million to our gross profits. This improvement in the gross
profit rate is equivalent to $29.9 million in revenues at last year's gross
profit rate. This greatly mitigates the effect of the physical volume decrease
described above such that gross profits of $96.0 million were reduced by only
$5.6 million (5.5%) from the same period in 1998 in spite of the revenue
decrease.
Operating Expenses: Operating expenses for the three months ended June 30,
1999 totaled $40.8 million versus $40.5 million for the same period in 1998, an
increase of $0.3 million or 0.7%. Excluding expenses incurred at the newly
acquired Lebanon locations ($2.1 million) and the effect of $3.0 million of
one-time, non-recurring adjustments made at Agribusiness in June 1998, sales,
general and administrative expenses decreased by $4.8 million or 10.9%.
Net income and EBITDA: Net earnings for the three months ended June 30,
1999 totaled $28.7 million compared with $34.3 million in 1998. Comparisons of
net earnings with the aggregated numbers from 1998 are of limited utility
because of changes in capital structures and asset valuations arising from the
re-organization and acquisition of Agribusiness. However, Earnings Before Taxes,
Interest, Depreciation and Amortization (EBITDA) are not directly affected by
these changes and are, therefore, more useful in analyzing our profitability.
EBITDA for the three months ended June 30, 1999 totaled $61.1 million compared
with $67.1 million for the same period in 1998 a decrease of $6.0 million or
8.9%. This decrease is attributable to the revenue decrease described above,
partially offset by improved margins and reduced expenses.
As a ratio to revenues, EBITDA was 12.4% for the three months ended June
30, 1999 compared with 12.1% for the same months in 1998.
OLD ROYSTER-CLARK
We operate predominantly in the Southeast. We operate a network of
approximately 120 retail farm centers, including approximately 30 commission
sales stores, supported by seven granulation and major blend plants and five
storage and distribution facilities.
COMPLETED ACQUISITIONS
On December 14, 1998, we acquired substantially all of the property, plant,
equipment, inventories and accounts receivable of the division of Lebanon
Chemical Corporation known as Lebanon Agricorp, which owned and operated
fertilizer retail and wholesale outlets as well as distribution and storage
facilities primarily in Maryland, Virginia, Delaware and North Carolina. The
total purchase price paid for the acquired assets of Lebanon Agricorp was
approximately $21 million. In addition to the cash purchase price, Royster-Clark
assumed liabilities of Lebanon Agricorp arising under specific contracts. We
recorded the acquisition using the purchase method of accounting. The
acquisition cost for the purchase was allocated on the basis of the estimated
fair value of assets acquired and liabilities assumed.
30
<PAGE>
RESULTS OF OPERATIONS -- OLD ROYSTER-CLARK
The following table provides information regarding Royster-Clark's
statement of operations as a percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales........................................................................ 100.0% 100.0% 100.0%
Cost of goods sold............................................................... 85.1 84.6 84.9
----- ----- -----
Gross profit..................................................................... 14.9 15.4 15.1
Operating expenses............................................................... 9.8 10.2 11.2
----- ----- -----
Operating income................................................................. 5.1 5.2 3.9
Interest expense................................................................. 2.2 2.1 2.5
----- ----- -----
Income before tax................................................................ 2.9 3.1 1.4
Income tax expense............................................................... 1.2 1.2 0.6
----- ----- -----
Net income....................................................................... 1.7% 1.9% 0.8%
===== ===== =====
EBITDA........................................................................... 6.1% 6.2% 5.1%
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales. Royster-Clark's net sales were $218.7 million for 1998 compared
to $227.6 million for 1997, a decrease of $8.9 million or 3.9%. Fertilizer sales
declined $9.0 million, or 7.6%, primarily because of decreased sales of nitrogen
solutions driven by lower prices. Fertilizer volumes increased due to the
full-year contribution from the operations of Weaver Fertilizer, which was
acquired in September 1997, offset by wet field conditions in most of
Royster-Clark's markets during the spring planting season in 1998. Sales of crop
protection products decreased $3.1 million as the result of lower prices, while
seed sales increased $2.0 million.
Gross profit. Gross profit was $33.0 million for 1998 compared to $35.0
million for 1997, a decline of $2.0 million or 5.7%, due primarily to lower
sales. Gross margins were 15.1% for 1998 compared to 15.4% for 1997.
Operating expenses. Operating expenses were $24.5 million for 1998
compared to $23.2 million for 1997, an increase of $1.3 million or 5.6%,
primarily due to the addition of the Weaver granulation plant which added $1.6
million in additional expenses in 1998 compared to 1997.
Operating income. Operating income was $8.5 million for 1998 compared to
$11.8 million for 1997, a decline of $3.3 million or 28.0%, as the result of
lower gross profit and higher operating expenses. Operating margins were 3.9%
for 1998 compared to 5.2% for 1997.
Interest expense. Interest expense was $5.5 million for 1998 compared to
$4.7 million for 1997, an increase of $0.8 million or 17.0%, primarily due to
increased bank revolver balances as the result of slower inventory turns and
collections from poor market conditions in 1998.
Income tax expense. Income tax expense was $1.2 million for 1998 compared
to $2.8 million for 1997, a decline of $1.6 million attributable to the decline
in income before taxes in 1998. The effective tax rate in 1998 was 40.0%
compared to 39.1% in 1997.
Net income. Net income was $1.8 million for 1998 compared to $4.3 million
for 1997, a decline of $2.5 million or 58.1%.
EBITDA. EBITDA was $11.2 million for 1998 compared to $14.1 million for
1997, a decline of $2.9 million or 20.6%, as the result of lower gross profit
and higher operating expenses.
31
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales. Royster-Clark's net sales were $227.6 million for 1997 compared
to $223.0 million for 1996, an increase of $4.6 million or 2.1%. Crop protection
products sales increased $4.2 million, or 6.1%, due to volume increases related
to favorable weather. Fertilizer sales decreased $2.0 million, or 1.9%. Average
fertilizer sales prices declined primarily from lower nitrogen solution prices.
Fertilizer volumes increased due to good spring weather and an increase in
tobacco acres planted during the year, offset by the impact of two hurricanes
which temporarily disabled one of Royster-Clark's granulation facilities.
Gross profit. Gross profit was $35.0 million for 1997 compared to $33.3
million for 1996, an increase of $1.7 million or 5.1%, due to higher sales.
Gross margins were 15.4% for 1997 compared to 14.9% for 1996.
Operating expenses. Operating expenses were $23.2 million for 1997
compared to $21.8 million for 1996, an increase of $1.4 million or 6.4%. The
increase in operating expenses is primarily attributable to non-recurring
severance expenses, consulting expenses incurred in a software conversion
project, and increased bonuses and health care costs.
These increases were partially offset by a decrease in the provision for
doubtful accounts which was $0.7 million in 1997 compared to $1.5 million in
1996. In 1996, the Company experienced an unusually significant write-off of a
$0.7 million account, for which there was no corresponding write-off in 1997.
Operating income. Operating income was $11.8 million for 1997 compared to
$11.4 million for 1996, an increase of $0.4 million or 3.5%, as the result of
higher gross profit partially offset by higher operating expenses. Operating
margins were 5.2% for 1997 compared to 5.1% for 1996.
Interest expense. Interest expense was $4.7 million for 1997 compared with
$5.0 million for 1996, a decline of $0.3 million or 6.0%, primarily attributable
to lower interest rates and lower bank revolver balances as the result of
stronger cash flows.
Income tax expense. Income tax expense for 1997 was $2.8 million compared
to $2.6 million for 1996, an increase of $0.2 million. The effective tax rate in
1997 was 39.1% compared to 40.8% in 1996.
Net income. Net income was $4.3 million for 1997 compared to $3.8 million
for 1996, an increase of $0.5 million or 13.2%.
EBITDA. EBITDA was $14.1 million for 1997 compared to $13.6 million for
1996, an increase of $0.5 million or 3.7%, as the result of higher gross profit
partially offset by higher operating expenses.
AGRIBUSINESS
AgriBusiness operates predominantly in the Midwest and Southeast.
AgriBusiness operates a network of over 250 facilities, including over 200
retail farm centers, five granulation plants, two nitrogen manufacturing plants
and a network of terminals, warehouses and distribution facilities.
AgriBusiness was initially formed in the mid-1980s. AgriBusiness acquired
the East Dubuque nitrogen manufacturing plant in 1987 and Mid-Ohio Chemical
Company in 1994. In 1996, AgriBusiness merged with the nitrogen business of
Vigoro and the Rainbow business of IMC Global as the result of the merger
between The Vigoro Corporation and IMC Global. AgriBusiness expanded its retail
and wholesale distribution system with the 1997 acquisition of Hutson's Ag
Service, Inc.
32
<PAGE>
RESULTS OF OPERATIONS -- AGRIBUSINESS
The following table provides information regarding AgriBusiness' statement
of operations as a percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales........................................................................ 100.0% 100.0% 100.0%
Cost of goods sold............................................................... 80.7 81.2 83.8
----- ----- -----
Gross profit..................................................................... 19.3 18.8 16.2
Operating expenses............................................................... 14.9 13.8 13.1
----- ----- -----
Operating income (loss).......................................................... 4.4 5.0 3.1
Interest expense................................................................. 1.6 1.5 1.7
Other expense (income)........................................................... -- (0.1) 0.2
----- ----- -----
Income (loss) before tax......................................................... 2.8 3.6 1.2
Income tax expense (benefit)..................................................... 1.2 1.4 0.5
----- ----- -----
Net income (loss)................................................................ 1.6% 2.2% 0.7%
===== ===== =====
EBITDA........................................................................... 6.6% 7.4% 6.1%
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales. AgriBusiness' net sales were $787.0 million for 1998 compared
to $872.6 million for 1997, a decline of $85.6 million or 9.8%. Fertilizer sales
declined $90.8 million, or 14.5%, due to declines in both volume and average
sales price. Fertilizer volume declined 10.0% due to abnormally wet field
conditions in most of AgriBusiness' markets during the spring planting season in
1998. Weather conditions during the 1998 spring planting season were extremely
poor due to the El Nino phenomenon which caused unusually high amounts of
precipitation in our target markets leading to extremely wet field conditions.
Average sales price for AgriBusiness' fertilizer products declined 5.0% due to
lower ammonia and nitrogen solution prices. The decline in fertilizer sales was
partially offset by a $7.8 million increase in seed sales at AgriBusiness'
retail centers. In addition, acquisitions made in 1997 contributed approximately
$15.4 million more in 1998 than in 1997, as a result of owning these facilities
for all 12 months in 1998 as opposed to only 8 months in 1997.
Gross profit. Gross profit was $127.8 million for 1998 compared to $163.7
million for 1997, a decline of $35.9 million or 21.9%, due primarily to lower
sales and depressed nitrogen fertilizer prices. Gross margins were 16.2% for
1998 compared to 18.8% for 1997 due primarily to lower margins on both
manufactured and resale nitrogen products.
Operating expenses. Operating expenses were $103.3 million for 1998
compared to $120.1 million for 1997, a decline of $16.8 million or 14.0%, (1) a
decline in bad debt expense ($3.3 million) and sales commissions ($5.6 million)
related to the decrease in sales and better than expected collections experience
on customer accounts obtained in 1996 and 1997 acquisitions. and (2) declines in
employee benefit costs and insurance costs related to improvements in healthcare
and business insurance experience.
Operating income. Operating income was $24.5 million for 1998 compared to
$43.6 million for 1997, a decline of $19.1 million or 43.8%, as the result of
lower gross profit partially offset by lower operating expenses. Operating
margins were 3.1% for 1998 compared to 5.0% for 1997.
Interest expense. Interest expense was $13.2 million for 1998 compared to
$13.3 million for 1997.
Other expense (income). Other expense was $1.9 million for 1998 compared
to $0.7 million in other income for 1997, primarily related to the loss on the
sale of a seed processing facility.
33
<PAGE>
Provision for income taxes. Provision for income taxes was $4.1 million
for 1998 compared to $12.2 million for 1997. The effective tax rate was 43.6%
for 1998 compared to 39.4% for 1997.
Net earnings. Net earnings were $5.3 million for 1998 compared to $18.8
million for 1997, a decline of $13.5 million or 71.8%.
EBITDA. EBITDA was $47.8 million for 1998 compared to $64.4 million for
1997, a decline of $16.6 million or 25.8%, as the result of lower gross profit
partially offset by lower operating expenses.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales. AgriBusiness' net sales were $872.6 million for 1997 compared
to $797.8 million for 1996, an increase of $74.8 million or 9.4%. Fertilizer
sales increased $49.6 million, or 8.6%, due to a 9.2% increase in volume. This
increased volume was due primarily to retail and wholesale acquisitions made in
1997, which added 20 retail centers and several wholesale distribution
facilities. In addition, good field conditions in both the spring and fall of
1997 as the result of favorable weather conditions contributed to the volume
increase. The impact of acquisitions and good field conditions were partially
offset by the transfer of several large wholesale customers in the Southeast to
IMC Agrico and IMC Kalium. Average sales price for AgriBusiness' fertilizer
products were relatively flat. Crop protection product sales increased $16.6
million, or 12.8%, due to the retail acquisitions and good field conditions.
Gross profit. Gross profit was $163.7 million for 1997 compared to $153.9
million in 1996, an increase of $9.8 million or 6.4%, due primarily to higher
sales. Gross margins were 18.8% for 1997 compared to 19.3% for 1996 due to lower
margins on nitrogen solution and urea products as the result of lower prices.
Operating expenses. Operating expenses were $120.1 million for 1997
compared to $105.1 million for 1996, an increase of $15.0 million or 14.3%, due
primarily to retail and wholesale acquisitions made in 1997, higher bad debts
and higher employee benefit costs associated with new medical programs
implemented by IMC Global.
Operating income. Operating income was $43.6 million for 1997 compared to
$35.5 million for 1996, an increase of $8.1 million or 22.8%. Operating income
in 1996 was impacted by a $13.3 million merger and restructuring charge in
connection with the merger of IMC Global Inc. and The Vigoro Corporation,
consisting primarily of charges related to valuation of plant facilities and
other assets and environmental matters. Without the effect of the 1996 merger
and restructuring charge, operating income decreased $5.2 million, as the result
of higher operating expenses partially offset by higher gross profit. Operating
margins were 5.0% for 1997 compared to 4.4% for 1996.
Interest expense. Interest expense was $13.3 million for 1997 compared to
$13.1 million for 1996. Higher debt levels associated with funding for the 1997
acquisitions were offset by lower interest rates.
Other income. Other income was $0.7 million for 1997 compared to $0.2
million for 1996.
Provision for income taxes. Provision for income taxes was $12.2 million
for 1997 compared to $9.8 million for 1996. The effective tax rate was 39.4% for
1997 compared to 43.4% for 1996.
Net earnings. Net earnings were $18.8 million for 1997 compared to $12.8
million for 1996, an increase of $6.0 million or 46.9%.
EBITDA. EBITDA was $64.4 million for 1997 compared to $52.9 million for
1996, an increase of $11.5 million or 21.7%. Without the effect of the 1996
merger and restructuring charge, EBITDA decreased $1.8 million, as the result of
higher operating expenses partially offset by higher gross profit.
34
<PAGE>
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
The crop production inputs distribution business is seasonal, based upon
planting, growing and harvesting cycles. Typically, over half of our sales occur
during the spring planting season in the second quarter of each year. However,
depending on weather and field conditions, this period of peak activity can
begin several weeks earlier or later than normal, which may have a material
impact on whether sales are recorded in the first or second quarter.
The following tables present unaudited quarterly data for each of the
fiscal quarters in 1997 and 1998 for Royster-Clark and AgriBusiness. In the
opinion of Royster-Clark management, the quarterly information for Royster-Clark
has been prepared on the same basis as the audited financial statements
appearing elsewhere in this prospectus. The quarterly information for
AgriBusiness is derived from its audited financial statements appearing
elsewhere in this prospectus.
ROYSTER-CLARK
(IN MILLIONS)
<TABLE>
<CAPTION>
1997
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales ..................................................... $ 53.4 $ 117.6 $ 32.0 $ 24.6
Net earnings (loss) ........................................... 1.6 6.3 (1.7) (1.8)
<CAPTION>
1998
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales ..................................................... $ 41.3 $ 126.7 $ 29.9 $ 20.7
Net earnings (loss) ........................................... 0.5 5.7 (2.4) (2.0)
</TABLE>
AGRIBUSINESS
(IN MILLIONS)
<TABLE>
<CAPTION>
1997
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales ..................................................... $139.9 $ 489.8 $ 98.8 $ 144.1
Net earnings (loss) ........................................... (4.7) 38.2 (10.6) (4.1)
<CAPTION>
1998
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales ..................................................... $140.2 $ 428.5 $ 97.2 $ 121.1
Net earnings (loss) ........................................... (5.8) 26.7 (9.5) (6.1)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements will be for debt service, working capital,
capital expenditures and possible acquisitions. Our management believes that
cash generated from operations and borrowings under the new senior secured
credit facility will be sufficient to meet our capital needs in the foreseeable
future.
Capital expenditures were $4.3 million for the three months ended June 30,
1999. These capital expenditures were primarily for miscellaneous repair,
maintenance and environmental compliance projects. We anticipate total capital
expenditures for 1999 will be $21.2 million.
Capital expenditures were $32.2 million for 1998 compared to $29.8 million
for 1997 and $24.4 million for 1996. Our capital expenditures relate primarily
to repair, maintenance and replacement projects at our various facilities.
However, capital expenditures in 1998 and 1997 also
35
<PAGE>
included an investment of $14.6 million for a nitric acid facility at the East
Dubuque nitrogen manufacturing plant. The first $3.0 million was spent in 1997
and $11.6 million was spent in 1998.
As part of the Transactions, we established a senior secured credit
facility maturing in 2004 which provides for up to $275.0 million in borrowings
on a revolving basis, subject to and secured by accounts receivable, inventories
and other assets. The facility includes up to $10.0 million for letters of
credit. This new facility contains financial and operational covenants and other
restrictions with which we must comply, including a requirement to maintain
certain financial ratios and limitations on our ability to incur additional
indebtedness. See "Description of Certain Other Indebtedness."
Net cash provided by operating activities for the three months ended June
30, 1999 were $93,996 reflective of the increased activity related to the
consolidation of Royster-Clark and AgriBusiness as of April 1, 1999. The most
significant components of cash flows provided by operating activities were net
income, non-cash deferred income tax expense and a net increase in our operating
assets and liabilities of $39,751. As discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Seasonality and
Quarterly Results of Operations" during this quarter, we typically generate
approximately half of our revenues, resulting in the significant fluctuations in
our operating assets and liabilities. Net cash used in investing activities
amounted to $259,261 the majority of which is due to the acquisition of
AgriBusiness. Financing activities provided $165,605 mostly reflective of the
proceeds from the first mortgage notes of $200,000 and additional net borrowings
against the senior secured credit facility of $93,490 as well as a capital
contribution by RCG of $22,918. These additions were offset by a decrease in
customer deposits, refinancing of long-term debt, and the payment of deferred
financing costs of $73,846, $67,750, and $9,182, respectively. Net increase in
cash for the quarter ended June 30, 1999 was $340.
Because of the seasonal nature of our business, our requirements for
working capital financing vary widely during the year, reaching a peak in late
spring and the trough in January. Our inventories increase from December through
March in preparation for the spring planting season and our receivables peak
around May since we generate the majority of our sales between March and June.
Our management believes that the capacity and other terms and conditions of our
new senior secured credit facility adequately addresses our seasonal borrowing
needs.
YEAR 2000 COMPLIANCE
We recognize the need to ensure operations will not be adversely impacted
by Year 2000 computer hardware and software failures and non-information
technology systems failures. Issues relating to the Year 2000 are the result of
computer programs being written or developed using two digits rather than four
to define the applicable year. Any computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, obtain materials, generate invoices or engage in
similar normal business.
We have evaluated our administrative systems and facilities with respect to
computer problems arising from the Year 2000 issue. Our evaluation included
analysis of all potentially affected business and process systems and testing of
each affected system for compliance.
As a result of our conversion in 1997 to Lawson enterprise software, which
is Year 2000 compliant, we believe we do not have any material Year 2000 issues
related to our main accounting and administrative systems. For our formulation,
billing and inventory system, we use point-of-sale software on personal
computers located in our retail locations. Some of this software is not Year
2000 compliant. We have commissioned the programming of replacement
point-of-sale software that addresses the Year 2000 issue while adding improved
features. We will deploy this new package after the spring 1999 planting season.
This re-programming will cost approximately $100,000. Our nitrogen manufacturing
facilities have been tested on a sub-system basis for Year
36
<PAGE>
2000 problems. A full system test will be conducted during the maintenance
shutdown scheduled for August 1999 to ensure Year 2000 readiness.
Currently, we do not have any information concerning the Year 2000
compliance status of our suppliers and vendors. We have contacted our critical
suppliers and vendors to determine their Year 2000 compliance status, but they
have not responded to our request.
If the modifications and conversions we have planned to address Year 2000
compliance are not completed on a timely basis, or if our key suppliers,
customers or other third parties, such as railroads servicing our facilities,
have significant unresolved systems problems, there is a risk that Year 2000
could have a material impact on our operations. Potential sources of risk
include (a) the inability of key suppliers or their suppliers to be Year 2000
ready, which could result in delays in product deliveries from such suppliers,
(b) systems incompatibilities with key suppliers or customers resulting from
software conversions or other modifications and (c) our inability to modify or
replace systems on a timely basis.
We currently do not have a formal contingency plan in place if we do not
complete our Year 2000 modifications, or the modifications fail to make our
systems Year 2000 compliant.
QUANTITATIVE AND QUALITATIVE MARKET RISKS
Our market risks relating to our operations result primarily from changes
in interest rates. The interest rates that we pay for borrowings under our
credit facility depend on the LIBOR rate of interest charged by our lender. Our
first mortgage notes bear interest at a fixed rate of 10.25%. This rate was
established upon the issuance of the notes in April 1999 and as a result, we
believe it approximates a market rate. Our customer deposits also bear interest
at a fixed rate, which is established on an annual basis at the beginning of
each farming season based on prevailing market rates for similar programs in
each of the regions in which we operate. Given the current economic climate, we
believe that the rates in force approximate market rates. We do not hold or
issue derivative financial instruments for trading purposes.
37
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We issued and sold the existing first mortgage notes to the initial
purchasers on April 22, 1999. The initial purchasers subsequently sold the
existing first mortgage notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and outside the United States in compliance
with Regulation S of the Securities Act. Simultaneously with the sale of the
existing first mortgage notes, we entered into a registration rights agreement
with Donaldson, Lufkin & Jenrette Securities Corporation and J.P. Morgan
Securities, Inc., the initial purchasers of the existing first mortgage notes.
Under this registration rights agreement, we agreed:
o within 60 days after the close of the original offering of the first
mortgage notes, to prepare and file with the Securities and Exchange
Commission a registration statement of which this prospectus is a part;
o within 150 days after the close of the original offering of the first
mortgage notes, to use our best efforts to cause the registration
statement to be declared effective by the Commission;
o upon the effectiveness of the registration statement, to offer the
exchange first mortgage notes in exchange for surrender of the existing
first mortgage notes; and
o to keep the exchange offer open for not less than the minimum period
required under applicable federal and state securities laws, but in no
event less than 20 business days.
The registration statement is intended to satisfy in part our obligations
related to the existing first mortgage notes under the registration rights
agreement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions stated in this prospectus and
in the accompanying letter of transmittal we will accept for exchange existing
first mortgage notes which are properly tendered on or prior to the expiration
date and not withdrawn as permitted below. As used in the prospectus, expiration
date means 5:00 p.m., New York City time, on __________, 1999. However, if we,
in our sole discretion, have extended the period of time for which the exchange
offer is open, the expiration date means the latest time and date to which the
exchange offer is extended.
As of the date of this prospectus, $200.0 million aggregate principal
amount of the existing first mortgage notes are outstanding. This prospectus,
together with the letter of transmittal, is first being sent on or about
, 1999 to all holders of existing first mortgage notes known to us. Our
obligation to accept existing first mortgage notes for exchange under the
exchange offer is conditional as discussed under "-- Conditions to the Exchange
Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and delay acceptance
for any exchange of any existing first mortgage notes, by giving notice of the
extension to the holders of existing first mortgage notes as described below.
During the extension, all existing first mortgage notes previously tendered will
remain subject to the exchange offer and may be accepted for exchange by us. Any
existing first mortgage notes not accepted for exchange for any reason will be
returned without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any existing first mortgage notes not previously
accepted for exchange, upon the occurrence of any of the conditions of the
exchange offer specified below under "-- Conditions to the Exchange Offer." We
will give notice of any extension, amendment, non-acceptance or termination to
the holders of the existing first mortgage notes as promptly as practicable,
this notice
38
<PAGE>
in the case of any extension to be issued no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
Holders of existing first mortgage notes do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law related to the
exchange offer.
PROCEDURES FOR TENDERING EXISTING FIRST MORTGAGE NOTES
VALID TENDER
The tender to us of existing first mortgage notes by a holder of existing
first mortgage notes as provided below and the acceptance of the tender by us
will constitute a binding agreement between the tendering holder and us upon the
terms and the conditions stated in this prospectus and in the accompanying
letter of transmittal. Except as stated below, a holder who wishes to tender
existing first mortgage notes for exchange under the exchange offer must
transmit a properly completed and duly executed letter of transmittal, including
all other documents required by the letter of transmittal, to United States
Trust Company of New York at one of the addresses provided below under "--
Exchange Agent" on or prior to the expiration date. In addition, the exchange
agent must receive:
o certificates for existing first mortgage notes along with the letter of
transmittal, or
o prior to the expiration date, a timely confirmation of a book-entry
transfer of existing first mortgage notes into the exchange agent's
account at The Depository Trust Company as provided by the procedure for
book-entry transfer described below, or
o the holder must comply with the guaranteed delivery procedure described
below.
The method of delivery of existing first mortgage notes, letters of
transmittal and all other required documents is at your election and risk. If
delivery is by mail, we recommend that you use registered mail, properly
insured, with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. You should not send letters of
transmittal or existing first mortgage notes to us.
SIGNATURE GUARANTEES
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the existing first mortgage notes
surrendered for exchange are tendered:
o by a registered holder of the existing first mortgage notes who has not
completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instruction" on the letter of transmittal; or
o for the account of a firm which is a member of a recognized signature
guarantee program, as provided below.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantees
must be by a firm which is a member of one of the following recognized signature
guarantee programs:
o The Securities Transfer Agents Medallion Program,
o The New York Stock Exchange Medallion Signature Program, or
o The Stock Exchange Medallion Program.
If existing first mortgage notes are registered in the name of a person
other than a signer of the letter of transmittal, the existing first mortgage
notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by us in our sole discretion, duly executed by the registered
holder with the signature on the existing first mortgage notes guaranteed by an
eligible institution.
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Any beneficial owner whose existing first mortgage notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee,
and who wishes to tender, should contact the registered holder promptly and
instruct the registered holder to tender on the beneficial owner's behalf. If
the beneficial owner wishes to tender on the owner's own behalf, the owner must,
prior to completing and executing the letter of transmittal and delivering the
owner's existing first mortgage notes, either:
o make appropriate arrangements to register ownership of the existing first
mortgage notes in the owner's name or
o obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time.
If the letter of transmittal or any existing first mortgage notes or powers
of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, these persons should so indicate when signing, and,
unless waived by us, proper evidence satisfactory to us of their authority to so
act must be submitted.
DETERMINATION OF VALIDITY
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of existing first mortgage notes tendered for exchange
will be determined by us in our sole discretion. This determination shall be
final and binding. We reserve the absolute right to reject any and all tenders
of any particular existing first mortgage notes not properly tendered or to not
accept any particular existing first mortgage notes which acceptance might, in
our judgment or our counsel's judgment, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any particular existing first mortgage notes either before
or after the expiration date. This reservation includes the right to waive the
ineligibility of any holder who seeks to tender existing first mortgage notes in
the exchange offer. The interpretation of the terms and conditions of the
exchange offer as to any particular existing first mortgage notes either before
or after the expiration date -- including the letter of transmittal and its
instructions, by us shall be final and binding on all parties. Unless waived,
any defects or irregularities related to tenders of existing first mortgage
notes for exchange must be cured within a reasonable period of time as we shall
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity related to any
tender of existing first mortgage notes for exchange, nor shall any of them
incur any liability for failure to give notification.
By tendering, each holder of existing first mortgage notes will represent
to us in writing that, among other things:
o the exchange first mortgage notes acquired in the exchange offer are
being obtained in the ordinary course of business of the holder and any
beneficial holder;
o neither the holder nor any beneficial holder has an arrangement or
understanding with any person to participate in the distribution of the
exchange first mortgage notes; and
o neither the holder nor any other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of our company. If the holder is
not a broker-dealer, the holder must represent that it is not engaged in
nor does it intend to engage in a distribution of the exchange first
mortgage notes.
If any holder or any other person is an "affiliate," as defined under Rule
405 of the Securities Act, of ours, or is engaged in, or intends to engage in,
or has an arrangement or understanding with any person to participate in, a
distribution of the exchange first mortgage notes to be acquired in the exchange
offer, the holder or any other person may not rely on the applicable
interpretations of
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the staff of the Securities and Exchange Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in any
resale transaction.
If the holder is a broker-dealer, the holder must represent that it will
receive exchange first mortgage notes for its own account in exchange for
existing first mortgage notes that were acquired as a result of market-making
activities or other trading activities. Each broker-dealer that receives
exchange first mortgage notes for its own account in exchange for existing first
mortgage notes, where the existing first mortgage notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in any resale of
the exchange first mortgage notes. See "Plan of Distribution."
ACCEPTANCE OF EXISTING FIRST MORTGAGE NOTES FOR EXCHANGE
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all existing first mortgage
notes properly tendered, and will issue the exchange first mortgage notes
promptly after acceptance of the existing first mortgage notes. See "--
Conditions to the Exchange Offer" below. For purposes of the exchange offer, we
shall have accepted properly tendered existing first mortgage notes for exchange
when, as and if we have given oral and written notice to the exchange agent.
The exchange first mortgage notes will bear interest from the most recent
date to which interest has been paid on the existing first mortgage notes, or if
no interest has been paid on the existing first mortgage notes, from April 22,
1999. Accordingly, registered holders of exchange first mortgage notes on the
relevant record date for the first interest payment date following the
completion of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from April 22, 1999. Existing first mortgage notes accepted for exchange will
cease to accrue interest from and after the date of completion of the exchange
offer. Holders of existing first mortgage notes whose existing first mortgage
notes are accepted for exchange will not receive any payment in respect of
accrued interest on the existing first mortgage notes otherwise payable on any
interest payment date the record date for which occurs on or after completion of
the exchange offer and will be found to have waived their rights to receive
accrued interest on the existing first mortgage notes.
DELIVERY OF EXCHANGE FIRST MORTGAGE NOTES
In all cases, issuance of exchange first mortgage notes for existing first
mortgage notes that are accepted for exchange in the exchange offer will be made
only after timely receipt by the exchange agent of:
o certificates for existing first mortgage notes or a timely book-entry
confirmation of the existing first mortgage notes into the exchange
agent's account at the Depository Trust Company
o a properly completed and duly executed letter of transmittal and
o all other required documents.
If any tendered existing first mortgage notes are not accepted for any
reason stated in the terms and conditions of the exchange offer or if existing
first mortgage notes are submitted for a greater principal amount than the
holder desires to exchange, the unaccepted or non-exchanged existing first
mortgage notes will be returned without expense to the tendering holder of the
existing first mortgage notes as promptly as practicable after the expiration of
the exchange offer. In the case of existing first mortgage notes tendered by
book-entry transfer into the exchange agent's account at the Depository Trust
Company as provided by the book-entry transfer procedures described below, the
non-exchanged existing first mortgage notes will be credited to an account
maintained with DTC.
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BOOK-ENTRY TRANSFER
Any financial institution that is a participant in DTC's systems may make
book-entry delivery of existing first mortgage notes by causing DTC to transfer
the existing first mortgage notes into the exchange agent's account at DTC in
accordance with its procedures for transfer. However, although delivery of
existing first mortgage notes may be effected through book-entry transfer at
DTC, the letter of transmittal or facsimile of the letter of transmittal with
any required signature guarantees and any other required documents must, in any
case, be transmitted to and received by the exchange agent at one of the
addresses provided below under "-- Exchange Agent" on or prior to the expiration
date, unless the holder has strictly complied with the guaranteed delivery
procedures described below.
We understand that the exchange agent has confirmed with DTC that any
financial institution that is a participant in DTC's system may utilize its
Automated Tender Offer Program ("ATOP") to tender existing first mortgage notes.
We further understand that the exchange agent will request, within two business
days after the date the exchange offer commences, that DTC establish an account
with respect to the existing first mortgage notes for the purpose of
facilitating the exchange offer, and any participant may make book-entry
delivery of existing first mortgage notes by causing DTC to transfer the
existing first mortgage notes into the exchange agent's account in accordance
with the ATOP procedures for transfer. However, the exchange of the existing
first mortgage notes so tendered will only be made after timely confirmation of
the book-entry transfer and timely receipt by the exchange agent of an agent's
message as discussed in the next sentence, an appropriate letter of transmittal
with any required signature guarantee, and any other documents required. An
agent's message means a message, transmitted by DTC and received by the exchange
agent and forming part of book-entry confirmation, which states that DTC has
received an express acknowledgment from a participant tendering existing first
mortgage notes which are the subject of the book-entry confirmation and that the
participant has received and agrees to be bound by the terms of the letter of
transmittal and that we may enforce the agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the existing first mortgage notes desires to
tender the existing first mortgage notes and the existing first mortgage notes
are not immediately available, or time will not permit the holder's existing
first mortgage notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may nonetheless be effected if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent received from the
eligible institution a properly completed and duly executed letter of
transmittal, or a facsimile of a letter of transmittal and notice of
guaranteed delivery, substantially in the form provided by us by
telegram, telex, facsimile transmission, mail or hand delivery, providing
the name and address of the holder of existing first mortgage notes and
the amount of existing first mortgage notes tendered, stating that the
tender is being made and guaranteeing that within five New York Stock
Exchange trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered
existing first mortgage notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
o the certificates for all physically tendered existing first mortgage
notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and all other documents required by the letter of
transmittal are received by the exchange agent within five NYSE trading
days after the date of execution of the notice of guaranteed delivery.
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WITHDRAWAL RIGHTS
Tenders of existing first mortgage notes may be withdrawn at any time prior
to the expiration date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the exchange agent at one of the addresses
provided below under "-- Exchange Agent." Any such notice of withdrawal must:
o specify the name of the person having tendered the existing first
mortgage notes to be withdrawn;
o identify the existing first mortgage notes to be withdrawn including the
principal amount of such existing first mortgage notes; and
o where certificates for existing first mortgage notes have been
transmitted specify the name in which the existing first mortgage notes
are registered, if different from that of the withdrawing holder.
If certificates for existing first mortgage notes have been delivered or
otherwise identified to the exchange agent, then, prior to the release of the
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an eligible institution unless the holder is an
eligible institution.
If existing first mortgage notes have been tendered according to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn existing first mortgage notes and otherwise comply with the procedures
of DTC. All questions as to the validity, form and eligibility, including time
of receipt of the notices will be determined by us, whose determination shall be
final and binding on all parties. Any existing first mortgage notes so withdrawn
will be found not to have been validly tendered for exchange for purposes of the
exchange offer. Any existing first mortgage notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder without cost to the holder as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. In the case of
existing first mortgage notes tendered by book-entry transfer into the exchange
agent's account at DTC according to the book-entry transfer procedures described
above, the existing first mortgage notes will be credited to an account
maintained with DTC for the existing first mortgage notes. Properly withdrawn
existing first mortgage notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Existing First Mortgage
Notes" above at any time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We shall not be required to accept for exchange, or to issue exchange first
mortgage notes in exchange for, any existing first mortgage notes and may
terminate or amend the exchange offer if at any time before our acceptance of
the existing first mortgage notes we determine that:
o the exchange offer does not comply with any applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission;
o we have not received all applicable governmental approvals; or
o any actions or proceedings of any governmental agency or court exist
which could materially impair our ability to complete the exchange offer.
The conditions above are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any of the conditions described
above or may be waived by us in whole or in part at any time and from time to
time in its reasonable discretion. Our failure at any time to exercise any of
the rights described above shall not be a waiver of those rights and each right
shall be an ongoing right which may be asserted at any time and from time to
time.
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In addition, we will not accept for exchange any existing first mortgage
notes tendered a stop order shall be threatened or in effect with respect to the
registration statement [of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act] of 1939, as
amended. In such an event we are required to use every reasonable effort to
obtain the withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to the exchange agent at one of the addresses provided below. Questions
and requests for assistance, requests for additional copies of this prospectus
or of the letter of transmittal and requests for notices of guaranteed delivery
should be directed to the exchange agent addressed as follows:
<TABLE>
<S> <C> <C>
By Hand, up to 4:30 p.m.: By Registered or Certified Mail: By Overnight Courier & By Hand
after 4:30 p.m. on the
United States Trust Company United States Trust Company expiration
of New York of New York date only:
111 Broadway P.O. Box 844 United States Trust Company
Lower Level Attn: Corporate Trust Services of New York
Attn: Corporate Trust Services Cooper Station 770 Broadway, 13th Floor
New York, New York 10006 New York, New York New York, New York 10003
10276-0844 Attn: Corporate Trust Services
By Facsimile:
(212) 420-6211
Confirm by Telephone:
(800) 548-6565
</TABLE>
Delivery other than as provided above will not constitute a valid delivery.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
officers and employees of Royster-Clark.
The expenses to be incurred in the exchange offer will be paid by us. These
expenses include fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange first mortgage notes will be recorded at the same carrying
amount as the existing first mortgage notes, which is the principal amount as
reflected in our accounting records on the date of the exchange and,
accordingly, no gain or loss will be recognized. The debt issuance costs will be
capitalized and amortized to interest expense over the term of the exchange
first mortgage notes.
TRANSFER TAXES
Holders who tender their existing first mortgage notes for exchange will
not be obligated to pay any transfer taxes related to the exchange, except that
holders who instruct us to register exchange first mortgage notes in the name
of, or request that existing first mortgage notes not tendered or not accepted
in the exchange offer be returned to, a person other than the registered
tendering holder will be responsible for the payment of any applicable transfer
tax.
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CONSEQUENCES OF FAILURE TO EXCHANGE THE EXISTING FIRST MORTGAGE NOTES
Holders of existing first mortgage notes who do not exchange their existing
first mortgage notes for exchange first mortgage notes in the exchange offer
will continue to have restrictions on transfer of the existing first mortgage
notes as described in the legend on the notes as a consequence of the issuance
of the existing first mortgage notes according to the exemptions from the
registration requirements of the Securities Act and applicable state securities
laws. Existing first mortgage notes not exchanged according to the exchange
offer will continue to accrue interest at 10 1/4% per annum and will otherwise
remain outstanding in accordance with their terms. Holders of existing first
mortgage notes do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law related to the exchange offer. In general, the
existing first mortgage notes may not be offered or sold unless registered under
the Securities Act, except according to an exemption from the Securities Act and
applicable state securities laws. We do not currently anticipate that we will
register the existing first mortgage notes that remain outstanding after the
completion of the exchange offer under the Securities Act.
RESALES OF EXCHANGE FIRST MORTGAGE NOTES
We are exchanging the existing first mortgage notes for exchange first
mortgage notes based upon the position of the SEC's staff, set forth in
interpretive letters to third parties in other similar transactions. We will not
seek our own interpretive letter. As a result, we cannot assure you that the
SEC's staff will take the same position on this exchange offer as it did in
interpretive letters to other parties. Based on the SEC's staff letters to other
parties, we believe that holders of exchange first mortgage notes, other than
broker-dealers, can offer the exchange first mortgage notes for resale, resell
and otherwise transfer the exchange first mortgage notes without delivering a
prospectus to prospective purchasers, other than as described below.
Any holder of existing first mortgage notes who is an "affiliate" of us or
who intends to distribute exchange first mortgage notes, or any broker-dealer
who purchased existing first mortgage notes from us for resale pursuant to Rule
144A or any other available exemption under the Securities Act:
o cannot rely on the SEC's staff's interpretations in the
above-mentioned interpretive letters;
o cannot tender existing first mortgage notes in the exchange offer;
o must comply with the registration and prospectus delivery
requirements of the Securities Act to transfer the existing first
mortgage notes, unless the sale is exempt.
In addition, if any broker-dealer acquired existing first mortgage notes
for its own account as a result of market-making or other trading activities and
exchanges the existing first mortgage notes for exchange first mortgage notes,
such broker-dealer must deliver a prospectus with any resales of its exchange
first mortgage notes.
If you want to exchange your existing first mortgage notes for exchange
first mortgage notes, you will be required to affirm that:
o you are not an "affiliate" of us;
o you are acquiring the exchange first mortgage notes in the ordinary
course of your business;
o you have no arrangement or understanding with any person to
participate in a "distribution," within the meaning of the
Securities Act, of the exchange first mortgage notes; and
o if you are not a broker-dealer, you are not engaged in, and do not
intend to engage in, a "distribution," within the meaning of the
Securities Act, of the exchange first mortgage notes.
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In addition, we may require you to provide information regarding the number
of "beneficial owners," within the meaning of Rule 13d-3 under the Exchange Act,
of the existing first mortgage notes. Each broker-dealer that receives exchange
first mortgage notes for its own account must acknowledge that it acquired its
existing first mortgage notes for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of the exchange first mortgage notes. By making this acknowledgment and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" under the Securities Act. Based on the SEC's staff's
position in some interpretive letters, we believe that broker-dealers who
acquired existing first mortgage notes for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the exchange first mortgage
notes with a prospectus meeting the requirements of the Securities Act.
Accordingly, a broker-dealer may use this prospectus to satisfy such
requirements. We have agreed that, for a period of 210 days after the effective
date of this prospectus, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution" for more information. Any participating
broker-dealer who is an "affiliate" of us may not rely on the SEC's staff's
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act when reselling its exchange first
mortgage notes.
In addition, to comply with the securities laws of various jurisdictions,
if applicable, the exchange first mortgage notes may not be offered or sold
unless they have been registered or qualified for sale in those jurisdictions or
an exemption from registration or qualification is available and is complied
with. We have agreed, according to the registration rights agreement to cause
all necessary filings in the registration and qualification of the exchange
first mortgage notes under the blue sky laws of jurisdictions in the United
States as are necessary to permit completion of the exchange offer.
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BUSINESS
GENERAL OVERVIEW
We are the largest independent retail and wholesale distributor of
agricultural fertilizer, seed, crop protection products and agronomic services
to farmers in the United States. We primarily focus on major farming regions in
the East, South and Midwest. Our distribution business supplies a full range of
products and services to our retail and wholesale customers through 400
facilities, consisting of retail farm centers, granulation, blending and seed
processing plants, and an integrated network of storage and distribution
terminals and warehouses. In addition, we operate two nitrogen manufacturing
plants that supply our distribution business with nitrogen fertilizer products.
We operate as a retailer and wholesaler of a complete package of products and
services to help farmers become more profitable, efficient and environmentally
sound. In 1998, we generated pro forma revenues of $1.0 billion and adjusted pro
forma EBITDA of $78.6 million.
Over 90% of our revenues relate to the distribution of crop production
inputs purchased from third parties and resold to retail and wholesale
customers. Because of the mark-up on these products, we are only partially
exposed to fluctuations in nitrogen fertilizer prices. Less than 10% of our
sales come from manufacturing fertilizer products.
Our integrated network of plants and storage and distribution terminals and
warehouses allows us to efficiently process, distribute and store product close
to the end-user and to supply our customers on a timely basis during the
compressed planting seasons. In addition, we use port facilities on the Atlantic
Ocean and the Mississippi River to provide flexibility in product purchasing,
including the ability to access overseas markets when they offer lower prices
than domestic markets. Our widespread geographical presence in some of the
country's most important farming regions provides diversity that helps to
insulate our overall business from difficult farming conditions in any one
particular area as a result of poor weather or adverse market conditions for
specific crops.
Our retail distribution operation includes approximately 330 Farmarkets
retail farm centers, including approximately 30 commission sales stores, located
in the East, South and Midwest. This extensive network comprises one of the
largest retailers of crop production inputs to farmers in North America. We
distinguish ourselves by using point-of-sale personal computer systems at each
Farmarkets location which are linked to a sophisticated software system at
headquarters to provide daily information for management analysis and control.
We also utilize proprietary electronic budgeting, forecasting and requirements
planning tools. Our retail farm centers sell a complete line of products to
farmers, including fertilizer, seed and crop protection products. In addition,
our retail centers provide increasingly important services to farmers, including
custom blending and application of crop production inputs, crop management
services, precision farming and biotechnology crop system advisory services.
Our wholesale distribution operation supplies a full range of fertilizer,
seed and crop protection products to customers in the Southeast and Midwest. Our
primary wholesale business includes the purchase of nitrogen, phosphate, and
potash, three essential nutrients, for plant growth, for resale to wholesale
customers. We process the majority of these crop nutrients into blended and
granulated fertilizer products and sell them as mixed fertilizer.
We are the largest North American seller of agricultural granulated
fertilizer, operating seven granulation plants that process commodity fertilizer
into granulated fertilizer products with desirable agronomic traits. We believe
that our granulation plants are among the most efficient, low cost facilities in
the industry. Granulated fertilizer products are used by farmers who produce
specialty crops such as citrus fruits, vegetables, tobacco, peanuts and cotton.
We offer a full line of premium branded granulated fertilizer products primarily
under the Rainbow name on a wholesale basis to a network of approximately 900
dealers, as well as to some regional Farmarkets stores. Rainbow products have
developed a reputation for high quality during the 90 years they have been sold
throughout the Southeast. We believe that the Rainbow brand name provides us
with a significant competitive advantage and growth opportunities through
selling other crop production inputs using this recognized brand name.
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We own and operate a fully integrated nitrogen manufacturing plant in East
Dubuque, IL, that shipped approximately 620,000 tons of ammonia, and upgraded
nitrogen products in 1998 and a smaller nitrogen manufacturing facility in
Cincinnati, OH, that shipped approximately 120,000 tons of upgraded nitrogen
products in 1998. All of the nitrogen products manufactured in these two
facilities are sold through our wholesale distribution operation for either
agricultural or industrial purposes.
Royster-Clark, Inc. has a long history. W.S. Clark & Sons, Inc. began
operations in 1872 as a general mercantile company. The corporate antecedents of
Royster Company were formed in 1881 to exploit natural fertilizer resources from
South America. Royster-Clark, Inc. was formed in 1992 through the merger of
these two companies. The current management team assumed active control at
Royster-Clark in the summer of 1995.
AgriBusiness was initially formed in the mid-1980s as Vigoro Industries,
Inc. through the leveraged buy-out of Kaiser Agricultural Chemicals and Estech
Branded Fertilizer, both retailers of agricultural inputs. AgriBusiness acquired
the East Dubuque nitrogen facility in 1987. Vigoro merged with IMC Global in
1996 and then AgriBusiness was formed, combining the Farmarkets and nitrogen
businesses of Vigoro and the Rainbow business of IMC Global. AgriBusiness
expanded its retail and wholesale distribution system with the 1997 acquisition
of Hutson's Ag Service, Inc., a Kentucky-based crop production input distributor
with approximately 25 retail stores.
COMPETITIVE STRENGTHS
We believe that our key competitive strengths are:
o Significant Market Share in Major Farming Regions. We believe that we
capture a leading market share in our principal market areas, which are
some of the country's most important farming regions. We are one of the
largest distributors of crop production inputs in North America and are
the largest independent retail and wholesale distributor. We provide
fertilizer, seed, crop protection products and agronomic services to
farmers in the East, South and Midwest regions of the United States. We
also provide a full range of services including custom blending and
application of crop nutrients, crop management services, such as soil
sampling, pest level monitoring and yield monitoring using satellite
grids and services to assist in developing seed technology based on
genetic engineering, which have become increasingly important to farmers.
We believe that our emphasis on selling a full range of quality products
and consistently providing high quality service has enabled us to achieve
our market share.
o Extensive Infrastructure. We have an extensive infrastructure of over
400 facilities consisting of retail farm centers, granulation, blending
and seed processing plants and an integrated network of storage and
distribution terminals and warehouses. In addition, we operate two
nitrogen manufacturing plants that supply our distribution business with
nitrogen fertilizer products. We believe our installed infrastructure
provides us with a significant competitive advantage over smaller,
regional competitors and deters new entrants into this capital intensive
market. See "Business -- Business Operations."
o Well Positioned To Benefit From Continued Industry Consolidation. We
believe we are well positioned to compete in an industry undergoing
significant consolidation. The agricultural industry has experienced
significant consolidation among both farmers and suppliers of crop
production inputs. The number of retail farm centers in North America
declined from 25,000 in 1984 to 10,500 in 1998 and is forecasted to
decline to 9,000 centers by 2000. As our industry continues to
consolidate, we believe that large, full service distribution companies
will have a competitive advantage in providing the link between farmers
and the leading crop production input suppliers. As crop production
inputs become increasingly technologically advanced, suppliers are
demanding that distribution companies provide full service access to a
broad range of farm customers.
o Experienced Management Team. We have a strong senior management team
with an average of over 14 years of experience in the crop production
inputs distribution business. In
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September 1994, Mr. Jenkins took over management control of
Royster-Clark. He installed our current management team, which has
increased revenues by $22.3 million, improved operating results by
approximately $3.8 million and successfully integrated a number of
strategic acquisitions. We believe our current management understands the
requirements of farmers and can deliver products and services on a timely
basis and understands the importance of flexibility at the local level to
adapt to local conditions. We achieve the proper balance of central
control and direction with local flexibility by utilizing team management
and appropriate incentive programs.
In addition to a strong management team, we also employ 2,500 trained and
experienced employees, including approximately 400 Certified Crop
Advisers, who provide a critical link to the farmer and a significant
competitive advantage for us.
o Producer of Premium, Branded Granulated Fertilizer. We offer a full line
of premium granulated fertilizer products sold under the Super
Rainbow(Registered), Rainbow and International(Registered) brand
names. We believe we have developed customer loyalty to our premium
branded granulated fertilizer products by continuously providing
quality products and services.
o Effective Systems and Controls. Our management team uses a sophisticated
information technology system to enhance the efficiency of product sales
and movement throughout our distribution network. We operate
point-of-sale computer systems at each of our Farmarkets locations which
provide daily reports. We use these systems to provide data for inventory
control, budgeting, forecasting, working capital management, requirements
planning and internal controls.
INDUSTRY OVERVIEW
The market for crop production inputs, including fertilizer, seed and crop
protection products, in the United States was approximately $26.4 billion in
1997, according to the National Agricultural Statistics Service. This market has
experienced steady growth over time, with a compounded annual growth rate of
approximately 5.6% from 1990 to 1997.
FERTILIZER
Fertilizer sales in the United States were approximately $10.9 billion in
1997. Fertilizers are added to soil to replace one or more deficient nutrients
necessary for plant growth. The primary ingredients in fertilizers are nitrogen,
phosphorous and potassium. Nitrogen is necessary to promote development of stems
and leaves. Potassium is essential for development of starches, sugars and
fiber, while phosphorus stimulates growth and formation of fruit and seed.
Depending on the crops grown and soil conditions, farmers will use some
combination of all three of these fertilizer ingredients, either in standard
form as nitrogen, phosphate or potash or in mixed fertilizer products.
Practically all crops grown in the United States today are produced with the use
of a commercial fertilizer since modern crop varieties and higher yields cannot
be sustained by organic methods.
The overall demand for fertilizer products has been consistent, with sales
increasing at a compounded annual growth rate of approximately 4% from 1990 to
1997. Volume for all fertilizer products has grown over the years, increasing
from 20.6 million short tons in 1990 to 22.3 million short tons in 1997. Prices
for phosphate and potash have remained relatively stable or increased in the
past several years. Nitrogen fertilizer prices have been quite volatile, and are
currently at a cyclical low due to recent capacity additions, lack of demand
from China and uncertainty associated with the former Soviet Union.
CROP PROTECTION PRODUCTS
Crop protection products, which generated $8.8 billion in 1997 sales,
include:
o fungicides, which guard against plant diseases;
o herbicides, which keep weed infestations from depriving crops of plant
nutrients and water; and
o pesticides, which control insects.
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Crop protection products have grown at an approximately 7.0% compounded
annual growth rate from 1990 to 1997. Advances in biotechnology may reduce some
of the need for crop protection products by, for example, adding a natural
insect repellent to a plant's genetic code.
SEED
Seed generated $6.7 billion of sales during 1997 in the United States. The
seed business is undergoing a major restructuring driven by developments in
biotech seed. Seed with built-in resistance to insects or herbicides have been
developed, allowing a broader choice of herbicides to eliminate weeds, and often
decreasing the need for additional pesticide applications. Cotton, soybean and
corn farmers are already growing crops with biotech seeds. We believe the market
for genetically enhanced seeds will grow in the next few years. Today, growers
typically purchase seed from neighboring farmers who bought seed for their own
use and also acted as dealers for major seed companies. As use of biotech seed
continues to grow, farmer dealers are finding it difficult to keep up with the
increasing complexities of selling biotech seed.
SERVICES
Technological advances are expected to have a positive impact on
agricultural services. These services range from the traditional custom blending
and application of crop inputs, to more sophisticated and technologically
advanced services, such as soil sampling, pest level monitoring and yield
monitoring using satellite grids and services to assist in developing seed
technology based on genetic engineering.
OUTLOOK FOR CROP PRODUCTION INPUTS
From 1990 to 1997, U.S. farm expenditures for fertilizer, seed and crop
protection products grew at a compounded annual growth rate of approximately
5.6%, with growth in seed exceeding other farm inputs in more recent years.
Demand for fertilizer, seed and crop protection products, and agronomic
services is driven by a variety of factors, including the following:
o Continued population growth will increase demand for food
worldwide: Long-term demand for food is determined by population growth
and rising living standards in developing countries. According to the
World Bank, the world's population is expected to grow from 5.9 billion
in 1998 to 6.8 billion in 2010, an increase of 15.3%. In addition, one of
the first improvements in living standards is increased consumption of
protein products, such as meat and dairy products. In China, consumption
of pork and chicken is projected to increase approximately 40% over the
next 10-year period. The growth in the demand for meat will significantly
increase worldwide demand for grain since grain is a major animal feed.
These trends are resulting in increased demand for U.S. export food
products and, in turn, strong demand for fertilizer, seed and crop
protection products.
o Stable U.S. planted acreage: Demand for fertilizer, seed and crop
protection products in the United States is expected to remain relatively
stable over the next several years. While we expect that the level of
acreage planted for some crops may decline in 1999, the overall outlook
is for a modest increase in total planted acreage. We believe that the
passage of the Federal Agricultural Improvement and Reform (FAIR) Act in
1996 expanded growers' freedom to determine which crops to plant and in
what quantities.
o Limited amount of arable land: As populations continue to grow and diets
improve in developing countries, the world will require increasing
amounts of food. Despite improving farming practices, there is a limited
amount of arable land. As a result, farmers will continue to use
fertilizers, biotech seed and crop protection products to obtain maximum
yields on available land.
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TRENDS IN THE CROP PRODUCTION INPUTS DISTRIBUTION INDUSTRY
The crop production inputs distribution industry has consolidated
significantly over the past 10 years. In 1984, there were approximately 25,000
farm centers operating in North America, compared to approximately 10,500
centers today. We expect that the consolidation trend will continue and will be
driven by a number of factors, many of which we expect to intensify in the
coming years.
o Increased farm size due to consolidation will result in larger and more
sophisticated buyers of crop production inputs who will increasingly rely
on retail distributors, who can act as a "one-stop supplier" of crop
production inputs and services.
o Consolidation of the North American fertilizer and seed industry will
continue to push retail distributors to increase size in order to deal
more effectively with larger suppliers.
o Biotechnology will change the farmers' purchasing requirements for seed
and will require a shift in the distribution channels from the
traditional farmer dealer to more sophisticated farm center networks
which can provide a higher level of service and a broader array of
technology-oriented products to the farmer.
o Growing acceptance of precision agriculture will redefine the way farming
decisions are made and will require farm retail distributors to commit
significant resources to both equipment and training. Precision
agriculture includes site-specific farming utilizing field mapping with
global positioning satellite technology, grid soil sampling and variable
rate application technology to more effectively utilize crop inputs and
measure crop productivity.
o New role for the farmer in an integrated agricultural chain. New
developments in biotechnology will result in increased demand for
specialized, crops and will shift crop output decisions from the farmer
to the end-user. As farmers seek the technology and information necessary
to compete, they will rely increasingly on expert farm center
professionals. To access these farmers, major crop production input
providers will seek to establish closer ties with leading farm center
networks.
o Increasingly stringent environmental, health and safety regulations will
continue to increase the cost and complexity of compliance for farmers
and crop production input distributors, favoring larger retail dealership
networks that can spread the fixed costs of compliance.
BUSINESS OPERATIONS
AGRICULTURAL INFRASTRUCTURE
We have an extensive agricultural product infrastructure of over 400
facilities, consisting of retail farm centers, granulation, blending and seed
processing plants and an integrated network of storage and distribution
terminals and warehouses. In addition, we operate two nitrogen manufacturing
plants that supply our distribution business with nitrogen fertilizer products.
We believe our infrastructure provides us with a significant competitive
advantage over smaller, regional competitors and deters new entrants into this
capital intensive market. Our facilities cover the major farming markets in the
East, South and Midwest. We believe this market presence provides a number of
competitive advantages, including:
o Allows us to supply some of the country's largest buyers of crop
production inputs,
o Provides the opportunity to distribute product for some of the major,
leading farm input producers who are seeking broad distribution of their
products; and
o Provides market diversity that helps to insulate the overall business
from difficult farming conditions as a result of poor weather in any one
particular market or adverse market conditions for a specific crop.
In addition, we use port facilities on the Atlantic Ocean and the
Mississippi River to provide flexibility in product purchasing, including the
ability to access overseas markets when they offer lower prices than the
domestic markets.
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We have instituted central management controls and utilize our logistical
expertise and sophisticated information technology systems to manage our
extensive businesses and facilities network. We understand the importance of
flexibility at the local level to adapt to local conditions. We aim to achieve
the proper balance of central control and direction with local flexibility by
utilizing team management and appropriate incentive programs.
We operate approximately 330 Farmarkets retail farm centers, including
approximately 30 commission sales stores, making us one of the largest retailers
of crop production inputs to farmers in North America. Farmarkets retail centers
market their products and services primarily to end users, the farmers. Retail
centers typically service farmers within a 15 to 25 mile radius of their
locations. We operate centers predominantly in the Midwest to service corn and
soybean farmers and in the Southeast to service farmers focused on
higher-value-added crops, including cotton, peanuts, tobacco and vegetables. We
believe that we capture a leading market share in our principal market areas.
We sell a complete line of products to farmers, including fertilizer, seed
and crop protection products. Each Farmarkets location tailors its product
offering to the specific needs of farmers within its service area. While we
provide a complete line of products and services, fertilizer represents the
majority of Farmarkets' business, accounting for approximately 67% of its 1998
revenues.
We also distribute a full range of crop protection products in our retail
locations. For the convenience of our customers, Farmarkets retail centers carry
large inventories of herbicides, insecticides, fungicides and other products
which target pest problems affecting commercial farm crops. This capability
allows our retail centers to be a "one-stop supplier" for farmers who need a
complete package of crop protection services, including technical advice on
products, sale and delivery of these products and field application.
We also contract with area farmers to grow certified seed products that are
processed and bagged in a number of Farmarkets' facilities. As such, we have
placed an emphasis on new seed technology and provide a complete range of seed
to farmers through local retail centers. Increasingly, our seed product is
prepared for leading seed companies, and sold under their private labels. For
example, we were one of the first outside companies to grow, process, bag and
distribute Roundup Ready soybeans for Monsanto. Roundup Ready is a popular new
biotechnology product which allows the soybean to tolerate Roundup, a popular
crop protection product. We believe that seed technology based on genetic
engineering is an important growth area for agriculture.
In addition to selling traditional crop production inputs, Farmarkets
retail centers provide agronomic services to farmers. These services range from
the traditional custom blending and application of crop nutrients to meet the
needs of individual farmers, to more sophisticated and technologically advanced
services on a fee basis such as soil sampling, pest level monitoring and yield
monitoring using global position systems satellite grids and satellite-linked
variable rate spreaders and applicators to take advantage of the data.
We operate point-of-sale computer systems at each of our Farmarkets
locations which provide daily information. We use these systems to provide data
for inventory control, budgeting, forecasting, working capital management,
requirements planning and internal controls. Modern management concepts such as
organizing field sales by relying on teams of retail center managers are also
utilized.
WHOLESALE DISTRIBUTION
Our wholesale distribution operation supplies a full range of fertilizer,
seed and crop protection products to customers in the Southeast and Midwest. Our
primary wholesale business includes the purchase of nitrogen, phosphate and
potash, three essential nutrients for plant growth, for resale to wholesale
customers. We process the majority of these crop nutrients into blended and
granulated fertilizer products and then sell them as mixed fertilizers.
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We are the largest North American seller of agricultural granulated
fertilizer. In terms of revenue, we have been a leading manufacturer and
distributor of premium, branded agricultural granulated fertilizers with our
primary market focus in the Southeastern farming regions. These products are
marketed under the Super Rainbow, Rainbow, International, Bonanza, Gold Dollar
and Weaver brand names. Granulated fertilizer products are used by farmers who
produce specialty crops, such as citrus fruits, vegetables, tobacco, peanuts and
cotton. Farmers growing these crops are willing to invest more in premium crop
nutrients, such as granulated fertilizers.
We operate seven granulation plants which produce homogenized NPK
(nitrogen, phosphate and potash) products. We believe that we are among the most
efficient, low-cost producers of granulated fertilizers in the U.S. market. We
have a cost-effective production process that uses potash, phosphate and
nitrogen to manufacture granulated fertilizer products with excellent agronomic
traits.
We also offer a range of products with slightly different nutrient contents
within each branded, blended product category. The ability to offer a range of
fertilizer blends helps us accommodate the needs of farmers growing a variety of
specialty crops under different soil conditions. We also produce custom products
to meet the specific needs of large customers.
We distribute our wholesale products in the southeastern United States
through a network of over 900 dealers. Typically, our products represent 25% to
45% of a dealer's annual product turnover. We have supplied granulated
fertilizer product to some members of our network for over 50 years. These
customer relationships provide a competitive advantage today and a platform for
future growth. As part of integrating the businesses, we will provide a broader
array of products and services through our dealer network. For example, we
recently started offering precision farming services through selected dealers.
Another key part of our wholesale business is a network of terminals and
storage facilities located in the Midwest. This integrated network services
customers throughout Iowa, Missouri, Wisconsin, Minnesota, Illinois, Indiana,
Michigan, Ohio, Pennsylvania, New York, West Virginia and Kentucky. When selling
nitrogen fertilizer products, the East Dubuque and Cincinnati plants' proximity
to our wholesale business terminals provides a freight cost advantage over other
suppliers, some of which must transport from the Gulf Coast region or Trinidad.
In addition to lowering freight costs, the location of our wholesale business'
supply terminals helps us meet the needs of customers in the Midwest in a timely
manner.
We have developed a customer base throughout the Midwest in both the
agricultural and industrial markets. In aggregate, our wholesale business
services approximately 1,200 customers in the region. Our wholesale business'
agricultural customer base is diverse and is composed of small family-owned
distributors and several national chains. The industrial customer base is
smaller and less seasonal than the agricultural customers, yet growing at a more
rapid pace. On average, customers have conducted business with us and our
affiliates for over 15 years.
NITROGEN FERTILIZER PRODUCTION
We are a producer of nitrogen fertilizer and industrial products which are
sold through our wholesale distribution network. We own and operate a fully
integrated nitrogen manufacturing plant in East Dubuque, IL, which produces
nitrogen products for both the agricultural and industrial markets. This plant
is designed to produce anhydrous ammonia, nitric acid, ammonium nitrate
solution, liquid and granular urea, nitrogen solutions and carbon dioxide. This
plant can be modified to optimize the product mix according to swings in demand
and pricing for its various products.
Located in the heart of the Midwest, we believe that the East Dubuque plant
enjoys a significant freight cost advantage relative to competing facilities
servicing the region, including an estimated $20 per ton freight advantage over
competing suppliers located in the Gulf Coast region, and a $55 per ton
advantage over new facilities which came on-stream in Trinidad in 1998.
The East Dubuque facility has operated at full capacity during the past ten
years. Through product-exchange agreements with other nitrogen producers in the
Midwest, we reduce
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transportation costs by limiting the East Dubuque service area to customers
within a 100-mile radius of the plant. We often source products from
competitors' facilities on a cost-efficient basis for Farmarkets retail centers
outside the East Dubuque service area. Such swap arrangements, coupled with the
extensive fertilizer storage capacity in our overall system, have enabled us to
optimize production on a year-round basis and minimize transportation costs.
We also have a non-integrated nitrogen production facility in Cincinnati,
OH. This plant purchases anhydrous ammonia and manufactures nitric acid and
ammonium nitrate liquor for industrial use and nitrogen solutions for the
agriculture market. The industrial market represents approximately 25% of sales
of manufactured nitrogen products. Since the industrial business is non-
seasonal, these sales provide a year-round revenue source. In 1996, 1997 and
1998, less than 10% of our sales came from manufacturing fertilizer products.
We believe that we are well-positioned relative to our competitors in the
nitrogen fertilizer production and distribution business. While our
profitability is influenced by fluctuations in nitrogen prices, our strategic
location in the heart of the Midwest, extensive terminal and warehouse systems,
complimentary wholesale distribution channels and industrial customer
concentration mitigate some of the impact of nitrogen price fluctuations.
SEASONALITY
Our business is seasonal, based upon the planting, growing and harvesting
cycles. Typically, over half of our sales occur during the second quarter of
each year, during the spring planting season. As a result of the seasonality of
sales, we experience significant fluctuations in our revenues, income and net
working capital levels. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PRODUCTS
The following table shows our revenues by product line for the three months
ended June 30, 1999 and on a pro forma combined basis for the years ended
December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------ THREE MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
(IN THOUSANDS) ---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Crop Protection................... $ 200,357 $ 208,275 $ 211,263 $131,070
Fertilizer........................ 481,806 486,964 415,940 213,135
Fertilizer Materials.............. 227,143 290,853 251,762 70,122
Seed.............................. 45,069 43,172 58,120 37,596
Other............................. 62,600 66,606 63,338 40,685
---------- ---------- ---------- --------
$1,016,975 $1,095,870 $1,000,423 $492,608
========== ========== ========== ========
</TABLE>
COMPETITION
The market for the distribution of fertilizer, seed and crop protection
products and agronomic services is highly competitive. We believe our products
and services are well positioned in both the retail and wholesale agricultural
market sectors and in the industrial market sector. We compete in the retail
business primarily by providing competitive prices for a comprehensive line of
products and, in our management's opinion, superior services. Currently there
are approximately 10,500 farm retail centers in North America, operated by three
primary types of distribution organizations. Principal competitors in
agricultural crop production inputs distribution include agricultural
cooperatives, which have the largest market share in a majority of the locations
served by us, national fertilizer producers, major grain companies and
independent distributors and brokers. As shown in the following chart, we are
the largest independent distributor in North America.
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PROFILE OF MAJOR AGRICULTURAL DEALER NETWORKS
<TABLE>
<CAPTION>
% OF REVENUES
STATES ---------------------------------
FOCUS RETAIL WITH RETAIL CROP
COMPANY NAME REGIONS(A) OUTLETS OUTLETS FERTILIZER PROTECTION SEED
------------ ---------- ------- ----------- ---------- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
Large independent distributors
C, S, SE,
Royster-Clark(b)...................... E 330(c) 18 67% 22% 6%
Wilbur-Ellis.......................... W 179 15 31 63 6
John Taylor Fertilizer................ W 12 1 44 55 1
Miles Farm Supply..................... C, S 22 3 50 29 13
The McGregor Co....................... W 34 NA 60 33 6
Jimmy Sanders......................... S, SE 35 4 21 62 16
Kova Fertilizer....................... C 10 1 51 39 3
Brandt Consolidated................... C 9 1 51 41 1
Major producers
Terra Industries (d).................. C, S, SE 409 36 46% 46% 4%
United Agri Products(e)............... W, C, SE 300 46 20 78 2
Agrium................................ W, C 232 22 48 43 2
Helena Chemical....................... W, C, SE 230 47 14 82 4
Simplot Soilbuilders.................. W 85 13 45 45 10
Cargill............................... P, C 72 12 52 30 9
Cooperatives
Farmland Industries................... W, C 1,400 NA 46% 49% 5%
AgWay................................. E 515 10 67 13 4
Growmark.............................. C 500 3 19 18 7
Countrymark........................... C 400 3 22 15 8
Southern States....................... SE, S 360 6 56 25 16
Tennessee Farmers..................... S 153 1 62 23 15
Cenex/Land O'Lakes(d)................. C, W 65 10 54 36 4
</TABLE>
- ------------------
(a) Cornbelt ("C"), East ("E"), Plains ("P"), South ("S"), Southeast ("SE") and
West ("W").
(b) Pro forma for the Transactions.
(c) Includes approximately 30 commission sales stores.
(d) Does not give effect to the announced sale of the distribution business of
Terra Industries to Cenex/Land O'Lakes.
(e) Division of Con Agra.
Source: Farm Chemicals, December 1998 and Company estimates.
MANAGEMENT INFORMATION SYSTEMS
Our finance and information technology departments are responsible for all
our financial reporting, information technology and systems, treasury and cash
management, financial analysis and budgeting, state tax filings, and credit and
risk management. In addition, the finance department performs financial modeling
and analysis, due diligence and contract negotiations for acquisitions.
We operate point-of-sale computer systems at each of our Farmarkets
locations which provide daily reports. We use these systems to provide data for
inventory control, budgeting, forecasting, working capital management,
requirements planning and internal controls.
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RAW MATERIALS AND SUPPLIES
We purchase our fertilizer, seed and crop protection products primarily
from the major North American producers.
Fertilizer, nitrogen, phosphate and potash are global commodities which can
be purchased from multiple suppliers. Related to the Transactions, we have
entered into a ten year supply agreement with two divisions of IMC Global, IMC
Agrico and IMC Kalium, to purchase the levels of phosphate and potash
historically delivered to AgriBusiness. The purchase prices of the products
covered by the supply agreement are determined and fixed annualy and approximate
market prices. The supply agreement automatically renews for additional 5 year
periods unless it is canceled by either party. The supply agreement also
specifies remedies available to the parties in the event of noncompliance, which
include compensatory damages in the event of a failure to purchase or supply the
required quantities of covered products.
Approximately 74% of the wholesale business' nitrogen products are sourced
from the East Dubuque and Cincinnati facilities. We purchase the nitrogen we do
not produce from multiple suppliers.
We act as a leading distributor of crop protection products for all the
major agricultural chemical companies, purchasing crop protection products at
the chemical companies' distributor price and receiving a distributor and dealer
cash rebate based on the volume and type of products. The cash rebate is
typically paid near the end of the calendar year but may be advanced monthly
with the balance paid at year-end.
Our major raw material in the manufacture of nitrogen products is natural
gas. The East Dubuque plant's annual gas purchases are approximately 11.2
billion cubic feet. We purchase natural gas monthly on a combination of
firm-supply, fixed-priced and market-priced long-term contracts. We are able to
purchase natural gas at competitive prices due to our connection to the Northern
Illinois Gas (Nicor) distribution system and its proximity to the Northern
Natural Gas pipeline.
The Cincinnati plant purchases anhydrous ammonia for production of nitric
acid and other upgraded nitrogen products. Anhydrous ammonia is purchased under
contract from one primary supplier in the region, but could be purchased from a
variety of other suppliers in the region. The product is delivered to the plant
by barge and rail.
EMPLOYEES AND LABOR RELATIONS
We employ approximately 2,145 non-unionized and salaried employees, 230
unionized employees and approximately 900 temporary employees during seasonal
periods. We believe we have good relations with our employees.
Several union contracts will expire in the summer of 1999. We believe that
we will be able to obtain new union contracts at that time. We are not aware of
any significant work stoppages in the past. Additionally, our management has a
good relationship with union employees and has historically experienced low
turnover.
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PROPERTIES
We have an extensive infrastructure of over 400 facilities, consisting of
retail farm centers, granulation, blend, seed processing and manufacturing
plants and an integrated network of warehouses and terminals. Our facilities
cover the major farming markets in the East, South and Midwest.
The following table provides information regarding our principal production
and storage facilities. The first mortgage notes will be secured by mortgages on
all of the following properties:
<TABLE>
<CAPTION>
LOCATION TYPE OF FACILITY
-------- ----------------
<S> <C>
East Dubuque, Illinois.................... Nitrogen plant (ammonia, urea, ammonium nitrate and
nitric acid plant)
Cincinnati, Ohio.......................... Nitrogen plant (nitric acid, ammonium nitrate and
nitrogen solutions plant)
Madison, Wisconsin........................ Granulation plant
Norfolk, Virginia......................... Granulation plant
Americus, Georgia......................... Granulation plant
Florence, Alabama......................... Granulation plant
Hartsville, South Carolina................ Granulation plant
Winston-Salem, North Carolina............. Granulation plant
Columbus, Ohio............................ Granulation plant
Washington, North Carolina................ Seed production and processing facility
Mulberry, Florida......................... Blend plants
Washington Courthouse, Ohio............... Blend plant
Mt. Sterling, Ohio........................ Blend plant
Tifton, Georgia........................... Blend plant
Marseilles, Illinois...................... Large storage terminal
Murray, Kentucky.......................... Large storage terminal
Wilmington, North Carolina................ Large storage terminal
</TABLE>
NITROGEN PLANTS
East Dubuque, Illinois Plant. The East Dubuque plant is located on
approximately 208 acres on the Mississippi River. It was designed to produce
anhydrous ammonia, nitric acid, ammonium nitrate solution, liquid and granular
urea, nitrogen solutions and carbon dioxide. The plant has a total annual
production capacity of 1.1 million tons, of which 0.5 million tons are used in
the production of upgraded nitrogen fertilizer products and 0.6 million tons are
sold as final products. Recent completion of a $17.0 million nitric acid
facility will increase nitric acid capacity by 62,000 tons. The additional
nitric acid capacity will increase nitrogen solution capacity and help to
minimize dependence on outside suppliers.
Cincinnati, Ohio Plant. The Cincinnati plant is located on a 92 acre site.
This plant purchases anhydrous ammonia and manufactures nitric acid and ammonium
nitrate liquor for industrial use and nitrogen solutions for the agriculture
market. Since the industrial business is non-seasonal, this plant provides a
year-round revenue source. In 1998, the facility shipped approximately 120,000
tons of upgraded nitrogen products. The plant has 16 main storage tanks with a
total capacity of approximately 12.8 million gallons.
GRANULATION PLANTS
Madison, Wisconsin Plant. The Madison plant has a production capacity of
90,000 tons and a storage capacity of 18,000 tons and is located on a 26 acre
site.
Norfolk, Virginia Plant. The Norfolk plant has production capacity of
approximately 80,000 tons of granulated fertilizer and approximately 30,000 tons
of single superphosphate. The facility includes approximately 25,000 tons of
bulk storage capacity for raw materials and finished products. The plant is
located on approximately 24 acres of land.
Americus, Georgia Plant. The Americus plant has a production capacity of
approximately 200,000 tons of granulated fertilizer and approximately 35,000
tons of single superphosphate. The
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facility includes approximately 32,000 tons of bulk storage capacity for raw
materials and finished product. The plant is located on approximately 156 acres
of land.
Florence, Alabama Plant. The Florence plant has a production capacity of
approximately 145,000 tons of granulated fertilizer and approximately 10,000
tons of single superphosphate. The facility includes approximately 13,000 tons
of bulk storage capacity for raw materials and finished product. The plant is
located on approximately 15 acres of land.
Hartsville, South Carolina Plant. The Hartsville plant has a production
capacity of approximately 222,600 tons of granulated fertilizer and
approximately 25,000 tons of single superphosphate. The facility includes
approximately 23,000 tons of bulk storage capacity for raw materials and
finished product. The plant is located on approximately 29 acres of land.
Winston-Salem, North Carolina Plant. The Winston-Salem plant has a
production capacity of approximately 132,000 tons and approximately 17,600 tons
of bulk storage capacity for raw materials and finished product. The plant is
located on approximately 11 acres of land.
Columbus, Ohio Plant. The Columbus plant has a production capacity of
approximately 65,000 tons and approximately 15,000 tons of bulk storage capacity
for raw materials and finished product. The plant is located on approximately 10
acres of land.
SEED PRODUCTION AND PROCESSING FACILITIES
Washington, North Carolina Facility. The Washington facility has a
production capacity of approximately 600,000 bags of seed split between wheat
seed and soybean seed. In addition to seed-processing equipment located in a
production building, the facility also includes 12 bulk grain bins with a
capacity of 44,000 bushels and warehouse facilities for approximately 60,000
bags of finished product. The soybean capacity of this facility is largely
contracted by Monsanto for the production of Roundup Ready seed. The plant is
located on approximately 6 acres of land.
BLEND PLANTS
Mulberry, Florida Plants. The Mulberry plants have a combined production
capacity of approximately 70,000 tons of dry mix, approximately 15,000 tons of
bagged mix and approximately 20,000 tons of storage capacity. The main plant is
located on approximately 40 acres of land.
Washington C.H., Ohio Plant. The Washington Court House plant has a
production capacity of approximately 100,000 tons of dry fertilizer products,
approximately 24,000 tons of bagged fertilizer products and approximately 37,600
tons of storage capacity. The plant is located on approximately 29 acres of
land.
Mt. Sterling, Ohio Plant. The Mt. Sterling plant has a production capacity
of approximately 30,000 tons of liquid fertilizer products and a storage
capacity of approximately 18,000 tons. This plant is located on approximately 11
acres of land.
Tifton, Georgia Plant. The Tifton plant has a production capacity of
approximately 20,000 tons of liquid fertilizer products. The plant is located on
approximately 6 acres of land.
LARGE STORAGE TERMINALS
Marseilles, Illinois Terminal. The Marseilles terminal has a storage
capacity of approximately 64,500 tons. The terminal consists of two warehouses
and six storage tanks located on 141 acres.
Murray, Kentucky Terminal. The Murray terminal consists of a warehouse, a
storage dome and an office building located on approximately 31 acres of land.
Wilmington, North Carolina Terminal. The Wilmington, North Carolina
facility is currently used as a granulation plant. During the summer of 1999, we
expect to consolidate the granulation operations into our other granulation
plants and use the facility as a terminal. The plant has a production capacity
of 80,000 tons and a storage capacity of 37,000 tons. The facility is located on
approximately 30 acres of land.
58
<PAGE>
OTHER PROPERTIES
The first mortgage notes are secured by first mortgages on seventeen of our
principal facilities. In addition to these seventeen facilities, our four real
estate subsidiaries own approximately 280 Farmarkets retail farm centers and
other production, storage and distribution facilities. The limited liability
companies conduct no operations other than leasing the properties to us and our
other subsidiaries, and are not permitted to incur indebtedness for borrowed
money, except for limited intercompany indebtedness. See the "Description of
First Mortgage Notes." Although substantially all of the Farmarkets will be
owned by the special purpose subsidiaries, approximately twenty real estate
holdings, consisting of vacant land or additional parcels at Farmarket sites
owned by a special purpose subsidiary, remain in the operating companies at this
time. They will only be conveyed to a special purpose subsidiary, and thereby
become part of the collateral for the first mortgage notes, if they are found to
be integral to a Farmarket site.
A typical Farmarket is located in or near a small farming community. The
main building would normally include office space for two or three people, an
area to receive customers and indoor warehousing of 5,000 to 10,000 square feet
for crop protection products and seeds. Typically, there is a second building
for the storage of bulk fertilizers and materials. A majority of Farmarkets also
have a fertilizer blender facility, where fertilizer materials are blended to
produce bulk fertilizer products.
In addition to the assets and properties we own, we lease warehouses and
terminals from third parties. The holders of the first mortgage notes will not
have any security interests in these leased facilities. These facilities enhance
our ability to source products to retail centers and wholesale customers
throughout the year, especially during the high-volume spring season.
ENVIRONMENTAL MATTERS
Our facilities and operations must comply with a wide variety of federal,
state and local environmental laws, regulations and ordinances, including those
related to air emissions, water discharges and chemical and hazardous waste
management and disposal. Our operations also are governed by laws relating to
workplace safety and worker health and safety, primarily the rules of the
Occupational Safety and Health Administration and the United States Department
of Transportation. We believe that our operations are in compliance in all
material respects with current requirements under environmental laws and
employee safety laws.
Some environmental laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products. Because of our
operations, the history of industrial or commercial uses at some of our
facilities, the operations of predecessor owners or operators of some of the
businesses, and the use, production and release of hazardous substances at these
sites, we are affected by the liability provisions of environmental laws. Many
of our facilities have experienced some level of regulatory scrutiny in the past
and are or may be subject to further regulatory inspections, future requests for
investigation or liability for hazardous substance management practices.
We are in the process of responding to the presence of hazardous
substances, including nitrates, phosphorous and pesticides in soils and/or
groundwater at a number of sites. At other locations, although releases of
fertilizers or other hazardous substances have been documented, we and our
environmental consultants have concluded that no further action is currently
required, although we have not confirmed this position with the appropriate
regulators. In addition, we have also removed or closed underground storage
tanks from some of our facilities and, in someinstances, are responding to
historic releases at these locations. In total, both voluntary and government
ordered cleanups of releases of hazardous substances are planned or being
performed at approximately forty (40) sites. Also, withthe limitations described
below, indemnity may be available for all locations for which response actions
are planned or required. The cost of these on-going and potential response
actions is not expected to have a material adverse effect on our business,
financial condition or results of operations.
59
<PAGE>
The Comprehensive Environmental Response, Compensation and Liability Act,
as amended ("CERCLA"), provides for responses to, and, in some instances, joint
and several liability for releases of, certain hazardous substances into the
environment. We have been identified as a potentially responsible party under
CERCLA for five off-site locations to date. We believe we are a de minimis party
or not liable at all for those sites.
The Martin Manufacturing site in Williamston, North Carolina has been
identified as a no further action site by the United States Environmental
Protection Agency and is not currently being actively investigated by the State
of North Carolina. We have denied that we have contributed to site conditions at
the Marzone site in Tifton, Georgia and we have not been named in a suit brought
against other potentially responsible parties in that case. We were identified
as a de minimis party by the United States Environmental Protection Agency at
the Caldwell Systems, Inc. site in Lenoir, North Carolina. We have responded to
the government that we never owned the site which reportedly sent waste to the
Caldwell Systems site and, therefore, we have no responsibility for it. We have
settled our liability at the A. A. Waste Oil in Rock Island, IL site for $6,000.
We are also a de minimis party at the Thomasville Transformer site in
Thomasville, Georgia. At the Thomasville site, we reportedly sent only 0.08% of
the total waste sent to the site and are one of approximately 90 potentially
responsible parties. We have not incurred any significant costs relating to
these matters, and we do not believe that we will incur material costs in the
future in responding to conditions at these sites.
In our acquisition of AgriBusiness assets, we obtained indemnities for some
claims related to on-site and off-site environmental conditions and violations
of environmental laws which existed or arose prior to the acquisition. This
indemnity has a $4,500,000 deductible, time limitations, and an overall cap on
all indemnities. In the Transactions, we also obtained indemnities for claims
related to on-site and off-site environmental conditions and violations of
environmental laws which existed or arose in relation to the Royster-Clark
facilities prior to the closing date of this offering. That indemnity is subject
to an overall $2,000,000 deductible, time limitations, and an overall cap of
$5,000,000 on all indemnities. In our acquisition of assets from the Lebanon
Chemical Corporation, we obtained indemnities for some claims related to on-site
and off-site environmental conditions and violations of environmental laws which
arose prior to the acquisition. This indemnity has deductibles, caps, cost
sharing and time limitations depending on the subject matter of the
environmental claim. As part of our indemnity obligation, Lebanon is required to
respond to environmental conditions at five of our facilities.
Capital expenditures for environmental projects are expected to be $425,000
over the next 5 years to perform containment work at 5 sites in Kentucky.
Based on our experience to date, we believe that the future cost of
compliance with existing environmental laws, including liability for known
environmental claims, will not have a material adverse effect on our business,
financial condition or results of operations. However, future events, such as
changes in existing laws and regulations or their interpretation, may give rise
to additional compliance costs or liabilities that could have a material adverse
effect on our business, financial condition or results of operations. Compliance
with more stringent laws or regulations, as well as stricter or different
interpretations of existing laws, may require additional expenditures by us that
could be material.
LEGAL PROCEEDINGS
We are involved in periodic litigation in the ordinary course of our
business, including lawsuits brought by employees and former employees alleging
discriminatory termination practices. We cannot assure you that future
litigation alleging discrimination in our termination practices would not
adversely affect our financial condition or results of operations.
We do not believe that there are any pending or threatened legal
proceedings, including ordinary litigation incidental to the conduct of our
business and the ownership of our properties, that, if adversely determined,
would adversely affect us.
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<PAGE>
MANAGEMENT
The following table provides information about our directors and key
employees.
DIRECTORS AND KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Chairman of the Board and Chief Executive
Francis P. Jenkins, Jr................. 56 Officer
G. Kenneth Moshenek.................... 47 President and Chief Operating Officer
Max Baer............................... 66 Managing Director, Materials and Purchasing
Kenneth Carter......................... 53 Managing Director, Human Resources
John Diesch............................ 42 Managing Director, Nitrogen Division
Thomas Ergish.......................... 50 Managing Director, Logistics
Gary L. Floyd.......................... 45 Managing Director, Crop Protection and Seed
Michael J. Galvin...................... 36 Managing Director, Credit and Farm Financing
Larry D. Graham........................ 46 Managing Director, Rainbow Division
Paul M. Murphy......................... 54 Managing Director, Financial Planning
Robert Paarlberg....................... 53 Managing Director, Information Technology
William Pirkle......................... 37 Managing Director, Environmental, Health and
Safety
Frederick I. Sharp..................... 63 Managing Director and Chief Administrative
Officer
Steven A. Sheline...................... 43 Managing Director, Mid-West Wholesale Division
Brian S. Turner........................ 47 Managing Director, Sales and Marketing
Walter R. Vance........................ 43 Managing Director, Finance
Thomas F. McWilliams................... 56 Director
Randolph G. Abood...................... 48 Director
</TABLE>
FRANCIS P. JENKINS, JR. is the Chairman of the Board and Chief Executive
Officer of Royster-Clark, and has been Chairman and Chief Executive Officer of
Royster-Clark Group since January 1999. From 1994 to 1999, Mr. Jenkins served as
Chairman of the Board and Chief Executive Officer of Royster-Clark. From 1992
until 1994, Mr. Jenkins served as a director and Chairman of the Audit Committee
for Royster-Clark. From 1988 to 1992, he served as Chairman of the Board of
Royster-Clark. From 1979 to 1988, Mr. Jenkins was employed by The First Boston
Corporation where he was one of the four members of the Executive Committee,
co-managed First Boston's Equity Capital Investments and was the Principal
Financial Officer. Prior to that position, he had responsibility for all
security sales, trading and research, as well as holding positions as a Managing
Director and a member of the Management Committee. Mr. Jenkins currently serves
on the Board of Trustees of Babson College, as the Chairman of its Alumni and
Development Committee and as a member of the Executive Committee of the Board.
G. KENNETH MOSHENEK is the President and Chief Operating Officer of
Royster-Clark. Mr. Moshenek has served as President of Royster-Clark since
December 1997, has served as Chief Operating Officer since 1995 and was a
director from August 1997 until April 1999. From August 1997 until April 1999 he
served as Chief Investment Officer of Royster-Clark. Prior to that he held
several positions during his tenure with Royster-Clark including Senior Vice
President of Sales and Marketing, from September 1994 until July 1995, Vice
President and Divisional Sales Manager from 1992 until September 1994 and a
Division Manager from 1990 to 1992. Mr. Moshenek joined W.S. Clark & Sons, Inc.
in 1981. Mr. Moshenek started his career in the fertilizer industry in 1976 when
he joined Smith Douglass, Inc., a division of Borden. Mr. Moshenek currently
serves on the Board of Directors of The Fertilizer Institute and is a member of
the Board's Executive Committee. He also serves as a member of the Board of
Directors of the International Fertilizer Roundtable, and has recently been
elected a member of the Board of Directors of the Agricultural Retailers
Association, Inc. and is a member of the North Carolina Agribusiness Council
Inc. as well as the North Carolina Governor's Committee for Environmental
Education.
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<PAGE>
MAX BAER is the Managing Director of Materials and Purchasing. From 1995
until 1999, Mr. Baer served as Chief Purchasing Officer for Royster-Clark and as
a director of Royster-Clark since 1997. From 1992 until 1995, he served as Chief
Purchasing Officer where he assumed leadership of Royster-Clark's fertilizer
materials procurement and conducted its international trading activities. From
1978 until 1992, Mr. Baer served as Vice President of International Marketing.
Mr. Baer began his career with Smith Douglass, Inc. where he served in the
fertilizer materials purchasing group. Mr. Baer has worked in the fertilizer
industry for 40 years.
KENNETH CARTER is the Managing Director of Human Resources. From 1997 to
1999, Mr. Carter served as the Vice President of Human Resources for
AgriBusiness. Prior to joining AgriBusiness, he served as Vice President of
Human Resources from 1994 until 1997 for Sunbeam Outdoor Products and from 1990
to 1994 served as the Vice President of Human Resources and Corporate
Compensation and Benefits Manager for Litton Industries (Material Handling
Systems).
JOHN DIESCH is the Managing Director, Nitrogen Division. From 1998 to 1999,
Mr. Diesch served as the Vice President and General Manager of Nitrogen
Production and Distribution for AgriBusiness. He also served as the Manager for
the Cincinnati, Ohio Nitrogen Plant and Nitrogen Terminals from 1996 until 1998
and joined Vigoro Industries, Inc. in 1991 as the Cincinnati, Ohio Plant
Manager. Prior to joining Vigoro Industries, Inc., Mr. Diesch held several
positions in the chemical industry, including Plant Manager, Production Manager
and Process Engineer.
THOMAS ERGISH is the Managing Director of Logistics. From 1997 to 1999, Mr.
Ergish served as the Vice President of Human Resources and Distribution. He
joined Royster-Clark in 1996 as the Director of Logistics. Prior to joining
Royster-Clark, Mr. Ergish held the position of Materials Manager for the Sara
Lee Corporation and held several positions in the transportation and logistics
area during his 14 year tenure with Sara Lee. Mr. Ergish has been certified in
the American Production and Inventory Control Society as a Certified Integrated
Resource Manager.
GARY L. FLOYD is the Managing Director of Crop Protection and Seed. From
1992 to 1999, Mr. Floyd managed Royster-Clark's Crop Protection business and
served as the Vice President of Crop Protection and Seed from 1997 to 1999. He
also served as a District Manager from 1990 to 1992 and Manager of Planning and
Development, Crop Protection from 1987 until 1990. Mr. Floyd began his career in
the fertilizer and chemical industry as a North Carolina Agricultural Extension
Agent in 1980 and joined Ciba-Geigy's agricultural division in 1984 as a Sales
Representative. Mr. Floyd is a member and Past President of the North Carolina
Crop Protection Association and a member of the Southern Crop Protection
Association.
MICHAEL J. GALVIN is the Managing Director of Credit and Farm Financing.
From 1996 until 1999, Mr. Galvin served as Vice President and General Credit
Manager of Royster-Clark. Prior to 1996, Mr. Galvin was a Vice President and
Regional Market Manager for Centura Bank. Mr. Galvin began his career in 1985 as
a national bank examiner with the Comptroller of the Currency's office. Mr.
Galvin has over 14 years experience in banking and credit. He is currently a
member of the National Association of Credit Managers Atlantic Agricultural
Conference.
LARRY D. GRAHAM is the Managing Director of Rainbow Division. From 1996
until 1999, Mr. Graham was employed by AgriBusiness first serving as Senior Vice
President with the Rainbow Division and then Senior Vice President -- Sales.
From 1994 until 1996, he served as General Manager -- Rainbow. From 1977 until
1994, he served in various positions with IMC Global, including Area Manager,
Area Sales Manager and Sales Supervisor.
PAUL M. MURPHY is the Managing Director of Financial Planning. From 1996
until 1999, he served as Vice President of Planning and Analysis and Secretary
of Royster-Clark. From 1992 until 1996, he served as a Divisional Controller of
Royster-Clark. From 1981 until 1992, Mr. Murphy served several companies in
Europe and the United States and from 1969 until 1981, he was at General
Electric, where he served in a lead financial and accounting role for GE's
Information Services business in Europe.
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<PAGE>
ROBERT PAARLBERG is the Managing Director of Information Technology. From
1997 to 1999, Mr. Paarlberg served as Director of Information Systems for
AgriBusiness. From 1979 to 1997, he held varying management and technical
positions with AgriBusiness and its predecessors, including Infrastructure
Architect, Manager of Financial Systems, Manager of Microcomputer and
Telecommunication Development and Senior Analyst. Prior to joining AgriBusiness,
Mr. Paarlberg was a financial internal auditor for various companies. He has
served on the Corporate Advisory Board of PC Week and hosted a radio show called
Computer Talk for seven years.
WILLIAM PIRKLE is the Managing Director of Environmental, Health and
Safety. From 1996 until 1999, Mr. Pirkle served as the Southeast Environmental
Administrator for AgriBusiness. From 1990 to 1996 he served as Quality Control
Coordinator and Safety Administrator for the Rainbow Division of IMC Global.
Prior to joining IMC Global, Mr. Pirkle served as Plant Manager for Simplex
Nails from 1987 until 1990 and as the Quality Control Manager for Interface
Flooring from 1985 until 1987.
FREDERICK I. SHARP, effective July 6, 1999, will be the Managing Director,
Chief Administrative Officer. Prior to joining Royster-Clark in July 1999, Mr.
Sharp served as the Vice President of Human Resources for Western Union from
1992 to 1999. He has also served as the Vice President of Search Fulfillment and
Business Development for Haebrecht Associates from 1986 to 1992, Vice President
of Human Resources for American Express Travel Related Services, Inc. from 1983
to 1986, Management Consultant for Towers, Perrin, Foster & Crosby from 1981 to
1983 and Vice President of Corporate Personnel for Avis, Inc. from 1976 until
1981.
STEVEN A. SHELINE is the Managing Director, Midwest Wholesale Division.
From 1995 to 1999, Mr. Sheline served as the Senior Vice President of the
Madison Division of Royster-Clark with responsibilities for both wholesale sales
and the production facility at Madison, Wisconsin. Prior to that he held several
positions during his tenure with Royster-Clark including General Manager of the
Madison Division from 1988 until 1995, Division Sales Manager from 1985 until
1988, Wholesale Salesperson from 1983 until 1985, Controller for the Midwest
Division from 1981 until 1983, and joined Royster-Clark as an Accountant for the
Midwest Division in 1979. Mr. Sheline currently serves on the Board of Directors
of the Wisconsin Fertilizer and Chemical Association.
BRIAN S. TURNER is the Managing Director of Sales and Marketing. From
November 1997 until March 1999, he was employed by Hydro Agri North American as
Director of Marketing Development. From 1996 until November 1997, he held the
position of Vice President -- Marketing with IMC Global, where he was
responsible for all North American sales activity as well as the distribution,
product management and customer service functions. From 1994 until 1996, Mr.
Turner was Vice President of North American Sales of the IMC fertilizer group.
During his tenure with the IMC, he served in several positions with the Rainbow
Division including Vice President and General Manager from 1991 until 1994, Area
Manager from 1985 until 1991, Sales Supervisor from 1982 until 1985 and
Territory Sales Representative from 1977 until 1982.
WALTER R. VANCE is the Managing Director of Finance. From 1995 until 1999,
Mr. Vance served as Vice President and Chief Financial Officer of Royster-Clark
and from 1992 until 1995, he was Vice President and Corporate Controller. Mr.
Vance joined Royster-Clark in 1991 where he served as Controller until 1992.
From 1987 until 1991, he was the Controller of Northwest Hardware. Prior to
1987, he served as Senior Accountant of Royster-Clark for three years.
THOMAS F. MCWILLIAMS is a Director of Royster-Clark and has been a Director
of Royster-Clark Group since January 1999. Mr. McWilliams is a Managing Director
of Citicorp Venture Capital Ltd. and has served on its Investment Committee
since 1984. He is also a Vice President and a member of the Investment Committee
for 399 Venture Partners, Inc. He serves on the Boards of Chase Industries,
Pen-Tab Industries, Ergo Science, Airxcel, Inc., HydroChem Holding, Inc., MMI
Products, Inc., along with various other companies which have no public
securities outstanding. Mr. McWilliams served as a director of Rax Restaurants
when it filed for bankruptcy in 1996.
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<PAGE>
RANDOLPH G. ABOOD is a Director of Royster-Clark and has been a Director of
Royster-Clark Group since January 1999. Mr. Abood is a self-employed attorney,
and since 1994, Mr. Abood has served as General Counsel for Royster-Clark. From
1976 until 1996, Mr. Abood practiced law with the firm of Satterlee Stephens
Burke & Burke and its predecessor firm. He became a partner of the firm in 1983
and head of its tax department. Mr. Abood is also the manager and owner of The
Ninigret Group, L.C., a Utah limited liability company that develops, constructs
and co-owns real estate, including Ninigret Park, a 178 acre business park in
Salt Lake City. Mr. Abood also serves on the Board of Directors of Equity Oil
Company.
COMPENSATION OF DIRECTORS
The directors do not receive any compensation for their services as
directors. Directors are elected annually to serve until the next annual meeting
or until their successors have been elected and qualified. The stockholders have
entered into a stockholders' agreement governing the election of directors. See
"Certain Relationships and Related Transactions."
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued for the
fiscal year ended December 31, 1998 to our executive officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION FOR FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALL OTHER(1) TOTAL
NAME AND PRINCIPAL POSITION SALARY 1998 BONUS COMPENSATION COMPENSATION
- --------------------------- ------------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Francis P. Jenkins, Jr.,........ $275,053.04 $120,000.00 -- $395,053.04
Chairman and Chief Executive
Officer
G. Kenneth Moshenek,............ 136,725.40 80,000.00 $2,175.05 218,900.45
President and Chief Operating
Officer
Walter Vance,................... 95,473.68 40,000.00 2,541.63 138,015.31
Managing Director, Finance
</TABLE>
- ------------------
(1) Includes employer matching contributions from our 401(K) Plan
EMPLOYMENT AGREEMENTS
In the Transactions, Mr. Jenkins entered into a five-year employment
agreement with our parent, Royster-Clark Group and with us. Mr. Jenkins will
serve as Chief Executive Officer of Royster-Clark Group and of Royster-Clark and
will receive an annual base salary of $500,000, and will receive annual merit
increases as determined by the Royster-Clark Group Board of Directors. In
addition to the annual base salary, Mr. Jenkins will be entitled to:
o participate in an annual performance bonus plan based on individual
criteria and/or executive incentive programs to be determined from time
to time by the Royster-Clark Group Board of Directors and
o receive standard company benefits provided to executive officers from
time to time.
In addition to standard company benefits, Royster-Clark Group has agreed to
provide up to $50,000 to Mr. Jenkins to obtain a life insurance policy for the
benefit of his wife and family. This employment agreement with Mr. Jenkins is
terminable by the Royster-Clark Group with or without cause. In the event that
the employment agreement is terminated without cause and provided that Mr.
Jenkins complies with the confidentiality and non-competition covenants, Mr.
Jenkins will be
64
<PAGE>
entitled to receive all payments due as base salary during the remainder of his
employment term and to receive a pro rata portion of any bonus for the year in
which he is terminated. During his employment term and for two years after that
time, Mr. Jenkins will be bound by a non-competition covenant.
We and Royster-Clark Group expect to enter into employment agreements with
other key employees.
STOCK OPTIONS
The following table lists, as of the closing of the Transactions, the
number of shares of common stock underlying options held by the named executive
officers and the value of unexercised in-the-money options.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES --------------------------- ---------------------------
ACQUIRED VALUE
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis P. Jenkins,
Jr.................... -- -- -- -- -- --
G. Kenneth Moshenek..... -- -- 17,792 0 $2,459,742 0
Walter Vance............ -- -- 4,720 0 $ 690,558 0
</TABLE>
EMPLOYEE SAVINGS AND INVESTMENT PLAN
We maintain a defined contribution Employee Savings and Investment Plan
covering substantially all our full-time employees. Participants may contribute,
on a pre-tax basis, up to 18% of their salary. We may, at our discretion, make
matching contributions to the savings plan on behalf of each participant who
makes elective contributions to the savings plan in an amount equal to a
percentage of the participant's elective contributions. We also may, at our
discretion, make profit sharing contributions to the savings plan on behalf of
all participants who are eligible to share in such contributions actively
employed on the last day of the plan year. In 1998, we made matching
contributions on behalf of Mr. Moshenek of $2,175.05 and on behalf of Mr. Vance
of $2,541.63.
EMPLOYEE STOCK OWNERSHIP PLAN
We have maintained a noncontributory employee stock ownership plan (the
"ESOP") for substantially all full-time employees. An employee is eligible to
participate upon completion of one hour of service on or before March 31, 1992
or upon completion of one year of service. At our discretion, we may make
contributions on the behalf of participants to the plan from our current or
accumulated net profit or out of our capital surplus which is invested primarily
in our common stock. Contributions are determined and made at the discretion of
the Board of Directors and, at a minimum, must be sufficient to service the ESOP
trust debt. When contributions are made to the plan, each participant will share
in the contributions on a pro-rata basis determined on the basis of individual
compensation and total participants compensation. Upon retirement, participants
will receive the value of the amounts which have accumulated in their account in
the form of company stock or property. There were no contributions made for the
years ended June 30, 1996, 1997 or 1998. When a reverse stock split occurred on
the date the Transactions were completed, the shares of Royster-Clark stock held
by the ESOP became a fractional share interest that was purchased by
Royster-Clark for cash. As of the closing of the Transactions, Mr. Jenkins had
an account balance of $1,710 for his interests in the ESOP, Mr. Moshenek had an
account balance of $24,510 for his interests in the ESOP and Mr. Vance had an
account balance of $27,075 for his interests in the ESOP.
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<PAGE>
1992 STOCK OPTION PLAN
We have maintained a stock option plan for our eligible key employees and
directors enabling them to acquire our common stock in the form of incentive
stock options and of non-qualified stock options. Eligible employees under the
stock option plan include our directors and employees, including officers, and
consultants to us who are found to have or have rendered significant services
and contributed to our success. We did not grant any options under the stock
option plan in 1998. All options granted under the stock option plan vested upon
completion of the Transactions and were cashed out or rolled over as options
under the 1999 restricted stock purchase plan. Messrs. Moshenek, Vance and Abood
have each rolled over their options into the 1999 restricted stock purchase
plan. See " -- 1999 Restricted Stock Purchase Option Plan" and see "Certain
Relationships and Related Transactions."
1999 RESTRICTED STOCK PURCHASE AND OPTION PLAN
Under the 1999 Restricted Stock Purchase and Option Plan of Royster-Clark
Group, Inc., 200,000 shares of Royster-Clark Group common stock have been
reserved for issuance in the form of restricted share grants to current and
future management of Royster-Clark Group and 39,380 shares of Class A Common
Stock, 14,795 shares of Series A Preferred Stock and 8,320 shares of Series B
Preferred Stock have been reserved for the exercise of stock options rolled over
from the 1992 stock option plan. Shares issued under the 1999 restricted stock
purchase plan have restrictions on transfer of shares as provided in the
stockholders' agreement described below in "Certain Relationships and Related
Transactions," including the right of Royster-Clark Group to repurchase shares
upon termination of a stockholder's employment prior to the fifth anniversary of
the closing, at a formula price. All options granted under the existing 1992
stock option plan have been cashed out or rolled over as options under the 1999
restricted stock purchase plan on terms similar to the options under the 1992
stock option plan, except that upon exercise the holder will receive the
consideration he would have received if he had owned stock outright prior to the
Transactions.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
PRINCIPAL SHAREHOLDERS
All of our outstanding capital stock is owned by Royster-Clark Group. The
following table provides information about the beneficial ownership of the
Royster-Clark Group common stock as of the closing of the Transactions by (1)
each person or entity who owns five percent or more of the common stock, (2)
each of our directors who is a stockholder, (3) our Chief Executive Officer and
the other executive officers named in "Management -- Executive Compensation"
above who are stockholders, and (4) all of our directors and executive officers
as a group.
NUMBER AND PERCENT OF SHARES
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES
---------------------------------------------------------
ROYSTER-CLARK GROUP ROYSTER-CLARK GROUP
CLASS A COMMON STOCK CLASS B COMMON STOCK
------------------------ --------------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT(1) NUMBER PERCENT
------------------------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C>
399 Venture Partners, Inc............................ 360,000(2) 46.9% 1,231,600(3) 100%
399 Park Avenue
New York, New York 10043
Francis P. Jenkins, Jr............................... 305,638(4) 39.8 -- --
c/o Royster-Clark, Inc.
10 Rockefeller Plaza-Suite 1120
New York, New York 10020
G. Kenneth Moshenek.................................. 19,727(5) 2.6 -- --
c/o Royster-Clark, Inc.
10 Rockefeller Plaza-Suite 1120
New York, New York 10020
Walter Vance......................................... 5,713(6) * -- --
c/o Royster-Clark, Inc.
P.O. Box 250
Tarboro, North Carolina 27886
Thomas F. McWilliams(7).............................. -- -- -- --
c/o 399 Venture Partners, Inc.
399 Park Avenue
New York, New York 10043
Randolph G. Abood.................................... 12,617(8) 1.6 -- --
c/o Royster-Clark, Inc.
10 Rockefeller Plaza-Suite 1120
New York, New York 10020
All directors and executive officers as a group (5
persons)........................................... 343,695 44.7% -- --
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Less than one percent
(1) All percentages do not give effect to the shares of
Royster-Clark Group Class A issuable upon conversion of
Royster-Clark Group Class B Common Stock. See " --
Royster-Clark Group Common Stock."
(2) Does not include shares of Royster-Clark Group Class A
Common Stock issuable upon conversion of Royster-Clark Group
Class B Common Stock. See " -- Royster-Clark Group Common
Stock."
(3) Does not include shares of Royster-Clark Group Class B Stock
issuable upon conversion of Royster-Clark Group Class A
Common Stock. See " -- Royster-Clark Group Common Stock."
(4) Includes shares pledged to secure a promissory note in the
amount of $1.8 million.
(5) Includes 17,792 shares subject to options that are currently
exercisable.
(6) Includes 4,720 shares subject to options that are currently
exercisable.
(7) Does not include shares of Royster-Clark Group owned by 399
Venture Partners, Inc.
(8) Includes shares pledged to secure two promissory notes, each
in the amount of $220,000.
</TABLE>
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ROYSTER-CLARK GROUP COMMON STOCK
The Certificate of Incorporation of Royster-Clark Group provides that
Royster-Clark Group may issue 4,000,000 shares of common stock, divided into two
classes consisting of 2,000,000 shares of Class A Common Stock and 2,000,000
shares of Class B Common Stock. The holders of Class A Common Stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
the stockholders. Except as required by law, the holders of Class B common stock
have no voting rights. Under the Certificate of Incorporation of Royster-Clark
Group, a holder of either class of common stock may convert any or all of his
shares into an equal number of shares of the other class of common stock;
provided that in the case of a conversion from Class B Common Stock, which is
nonvoting, into Class A Common Stock, which is voting, the holder of shares to
be converted would be permitted under applicable law to hold the total number of
shares of Class A Common Stock which would be held after giving effect to the
conversion.
In addition to the common stock, 399 Ventures owns a $10 million
subordinated note of Royster-Clark Group that does not require cash interest
payments and 474,504 shares of Royster-Clark Group preferred stock and Messrs.
Jenkins, Moshenek, Vance and Abood own, or will have the right to acquire upon
exercise of options, approximately 172,146, 11,376, 3,289 and 14,800 shares of
Royster-Clark Group preferred stock, respectively, in two series. The total
number of shares of Royster-Clark Group preferred stock outstanding after
completion of the Transactions was approximately 682,014 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the time of the Transactions, 399 Ventures, Mr. Jenkins and other
members of management entered into a series of arrangements and agreements to
reflect their investments in Royster-Clark Group, our corporate parent, and the
arrangements among themselves as stockholders of Royster-Clark Group.
To effect the acquisitions of AgriBusiness and Royster-Clark, 399 Ventures
purchased a $22.2 million 4 1/2% convertible subordinated note from us on March
31, 1999. This note was contributed by 399 Ventures to the capital of
Royster-Clark Group and in turn contributed by Royster-Clark Group back to us at
the closing of this financing. In addition, we effected a number of transactions
involving holders of our stock and stock options: we redeemed 2,498 shares of
stock from a group of stockholders who did not wish to be continuing investors
in Royster-Clark Group for an aggregate amount of approximately $712,000. We
redeemed 23,677 common-equivalent shares of our stock held by Mr. Jenkins for a
price of approximately $6.8 million. We redeemed5,385 shares of our stock from
some stockholders, including Messrs. Moshenek, Vance and Abood, who wished to
remain investors in Royster-Clark Group for an aggregate amount of approximately
$1.5 million. Some options to acquire our common stock, including Messrs.
Moshenek, Vance and Abood, elected to exchange their options for options issued
under Royster-Clark Group's 1999 restricted stock purchase plan. At the time of
the closing of the Transactions, we also effected a reverse stock split that
resulted in cash payments in lieu of fractional share interests to holders of
existing stock options who did not elect to exchange their options for options
in Royster-Clark Group and to our Employee Stock Ownership Plan in aggregate
amounts of approximately $649,000 and $2.9 million, respectively. Overall, at
the time of the Transactions, Messrs. Jenkins, Moshenek, Vance and Abood each
received, or have the right to receive upon exercise of options, approximately
$6.8 million, $42,000, $22,000 and $276,000 in cash, respectively, and $17.5
million, $1.2 million, $335,000 and $1.5 million in securities of our parent,
respectively. All of our stockholders who elected to continue as investors in
Royster-Clark Group, including these individuals, received an aggregate of $8.3
million in cash and $23.5 million in securities of our parent, including
securities issuable upon exercise of options.
At the time of the Transactions, Mr. Jenkins, 399 Ventures and other key
employees entered into a series of agreements as detailed below.
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STOCKHOLDERS' AGREEMENT
Royster-Clark Group, 399 Ventures, Mr. Jenkins and management stockholders
entered into a stockholders' agreement related to our common stock and corporate
governance.
The stockholders' agreement provides that the Board of Directors of
Royster-Clark Group will be composed of up to five directors, which will include
two individuals designated by Mr. Jenkins, two individuals designated by 399
Ventures, and the remaining director will be an independent director designated
by the vote of a majority of the other four directors. 399 Ventures has only
designated one director at this time, and the independent director has not yet
been selected.
The stockholders' agreement also contains provisions which, with some
exceptions, restrict the ability of the stockholders to transfer any
Royster-Clark Group common stock except according to the terms of the
stockholders' agreement. If holders of more than 50% of the Royster-Clark Group
common stock approve the merger or consolidation of Royster-Clark Group or the
sale of substantially all its assets, each stockholder has agreed to consent to
the sale and, if the sale includes the sale of stock, each stockholder has
agreed to sell all of the stockholder's Royster-Clark Group common stock on the
terms and conditions approved by holders of a majority of the Royster-Clark
Group common stock then outstanding. In the event Royster-Clark Group proposes
to sell any equity securities, Royster-Clark Group must first offer to each of
the other shareholders a pro rata portion of such shares unless such a sale
falls under one of the limited exceptions. With some limitations, neither Mr.
Jenkins nor 399 Ventures may sell any of their shares of Royster-Clark Group
common stock without offering the other stockholders a pro rata opportunity to
participate in the sale.
With the exception of shares issued upon exercise of outstanding options,
the stockholders' agreement also provides for additional restrictions on
transfer of shares under the 1999 restricted stock purchase plan, including the
right of Royster-Clark Group to repurchase some shares upon termination of
employment of a holder of shares under the plan prior to the fifth anniversary
of the closing, at a formula price, and the grant of a right of first refusal in
favor of Royster-Clark Group in the event a holder of shares under the plan
elects to transfer shares of Royster-Clark Group common stock.
PREFERRED STOCKHOLDERS' AGREEMENT
The stockholders of Royster-Clark Group also entered into a preferred
stockholders' agreement containing agreements regarding their future
relationships and their rights and obligations related to the Royster-Clark
Group's preferred stock. Under the preferred stockholders' agreement an investor
cannot transfer shares of preferred stock unless all other investors are offered
an equal opportunity to participate in the transaction on a pro rata basis.
Under some circumstances, holders of preferred stock may be required to join in
a sale of all the preferred stock to a third party.
REGISTRATION RIGHTS AGREEMENT
Royster-Clark Group, 399 Ventures and the other stockholders of
Royster-Clark Group entered into a registration rights agreement. Under the
registration rights agreement, at any time after six months after the
Royster-Clark Group has completed an initial public offering, 399 Ventures and
Mr. Jenkins will each have demand registration rights. The parties to the
registration rights agreement will also have "piggyback" registration rights
which, with some exceptions, allow them to participate in a public offering of
common stock. The Royster-Clark Group will pay the registration expenses of the
selling stockholders other than underwriting fees, brokerage fees and transfer
taxes applicable to the shares sold by the stockholders or the fees and expenses
of any accountants or other representatives retained by a selling stockholder.
OTHER ARRANGEMENTS
Mr. Abood serves as General Counsel to Royster-Clark and is paid on a fee
basis for the time he spends on matters for Royster-Clark. During 1997 and 1998,
we paid Mr. Abood approximately $150,000 and $177,000, respectively, for
services rendered.
S. Clark Jenkins, the brother of Francis P. Jenkins, Jr., was formerly the
President of Royster-Clark. We have a non-compete agreement with Clark Jenkins,
effective December 1, 1997, that pays him $20,833 per month through December 31,
1999. In addition, Clark Jenkins received payments of approximately $210,000 in
1997 under a previous agreement.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
GENERAL. The following is a summary of certain indebtedness of our company.
A copy of the senior secured credit facility is filed as an exhibit to the
registration statement of which this prospectus constitutes a part.
Related to the Transactions, we entered into the senior secured credit
facility with a syndicate of financial institutions, as lenders, led by DLJ
Capital Funding, as arranger and syndication agent, J.P. Morgan Securities,
Inc., as documentation agent, and U.S. Bancorp Ag Credit, Inc., as
administrative agent. The following summary describes provisions relating to the
senior secured credit facility.
Lenders have agreed to extend credit to us on a revolving basis at any time
and from time to time for a period of five years following the closing of the
Transactions in an aggregate principal amount of $275.0 million, of which up to
$10 million will be available as a letter of credit sub-facility. Availability
under the senior secured credit facility is qualified by various conditions
precedent typical of bank loans, including, among other things, the absence of
any material adverse change on our part and our subsidiaries, taken as a whole.
Additionally, the maximum principal amount of outstanding borrowings under the
senior secured credit facility may not exceed the lesser of:
o $275 million and
o a borrowing base comprised of a percentage of the value of all
-- eligible inventory,
-- eligible accounts receivable,
-- prepaid inventory and
-- rebate receivables of us and our domestic subsidiaries.
We used borrowings under the senior secured credit facility together with the
first mortgage notes to
o purchase AgriBusiness,
o purchase Royster-Clark,
o refinance existing debt of Royster-Clark and AgriBusiness,
o pay fees and expenses in the transactions and
o provide for working capital and other general corporate purposes.
SECURITY. The obligations under the senior secured credit facility are secured
by:
o a first priority perfected lien on all of our accounts receivable,
inventory, general intangibles and other property and assets and those of
our direct and indirect subsidiaries, except for the first mortgages on
seventeen of our and our subsidiaries' principal properties, the related
fixtures and equipment, and other related assets (the "Fixed Assets"),
which secure the first mortgage notes and
o all of our capital stock and all the capital stock of our direct and
indirect subsidiaries; provided that
-- no more than 65% of the equity interests of non-U.S. subsidiaries held
by us or our domestic subsidiaries will be required to be pledged as
security and
-- the equity interests of the limited purpose subsidiaries formed to own
our non-mortgaged real estate, which secure the first mortgage notes,
will not secure the senior secured credit facility.
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We will also, according to cash collateral arrangements satisfactory to the
syndication agent and the administrative agent, provide full cash dominion over
our cash management accounts to the administrative agent on behalf of the
lenders under the senior secured credit facility. The senior secured credit
facility ranks equally with the first mortgage notes in right of payment.
At our option, loans outstanding under the senior secured credit facility
will bear interest at the administrative agent's alternate base rate plus 1.50%
or reserve-adjusted London Interbank Offered Rate plus 2.75%, in either case for
the first twelve months following the closing date and, after that time, will be
determined by a leverage-based pricing grid. At June 30, 1999, we had $98.8
million outstanding under the senior secured credit facility bearing interest at
8.08%. The credit agreement also provides that a commitment fee of 0.50% per
annum is payable quarterly in arrears on the daily average unutilized amount of
the senior secured credit facility for the first twelve months following the
closing, and after that time will also be determined by a leverage-based pricing
grid.
COVENANTS AND EVENTS OF DEFAULT. The senior secured credit facility
contains among other things, covenants and restrictions under which we and our
subsidiaries, other than the limited purpose subsidiaries which secure the first
mortgage notes, may not, subject to customary exceptions described in the senior
secured credit facility:
o incur additional indebtedness, other than indebtedness incurred under
the senior secured credit facility, the first mortgage notes, other
indebtedness existing on the date of the senior secured credit
facility, unsecured indebtedness evidenced by seller notes issued in
connection with any acquisition permitted by the senior secured credit
facility, additional debt in an amount not exceeding $4.0 million and
other customary exceptions;
o create liens on any property, revenues or assets;
o make any loan or advance to any person;
o declare or pay any dividends, except to Royster-Clark Group to pay its
overhead expenses, not to exceed $2.0 million in the aggregate in any
fiscal year, and to pay taxes;
o permit the ratios of
-- EBITDA to interest expense,
-- current assets to the sum of current liabilities and outstanding
loans and letters of credit,
-- indebtedness to EBITDA and
-- EBITDA less capital expenditures and taxes to interest expense
to fall below levels specified in the senior secured credit facility, with
levels increasing year over year through October 1, 2000, for the EBITDA to
interest expense, through January 1, 2002 for the current assets to the sum of
current liabilities and outstanding loans and letters of credit, through October
1, 2001 for indebtedness to EBITDA and through April 1, 2001 for EBITDA less
capital expenditures and taxes to interest expense.
o permit net worth to fall below levels specified in the senior secured
credit facility;
o make capital expenditures in excess of the amounts and for the periods
described below:
Fiscal Year Capital Expenditure Amount
----------- --------------------------
1999.......................... $27 million
2000.......................... 28 million
2001.......................... 30 million
2002.......................... 30 million
2003.......................... 32 million
2004.......................... 35 million
o liquidate, dissolve, consolidate with, or merge into or with, any
other person, or purchase or otherwise acquire all or substantially
all of the assets of another person;
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o dispose of any assets to any person in one transaction or series of
transactions;
o amend or modify the provisions of the first mortgage note documents;
o enter into any transactions with any affiliate, unless the transaction
is on terms and conditions not materially less favorable than could be
obtained in an arm's-length transaction with a person other than an
affiliate and is of the kind that would be entered into by a prudent
person with a person that is not an affiliate;
o enter into agreements with negative pledge clauses;
o enter into sale and lease-back transactions;
o issue any stock to any person or become liable for any obligation to
purchase, redeem, retire, acquire or make any other payment in respect
of any shares of stock or any option, warrant or other right to
acquire shares of stock.
Events of default under the senior secured credit facility include, among
other things:
o failure to pay principal or interest when due;
o violation of covenants;
o failure of any representation or warranty to be true in all material
respects when made;
o cross payment default or non-payment default permitting acceleration
related to or acceleration of indebtedness;
o change of ownership or control;
o events of bankruptcy;
o judgment defaults; and
o ERISA events.
PREPAYMENTS. At our option, we may prepay loans and reduce the amounts
available to us under the senior secured credit facility at any time, without
premium or penalty. With some exceptions, we must prepay the senior secured
credit facility and, in some circumstances, reduce the commitments under the
credit facility, with customary exceptions to be agreed, in an amount equal to:
o 100% of the proceeds received by us or any of our subsidiaries from the
sale of property or tangible and intangible assets, other than Fixed
Assets, of the person;
o 100% of the insurance recoveries or condemnation awards received by us or
any of our subsidiaries from the destruction or condemnation of property
or tangible and intangible assets, other than Fixed Assets, of the
person;
o 100% of the proceeds received by us or any of our subsidiaries from the
sale or issuance by the person of debt securities; and
o 50% of the proceeds received by us or any of our subsidiaries from the
sale or issuance of equity securities of the person.
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DESCRIPTION OF FIRST MORTGAGE NOTES
You can find the definitions of some of the terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Royster-Clark" refers only to Royster-Clark, Inc. and not to any of its
subsidiaries.
Royster-Clark issued the existing first mortgage notes under the indenture
among itself, the guarantors and U.S. Trust Company of New York, as trustee. The
terms of the indenture apply to the existing first mortgage notes and to the
exchange first mortgage notes for which you may tender your existing first
mortgage according to the exchange offer. The terms of these first mortgage
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of the first mortgage notes.
BRIEF DESCRIPTION OF THE FIRST MORTGAGE NOTES AND THE GUARANTEES
THE FIRST MORTGAGE NOTES:
o are general obligations of Royster-Clark;
o are secured by:
(1) first mortgages on 17 of Royster-Clark's and its subsidiaries'
principal properties and related fixtures and equipment and other related
assets; and
(2) all of the equity interests of Royster-Clark Realty LLC,
Royster-Clark AgriBusiness Realty LLC, Royster-Clark Nitrogen Realty LLC
and Royster-Clark Hutson's Realty LLC (collectively, the "Special Purpose
Restricted Subsidiaries"), Royster-Clark's subsidiaries that own or will
own approximately 280 properties used in our business;
o are senior in right of payment to any future subordinated Indebtedness of
Royster-Clark; and
o are unconditionally guaranteed by the guarantors.
THE GUARANTEES
The first mortgage notes are fully and unconditionally guaranteed by
Royster-Clark Group and all of the Restricted Subsidiaries of Royster-Clark on a
joint and several basis.
The guarantees of the first mortgage notes:
o are general unsecured obligations of each guarantor;
o are equal in right of payment with all existing and future Senior Debt of
each guarantor, including their guarantees of the Credit Agreement; and
o are senior in right of payment with any future senior subordinated
Indebtedness of each guarantor.
OTHER
A majority of Royster-Clark's operations are expected to be conducted
through its subsidiaries and, therefore, Royster-Clark will depend on the cash
flow of its subsidiaries to meet its obligations, including its obligations
under the first mortgage notes. Royster-Clark is also the borrower under the
Credit Agreement, which is secured by:
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o all of the accounts receivable, inventory, general intangibles and other
tangible and intangible property and assets of Royster-Clark and its
subsidiaries, other than the assets securing the first mortgage notes;
o all of Royster-Clark's common stock; and
o all of the common stock of Royster-Clark's subsidiaries other than
Royster-Clark Realty LLC, Royster-Clark AgriBusiness Realty LLC,
Royster-Clark Nitrogen Realty LLC and Royster-Clark Hutson's Realty LLC,
our Special Purpose Restricted Subsidiaries, that own or will own
approximately 280 properties used in our business, including
substantially all of the owned Farmarkets and other facilities. The
equity interests of the four companies are pledged to secure the first
mortgage notes.
The first mortgage notes are effectively subordinated in right of payment
to the Credit Agreement to the extent of the collateral which secures the Credit
Agreement.
Royster-Clark's obligations under the Credit Agreement are guaranteed by
Royster-Clark Group and all of the Restricted Subsidiaries other than the
Special Purpose Restricted Subsidiaries, of Royster-Clark. The guarantees of the
Credit Agreement are equal in right of payment with the guarantees of the first
mortgage notes.
Unless otherwise stated, for purposes of this "Description of First
Mortgage Notes" and the indenture, Royster-Clark Group will be treated as a
Restricted Subsidiary.
PRINCIPAL, MATURITY AND INTEREST
Royster-Clark issued first mortgage notes initially in the principal amount
of $200.0 million. Royster-Clark will issue first mortgage notes in
denominations of $1,000 and integral multiples of $1,000. The first mortgage
notes will mature on April 1, 2009. We are permitted to issue up to an
additional $10 million first mortgage notes under the indenture. Any additional
notes that are actually issued will be treated as issued and outstanding first
mortgage notes, and as the same class as the initial first mortgage notes, for
all purposes of the indenture and this "Description of the Notes," unless the
context indicates otherwise.
Interest on the first mortgage notes will accrue at the rate of 10 1/4% per
annum and will be payable semiannually in arrears on April 1 and October 1,
commencing on October 1, 1999. Royster-Clark will make each interest payment to
the holders of record on the immediately preceding March 15 and September 15,
beginning September 15, 1999.
Interest on the first mortgage notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE FIRST MORTGAGE NOTES
If a holder has given wire transfer instructions to Royster-Clark,
Royster-Clark will pay all principal, interest, including Liquidated Damages,
and premium, if any, on those first mortgage notes in accordance with those
instructions. All other payments on first mortgage notes will be made at the
office or agency of the paying agent and registrar within the City and State of
New York unless Royster-Clark elects to make interest payments by check mailed
to the holders at their addresses provided in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE FIRST MORTGAGE NOTES
The Trustee will initially act as paying agent and registrar. Royster-Clark
may change the paying agent or registrar without prior notice to the holders,
and Royster-Clark or any of its Subsidiaries may act as paying agent or
registrar.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange first mortgage notes in accordance with
the indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and
Royster-Clark may require a holder to pay any taxes and fees required by law or
permitted by the indenture. Royster-Clark is not required to transfer or
exchange any first mortgage note selected for redemption. Also, Royster-Clark is
not required to transfer or exchange any first mortgage note for a period of 15
days before a selection of first mortgage notes to be redeemed.
The registered holder of a first mortgage note will be treated as the owner
of it for all purposes.
GUARANTEES
The guarantors have agreed to fully and unconditionally guarantee
Royster-Clark's obligations under the first mortgage notes on a joint and
several basis. The obligations of each guarantor under its guarantee is limited
as necessary to prevent that guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors -- Fraudulent Conveyance Matters."
A guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into, whether or not the
guarantor is the surviving individual or entity, another individual or entity,
other than Royster-Clark or another guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the individual or entity acquiring the property in any sale or
disposition or the individual or entity formed by or surviving any
consolidation or merger assumes all the obligations of that guarantor
under the indenture, its guarantee and the registration rights agreement
pursuant to a supplemental indenture satisfactory to the trustee; or
(b) the Net Proceeds of the sale or other disposition are applied
in accordance with the "Asset Sale" provisions of the indenture.
The guarantee of a guarantor will be released:
(1) in any sale or other disposition of all or substantially all of
the assets of that guarantor including by way of merger or consolidation to
an individual or entity that is not either before or after giving effect to
the transaction a Restricted Subsidiary of Royster-Clark, if the guarantor
applies the Net Proceeds of that sale or other disposition in accordance
with the "Asset Sale" provisions of the indenture; or
(2) in any sale of all of the Capital Stock of a guarantor to an
individual or entity that is not either before or after giving effect to
the transaction a Restricted Subsidiary of Royster-Clark, if Royster-Clark
applies the Net Proceeds of that sale in accordance with the "Asset Sale"
provisions of the indenture; or
(3) if Royster-Clark designates any Restricted Subsidiary that is a
guarantor as an Unrestricted Subsidiary. See " -- Repurchase at the Option
of Holders -- Asset Sales."
SECURITY
The obligations of Royster-Clark under the first mortgage notes are secured
by:
(1) a first priority security interest in the property, plant and
equipment and related assets of Royster-Clark and its subsidiaries,
constituting 17 of the principal granulation, seed production, processing
and nitrogen plants of Royster-Clark and its subsidiaries; and
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(2) a pledge of all of the equity interests of Royster-Clark Realty
LLC, Royster-Clark AgriBusiness LLC, Royster-Clark Nitrogen Realty LLC and
Royster-Clark Hutson's Realty LLC, our Special Purpose Restricted
Subsidiaries that own or will own approximately 280 properties used in our
business.
The collateral that secures Royster-Clark's and the guarantors' obligations
under the Credit Agreement does not include the following assets (collectively,
the "Excluded Assets"): all of the accounts receivable, inventory, general
intangibles and other tangible and intangible property and assets of
Royster-Clark and its subsidiaries and the common stock of Royster-Clark and its
subsidiaries, other than the pledge relating to the four limited liability
companies that own substantially all of the owned retail farm markets.
The pledge was granted to the trustee, as collateral agent for and on
behalf of the holders of the first mortgage notes, according to the indenture.
Royster-Clark and its Restricted Subsidiaries entered into a mortgage agreement
providing for the grant by Royster-Clark and its Restricted Subsidiaries to the
collateral agent for the proportional benefit of the holders of the first
mortgage notes of a mortgage in the portion of the property, plant and equipment
constituting real property and improvements. Royster-Clark and its Restricted
Subsidiaries entered into a security and pledge agreement (together with the
mortgage, the "Security Agreements") providing for the pledge and the grant by
Royster-Clark and its Restricted Subsidiaries to the collateral agent for the
proportional benefit of the holders of the first mortgage notes of a first
priority security interest in the portion of the property, plant and equipment
constituting equipment and other assets of Royster-Clark and its Restricted
Subsidiaries, other than the Excluded Assets. The mortgage and security
interests will secure the payment and performance when due of all of the
obligations of Royster-Clark and the guarantors under the indenture and the
first mortgage notes as provided in the Security Agreements.
Because of delays in the issuance of the title reports on a number of the
properties to be owned by the Special Purpose Restricted Subsidiaries, we have
not been able to prepare deeds to transfer these properties. IMC Global, Inc.
has agreed to indemnify the collateral agent for the benefit of the holders of
the first mortgage notes and the Special Purpose Restricted Subsidiaries against
certain losses if such properties are not transferred to the Special Purpose
Restricted Subsidiaries.
Any indemnity proceeds received by the collateral agent or the Special
Purpose Restricted Subsidiaries from IMC Global, Inc. under these indemnity
arrangements shall be applied or invested as provided for in the second and
third paragraphs of the covenant "Asset Sales." However, if the aggregate amount
of indemnity proceeds exceeds $5.0 million, Royster-Clark will offer to purchase
the first mortgage notes as provided for in the fourth paragraph of the covenant
"Asset Sales."
The collateral release provisions of the indenture permit the release of a
Nitrogen Facility without substitution of collateral if an offer is made to
repurchase first mortgage notes under certain circumstances. See "Repurchase at
the Option of Holders -- Sale of Nitrogen Facility."
Royster-Clark is planning to merge two of the limited purpose subsidiaries
into the remaining two limited purpose subsidiaries. The mergers will not
adversely affect the value of the collateral.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions, Royster-Clark and its Subsidiaries are
entitled to exercise any voting and other consensual rights pertaining to the
collateral pledged by them.
Upon the occurrence and during the continuance of an Event of Default and a
declaration of an acceleration of the first mortgage notes:
(1) all rights of Royster-Clark to exercise its voting and other
consensual rights shall cease, and all these rights shall become vested in
the collateral agent, which, to the extent permitted by law, shall have the
sole right to exercise these voting and other consensual rights;
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(2) all rights of Royster-Clark to receive any cash dividends,
interest and other payments made upon or with respect to the collateral
will cease and such cash dividends, interest and other payments will be
paid to the collateral agent; and
(3) the collateral agent may sell the collateral or any part of it in
accordance with the terms of the security agreements. All funds distributed
under the Security Agreements and received by the collateral agent for the
benefit of the holders of the first mortgage notes will be distributed by
the collateral agent in accordance with the provisions of the indenture.
The collateral agent will determine the circumstances and manner in which
the collateral shall be disposed of, including, but not limited to, the
determination of whether to release all or any portion of the collateral from
the liens created by the Security Agreements and whether to foreclose on the
collateral following an Event of Default and a declaration of acceleration of
the first mortgage notes.
The Security Agreements shall be terminated upon the full and final payment
and performance of all Obligations of Royster-Clark under the indenture and the
first mortgage notes and of the guarantors under the indenture and the
guarantees.
OPTIONAL REDEMPTION
At any time prior to April 1, 2002, Royster-Clark may on any one or more
occasions redeem up to 35% of the aggregate principal amount of first mortgage
notes originally issued under the indenture at a redemption price of 110.25% of
the principal amount, plus accrued and unpaid interest, including Liquidated
Damages, to the redemption date, with the net cash proceeds of one or more
public offerings; provided that:
(1) at least 65% of the aggregate principal amount of first mortgage
notes originally issued under the indenture remains outstanding immediately
after the occurrence of the redemption (excluding first mortgage notes held
by Royster-Clark and its Subsidiaries); and
(2) the redemption must occur within 45 days of the date of the
closing of the public offering.
Except as specified in the preceding paragraph, the first mortgage notes
will not be redeemable at Royster-Clark's option prior to April 1, 2004.
After April 1, 2004, Royster-Clark may redeem all or a part of the first
mortgage notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices, expressed as percentages of principal amount, provided below
plus accrued and unpaid interest, including Liquidated Damages, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004...................................................... 105.125%
2005...................................................... 103.417%
2006...................................................... 101.708%
2007 and thereafter....................................... 100.000%
</TABLE>
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MANDATORY REDEMPTION
Royster-Clark is not required to make mandatory redemption or sinking fund
payments related to the first mortgage notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of first mortgage notes will
have the right to require Royster-Clark to repurchase all or any part, equal to
or an integral multiple of $1,000, of that holder's first mortgage notes as
specified in a change of control offer on the terms provided in the indenture.
In the offer, Royster-Clark will offer a payment in cash equal to 101% of the
aggregate principal amount of first mortgage notes repurchased plus accrued and
unpaid interest, including Liquidated Damages, to the date of purchase. Within
ten days following any Change of Control, Royster-Clark will mail a notice to
each holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase first mortgage notes on the payment
date specified in the notice which date shall be no earlier than 30 days and no
later than 60 days from the date the notice is mailed, according to the
procedures required by the indenture and described in the notice. Royster-Clark
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations under the Act to the extent these laws and
regulations are applicable to the repurchase of the first mortgage notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
the indenture, Royster-Clark will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Change of Control provisions of the indenture by virtue of such conflict.
On the payment date, Royster-Clark will, to the extent lawful:
(1) accept for payment all or portions of first mortgage notes properly
tendered according to the offer;
(2) deposit with the paying agent an amount equal to the payment in
respect of all or portions of first mortgage notes so tendered; and
(3) deliver or cause to be delivered to the trustee the first mortgage
notes so accepted together with an officers' certificate stating the
aggregate principal amount of first mortgage notes being purchased by
Royster-Clark.
The paying agent will promptly mail to each holder of first mortgage notes
so tendered the payment for the first mortgage notes, and the trustee will
promptly authenticate and mail or cause to be transferred by book entry to each
holder a new first mortgage note equal in principal amount to any unpurchased
portion of the first mortgage notes surrendered, if any; provided that each new
first mortgage note will be in a principal amount equal to an integral multiple
of $1,000.
The provisions described above that require Royster-Clark to make an offer
following a Change of Control will be applicable regardless of whether or not
any other provisions of the indenture are applicable. Except as described above
related to a Change of Control, the indenture does not contain provisions that
permit the holders of the first mortgage notes to require that Royster-Clark
repurchase or redeem the first mortgage notes in the event of a takeover,
recapitalization or similar transaction.
Royster-Clark will not be required to make an offer upon a Change of
Control if a third party makes the offer in the manner, at the times and
otherwise in compliance with the requirements provided in the indenture
applicable to an offer made by Royster-Clark and purchases all first mortgage
notes validly tendered and not withdrawn under this type of offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or
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assets of Royster-Clark and its Subsidiaries taken as a whole. Although there is
a limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of first mortgage notes to require
Royster-Clark to repurchase first mortgage notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
Royster-Clark and its Subsidiaries taken as a whole to another individual or
entity may be uncertain.
ASSET SALES
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries, to complete an Asset Sale other than transfers of Receivables to a
Receivables Subsidiary in a Receivables Transaction and regulatory divestitures
required with acquisitions unless:
(1) Royster-Clark or the Restricted Subsidiary, as the case may be
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) the fair market value is determined by Royster-Clark's Board of
Directors and evidenced by a resolution of the Board of Directors provided
in an officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration received by Royster-Clark or the
Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be found to be cash:
(a) any liabilities as shown on Royster-Clark's or the Restricted
Subsidiary's most recent balance sheet of Royster-Clark or any
Restricted Subsidiary, other than contingent liabilities and liabilities
that are by their terms subordinated to the first mortgage notes or any
Subsidiary Guarantee, that are assumed by the transferee of any assets
under a customary assumption agreement; and
(b) any securities, notes or other obligations received by
Royster-Clark or any Restricted Subsidiary from the transferee that are
within 45 days converted by Royster-Clark or such Restricted Subsidiary
into cash to the extent of the cash received in that conversion;
provided, however, that the 75% limitation referred to above shall not
apply to any Asset Sale in which the cash or Cash Equivalents portion of
the consideration received is equal to or greater than what the net
after-tax proceeds would have been had the Asset Sale complied with the
aforementioned 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Royster-Clark may apply the Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving
credit Indebtedness, to correspondingly reduce commitments related to the
Senior Debt;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, Royster-Clark may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, Royster-Clark will
make an Asset Sale Offer to all holders of first mortgage notes and all holders
of other Indebtedness that is equal in priority with the first
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mortgage notes containing provisions similar to those contained in the indenture
related to offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of first mortgage notes and any other
Indebtedness equal in priority with the first mortgage notes that may be
purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer
will be equal to 100% of principal amount plus accrued and unpaid interest,
including Liquidated Damages if any, to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after completion of an Asset Sale
Offer, Royster-Clark may use the Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount of first mortgage
notes and any other Indebtedness equal in priority with the first mortgage notes
tendered into the Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee shall select the first mortgage notes and any other Indebtedness to be
purchased on a pro rata basis based on the principal amount of first mortgage
notes and any other Indebtedness equal in priority with the first mortgage notes
tendered. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
Royster-Clark will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations under the Act to the
extent these laws and regulations are applicable to each repurchase of first
mortgage notes as specified in an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the indenture, Royster-Clark will comply with the applicable
securities laws and regulations and will not be found to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of a
conflict.
The agreements governing Royster-Clark's other Indebtedness contain
prohibitions of some events, including events that would constitute a Change of
Control or an Asset Sale. In addition, the exercise by the holders of first
mortgage notes of their right to require Royster-Clark to repurchase the first
mortgage notes upon a Change of Control or an Asset Sale could cause a default
under these other agreements, even if the Change of Control or Asset Sale itself
does not, due to the financial effect of these types of repurchases on
Royster-Clark. Finally, Royster-Clark's ability to pay cash to the holders of
first mortgage notes upon a repurchase may be limited by Royster-Clark's then
existing financial resources. See "Risk Factors -- Financing Change of Control
Offer."
SALE OF NITROGEN FACILITY
Upon the sale of a Nitrogen Facility, or the capital stock of the guarantor
owning the facility, holders of first mortgage notes will have the right to
require Royster-Clark to repurchase, proportional to the Net Proceeds of the
sale, all outstanding first mortgage notes, in whole or in part, at a repurchase
price equal to the Permitted Sale Repurchase Price, according to the procedures
described in "Repurchase at the Option of Holders -- Change of Control."
"Permitted Sale Repurchase Price" means an amount equal to, as determined by an
Independent Investment Banker, the sum of the present values of the remaining
scheduled payments of interest and the scheduled payment of principal,
discounted to the repurchase date on a semiannual basis, assuming a 360-day year
consisting of twelve 30-day months, at the Special Adjusted Treasury Rate, plus
accrued and unpaid interest and Liquidated Damages, if any, to the repurchase
date.
All of the consideration received by Royster-Clark or a Restricted
Subsidiary from the sale of a Nitrogen Facility shall be in the form of cash.
Any proceeds from the sale of a Nitrogen Facility remaining after the repurchase
of first mortgage notes as provided above shall be applied to permanently repay
Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness,
shall permanently reduce commitments related to the Senior Debt.
SELECTION AND NOTICE
If less than all of the first mortgage notes are to be redeemed at any
time, the trustee will select first mortgage notes for redemption as follows:
(1) if the first mortgage notes are listed, in compliance with the
requirements of the principal national securities exchange on which the
first mortgage notes are listed; or
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(2) if the first mortgage notes are not so listed, on a pro rata
basis, by lot or by such method as the trustee shall deem fair and
appropriate.
No first mortgage notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of first mortgage
notes to be redeemed at its registered address. Notices of redemption may not be
conditional.
If any first mortgage note is to be redeemed in part only, the notice of
redemption that relates to that first mortgage note shall state the portion of
the principal amount to be redeemed. A new first mortgage note in principal
amount equal to the unredeemed portion of the original first mortgage note will
be issued in the name of the holder upon cancellation of the original first
mortgage note. First mortgage notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest ceases to
accrue on first mortgage notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Royster-Clark's or any of its Restricted
Subsidiaries' Equity Interests, including, without limitation, any payment
in connection with any merger or consolidation involving Royster-Clark or
any of its Restricted Subsidiaries, or to the direct or indirect holders of
Royster-Clark or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such other than dividends or distributions payable in
Equity Interests, other than Disqualified Stock, of Royster-Clark or
Royster-Clark Group or to Royster-Clark or a Restricted Subsidiary of
Royster-Clark;
(2) purchase, redeem or otherwise acquire or retire for value
including, without limitation, in connection with any merger or
consolidation involving Royster-Clark, any Equity Interests of
Royster-Clark or any direct or indirect parent of Royster-Clark, other than
Equity Interests owned by Royster-Clark Group, Royster-Clark or any Wholly
Owned Restricted Subsidiary of Royster-Clark;
(3) make any payment on or related to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated
to the first mortgage notes or the Subsidiary Guarantees, except a payment
of interest or principal at the Stated Maturity; or
(4) make any Restricted Investment, all such payments and other
actions stated in clauses (1) through (4) above being collectively referred
to as "Restricted Payments",
unless, at the time of and after giving effect to the Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence; and
(2) Royster-Clark would, at the time of such Restricted Payment and
after giving pro forma effect to the Restricted Payment as if the payment
had been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness as
specified by the Fixed Charge Coverage Ratio test provided in the first
paragraph of the covenant described below under the caption " -- Incurrence
of Indebtedness and Issuance of Preferred Stock;" and
(3) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Royster-Clark and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted Payments
permitted by clauses (2), (3), (4), (5), (6), (7), (8) and (12) of the next
succeeding paragraph) is less than the sum, without duplication, of
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(a) 50% of the Consolidated Net Income of Royster-Clark for the
period (taken as one accounting period) from the beginning of the date
of the indenture to the end of Royster-Clark's most recently ended
fiscal quarter for which internal financial statements are available at
the time of the Restricted Payment, or, if the Consolidated Net Income
for the period is a deficit, less 100% of such deficit, plus
(b) 100% of the aggregate net cash proceeds received by
Royster-Clark since the date of the indenture as a contribution to its
common equity capital or from the issue or sale of Equity Interests of
Royster-Clark other than Disqualified Stock or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of Royster-Clark that have been converted
into or exchanged for these Equity Interests, other than Equity
Interests or Disqualified Stock or debt securities sold to a Subsidiary
of Royster-Clark, plus
(c) to the extent that any Restricted Investment that was made
after the date of the indenture is sold for cash or otherwise liquidated
or repaid for cash, or the non-cash proceeds have been converted to
cash, the lesser of (i) the cash return of capital with respect to the
Restricted Investment less the cost of disposition, if any and (ii) the
initial amount of the Restricted Investment, plus
(d) if any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary, the lesser of:
o the fair market value of Royster-Clark's ownership interest in
the redesignated Subsidiary as determined in good faith by the
Board of Directors as of the date of its redesignation or
o the fair market value when made of all Investments subsequent to
the date of the indenture previously made by Royster-Clark and
its Restricted Subsidiaries in the redesignated Subsidiary but
only to the extent that the Investments were treated as a
Restricted Payment, other than any Restricted Payment made
pursuant to clauses (1) through (12) below.
So long as no Default has occurred and is continuing or would occur, the
preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the payment
would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Royster-Clark or any
Restricted Subsidiary or of any Equity Interests of Royster-Clark or any
Restricted Subsidiary in exchange for, or out of the net cash proceeds of
the substantially concurrent sale or issuance, other than to a Restricted
Subsidiary of Royster-Clark of, Equity Interests of Royster-Clark other
than Disqualified Stock or from the net cash proceeds of an equity capital
contribution to Royster-Clark; provided that the amount of any net cash
proceeds that are utilized for any redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3) (b) of
the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Royster-Clark or any Restricted Subsidiary
with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) the payment of any dividend by a Subsidiary of Royster-Clark to
the holders of its common Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Royster-Clark or any Restricted Subsidiary
of Royster-Clark held by any member of Royster-Clark or any of its
Restricted Subsidiaries management specified in any management equity
subscription agreement or stock option agreement; provided that the
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aggregate price paid for all of the repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $250,000 in any twelve-month
period plus the amount received by Royster-Clark or any Restricted
Subsidiary of Royster-Clark from any member of management for the purchase
of any Equity Interests of Royster-Clark or any Restricted Subsidiary of
Royster-Clark during the twelve-month period; provided that any amounts so
received for the purchases shall be excluded from clause (3)(b) of the
preceding paragraph to the extent of the repurchase, redemption or other
acquisition or retirement for value;
(6) Permitted Investments;
(7) repurchase of Equity Interests found to occur upon exercise of
stock options to the extent that such Equity Interests represent a portion
of the exercise price of the options;
(8) any loans, advances, distributions or payments from Royster-Clark
to any Restricted Subsidiary, or any loans, advances, distributions or
payments by a Restricted Subsidiary to Royster-Clark or to another
Restricted Subsidiary; provided, however, that any loans, advances,
distributions or payments must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the first
mortgage notes;
(9) the defeasance, redemption, repurchase or other acquisition of any
Indebtedness subordinated or equal in right of payment to the first
mortgage notes at a purchase price not greater than 101% of the principal
amount of the Indebtedness, plus any accrued and unpaid interest in the
event of a Change of Control; provided that prior to or contemporaneously
with the repurchase, Royster-Clark has made an offer related to the first
mortgage notes and has repurchased all first mortgage notes validly
tendered for payment and not withdrawn in the offer;
(10) other Restricted Payments in an aggregate amount not to exceed
$5.0 million;
(11) any Investments in a joint venture or in a Permitted Business in
an aggregate amount not to exceed $10.0 million; or
(12) the declaration or payment of dividends or advances to
Royster-Clark Group for expenses incurred by Royster-Clark Group in its
capacity as a holding company that are attributable to the operations of
Royster-Clark and its Restricted Subsidiaries, including, without
limitation:
o fees and expenses paid to members of the Board of Directors of
Royster-Clark Group,
o general corporate overhead expenses of Royster-Clark Group directly
and exclusively attributable to the ownership and/or business and
operations of Royster-Clark and its Restricted Subsidiaries, not to
exceed $100,000 in any fiscal year or $500,000 in any fiscal year if
Royster-Clark Group is a public reporting company under the
Securities Exchange Act of 1934,
o foreign, federal, state or local tax liabilities paid by
Royster-Clark Group directly and exclusively attributable to the
ownership and/or business and operations of Royster-Clark and its
Restricted Subsidiaries other than Royster-Clark Group,
o the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Royster-Clark Group held by any
member or former member of Royster-Clark Group's or Royster-Clark's
or any of their Restricted Subsidiaries' Board of Directors or any
present or former officer, employee or director of Royster-Clark
Group, Royster-Clark or any Restricted Subsidiary specified in any
management equity subscription agreement or stock option agreement,
directly and exclusively attributable to the ownership and/or
business and operations of Royster-Clark and its Restricted
Subsidiaries other than Royster-Clark Group, provided that the
aggregate amount paid specified by this clause does not exceed in
any fiscal year $250,000, plus the aggregate cash proceeds received
by Royster-Clark or Royster-Clark Group from any reissuance of
Equity Interests by Royster-Clark Group or Royster-Clark to
employees, officers or directors of Royster-Clark Group,
Royster-Clark or any Restricted Subsidiary during the
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fiscal year provided that any cash proceeds received from any
reissuance shall be excluded from clause (3)(b) of the preceding
paragraph, to the extent of any repurchase, redemption, or other
acquisition or retirement for value,
o customary and reasonable accounting, legal or other professional or
administrative expenses directly and exclusively attributable to the
ownership and/or business and operations of Royster-Clark and its
Restricted Subsidiaries other than Royster-Clark Group, and
o reasonable fees, offering costs and related expenses associated with
any registration statements filed with the Commission; provided,
however, the aggregate amount paid according to the clauses above
does not exceed $500,000 in any fiscal year.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by Royster-Clark or a Restricted
Subsidiary, as the case may be, according to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution
regarding the value of the assets or securities shall be delivered to the
trustee. The Board of Directors' determination must be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if the fair market value exceeds $5.0 million. Not later than
the date of making any Restricted Payment, Royster-Clark shall deliver to the
trustee an officers' certificate stating that the Restricted Payment is
permitted and providing the basis upon which the calculations required by this
"Restricted Payments" covenant were computed, together with a copy of any
fairness opinion or appraisal required by the indenture.
The Board of Directors may designate any Restricted Subsidiary, other than
any of the Special Purpose Restricted Subsidiaries, to be an Unrestricted
Subsidiary if the designation would not cause a Default. For purposes of making
the determination, all outstanding Investments by Royster-Clark and its
Restricted Subsidiaries, except to the extent repaid in cash, in the Subsidiary
so designated will be found to be Restricted Payments at the time of the
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All the outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
the Investments at the time of the designation as determined in good faith by
the Board of Directors. The designation shall only be permitted if the
Restricted Payment would be permitted at the time and if the Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
For purposes of determining compliance with this covenant, in the event
that a Restricted Payment meets the criteria of more than one of the exceptions
described in (1) through (12) above or is entitled to be made according to the
first paragraph of this covenant, Royster-Clark shall, in its sole discretion,
classify the Restricted Payment in any manner that complies with this covenant.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
any Indebtedness including Acquired Debt, and Royster-Clark will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that Royster-Clark may
incur Indebtedness including Acquired Debt or issue Disqualified Stock, and the
Restricted Subsidiaries other than the Special Purpose Restricted Subsidiaries
may incur Indebtedness or issue preferred stock, if the Fixed Charge Coverage
Ratio for Royster-Clark's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which the additional Indebtedness is incurred or the Disqualified Stock is
issued would have been at least 2.0 to 1.0 determined on a pro forma basis
including a pro forma application of the net proceeds, as if the additional
Indebtedness had been incurred or the preferred stock or Disqualified Stock had
been issued, as the case may be, at the beginning of the four-quarter period.
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If the four-quarter period includes any period prior to the date of the
indenture, the financial statements for the prior period shall be prepared on a
pro forma basis giving effect to the Transactions in accordance with Article 11
of Regulation S-X under the Securities Act.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Royster-Clark and any Restricted Subsidiary,
other than the Special Purpose Restricted Subsidiaries, of Indebtedness
under Credit Facilities in an aggregate principal amount at any one time
outstanding under this clause (1) not to exceed the Borrowing Base, less
the aggregate amount of all mandatory reductions required by the covenants
described under "Repurchase at the Option of Holders -- Asset Sales," and
"Repurchase at the Option of Holders -- Sale of Nitrogen Facility" that
have actually been made since the date of the indenture; provided, that the
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred under this clause (1) need not constitute Permitted Refinancing
Indebtedness;
(2) the incurrence by Royster-Clark and its Restricted Subsidiaries
(other than the Special Purpose Restricted Subsidiaries) of the Existing
Indebtedness;
(3) the incurrence by Royster-Clark and the Restricted Subsidiaries of
Indebtedness represented by the first mortgage notes to be issued on the
date of the indenture and the exchange first mortgage notes to be issued
according to the registration rights agreements including, in each case,
the Subsidiary Guarantees;
(4) the incurrence by Royster-Clark or any of its Restricted
Subsidiaries, other than the Special Purpose Restricted Subsidiaries, of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness, other than
intercompany Indebtedness, that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3),
(4), (9) or (16) of this paragraph;
(5) the incurrence by Royster-Clark or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Royster-Clark
and any of its Wholly Owned Restricted Subsidiaries; provided, however,
that:
(a) if Royster-Clark or any guarantor is the obligor on the
Indebtedness, the Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations related to the first
mortgage notes, in the case of Royster-Clark, or the guarantee, in the
case of a guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any Indebtedness being held by an individual or entity
other than Royster-Clark or a Restricted Subsidiary and (ii) any sale or
other transfer of any Indebtedness to an individual or entity that is
not either Royster-Clark or a Wholly Owned Restricted Subsidiary shall
be found, in each case, to constitute an incurrence of the Indebtedness
by Royster-Clark or the Subsidiary, as the case may be, that was not
permitted by this clause (5);
(6) the incurrence by Royster-Clark or any of its Restricted
Subsidiaries, other than the Special Purpose Restricted Subsidiaries, of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk related to any floating rate Indebtedness that is
permitted by the terms of this indenture to be outstanding;
(7) the guarantee by Royster-Clark or any of its Restricted
Subsidiaries, other than the Special Purpose Restricted Subsidiaries, of
Indebtedness of Royster-Clark or a Restricted Subsidiary of Royster-Clark
that was permitted to be incurred by another provision of this covenant;
(8) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of
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the same class of Disqualified Stock will not be found to be an incurrence
of Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each case, that the amount is included in Fixed
Charges of Royster-Clark as accrued; and
(9) the incurrence by Royster-Clark or any of its Restricted
Subsidiaries, other than the Special Purpose Restricted Subsidiaries, of
additional Indebtedness in an aggregate principal amount, or accreted
value, as applicable, at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred under this clause (9), not to exceed $20.0 million;
(10) the incurrence by Royster-Clark or any of its Restricted
Subsidiaries, other than the Special Purpose Restricted Subsidiaries, of
obligations that are incurred for the purpose of fixing or hedging currency
risk or the value of commodities or foreign currencies purchased or
received by Royster-Clark or any Restricted Subsidiary in the ordinary
course of business in amounts reasonably related to Royster-Clark's
business and not for speculative purposes;
(11) Indebtedness of Royster-Clark or a Restricted Subsidiary, other
than the Special Purpose Restricted Subsidiaries, owed to, including
obligations in respect of letters of credit for the benefit of, any
individual or entity related to worker's compensation, health, disability
or other employee benefits or property, casualty or liability insurance
provided by the individual or entity to Royster-Clark or the Restricted
Subsidiary, as specified by reimbursement or indemnification obligations to
the individual or entity, in each case incurred in the ordinary course of
business and consistent with past practices;
(12) Indebtedness arising from agreements of Royster-Clark or a
Restricted Subsidiary, other than the Special Purpose Restricted
Subsidiaries, providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, asset or Equity Interests; provided
that the maximum aggregate liability of all the Indebtedness shall at no
time exceed the gross proceeds actually received by Royster-Clark and its
Restricted Subsidiaries related to the disposition;
(13) obligations in respect of performance and surety bonds and
completion guarantees provided by Royster-Clark or any Restricted
Subsidiary, other than the Special Purpose Restricted Subsidiaries, in the
ordinary course of business;
(14) the incurrence by Royster-Clark's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any Indebtedness ceases to be
Non-Recourse Debt or the Subsidiary ceases to be an Unrestricted
Subsidiary, the event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of Royster-Clark;
(15) the incurrence of Indebtedness, other than by the Special Purpose
Restricted Subsidiaries, in connection with Receivables Transactions; and
(16) the incurrence by Royster-Clark Group, Inc. of Indebtedness
represented by (a) the non-cash pay subordinated notes issued to IMC
Global, 399 Ventures and Management Investors to consummate the
Transactions and (b) the 4 1/2% convertible subordinated note issued to 399
Ventures on March 31, 1999 to effect the acquisitions of AgriBusiness and
Royster-Clark.
Royster-Clark will not incur any Indebtedness including Permitted Debt that
is contractually subordinated in right of payment to any other Indebtedness of
Royster-Clark unless the Indebtedness is also contractually subordinated in
right of payment to the first mortgage notes on substantially identical terms;
provided, however, that no Indebtedness of Royster-Clark shall be found to be
contractually subordinated in right of payment to any other Indebtedness of
Royster-Clark solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (16) above, or is
entitled to be incurred according to the first paragraph of this covenant,
Royster-Clark will be
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permitted to classify the item of Indebtedness on the date of its incurrence, or
reclassify all or a portion of the item of Indebtedness, in any manner that
complies with this covenant. Indebtedness under Credit Facilities outstanding on
the date on which first mortgage notes are first issued and authenticated under
the indenture shall be deemed to have been incurred on the date in reliance on
the exception provided by clause (1) of the definition of Permitted Debt.
The Special Purpose Restricted Subsidiaries will not incur any Indebtedness
except for Permitted Debt specifically provided for in clauses (3) and (5) of
this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant.
LIENS
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing the Collateral or Indebtedness, Attributable
Debt or trade payables on any asset now owned or later acquired, except
Permitted Liens; provided, however that in addition to creating Permitted Liens
on its properties or assets, Royster-Clark and any of its Restricted
Subsidiaries may create any Lien upon any of their properties or assets,
including but not limited to any capital stock of its Subsidiaries, if the first
mortgage notes are equally and proportionally secured.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Royster-Clark or any of its Restricted Subsidiaries, or related to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to Royster-Clark or any of its Restricted Subsidiaries;
(2) make loans or advances to Royster-Clark or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Royster-Clark or any
of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to Royster-Clark Group,
Inc. and to encumbrances or restrictions existing under or by reason of:
(1) Existing Indebtedness and the Credit Facilities as in effect on
the date of the indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
of the indenture, provided that the amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, related to the
dividend and other payment restrictions than those contained in the
Existing Indebtedness, as in effect on the date of the indenture;
(2) the indenture, the guarantees and the first mortgage notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of an
entity acquired by Royster-Clark or any of its Restricted Subsidiaries as
in effect at the time of the acquisition, except to the extent the
Indebtedness was incurred in or in contemplation of an acquisition of this
type, which encumbrance or restriction is not applicable to any entity, or
the properties or assets of any entity, other than the entity, or the
property or assets of the entity, so acquired, provided that, in the case
of Indebtedness, the Indebtedness was permitted by the terms of the
indenture to be incurred;
(5) customary non-assignment provisions in leases or other agreements
entered into in the ordinary course of business and consistent with past
practices;
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(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary or all or substantially all of the assets of the Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending the sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing the Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to the Lien;
(10) provisions related to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course
of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) permitted mortgage or construction financing that imposes
restrictions on the property acquired or improved;
(13) encumbrances or restrictions imposed by amendments to the
contracts, agreements or obligations referred to in the foregoing clauses
(1) through (12) if not materially more restrictive in the aggregate than
the contract, agreement or obligation in question prior to its amendment;
(14) protective liens filed in connection with sale-leaseback
transactions permitted under "-- Sale and Leaseback Transactions;" and
(15) Indebtedness permitted to be incurred according to clauses (11),
(13) and (15) of the second paragraph of the covenant " -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Royster-Clark Group and Royster-Clark may not, directly or indirectly: (1)
consolidate or merge with or into another entity whether or not Royster-Clark
Group or Royster-Clark is the surviving corporation or (2) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of Royster-Clark and its Restricted Subsidiaries taken as a
whole, in one or more related transactions, to another individual or entity;
unless in the case of each of Royster-Clark Group and Royster-Clark:
(1) either: (a) Royster-Clark Group or Royster-Clark is the surviving
corporation; or (b) the entity formed by or surviving any consolidation or
merger, if other than Royster-Clark Group or Royster-Clark, or to which the
sale, assignment, transfer, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state of the United States or the District of Columbia;
(2) the entity formed by or surviving any consolidation or merger, if
other than Royster-Clark Group or Royster-Clark, or the individual or
entity to which the sale, assignment, transfer, conveyance or other
disposition shall have been made assumes all the obligations of
Royster-Clark Group or Royster-Clark under the first mortgage notes, the
indenture and the registration rights agreement according to agreements
reasonably satisfactory to the trustee;
(3) immediately after the transaction of this type no Default or Event
of Default exists; and
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(4) Royster-Clark Group or Royster-Clark or the entity formed by or
surviving any consolidation or merger, if other than Royster-Clark Group or
Royster-Clark, or to which the sale, assignment, transfer, conveyance or
other disposition shall have been made:
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of
Royster-Clark Group or Royster-Clark immediately preceding the
transaction; and
(b) will, on the date of the transaction after giving pro forma
effect to the transaction and any related financing transactions as if
the same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
as specified by the Fixed Charge Coverage Ratio test provided in the
first paragraph of the covenant described above under the caption " --
Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, Royster-Clark Group and Royster-Clark may not, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other individual or entity. This "Merger,
Consolidation, or Sale of Assets" covenant will not apply to a sale, assignment,
transfer, conveyance or other disposition of assets between or among Royster-
Clark Group, Royster-Clark and any of its Wholly Owned Subsidiaries and any of
the guarantors.
TRANSACTIONS WITH AFFILIATES
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable
to Royster-Clark or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by Royster-Clark or a
Restricted Subsidiary with an unrelated individual or entity; and
(2) Royster-Clark delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
interrelated or contractually related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, a resolution of the
Board of Directors provided in an officers' certificate certifying that
the Affiliate Transaction complies with this covenant and that the
Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of
interrelated or contractually related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the holders of the Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of national standing.
The following items shall not be found to be Affiliate Transactions and,
therefore, the provisions of the prior paragraph do not apply:
(1) any employment agreement, compensation or employee benefit
arrangements, incentive arrangements and customary director fees including
grants of stock, stock options or other Equity Interests entered into by
Royster-Clark or any of its Restricted Subsidiaries in the ordinary course
of business and consistent with the past practice of Royster-Clark or such
Restricted Subsidiary;
(2) transactions between or among Royster-Clark and/or its Restricted
Subsidiaries;
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(3) transactions with an individual or entity that is an Affiliate of
Royster-Clark Group or Royster-Clark solely because Royster-Clark Group or
Royster-Clark owns an Equity Interest in the individual or entity;
(4) payment of reasonable directors fees to individuals who are not
otherwise Affiliates of Royster-Clark Group or Royster-Clark;
(5) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption " -- Restricted Payments;" and
(6) customary loans, advances, fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees or
consultant of Royster-Clark or any of its Restricted Subsidiaries.
ADDITIONAL SUBSIDIARY GUARANTEES
If Royster-Clark or any of its Subsidiaries acquires or creates another
Restricted Subsidiary after the date of the indenture, then that newly acquired
or created Restricted Subsidiary must become a guarantor and execute a
supplemental indenture and deliver an opinion of counsel to the trustee within
10 business days of the date on which it was acquired or created. In the event
Royster-Clark or any of its Subsidiaries acquires or creates a Restricted
Subsidiary which is organized under the laws of a jurisdiction other than the
United States or a political subdivision of the United States, and if the
issuance of a guarantee by a Restricted Subsidiary would result in the
imposition of a tax or similar governmental charge, the foreign Restricted
Subsidiary shall not be required to be a guarantor.
SALE AND LEASEBACK TRANSACTIONS
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Royster-Clark or any Restricted Subsidiary may enter into a sale and leaseback
transaction if:
(1) Royster-Clark or that Restricted Subsidiary, as applicable, could
have incurred Indebtedness in an amount equal to the Attributable Debt
relating to the sale and leaseback transaction under the covenant described
above under the caption " -- Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(2) the gross cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors and provided in an officers' certificate delivered to
the trustee, of the property that is the subject of that sale and leaseback
transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Royster-Clark applies the proceeds of the transaction in
compliance with, the covenant described above under the caption " --
Repurchase at the Option of Holders -- Asset Sales."
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
RESTRICTED SUBSIDIARIES
Royster-Clark will not, and will not permit any of its Restricted
Subsidiaries other than Royster-Clark Group to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in any Wholly Owned Restricted
Subsidiary of Royster-Clark to any individual or entity other than Royster-Clark
or a Wholly Owned Restricted Subsidiary of Royster-Clark, unless:
(1) the transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in the Wholly Owned Restricted Subsidiary; and the
cash Net Proceeds from the transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above
under the caption " -- Repurchase at the Option of Holders -- Asset Sales;"
or
(2) the transfer, conveyance, sale, lease or other disposition is of
less than all the Capital Stock of the Wholly Owned Restricted Subsidiary,
the formerly Wholly Owned Restricted
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Subsidiary has been duly designated as an Unrestricted Subsidiary and no
longer constitutes a Restricted Subsidiary after the sale, Royster-Clark
could have made an Investment in the retained shares of the formerly Wholly
Owned Restricted Subsidiary at the time of the sale in accordance with the
covenant described above under " -- Restricted Payments" and the cash Net
Proceeds from the transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under the
caption " -- Repurchase at the Option of Holders -- Asset Sales."
In addition, Royster-Clark will not permit any Wholly Owned Restricted
Subsidiary of Royster-Clark to issue any of its Equity Interests, other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares, to any individual or entity other than to Royster-Clark or a Wholly
Owned Restricted Subsidiary of Royster-Clark.
BUSINESS ACTIVITIES
Royster-Clark will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to the extent as
would not be material to Royster-Clark and its Restricted Subsidiaries taken as
a whole.
ADVANCES TO SUBSIDIARIES
All advances to Royster-Clark Group and Subsidiaries of Royster-Clark made
by Royster-Clark after the date of the indenture will be evidenced by
intercompany notes in favor of Royster-Clark. These intercompany notes will be
subordinated to the guarantees and the first mortgage notes.
PAYMENTS FOR CONSENT
Royster-Clark Group and Royster-Clark will not, and will not permit any of
their Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of first mortgage notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the indenture or the first mortgage notes unless the consideration
is offered to be paid and is paid to all holders of the first mortgage notes
that consent, waive or agree to amend in the time frame specified in the
solicitation documents relating to the consent, waiver or agreement.
REPORTS
Whether or not required by the Commission, so long as any first mortgage
notes are outstanding, Royster-Clark will furnish to the holders of first
mortgage notes, within the time periods specified in the Commission's rules and
regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Royster-Clark were required to file the Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by Royster-Clark's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Royster-Clark were required to file the reports.
In addition, following the completion of the exchange offer contemplated by
the registration rights agreement, whether or not required by the Commission,
Royster-Clark will file a copy of all information and reports referred to in
clauses (1) and (2) above with the Commission for public availability within the
time periods specified in the Commission's rules and regulations, unless the
Commission will not accept the filing, and make the information available to
securities analysts and prospective investors upon request. In addition,
Royster-Clark and the guarantors have agreed that, for so long as any first
mortgage notes remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered according to Rule 144A(d)(4) under the
Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest, including
Liquidated Damages, on the first mortgage notes;
(2) default in payment when due of the principal of, or premium, if
any, on the first mortgage notes;
(3) failure by Royster-Clark or any of its Restricted Subsidiaries to
comply with the provisions described under the captions " -- Repurchase at
the Option of Holders -- Change of Control," " -- Repurchase at the Option
of Holders -- Asset Sales," " -- Repurchase at the Option of Holders --
Sale of Nitrogen Facility," " -- Certain Covenants -- Restricted Payments,"
" -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" or " -- Certain Covenants -- Merger, Consolidation or Sale
of Assets;"
(4) failure by Royster-Clark or any of its Restricted Subsidiaries for
60 days after notice by the trustee or holders of at least 25% in principal
amount of the first mortgage notes outstanding to comply with any of the
other agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Royster-Clark or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by Royster-Clark or any
of its Restricted Subsidiaries, whether the Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on the Indebtedness prior to the expiration of the
grace period provided in the Indebtedness on the date of the default;
(b) results in the acceleration of the Indebtedness prior to its
express maturity, and, in each case, the principal amount of any
Indebtedness, together with the principal amount of any other
Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates $10.0 million or
more;
(6) failure by Royster-Clark or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $10.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(7) breach by Royster-Clark or any Restricted Subsidiary of any
representation or warranty or agreement specified in the Security
Agreements, the repudiation by Royster-Clark or any Restricted Subsidiary
of any obligations under the Security Agreements or the unenforceability of
the Security Agreements against Royster-Clark or any Restricted Subsidiary
for any reason;
(8) except as permitted by the indenture, any guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any guarantor, or any
individual or entity acting on behalf of any guarantor, shall deny or
disaffirm its obligations under its guarantee; and
(9) events of bankruptcy or insolvency related to Royster-Clark or any
of its Restricted Subsidiaries.
In the case of an Event of Default arising from events of bankruptcy or
insolvency, related to Royster-Clark, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding first
mortgage notes will become due and payable immediately without further action or
notice. If any other Event of Default occurs and is continuing, the trustee or
the holders of at least 25% in principal amount of the then outstanding first
mortgage notes may declare all the first mortgage notes to be due and payable
immediately.
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Holders of the first mortgage notes may not enforce the indenture or the
first mortgage notes except as provided in the indenture. With some limitations,
holders of a majority in principal amount of the then outstanding first mortgage
notes may direct the trustee in its exercise of any trust or power. The trustee
may withhold from holders of the first mortgage notes notice of any continuing
Default or Event of Default, except a Default or Event of Default relating to
the payment of principal or interest, or Liquidated Damages, if it determines
that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the first
mortgage notes then outstanding by notice to the trustee may on behalf of the
holders of all of the first mortgage notes waive any existing Default or Event
of Default and its consequences under the indenture except a continuing Default
or Event of Default in the payment of interest, or Liquidated Damages on, or the
principal of, the first mortgage notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Royster-Clark with the
intention of avoiding payment of the premium that Royster-Clark would have had
to pay if Royster-Clark then had elected to redeem the first mortgage notes
according to the optional redemption provisions of the indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the first mortgage notes. If an Event
of Default occurs prior to April 1, 2004 by reason of any willful action or
inaction taken or not taken by or on behalf of Royster-Clark with the intention
of avoiding the prohibition on redemption of the first mortgage notes prior to
April 1, 2004 then the following premium, which is expressed as a percentage of
the principal amount of the first mortgage notes on the date of payment, shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the first mortgage notes:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
1999.............................................. 110.250%
2000.............................................. 109.225%
2001.............................................. 108.200%
2002.............................................. 107.175%
2003.............................................. 106.150%
</TABLE>
Royster-Clark is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Royster-Clark is required to deliver to the trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of
Royster-Clark or any guarantor, as such, shall have any liability for any
obligations of Royster-Clark or the guarantors under the first mortgage notes,
the indenture, the guarantees, or for any claim based on, in respect of, or by
reason of, the obligations or their creation. Each holder of first mortgage
notes by accepting a first mortgage note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the first
mortgage notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Royster-Clark may, at its option and at any time, elect to have all of its
obligations discharged related to the outstanding first mortgage notes and all
obligations of the guarantors discharged related to their Subsidiary Guarantees
except for:
(1) the rights of holders of outstanding first mortgage notes to receive
payments in respect of the principal of, or interest including Liquidated
Damages, if any, on the first mortgage notes when the payments are due from
the trust referred to below;
(2) Royster-Clark's obligations related to the first mortgage notes
concerning issuing temporary first mortgage notes, registration of first
mortgage notes, mutilated, destroyed, lost
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or stolen first mortgage notes and the maintenance of an office or agency
for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and Royster-Clark's obligations related to the trustee; and
(4) the legal defeasance provisions of the indenture.
In addition, Royster-Clark may, at its option and at any time, elect to
have the obligations of Royster-Clark and the guarantors released to covenants
that are described in the indenture and thereafter any omission to comply with
those covenants shall not constitute a Default or Event of Default related to
the first mortgage notes. In the event covenant defeasance occurs, some events,
not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events, described under "Events of Default" will no longer constitute
an Event of Default related to the first mortgage notes.
In order to exercise either legal defeasance or covenant defeasance:
(1) Royster-Clark must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the first mortgage notes, cash in U.S.
dollars, non-callable government securities, or a combination of the two,
in the amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
or interest and premium including Liquidated Damages, if any, on the
outstanding first mortgage notes on the stated maturity or on the
applicable redemption date, as the case may be, and Royster-Clark must
specify whether the first mortgage notes are being defeased to maturity or
to a particular redemption date;
(2) in the case of legal defeasance, Royster-Clark shall have
delivered to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that:
o Royster-Clark has received from, or there has been published by, the
Internal Revenue Service a ruling or
o since the date of the indenture, there has been a change in the
applicable federal income tax law,
In either case the opinion of counsel shall confirm that, the holders of the
outstanding first mortgage notes will not recognize income, gain or loss for
federal income tax purposes as a result of the legal defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if legal defeasance had not
occurred;
(3) in the case of covenant defeasance, Royster-Clark shall have
delivered to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that the holders of the outstanding first mortgage notes
will not recognize income, gain or loss for federal income tax purposes as
a result of covenant defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if covenant defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either:
o on the date of the deposit other than a Default or Event of Default
resulting from the borrowing of funds to be applied to the deposit;
or
o insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the indenture, to which Royster-Clark
or any of its Subsidiaries is a party or by which Royster-Clark or any of
its Subsidiaries is bound;
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(6) Royster-Clark must have delivered to the trustee an opinion of
counsel to the effect that, assuming no intervening bankruptcy of
Royster-Clark or any guarantor between the date of deposit and the 91st day
following the deposit and assuming that no holder is an "insider" of
Royster-Clark under applicable bankruptcy law, after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(7) Royster-Clark must deliver to the trustee an officers' certificate
stating that the deposit was not made by Royster-Clark with the intent of
preferring the holders of first mortgage notes over the other creditors of
Royster-Clark with the intent of defeating, hindering, delaying or
defrauding creditors of Royster-Clark or others; and
(8) Royster-Clark must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
relating to the legal defeasance or the covenant defeasance have been met.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the indenture or the first
mortgage notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the first mortgage notes then
outstanding, without limitation, consents obtained in the purchase of, or tender
offer or exchange offer for, first mortgage notes, and any existing default or
compliance with any provision of the indenture or the first mortgage notes may
be waived with the consent of the holders of a majority in principal amount of
the then outstanding first mortgage notes including, without limitation,
consents obtained in a purchase of, or tender offer or exchange offer for, first
mortgage notes.
Without the consent of each holder affected, an amendment or waiver may not
relate to any first mortgage notes held by a non-consenting holder:
(1) reduce the principal amount of first mortgage notes whose holders
must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any first
mortgage note or alter the provisions related to the redemption of the
first mortgage notes other than provisions relating to the covenants
described above under the caption " -- Repurchase at the Option of
Holders," except the provisions under the subheading "Sale of Nitrogen
Facility";
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of, or interest or Liquidated Damages or premium, if any, on the first
mortgage notes except a rescission of acceleration of the first mortgage
notes by the holders of at least a majority in aggregate principal amount
of the first mortgage notes and a waiver of the payment default that
resulted from the acceleration;
(5) make any first mortgage note payable in money other than that
stated in the first mortgage notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of first mortgage notes
to receive payments of principal of, or interest or Liquidated Damages or
premium, if any, on the first mortgage notes;
(7) waive a redemption payment with respect to any first mortgage note
other than a payment required by one of the covenants described above under
the caption " -- Repurchase at the Option of Holders";
(8) release any guarantor from any of its obligations under its
Subsidiary guarantee or the indenture, except in accordance with the terms
of the indenture; or
(9) make any change in the preceding amendment and waiver provisions.
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Without the consent of any holder of first mortgage notes, Royster-Clark,
the guarantors and the trustee may amend or supplement the indenture or the
first mortgage notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated first mortgage notes in addition to
or in place of certificated first mortgage notes;
(3) to provide for the assumption of Royster-Clark's obligations to
holders of first mortgage notes in the case of a merger or consolidation or
sale of all or substantially all of Royster-Clark's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of first mortgage notes or that does not adversely
affect the legal rights under the indenture of any holder; or
(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust Indenture
Act.
The collateral agent and Royster-Clark can amend the Security Agreements or
release any of the collateral from a Lien or the Security Agreements, except in
accordance with the provisions of these agreements only with the consent of
holders of at least 75% in aggregate principal amount of the outstanding first
mortgage notes.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Royster-Clark or any guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate the conflict
within 90 days, apply to the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding first
mortgage notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the trustee,
with certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to these provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of first mortgage notes, unless the holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
The existing first mortgage notes were, and the exchange first mortgage
notes will be, issued in the form of one or more global notes deposited with, or
on behalf of, the trustee, as custodian for The Depository Trust Company in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to an account of a direct or indirect participant in DTC. Except as
described below, the global notes may be transferred, in whole and not in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the global notes may not be exchanged for first mortgage
notes in certificated form except in the limited circumstances described below.
See " -- Exchange of Global Notes for Certificated First Mortgage Notes." Except
in the limited circumstances described below, owners of beneficial interests in
the global notes will not be entitled to receive physical delivery of first
mortgage notes in certificated form.
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DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear System and Cedel, S.A. are provided solely as a matter of convenience.
These operations and procedures are solely within the control of the respective
settlement systems and they may change them. Royster-Clark takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised Royster-Clark that DTC is a limited-purpose trust company
created to hold securities for its participating organizations and to facilitate
the clearance and settlement of transactions in those securities between
participants through electronic book-entry changes in accounts of its
participants. The participants include securities brokers and dealers, including
the initial purchasers, banks, trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not participants may beneficially own securities
held by or on behalf of DTC only through the participants or the indirect
participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
participants and indirect participants.
DTC has also advised Royster-Clark that, according to procedures
established by it:
(1) upon deposit of the global notes, DTC will credit the accounts of
participants designated by the initial purchasers with portions of the
principal amount of the global notes; and
(2) ownership of these interests in the global notes will be shown on,
and their transfer of ownership will be effected only through, records
maintained by DTC with respect to the participants or by the participants
and the indirect participants with respect to other owners of beneficial
interest in the global notes.
Investors in the global notes who are participants in DTC's system may hold
their interests directly through DTC. Investors in the global notes who are not
participants may hold their interests indirectly through organizations including
Euroclear and Cedel which are participants in the system. Investors in the
global notes may hold their interests directly through Euroclear or Cedel, if
they are participants in these systems, or indirectly through organizations that
are participants in these systems. Euroclear and Cedel will hold interests in
the global notes on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective
depositories, which are Morgan Guaranty Trust Company of New York, Brussels
office, as operator of Euroclear, and Citibank, N.A., as operator of Cedel. All
interests in a global note, including those held through Euroclear or Cedel, may
be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Cedel may also be subject to the procedures and
requirements of those systems. The laws of some states require that individuals
or entities take physical delivery in definitive form of securities that they
own. Consequently, the ability to transfer beneficial interests in a global note
to these individuals or entities will be limited to that extent. Because DTC can
act only on behalf of participants, which in turn act on behalf of indirect
participants, the ability of an individual or entity having beneficial interests
in a global note to pledge these interests to individuals or entities that do
not participate in the DTC system, or otherwise take actions in respect of these
interests, may be affected by the lack of a physical certificate evidencing
these interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE FIRST MORTGAGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF FIRST MORTGAGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED
THE REGISTERED OWNERS OR HOLDERS OF THE NOTES UNDER THE INDENTURE FOR ANY
PURPOSE.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a global note registered in the name of DTC or
its nominee will be payable to DTC in its
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capacity as the registered holder under the indenture. Under the terms of the
indenture, Royster-Clark and the trustee will treat the individuals or entities
in whose names the first mortgage notes, including the global notes, are
registered as the owners for the purpose of receiving payments and for all other
purposes. Consequently, neither Royster-Clark, the trustee nor any agent of
Royster-Clark or the trustee has or will have any responsibility or liability
for:
(1) any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interest in the global notes or for maintaining, supervising or
reviewing any of DTC's records or any participant's or indirect
participant's records relating to the beneficial ownership interests in the
global notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its participants or indirect participants.
DTC has advised Royster-Clark that its current practice, upon receipt of
any payment in respect of securities such as the first mortgage notes, including
principal and interest, is to credit the accounts of the relevant participants
with the payment on the payment date unless DTC has reason to believe it will
not receive payment on such payment date. Each relevant participant is credited
with an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the participants and the indirect participants to the beneficial
owners of first mortgage notes will be governed by standing instructions and
customary practices and will be the responsibility of the participants or the
indirect participants and will not be the responsibility of DTC, the trustee or
Royster-Clark. Neither Royster-Clark nor the trustee will be liable for any
delay by DTC or any of its participants in identifying the beneficial owners of
the first mortgage notes, and Royster-Clark and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
for all purposes.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Cedel will be effected in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
first mortgage notes described in the indenture, cross-market transfers between
the participants in DTC, on the one hand, and Euroclear or Cedel participants,
on the other hand, will be effected through DTC in accordance with DTC's rules
on behalf of Euroclear or Cedel, as the case may be, by its respective
depository. However, the cross-market transactions will require delivery of
instructions to Euroclear or Cedel, as the case may be, by the counterparty in
the system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of the system. Euroclear or Cedel, as the
case may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depository to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
global note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Cedel participants may not deliver instructions directly to the
depositories for Euroclear or Cedel.
DTC has advised Royster-Clark that it will take any action permitted to be
taken by a holder of first mortgage notes only at the direction of one or more
participants to whose account DTC has credited the interests in the global notes
and only in respect of the portion of the aggregate principal amount of the
first mortgage notes as to which participant or participants has or have given
the direction. However, if there is an Event of Default under the first mortgage
notes, DTC reserves the right to exchange the global notes for legended first
mortgage notes in certificated form, and to distribute the first mortgage notes
to its participants.
Although DTC, Euroclear and Cedel have agreed to the above procedures to
facilitate transfers of interests in the global notes among participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform these procedures, and may discontinue the
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procedures at any time. Neither Royster-Clark nor the trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Cedel or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED FIRST MORTGAGE NOTES
A global note is exchangeable for definitive first mortgage notes in
registered certificated form if:
(1) DTC (a) notifies Royster-Clark that it is unwilling or unable to
continue as depository for the global notes and Royster-Clark fails to
appoint a successor depository or (b) has ceased to be a clearing agency
registered under the Exchange Act;
(2) Royster-Clark, at its option, notifies the trustee in writing that
it elects to cause the issuance of the certificated first mortgage notes;
or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the first mortgage notes.
In addition, beneficial interests in a global note may be exchanged for
certificated first mortgage notes upon prior written notice given to the trustee
by or on behalf of DTC in accordance with the indenture. In all cases,
certificated first mortgage notes delivered in exchange for any global note or
beneficial interests in global notes will be registered in the names, and issued
in any approved denominations, requested by or on behalf of DTC in accordance
with its customary procedures.
EXCHANGE OF CERTIFICATED FIRST MORTGAGE NOTES FOR GLOBAL NOTES
Certificated first mortgage notes may not be exchanged for beneficial
interests in any global note unless the transferor first delivers to the trustee
a written certificate in the form provided in the indenture to the effect that
such transfer will comply with the appropriate transfer restrictions applicable
to such first mortgage notes.
SAME DAY SETTLEMENT AND PAYMENT
Royster-Clark will make payments in respect of the first mortgage notes
represented by the global notes including principal, premium, if any, and
interest, including Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the global note holder.
Royster-Clark will make all payments of principal, premium, if any, and
interest, including Liquidated Damages, if any, related to certificated first
mortgage notes by wire transfer of immediately available funds to the accounts
specified by their holders or, if no account is specified, by mailing a check to
each holder's registered address.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and any crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear and Cedel, immediately following the
settlement date of DTC. DTC has advised Royster-Clark that cash received in
Euroclear or Cedel as a result of sales of interests in a global note by or
through a Euroclear or Cedel participant to a participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights agreement
in its entirety because it, and not this description, defines your registration
rights as holders of these first mortgage notes. See " -- Additional
Information."
According to the registration rights agreement, Royster-Clark and the
guarantors have agreed to file with the Commission the exchange offer
registration statement on the appropriate form under the Securities Act with
respect to the exchange first mortgage notes. Upon the effectiveness of the
exchange offer registration statement, Royster-Clark and the guarantors will
offer to the holders of Transfer Restricted Securities under the exchange offer
who are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for exchange first mortgage notes.
If:
(1) Royster-Clark and the guarantors are not
(a) required to file the exchange offer registration statement; or
(b) permitted to complete the exchange offer because the exchange
offer is not permitted by applicable law or Commission policy; or
(2) any holder of Transfer Restricted Securities notifies
Royster-Clark prior to the 20th day following completion of the exchange
offer that:
(a) it is prohibited by law or Commission policy from participating
in the exchange offer; or
(b) it may not resell the exchange first mortgage notes acquired by
it in the exchange offer to the public without delivering a prospectus
and the prospectus contained in the exchange offer registration
statement is not appropriate or available for resales; or
(c) it is a broker-dealer and owns existing first mortgage notes
acquired directly from Royster-Clark or an affiliate of Royster-Clark,
Royster-Clark and the guarantors will file with the Commission a shelf
registration statement to cover resales of the existing first mortgage note by
their holders who satisfy conditions relating to the provision of information in
the shelf registration statement.
Royster-Clark and the guarantors have agreed to use their best efforts to
cause the applicable registration statement to be declared effective as promptly
as possible by the Commission.
For purposes of the preceding, "Transfer Restricted Securities" means each
first mortgage note until:
(1) the date on which the existing first mortgage note has been
exchanged by an individual or entity other than a broker-dealer for an
exchange first mortgage note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of
a first mortgage note for an exchange first mortgage note, the date on
which the exchange first mortgage note is sold to a purchaser who receives
from the broker-dealer on or prior to the date of the sale a copy of the
prospectus contained in the exchange offer registration statement;
(3) the date on which the existing first mortgage note has been
effectively registered under the Securities Act and disposed of in
accordance with the shelf registration statement; or
(4) the date on which the existing first mortgage note is distributed
to the public according to Rule 144 under the Securities Act.
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The registration rights agreement provides that:
(1) Royster-Clark and the guarantors file an exchange offer
registration statement with the Commission on or prior to 60 days after the
closing of the offering;
(2) Royster-Clark and the guarantors use their best efforts to have
the exchange offer registration statement declared effective by the
Commission on or prior to 150 days after the closing of the offering;
(3) unless the exchange offer would not be permitted by applicable law
or Commission policy, Royster-Clark and the guarantors
(a) commence the exchange offer; and
(b) use their best efforts to issue on or prior to 30 business
days, or longer, if required by the federal securities laws, after the
date on which the exchange offer registration statement was declared
effective by the Commission, exchange first mortgage notes in exchange
for all existing first mortgage notes previously tendered in the
exchange offer; and
(4) if obligated to file the shelf registration statement,
Royster-Clark and the guarantors use their best efforts to file the shelf
registration statement with the Commission on or prior to 60 days after the
filing obligation arises and to cause the shelf registration to be declared
effective by the Commission on or prior to 120 days after the obligation
arises.
If:
(1) Royster-Clark and the guarantors fail to file any of the
registration statements required by the registration rights agreement on or
before the date specified for the filing; or
(2) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for the effectiveness (the
"Effectiveness Target Date"); or
(3) Royster-Clark and the guarantors fail to consummate the exchange
offer within 30 business days or longer, if required by federal securities
laws, of the effectiveness target date with respect to the exchange offer
registration statement; or
(4) the shelf registration statement or the exchange offer
registration statement is declared effective but afterwards ceases to be
effective or usable in connection with resales of transfer restricted
securities during the periods specified in the registration rights
agreement,
then Royster-Clark and the guarantors will pay Liquidated Damages to each holder
of first mortgage notes to the first 90-day period immediately following the
occurrence of the first registration default in an amount equal to $.05 per week
per $1,000 principal amount of first mortgage notes held by the holder.
The amount of Liquidated Damages will increase by an additional $.05 per
week per $1,000 principal amount of first mortgage notes for each subsequent
90-day period until all registration defaults have been cured, up to a maximum
amount of Liquidated Damages for all registration defaults of $.50 per week per
$1,000 principal amount of first mortgage notes.
All accrued Liquidated Damages will be paid by Royster-Clark and the
guarantors on each damages payment date to the global note holder by wire
transfer of immediately available funds or by federal funds check and to holders
of certificated first mortgage notes by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no accounts have
been specified.
Following the cure of all registration defaults, the accrual of Liquidated
Damages will cease.
Holders of existing first mortgage notes will be required to make certain
representations to Royster-Clark as described in the registration rights
agreement in order to participate in the exchange offer and will be required to
deliver information to be used with the shelf registration
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statement and to provide comments on the shelf registration statement within the
time periods specified in the registration rights agreement in order to have
their existing first mortgage notes included in the shelf registration statement
and benefit from the provisions regarding Liquidated Damages stated above. By
acquiring transfer restricted securities, a holder will be found to have agreed
to indemnify Royster-Clark and the guarantors against some losses arising out of
information furnished by the holder in writing for inclusion in any shelf
registration statement. Holders of existing first mortgage notes will also be
required to suspend their use of the prospectus included in the shelf
registration statement under some circumstances upon receipt of written notice
to that effect from Royster-Clark.
CERTAIN DEFINITIONS
Some of the terms used in the indenture are defined below. Reference is
made to the indenture for a full disclosure of all terms, as well as any other
capitalized terms used in this prospectus for which no definition is provided.
"399 Ventures" means 399 Venture Partners, Inc., an affiliate of Citicorp
Venture Capital Ltd.
"Acquired Debt" means, with respect to any specified individual or entity:
(1) Indebtedness of any other individual or entity existing at the
time the other individual or entity is merged with or into or became a
Restricted Subsidiary of the specified individual or entity, whether or not
the Indebtedness is incurred in connection with, or in contemplation of,
the other individual or entity merging with or into, or becoming a
Restricted Subsidiary of, the specified individual or entity; provided,
that Indebtedness of the other individual or entity that is redeemed,
defeased, retired or otherwise repaid at the time, or immediately upon
consummation, of the transaction by which the other person is merged with
or into or became a Restricted Subsidiary of the individual or entity shall
not be Acquired Debt; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
the specified individual or entity.
"Affiliatee" of any specified individual or entity means any other
individual or entity directly or indirectly controlling or controlled by or
under direct or indirect common control with the specified individual or entity.
For purposes of this definition, "control," as used with respect to any
individual or entity, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of the
individual or entity, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a individual or entity shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and "under
common control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory and equipment in the ordinary course
of business consistent with past practices and other than a Receivables
Transaction; provided that the sale, conveyance or other disposition of all
or substantially all of the assets of Royster-Clark and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption " -- Repurchase at the Option
of Holders -- Change of Control" and/or the provisions described above
under the caption " -- Certain Covenants -- Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant; provided
further, that:
o the sale, conveyance or other disposition of all or substantially
all of the assets constituting Royster-Clark's East Dubuque,
Illinois nitrogen facility or of the Equity Interests of any
subsidiary which directly or indirectly owns the facility or
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o the sale, conveyance or other disposition of all or substantially
all of the assets constituting the East Dubuque facility together
with all or substantially all of the assets constituting
Royster-Clark's Cincinnati, Ohio nitrogen facility or any
Subsidiary or Subsidiaries which own directly or indirectly the
facilities,
in each case in accordance with the Security Agreements, shall be governed by
the provisions of the indenture described under the caption " -- Repurchase at
the Option of Holders -- Sale of Nitrogen Facilities" and not by the provisions
of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of Royster-Clark's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Restricted Subsidiaries.
The following items shall not be Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among Royster-Clark and its Wholly
Owned Subsidiaries,
(3) an issuance of Equity Interests by a Wholly Owned Subsidiary to
Royster-Clark or to another Wholly Owned Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business including dispositions of
assets that are obsolete or no longer useful in the business consistent
with past practices;
(5) the sale or other disposition of cash or Cash Equivalents; and
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption " -- Certain Covenants --
Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in the
sale and leaseback transaction including any period for which the lease has been
extended or may, at the option of the lessor, be extended. The present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to the term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" as that term is used in Section 13(d)(3) of
the Exchange Act, the "person" shall be deemed to have beneficial ownership of
all securities that the "person" has the right to acquire by conversion or
exercise of other securities, whether the right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership; and
(3) with respect to any other entity, the board or committee of the
entity serving a similar function.
"Borrowing Base" means, as of any date, an amount equal to:
(1) 80% (or 85% during the months of September, October and November)
of the face amount of net regular accounts receivable owned by
Royster-Clark and its Restricted Subsidiaries determined in accordance with
GAAP; plus
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(2) 70% (or 75% during the months of September, October and November)
of the face amount of net crop/extended term receivables owned by
Royster-Clark and its Subsidiaries determined by Royster-Clark in good
faith and in accordance with past practice; plus
(3) 65% (or 70% during the months of September, October and November)
of the net book value of all inventory owned by Royster-Clark and its
Restricted Subsidiaries determined in accordance with GAAP.
"Capital Lease Obligation" means the amount of the liability in respect of
a capital lease that would at that time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests whether general or limited; and
(4) any other interest or participation that confers on an entity the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing entity.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any of its agencies or instrumentalities,
provided that the full faith and credit of the United States is pledged in
their support, having maturities of not more than six months from the date
of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any lender party to the Credit Agreement or
with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) obligations issued or fully guaranteed by any state of the United
States or any political subdivision or public instrumentality of any such
state maturing within six months from the date of their acquisition and at
the time of acquisition, having one of the two highest ratings obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Rating
Services;
(6) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(7) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (6) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition other than by way of merger or consolidation, in one or a
series of related transactions, of all or substantially all of the
properties or assets of Royster-Clark and its Subsidiaries taken as a whole
to any "person" as that term is used in Section 13(d)(3) of the Exchange
Act, other than Royster-
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Clark, any Wholly-Owned Restricted Subsidiary of Royster-Clark, a Principal
or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of Royster-Clark;
(3) the consummation of any transaction including, without limitation,
any merger or consolidation, the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock and the stock convertible into Voting Stock of Royster-
Clark, measured by voting power rather than number of shares;
(4) during any period in which neither Royster-Clark nor Royster-Clark
Group is a public reporting company under the Securities and Exchange Act
of 1934, as amended, the consummation of the first transaction including,
without limitation, any merger or consolidation, the result of which is
that any "person" (as defined above) becomes the Beneficial Owner, directly
or indirectly, of more of the Voting Stock and stock convertible into
Voting Stock of Royster-Clark (measured by voting power rather than number
of shares) than is at the time Beneficially Owned by CVC, 399 Ventures and
their Related Parties in the aggregate; or
(5) the first day on which a majority of the members of the Board of
Directors of Royster-Clark are not Continuing Directors.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
April 1, 2009 that would be utilized, at the time of selection and in accordance
with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining life of the first mortgage
notes.
"Comparable Treasury Price" means, with respect to any date of redemption:
(1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) on the third business day preceding such date of redemption, as
provided in the daily statistical release (or any successor release)
published by the Federal Reserve Bank of New York and designated "Composite
3:30 p.m. Quotations for U.S. Government Securities," or
(2) if the release (or any successor release) is not published or does
not contain the prices on the given business day, the average of the
Reference Treasury Dealer Quotations.
"Consolidated Cash Flow" means, with respect to any specified entity for
any period, the Consolidated Net Income of the entity for the period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by the entity or any of its Restricted Subsidiaries in connection
with an Asset Sale, to the extent the losses were deducted in computing the
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of the entity and
its Restricted Subsidiaries for the period, to the extent that the
provision for taxes was deducted in computing the Consolidated Net Income;
plus
(3) consolidated interest expense of the entity and its Restricted
Subsidiaries for the period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received as part
of Hedging Obligations), to the extent that any of the expense was deducted
in computing Consolidated Net Income; plus
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(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of the entity and its Restricted
Subsidiaries for the period to the extent that the depreciation,
amortization and other non-cash expenses were deducted in computing the
Consolidated Net Income; minus
(5) non-cash items increasing Consolidated Net Income for the period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with GAAP.
The provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash expenses of, a Restricted
Subsidiary of Royster-Clark shall be added to Consolidated Net Income to compute
Consolidated Cash Flow of Royster-Clark only to the extent that a corresponding
amount would be permitted at the date of determination to be dividend to
Royster-Clark by the Restricted Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
according to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified entity for
any period, the aggregate of the Net Income of the entity and its Restricted
Subsidiaries for the period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any entity that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the specified entity or a Wholly Owned
Restricted Subsidiary of the entity;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any entity acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(4) the cumulative effect of a change in accounting principles shall
be excluded.
"Consolidated Net Worth" means, with respect to any specified entity as of
any date, the sum of:
(1) the consolidated equity of the common stockholders of the entity
and its consolidated Restricted Subsidiaries (not including Royster-Clark
Group with respect to Royster-Clark) as of such date; plus
(2) the respective amounts reported on the entity's balance sheet as
of the date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless the dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by the entity upon issuance of such
preferred stock.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Royster-Clark who:
(1) was a member of the Board of Directors on the date of the
indenture; or
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(2) was nominated for election or elected to the Board of Directors
with the approval of a majority of the Continuing Directors who were
members of the Board at the time of the nomination or election.
"Credit Agreement" means the credit agreement, to be dated as of April 22,
1999, by and among Royster-Clark, DLJ Capital Funding as manager and syndication
agent and other parties, providing for up to $275.0 million of revolving credit
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection with the agreement, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
the lenders or to special purpose entities formed to borrow from the lenders
against the receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder), or upon the happening
of any event, matures or is mandatorily redeemable, according to a sinking fund
obligation or otherwise, or redeemable at the option of the holder, in whole or
in part, on or prior to the date that is 91 days after the date on which the
first mortgage notes mature. Any Capital Stock that would constitute
Disqualified Stock solely because their holders have the right to require
Royster-Clark to repurchase the Capital Stock upon the occurrence of a change of
control or an asset sale shall not constitute Disqualified Stock if the terms of
the Capital Stock provide that Royster-Clark may not repurchase or redeem any
Capital Stock according to these provisions unless the repurchase or redemption
complies with the covenant described above under the caption " -- Certain
Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $7.1 million in aggregate principal
amount of Indebtedness of Royster-Clark and its Restricted Subsidiaries (other
than Indebtedness under the Credit Agreement) in existence on the date of the
indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any specified entity for any period,
the sum, without duplication, of:
(1) the consolidated interest expense (other than accretion of
interest on the non-cash pay subordinated notes issued to IMC Global, 399
Ventures and Management Investors for purposes of calculating the Fixed
Charges of Royster-Clark Group) of the entity and its Restricted
Subsidiaries (other than Royster-Clark Group for purposes of computing
consolidated interest expense for any entity other than Royster-Clark
Group) for the period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net of the effect of all payments made or received according to Hedging
Obligations; plus
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(2) the consolidated interest of the entity and its Restricted
Subsidiaries (other than Royster-Clark Group for purposes of computing
consolidated interest capitalized for any entity other than Royster-Clark
Group) that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another entity that is
guaranteed by the entity or one of its Restricted Subsidiaries (other than
Royster-Clark Group for purposes of computing the amount for any entity
other than Royster-Clark Group) or secured by a Lien on assets of the
Person or one of its Restricted Subsidiaries (other than Royster-Clark
Group for purposes of computing the amount for any entity other than
Royster-Clark Group), whether or not the guarantee or Lien is called upon;
plus
(4) the product of (a) all dividends, whether paid or accrued, whether
or not in cash, on any series of preferred stock of the person or any of
its Restricted Subsidiaries (other than Royster-Clark Group for purposes of
computing the amount for any person other than Royster-Clark Group), other
than dividends on Equity Interests payable solely in Equity Interests of
Royster-Clark (other than Disqualified Stock) or to Royster-Clark or a
Restricted Subsidiary of Royster-Clark, times (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of the entity
expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified entity
for any period, the ratio of the Consolidated Cash Flow of the entity for the
period to the Fixed Charges of the entity for the period. In the event that the
specified entity or any of its Restricted Subsidiaries incurs, assumes,
guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary
working capital borrowings) or issues, repurchases or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to the incurrence, assumption, guarantee, repayment,
repurchase or redemption of Indebtedness, or the issuance, repurchase or
redemption of preferred stock, and the use of the proceeds as if the same had
occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified entity or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to the reference period and on or prior to
the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for the reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities Act,
but without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded;
and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to the Fixed Charges will not be
obligations of the specified entity or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles provided in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in
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other statements by the other entity as have been approved by a significant
segment of the accounting profession, which are in effect on the date of the
indenture.
"Hedging Obligations" means, with respect to any specified entity, the
obligations of the entity under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect the entity
against fluctuations in interest rates.
"Indebtedness" means, with respect to any specified entity, any
indebtedness of the entity, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified entity prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified entity (whether or not the Indebtedness is assumed by the
specified entity) and, to the extent not otherwise included, the guarantee by
the specified entity of any indebtedness of any other entity.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any
interest that is more than 30 days past due, in the case of any other
Indebtedness.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the trustee after consultation with the Issuer.
"Investments" means, with respect to any entity, all investments by the
entity in other entities (including Affiliates) in the forms of direct or
indirect loans (including guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by Royster-Clark
or any of its Restricted Subsidiaries for consideration consisting solely of
Equity Interests (other than Disqualified Stock) of Royster-Clark or
Royster-Clark Group shall not be deemed to be an Investment. If Royster-Clark or
any Restricted Subsidiary of Royster-Clark sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of
Royster-Clark such that, after giving effect to the sale or disposition, the
entity is no longer a Restricted Subsidiary of Royster-Clark, Royster-Clark
shall be deemed to have made an Investment on the date of the sale or
disposition equal to the fair market value of the Equity Interests of the
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final
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paragraph of the covenant described above under the caption " -- Certain
Covenants -- Restricted Payments." The acquisition by Royster-Clark or any
Restricted Subsidiary of Royster-Clark of an entity that holds an Investment in
a third entity shall be deemed to be an Investment by Royster-Clark or the
Restricted Subsidiary in the third entity in an amount equal to the fair market
value of the Investment held by the acquired entity in the third entity in an
amount determined as provided in the final paragraph of the covenant described
above under the caption " -- Certain Covenants -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
this nature, any option or other agreement to sell or give a security interest
in and any filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Management Investors" means the officers and employees of Royster-Clark
Group, Royster-Clark or any Subsidiary of Royster-Clark who hold Voting Stock of
Royster-Clark Group or Royster-Clark.
"Net Income" means, with respect to any specified entity, the net income
(loss) of the entity, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on the gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by the entity or any
of its Subsidiaries or the extinguishment of any Indebtedness of the entity
or any of its Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on the extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by Royster-Clark
or any of its Restricted Subsidiaries in respect of any Asset Sale or sale of a
Nitrogen Facility (including, without limitation, any cash received upon the
sale or other disposition of any non-cash consideration received in any Asset
Sale or sale of a Nitrogen Facility), net of the direct costs relating to an
Asset Sale or sale of a Nitrogen Facility, including, without limitation, legal,
accounting and investment banking fees, and sales commissions, and any
relocation expenses, taxes paid or payable as a result of such a sale, in each
case, after taking into account any available tax credits or deductions and any
tax sharing arrangements, and amounts required to be applied to the repayment of
Indebtedness and any reserve for adjustment in respect of the sale price of the
asset or assets established in accordance with GAAP.
"Nitrogen Facility" means either (1) Royster-Clark's nitrogen manufacturing
plant in East Dubuque, IL (the "East Dubuque Plant") or (2) the East Dubuque
Plant and Royster-Clark's nitrogen production facility in Cincinnati, OH.
"Non-Recourse Debt" means Indebtedness
(1) as to which neither Royster-Clark nor any of its Restricted
Subsidiaries
o provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
o is directly or indirectly liable (as a guarantor or otherwise), or
o constitutes the lender;
(2) no default with respect to which (including any rights that the
holders may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness (other than the first mortgage notes
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being offered) of Royster-Clark or any of its Restricted Subsidiaries to
declare a default on the other Indebtedness or cause their payment to be
accelerated or payable prior to its stated maturity; and
o as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of Royster-Clark of any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the fertilizer, seed, crop protection and
agronomic services businesses, and any of the businesses engaged in by
Royster-Clark and its Restricted Subsidiaries on the date of the indenture and
the other business activities that are incidental or related to the businesses
described in this sentence.
"Permitted Investments" means:
(1) any Investment in Royster-Clark or in a Wholly Owned Subsidiary of
Royster-Clark that is a guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by Royster-Clark or any Subsidiary of Royster-Clark
in an entity, if as a result of the Investment:
(a) the entity becomes a Wholly Owned Subsidiary of Royster-Clark
and a guarantor; or
(b) the entity is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Royster-Clark or a Wholly Owned Subsidiary of
Royster-Clark that is a guarantor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made according to and in
compliance with the covenant described above under the caption " --
Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of stock or assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
Royster-Clark or Royster-Clark Group;
(6) Hedging Obligations;
(7) Investments in securities of trade creditors or customers received
in settlement of obligations or according to a plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of trade creditors or
customers;
(8) investments existing on the date of the indenture;
(9) loans and advances to officers, directors, members and employees
for business-related travel expenses, moving expenses and other similar
expenses, in each case, incurred in the ordinary course of business and
consistent with past practices; and
(10) Investments consisting of intercompany loans or capital
contributions from Royster-Clark and its Wholly-Owned Restricted
Subsidiaries to Wholly-Owned Restricted Subsidiaries so long as the
intercompany loans are subordinated to the first mortgage notes.
"Permitted Liens" means:
(1) Liens of Royster-Clark and any Restricted Subsidiary securing
Indebtedness and other Obligations under Credit Facilities that were
securing Senior Debt that was permitted by the terms of the indenture to be
incurred;
(2) Liens in favor of Royster-Clark or the Restricted Subsidiaries;
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(3) Liens on property of an entity existing at the time the entity is
merged with or into or consolidated with or acquired by Royster-Clark or
any Subsidiary of Royster-Clark; provided that the Liens were in existence
prior to the contemplation of the merger or consolidation or acquisition
and do not extend to any assets other than those of the entity merged into
or consolidated with or acquired by Royster-Clark or the Subsidiary;
(4) Liens on property existing at the time of acquisition by
Royster-Clark or any Subsidiary of Royster-Clark, provided that the Liens
were in existence prior to the contemplation of the acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, bid bonds, payment bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business;
(6) Liens existing on the date of the indenture;
(7) Liens to secure Senior Debt that was permitted by the indenture to
be incurred provided the Liens are permitted by the Security Agreements;
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made;
(9) Liens incurred in the ordinary course of business of Royster-Clark
or any Subsidiary of Royster-Clark with respect to obligations that do not
exceed $10.0 million at any one time outstanding;
(10) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries or are incurred in
connection with a Receivables Transaction;
(11) Liens on any property or asset acquired by Royster-Clark or any
of its Restricted Subsidiaries in favor of the seller of the property or
asset and construction mortgages on property, in each case, created within
six months after the date of acquisition, construction or improvement of
the property or asset by Royster-Clark or the Restricted Subsidiary to
secure the purchase price or other obligation of Royster-Clark or the
Restricted Subsidiary to the seller of the property or asset or the
construction or improvement cost of the property in an amount up to the
total cost of the acquisition, construction or improvement of the property
or asset; provided that in each case, the Lien does not extend to any other
property or asset of Royster-Clark and its Restricted Subsidiaries;
(12) Liens incurred or pledges and deposits made in connection with
worker's compensation, unemployment insurance and other social security
benefits;
(13) Liens imposed by law, such as mechanics', carriers',
warehousemen's, materialmen's, and vendors' Liens, incurred in good faith
in the ordinary course of business with respect to amounts not yet
delinquent or being contested in good faith by appropriate proceedings if a
reserve or other appropriate provisions, if any, as shall be required by
GAAP shall have been made;
(14) zoning restrictions, easements, licenses, covenants,
reservations, restrictions on the use of real property or minor
irregularities of title that do not, in the aggregate, materially detract
from the value of the property or the assets of Royster-Clark or impair the
use of the property in the operation of the business of Royster-Clark or
any of its Restricted Subsidiaries;
(15) Liens of landlords or mortgages of landlords, arising solely by
operation of law, on fixtures and movable property located on premises
leased by Royster-Clark or any of its Restricted Subsidiaries in the
ordinary course of business;
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(16) financing statements granted with respect to personal property
leased by Royster-Clark and its Restricted Subsidiaries according to leases
considered operating leases in accordance with GAAP, provided that the
financing statements are granted solely in connection with the leases;
(17) judgment Liens to the extent that the judgments do not cause or
constitute a Default or an Event of Default;
(18) Liens securing Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that has been secured by a Lien permitted under this
indenture; provided that any Lien shall not extend to or cover any assets
or property not securing the Indebtedness so refinanced;
(19) Liens in favor of the first mortgage notes created according to
the terms of the Pledge Agreements; and
(20) Liens to secure Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of
Royster-Clark or any Restricted Subsidiary to the extent the Indebtedness
is permitted to be incurred by the covenant entitled " -- Certain Covenants
-- Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only such assets; and
(21) any extension or renewal, or successive extensions or renewals,
in whole or in part, of Liens permitted according to the foregoing clauses
(1) through (20); provided that no extension or renewal Lien shall (A)
secure more than the amount of Indebtedness or other obligations secured by
the Lien being so extended or renewed or (B) extend to any property or
assets not subject to the Lien being so extended or renewed.
"Permitted Refinancing Indebtedness" means any Indebtedness of
Royster-Clark or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of Royster-Clark or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that:
(1) except for Indebtedness used to extend, refinance, renew, replace,
defease or refund the Credit Facilities, the principal amount (or accreted
value, if applicable) of the Permitted Refinancing Indebtedness does not
exceed the principal amount (or accreted value, if applicable), of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest and the amount of all customary
expenses and premiums incurred in connection with a refinancing);
(2) the Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the first
mortgage notes, the Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the first mortgage notes on terms at least as favorable to the
holders of first mortgage notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and
(4) the Indebtedness is incurred either by Royster-Clark or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means (i) 399 Ventures, Mr. Jenkins and the Management
Investors and (ii) any Related Party of a person referred to in clause (i).
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"Receivables" means, with respect to any individual or entity, all of the
following property and interests in property of the individual or entity,
whether now existing or existing in the future:
(1) accounts,
(2) accounts receivable incurred in the ordinary course of business,
including without limitation, all rights to payment created by or arising
from sales of goods, leases of goods or the rendition of services no matter
how evidenced, whether or not earned by performance,
(3) all rights to any goods or merchandise represented by any of the
foregoing after creation of the foregoing, including, without limitation,
returned or repossessed goods,
(4) all reserves and credit balances with respect to any such accounts
receivable or account debtors,
(5) all letters of credit, security, or guarantees for any of the
foregoing,
(6) all insurance policies or reports relating to any of the
foregoing,
(7) all proceeds of the foregoing and
(8) all books and records relating to any of the foregoing.
"Receivables Subsidiary" means an Unrestricted Subsidiary exclusively
engaged in Receivables Transactions and related activities; provided, however,
that:
(1) at no time shall Royster-Clark and its Subsidiaries have more than
one Receivables Subsidiary and
(2) all Indebtedness or other borrowings of such Unrestricted
Subsidiary shall be Non-Recourse Debt.
"Receivables Transaction" means (i) the sale or other disposition to a
third party of Receivables or (ii) the sale or other disposition of Receivables
to a Receivables Subsidiary followed by a financing transaction in connection
with the sale or disposition of the Receivables (whether the financing
transaction is effected by the Receivables Subsidiary or by a third party to
whom the Receivables Subsidiary sells the Receivables or interest in them);
provided that in each of the foregoing, Royster-Clark or its Subsidiaries
receive cash of at least 60% of the aggregate principal amount of any
Receivables financed in the transaction.
"Reference Treasury Dealer" means, for the first mortgage notes, each of
Donaldson, Lufkin & Jenrette Securities Corporation, or its successors;
provided, however, that if the foregoing shall not be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), Royster-Clark
shall substitute another Primary Treasury Dealer and a Primary Treasury Dealer
selected by Royster-Clark.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any date of redemption, the average, as determined
by the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by the Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such date of redemption.
"Related Party" means
(1) with respect to each of Citicorp Venture Capital and 399 Ventures
(a) any of its direct or indirect wholly owned subsidiaries and any
officer, director or employee of Citicorp Venture Capital, 399 Ventures
or any of their wholly owned subsidiaries;
(b) any spouse, parent or lineal descendant of a parent (including
by adoption and stepchildren) of the officers, directors and employees
referred to in clause (1)(a) above;
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(c) any trust, corporation or partnership 80% of the beneficiaries,
stockholders or partners of which consists of one or more of the persons
described in clause (1)(a) or (b) above and
(d) any charitable trust the grantor of which consists of one or
more of the persons described in clause (1)(a), (b) or (c) above; and
(2) with respect to each of Mr. Jenkins and the Management Investors,
(a) any spouse or lineal descendant (including by adoption and
stepchildren) of the person,
(b) any trust, corporation or partnership 80% of the beneficiaries,
stockholders or partners of which consists of Mr. Jenkins, or the
Management Investors or any of the persons described in clause (2)(a)
above or any combination of the above, and
(c) any charitable trust the grantor of which consists of Mr.
Jenkins, or the Management Investors or one or more of the persons
described in clause (2)(a) or (b) above or any combination of the above.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the referent entity that is
not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness of Royster-Clark or any Restricted Subsidiary
outstanding under Credit Facilities and all Hedging Obligations with
respect to Royster-Clark and any applicable Restricted Subsidiary;
(2) any other Indebtedness of Royster-Clark or any Restricted
Subsidiary permitted to be incurred under the terms of the Indenture,
unless the instrument under which the Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the first mortgage notes or any guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Senior Debt will not include:
(1) any liability for federal, state, local or other taxes owed or
owing by Royster-Clark;
(2) any Indebtedness of Royster-Clark to any of its Restricted
Subsidiaries or other Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of
the indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
according to the Act, as the Regulation is in effect on that date.
"Special Adjusted Treasury Rate" means, with respect to any date of
redemption, the rate per annum equal to the semiannual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for the date of redemption, plus 0.75%.
"Special Purpose Restricted Subsidiaries" means each of Royster-Clark
Realty LLC, Royster-Clark AgriBusiness Realty LLC, Royster-Clark Nitrogen
Realty, LLC and Royster-Clark Hutson's Realty LLC.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in
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the original documentation governing the Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any interest or principal
prior to the date originally scheduled for payment.
"Subsidiary" means, with respect to any specified entity:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees is at the time owned or
controlled, directly or indirectly, by the entity or one or more of the
other Subsidiaries of that entity (or a combination of the above); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is the entity or a Subsidiary of the entity or (b)
the only general partners of which are the entity or one or more
Subsidiaries of the entity (or any combination of the above).
"Unrestricted Subsidiary" means any Subsidiary of Royster-Clark (other than
the Special Purpose Restricted Subsidiaries) that is designated by the Board of
Directors as an Unrestricted Subsidiary according to a Board Resolution, but
only to the extent that the Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not a party to any agreement, contract, arrangement or
understanding with Royster-Clark or any Restricted Subsidiary of
Royster-Clark unless the terms of any agreement, contract, arrangement or
understanding are no less favorable to Royster-Clark or the Restricted
Subsidiary that those that might be obtained at the time from entities who
are not Affiliates of Royster-Clark;
(3) is an entity with respect to which neither Royster-Clark nor any
of its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
the entity's financial condition or to cause the entity to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Royster-Clark or any of its
Restricted Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Royster-Clark or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of Royster-Clark or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Royster-Clark as an Unrestricted
Subsidiary shall be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption " -- Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall afterwards cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of the Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of Royster-Clark as of
the date and, if the Indebtedness is not permitted to be incurred as of the date
under the covenant described under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock," Royster-Clark shall be in default of the covenant.
The Board of Directors of Royster-Clark may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that the
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Royster-Clark of any outstanding Indebtedness of the Unrestricted
Subsidiary and the designation shall only be permitted if (1) the Indebtedness
is permitted under the covenant described under the caption " -- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if the designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following the designation.
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"Voting Stock" of any entity as of any date means the Capital Stock of the
entity that is at the time entitled to vote in the election of the Board of
Directors of the entity.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, by (b)
the number of years (calculated to the nearest one-twelfth) that will
elapse between the date and the making of the payment; by
(2) the then outstanding principal amount of the Indebtedness.
"Wholly Owned Subsidiary" of any specified entity means a Subsidiary of the
entity all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
the entity or by one or more Wholly Owned Subsidiaries of the entity but shall
not in any event include Royster-Clark Group.
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CERTAIN FEDERAL TAX CONSEQUENCES
SCOPE OF DISCUSSION
The following discussion summarizes the material United States federal
income tax consequences of the exchange offer to a holder of existing first
mortgage notes that is an individual citizen or resident of the United States or
a United States corporation that purchased the existing first mortgage notes
according to their original issue. This discussion is based on the Internal
Revenue Code of 1986, as amended to date, existing and proposed Treasury
regulations, and judicial and administrative determinations, all of which are
subject to change at any time, possibly on a retroactive basis. The following
relates only to the existing first mortgage notes, and the exchange first
mortgage notes received in exchange for the existing first mortgage notes, that
are held as "capital assets" within the meaning of Section 1221 of the Code. It
does not discuss state, local, or foreign tax consequences, nor does it discuss
tax consequences to persons who purchase the existing first mortgage notes after
their original issue, or to categories of holders that are subject to special
rules, such as tax-exempt organizations, insurance companies, banks and dealers
in stocks and securities. Tax consequences may vary depending on the particular
status of an investor. No rulings will be sought from the Internal Revenue
Service regarding the federal income tax consequences of the exchange offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING
FIRST MORTGAGE NOTES FOR EXCHANGE FIRST MORTGAGE NOTES. EACH INVESTOR SHOULD
CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL
INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION BEFORE
DETERMINING WHETHER TO EXCHANGE EXISTING FIRST MORTGAGE NOTES FOR EXCHANGE FIRST
MORTGAGE NOTES.
UNITED STATES HOLDERS
If you are a "United States holder," as defined below, this section applies
to you. Otherwise, the next section, "Non-United States holders," applies to
you.
Definition of United States Holder. You are a "United States holder" if
you hold the first mortgage notes and you are:
o a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
"substantial presence" test under Section 7701(b) of the Code as
described below;
o a corporation or partnership created or organized in the United States or
under the laws of the United States or of any political subdivision of
the United States;
o an estate, the income of which is subject to United States federal income
tax regardless of its source; or
o a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons can
control all substantial decisions of the trust, or if the trust was in
existence on August 20, 1996 and has elected to continue to be treated as
a United States person.
Substantial presence. You generally will meet the "substantial presence"
test for a calendar year if:
o you are present in the United States for at least 31 days of that year,
and
o the sum of all the days you are present in the United States for that
year, 1/3 of all the days you are present in the United States the
previous year, and 1/6 of all the days you are present in the United
States the year before that, is at least 183.
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You generally will not meet the "substantial presence" test for a calendar
year if you are present fewer than 183 days of that year in the United States
and you can establish that you have a tax home in, a closer connection to,
another country.
If you are present in the United States by reason of diplomatic status, or
under a student, teacher or trainee visa, you are subject to special rules.
THE "SUBSTANTIAL PRESENCE" TEST IS A COMPLEX TEST THAT CANNOT BE COMPLETELY
SUMMARIZED HERE, AND THAT MAY BE AFFECTED BY THE TREATY OBLIGATIONS OF THE
UNITED STATES. PLEASE CONSULT YOUR TAX ADVISER TO DETERMINE HOW THE "SUBSTANTIAL
PRESENCE" TEST APPLIES TO YOU.
The Exchange Offer. The exchange of existing first mortgage notes
according to the exchange offer should be treated as a continuation of the
corresponding existing first mortgage notes because the terms of the exchange
first mortgage notes are not materially different from the terms of the existing
first mortgage notes. Accordingly, the exchange should not constitute a taxable
event to U.S. holders, and therefore:
o no gain or loss should be realized by U.S. holders upon receipt of an
exchange first mortgage note;
o the holding period of the exchange first mortgage note should include the
holding period of the existing first mortgage note for which the exchange
first mortgage note was exchanged; and
o the adjusted tax basis of the exchange first mortgage note should be the
same as the adjusted tax basis of the existing first mortgage note for
which the exchange first mortgage note was exchanged immediately before
the exchange.
Stated Interest. Stated interest on a first mortgage note will be taxable
to a U.S. holder as ordinary interest income at the time that the interest
accrues or is received, in accordance with the U.S. holder's regular method of
accounting for federal income tax purposes. The first mortgage notes are not
considered to have been issued with original issue discount for federal income
tax purposes.
Sale, Exchange or Retirement of the First Mortgage Notes. A U.S. holder's
tax basis in a first mortgage note generally will be its cost. A U.S. holder
generally will recognize gain or loss on the sale, exchange or retirement of a
first mortgage note in an amount equal to the difference between the amount
realized on the sale, exchange or retirement and the tax basis of the first
mortgage note. Gain or loss recognized on the sale, exchange or retirement of a
first mortgage note will generally be capital gain or loss, and will be
long-term capital gain or loss if the first mortgage note was held for more than
one year. However, amounts of accrued interest received will be taxable as
ordinary income.
Backup Withholding Under certain circumstances, a U.S. Holder of a first
mortgage note may be subject to "backup withholding" at a 31% rate on payments
of interest on a first mortgage note or the gross proceeds from the disposition
of a first mortgage note.
This withholding generally applies if the U.S. holder fails to furnish his
or her social security number or other taxpayer identification number in the
specified manner and in certain circumstances. Any amount withheld from a
payment to a U.S. holder under the backup withholding rules is allowable as a
credit against the U.S. holder's federal income tax liability, provided that the
required information is furnished to the IRS. Corporations and other entities
described in the Code and Treasury regulations are exempt from backup
withholding if their exempt status is properly established.
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NON-UNITED STATES HOLDERS
Definition of Non-United States Holder. A "non-United States holder" is
any person other than a United States Holder. Please note that if you are
subject to United States federal income tax on a net basis on income or gain
with respect to a first mortgage note because the income or gain is effectively
connected with the conduct of a United States trade or business, this disclosure
does not cover the United States federal tax rules that apply to you.
Interest.
Portfolio Interest Exemption. You will generally not have to pay United
States federal income tax on interest paid on the first mortgage notes because
of the "portfolio interest exemption" if either:
o you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us
or our paying agent on a properly executed IRS Form W-8 (or a suitable
substitute form) signed under penalties of perjury; or
o a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business
holds the first mortgage note on your behalf, certifies to us or our
agent under penalties of perjury that it has received IRS Form W-8 (or a
suitable substitute) from you or from another qualifying financial
institution intermediary, and provides a copy to us or our agent.
You will not, however, qualify for the portfolio interest exemption
described above if:
o you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock;
o you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Code; or
o you are a bank receiving interest described in Section 881(c)(3)(A) of
the Code.
Withholding Tax if the Interest Is Not Portfolio Interest. If you do not
claim, or do not qualify for, the benefit of the portfolio interest exemption,
you may be subject to a 30% withholding tax on interest payments made on the
first mortgage notes. However, you may be able to claim the benefit of a reduced
withholding tax rate under an applicable income tax treaty. The required
information for claiming treaty benefits is generally submitted, under current
regulations, on Form 1001. Successor forms will require additional information,
as discussed below under the heading "Non-United States Holders -- New
Withholding Regulations."
Reporting. We may report annually to the IRS and to you the amount of
interest paid to, and the tax withheld, if any, with respect to you.
Sale or Other Disposition of the First Mortgage Notes. You will generally
not be subject to United States federal income tax or withholding tax on gain
recognized on a sale, exchange, redemption, retirement, or other disposition of
a first mortgage note. You may, however, be subject to tax on the gain if:
o you are an individual who was present in the United States for 183 days
or more in the taxable year of the disposition, in which case you may
have to pay a United States federal income tax of 30% (or a reduced
treaty rate) on the gain, and you may also be subject to withholding tax;
or
o you are an individual who is a former citizen or resident of the United
States, your loss of citizenship or residency occurred within the last
ten years (and, if you are a former resident, on or after February 6,
1995), and it had as one of its principal purposes the avoidance of
United States tax, in which case you may be taxed on the net gain derived
from the sale under the graduated United States federal income tax rates
that are applicable to United
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States citizens and resident aliens, and you may be subject to
withholding under certain circumstances.
United States Federal Estate Taxes. If you qualify for the portfolio
interest exemption under the rules described above when you die, the first
mortgage notes will not be included in your estate for United States federal
estate tax purposes.
Backup Withholding and Information Reporting.
Payments From United States Office. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, there is a possibility that you will be subject to
both backup withholding at a rate of 31% and information reporting.
With respect to interest payments made on the first mortgage notes,
however, backup withholding and information reporting will not apply if you
certify, generally on a Form W-8 or substitute form, that you are not a United
States person in the manner described above under the heading "Non-United States
Holders -- Interest."
Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of a first mortgage note, backup withholding or
information reporting generally will not apply if you properly provide,
generally on Form W-8 or a substitute form, a statement that you are an "exempt
foreign person" for purposes of the broker reporting rules, and other required
information. If you are not subject to United States federal income or
withholding tax on the sale or other disposition of a first mortgage note, as
described above under the heading "Non-United States Holders -- Sale or Other
Disposition of First Mortgage Notes," you will generally qualify as an "exempt
foreign person" for purposes of the broker reporting rules.
Payments From Foreign Office. If payments of principal and interest are
made to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of the
sale of a first mortgage note through a foreign office of a "broker," as defined
in the pertinent United States Treasury Regulations, you will generally not be
subject to backup withholding or information reporting. You will, however, be
subject to backup withholding and information reporting if the foreign
custodian, nominee, agent or broker has actual knowledge or reason to know that
the payee is a United States person. You will also be subject to information
reporting, but not backup withholding, if the payment is made by a foreign
office of a custodian, nominee, agent or broker that is a United States person
or a controlled foreign corporation for United States federal income tax
purposes, or that derives 50% or more of its gross income from the conduct of a
United States trade or business for a specified three year period, unless the
broker has in its records documentary evidence that you are a non-United States
holder and certain other conditions are met.
Refunds. Any amounts withheld under the backup withholding rules may be
refunded or credited against the Non-United States Holder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
New Withholding Regulations. New regulations relating to withholding tax
on income paid to foreign persons will generally be effective for payments made
after December 31, 2000. The new withholding regulations modify and, in general,
unify the way in which you establish your status as a non-United States
"beneficial owner" eligible for withholding exemptions including the portfolio
interest exemption, a reduced treaty rate or an exemption from backup
withholding. For example, the new regulations will require new forms, which you
will generally have to provide earlier than you would have had to provide
replacements for expiring existing forms.
The new withholding regulations clarify withholding agents' reliance
standards. They also require additional certifications for claiming treaty
benefits. The new withholding regulations also provide somewhat different
procedures for foreign intermediaries and flow-through entities (such as foreign
partnerships) to claim the benefit of applicable exemptions on behalf of
non-United States
121
<PAGE>
beneficial owners for which or for whom they receive payments. The new
withholding regulations also amend the foreign broker office definition as it
applies to partnerships.
When you purchase the first mortgage notes, you will be required to submit
certification that complies with the Treasury Regulations now in effect in order
to obtain an available exemption from or reduction in withholding tax. The new
withholding regulations provide that certifications satisfying the requirements
of the new withholding regulations will be deemed to satisfy the requirement of
the Treasury Regulations now in effect. In any case, you must provide
certifications that comply with the provisions of the new withholding
regulations, where required, not later than December 31, 2000, if you remain as
a holder of the first mortgage notes on such date, unless you receive payments
on the first mortgage notes through a qualified intermediary as defined in new
withholding regulations that has provided a proper certification on your behalf.
If you are a non-United States holder claiming benefit under an income tax
treaty and not relying on the portfolio interest exemption, you should be aware
that you may be required to obtain a taxpayer identification number and to
certify your eligibility under the applicable treaty's limitations on benefits
article in order to comply with the new withholding regulations' certification
requirements.
THE NEW WITHHOLDING REGULATIONS ARE COMPLEX AND THIS SUMMARY DOES NOT
COMPLETELY DESCRIBE THEM. PLEASE CONSULT YOUR TAX ADVISOR TO DETERMINE HOW THE
NEW WITHHOLDING REGULATIONS WILL AFFECT YOUR PARTICULAR CIRCUMSTANCES.
PLAN OF DISTRIBUTION
Based on existing interpretations of the Securities Act by the SEC's staff
set forth in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the exchange first mortgage
notes issued in the exchange offer may be offered for resale, resold and
otherwise transferred by the holders, other than holders who are broker-dealers,
without further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any purchaser of existing first
mortgage notes who is an affiliate of us or who intends to participate in the
exchange offer for the purpose of distributing the exchange first mortgage
notes, or any broker-dealer who purchased the existing first mortgage notes from
us to resell under Rule 144A or any other available exemption under the
Securities Act, (1) will not be able to rely on the interpretations of the SEC's
staff set forth in the above-mentioned no-action letters, (2) will not be
entitled to tender its existing first mortgage notes in the exchange offer and
(3) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the existing first
mortgage notes, unless such sale of transfer is made pursuant to an exemption
from the requirements of the Securities Act. We do not intend to seek our own
no-action letter, and there can be no assurance that the SEC's staff would make
a similar determination with respect to the exchange first mortgage notes as it
has in no-action letters to third parties.
Each holder of the existing first mortgage notes, other than some specified
holders, who wishes to exchange the existing first mortgage notes for exchange
first mortgage notes in the exchange offer is required to represent that:
o it is not an affiliate of us;
o the exchange first mortgage notes to be received by it was acquired in
the ordinary course of its business;
o at the time of the exchange offer, it has no arrangement with any person
to participate in the "distribution," within the meaning of the
Securities Act, of the exchange first mortgage notes; and
o if such holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, a "distribution," within the meaning of the
Securities Act, of the exchange first mortgage notes.
122
<PAGE>
In addition, in connection with any resales of exchange first mortgage
notes, any broker-dealer who acquired the existing first mortgage notes for its
own account as a result of market-making or other trading activities, referred
to in this section as a "participating broker-dealer," must deliver a prospectus
meeting the requirements of the Securities Act. Based on the position the SEC
has taken to date, we believe that participating broker-dealers may fulfill
their prospectus delivery requirements with respect to the exchange first
mortgage notes. Under the registration rights agreement, we are required to
allow participating broker-dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus in connection with the
resale of such exchange first mortgage notes for a period of 210 days after the
effective date of this prospectus.
Each broker-dealer that receives exchange first mortgage notes for its own
account under the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange first mortgage notes.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of exchange first mortgage
notes received in exchange for existing first mortgage notes where the existing
first mortgage notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities.
We will not receive any proceeds from any sale of exchange first mortgage
notes by broker-dealers. Exchange first mortgage notes received by
broker-dealers for their own account according to the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange first
mortgage notes or a combination of methods of resale, at market prices
prevailing at the time of resale, at prices related to the prevailing market
prices or negotiated prices. A resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from broker-dealer or the purchasers of exchange
first mortgage notes. Any broker-dealer that resells exchange first mortgage
notes that were received by it for its own account according to the exchange
offer and any broker or dealer that participates in a distribution of the
exchange first mortgage notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on the resale of exchange first
mortgage notes and any commission or concessions received by these persons may
be deemed to be underwriting compensation under the Securities Act. Each letter
of transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. We have agreed that,
for a period of 210 days after the effective date of this prospectus, we will
make this prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with a resale.
We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the first mortgage
notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the securities (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the exchange first mortgage notes
offered in this prospectus will be passed upon for us by Dechert Price & Rhoads,
Philadelphia, Pennsylvania.
EXPERTS
Our financial statements as of December 31, 1997 and 1998, and for each of
the years in the three-year period ended December 31, 1998, have been included
in this prospectus and the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, which report is included
elsewhere in this propectus, and upon the authority of the firm as experts in
accounting and auditing.
123
<PAGE>
In addition, the combined financial statements of AgriBusiness as of
December 31, 1997 and 1998 and for each of the years in the three year period
ended December 31, 1998, have been included in this prospectus and the
registration statement in reliance upon the report of Ernst & Young LLP,
independent certified public accountants, which report is included elsewhere in
this prospectus, and upon the authority of the firm as experts in accounting and
auditing.
FORWARD-LOOKING STATEMENTS
All statements regarding our and our subsidiaries' expected financial
position, business and financing plans are forward-looking statements. We have
based these forward-looking statements on our current expectations and
projections about future events. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we cannot assure
you that such expectations will prove to have been correct. These
forward-looking statements are subject to risks, uncertainties, and assumptions
about us, including, among other things, those relating to:
o conditions in and policies affecting the agriculture industry;
o weather;
o our high degree of leverage;
o our anticipated growth strategies, including future acquisitions;
o anticipated trends and conditions in our business, including trends in
the market;
o our ability to integrate acquired entities and achieve synergies;
o our ability to continue to control costs and maintain quality; and
o our ability to compete.
Our actual results may differ materially from those indicated by our
current plans as a result of these factors and other factors referenced in this
prospectus. Some of these factors are discussed in more detail elsewhere in this
prospectus including, without limitation, under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
124
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-4
under the Securities Act of 1933, covering the first mortgage notes to be issued
in the exchange offer (File No. 333-81235). This prospectus, which is a part
of the registration statement, does not contain all of the information included
in the registration statement. For further information with respect to our
company and the notes to be issued in the exchange offer, please reference the
registration statement, including its exhibits. If we have filed any contract,
agreement or other document as an exhibit to the registration statement, you
should read the exhibit for a more complete understanding of the documents or
matter involved.
According to the indenture, we have agreed that, whether or not we are
required to do so by the rules and regulations of the Commission, for so long as
any of the existing first mortgage notes or exchange first mortgage notes remain
outstanding, we will furnish to the holders of the first mortgage notes and file
with the Commission (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if we were required to file the forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report by our certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if we were required to file those
reports. In addition, whether or not required by the rules and regulations of
the Commission, we will also agree to file a copy of the information and reports
with the Commission for public availability (unless the Commission will not
accept the filing) and make the information available to securities analysts and
prospective investors upon request. In addition, for so long as any of the first
mortgage notes remain outstanding, we have agreed to make available to any
prospective purchaser of the first mortgage notes or beneficial owner of the
first mortgage notes in connection with any sale of the notes, the information
required by Rule 144A(d)(4) under the Securities Act. The request should be
directed to us at 10 Rockefeller Plaza, Suite 1120, New York, New York 10020.
125
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(1) Royster-Clark, Inc.
Unaudited Condensed Consolidated Financial Statements:
Balance Sheet of Royster-Clark, Inc. as of June 30, 1999.... F-2
Statements of Income of Royster-Clark, Inc. for the three
months ended June 30, 1999 and Old Royster-Clark for the
three months ended March 31, 1999 and six months ended
June 30, 1998............................................. F-3
Statements of Cash Flows of Royster-Clark, Inc. for the
three months ended June 30, 1999 and Old Royster-Clark
for the three months ended March 31, 1999 and six months
ended June 30, 1998....................................... F-4
Notes to Financial Statements of Royster-Clark, Inc......... F-6
Unaudited Pro Forma Condensed Consolidated Financial
Statements:
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ F-14
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998........... F-15
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 1999......... F-16
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... F-17
(2) Old Royster-Clark
Report of KPMG LLP, independent auditors.................... F-24
Balance Sheets of Old Royster-Clark, Inc. as of December 31,
1997 and 1998............................................. F-25
Statements of Income of Old Royster-Clark, Inc. for the
years ended December 31, 1996, 1997 and 1998.............. F-26
Statements of Stockholders' Equity of Old Royster-Clark,
Inc. for the years ended December 31, 1996, 1997 and
1998...................................................... F-27
Statements of Cash Flows of Old Royster-Clark, Inc. for the
years ended December 31, 1996, 1997 and 1998.............. F-28
Notes to Financial Statements of Old Royster-Clark, Inc..... F-30
(3) AgriBusiness
Report of Ernst & Young LLP, independent auditors........... F-43
Combined Balance Sheets of AgriBusiness as of December 31,
1997 and 1998............................................. F-44
Combined Statements of Earnings of AgriBusiness for the
years ended December 31, 1996, 1997 and 1998.............. F-45
Combined Statements of Cash Flows of AgriBusiness for the
years ended December 31, 1996, 1997 and 1998.............. F-46
Notes to Combined Financial Statements of AgriBusiness...... F-47
Unaudited Combined Balance Sheet as of March 31, 1999....... F-58
Unaudited Combined Statements of Loss of AgriBusiness for
the three months ended March 31, 1998 and 1999............ F-59
Unaudited Combined Statements of Cash Flows of AgriBusiness
for the three months ended March 31, 1998 and 1999........ F-60
Notes to the Unaudited Combined Financial Statements of
AgriBusiness.............................................. F-61
</TABLE>
F-1
<PAGE>
ROYSTER-CLARK, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 422
Trade accounts receivable, net of allowance for doubtful
accounts of $6,728..................................... 200,220
Inventories............................................... 137,580
Prepaid expenses.......................................... 2,979
Deferred tax assets....................................... 4,116
--------
Total current assets................................... 345,317
--------
Property, plant and equipment, net of accumulated
depreciation and amortization of $4,288................... 175,841
Goodwill, net of accumulated amortization of $281........... 16,577
Deferred tax assets......................................... 4,452
Deferred financing costs, net of accumulated amortization of
$499...................................................... 15,607
Other assets, net........................................... 2,669
--------
560,463
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt.................... 2,580
Customer deposits......................................... 22,508
Accounts payable.......................................... 75,864
Accrued expenses.......................................... 34,380
Income taxes payable...................................... 494
--------
Total current liabilities.............................. 135,826
Senior secured credit facility.............................. 98,848
10 1/4% First Mortgage Notes due 2009....................... 200,000
Long-term debt, excluding current installments.............. 4,672
Other long-term liabilities................................. 3,790
--------
Total liabilities...................................... 443,136
--------
Stockholder's equity:
Common stock, no par value. Authorized 350,000 shares; 1
share issued and outstanding........................... --
Additional paid-in capital................................ 88,599
Retained earnings......................................... 28,728
--------
Total stockholder's equity............................. 117,327
--------
Commitments and contingencies...............................
--------
$560,463
========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-2
<PAGE>
ROYSTER-CLARK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
| ROYSTER-CLARK,
OLD ROYSTER-CLARK (NOTE 1) | INC.
------------------------------------- |------------------
SIX MONTHS ENDED THREE MONTHS ENDED |THREE MONTHS ENDED
JUNE 30, 1998 MARCH 31, 1999 | JUNE 30, 1999
---------------- ------------------ |------------------
|
Net sales............................. $168,236 $53,487 | $492,608
|
Cost of sales......................... 145,295 44,042 | 396,593
-------- ------- | --------
|
Gross profit........................ 22,941 9,445 | 96,015
|
Selling, general and administrative |
expenses.............................. 9,869 7,221 | 40,796
-------- ------- | --------
|
Operating income.................... 13,072 2,224 | 55,219
-------- ------- | --------
|
Interest expense...................... 2,796 1,607 | 7,877
-------- ------- | --------
|
Income before income taxes.......... 10,276 617 | 47,342
|
Income tax expense.................... 4,156 251 | 18,614
-------- ------- | --------
|
Net income.......................... $ 6,120 $ 366 | $ 28,728
======== ======= | ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
ROYSTER-CLARK, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
OLD ROYSTER-CLARK (NOTE 1) |ROYSTER-CLARK, INC.
------------------------------ |-------------------
SIX MONTHS THREE MONTHS | THREE MONTHS
ENDED ENDED | ENDED
JUNE 30, 1998 MARCH 31, 1999 | JUNE 30, 1999
------------- -------------- |-------------------
Cash flows from operating activities: |
Net income............................................ $ 6,120 $ 366 | $ 28,728
Adjustments to reconcile net income to net cash |
provided by (used in) operating activities: |
Provision for doubtful accounts................... -- 94 | 1,049
Depreciation and amortization..................... 1,215 718 | 5,862
Gain on sale of fixed assets...................... (35) (6) | --
Loss on disposal of equity method investment...... -- -- | 324
Deferred income tax expense (benefit)............. 1,528 (191) | 18,252
Changes in operating assets and liabilities |
increasing (decreasing) cash flows from |
operating activities: |
Trade accounts receivable.................... (48,412) (13,445) | (81,934)
Other receivables............................ (6,254) (530) | --
Inventories.................................. 3,911 (36,626) | 166,971
Prepaid expenses............................. 1,062 (2,236) | 1,457
Income taxes receivable...................... -- 307 | --
Other assets................................. 45 (159) | 288
Accounts payable............................. 18,736 20,346 | (52,666)
Accrued expenses............................. 3,545 1,496 | 5,173
Income taxes payable......................... 1,002 126 | 494
Other long-term liabilities.................. (280) -- | (2)
--------- -------- | ---------
Total adjustments.......................... $ (23,937) $(30,106) | $ 65,268
--------- -------- | ---------
Net cash provided by (used in) operating |
activities............................... $ (17,817) $(29,740) | $ 93,996
--------- -------- | ---------
Cash flows from investing activities: |
Proceeds from sale of property, plant and equipment... $ 113 $ 8 | $ 538
Purchases of property, plant and equipment............ (1,359) (964) | (4,292)
Acquisition of AgriBusiness (note 4).................. -- -- | (255,507)
--------- -------- | ---------
Net cash used in investing activities...... $ (1,246) $ (956) | $(259,261)
--------- -------- | ---------
Cash flows from financing activities: |
Payments on senior secured credit facility............ $(124,646) $(64,725) | $(203,244)
Borrowings on senior secured credit facility.......... 157,051 97,089 | 296,734
Proceeds from issuance of First Mortgage Notes........ -- -- | 200,000
Capital contribution by RCG (note 4).................. -- -- | 22,918
Long-term debt of Old Royster-Clark refinanced |
(note 4)............................................ -- -- | (67,750)
Principal payments on long-term debt.................. (768) (437) | (25)
Net decrease in customer deposits..................... (12,081) (1,036) | (73,846)
Payment of deferred financing costs................... -- -- | (9,182)
Dividend payments..................................... (495) (195) | --
Stock options exercised............................... 2 -- | --
--------- -------- | ---------
Net cash provided by financing |
activities............................... $ 19,063 $ 30,696 | $ 165,605
--------- -------- | ---------
Net increase in cash.................................. -- -- | 340
Cash at beginning of period........................... 29 42 | 82
--------- -------- | ---------
Cash at end of period................................. $ 29 $ 42 | $ 422
========= ======== | =========
Supplemental disclosure of cash flow information: |
Cash paid during the year for interest................ $ 1,480 $ 1,463 | $ 2,707
========= ======== | =========
Cash paid during the year for income taxes............ $ 1,245 $ 11 | $ --
========= ======== | =========
</TABLE>
(continued)
See accompanying notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
ROYSTER-CLARK, INC.
STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Supplemental disclosure of noncash investing and financing activities:
In connection with the acquisition of AgriBusiness, $10,000 of the purchase
price paid was financed by an equity contribution to the Company by
Royster-Clark Group. Also, $188,495 of liabilities were assumed in the
transaction.
As discussed in note 3, in connection with the acquisition of Old
Royster-Clark by Royster-Clark Group, $189,958 of liabilities were assumed in
the transaction.
See accompanying notes to unaudited condensed consolidated financial statements.
F-5
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) BASIS OF PRESENTATION
As discussed further in notes 3 and 4, effective April 1, 1999,
Royster-Clark Group (herein referred to as RCG) a newly formed entity
capitalized with approximately $59,000 in cash, acquired all of the then
outstanding stock of Royster-Clark, Inc. (herein referred to as Old Royster-
Clark). As a result, the accompanying unaudited condensed consolidated financial
statements of Royster-Clark, Inc. and subsidiaries (the Company) as of and for
the three months ended June 30, 1999 reflect the acquisition of the Company by
RCG as of April 1, 1999.
These financial statements also reflect the Company's acquisitions of IMC
AgriBusiness, Inc. and subsidiaries (now a wholly owned subsidiary known as
Royster-Clark AgriBusiness, Inc.), Hutson's AG Service, Inc. and subsidiaries
(now a wholly owned subsidiary known as Royster-Clark Hutson, Inc.) and IMC
Nitrogen Company and subsidiaries (now a wholly owned subsidiary known as
Royster-Clark Nitrogen, Inc.) (collectively referred to as "AgriBusiness") from
IMC Global, Inc. which was consummated on April 22, 1999 with an effective date
of April 1, 1999. All material intercompany transactions and balances have been
eliminated.
The accompanying unaudited condensed consolidated financial statements for
the six months ended June 30, 1998 and the three months ended March 31, 1999
represent the results of operations and cash flows of the Company's predecessor,
Old Royster-Clark, and are not presented on a basis comparable with the
financial statements of the Company.
In the opinion of management, the unaudited condensed consolidated
financial statements of the Company and Old Royster-Clark are prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and pursuant to the requirements for interim financial
reporting included in Article 10 of Regulation S-X. Accordingly, certain
disclosures accompanying annual financial statements prepared in accordance with
GAAP are omitted. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for the fair presentation of
financial statements for the interim period have been included. The Company's
business is highly seasonal and therefore the results of operations for the
three months ended June 30, 1999 are not indicative of results that ultimately
may be achieved for the nine months ending December 31, 1999 or for any future
period
(2) DESCRIPTION OF BUSINESS
The Company is a retail and wholesale distributor of mixed fertilizer,
seed, crop protection products and agronomic services to farmers, primarily in
the East, South and Midwest. The Company's operations consist of retail farm
centers, granulation, blending and seed processing plants, and an integrated
network of storage and distribution terminals and warehouses. In addition, the
Company operates two nitrogen manufacturing plants that supply the retail and
wholesale distribution businesses with nitrogen fertilizer products.
(3) CAPITALIZATION OF RCG
RCG was formed for the purpose of acquiring all of the outstanding stock of
the Company and to enable the Company to purchase AgriBusiness. RCG is a holding
company with no operations independent of those of the Company. Although the
Company is not legally liable for the obligations of RCG, the ability of RCG to
meet its obligations is dependent on the Company's ability to pay dividends to
RCG, in an amount sufficient to service these obligations, including
F-6
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(3) CAPITALIZATION OF RCG -- (CONTINUED)
dividend payments on RCG's preferred stock, and principal and interest payments
on its junior subordinated notes. The following paragraphs summarize the terms
of RCG's outstanding securities.
RCG has issued $20,000 of junior subordinated notes, $10,000 of which were
issued to IMC Global, Inc. in conjunction with the acquisition of AgriBusiness.
The notes bear interest at an annual rate of 12%. Through maturity, RCG may
elect to pay interest due in the form of additional junior subordinated notes.
The notes, including additional notes issued in lieu of interest, are due April
2010. Of these notes, $10,000, which represents the notes issued to IMC Global,
are exchangeable after three years for Royster-Clark, Inc. 10 1/4% First
Mortgage Notes due 2009 (herein referred to as the First Mortgage Notes),
subject to compliance with the terms of the debt obligations of the Company. The
terms of the indenture and the other debt obligations of the Company currently
prohibit such exchange and are expected to prohibit this exchange for the
foreseeable future.
RCG has also issued 60,714 shares of 12% Series A Senior Cumulative
Compounding Preferred Stock (the "Senior Preferred Stock"), 13,264 of which were
issued to former stockholders of Old Royster-Clark in conjunction with the
acquisition of Old Royster-Clark, with a $0.01 per share par value and a
liquidation value of $1,000 per share. Dividends are payable annually at the
rate of $120 per share per annum when, as and if declared by the Board of
Directors. Additional dividends accrue on unpaid dividends. In the event that
RCG shall be liquidated, dissolved or wound up, whether voluntarily or
involuntarily, after all creditors of RCG shall have been paid in full, the
holders of the Senior Preferred Stock shall be entitled to receive an amount
equal to $1,000 in cash per share plus an amount equal to full cumulative
dividends accrued and unpaid before any proceeds are paid to the holders of the
Series B Junior Preferred Stock (the "Junior Preferred Stock") or the RCG common
stock.
RCG has issued 7,487 shares of Junior Preferred Stock, all of which were
issued to former stockholders of Old Royster-Clark in conjunction with the
acquisition of Old Royster-Clark, with a $0.01 per share par value and a
liquidation value of $1,000 per share. The holders of the Junior Preferred Stock
shall not be entitled to receive any dividends until 2004. Thereafter, the
holders of the Junior Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors, cash dividends at the rate of $120 per
share. Dividends, when entitled, shall be cumulative. In the event that RCG
shall be liquidated, dissolved or wound up, whether voluntarily or
involuntarily, after all creditors of RCG shall have been paid in full and the
holders of any Senior Preferred Stock have been paid, the holders of the Junior
Preferred Stock shall be entitled to receive an amount equal to $1,000 in cash
per share plus an amount equal to cumulative dividends accrued and unpaid before
any proceeds are paid to the holders of the RCG common stock.
RCG has issued 1,960,026 shares of no par common stock, 368,426 of which
were issued to former stockholders of Old Royster-Clark in conjunction with the
acquisition of Old Royster-Clark. The common stock was issued in two series,
Class A and Class B, with 2,000,000 shares of each class authorized. The rights
and privileges are identical between the two classes except with regards to
voting rights. The holders of Class A common stock have the general right to
vote for all purposes while the holders of Class B common stock have no voting
rights.
F-7
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) ACQUISITIONS
The following paragraphs describe the acquisition of Old Royster-Clark by
RCG and the acquisition of AgriBusiness by the Company, both transactions having
an effective date of April 1, 1999.
(A) ACQUISITION OF ROYSTER-CLARK, INC. BY RCG
RCG acquired all of the outstanding stock and stock options of Old
Royster-Clark for $55,681, including $1,300 in direct costs of the acquisition,
consisting of $34,825 in cash, 13,264 shares of Senior Preferred Stock, 7,487
shares of Junior Preferred Stock, 368,426 shares of Common Stock and 7,284
options to purchase additional RCG securities. Each option entitles the holder
to purchase 5.5 shares of Common Stock, 2.0 shares of Senior Preferred Stock and
1.1 shares of Junior Preferred Stock. The acquisition was accounted for as a
purchase. As a result, the assets and liabilities were adjusted to their fair
values, with the excess purchase price over the fair value assigned to goodwill.
The following summarizes the preliminary allocation of the purchase price.
Assets purchased:
Cash.......................................... $ 42
Receivables, net.............................. 40,011
Inventories................................... 91,831
Prepaid expenses.............................. 3,987
Deferred income taxes......................... 440
Property and equipment........................ 56,241
Goodwill...................................... 16,941
Other assets.................................. 598
--------
Total assets purchased..................... 210,091
--------
Liabilities assumed:
Customer deposits............................. 23,326
Accounts payable.............................. 44,486
Accrued expenses.............................. 5,379
Long-term debt................................ 67,926
Deferred income taxes......................... 13,000
Other liabilities............................. 293
--------
Total liabilities assumed.................. 154,410
--------
Purchase price............................. $ 55,681
========
Subsequent to the acquisition, RCG contributed $22,918 in cash to the
Company, which, along with the borrowings under the newly established senior
secured credit facility described below, was used to refinance $67,750 of Old
Royster-Clark's long-term debt.
The allocation of the purchase price will be finalized during the third and
fourth quarter of 1999 upon completion of restructuring decisions and asset
valuations.
(B) ACQUISITION OF AGRIBUSINESS
Royster-Clark, Inc. acquired AgriBusiness through the acquisition of all of
the outstanding common stock of its component entities for $265,507 in cash,
including $3,200 in direct costs of
F-8
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) ACQUISITIONS -- (CONTINUED)
the acquisition. The acquisition was financed with proceeds from the senior
secured credit facility (note 5), the issuance of $200,000 in mortgage notes
(note 6) and $10,000 contributed to the Company by RCG, representing the
proceeds associated with the $10,000 in RCG Junior Subordinated Notes issued to
IMC Global. The acquisition has been accounted for as a purchase, and as a
result all of the assets and liabilities have been adjusted to their fair
values. Because the fair values of the assets purchased and the liabilities
assumed exceed the purchase price, the fair values of property and equipment
have been reduced. The following summarizes the preliminary allocation of the
purchase price.
<TABLE>
<S> <C>
Assets purchased:
Cash.......................................... $ 40
Receivables, net.............................. 79,324
Inventories................................... 212,720
Prepaid expenses.............................. 449
Property and equipment........................ 120,798
Deferred income taxes......................... 39,380
Other assets.................................. 2,754
--------
Total assets purchased..................... 455,465
========
Liabilities assumed:
Accounts payable.............................. 84,044
Customer deposits............................. 73,028
Accrued expenses.............................. 22,286
Long-term debt................................ 7,100
Other liabilities............................. 3,500
--------
Total liabilities assumed.................. 189,958
--------
Purchase price paid........................ $265,507
========
</TABLE>
The allocation of the purchase price will be finalized during the third and
fourth quarter of 1999 upon completion of restructuring decisions and asset
valuations.
(C) RESTRUCTURING LIABILITIES
In connection with the acquisitions of Old Royster-Clark and AgriBusiness,
the Company recorded accruals of $13,159 for future costs to be incurred related
to the closure of certain facilities, severance and termination benefits, and
relocation costs of employees. These costs represent management's estimates of
the ultimate obligations associated with executing its plans for the combined
entity. These plans, including plans to terminate certain employees, were
announced in the second quarter of 1999. The communications specifically
identified the planned facility closings and the number of employees to be
terminated and their job classifications. The termination of these employees and
the closing of these facilities is scheduled to be completed by December 1999.
F-9
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) ACQUISITIONS -- (CONTINUED)
The following table shows the merger-related accruals and the remaining
liability as of June 30, 1999.
<TABLE>
<CAPTION>
COSTS INCURRED
APRIL 1
THROUGH
BALANCE AS OF JUNE 30, BALANCE AS OF
APRIL 1, 1999 1999 JUNE 30, 1999
----------------- -------------- -------------
<S> <C> <C> <C>
Costs to exit certain facilities........ 4,808 229 4,579
Severance and termination related
accruals.............................. 7,167 364 6,803
Relocation costs........................ 1,184 -- 1,184
------ ---- -------
Total merger-related costs.............. 13,159 593 12,566
====== ==== =======
</TABLE>
(C) PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma consolidated income statement information
combines the consolidated historical results of the Company with the historical
results of IMC AgriBusiness for the fiscal year ended December 31, 1998, and the
six months ended June 30, 1999 as if the transaction was consummated on January
1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
Net sales...................................... $1,019,827 $673,695
Net income..................................... $ 10,500 $ 17,758
</TABLE>
The unaudited pro forma information reflects adjustments made to the
historical statements of operations of the Company and of IMC AgriBusiness for:
i. The impact on depreciation and amortization of adjusting to the fair
values of property, plant and equipment, goodwill and other intangibles,
including amortization of the deferred financing costs incurred in the
establishment of the senior secured credit facility and the issuance of the
First Mortgage Notes,
ii. The impact on the results of operations of IMC AgriBusiness
related to the transfer of wholesale purchasers of fertilizer materials
from IMC AgriBusiness to IMC Global, Inc. in the third quarter of 1998,
iii. The impact on interest expense to reflect the refinancing of the
Company's existing long-term debt, and borrowings on the senior secured
credit facility and issuance of the mortgage notes in conjunction with the
acquisition of AgriBusiness,
iv. The impact on cost of sales and selling, general and
administrative expense related to the elimination of certain historical
costs and expenses as a result of the acquisitions, and
v. The impact on income tax expense, which represents the tax effect
of the pro forma adjustments described above, calculated to yield an
estimated composite tax rate of 39%.
(5) SENIOR SECURED CREDIT FACILITY
In connection with the acquisitions, the Company established a senior
secured credit facility that allows it to borrow up to $275,000, subject to
certain borrowing base limitations. The senior secured credit facility expires
in five years and bears interest at LIBOR plus 2.75%. The senior
F-10
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) SENIOR SECURED CREDIT FACILITY -- (CONTINUED)
secured credit facility is secured by (1) a lien on all accounts receivable,
inventory, general intangibles and all other assets of the Company and its
subsidiaries (except for the collateral securing the mortgage notes, as
discussed below), (2) all of the common stock of the Company, and (3) all of the
common stock of the Company's subsidiaries, except for the equity interests of
certain subsidiaries pledged to secure the mortgage notes.
The senior secured credit facility is subject to certain covenants,
including limitations on additional indebtedness, limitations on liens,
limitations on capital expenditures and maintenance of certain required
financial ratios. The senior secured credit facility also restricts the payment
of dividends by the Company to RCG. Dividends are restricted to (1) amounts
necessary to enable RCG to pay overhead expenses in an amount not to exceed
$2,000; (2) amounts necessary to enable RCG to pay income and other taxes; and
(3) $1,000 over the life of the agreement for the purpose of repurchasing,
redeeming or otherwise acquiring and retiring any capital stock, stock warrants,
stock options or other rights to acquire capital stock of RCG. Dividends made
under the third provision are further restricted in that such dividends may not
be made if a default has occurred (or would occur if the dividend payment were
made), or such dividend payments would result in noncompliance with any
financial covenants.
In connection with the establishment of the senior secured credit facility,
the Company incurred approximately $6,900 of deferred financing costs, which are
being amortized on a straight-line basis over the life of the senior secured
credit facility.
(6) ROYSTER-CLARK, INC. 10 1/4% FIRST MORTGAGE NOTES DUE 2009
As discussed in note 4, the Company issued $200,000 of 10 1/4% First
Mortgage Notes due April 2009 (herein referred to as the First Mortgage Notes)
on April 22, 1999 to partially finance the acquisition of AgriBusiness. The
First Mortgage Notes mature in ten years and bear interest at 10.25% payable
semi-annually in arrears. The First Mortgage Notes are secured by 17 principal
properties, related fixtures and equipment and other related assets, and a
pledge of equity of certain subsidiaries. RCG and all of the Company's
subsidiaries also unconditionally guarantee the First Mortgage Notes. The First
Mortgage Notes are not redeemable prior to April 1, 2004 except in the case of a
change of control or a public offering in the first three years after the issue
date. Thereafter, the mortgage notes are redeemable in whole or in part, at the
Company's option, at a 5.125% premium, declining ratably to par on April 1,
2007, plus accrued and unpaid interest, if any, to the date of redemption.
The mortgage notes are subject to certain covenants, including restrictions
on dividend payments and retirement of equity interests, incurrence of new
indebtedness or preferred stock, and certain transactions with affiliates.
Dividends may not be made if a default has occurred (or would occur if the
dividend payment were made), or such dividend payments would result in
noncompliance with any financial covenants. Dividend payments are further
restricted in amount to at most 50% of consolidated net income of the Company
from the date of origination of the mortgage notes to the end of the most
recently completed fiscal quarter.
In connection with the issuance of the mortgage notes, the Company incurred
approximately $9,200 of deferred financing costs, which are being amortized
using the interest method over the term of the mortgage notes.
F-11
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(7) INVENTORY
Inventories at June 30, 1999 consisted of:
Chemicals......................................... $ 65,514
Fertilizers....................................... 14,601
Fertilizer Materials.............................. 32,805
Seeds............................................. 12,867
Sundry............................................ 11,793
--------
$137,580
========
(8) 1999 RESTRICTED STOCK PURCHASE AND OPTION PLAN
Upon the acquisition of the Company by RCG, RCG created the 1999 Restricted
Stock Purchase and Option Plan (the 1999 Stock Option Plan). Under the terms of
the 1999 Stock Option Plan, 200,000 shares of RCG common stock have been
reserved for issuance in the form of restricted share grants to current and
future employees of the Company. Shares issued under the 1999 Stock Option Plan
are subject to certain restrictions on transfer of shares. In addition, 39,974
shares of Common Stock, 1,479 shares of Senior Preferred Stock and 832 shares of
Junior Preferred Stock have been reserved for issuance pursuant to the exercise
of stock options rolled over from the 1992 Stock Option Plan (herein referred to
as the 1992 Plan) previously maintained by Old Royster-Clark. All options
granted under the 1992 Plan were either cashed out at the merger consideration
of $285 per share less the exercise price under the 1992 Plan or exchanged for
an option to purchase 5.5 shares of Common Stock, 2.0 shares of Senior Preferred
Stock and 1.1 shares of Junior Preferred Stock at the same exercise price as
under the 1992 Plan.
At June 30, 1999, there are 7,284 options vested and outstanding under the
1999 Stock Option Plan, representing the options issued under the Old
Royster-Clark 1992 Plan exchanged as described above. No options were issued,
vested or exercised during the three months ended June 30, 1999.
(9) ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of federal, state and local
environmental laws and regulations. The Company has been identified as a
potentially responsible party concerning the release of certain hazardous
substances at five locations. While the current law potentially imposes joint
and several liability upon each party named as a potentially responsible party,
the Company's contribution to clean up these sites is expected to be limited,
given the number of other companies which have also been named as potentially
responsible parties and the nature and amount of cleanup involved. A number of
the Company's facilities have been evaluated as having excess nitrates,
phosphorous and pesticides in the surrounding soil or groundwater. In addition,
several underground storage tanks have been removed or closed at some facilities
and these sites have been evaluated for possible contamination. In total,
cleanup of hazardous or potentially hazardous substances has been planned or is
being performed at approximately 40 sites.
In connection with the acquisitions of AgriBusiness and old Royster Clark,
the Company obtained indemnities for certain claims related to environmental
matters that existed or arose prior to the acquisitions. The indemnities related
to AgriBusiness are subject to a $4,500 deductible, an overall cap of $5,000 on
all indemnities, and certain time limitations. The indemnities related to
F-12
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(9) ENVIRONMENTAL MATTERS -- (CONTINUED)
Old Royster-Clark are subject to a deductible of $2,000, certain time
limitations and an overall cap of $5,000 on all indemnities. In addition, Old
Royster-Clark had obtained indemnities from Lebanon Chemical Corporation (LCC)
for certain claims related to environmental matters that existed at sites
acquired from LCC in December 1998.
Recorded environmental liabilities at June 30, 1999 for the estimated cost
of cleanup efforts of identified contamination or site characterization totaled
$2,831, and are included in other long-term liabilities in the accompanying
balance sheet. Actual cash expenditures during the three months ended June 30,
1999 were $4. These liabilities do not take into account any claims for
recoveries from insurance or third parties and are not discounted. Actual costs
to be incurred at identified sites in future periods may vary from these
estimates, given inherent uncertainty in evaluating environmental exposures.
While the Company's potential exposure cannot be estimated, in the opinion of
management the final disposition of such matters will not have a material
adverse effect on the financial position or results of operations of the
Company.
(10) COMMITMENTS AND CONTINGENCIES
(A) SUPPLY AGREEMENT
In conjunction with the acquisition of AgriBusiness, the Company has
entered into a ten-year supply agreement with IMC Kalium Ltd. (Kalium) and
IMC-Agrico Company (Agrico), both of which are subsidiaries of IMC Global, Inc.
Under the terms of the supply agreement, the Company is required to purchase
(and Agrico and Kalium are required to supply) certain products from Kalium or
Agrico in an amount equal to its estimated normal business requirements. The
purchase prices of the products covered by the agreement are determined and
fixed annually and approximate market prices. The agreement automatically renews
for subsequent periods of 5 years unless otherwise canceled by either party. In
addition, the agreement specifies remedies available to the parties in the event
of noncompliance, which include compensatory damages in the event of a failure
to purchase (or supply) the required quantities of the covered products.
(B) PURCHASE COMMITMENT
Under the terms of the acquisition agreement with LCC, the Company is
required to purchase specified quantities of ammoniated fertilizer products from
LCC at prices approximating market rates through 2001.
(C) LEGAL AND REGULATORY MATTERS
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters and has
incurred obligations for investigation or remedial actions with respect to
certain of such matters. In addition, the Company is subject to various claims
and legal matters that have arisen in the ordinary course of its business.
Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of the Company's management that any such claims
asserted or obligations incurred to date will not result in a material adverse
effect on the results of operations or financial position of the Company.
F-13
<PAGE>
ROYSTER-CLARK, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statements of
operations have been prepared as if the acquisitions of Old Royster-Clark and
AgriBusiness occurred as of January 1, 1998 for the year ended December 31, 1998
and six months ended June 30, 1999. The pro forma condensed consolidated
statements of operations do not purport to represent our results of operations
if such transactions had occurred on such dates or to project results of
operations for any future period.
The pro forma condensed consolidated statements of operations and
accompanying notes should be read in conjunction with the historical financial
statements and the notes thereto of Royster-Clark, Inc., Old Royster-Clark and
AgriBusiness included elsewhere in this prospectus.
F-14
<PAGE>
ROYSTER-CLARK, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION OF ACQUISITION OF ROYSTER-CLARK, INC.
OLD ROYSTER-CLARK AGRIBUSINESS PRO FORMA
----------------- -------------- -------------------
(NOTE 2) (NOTE 3)
<S> <C> <C> <C>
Net sales................................... $286,351 $733,476 $1,019,827
Depreciation and amortization............... 1,760 7,683 9,443
Other cost of sales......................... 238,859 593,309 832,168
-------- -------- ----------
Gross profit.............................. 45,732 132,484 178,216
Depreciation and amortization............... 7,113 6,942 14,055
Other selling, general and administrative
expenses.................................. 31,323 80,250 111,573
-------- -------- ----------
Operating income.......................... 7,296 45,292 52,588
Interest expense............................ 5,217 29,274 34,491
Other expense, net.......................... -- 1,857 1,857
-------- -------- ----------
Income before income taxes................ 2,079 14,161 16,240
Income tax expense.......................... 842 5,523 6,365
-------- -------- ----------
Net income................................ $ 1,237 $ 8,638 $ 9,875
======== ======== ==========
</TABLE>
F-15
<PAGE>
ROYSTER-CLARK, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS
ROYSTER-CLARK, INC. ENDED MARCH 31, 1999 ROYSTER-CLARK, INC.
HISTORICAL ---------------------------- PRO FORMA
THREE MONTHS ENDED OLD SIX MONTHS ENDED
JUNE 30, 1999 ROYSTER-CLARK AGRIBUSINESS JUNE 30, 1999
------------------- ------------- ------------ -------------------
(NOTE 1) (NOTE 2) (NOTE 3)
<S> <C> <C> <C> <C>
Net sales....................... $492,608 $53,487 $127,600 $673,695
Depreciation and amortization... 2,466 440 1,896 4,802
Other cost of sales............. 394,127 43,839 112,286 550,252
-------- ------- -------- --------
Gross profit.................. 96,015 9,208 13,418 118,641
Depreciation and amortization... 3,396 1,796 1,798 6,990
Other selling, general and
administrative expenses....... 37,400 6,706 22,101 66,207
-------- ------- -------- --------
Operating income (loss)....... 55,219 706 (10,481) 45,444
Interest expense................ 7,877 1,082 7,025 15,984
Other expense, net.............. -- -- 100 100
-------- ------- -------- --------
Income (loss) before income
taxes...................... 47,342 (376) (17,606) 29,360
Income tax (expense) benefit.... (18,614) 146 6,866 (11,602)
-------- ------- -------- --------
Net income (loss)............. $ 28,728 $ (230) $(10,740) $ 17,758
======== ======= ======== ========
</TABLE>
F-16
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) ROYSTER-CLARK, INC. HISTORICAL
The amounts presented under the heading "Royster-Clark, Inc. Historical"
are taken from the Royster-Clark, Inc., historical statement of operations for
the three months ended June 30, 1999, included elsewhere in this prospectus.
Certain detail has been provided to enhance the pro forma information.
Effective April 1, 1999, Royster-Clark Group (herein referred to as RCG) a
newly formed entity capitalized with approximately $59,000 in cash, acquired all
of the then outstanding stock of Royster-Clark, Inc. (herein referred to as Old
Royster-Clark). As a result, the unaudited condensed consolidated statements of
operations of Royster-Clark, Inc. and subsidiaries (the Company) for the three
months ended June 30, 1999 reflect the acquisition of the Company by RCG as of
April 1, 1999. The unaudited condensed consolidated statement of operations for
the three months ended June 30, 1999 also reflects the Company's acquisitions of
IMC Agribusiness, Inc. and subsidiaries (now a wholly owned subsidiary known as
Royster-Clark AgriBusiness, Inc.), Hutson's AG Service, Inc. and subsidiaries
(now a wholly owned subsidiary known as Royster-Clark Hutson, Inc.) and IMC
Nitrogen Company and subsidiaries (now a wholly owned subsidiary known as
Royster-Clark Nitrogen, Inc.) (collectively referred to as "AgriBusiness") from
IMC Global, Inc. which was consummated on April 22, 1999 with an effective date
of April 1, 1999.
(2) OLD ROYSTER-CLARK
Pro forma adjustments relating to the acquisition of Old Royster-Clark are
as follows:
For the Year Ended December 31, 1998:
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- OLD
OLD CONSUMMATED PRO FORMA ROYSTER-CLARK
ROYSTER-CLARK TRANSACTIONS ADJUSTMENTS PRO FORMA
------------- ------------ ----------- -------------
(A) (B) (C)
<S> <C> <C> <C> <C>
Net sales............................. $218,672 $67,679 $ -- $286,351
Depreciation and amortization......... 729 61 970 (i) 1,760
Other cost of sales................... 184,917 53,942 -- 238,859
-------- ------- ------- --------
Gross profit........................ 33,026 13,676 (970) 45,732
Depreciation and amortization......... 1,949 779 4,385 (i) 7,113
Other selling, general and
administrative expenses............. 22,533 11,067 (2,277)(ii) 31,323
-------- ------- ------- --------
Operating income.................... 8,544 1,830 (3,078) 7,296
Interest expense...................... 5,489 1,924 (2,196)(iii) 5,217
-------- ------- ------- --------
Income (loss) before income taxes... 3,055 (94) (882) 2,079
Income tax expense (benefit).......... 1,223 (37) (344)(iv) 842
-------- ------- ------- --------
Net income (loss)................... $ 1,832 $ (57) $ (538) $ 1,237
======== ======= ======= ========
</TABLE>
F-17
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) OLD ROYSTER-CLARK -- (CONTINUED)
For the Three Months Ended March 31, 1999:
<TABLE>
<CAPTION>
OLD OLD
ROYSTER-CLARK PRO FORMA ROYSTER-CLARK
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- -------------
(A) (C)
<S> <C> <C> <C>
Net sales........................................ $53,487 $ -- $53,487
Depreciation and amortization.................... 203 237 (i) 440
Other cost of sales.............................. 43,839 -- 43,839
------- -------- -------
Gross profit................................... 9,445 (237) 9,208
Depreciation and amortization.................... 515 1,281 (i) 1,796
Other selling, general and administrative
expenses....................................... 6,706 -- (ii) 6,706
------- -------- -------
Operating income............................... 2,224 (1,518) 706
Interest expense................................. 1,607 (525)(iii) 1,082
------- -------- -------
Income (loss) before income taxes.............. 617 (993) (376)
Income tax expense (benefit)..................... 251 (397)(iv) (146)
------- -------- -------
Net income (loss).............................. $ 366 (596) (230)
======= ======== =======
</TABLE>
(A) OLD ROYSTER-CLARK HISTORICAL
The amounts presented under the heading "Old Royster-Clark Historical" are
taken from the Old Royster-Clark historical statement of income for the year
ended December 31, 1998 and the three months ended March 31, 1999, included
elsewhere in this prospectus. Certain detail has been provided to enhance the
pro forma information.
(B) CONSUMMATED TRANSACTIONS HISTORICAL
During 1998, Old Royster-Clark acquired certain assets from Lebanon
Chemical Corporation ("Lebanon") and Dixie Guano, Inc. ("Dixie") in two separate
transactions. The assets purchased are engaged in the business of operating
wholesale and retail fertilizer outlets, primarily in Maryland, Delaware,
Virginia and North Carolina. These transactions were accounted for as purchases.
As a result, the results of operations for Lebanon and Dixie have been included
from the date of acquisition. The historical components of net sales, cost of
sales, operating and other expenses and net earnings (loss) from January 1, 1998
through the date of acquisition have been reflected under the column
"Consummated Transactions" in the accompanying December 31, 1998 Unaudited Pro
Forma Condensed Consolidated Statement of Operations as follows:
<TABLE>
<CAPTION>
OPERATING
AND OTHER NET
DATE NET COST EXPENSES, EARNINGS
ACQUIRED SALES OF SALES NET (LOSS)
-------- ------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Dixie................................. 7/16/98 $ 3,188 $ 2,820 $ 330 $ 23
Lebanon............................... 12/14/98 64,491 51,183 13,440 (80)
------- ------- ------- ----
$67,679 $54,003 $13,770 $(57)
======= ======= ======= ====
</TABLE>
(C) PRO FORMA ADJUSTMENTS
The following summarizes the pro forma adjustments made to the Old
Royster-Clark historical statement of operations.
F-18
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) OLD ROYSTER-CLARK -- (CONTINUED)
(i) The impact on depreciation and amortization of adjusting to the fair
values of property and equipment, goodwill and other intangibles on the Lebanon
and Dixie acquisitions as well as the acquisition of Old Royster-Clark have been
included in the pro forma adjustments as reflected below. The effect has been
allocated between cost of sales and selling, general and administrative
expenses. In addition, amortization of the $6,900 of deferred financing costs
incurred in the establishment of the senior secured credit facility has been
reflected for the year ended December 31, 1998 and three months ended March 31,
1999.
Summary of adjustments to depreciation:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------------- -------------------------
SELLING, SELLING,
COST GENERAL & COST GENERAL &
OF SALES ADMINISTRATIVE OF SALES ADMINISTRATIVE
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Elimination of amortization of old goodwill
and deferred financing costs................ $ -- $ (407) $ -- $ (56)
Amortization of new goodwill using a 15 year
life........................................ -- 1,129 -- 282
Amortization of new deferred financing costs
of $6,900 over 5 year life.................. -- 1,380 -- 345
Adjustment to depreciation based on write-up
of property, plant & equipment during
purchase accounting......................... 970 2,283 237 710
---- ------ ---- ------
$970 $4,385 $237 $1,281
==== ====== ==== ======
</TABLE>
(ii) The pro forma adjustment for the year ended December 31, 1998 to other
selling, general and administrative expenses represents the elimination of
certain historical costs and expenses subsequent to the acquisitions of Lebanon
and Dixie. These adjustments, summarized in the table below, include the
elimination of costs associated with the Lebanon corporate headquarters and one
regional office which were closed subsequent to the acquisition; the elimination
of incremental employee benefit and insurance costs as compared to the cost of
coverage after integration into the Old Royster-Clark programs; the elimination
of costs associated with the implementation of Old Royster-Clark's point of sale
system in the Lebanon facilities resulting in the elimination of dedicated data
lines utilized by the Lebanon point of sale system; and the elimination of
certain other costs directly attributable to the acquisitions.
Summary pro forma adjustments to other selling, general and administrative
expenses
<TABLE>
<S> <C>
Elimination of costs associated with Lebanon headquarters
and one regional office................................... $1,138
Elimination of incremental employee benefit and insurance
costs..................................................... 669
Elimination of costs associated with implementation of point
of sale system............................................ 180
Elimination of other costs directly related to the
acquisition............................................... 290
------
Total pro forma adjustments to other selling, general and
administrative expenses................................... $2,277
======
</TABLE>
There are no pro forma adjustments to other selling, general and
administrative expenses for the three months ended March 31, 1999.
(iii) The pro forma adjustments to interest expense for the year ended
December 31, 1998 and three months ended March 31, 1999, reflects the
refinancing of the existing Old Royster-Clark long-term debt using the cash
contributed from RCG and the proceeds from the Senior Secured Credit Facility,
as summarized below.
F-19
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) OLD ROYSTER-CLARK -- (CONTINUED)
Summary of adjustments to interest:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
Interest eliminated related to the refinancing of:
Term loan............................................. $ (454) $(319)
Old revolving loan.................................... (3,964) (841)
Other notes payable................................... (154) (30)
Interest provided on senior secured credit facility at
7.75%................................................. 2,376 665
------- -----
$ 2,196 $ 525
======= =====
</TABLE>
(iv) The pro forma adjustments to income tax expense for the year ended
December 31, 1998 and the three months ended March 31, 1999, represent the tax
effect of the pro forma adjustments described above calculated at an estimated
composite tax rate of 39%.
(3) ACQUISITION OF AGRIBUSINESS
Pro forma adjustments relating to the acquisition of Agribusiness are as
follows:
For the Year Ended December 31, 1998:
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
ELIMINIATED
DIVISIONS &
AGRIBUSINESS CLOSED OTHER AGRIBUSINESS
HISTORICAL LOCATIONS ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ------------
(A) (B) (C)
<S> <C> <C> <C> <C>
Net sales............................. $786,967 $(53,491) $ -- $733,476
Depreciation and amortization......... 11,900 -- (4,217)(i) 7,683
Other cost of sales................... 647,256 (50,823) (3,124)(iii) 593,309
-------- -------- ------- --------
Gross profit........................ 127,811 (2,668) 7,341 132,484
Depreciation and amortization......... 11,400 -- (4,458)(i) 6,942
Other selling, general and
administrative expenses............. 91,901 (1,779) (9,872)(iii) 80,250
-------- -------- ------- --------
Operating income.................... 24,510 (889) 21,671 45,292
Interest expense...................... 13,217 -- 16,057 (iv) 29,274
Other expense, net.................... 1,857 -- -- 1,857
-------- -------- ------- --------
Income before income taxes.......... 9,436 (889) 5,614 14,161
Income tax expense (benefit).......... 4,100 (347) 1,770(v) 5,523
-------- -------- ------- --------
Net income.......................... $ 5,336 $ (542) $ 3,844 $ 8,638
======== ======== ======= ========
</TABLE>
F-20
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITION OF AGRIBUSINESS -- (CONTINUED)
For the Three Months Ended March 31, 1999:
<TABLE>
<CAPTION>
AGRIBUSINESS PRO FORMA AGRIBUSINESS
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------
(A) (C)
<S> <C> <C> <C>
Net sales....................................... $127,600 $ -- $127,600
Depreciation and amortization................... 1,940 (44)(i) 1,896
Other cost of sales............................. 112,860 (574)(iii) 112,286
-------- ------- --------
Gross profit.................................. 12,800 618 13,418
Depreciation and amortization................... 4,160 (2,362)(i) 1,798
Other selling, general and administrative
expenses...................................... 23,640 (1,539)(iii) 22,101
-------- ------- --------
Operating income (loss)....................... (15,000) 4,519 (10,481)
Interest expense................................ 3,000 4,025 (iv) 7,025
Other expense, net.............................. 100 -- 100
-------- ------- --------
Income (loss) before income taxes............. (18,100) 494 (17,606)
Income tax expense (benefit).................... (7,500) 634 (v) (6,866)
-------- ------- --------
Net income (loss)............................. $(10,600) $ (140) $(10,740)
======== ======= ========
</TABLE>
(A) AGRIBUSINESS HISTORICAL
The amounts presented under the heading "Agribusiness Historical" are taken
from the Agribusiness historical combined statement of income (loss) for the
year ended December 31, 1998 and the three months ended March 31, 1999, included
elsewhere in this prospectus. Certain detail has been provided to enhance the
pro forma information.
(B) ELIMINATED DIVISIONS AND CLOSED LOCATIONS
Wholesale purchasers of fertilizer materials were transferred from
Agribusiness to IMC Global beginning in the third quarter of 1998, and as a
result, they do not represent a component of the acquired entity. Pro forma
adjustments for the year ended December 31, 1998 to sales, cost of sales, and
other expenses are required to eliminate the operating results for this portion
of the business. In addition, in connection with the acquisition of
Agribusiness, management identified six Agribusiness locations for closure. Pro
forma adjustments to sales, cost of sales, and other expenses are also required
to eliminate the operating results for these locations. These adjustments can be
summarized as follows:
<TABLE>
<CAPTION>
INCOME
SELLING, (LOSS)
GENERAL AND BEFORE
NET COST OF ADMINISTRATIVE INCOME
SALES SALES EXPENSES TAXES
------- ------- -------------- -------------
<S> <C> <C> <C> <C>
Wholesale business......................... $45,947 $44,424 $ 200 $1,323
Closed locations........................... 7,544 6,399 1,579 (434)
------- ------- ------ ------
$53,491 $50,823 $1,779 $ 889
======= ======= ====== ======
</TABLE>
(C) OTHER ADJUSTMENTS
The following summarizes the pro forma adjustments made to the Agribusiness
Historical statement of operations.
F-21
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITION OF AGRIBUSINESS -- (CONTINUED)
(i) The impact on depreciation and amortization of adjusting to the post
acquisition carrying values of property and equipment and goodwill has been
included in the pro forma adjustments. In addition, amortization has been
provided on the deferred financing costs incurred in conjunction with the
issuance of the First Mortgage Notes. The combined effect for the year ended
December 31, 1998 and the three months ended March 31, 1999 has been allocated
to cost of sales and selling, general and administrative expenses.
Summary of adjustments to depreciation:
<TABLE>
<CAPTION>
DECEMBER 31, 1998(I) MARCH 31, 1999(II)
------------------------- -------------------------
SELLING, SELLING,
COST GENERAL & COST GENERAL &
OF SALES ADMINISTRATIVE OF SALES ADMINISTRATIVE
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Elimination of amortization of old
goodwill.................................. $ -- $(1,420) $ -- $ (355)
Amortization of new deferred financing costs
of $9,182 on the interest method over 10
years..................................... -- 541 -- 132
Depreciation adjustment related to the plans
to close one production plant (see (ii)
below).................................... (170) -- (44) --
Adjustment to depreciation based on
reduction of property and equipment in
purchase accounting....................... (4,047) (3,579) -- (2,139)
------- ------- ------- -------
$(4,217) (4,458) (44) (2,362)
======= ======= ======= =======
</TABLE>
(ii) In connection with the acquisition, the Company plans to close one of
two production plants located in close proximity to each other. Pro forma
adjustments of $170 and $44 to depreciation and $1,446 and $404 to other cost of
sales have been provided to reflect the estimated cost reductions for the year
ended December 31, 1998 and three months ended March 31, 1999, respectively.
(iii) The remaining pro forma adjustments to other cost of sales and other
selling, general and administrative expenses represent the elimination of
certain historical costs and expenses. These adjustments, summarized in the
table below, for the year ended December 31, 1998 and three months ended March
31, 1999, respectively, include payroll cost and benefits associated with the
elimination of 89 positions; elimination of costs associated with the former
practice of outsourcing human resource functions for seasonal labor; and the
elimination of incremental employee benefit and insurance costs as compared to
the cost of coverage after integration into the Company's programs, including
the elimination of the administrative allocation from IMC Global and the
rollback to 1997 benefit levels as provided in the purchase agreement. The
effect has been allocated between cost of sales and selling, general and
administrative expenses.
F-22
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITION OF AGRIBUSINESS -- (CONTINUED)
Summary pro forma adjustments to other cost of sales and other selling,
general and administrative expenses:
December 31, 1998:
<TABLE>
<S> <C>
Other cost of sales:
Elimination of costs associated with the closing of a
production plant (see (ii) above)...................... $1,446
Elimination of costs of outsourcing human resource
functions for seasonal labor........................... 267
Elimination of incremental employee benefit and insurance
costs.................................................. 1,411
------
Total pro forma adjustments to other cost of sales..... $3,124
======
Other selling, general and administrative expenses:
Elimination of costs associated with 89 eliminated
positions.............................................. $6,516
Elimination of costs of outsourcing human resource
functions for seasonal labor........................... 533
Elimination of incremental employee benefit and insurance
costs.................................................. 2,823
======
Total pro forma adjustments to other selling, general
and administrative expenses.......................... $9,872
======
</TABLE>
March 31, 1999:
<TABLE>
<S> <C>
Other cost of sales:
Elimination of costs associated with the closing of a
production plant (see (ii) above)...................... $ 404
Elimination of incremental employee benefit and insurance
costs.................................................. 170
------
Total pro forma adjustments to other cost of sales..... $ 574
======
Other selling, general and administrative expenses:
Elimination of costs associated with 89 eliminated
positions.............................................. $1,200
Elimination of incremental employee benefit and insurance
costs.................................................. 339
======
Total pro forma adjustments to other selling, general
and administrative expenses.......................... $1,539
======
</TABLE>
(iv) The pro forma adjustments to interest expense for the year ended
December 31, 1998 and three months ended March 31, 1999, reflect the incremental
interest expense on the First Mortgage Notes and the Credit Facility.
Summary of adjustments to interest:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
Interest avoided on intercompany loans from IMC Global...... $(12,119) (2,606)
Interest on mortgage notes.................................. 20,500 5,125
Interest on new revolver.................................... 7,676 1,506
-------- -------
$ 16,057 $ 4,025
======== =======
</TABLE>
(v) The pro forma adjustment to income tax expense (benefit) for the year
ended December 31, 1998 and three months ended March 31, 1999, represents the
tax effect of the pro forma adjustments described above, calculated at a rate to
yield an estimated composite tax rate of 39%.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Royster-Clark, Inc.:
We have audited the accompanying balance sheets of Royster-Clark, Inc. as of
December 31, 1998 and 1997, and the related statements of income, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Royster-Clark, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
February 10, 1999
Norfolk, Virginia
F-24
<PAGE>
ROYSTER-CLARK, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1997 1998
------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 29 $ 42
Trade accounts receivable, net of allowance for doubtful
accounts of $1,800 in 1997 and $1,800 in 1998 (note
5)...................................................... 15,862 23,569
Other receivables (note 13)............................... 1,934 2,561
Inventories (notes 2, 4 and 6)............................ 45,512 55,205
Prepaid expenses.......................................... 2,577 2,720
Income taxes receivable (note 8).......................... -- 307
Deferred tax asset (note 8)............................... 749 269
------- --------
Total current assets.................................... 66,663 84,673
------- --------
Property, plant and equipment, net (notes 2, 5 and 6)....... 22,601 29,106
Goodwill, net of accumulated amortization of $959 and $1,132
at December 31, 1997 and 1998, respectively............... 6,004 5,931
Other assets, net (notes 2 and 6)........................... 797 687
------- --------
$96,065 $120,397
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt (note 6)........... $ 2,034 $ 2,182
Customer deposits (note 14)............................... 20,307 24,362
Accounts payable (note 13)................................ 15,280 24,140
Accrued expenses (notes 11, 12 and 15).................... 2,405 3,263
Income taxes payable (note 8)............................. 384 --
------- --------
Total current liabilities............................... 40,410 53,947
Long-term debt, excluding current installments (note 6)..... 23,025 33,817
Deferred income taxes (note 8).............................. 3,433 3,323
Other long-term liabilities................................. 591 293
------- --------
Total liabilities....................................... $67,459 $ 91,380
------- --------
Cumulative mandatorily redeemable convertible preferred
stock, Series B $0.01 par value, (liquidation value $1,000
per share). Authorized 500,000 shares, 12,000 shares
issued and outstanding at December 31, 1997 and 1998,
(note 11)................................................. $12,000 $ 12,000
Common stock subject to ESOP put option (note 12)........... 1,861 1,864
Stockholders' equity (notes 11 and 12):
Common stock, $0.01 par value. Authorized 1,000,000
shares; 120,487 shares issued and 118,167 outstanding
and 120,497 shares issued and 116,975 outstanding at
December 31, 1997 and 1998, respectively................ 1 1
Additional paid-in capital................................ 10,218 10,220
Retained earnings......................................... 6,732 7,364
Common stock subject to put option (11,280 shares at $165
per share in 1997 and 10,078 shares at $185 per share in
1998)................................................... (1,861) (1,864)
------- --------
15,090 15,721
Less treasury stock, 2,320 and 3,522 common shares at
December 31, 1997 and 1998, respectively, at cost....... (345) (568)
------- --------
Total stockholders' equity................................ 14,745 15,153
------- --------
Commitments, contingencies and subsequent event (notes 9,
10, 11, 12, 15 and 16)....................................
------- --------
$96,065 $120,397
======= ========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
ROYSTER-CLARK, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................... $222,933 $227,613 $218,672
Cost of sales (note 13)............................. 189,653 192,617 185,646
-------- -------- --------
Gross profit...................................... 33,280 34,996 33,026
Selling, general and administrative expenses........ 21,836 23,215 24,482
-------- -------- --------
Operating income.................................. 11,444 11,781 8,544
-------- -------- --------
Interest expense (note 14).......................... 5,004 4,672 5,489
-------- -------- --------
Income before income taxes........................ 6,440 7,109 3,055
Income tax expense (note 8)......................... 2,626 2,778 1,223
======== ======== ========
Net income........................................ $ 3,814 $ 4,331 $ 1,832
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
ROYSTER-CLARK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON
ISSUED ADDITIONAL STOCK TREASURY STOCK TOTAL
---------------- PAID-IN RETAINED SUBJECT TO --------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS PUT OPTION SHARES AMOUNT EQUITY
------- ------ ---------- -------- ---------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ 117,170 $ 1 $ 7,815 $ 987 $(1,647) (528) $ (82) $ 7,074
Net income.............................. -- -- -- 3,814 -- -- -- 3,814
Dividends declared Series B preferred
stock, $100 per share from January 1,
1996 to December 31, 1996............. -- -- -- (1,200) -- -- -- (1,200)
Exercise of stock options (note 12)..... 123 -- 16 -- -- -- -- 16
Change in common stock subject to put
option................................ -- -- -- -- (68) -- -- (68)
Treasury stock -- Purchase of terminated
employee shares in the Employee Stock
Ownership Plan........................ -- -- -- -- -- (825) (104) (104)
Purchase of Series A preferred stock.... -- -- 1,973 -- -- -- -- 1,973
------- --- ------- ------ ------- ------ ----- -------
Balance at December 31, 1996............ 117,293 1 9,804 3,601 (1,715) (1,353) (186) 11,505
Net income.............................. -- -- -- 4,331 -- -- -- 4,331
Dividends declared -- Series B preferred
stock, $100 per share from January 1,
1997 to December 31, 1997............. -- -- -- (1,200) -- -- -- (1,200)
Exercise of stock options (note 12)..... 3,194 -- 414 -- -- -- -- 414
Change in common stock subject to put
option................................ -- -- -- -- (146) -- -- (146)
Treasury stock -- Purchase of terminated
employee shares in the Employee Stock
Ownership Plan........................ -- -- -- -- -- (967) (159) (159)
------- --- ------- ------ ------- ------ ----- -------
Balance at December 31, 1997............ 120,487 1 10,218 6,732 (1,861) (2,320) (345) 14,745
Net income.............................. -- -- -- 1,832 -- -- -- 1,832
Dividends declared -- Series B preferred
stock, $100 per share from January 1,
1998 to December 31, 1998............. -- -- -- (1,200) -- -- -- (1,200)
Exercise of stock options (note 12)..... 10 -- 2 -- -- -- -- 2
Change in common stock subject to put
option................................ -- -- -- -- (3) -- -- (3)
Treasury stock -- Purchase of terminated
employee shares in the Employee Stock
Ownership Plan........................ -- -- -- -- -- (1,202) (223) (223)
------- --- ------- ------ ------- ------ ----- -------
Balance at December 31, 1998............ 120,497 $ 1 $10,220 $7,364 $(1,864) (3,522) $(568) $15,153
======= === ======= ====== ======= ====== ===== =======
</TABLE>
<PAGE>
ROYSTER-CLARK, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 3,814 $ 4,331 $ 1,832
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for doubtful accounts........................... 1,509 688 451
Depreciation and amortization............................. 2,171 2,305 2,678
Gain on sale of fixed assets.............................. (59) (132) (25)
Change in deferred income taxes........................... 254 (531) 370
Changes in operating assets and liabilities increasing
(decreasing) cash:
Trade accounts receivable............................... 2,368 (3,698) 3,916
Other receivables....................................... (3,082) 1,065 (627)
Inventories............................................. 1,760 (7,770) (3,401)
Prepaid expenses........................................ (94) (1) (33)
Income taxes receivable................................. -- -- (307)
Other assets............................................ (256) (567) 49
Accounts payable........................................ 3,406 (1,500) 8,860
Accrued expenses........................................ -- (286) 76
Income taxes payable.................................... 545 (743) (384)
Other long-term liabilities............................. (3) 258 (298)
--------- --------- ---------
Total adjustments..................................... $ 8,519 $ (10,912) $ 11,325
--------- --------- ---------
Net cash provided by (used in) operating activities... $ 12,333 $ (6,581) $ 13,157
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment....... $ 323 $ 773 $ 130
Purchases of property, plant and equipment................ (1,442) (2,029) (2,145)
Acquisitions (notes 2 and 3).............................. -- (810) (24,517)
--------- --------- ---------
Net cash used in investing activities................. $ (1,119) $ (2,066) $ (26,532)
--------- --------- ---------
Cash flows from financing activities:
Payments on revolving note payable to bank................ $(258,145) $(239,309) $(247,243)
Borrowings on revolving note payable to bank.............. 245,697 249,876 248,600
Principal payments on long-term debt...................... (1,748) (2,187) (2,042)
Proceeds from long-term debt.............................. -- -- 11,625
Net increase in customer deposits......................... 4,396 1,235 4,055
Debt issuance costs....................................... -- -- (291)
Purchase of preferred stock............................... (125) -- --
Dividend payments......................................... (1,200) (1,223) (1,095)
Stock options exercised................................... 16 414 2
Payments to acquire treasury stock........................ (104) (159) (223)
--------- --------- ---------
Net cash provided by (used in) financing activities... $ (11,213) $ 8,647 $ 13,388
--------- --------- ---------
Net increase in cash........................................ 1 -- 13
Cash at beginning of year................................... 28 29 29
--------- --------- ---------
Cash at end of year......................................... $ 29 $ 29 $ 42
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 5,068 $ 4,625 $ 5,546
========= ========= =========
Cash paid during the year for income taxes................ $ 2,011 $ 4,035 $ 1,544
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
ROYSTER-CLARK, INC.
STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)
Supplemental disclosure of noncash investing and financing activities:
On June 27, 1996, the Company purchased all of its Series A cumulative
redeemable preferred stock of $2,250 by paying $125 in cash and writing off a
$152 nontrade receivable from the Series A cumulative redeemable preferred
stockholder.
As discussed in note 3 to the financial statements, in 1997 the Company
purchased certain assets of Weaver Fertilizer Company (Weaver). Part of the
purchase price was settled with a note payable to Weaver of $1,890.
As discussed in note 2 to the financial statements, in 1998 the Company
completed an acquisition of the division of Lebanon Chemical Corporation known
as Lebanon Agricorp. In conjunction with this transaction, the Company assumed
accrued liabilities of $677.
See accompanying notes to financial statements.
F-29
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
Royster-Clark (the "Company") sells fertilizer materials, mixed
fertilizers, crop protection chemicals, seeds and other farm supplies to
farmers, dealers and fertilizer blenders and distributors through retail farm
service centers, wholesale distribution facilities and independent commission
agents.
(B) CONCENTRATION OF CREDIT RISK
The Company's primary area of operations includes North Carolina, South
Carolina, Virginia, and Wisconsin. Approximately 80 percent of the Company's
sales are made between March and July. No single customer or group of affiliated
customers accounted for more than 10 percent of the Company's net sales.
(C) TRADE ACCOUNTS RECEIVABLE
The Company provides allowances for doubtful accounts receivable equal to
estimated collection losses. The estimated collection losses are based on actual
collection experience and on management's opinion of the current status of
existing receivables.
(D) OTHER RECEIVABLES
Other receivables primarily include vendor rebates on chemical and seed
products under programs with suppliers. Vendor rebates are accrued at the time
of sale of the related product.
(E) INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined by the weighted-average actual method, in which a first-in, first-out
flow is assumed. Costs directly associated with warehousing and distribution are
capitalized into crop protection and seed inventories. Total warehousing and
distribution costs capitalized into inventories amounted to $515 and $680 at
December 31, 1997 and 1998, respectively.
(F) DERIVATIVES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted after June
15, 1999. Because of the Company's minimal use of derivatives, management does
not anticipate that the adoption of SFAS No. 133 will have a significant effect
on earnings or the financial position of the Company.
(G) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. All assets are
depreciated using the straight-line method using the following criteria, which
is the estimated useful life of the asset:
<TABLE>
<CAPTION>
YEARS OF LIFE YEARS OF LIFE
IF NEW IF USED
------------- -------------
<S> <C> <C>
Building and land improvements......................... 40 25
Machinery and equipment................................ 10-20 7-15
Furniture, fixtures and office equipment............... 5-7 5-7
</TABLE>
F-30
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(H) GOODWILL AND OTHER ASSETS
Goodwill represents the excess purchase price over the estimated fair value
at the date of acquisition of the net assets acquired and is being amortized
using the straight-line method over a period of 40 years. It is the Company's
policy to evaluate, on an annual basis, the amortization periods and analyze the
propriety of maintaining the number of remaining periods and adjust any useful
lives accordingly.
Other assets are comprised of debt issuance costs and intangibles related
to the acquisitions discussed in notes 2 and 3. The debt issuance costs are
being amortized over the term of the debt facility. The intangibles are being
amortized on a straight-line basis over their estimated useful lives, which
range from 1 to 5 years.
(I) INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Deferred income tax assets and liabilities are recognized for the
estimated future tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
(J) STOCK-BASED EMPLOYEE COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and provide the pro forma disclosure provisions of SFAS 123.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the estimated fair value of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
(K) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangible
assets for impairment when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to market or discounted cash flow
value is required. Assets and certain identifiable intangibles to be disposed of
are reported at the lower of carrying amount or fair value less costs to sell.
(L) ACCRUED ENVIRONMENTAL COSTS
The Company's activities include the manufacture and blending of crop
nutrients and the sale of pesticide products. These operations are subject to
extensive federal, state, and local environmental regulations, including laws
related to air and water quality, management of hazardous and solid wastes and
management and handling of raw materials and crop protection products.
Expenditures that relate to an existing condition caused by past operations of
the Company or prior owners, and which do not contribute to current or future
revenue generation, are charged to operations.
In 1997, the Company adopted Statement of Position (SOP 96-1),
Environmental Remediation Liabilities, promulgated by the American Institute of
Certified Public Accountants, which provides
F-31
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
guidance for the accrual of environmental remediation costs. Adoption of this
statement did not have a material effect on the Company's financial statements.
There were no accrued environmental costs at December 31, 1997.
In December 1998, the Company recorded an accrual of $335 for environmental
costs related to required remediation and monitoring of groundwater
contamination at certain sites acquired in 1998 (note 2).
(M) REVENUE RECOGNITION
Sales revenue is recognized when the product is shipped to the customer or
a service is performed.
(N) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements, the reported amounts of revenues and expenses during the
reported period, and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
(O) RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements as of
December 31, 1997 and for the years ended December 31, 1997 and 1996 in order to
conform with the financial statement presentation as of and for the year ended
December 31, 1998.
(2) LEBANON AND DIXIE ACQUISITIONS
On December 14, 1998, the Company acquired substantially all of the
property, plant and equipment, inventories and accounts receivable of the
division of Lebanon Chemical Corporation known as Lebanon Agricorp ("Lebanon"),
which owned and operated fertilizer retail and wholesale outlets as well as
distribution and storage facilities primarily in Maryland, Virginia, Delaware,
and North Carolina. The acquisition was accounted for by the purchase method of
accounting and the accompanying financial statements include the operating
results of Lebanon from the date of acquisition. The acquisition cost for the
purchase was allocated on the basis of the estimated fair value of assets
acquired and liabilities assumed, as well as certain intangible assets of $341
which are being amortized over their estimated useful lives, ranging from five
to fifteen years. In conjunction with the acquisition, debt issuance costs of
$141 were incurred.
The acquisition can be summarized as follows:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Accounts receivable........................................ $11,055
Inventories................................................ 5,806
Property, plant, and equipment............................. 5,484
Noncompete agreement....................................... 100
Goodwill................................................... 100
Liabilities assumed........................................ (677)
-------
Costs of acquisition..................................... $21,868
=======
</TABLE>
F-32
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) LEBANON AND DIXIE ACQUISITIONS -- (CONTINUED)
The purchase price paid for accounts receivable was 75 percent of the face
value. Any collections in excess of this amount and/or accounts uncollected by
April 1, 1999 will revert to Lebanon. In addition, the acquisition agreement
contains certain purchase commitments (note 14).
On July 16, 1998, the Company acquired certain assets from Dixie Guano,
Inc. ("Dixie"), which owned and operated two retail outlets in southern
Virginia. The acquisition price paid was $2,543. The acquisition was accounted
for by the purchase method of accounting, and the accompanying financial
statements include the operating results of Dixie from the date of acquisition.
Assets purchased included accounts receivable, inventory, property, plant, and
equipment. In addition, a portion of the purchase price was allocated to
intangible assets including a noncompete agreement. The noncompete agreement is
being amortized over the period of the agreement.
The following unaudited pro forma consolidated income statement information
combines the consolidated historical results of the Company with the historical
results of Lebanon and Dixie for the years ended December 31, 1997 and 1998, as
if each transaction was consummated on January 1, 1997.
This unaudited pro forma information does not purport to be indicative of
the results that would have occurred had the transactions taken place at the
beginning of the periods presented or of future results.
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
--------- ---------
<S> <C> <C>
Net sales.............................................. $296,374 $286,280
-------- --------
Net income............................................. $ 4,982 $ 2,141
======== ========
</TABLE>
The unaudited pro forma information reflects adjustments related to the
elimination of duplicative operating costs associated with Lebanon's corporate
headquarters and one regional office; reduction of employee benefit and
insurance costs of Lebanon and Dixie as compared to the cost of coverage after
integration into the Royster-Clark programs; the elimination of costs associated
with the implementation of Royster-Clark's point-of-sale system in the Lebanon
distribution facilities resulting in the elimination of dedicated data lines
utilized by the Lebanon point-of-sale system; reduction in depreciation expense
to reflect the writedown of assets acquired from Lebanon; interest expense
related to acquisition debt; and income taxes on the pro forma adjustments at an
assumed effective rate of 39 percent.
(3) OTHER ACQUISITIONS
In September 1997, the Company purchased certain assets of Weaver, a
manufacturing and retail fertilizer outlet in southeastern Virginia, for $3,218,
including a cash payment of $1,328 and a note payable to Weaver of $1,890. The
acquisition was accounted for by the purchase method of accounting. Assets
purchased included inventory and property, plant, and equipment. In addition, a
portion of the purchase price was allocated to intangible assets including a
noncompete agreement. The noncompete agreement is being amortized over the
period of the agreement.
Effective January 1, 1998, the Company purchased certain assets of Harmony,
Inc., a retail fertilizer outlet in North Carolina, for $106. The acquisition
was accounted for by the purchase method of accounting, and the accompanying
financial statements include the operating results from
F-33
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(3) OTHER ACQUISITIONS -- (CONTINUED)
the date of acquisition. Sales and net income during 1998 were $1,376 and $62,
respectively. Assets purchased included inventory and equipment.
(4) INVENTORIES
Inventories at December 31, 1997 and 1998, consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Crop protection chemicals................................. $18,500 $31,084
Fertilizers............................................... 6,849 7,621
Raw materials............................................. 16,199 11,490
Seeds..................................................... 1,448 2,198
Sundries and other........................................ 2,516 2,812
------- -------
$45,512 $55,205
======= =======
</TABLE>
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 1997 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Land...................................................... $ 4,884 $ 6,742
Buildings................................................. 10,459 13,935
Machinery and equipment................................... 15,729 18,723
Construction-in-progress.................................. 646 761
------- -------
31,718 40,161
Less accumulated depreciation............................. 9,117 11,055
------- -------
Net property, plant, and equipment...................... $22,601 $29,106
======= =======
</TABLE>
Included in land and buildings above, are assets held for sale which are
carried at their estimated net realizable value, less estimated costs to sell.
The carrying value of these assets was $230 and $810 at December 31, 1997 and
1998, respectively.
F-34
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(6) LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998, consists of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Bank revolving loan which provides for borrowings up to
$90,000 bearing interest due monthly at prime plus 0.25%
(8.0%), due November 30, 2000. The loan is secured by
accounts receivable, inventories, equipment, general
intangibles, real estate, and other property............ $17,873 $19,220
Bank term loan bearing interest due monthly at prime plus
0.75% (8.5%). Principal payments of $125 are due monthly
with maturity on December 31, 2008. The note is secured
by accounts receivable, inventories, equipment, general
intangibles, real estate, and other property............ 4,732 15,000
Mortgage note payable, variable interest rate adjusted
annually based on the weekly average yield of U.S.
Treasury securities of one year maturity plus 3.5%
(8.75%), capped at 15%. Principal and interest payments,
currently $4, are due monthly with a maturity on
November 1, 2003........................................ 230 199
Note payable, bearing interest at prime rate (7.75%) due
quarterly. Annual principal payments of $540, with $810
payable at maturity on September 30, 2000............... 1,890 1,350
Other..................................................... 334 230
------- -------
Total long-term debt.................................... 25,059 35,999
Less current installments................................. 2,034 2,182
------- -------
Long-term debt, excluding current installments............ $23,025 $33,817
======= =======
</TABLE>
The prime interest rate at December 31, 1997 and 1998 was 8.50 percent and
7.75 percent, respectively.
F-35
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(6) LONG-TERM DEBT -- (CONTINUED)
Aggregate annual principal payments due under the terms of the long-term
debt for the five fiscal years subsequent to December 31, 1998 and thereafter
are as follows:
<TABLE>
<CAPTION>
OTHER
REVOLVING LONG-TERM
LOAN DEBT TOTAL
--------- --------- -------
<S> <C> <C> <C>
1999............................................. $ -- $ 2,182 $ 2,182
2000............................................. 19,220 2,390 21,610
2001............................................. -- 1,588 1,588
2002............................................. -- 1,549 1,549
2003............................................. -- 1,541 1,541
Thereafter....................................... -- 7,529 7,529
------- ------- -------
Total.......................................... $19,220 $16,779 $35,999
======= ======= =======
</TABLE>
The bank term and revolving loan agreements contain restrictions related to
maintenance of minimum financial ratios, net worth, capital expenditures,
incurrence of debt, disposal of assets, and payment of dividends.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments at December 31, 1997 and 1998. FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Cash, trade accounts receivables, other receivables, customer deposits,
accounts payable, accrued expenses: The carrying amounts approximate fair value
because of the short maturity of those instruments.
Long-term debt: The fair value of the Company's long-term debt is estimated
by discounting the future cash flows of each instrument at rates currently
offered to the Company for similar debt instruments of comparable maturities by
the Company's bankers. Based on this criteria, the carrying amounts approximate
fair value.
F-36
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(8) INCOME TAXES
Components of income tax expense (benefit) for the years ended December 31,
1996, 1997 and 1998, include:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
December 31, 1996:
Federal............................................................... $ 1,564 $ 576 $2,140
State................................................................. 355 131 486
------- ------ ------
$ 1,919 $ 707 $2,626
======= ====== ======
December 31, 1997:
Federal............................................................... $ 2,668 $ (429) $2,239
State................................................................. 641 (102) 539
------- ------ ------
$ 3,309 $ (531) $2,778
======= ====== ======
December 31, 1998:
Federal............................................................... $ 697 $ 299 $ 996
State................................................................. 156 71 227
------- ------ ------
$ 853 $ 370 $1,223
======= ====== ======
</TABLE>
The effective income tax rate for 1996, 1997 and 1998 of 40.8 percent, 39.1
percent and 40 percent, respectively, differs from the "expected" federal
statutory income tax rate of 34 percent due to the following:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Expected income tax expense............................................. $2,190 $2,417 $1,039
Nondeductible expenses, including goodwill, meals and entertainment..... 90 72 71
State taxes, net of federal benefit..................................... 321 356 113
Other................................................................... 26 (67) --
------ ------ ------
Income tax expense...................................................... $2,626 $2,778 $1,223
====== ====== ======
</TABLE>
The tax effects of temporary differences between the financial statement
carrying amounts and tax basis of assets and liabilities that give rise to
significant portions of deferred taxes at December 31, 1997 and 1998, relate to
the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Trade accounts receivable, due to allowance for doubtful accounts and
discounts................................................................ $ 755 $ 702
Accrued expenses, due to accrued vacation and certain other accruals for
financial statement purposes............................................. 557 352
Other long-term liabilities................................................. 150 114
------- -------
$ 1,462 $ 1,168
======= =======
</TABLE>
F-37
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(8) INCOME TAXES -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
Deferred tax liabilities: ------- -------
<S> <C> <C>
Other receivables, due to accrual for financial statement purposes for
product rebates.......................................................... $ (563) $ (710)
Property, plant, and equipment.............................................. (2,724) (2,707)
Other assets................................................................ (859) (805)
------- -------
(4,146) (4,222)
------- -------
Net deferred tax liabilities............................................. $(2,684) $(3,054)
======= =======
</TABLE>
Net deferred taxes are included in the balance sheets in the following
captions:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred income tax asset -- current.......................................... $ 749 $ 269
Deferred income tax liability -- long-term.................................... (3,433) (3,323)
------- -------
$(2,684) $(3,054)
======= =======
</TABLE>
It is management's belief that the results of future operations will
generate sufficient taxable income to realize the deferred tax assets.
(9) OPERATING LEASES
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are as follows:
YEAR ENDING AMOUNT
- ------------------------------------------------------------ ------
1999........................................................ $3,651
2000........................................................ 2,440
2001........................................................ 1,428
2002........................................................ 795
2003........................................................ 351
------
Total minimum lease payments........................... $8,665
Rental expense for all operating leases was approximately $2,085, $2,341
and $2,999 for the years ended December 31, 1996, 1997 and 1998, respectively.
(10) STOCKHOLDERS' EQUITY
(A) DIVIDENDS
The Company's ability to pay cash dividends is dependent on, but not
limited to, the following factors: the Company's financial condition, its cash
requirements, and restrictions on the payment of dividends in accordance with
the Company's long-term debt agreements and preferred stock. Such restrictions
state that the payment of dividends must not (i) cause any event of default or
non-compliance with any existing credit facility arrangements or (ii) cause
borrowings to exceed maximum availability.
(B) VOTING RIGHTS
Each share of common stock entitles the holder to one vote in the election
of directors and all other matters submitted to a vote of the stockholders of
the Company.
F-38
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(11) CUMULATIVE REDEEMABLE PREFERRED STOCK
(A) CUMULATIVE REDEEMABLE PREFERRED SERIES B STOCK
DIVIDENDS
Dividends on the Series B preferred stock, subject to certain restrictions
under the Company's long-term debt agreements, shall be declared and paid in
cash quarterly. Cumulative dividends, whether declared or not, accumulate at an
annual rate of $100 per share.
During the years ended December 31, 1996, 1997 and 1998, $1,200 in
dividends were declared on the Series B preferred stock. At December 31, 1997
and 1998, there were no dividends in arrears on the Series B preferred stock, as
unpaid declared dividends of $172 and $300 at December 31, 1997 and 1998,
respectively, are included in accrued expenses in the accompanying balance
sheets.
Interest on unpaid Series B preferred stock dividends compounds at 10
percent per annum. At December 31, 1997 and 1998, there was no accrued interest
related to the Series B preferred stock.
VOTING RIGHTS
Holders of preferred stock have no voting rights except those to which they
are entitled under mandatory provisions of the laws of the State of Delaware.
LIQUIDATION
In the event of any liquidation of the Company, holders of the Series B
preferred stock will be entitled to receive a full liquidation preference of
$1,000 per share, together with any accrued and unpaid dividends, before the
distribution of any assets to the holders of common stock.
OPTIONAL REDEMPTION
Subject to certain long-term debt agreement restrictions, the Series B
preferred stock may be redeemed, at the option of the Company and at any time
after February 15, 2000, in whole or in part, at the redemption price of $1,000
per share plus all accrued and unpaid dividends as compounded through the
redemption date.
MANDATORY REDEMPTION
Subject to certain long-term debt agreement restrictions, any holder of
Series B preferred stock may require the Company to redeem all or any portion of
such holders Series B preferred stock at any time after February 15, 2000, in
whole or part, at the redemption price of $1,000 per share plus all accrued and
unpaid dividends through the date of redemption.
CONVERSION
The Series B preferred stock outstanding at December 31, 1998 is
convertible into voting common stock at the conversion price of $180 per share.
(B) CUMULATIVE REDEEMABLE PREFERRED SERIES A STOCK
On June 27, 1996, the Company purchased all of its Series A cumulative
redeemable preferred stock of $2,250 by paying $125 in cash and writing off a
$152 nontrade receivable from the Series A cumulative redeemable preferred
stockholder.
F-39
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(12) EMPLOYEE BENEFIT PLANS
(A) EMPLOYEE SAVINGS AND INVESTMENT PLAN
The Company maintains a defined contribution Employee Savings and
Investment Plan (ESIP) covering substantially all full-time employees of the
Company. Participants are allowed to contribute to the ESIP up to 18 percent of
their salary on a pre-tax basis, up to the maximum allowed under Internal
Revenue Service regulations. The Company makes contributions to the ESIP at the
discretion of the Board of Directors. The Company made contributions of $97,
$206 and $208 to the ESIP during the years ended December 31, 1996, 1997 and
1998, respectively.
(B) PROFIT SHARING PLAN
The Company maintains a Profit Sharing Plan (PSP) covering all full-time
employees of the Company. An employee is eligible to participate if they are
employed on a full-time basis as of the beginning of the fiscal year or if they
are employed prior to the beginning of the third quarter of the fiscal year.
Profit sharing is calculated as of the end of each fiscal year. The amount
available for profit sharing, if any, for each fiscal year is determined by a
committee of the Board of Directors in accordance with the provisions of the
PSP. The Company made contributions of $968, $1,271 and $851 during the years
ended December 31, 1996, 1997 and 1998, respectively.
(C) EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains a noncontributory employee stock ownership plan
(ESOP) for substantially all full-time employees. An employee is eligible to
participate upon completion of one hour of service on or before March 31, 1992
or upon completion of one year of service. Contributions are determined at the
discretion of the Board of Directors. There were no contributions made during
the years ended December 31, 1996, 1997 and 1998.
The ESOP contains a put option which allows a withdrawing participant to
require the Company to purchase his or her shares if the shares are not readily
tradeable on an established market. Since there was no established market at
December 31, 1997 and 1998, 11,280 and 10,078 common shares, respectively, were
valued at their estimated fair value based on the most recent available
independent valuation. Consequently, at December 31, 1997 and 1998, $1,861 and
$1,864, respectively, has been classified outside of stockholders' equity.
(D) 1992 STOCK OPTION PLAN
The Company maintains a 1992 Stock Option Plan (SOP) for eligible key
employees and directors of the Company. Under the SOP, the Company may grant
either nonqualified options (NO) or incentive stock options (ISO) to purchase
shares of common stock. The option exercise price per share for NOs and ISOs is
determined by the Executive Committee of the Board of Directors and, in the case
of ISOs, may not be less than 100 percent of the fair market value on the date
the ISO is granted. In the case of an ISO granted to a stockholder who owns
stock having more than 10 percent of the combined voting power of all classes of
stock of the Company, the option exercise price per share may not be less than
110 percent of the fair market value on the date the ISO is granted. The
Executive Committee also determines the exercise period for any options granted.
The Company is authorized to grant options for up to 20,000 common shares.
All options vest over three-year periods and expire ten years after the grant
date.
The following grants have been made under the SOP:
GRANT DATE NUMBER OF OPTIONS EXERCISE PRICE
- ----------------- ----------------- --------------
March 15, 1995 5,278 $105
October 1, 1996 4,000 $126
October 1, 1997 6,000 $165
F-40
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(12) EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Stock option activity during the years indicated is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at December 31, 1995...................................... 5,218 $ 105.00
Granted......................................................... 4,000 126.00
Exercised....................................................... 123 105.00
Forfeited....................................................... -- --
------- --------
Balance at December 31, 1996...................................... 9,095 114.35
Granted......................................................... 6,000 165.00
Exercised....................................................... 3,194 110.70
Forfeited....................................................... -- --
------- --------
Balance at December 31, 1997...................................... 11,901 140.78
Granted......................................................... -- --
Exercised....................................................... 10 105.00
Forfeited....................................................... -- --
======= ========
Balance at December 31, 1998...................................... 11,891 $ 140.81
======= ========
</TABLE>
At December 31, 1996, 1997 and 1998, vested and exercisable options
outstanding were 5,462, 4,985 and 7,600, respectively, at a weighted-average
exercise price of $109.33, $121.63 and $132.07, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1998:
OPTIONS OUTSTANDING
------------------------------
WEIGHTED-AVG. WEIGHTED-AVG.
RANGE OF NUMBER EXERCISE REMAINING
PRICES OUTSTANDING PRICE CONTRACTUAL LIFE
- ------------------- ----------- ------------- -----------------
$105.00 to $126.00 5,891 $116.17 7.0 years
$165.00 6,000 $165.00 8.8 years
The Company applies APB Opinion No. 25 in accounting for its stock options.
Pro forma information regarding net income per share is required by SFAS No. 123
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value of the
stock options under SFAS No. 123 was determined by using the minimum value
method using the following assumptions:
Risk-free interest rate.............................................. 5-6%
Weighted-average expected life....................................... 10 years
The weighted average grant-date fair value of options granted during 1996
and 1997 was $76.00 and $81.00, respectively.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had the
Company determined compensation cost based on the fair value for its stock
options under SFAS No. 123, the Company's net income for 1996, 1997 and 1998
would have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
As reported.................................................. $3,814 $4,331 $1,832
====== ====== ======
Pro forma.................................................... $3,706 $4,265 $1,713
====== ====== ======
</TABLE>
F-41
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(13) RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996, 1997 and 1998, the Company
purchased, under normal terms, approximately $3,208, $3,540 and $3,620 of
product from a supplier who is a stockholder in the Company. At December 31,
1997 and 1998, the Company had accounts payable to this supplier of
approximately $23 and $43, respectively.
At December 31, 1997, there was $21 due from officers or employees, which
was included in other receivables in the accompanying balance sheet. There were
no amounts due from officers or employees at December 31, 1998.
(14) CUSTOMER DEPOSITS
The Company accepts customer deposits as interest-bearing deposits.
Customer deposits are refundable upon demand in either cash or product. Interest
rates paid on customer accounts vary based on economic conditions and are posted
at the locations where the Company accepts customer deposits. The interest rate
accruing on customer deposits for each of the three years ended December 31,
1996, 1997 and 1998 was approximately 9 percent. In December 1998, the rate was
changed to 8.5%. Interest expense on customer deposits totaled approximately
$547, $764 and $920 for the years ended December 31, 1996, 1997 and 1998,
respectively.
Certain customer deposits are from officers or employees of the Company. At
December 31, 1997 and 1998, these deposits from related parties totaled $2,179
and $1,366, respectively.
(15) COMMITMENTS AND CONTINGENCIES
Under the terms of the Lebanon Purchase & Sale Agreement (note 2), the
Company is required to purchase ammoniated fertilizer products from Lebanon at
prices approximating market rates ranging from $145 to $155 per ton in the
following quantities:
YEAR ENDING TONS
- ----------------------------------------------------------------------- ------
1999................................................................... 20,000
2000................................................................... 15,000
2001................................................................... 9,000
------
Total minimum purchases................................................ 44,000
======
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters and has
incurred obligations for investigation or remedial actions with respect to
certain of such matters. In addition, the Company is subject to various claims
and legal matters which have arisen in the ordinary course of its business.
Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of the Company's management that any such claims
asserted or obligations incurred to date will not result in a material adverse
effect upon the results of operations or financial position of the Company.
(16) SUBSEQUENT EVENTS
On January 21, 1999, the Company and Citicorp Venture Capital Ltd. ("CVC"
or the "Sponsor") signed a definitive purchase agreement to acquire (the
"Acquisition") IMC Agribusiness, Inc., Hutson's Ag Service, Inc. and IMC
Nitrogen Company (collectively, "AgriBusiness") from IMC Global Inc. (the
"Seller").
The Company intends to acquire AgriBusiness for approximately $300,000.
AgriBusiness had net sales and net income of $787,000 and $5,300 during the year
ended December 31, 1998, respectively.
Plans call for the Acquisition to be completed by way of merger between
Royster-Clark and AgriBusiness and a cash equity infusion by CVC.
F-42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
IMC Global Inc.
We have audited the accompanying combined balance sheets of IMC
AgriBusiness (a Business Unit of IMC Global Inc.) as of December 31, 1998 and
1997, and the related combined statements of earnings and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of IMC AgriBusiness at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
January 18, 1999
St. Louis, Missouri
F-43
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................................................... $ 5.4 $ 6.1
Accounts receivable, net of allowance for doubtful accounts
of $4.3 in 1997 and $3.7 in 1998........................................................ 76.2 63.7
Inventories................................................................................ 174.1 157.1
Other current assets....................................................................... .8 .5
------ ------
Total current assets................................................................. 256.5 227.4
------ ------
Property, plant, and equipment, net.......................................................... 150.5 157.8
Goodwill, net of accumulated amortization of
$4.6 in 1997 and $6.0 in 1998.............................................................. 51.9 51.5
Other assets................................................................................. 5.4 3.6
------ ------
$464.3 $440.3
====== ======
LIABILITIES AND IMC GLOBAL INVESTMENT
Current Liabilities:
Accounts payable........................................................................... $ 45.8 $ 47.1
Payable to affiliates...................................................................... 21.8 24.7
Accrued liabilities........................................................................ 12.5 11.3
Current maturities of long-term debt....................................................... 10.5 2.5
------ ------
Total current liabilities............................................................ 90.6 85.6
Long-term debt, less current maturities...................................................... 4.6 4.6
Deferred income taxes........................................................................ 26.1 28.8
Other noncurrent liabilities................................................................. 4.6 3.5
------ ------
Total liabilities.................................................................... 125.9 122.5
IMC Global investment........................................................................ 338.4 317.8
------ ------
$464.3 $440.3
====== ======
</TABLE>
See accompanying notes.
F-44
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales.............................................. $797.8 $872.6 $787.0
Cost of goods sold..................................... 643.9 708.9 659.2
------ ------ ------
Gross margin........................................... 153.9 163.7 127.8
Selling, general, and administrative expenses.......... 105.1 120.1 103.3
Merger and restructuring charge........................ 13.3 -- --
------ ------ ------
Operating earnings..................................... 35.5 43.6 24.5
Other expense (income):
Interest expense..................................... 13.1 13.3 13.2
Other, net........................................... (0.2) (0.7) 1.9
------ ------ ------
Earnings before taxes.................................. 22.6 31.0 9.4
Provision for income taxes............................. 9.8 12.2 4.1
------ ------ ------
Net earnings........................................... $ 12.8 $ 18.8 $ 5.3
====== ====== ======
</TABLE>
See accompanying notes.
F-45
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Operating activities
Net Earnings.......................................................... $12.8 $18.8 $ 5.3
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation....................................................... 15.3 18.7 21.6
Amortization....................................................... 2.1 2.1 1.7
Restructuring charge............................................... 13.3 -- --
Deferred income taxes.............................................. (4.8) 3.3 2.7
Other.............................................................. -- 0.2 1.4
Changes in operating assets and liabilities:
Accounts receivable............................................. 9.5 23.6 12.5
Inventories..................................................... 8.9 19.9 17.1
Other current assets............................................ (1.1) (2.1) 0.3
Accounts payable................................................ (19.6) (44.6) 1.3
Payable to affiliates........................................... 12.7 5.2 2.9
Accrued liabilities............................................. (5.5) (2.6) (1.1)
----- ----- -----
Net cash provided by operating activities.................... 43.6 42.5 65.7
----- ----- -----
Investing activities
Purchases of property, plant, and equipment, net...................... (23.0) (27.8) (30.1)
Acquisitions, net of cash acquired.................................... (22.9) (50.8) (1.0)
----- ----- -----
Net cash used in investing activities........................ (45.9) (78.6) (31.1)
----- ----- -----
Financing activities
Proceeds from long-term borrowings and notes.......................... 0.5 5.2 --
Principal payments on long-term borrowings and notes.................. (2.5) (0.2) (8.0)
Net advances from (to) IMC Global..................................... 0.9 33.7 (25.9)
----- ----- -----
Net cash provided by (used in) financing activities.......... (1.1) 38.7 (33.9)
----- ----- -----
Increase (decrease) in cash............................................. (3.4) 2.6 0.7
Cash at beginning of year............................................... 6.2 2.8 5.4
----- ----- -----
Cash at end of year..................................................... $ 2.8 $ 5.4 $ 6.1
===== ===== =====
</TABLE>
See accompanying notes.
F-46
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION
IMC AgriBusiness (the "Company") is a leading supplier of crop production
inputs and services to farmers and retail dealers primarily in the midwestern
and southeastern United States. The Company is a business unit of IMC Global
Inc. (Global) and was formed on July 1, 1996 in connection with the merger of
Global and The Vigoro Corporation (TVC) (Vigoro Merger), which was accounted for
as a pooling of interests. Accordingly, the Company's financial statements prior
to the merger are restated on a combined basis to reflect the Vigoro Merger.
The combined financial statements of the Company reflect the assets,
liabilities, sales, and expenses of the following legal entities: (i) IMC
AgriBusiness, except for IMC Vigoro, the consumer products business unit of
Global, (ii) IMC Nitrogen, Inc., and (iii) Hutson's Ag Services, Inc. All
significant intercompany accounts and transactions between these legal entities
have been eliminated. The Company is not a legal entity, and therefore, the
combined financial statements do not reflect shareholder's equity. The Global
investment represents Global's net investment in the Company and includes
intercompany loans due to Global.
Excluded from the accompanying combined financial statements are certain
real estate investments and FAP, Inc. (a wholly owned subsidiary of TVC), which
consists of a purchased ammonia plant that has not been placed into service. The
net book value of these excluded assets approximated $7.3 million at December
31, 1998. The accompanying combined financial statements have been prepared in
connection with Global's plans to divest the Company. These assets are not
included in the assets to be divested.
Certain amounts in the combined financial statements for periods prior to
December 31, 1998 have been reclassified to conform to the current presentation.
CHANGE IN FISCAL YEAR
Effective with the year ended December 31, 1997, the Company changed from a
June 30 fiscal year-end in order to permit more effective business planning,
including annual budgeting, government reporting, and audit functions, as well
as to align statistical and financial reporting with competitors. Accordingly,
the financial statements for 1997 and 1996 have been restated to include 12
months of operations for the years ended December 31, 1997 and 1996. A 12 month
presentation is necessary to fully reflect the seasonality of the Company's
business.
USE OF ESTIMATES
Management is required to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
CASH
The Company's cash is centralized with Global, and the Company transmits
substantially all available cash to Global on a daily basis. Cash on the balance
sheets represents funds which are deposited in the Company's accounts but are
not available to transmit to Global.
CONCENTRATION OF CREDIT RISK
The Company sells its products and services to farmers or retail dealers
primarily in the midwestern and southeastern United States. No single customer
or group of affiliated customers accounted for more than 10 percent of the
Company's net sales.
F-47
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market (net realizable
value). Cost for substantially all of the Company's inventories is calculated on
a FIFO (first-in, first-out) or average cost basis.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are carried at cost. Expenditures for major
replacements and improvements are capitalized, except for turnarounds.
Turnarounds are large-scale maintenance projects that are performed regularly,
usually every 18 to 24 months. Expenditures for turnarounds are deferred when
incurred and amortized into cost of goods sold on a straight-line basis,
generally over an 18-month period. The deferred portion of the turnaround
expenditures is classified in other assets.
Depreciation is computed on a straight-line basis over the estimated useful
life of the asset as follows: buildings, 10 to 20 years; machinery and
equipment, 3 to 10 years.
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The statement requires the recognition of
an impairment loss on a long-lived asset held for use when events and
circumstances indicate that the estimate of undiscounted future cash flows
expected to be generated by the asset are less than its carrying amount.
Adoption of this statement did not have a material effect on the Company's
financial statements.
REVENUE RECOGNITION
Sales revenue is recognized when the product is shipped to the customer or
a service is performed. Shipments to independent warehouses are recorded in
inventory and recognized as sales revenue when the product is shipped to a
customer.
GOODWILL
Goodwill represents the excess of cost over fair value of net assets
acquired in business combinations accounted for under the purchase method.
Goodwill is amortized on a straight-line basis over the estimated period to be
benefited from the transaction or 40 years. In determining the appropriate
amortization period for the individual transactions, the Company considered the
effects of obsolescence, demand, competition, technology and other economic
factors and determined that the goodwill resulting from the significant
acquisitions have an indeterminable life and therefore 40 years was utilized.
The Company periodically evaluates the realizability of goodwill based on
projected undiscounted cash flows and operating income of each acquired business
having material goodwill balances. No write-down was recorded as a result of
such reviews in fiscal 1996, 1997, or 1998.
STOCK-BASED COMPENSATION PLANS
Officers and key managers of the Company participate in various stock
option plans sponsored by Global. Under these plans, employees may be granted
non-qualified stock options. The Company has elected to continue to account for
these stock-based compensation plans under the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25). Accordingly, no compensation cost
has been charged to earnings for options granted, as the option price equals the
market price on the date of grant for all options.
F-48
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ACCRUED ENVIRONMENTAL COSTS
The Company's activities include the manufacturing and blending of crop
nutrients and the blending of crop nutrients with pesticide products. These
operations are subject to extensive federal, state, provincial, and local
environmental regulations, including laws related to air and water quality,
management of hazardous and solid wastes, and management and handling of raw
materials and products. Expenditures that relate to an existing condition caused
by past operations of the Company or prior landowners and that do not contribute
to current or future revenue generation are charged to operations.
Liabilities are recorded for identified sites when (i) litigation has
commenced or (ii) a claim or assessment has been asserted or is probable and the
likelihood of an unfavorable outcome is probable.
In 1997, the Company adopted Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities," promulgated by the American Institute
of Certified Public Accountants, which provides guidance for the accrual of
environmental remediation costs. Adoption of this statement did not have a
material effect on the Company's financial statements.
DERIVATIVES
The Company is exposed to fluctuations in the purchase price of certain
grain products, primarily soybeans, corn, and wheat, and certain fertilizer
products. The Company periodically enters into futures contracts in order to
minimize these risks, but not for speculative purposes. The Company held no
material futures contracts at December 31, 1997 or 1998.
ADOPTION OF NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes new rules for the reporting
and display of comprehensive income and its components. This statement, which
became effective and was adopted by the Company in 1998, requires prior year
financial statements to be reclassified to conform to its requirements. However,
the adoption of this statement had no impact on the Company's financial
statements because of the lack of items within the definition comprehensive
income other than net income, as presented.
PENDING ADOPTION OF NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new statement will have a significant effect on earnings or the
financial position of the Company.
2. TRANSACTIONS WITH IMC GLOBAL INC. AND AFFILIATES
Global provides certain administrative functions to the Company, including
audit, income tax planning and compliance, employee benefit plan design and
compliance, environmental health and safety consulting, and property and
casualty insurance administration. These services are provided to the Company
without charge, and therefore, the cost of such services is not included in the
accompanying combined financial statements. Management of the Company believes
that the total incremental cost of these services is not significant.
F-49
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. TRANSACTIONS WITH IMC GLOBAL INC. AND AFFILIATES -- (CONTINUED)
The Company purchases substantially all of its phosphate and potash
fertilizers from affiliates of Global at market-based prices, and these
purchases totaled $190 million, $219 million, and $216 million in 1996, 1997,
and 1998, respectively.
Borrowing needs for working capital and other corporate purposes of the
Company are funded by Global. Intercompany loans and balances with Global and
affiliates totaled $222.6 million and $194.2 million at December 31, 1997 and
1998, respectively, and are included in the Global investment. Interest expense
on the intercompany loans and balances is at a variable borrowing rate (weighted
average rate of 5.8 percent for 1998) and totaled $11.3 million, $11.5 million,
and $11.8 million in 1996, 1997, and 1998, respectively. Cash payments to Global
for interest were $11.7 million, $11.4 million, and $12.6 million in 1996, 1997,
and 1998, respectively.
Changes in the Global investment were as follows (in millions):
Balance at December 31, 1995......................................... $272.2
Net earnings....................................................... 12.8
Net advances from Global........................................... .9
------
Balance at December 31, 1996......................................... 285.9
Net earnings....................................................... 18.8
Net advances from Global........................................... 33.7
------
Balance at December 31, 1997......................................... 338.4
Net earnings....................................................... 5.3
Net advances to Global............................................. (25.9)
------
Balance at December 31, 1998......................................... $317.8
======
The weighted average interest rate on intercompany loans for 1996, 1997 and
1998 was 5.81%, 4.88% and 4.92%, respectively.
3. INVENTORIES
Inventories as of December 31 were as follows:
1997 1998
------ ------
(IN MILLIONS)
Products.................................................... $166.3 $150.3
Operating materials and supplies............................ 7.8 6.8
------ ------
$174.1 $157.1
====== ======
F-50
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT, AND EQUIPMENT
The Company's investment in property, plant, and equipment as of December
31 is summarized as follows:
1997 1998
------ ------
(IN MILLIONS)
Land........................................................ $ 21.9 $ 22.6
Buildings and improvements.................................. 47.9 49.7
Machinery and equipment..................................... 158.2 187.3
Construction in process..................................... 10.6 2.8
------ ------
238.6 262.4
Less accumulated depreciation............................... (88.1) (104.6)
------ ------
$150.5 $157.8
====== ======
5. OTHER ASSETS
Other assets as of December 31 were as follows:
1997 1998
---- ----
(IN MILLIONS)
Investments in joint ventures................................. $2.4 $2.1
Deferred turnarounds.......................................... 1.1 0.5
Notes receivable.............................................. 1.1 0.6
Other......................................................... 0.8 0.4
---- ----
$5.4 $3.6
==== ====
6. ACCOUNTS PAYABLE
Accounts payable as of December 31 were as follows:
1997 1998
----- -----
(IN MILLIONS)
Trade accounts payable....................................... $21.7 $27.1
Customer prepayments......................................... 11.9 11.4
Outstanding bank drafts...................................... 12.2 8.6
----- -----
$45.8 $47.1
===== =====
7. MERGER AND RESTRUCTURING CHARGE
In connection with the Vigoro Merger, Global adopted a plan to restructure
its business operations into a decentralized organizational structure with
stand-alone business units. The Company recorded accruals of $13.3 million in
1996 for future costs to be incurred related to the closure of certain
facilities, severance and termination benefit costs of employees, and
environmental liabilities. These costs represent management's estimate of the
ultimate obligations associated with executing its plans for the combined
entity. These plans, including plans to terminate certain employees, were
announced immediately following the merger. The communications specifically
identified the planned facility closings and the number of employees to be
terminated and their job classifications. The anticipated completion date can
not be determined at this time due to the nature of the environmental matters
involved.
F-51
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. MERGER AND RESTRUCTURING CHARGE -- (CONTINUED)
The following table shows the merger-related accruals and the remaining
liability as of December 31, 1998.
<TABLE>
<CAPTION>
SEVERANCE AND
TERMINATION
RELATED
RESTRUCTURING ACCRUALS IMPAIRED ASSETS ENVIRONMENTAL TOTAL
------------- ------------- --------------- ------------- -----
<S> <C> <C> <C> <C> <C>
Original charge........................... $ 4.8 .4 3.1 5.0 13.3
Transfer of accrual from parent ........ -- -- -- 1.5 1.5
Change in estimate...................... -- .1 .8 -- .9
Costs charged........................... (1.6) (.5) (3.9) (0.3) (6.3)
----- --- ----- --- -----
Balance at 12/31/96.................. 3.2 -- -- 6.2 9.4
Liability assumed in acquisition .... -- -- -- 0.7 0.7
Change in estimate...................... (1.1) .1 -- (2.0) (3.0)
Costs charged........................... (.4) (.1) -- (0.3) (0.8)
----- --- ----- --- -----
Balance at 12/31/97.................. 1.7 -- -- 4.6 6.3
Change in estimate...................... (.5) -- -- (0.7) (1.2)
Costs charged........................... (.6) -- -- (0.4) (1.0)
----- --- ----- --- -----
Balance at 12/31/98.................. $ .6 -- -- 3.5 4.1
===== === ===== === =====
</TABLE>
8. OTHER EXPENSE (INCOME)
Other expense (income) consisted of the following:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
(IN MILLIONS)
Loss on sale of seed-processing facility........... $ -- $ -- $ 1.3
Divestiture expenses............................... -- -- 0.3
Interest income.................................... (0.3) (0.3) (0.3)
Other, net......................................... 0.1 (0.4) 0.4
----- ----- -----
$(0.2) $(0.7) $ 1.9
===== ===== =====
9. BUSINESS ACQUISITIONS
In January 1996, the Company acquired several retail distribution units
from Agri Supply Company, Inc. for 267,000 shares of TVC common stock with a
market value of approximately $15.0 million and $3.5 million in cash. Goodwill
of $10.0 million was recorded from this purchase.
Effective May 1, 1997, the Company acquired Hutson's Ag Services, Inc., a
retail distribution company, and Hutson Company, Inc., a storage terminal
company, for approximately $28.0 million in cash, a $5.0 million note, and
208,364 shares of Global's common stock with a market value of approximately
$8.0 million. Goodwill of $16.0 million was recorded related to this
transaction. Also during 1997, the Company acquired several additional retail
distribution units for approximately $11.0 million in cash and recorded goodwill
from these purchases of $5.0 million.
During 1998, the Company acquired one retail distribution unit for
approximately $1.0 million in cash. Goodwill of $0.4 million was recorded from
this purchase.
All of these acquisitions were accounted for under the purchase method of
accounting, and accordingly, results of operations for the acquired businesses
have been included in the Company's statements of earnings since the respective
dates of acquisition.
F-52
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
1997 1998
----- ----
(IN MILLIONS)
Note payable.................................................. $ 5.0 $5.0
Industrial development and revenue bonds...................... 10.1 2.1
----- ----
15.1 7.1
Less current maturities....................................... 10.5 2.5
----- ----
$ 4.6 $4.6
===== ====
In connection with the Company's purchase of Hutson Company, Inc. in 1997,
the Company entered into a $5.0 million note payable, due in June 2002, bearing
interest at an annual rate of 7.25 percent. The note payable contains provisions
which allow the holder to demand payment in full if a change in the Company's
ownership occurs or demand payment for 50 percent of the note's balance if the
individual federal long-term capital gains tax rate is reduced below 28 percent.
Because the capital gains tax rate has been reduced below 28 percent, $2.5
million of the note payable has been classified as a current liability in the
accompanying combined balance sheet.
Interest on the industrial revenue bond is variable and based on short-term
rates for tax-exempt securities (3.9 percent at December 31, 1998). The bond is
secured by a letter of credit that is renewed annually by the Company. There
were no amounts outstanding under the letter of credit at December 31, 1997 or
1998, respectively.
As of December 31, 1998, the estimated fair value of the Company's
long-term debt approximates its carrying value. The fair value was calculated in
accordance with the requirements of SFAS No. 107, "Disclosures of Fair Value of
Financial Instruments," and was estimated by discounting the future cash flows
using rates currently available to the Company for debt instruments with similar
terms and remaining maturities.
Maturities for the next four years are as follows (in millions):
1999.................................................................... $2.5
2000.................................................................... --
2001.................................................................... --
2002.................................................................... 4.6
----
$7.1
====
Interest paid on third-party debt totalled $1.9 million, $2.3 million, and
$2.0 million in 1996, 1997, and 1998, respectively. These amounts include $1.0
million, $1.2 million and $0.8 million for the years ended December 31, 1996,
1997 and 1998, respectively, of interest paid on customer deposits. Interest
accrued on customer deposits at 10%, 8.5% and 8.0% for the years ended December
31, 1996, 1997 and 1998.
11. RETIREMENT PLANS
The majority of the Company's employees participate in defined contribution
pension and savings plans (Plans) sponsored by Global, whereby participants are
permitted to defer a portion of their compensation. The Company's contributions
to the Plans are based on a percentage of wages earned by the eligible employees
or by matching a percentage of employee contributions. The majority of employees
not covered by the Plans are included in plans under collective bargaining
F-53
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. RETIREMENT PLANS -- (CONTINUED)
agreements or a defined benefit pension plan sponsored by Global. The Company
contributions are based on the applicable provisions of each plan. Total pension
and savings expense was $3.9 million, $3.5 million, and $4.6 million in 1996,
1997, and 1998, respectively.
12. POSTEMPLOYMENT AND POSTRETIREMENT BENEFIT PLANS
Through plans sponsored by Global, workers' compensation and disability are
provided to certain former or inactive employees after employment but before
retirement. The Company's expense related to funding these benefits was not
significant.
Effective January 1, 1998, substantially all employees were offered certain
postretirement health benefits under Global's postretirement plan based on years
of service. The Company's expense related to funding these benefits was not
significant.
13. INCOME TAXES
The Company is included in the consolidated income tax return filed by
Global. However, the income tax provision and deferred tax accounts appearing in
the accompanying combined financial statements reflect the results of the
Company as a separate entity on a stand-alone basis.
The following is a summary of the provision for income taxes and deferred
income taxes, a reconciliation of the U.S. statutory income tax rate to the
effective income tax rate, and the components of deferred tax assets and
liabilities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ----- -----
(IN MILLIONS EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
Provision for income taxes:
Current -- federal......................................... $13.3 $ 8.1 $ 1.1
Current -- state........................................... 1.3 0.8 0.3
Deferred -- federal........................................ (4.3) 3.0 2.5
Deferred -- state.......................................... (0.5) 0.3 0.2
----- ----- -----
$ 9.8 $12.2 $ 4.1
===== ===== =====
Effective income tax rate reconciliation:
Federal tax at U.S. statutory income tax rate.............. $ 7.9 $10.9 $ 3.3
Increase (decrease) resulting from:
State income taxes, net of federal tax benefit............. 0.8 1.0 0.3
Amortization of goodwill................................... 0.5 0.4 0.5
Other...................................................... 0.6 (0.1) --
----- ----- -----
$ 9.8 $12.2 $ 4.1
===== ===== =====
Effective income tax rate.................................... 43.0% 39.4% 44.1%
===== ===== =====
</TABLE>
F-54
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES -- (CONTINUED)
DECEMBER 31,
---------------
1997 1998
----- -----
(IN MILLIONS)
Components of deferred tax assets and liabilities:
Deferred tax assets
Allowance for doubtful accounts......................... $ 2.0 $ 1.4
Other noncurrent liabilities............................ 2.4 1.3
Other................................................... 1.0 1.0
----- -----
Total deferred tax assets............................ 5.4 3.7
Deferred tax liabilities:
Property, plant and equipment........................... 30.9 31.9
Other................................................... 0.6 0.6
----- -----
Total deferred tax liabilities....................... 31.5 32.5
----- -----
Net deferred tax liability................................... $26.1 $28.8
===== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the amounts of assets and liabilities for accounting purposes and the
amounts used for income tax purposes.
Income taxes paid net of refunds received were $2.4 million, $3.1 million,
and $0.2 million for 1996, 1997, and 1998, respectively. Global files a
consolidated tax return for federal income tax purposes. As such, included in
income taxes paid were amounts paid to Global of $1.1 million in 1997. No tax
payments, net of refunds, were made to Global in 1998 or 1996.
14. LONG-TERM INCENTIVE PLAN
Certain officers of the Company participate in a long-term incentive plan
sponsored by Global and established in 1997. Under the plan, officers may be
awarded stock or cash upon achievement of specified objectives over a three-year
period beginning July 1, 1996. Final payouts are made at the discretion of the
Compensation Committee of Global's Board of Directors, whose members are not
participants in the Plan. Approximately $1.5 million was expensed in 1997 for
performance awards earned for the relevant period under the plan. No expense was
recorded under the plan in 1998 or 1996.
15. COMMITMENTS
The Company purchases natural gas under fixed-price contracts which range
from three to ten years. Natural gas purchases related to these long-term
purchase commitments were $15.2 million, $12.6 million, and $13.6 million in
1996, 1997, and 1998, respectively.
The Company leases office facilities, rail cars, and various types of
equipment under operating leases whose terms range from 3 to 15 years. Rental
expense was $8.4 million, $11.1 million, and $12.8 million in 1996, 1997, and
1998, respectively.
Summarized below is a schedule of future minimum long-term purchase
commitments and minimum lease payments under noncancelable operating leases as
of December 31, 1998:
F-55
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
15. COMMITMENTS -- (CONTINUED)
OPERATING
PURCHASE LEAST
COMMITMENTS COMMITMENTS
----------- -----------
(IN MILLIONS)
1999............................................. $20.6 $ 7.3
2000............................................. 15.7 6.3
2001............................................. 7.4 5.1
2002............................................. 3.9 3.6
2003............................................. 1.7 2.6
Subsequent years................................. 3.7 3.2
----- -----
$53.0 $28.1
===== =====
16. CONTINGENCIES
The historical use and handling of regulated chemical substances and crop
nutrient products in the normal course of the Company's business have resulted
in contamination at facilities presently or previously owned or operated by the
Company. The Company has also purchased facilities that were contaminated by
previous owners through their use and handling of regulated chemical substances.
Spills or other unintended releases of regulated substances have occurred in the
past and potentially could occur in the future, possibly requiring the Company
to undertake or fund cleanup efforts. At some locations, the Company has agreed,
pursuant to consent orders with the appropriate governmental agencies, to
undertake certain investigations (which currently are in progress) to determine
whether remedial action may be required to address contamination.
The Company believes that, pursuant to several indemnification agreements,
it is entitled to at least partial, and in many instances complete,
indemnification for a portion of the costs that may be expended by the Company
to remedy environmental issues at certain facilities. These agreements address
issues that resulted from activities occurring prior to the Company's
acquisition of facilities or businesses from certain other public and private
entities. The Company has already received and anticipates receiving amounts
pursuant to the indemnification agreements for certain of its expenses incurred
to date and to be incurred in the future.
Recorded environmental liabilities at December 31, 1997 and 1998, for the
estimated cost of cleanup efforts of identified contamination were $4.6 million
and $3.5 million, respectively, and are included in noncurrent liabilities in
the accompanying combined balance sheets. Actual cash expenditures accounted for
$0.5 million of the change in the reserve during 1998, with the remaining
reduction due to the revision of estimates determined in prior periods and other
noncash charges.
The Company is subject to various claims arising out of the conduct of its
business, including environmental matters. While the ultimate resolution of
these claims against the Company cannot be predicted with certainty, management
of the Company believes that the resolution of these matters will not have a
material adverse effect on its combined financial condition or results of
operations.
17. OPERATING SEGMENTS
The Company's reportable segments are strategic business segments that
operate through distinct distribution networks and in some cases different
geographic areas. They are managed separately because each business requires
different marketing and operational strategies.
The Company has three reportable segments: Retail, Rainbow, and IMC
Nitrogen. The Company's Retail segment supplies crop production inputs and
services to farmers primarily in the midwestern and southeastern United States
through its retail farm centers (Farmarkets). The Company's Rainbow segment is
primarily a producer and wholesaler of premium granulated
F-56
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
17. OPERATING SEGMENTS -- (CONTINUED)
fertilizers in the southeastern United States. IMC Nitrogen is a producer and
wholesale marketer of fertilizers in the eastern cornbelt and operates a fully
integrated nitrogen plant.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. There are no significant
intersegment sales. The Company evaluates performance based on operating
earnings of the respective business segment. Segment information for the years
1996, 1997, and 1998 was as follows (in millions):
<TABLE>
<CAPTION>
IMC
RETAIL RAINBOW NITROGEN OTHER(1) TOTAL
------ ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
1996
Net sales............................... $361.7 $298.0 $138.1 $ -- $797.8
Gross margins........................... 75.8 38.7 39.4 -- 153.9
Operating earnings...................... 3.2 16.4 29.2 (13.3) 35.5
Depreciation and amortization........... 13.5 1.0 2.9 -- 17.4
Total assets............................ 222.9 82.0 108.8 3.4 417.1
Capital expenditures.................... 14.4 0.7 7.9 -- 23.0
1997
Net sales............................... $439.7 $275.6 $157.3 $ -- $872.6
Gross margins........................... 97.8 32.9 33.0 -- 163.7
Operating earnings...................... 10.9 9.9 22.8 -- 43.6
Depreciation and amortization........... 14.3 1.7 4.8 -- 20.8
Total assets............................ 286.4 79.0 94.6 4.3 464.3
Capital expenditures.................... 14.7 3.2 9.9 -- 27.8
1998
Net sales............................... $410.1 $243.3 $133.6 $ -- $787.0
Gross margins........................... 85.9 26.1 15.8 -- 127.8
Operating earnings...................... 7.1 9.4 8.0 -- 24.5
Depreciation and amortization........... 15.7 1.9 5.7 -- 23.3
Total assets............................ 264.9 71.1 100.5 3.8 440.3
Capital expenditures.................... 9.1 2.5 18.5 -- 30.1
</TABLE>
- ------------------
(1) Includes miscellaneous assets not associated with a reportable segment and
in 1996 certain merger and restructuring charges.
18. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN MILLIONS)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $139.9 $ 489.8 $ 98.8 $ 144.1 $872.6
Operating earnings (loss).............. (4.9) 66.8 (14.8) (3.5) 43.6
Net earnings (loss).................... (4.7) 38.2 (10.6) (4.1) 18.8
<CAPTION>
1998
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $140.2 $ 428.5 $ 97.2 $ 121.1 $787.0
Operating earnings (loss).............. (7.6) 51.1 (13.8) (5.2) 24.5
Net earnings (loss).................... (5.8) 26.7 (9.5) (6.1) 5.3
</TABLE>
19. SUBSEQUENT EVENT (UNAUDITED)
On January 21, 1999, Global signed a definitive agreement to sell the
Company. The assets and liabilities on the accompanying balance sheet are
reflected at historical cost and do not reflect any adjustments in connection
with this transaction. This transaction is expected to close in the first
quarter of 1999.
F-57
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
UNAUDITED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
(IN MILLIONS)
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ --
Accounts receivables, net of allowance for doubtful
accounts of $4.1....................................... 79.3
Inventories............................................... 214.8
Other current assets...................................... 0.7
------
Total current assets................................ 294.8
Property, plant and equipment, net.......................... 157.8
Goodwill, net of accumulated amortization of $6.4........... 51.3
Other assets................................................ 3.3
------
$507.2
======
LIABILITIES AND IMC GLOBAL INVESTMENT
Current Liabilities:
Accounts payable.......................................... $138.5
Payable to affiliates..................................... 19.1
Accrued liabilities....................................... 6.6
Current maturities of long-term debt...................... 2.5
------
Total current liabilities........................... 166.7
Long-term debt, less current maturities..................... 4.6
Deferred income taxes....................................... 29.6
Other noncurrent liabilities................................ 3.2
------
Total liabilities................................... 204.1
IMC Global Investment....................................... 303.1
------
$507.2
======
</TABLE>
See accompanying notes.
F-58
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
UNAUDITED COMBINED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
------ ------
(IN MILLIONS)
<S> <C> <C>
Net sales................................................... $140.3 $127.6
Cost of goods sold.......................................... 121.5 114.8
------ ------
Gross margin................................................ 18.8 12.8
Selling, general and administrative expenses................ 26.3 27.8
------ ------
Operating loss.............................................. (7.5) (15.0)
Other expense (income):
Interest expense.......................................... 2.9 3.0
Other, net................................................ (0.3) 0.1
------ ------
2.6 3.1
------ ------
Loss before taxes........................................... (10.1) (18.1)
Benefit from income taxes................................... (4.8) (7.5)
====== ======
Net loss.................................................... $ (5.3) $(10.6)
====== ======
</TABLE>
See accompanying notes.
F-59
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
------ ------
(IN MILLIONS)
<S> <C> <C>
Operating activities:
Net loss.................................................. $ (5.3) $(10.6)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 5.2 5.7
Amortization........................................... 0.4 0.4
Deferred income taxes.................................. 0.1 0.8
Other.................................................. 0.7 (0.2)
Changes in operating assets and liabilities:
Accounts receivables................................ (12.8) (15.6)
Inventories......................................... (85.1) (57.7)
Other current assets................................ (0.2) (0.2)
Accounts payable.................................... 103.7 91.4
Payables to affiliates.............................. (1.6) (5.6)
Accrued liabilities................................. (1.3) (4.7)
------ ------
Net cash provided by operating activities........ $ 3.8 $ 3.7
------ ------
Investing activities:
Purchases of property, plant and equipment, net........... (6.4) (5.7)
Acquisitions, net of cash acquired........................ (1.0) --
------ ------
Net cash used in investing activities............ (7.4) (5.7)
------ ------
Financing activities:
Principal payments on long-term borrowings................ (3.7) --
Net advances from (to) IMC Global......................... 3.9 (4.1)
------ ------
Net cash provided by (used in) financing
activities...................................... 0.2 (4.1)
------ ------
Decrease in cash............................................ (3.4) (6.1)
Cash -- beginning of period................................. 5.4 6.1
------ ------
Cash -- end of period....................................... $ 2.0 $ --
====== ======
</TABLE>
See accompanying notes.
F-60
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
MARCH 31, 1999
($ IN MILLIONS)
(1) BASIS OF PRESENTATION
The unaudited interim condensed combined financial statements of IMC
AgriBusiness (a business unit of IMC Global Inc.) do not include all disclosures
normally provided in annual financial statements. These financial statements
should be read in conjunction with the Company's audited combined financial
statements for the year ended December 31, 1998. In the opinion of management,
all adjustments considered necessary for a fair presentation of the unaudited
interim combined financial statements have been included therein and are of a
normal recurring nature. Certain 1998 amounts have been reclassified to conform
to the 1999 presentation. Interim results are not necessarily indicative of the
results expected for the full year.
(2) IMC GLOBAL INVESTMENT
Changes in the IMC Global Investment were as follows:
<TABLE>
<S> <C>
Balance at December 31, 1998................ $317.8
Net loss.................................. (10.6)
Net advances to Global.................... (4.1)
------
Balance at March 31, 1999................... $303.1
======
</TABLE>
(3) INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Products................................... $208.0
Operating materials and supplies........... 6.8
------
$214.8
======
</TABLE>
(4) OPERATING SEGMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------
RETAIL RAINBOW NITROGEN OTHER (A) TOTAL
------ ------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
Net sales from external customers.... $ 41.9 $ 73.2 $ 25.2 $ -- $140.3
Gross margins........................ 6.5 9.4 2.9 -- 18.8
Operating income (loss).............. (13.1) 4.7 0.9 -- (7.5)
Depreciation and amortization........ 3.6 0.6 1.4 -- 5.6
Total assets......................... 309.5 112.3 134.3 4.0 560.1
Capital expenditures................. 1.5 0.8 4.1 -- 6.4
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------
RETAIL RAINBOW NITROGEN OTHER (A) TOTAL
------ ------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
Net sales from external customers.... $ 39.9 $ 55.9 $ 31.8 $ -- $127.6
Gross margins........................ 4.7 6.5 1.6 -- 12.8
Operating income (loss).............. (16.1) 2.0 (0.9) -- (15.0)
Depreciation and amortization........ 3.7 0.6 1.8 -- 6.1
Total assets......................... 300.7 91.3 110.8 4.4 507.2
Capital expenditures................. 4.3 0.5 0.9 -- 5.7
</TABLE>
- ------------------
(a) Includes miscellaneous assets not associated with a reportable segment
(5) SUBSEQUENT EVENT
On April 21, 1999, IMC Global Inc. sold the Company to Royster-Clark, Inc.
The assets and liabilities on the accompanying balance sheet are reflected at
historical cost and do not reflect any adjustments in connection with the sale.
F-61
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides in relevant
part that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The certificate of incorporation of IMC
AgriBusiness, Inc. and the bylaws of IMC AgriBusiness, Inc., IMC Nitrogen
Company and Hutson's Ag Service, Inc. contain indemnification provisions
permitted by Section 145 of the Delaware General Corporation Law.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. Each of the Bylaws of IMC AgriBusiness, Inc. and IMC Nitrogen Company
contain indemnification provisions permitted by Section 145 of the Delaware
General Corporation Law.
Section 145 also provides that to the extent a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to above, or defense of any
claim issue or matter therein, he shall be indemnified against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection therewith. The Bylaws of Hutson's Ag Service, Inc. expressly include
such a provision.
Furthermore, Section 145 provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
The Bylaws of the Company provide for the indemnification of any person
entitled to indemnity under law, to the fullest extent permitted by law.
The Bylaws of Royster-Clark Group provide for the indemnification of any
person who was or is party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director or officer of the company or a constituent
corporation absorbed in a consolidation or merger, or is or was serving at the
request of the company or a constituent
II-1
<PAGE>
corporation absorbed in a consolidation or merger, as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise, or
is or was a director or officer of the company serving at its request as an
administrator, trustee or other fiduciary of one or more of the employee benefit
plans of the company or other enterprise, against expenses (including attorneys'
fees), liability and loss actually and reasonably incurred or suffered by such
person in connection with such proceeding, whether or not the indemnified
liability arises or arose from any threatened, pending or completed proceeding
by or in the right of the company, except to the extent that such
indemnification is prohibited by applicable law.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
corporation may in its certificate of incorporation eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability: for any breach of the director's duty of loyalty to the corporation
or its stockholders; for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; under Section 174 of the
Delaware General Corporation Law (pertaining to certain prohibited acts
including unlawful payment of dividends or unlawful purchase or redemption of
the corporation's capital stock); or for any transaction from which the director
derived an improper personal benefit. The Certificate of Incorporation of each
of the Company, Royster-Clark Group, IMC Nitrogen Company and IMC AgriBusiness,
Inc., contains a provision so limiting the personal liability of directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.01 Stock Purchase Agreement dated January 21, 1999 by and among
IMC Global Inc., The Vigoro Corporation and R-C Delaware
Acquisition Inc.*
2.02 First Amendment to the Stock Purchase Agreement dated as of
April 13, 1999 among IMC Global Inc., The Vigoro Corporation
and R-C Delaware Acquisition Inc.*
3.01 Restated Certificate of Incorporation of the Company.*
3.02 Certificate of Amendment of Restated Certificate of
Incorporation of the Company.*
3.03 Amended and Restated Bylaws of the Company.*
3.04 Amended and Restated Certificate of Incorporation of
Royster-Clark Group, Inc.*
3.05 Bylaws of Royster-Clark Group, Inc.*
3.06 Certificate of Incorporation of IMC AgriBusiness Inc.*
3.07 Certificate of Amendment to Certificate of Incorporation of
IMC AgriBusiness Inc.*
3.08 Bylaws of IMC AgriBusiness Inc.*
3.09 Certificate of Incorporation of IMC Nitrogen Company.*
3.10 Certificate of Amendment to Certificate of Incorporation of
IMC Nitrogen Company.*
3.11 Bylaws of IMC Nitrogen Company.*
3.12 Articles of Incorporation of Hutson's Ag Service, Inc.*
3.13 Certificate of Amendment to Certificate of Incorporation of
Hutson's Ag Service, Inc.*
3.14 Bylaws of Hutson's Ag Service, Inc.*
3.15 Certificate of Formation of Royster-Clark Resources LLC.*
3.16 Limited Liability Company Agreement of Royster-Clark
Resources LLC.*
3.17 Certificate of Formation of Royster-Clark Realty LLC.*
3.18 Limited Liability Company Agreement of Royster-Clark Realty
LLC.*
3.19 Certificate of Formation of Royster-Clark AgriBusiness
Realty LLC.*
3.20 Limited Liability Company Agreement of Royster-Clark
AgriBusiness Realty LLC.*
3.21 Certificate of Formation of Royster-Clark Hutson's Realty
LLC.*
3.22 Limited Liability Company Agreement of Royster-Clark
Hutson's Realty LLC.*
3.23 Certificate of Formation of Royster-Clark Nitrogen Realty
LLC.*
3.24 Limited Liability Company Agreement of Royster-Clark
Nitrogen Realty LLC.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.01 Indenture dated as of April 22, 1999 by and among the
Company, the Guarantors, and the United States Trust Company
of New York, as Trustee.*
4.02 Form of 10 1/4% First Mortgage Note Due 2009 (included in
Exhibit 4.01).*
4.03 Registration Rights Agreement dated as of April 22, 1999 by
and among the Company, the Guarantors, and Donaldson, Lufkin
& Jenrette Securities Corporation and J.P. Morgan Securities
Inc. (each an "Initial Purchaser").*
4.04 Exchange Agreement dated as of April 22, 1999 among 399
Venture Partners, Inc., Francis P. Jenkins, Jr.,
Royster-Clark, Inc. and Royster-Clark Group, Inc.
4.05 Registration Rights Agreement dated as of April 22, 1999 by
and among Royster-Clark Group, Inc., 399 Venture Partners,
Inc., and other stockholders of Royster-Clark Group, Inc.*
4.06 Securities Purchase and Holders Agreement dated as of April
22, 1999 by and among Francis P. Jenkins, Jr., 399 Ventures,
and certain management stockholders.*
4.07 Preferred Stockholders' Agreement dated as of April 22, 1999
by and among 399 Venture Partners, Inc. and certain
management stockholders.*
5.01 Opinion of Dechert Price & Rhoads.**
10.01 Credit Agreement dated as of April 22, 1999 by and among the
Company, the Guarantors, various lenders, DLJ Capital
Funding, as arranger and syndication agent, J.P. Morgan
Securities Inc., as documentation agent and U.S. Bancorp Ag
Credit, Inc., as administrative agent.*
10.02 Purchase Agreement dated April 15, 1999 among the Company,
the Guarantors and the Initial Purchasers.*
10.03 Supply Agreement dated as of April 22, 1999 among IMC Kalium
Ltd., IMC-Agrico Company and the Company. Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment.*
10.04 Company Employee Savings and Investment Plan.*
10.05 Royster-Clark Group, Inc. 1999 Restricted Stock Purchase and
Option Plan.*
10.06 Employment Agreement dated as of April 22, 1999 by and among
Francis P. Jenkins, Jr., Royster-Clark Group, Inc. and
Royster-Clark, Inc.*
10.07 Master Conveyance Agreement dated as of April 22, 1999 by
and among IMC Global Inc., The Vigoro Corporation, the
Company and United States Trust Company of New York.*
12.01 Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.01 Subsidiaries of the Company and the Additional Registrants.*
23.01 Consent of Dechert Price & Rhoads (included in the opinion
filed as Exhibit 5.01).
23.02 Consent of KPMG LLP.
23.03 Consent of Ernst & Young LLP.
24.01 Power of Attorney (included on each of the signature
pages).*
25.01 Statement of Eligibility and Qualification of United States
Trust Company of New York on Form T-1.*
27.1 Financial Data Schedule -- Royster-Clark, Inc.*
27.2 Financial Data Schedule -- AgriBusiness.*
99.01 Form of Letter of Transmittal.*
99.02 Notice of Guaranteed Delivery.*
99.03 Schedule 1 -- Allowance for Doubtful Accounts-Royster-Clark,
Inc.
99.04 Schedule 2 -- Allowance for Doubtful Accounts-AgriBusiness.
</TABLE>
- ------------------
* Previously filed.
** To be filed.
(b) Financial Statement Schedules. Included as Exhibits 99.03 and 99.04 of
Item 21(a).
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned registrants hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:s
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
each registrant pursuant to the foregoing provisions, or otherwise, each
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) Each of the undersigned registrants hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the corporation being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK GROUP, INC.
By:/s/ FRANCIS P. JENKINS, JR.
----------------------------------
Francis P. Jenkins, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chairman of the Board of Directors and Chief
- ----------------------------- Executive Officer (principal executive officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Managing Director, Finance (principal financial
- ----------------------------- officer and principal accounting officer)
Walter R. Vance
/s/ THOMAS F. MCWILLIAMS Director
- -----------------------------
Thomas F. McWilliams
/s/ RANDOLPH G. ABOOD Director
- -----------------------------
Randolph G. Abood
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK, INC.
By: /s/ FRANCIS P. JENKINS, JR.
----------------------------------
Francis P. Jenkins, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chairman of the Board of Directors and Chief
- ----------------------------- Executive Officer (principal executive officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Managing Director, Finance (principal financial
- ----------------------------- officer and principal accounting officer)
Walter R. Vance
/s/ THOMAS F. MCWILLIAMS Director
- -----------------------------
Thomas F. McWilliams
/s/ RANDOLPH G. ABOOD Director
- -----------------------------
Randolph G. Abood
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK AGRIBUSINESS, INC.
By: /s/ FRANCIS P. JENKINS, JR.
-------------------------------
Francis P. Jenkins, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chairman of the Board of Directors and Chief
- ------------------------------- Executive Officer (principal executive officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Treasurer (principal financial officer and
- ------------------------------- principal accounting officer)
Walter R. Vance
/s/ G. KENNETH MOSHENEK Director
- -------------------------------
G. Kenneth Moshenek
/s/ RANDOLPH G. ABOOD Director
- -------------------------------
Randolph G. Abood
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK NITROGEN, INC.
By: /s/ FRANCIS P. JENKINS, JR.
---------------------------------
Francis P. Jenkins, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chairman of the Board of Directors and Chief
- ------------------------------ Executive Officer (principal executive officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Treasurer (principal financial officer and
- ------------------------------ principal accounting officer)
Walter R. Vance
/s/ G. KENNETH MOSHENEK Director
- ------------------------------
G. Kenneth Moshenek
/s/ RANDOLPH G. ABOOD Director
- ------------------------------
Randolph G. Abood
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK HUTSON, INC.
By: /s/ FRANCIS P. JENKINS, JR.
Francis P. Jenkins, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chairman of the Board of Directors and Chief
- --------------------------------- Executive Officer (principal executive officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Treasurer (principal financial officer and
- --------------------------------- principal accounting officer)
Walter R. Vance
/s/ G. KENNETH MOSHENEK Director
- ---------------------------------
G. Kenneth Moshenek
/s/ RANDOLPH G. ABOOD Director
Randolph G. Abood
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK RESOURCES LLC
By: /s/ FRANCIS P. JENKINS, JR.
------------------------------
Francis P. Jenkins, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chief Executive Officer (principal executive
- -------------------------------- officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Vice President (principal financial officer and
- -------------------------------- principal accounting officer)
Walter R. Vance
Royster-Clark AgriBusiness, Inc., sole member
By: /s/ FRANCIS P. JENKINS, JR. Chief Executive Officer
----------------------------
Francis P. Jenkins, Jr.
/s/ G. KENNETH MOSHENEK Director of Royster-Clark AgriBusiness, Inc., sole
- -------------------------------- member
G. Kenneth Moshenek
/s/ RANDOLPH G. ABOOD Director of Royster-Clark AgriBusiness, Inc., sole
- -------------------------------- member
Randolph G. Abood
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK REALTY LLC
By: /s/ FRANCIS P. JENKINS, JR.
----------------------------------
Francis P. Jenkins, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chief Executive Officer (principal executive
- ------------------------------- officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Vice President (principal financial officer and
- ------------------------------- principal accounting officer)
Walter R. Vance
Royster-Clark, Inc., sole member
By: /s/ FRANCIS P. JENKINS, JR. Chief Executive Officer
- -------------------------------
Francis P. Jenkins, Jr.
/s/ THOMAS F. MCWILLIAMS Director of Royster-Clark, Inc., sole member
- -------------------------------
Thomas F. McWilliams
/s/ RANDOLPH G. ABOOD Director of Royster-Clark, Inc., sole member
- -------------------------------
Randolph G. Abood
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK AGRIBUSINESS REALTY LLC
By: /s/ FRANCIS P. JENKINS, JR.
---------------------------------
Francis P. Jenkins, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chief Executive Officer (principal executive
- ------------------------------ officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Vice President (principal financial officer and
- ------------------------------
Walter R. Vance
Royster-Clark AgriBusiness, Inc., sole member
By:/s/ FRANCIS P. JENKINS, JR. Chief Executive Officer
- ------------------------------
Francis P. Jenkins, Jr.
/s/ G. KENNETH MOSHENEK Director of Royster-Clark AgriBusiness, Inc., sole
- ------------------------------- member
G. Kenneth Moshenek
/s/ RANDOLPH G. ABOOD Director of Royster-Clark AgriBusiness, Inc., sole
- ------------------------------- member
Randolph G. Abood
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK HUTSON'S
REALTY LLC
By:/s/ FRANCIS P. JENKINS, JR.
Francis P. Jenkins, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chief Executive Officer (principal executive
- ------------------------------ officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Vice President (principal financial officer and
- ------------------------------ principal accounting officer)
Walter R. Vance
Royster-Clark Hutson, Inc., sole member
By: /s/ FRANCIS P. JENKINS, JR. Chief Executive Officer
- ------------------------------
Francis P. Jenkins, Jr.
/s/ G. KENNETH MOSHENEK Director of Royster-Clark Hutson, Inc., sole
- ------------------------------ member
G. Kenneth Moshenek
/s/ RANDOLPH G. ABOOD Director of Royster-Clark Hutson, Inc., sole
- ------------------------------ member
Randolph G. Abood
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of
August 1999.
ROYSTER-CLARK NITROGEN
REALTY LLC
By:/s/ FRANCIS P. JENKINS, JR.
---------------------------------
Francis P. Jenkins, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on August 24,
1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ FRANCIS P. JENKINS, JR. Chief Executive Officer (principal executive
- ------------------------------ officer)
Francis P. Jenkins, Jr.
/s/ WALTER R. VANCE Vice President (principal financial officer and
- ------------------------------ principal accounting officer)
Walter R. Vance
Royster-Clark Nitrogen, Inc., sole member
By: /s/ FRANCIS P. JENKINS, JR. Chief Executive Officer
- ------------------------------
Francis P. Jenkins,
Jr.
/s/ G. KENNETH MOSHENEK Director of Royster-Clark Nitrogen, Inc., sole
- ------------------------------ member
G. Kenneth Moshenek
/s/ RANDOLPH G. ABOOD Director of Royster-Clark Nitrogen, Inc., sole
- ------------------------------ member
Randolph G. Abood
</TABLE>
II-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<C> <S> <C>
2.01 Stock Purchase Agreement dated January 21, 1999 by and among
IMC Global Inc., The Vigoro Corporation and R-C Delaware
Acquisition Inc.*
2.02 First Amendment to the Stock Purchase Agreement dated as of
April 13, 1999 among IMC Global Inc., The Vigoro Corporation
and R-C Delaware Acquisition Inc.*
3.01 Restated Certificate of Incorporation of the Company.*
3.02 Certificate of Amendment of Restated Certificate of
Incorporation of the Company.*
3.03 Amended and Restated Bylaws of the Company.*
3.04 Amended and Restated Certificate of Incorporation of
Royster-Clark Group, Inc.*
3.05 Bylaws of Royster-Clark Group, Inc.*
3.06 Certificate of Incorporation of IMC AgriBusiness Inc.*
3.07 Certificate of Amendment to Certificate of Incorporation of
IMC AgriBusiness Inc.*
3.08 Bylaws of IMC AgriBusiness Inc.*
3.09 Certificate of Incorporation of IMC Nitrogen Company.*
3.10 Certificate of Amendment to Certificate of Incorporation of
IMC Nitrogen Company.*
3.11 Bylaws of IMC Nitrogen Company.*
3.12 Articles of Incorporation of Hutson's Ag Service, Inc.*
3.13 Certificate of Amendment to Certificate of Incorporation of
Hutson's Ag Service, Inc.*
3.14 Bylaws of Hutson's Ag Service, Inc.*
3.15 Certificate of Formation of Royster-Clark Resources LLC.*
3.16 Limited Liability Company Agreement of Royster-Clark
Resources LLC.*
3.17 Certificate of Formation of Royster-Clark Realty LLC.*
3.18 Limited Liability Company Agreement of Royster-Clark Realty
LLC.*
3.19 Certificate of Formation of Royster-Clark AgriBusiness
Realty LLC.*
3.20 Limited Liability Company Agreement of Royster-Clark
AgriBusiness Realty LLC.*
3.21 Certificate of Formation of Royster-Clark Hutson's Realty
LLC.*
3.22 Limited Liability Company Agreement of Royster-Clark
Hutson's Realty LLC.*
3.23 Certificate of Formation of Royster-Clark Nitrogen Realty
LLC.*
3.24 Limited Liability Company Agreement of Royster-Clark
Nitrogen Realty LLC.*
4.01 Indenture dated as of April 22, 1999 by and among the
Company, the Guarantors, and the United States Trust Company
of New York, as Trustee.*
4.02 Form of 10 1/4% First Mortgage Note Due 2009 (Included in
Exhibit 4.01).*
4.03 Registration Rights Agreement dated as of April 22, 1999 by
and among the Company, the Guarantors, and Donaldson, Lufkin
& Jenrette Securities Corporation and J.P. Morgan Securities
Inc. (each an "Initial Purchaser").*
4.04 Exchange Agreement dated as of April 22, 1999 among 399
Venture Partners, Inc., Francis P. Jenkins, Jr.,
Royster-Clark, Inc. and Royster-Clark Group, Inc.
4.05 Registration Rights Agreement dated as of April 22, 1999 by
and among Royster-Clark Group, Inc., 399 Ventures Partners,
Inc., and other stockholders of Royster-Clark Group, Inc.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<C> <S> <C>
4.06 Securities Purchase and Holders Agreement dated as of April
22, 1999 by and among 399 Venture Partners, Inc. and certain
management stockholders.*
4.07 Preferred Stockholders' Agreement dated as of April 22, 1999
by and among 399 Venture Partners, Inc. and certain
management stockholders.*
5.01 Opinion of Dechert Price & Rhoads.**
10.01 Credit Agreement dated as of April 22, 1999 by and among the
Company, the Guarantors, various lenders, DLJ Capital
Funding, as arranger and syndication agent, J.P. Morgan
Securities Inc., as documentation agent and U.S. Bancorp Ag
Credit, Inc., as administrative agent.*
10.02 Purchase Agreement dated April 15, 1999 among the Company,
the Guarantors and the Initial Purchasers.*
10.03 Supply Agreement dated as of April 22, 1999 among IMC Kalium
Ltd., IMC-Agrico Company and the Company. Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment.*
10.04 Company Employee Savings and Investment Plan.*
10.05 Royster-Clark Group, Inc. 1999 Restricted Stock Purchase and
Option Plan.*
10.06 Employment Agreement dated as of April 22, 1999 by and among
Francis P. Jenkins, Jr., Royster-Clark Group, Inc. and
Royster-Clark, Inc.*
10.07 Master Conveyance Agreement dated as of April 22, 1999 by
and among IMC Global Inc., the Vigoro Corporation, the
Company and the United States Trust Company of New York.*
12.01 Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.01 Subsidiaries of the Company and the Additional Registrants.*
23.01 Consent of Dechert Price & Rhoads (included in the opinion
filed as Exhibit 5.01).
23.02 Consent of KPMG LLP.
23.03 Consent of Ernst & Young LLP.
24.01 Power of Attorney (included on each of the signature
pages).*
25.01 Statement of Eligibility and Qualification of United States
Trust Company of New York on Form T-1.*
27.1 Financial Data Schedule -- Royster-Clark, Inc.*
27.2 Financial Data Schedule -- AgriBusiness.*
99.01 Form of Letter of Transmittal.*
99.02 Notice of Guaranteed Delivery.*
99.03 Schedule 1 -- Allowance for Doubtful Accounts-Royster-Clark,
Inc.
99.04 Schedule 2 -- Allowance for Doubtful Accounts-AgriBusiness.
</TABLE>
- ------------------
* Previously filed.
** To be filed.
EXCHANGE AGREEMENT
DATED AS OF APRIL 22, 1999
AMONG
399 VENTURE PARTNERS, INC.
FRANCIS P. JENKINS, JR.
ROYSTER-CLARK, INC.
AND
ROYSTER-CLARK GROUP, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 CLOSING, REDEMPTION AND MANNER OF EXCHANGE.............................................. 3
1.1. Redemptions and Exchange of the Jenkins Exchange Shares........................... 3
1.2. RCG3 Securities Exchanged for Jenkins Exchange Shares............................. 3
1.3. Deliveries at Closing............................................................. 4
1.5. Time and Place of Closing......................................................... 4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES......................................................... 4
2.1. General Statement.................................................................. 5
2.2. Representations and Warranties of RCGI............................................. 5
2.2.1. Organization............................................................... 5
2.2.2. Power and Authority........................................................ 5
2.2.3. Execution and Delivery by RCGI............................................. 5
2.2.4. Authorization.............................................................. 5
2.2.5. Conflict................................................................... 6
2.2.6. Finder's Fees.............................................................. 6
2.2.7. Solvency................................................................... 6
2.2.8. Securities Law Matters..................................................... 7
2.2.9. Necessary Funds............................................................ 7
2.3. Representations and Warranties of Principal Stockholder............................ 7
2.3.1. Organization............................................................... 7
2.3.2. Good Standing.............................................................. 7
2.3.3. Power and Authority........................................................ 7
2.3.4. Execution and Delivery..................................................... 8
2.3.5. Ownership.................................................................. 8
2.3.6. Authorization.............................................................. 8
2.3.7. Conflict................................................................... 9
2.3.8. Subsidiaries............................................................... 9
2.3.9. Capitalization............................................................. 9
2.3.10. Financial Statements...................................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
2.3.11. Absence of Liens.......................................................... 10
2.3.12. Tax Matters............................................................... 11
2.3.13. Absence of Changes........................................................ 12
2.3.14. Contracts................................................................. 13
2.3.15. Enforceability of Contracts............................................... 15
2.3.16. Permits................................................................... 15
2.3.17. Employee Benefit Plans.................................................... 15
2.3.18. List of Employees......................................................... 16
2.3.19. Union Representation and Labor Relations.................................. 17
2.3.20. Insurance................................................................. 17
2.3.21. Litigation and Claims..................................................... 17
2.3.22. Compliance with Law....................................................... 18
2.3.23. Environmental Matters..................................................... 18
2.3.24. Real Estate............................................................... 21
2.3.25. Intellectual Property..................................................... 22
2.3.26. Finder's Fees............................................................. 23
2.3.27. Assets.................................................................... 24
2.3.28. Product Warranty.......................................................... 24
2.3.29. Top Customers and Suppliers............................................... 24
2.3.30. No Undisclosed Liabilities................................................ 24
2.3.31. Limitation on Warranties.................................................. 25
2.3.32. Definition of Knowledge................................................... 25
2.4. Representations and Warranties of 399 Venture...................................... 25
2.4.1. Organization............................................................... 25
2.4.2. Power and Authority........................................................ 25
2.4.3. Execution and Delivery by 399 Venture...................................... 26
2.4.4. Authorization.............................................................. 26
2.4.5. Conflict................................................................... 26
2.4.6. Finder's Fees.............................................................. 26
ARTICLE 3 CONDUCT PRIOR TO THE CLOSING........................................................... 27
3.1. General........................................................................... 27
</TABLE>
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3.2. Obligations of the Principal Stockholder.......................................... 27
3.3. Reserved.......................................................................... 29
3.4. Joint Obligations................................................................. 29
ARTICLE 4 CONDITIONS TO CLOSING.................................................................. 30
4.1. Conditions to Obligations of Principal Stockholder................................ 30
4.2. Conditions to RCGI's and 399 Venture's Obligations................................ 32
ARTICLE 5 CLOSING................................................................................ 33
5.1. Form of Documents................................................................. 34
5.2. The Company's Deliveries.......................................................... 34
5.3. RCGI's Deliveries................................................................. 34
5.4. The Principal Stockholder Deliveries.............................................. 34
5.5. 399 Venture Deliveries............................................................ 35
5.6. Other Transactions Occurring at the Closing....................................... 36
ARTICLE 6 POST CLOSING AGRE34ENTS
6.1. Post-Closing Agreements........................................................... 36
6.2. Confidentiality; Non Competition; Non-Solicitation................................ 36
6.2.1. Confidentiality............................................................. 36
6.2.2. Non-Competition............................................................. 36
6.2.3. Non Solicitation............................................................ 37
6.3. Further Assurances................................................................ 38
6.4. Transfer Taxes.................................................................... 38
6.5. Agreement to Defend and Indemnify................................................. 38
6.6. Registration and Legend........................................................... 39
6.7. Section 351 Transaction........................................................... 39
ARTICLE 7 INDEMNIFICATION........................................................................ 39
7.1. General........................................................................... 39
7.2. Certain Definitions............................................................... 39
7.2.1. Damages..................................................................... 39
7.2.2. Environmental Claim......................................................... 40
7.2.3. Indemnified Party........................................................... 40
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7.2.4. Indemnifying Party.......................................................... 40
7.2.5. Third Party Claim........................................................... 40
7.3. The Principal Stockholder's Indemnification Obligations........................... 41
7.4. Survival of Indemnification Obligations........................................... 43
7.5. Limitation on Indemnification Obligations......................................... 44
7.6. RCGI's Indemnification Covenants.................................................. 44
7.7. Indemnification Procedures........................................................ 45
7.8. Cooperation on Environmental Claims............................................... 47
7.8.1. RCGI's Rights to Remedial Action............................................ 47
7.8.2. The Principal Stockholder's Rights to Remedial Action....................... 47
7.8.3. Minimization of Remedial Action Costs and Disruption of Operation........... 48
7.9. Mitigation........................................................................ 48
7.10. Indemnification Exclusive Remedy.................................................. 48
ARTICLE 8 EFFECT OF TERMINATION/PROCEEDING....................................................... 49
8.1. General........................................................................... 49
8.2. Right to Terminate................................................................ 49
8.3. Certain Effects of Termination.................................................... 49
8.4. Remedies.......................................................................... 50
8.5. Right to Damages.................................................................. 50
8.6. Non-Solicitation.................................................................. 50
8.7. Confidentiality................................................................... 51
ARTICLE 9 MISCELLANEOUS.......................................................................... 51
9.1. Fees.............................................................................. 51
9.2. Publicity......................................................................... 51
9.3. Notices........................................................................... 52
9.4. Entire Agreement; Interpretation.................................................. 53
9.5. Non-Waiver........................................................................ 54
9.6. Counterparts...................................................................... 54
9.7. Severability...................................................................... 54
9.8. Binding Effect; Benefit........................................................... 54
9.9. Assignability..................................................................... 54
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9.10. Governmental Reporting........................................................... 54
9.11. Applicable Law................................................................... 55
9.12. Waiver of Trial by Jury.......................................................... 55
9.13. Consent to Jurisdiction.......................................................... 55
9.14. Amendments....................................................................... 55
9.15. Construction..................................................................... 55
Annex A Redemptions-Shares and Amounts
Annex B Exchange-Shares and Amounts
</TABLE>
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<PAGE>
TABLE OF EXHIBITS
(not part of this Agreement)
Exhibit A - List of Stockholders
Exhibit B - Material Consents
Exhibit C - Company Release
Exhibit D - Principal Stockholder Release
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TABLE OF SCHEDULES
(not part of this Agreement)
2.3.2 Good Standing
2.3.5 Ownership
(a) Jenkins Shares
(b) Encumbrances on Jenkins Shares
2.3.6 Authorization
2.3.7 Conflict
2.3.9 Capitalization
2.3.10 Financial Statements
2.3.11 Absence of Liens
2.3.12 Tax Matters
2.3.13 Absence of Changes
2.3.14 Contracts
2.3.17 Employee Benefit Plans
2.3.18 List of Employees
2.3.19 Union Representations and Relations
2.3.20 Insurance
2.3.21 Litigation and Claims
2.3.22 Compliance with Law
2.3.23 Environmental Matters
2.3.24 Real Estate
2.3.25 Intellectual Property
2.3.27 Sufficiency of Assets; Assets of Affiliates; Inventory
2.3.28 Product Warranty
2.3.29 Customers and Suppliers
2.3.30 Undisclosed Liabilities
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TABLE OF DEFINED TERMS
(not part of this Agreement)
Defined Term Page
399 Venture ........................................................ 1
399 Venture Shares ................................................. 3
Affiliate .......................................................... 5
Agreement .......................................................... 1
Ancillary Documents ................................................ 4
Assets ............................................................. 9
Business ........................................................... 1
CERCLA ............................................................. 17
Claim Notice ....................................................... 43
Class A Common Stock ............................................... 3
Closing............................................................. 4
Closing Date ....................................................... 4
Code ............................................................... 10
Common Stock ....................................................... 1
Company...... ...................................................... 1
Company Release .................................................... 29
Company Software ................................................... 22
Compensation Plans ................................................. 14
Competing Business ................................................. 35
Contaminant ........................................................ 17
Contracts .......................................................... 14
control............................................................. 6
Court Order......................................................... 5
Debentures.......................................................... 1
Defending Party .................................................... 42
Employee Benefit Plans ............................................. 15
Encumbrance......................................................... 8
Environmental Claims ............................................... 38
Environmental Laws ................................................. 17
Environmental Permits .............................................. 18
Environmental Representations and Warranties ....................... 20
ERISA .............................................................. 14
ESOP ............................................................... 2
ESOP Trust ......................................................... 2
Financial Statements ............................................... 9
including .......................................................... 53
Indemnified Persons ................................................ 37
Intellectual Property .............................................. 21
IRS ................................................................ 15
Jenkins Common Shares .............................................. 1
Jenkins Exchange ................................................... 1
Jenkins Exchange Shares ............................................ 1
Jenkins Preferred Shares ........................................... 1
Jenkins Redemption ................................................. 1
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Jenkins Redemption Payment ......................................... 1
Jenkins Redemption Shares .......................................... 1
Jenkins Shares ..................................................... 1
Leased Premises .................................................... 20
Litigation Conditions .............................................. 44
Management Exchange ................................................ 2
Management Redemption .............................................. 2
Material Adverse Effect ............................................ 6
Material Consents .................................................. 26
Owned Premises ..................................................... 20
Pension Plans ...................................................... 14
Permits ............................................................ 14
Permitted Liens .................................................... 10
Preferred Stock .................................................... 1
Preferred Stockholders Agreement ................................... 30
Principal Stockholder .............................................. 1
Principal Stockholder Release ...................................... 31
Principal Stockholder's knowledge .................................. 18
Process Safety Management Claims ................................... 38
RCGI ............................................................... 1
RCGI Indemnitee .................................................... 39
RCGI Indemnitees ................................................... 39
RCGI Shares ....................................................... 3
Real Estate ........................................................ 20
Registration Rights Agreement ...................................... 30
Release ............................................................ 18
Remedial Action .................................................... 18
Requirements of Law ................................................ 5
Return ............................................................. 10
Returns ............................................................ 10
Reverse Stock Split ................................................ 2
Rollover Investors ................................................. 2
Securities Act ..................................................... 6
Securities Holders Agreement ....................................... 30
Series A Debenture ................................................. 1
Series A Preferred Stock ........................................... 3
Series B Debenture ................................................. 1
Series B Preferred Stock ........................................... 3
Stockholder Indemnity .............................................. 42
Subsidiary ......................................................... 8
Tax ................................................................ 10
Taxes .............................................................. 10
Trademarks ......................................................... 21
Transportation Claims .............................................. 38
Welfare Plans ...................................................... 14
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EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT ("Agreement") is made and entered into as of April
22, 1999 among 399 VENTURE PARTNERS, INC., a Delaware corporation ("399
Venture"), ROYSTER-CLARK, INC. (the "Company"), ROYSTER-CLARK GROUP, INC., a
Delaware corporation ("RCGI"), and FRANCIS P. JENKINS, JR. (the "Principal
Stockholder"), an individual.
R E C I T A L S
A. The Company is engaged in the manufacture or purchase and sale (through
wholesale and retail channels) of crop production inputs and services (the
"Business").
B. RCGI desires to acquire the Company by acquiring all the outstanding
shares of common stock, $.01 par value (the "Common Stock"), and all the
outstanding Series B Cumulative Convertible Preferred Stock, $.01 par value (the
"Preferred Stock"), of the Company.
C. As of the date hereof, 399 Venture owns (i) a Series A Subordinated
Convertible Debenture of the Company in the initial principal amount of
$14,250,000 (the "Series A Debenture") and (ii) a Series B Subordinated
Convertible Debenture of the Company in the initial principal amount of
$7,956,630, (the "Series B Debenture", the Series A and Series B Debentures
together, the "Debentures"). 399 Venture desires to exchange the Debentures
(together with accrued interest thereon) for certain shares of the equity
securities of RCGI.
D. As of the date hereof, the Principal Stockholder and his Affiliates own
(i) 43,579 shares (the "Jenkins Common Shares") of the outstanding Common Stock
and 6,000 shares of the outstanding Preferred Stock (the "Jenkins Preferred
Shares," and together with the Jenkins Common Shares and the Jenkins Preferred
Shares, the "Jenkins Shares"). Each Jenkins Preferred Share is convertible into
5.5555 shares of Common Stock. The Company and Jenkins desire that at the
Closing the Company shall redeem 8,677.151 Jenkins Common Shares and 2,700
Jenkins Preferred Shares (collectively, the "Jenkins Redemption Shares") at a
price per common equivalent of $285 in cash for an aggregate redemption payment
of $6,747,988 (the "Jenkins Redemption Payment"). Such redemption is referred to
in this Agreement as the "Jenkins Redemption." Immediately following the Jenkins
Redemption, the Principal Stockholder and his Affiliates will own the aggregate
number of shares of Common Stock and Preferred Stock set forth opposite such
stockholder's name on Exhibit A-2 (collectively, the "Jenkins Exchange Shares").
At the Closing of the transactions contemplated by this Agreement, the Principal
Stockholder and his Affiliates shall transfer to RCGI the Jenkins Exchange
Shares in exchange for the respective numbers of shares of Series A Preferred
Stock, Series B Preferred Stock and Class A Common Stock (as defined herein) of
RCGI set forth on Exhibit A-2. The foregoing exchange is referred to in this
Agreement as the "Jenkins Exchange."
<PAGE>
E. As of the date hereof, each stockholder of the Company designated as a
rollover investor on Exhibit A-3 (collectively, the "Rollover Investors") owns
of record the aggregate number of shares of Common Stock set forth opposite each
such Rollover Investor's name on Exhibit A-3 and Exhibit A-4. Concurrently with
the Jenkins Redemption, the Company shall redeem from each Rollover Investor for
$285 per share in cash the number of shares of Common Stock set forth opposite
each such Rollover Investor's name on Exhibit A-3. The foregoing redemption is
referred to in this Agreement as the "Management Redemption." In addition,
pursuant to a Securities Purchase and Holders Agreement of even date herewith
concurrently with the Jenkins Exchange, each Rollover Investor shall transfer to
RCGI the number of shares of Common Stock set forth opposite each such Rollover
Investor's name on Exhibit A-4 in exchange for the respective numbers of shares
of Series A Preferred Stock, Series B Preferred Stock and Class A Common Stock
(as defined herein) of RCGI set forth opposite each such Rollover Investor's
name on Exhibit A-4. The foregoing exchange is referred to in this Agreement as
the "Management Exchange."
F. As of the date hereof, certain other stockholders of the Company hold in
the aggregate 2,498 shares of Common Stock (other than the ESOP Shares, as
defined below), all of which the Company shall redeem at a price per share of
$285 in cash. As of the date hereof, certain option holders of the Company hold
the numbers of options to purchase Common Stock set forth beside each such
option holder's name on Exhibit B-1, and pursuant to a Securities Purchase and
Holders Agreement, concurrently with the Management Exchange, each such option
be exchanged for the options to acquire shares of capital stock of RCGI set
forth opposite such option holder's name on Exhibit B-1. The foregoing exchange
is referred to in this Agreement as the "Option Exchange."
G. The Rollover Investors, RCGI and the Company have agreed pursuant to a
Securities Purchase and Holders Agreement, dated as of the date hereof, to
effect the Management Redemption, the Management Exchange and the Option
Exchange.
H. On the date hereof, the trust (the "ESOP Trust") established by the
Company's Employee Stock Ownership Plan (the "ESOP") holds of record 10,097.732
shares of Common Stock. In connection with the transactions contemplated by this
Agreement, immediately after the consummation of the transactions described in
Recitals B through G above, the Company will effect a reverse stock split with
respect to its Common Stock of 11,000 to 1 (the "Reverse Stock Split"),
resulting in a payment of $2,877,853.62 by the Company to the ESOP Trust as a
payment of cash in lieu of fractional shares.
I. In connection with the Reverse Stock Split, the Company shall also pay
in cash an aggregate amount equal to $648,795 to the holders of options
exercisable for shares of Common Stock set forth on Exhibit B-2 (representing
payment of cash in lieu of fractional interests, less the exercise price
applicable thereto, and before withholding of amounts pursuant to the Company's
usual payroll practices).
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A G R E E M E N T S
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowle ged, the parties agree as follows:
ARTICLE 1
Closing, Redemption and Manner of Exchange
1.1. Redemptions and Exchange of the Jenkins Exchange Shares. On the terms
and subject to the condition contained in this Agreement, at the Closing:
(a) the Jenkins Redemption shall occur and the Principal Stockholder
shall surrender to the Company for redemption, free and clear of all
Encumbrances, the Jenkins Redemption Shares and the Company shall pay the
Principal Stockholder the Jenkins Redemption Payment;
(b) the Jenkins Exchange shall occur and the Principal Stockholder
shall deliver to RCGI the Jenkins Exchange Shares, free and clear of all
Encumbrances, in exchange for the number and kind of securities of RCGI set
forth opposite on Exhibit A-2 (the "RCGI Shares");
(c) 399 Venture shall transfer the Debentures to RCGI, free and clear
of all Encumbrances, in exchange for 222,704.75 shares (the "399 Venture
Shares") of Series A Preferred Stock (as defined).
1.2. RCGI Securities Exchanged for Jenkins Exchange Shares. The Jenkins
Exchange Shares shall be exchanged for the number and kind of securities set
forth on Exhibit A-2, which shall consist of shares of (i) 12% Series A Senior
Cumulative Compounding Preferred Stock, $.01 par value, of RCGI (the "Series A
Preferred Stock"); (ii) Series B Junior Preferred Stock, $.01 par value, of RCGI
(the "Series B Preferred Stock"); and (iii) Class A Common Stock, par value $.01
per share (the "Class A Common Stock"), of RGCI. For purposes of valuation
pursuant to this Agreement, the Series A Preferred Stock shall be valued at its
liquidation value; the Series B Preferred Stock shall be valued at its
liquidation value; and Class A Common Stock shall be valued at $1.00 per share.
1.3. Deliveries at Closing. The following deliveries shall be made at
Closing:
(a) the Principal Stockholder shall (i) deliver to the Company
certificates evidencing the Jenkins Redemption Shares, in proper form for
redemption, and (ii) deliver to RCGI certificates evidencing the Jenkins
Exchange Shares duly endorsed in blank, or accompanied by valid stock powers
duly executed in blank, in proper form for transfer;
(b) 399 Venture shall deliver to RCGI the Debentures with an
assignment form duly endorsed in blank, in proper form for transfer;
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(c) RCGI shall deliver (i) to the Principal Stockholder, certificates
representing the RCGI Shares and (ii) to 399 Venture, certificates representing
the 399 Venture Shares; and
(d) the Company shall pay the Principal Stockholder the Jenkins
Redemption Payment by wire transfer to such account as the Principal Stockholder
shall designate by written notice delivered to the Company and RCGI not later
than three days prior to the Closing Date.
1.4. Time and Place of Closing. The transactions contemplated by this
Agreement and the Ancillary Documents shall be consummated (the "Closing") at
the offices of Dechert Price & Rhoads, New York, New York on a date and at a
time agreed upon by the Principal Stockholder, 399 Venture, the Company and
RCGI, but in no event later than the third business day after the conditions set
forth in Article IV have been satisfied or, if permitted by applicable law,
waived. The date on which the Closing occurs in accordance with the preceding
sentence is referred to in this Agreement as the "Closing Date."
ARTICLE 2
Representations and Warranties
2.1. General Statement. The parties make the representations and warranties
to each other which are set forth in this Article II. All such representations
and warranties shall survive the Closing to the extent contemplated by Article
VII (and none shall merge into any instrument of conveyance).
2.2. Representations and Warranties of RCGI. RCGI represents and warrants
to the Principal Stockholder and 399 Venture as follows:
2.2.1 Organization. RCGI is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation.
2.2.2 Power and Authority. RCGI has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each other
agreement, instrument, document and certificate to be executed and/or delivered
pursuant to this Agreement (collectively, the "Ancillary Documents") by RCGI.
2.2.3 Execution and Delivery by RCGI . The execution and delivery of this
Agreement by RCGI, the execution and delivery of the Ancillary Documents
executed and/or delivered by it and the performance by RCGI of its obligations
under this Agreement and the Ancillary Documents to which it is a party have
been duly authorized and approved by all requisite corporate action. This
Agreement has been duly executed and delivered by RCGI and, assuming the valid
authorization, execution and delivery of this Agreement by the other parties
hereto, constitutes the legal, valid and binding obligation of RCGI, enforceable
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of
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general application relating to or affecting creditors' rights and to general
equity principles. Each of the Ancillary Documents executed and delivered by
RCGI, assuming the valid authorization, execution and delivery thereof by the
other party or parties thereto, if any, will be a legal, valid and binding
obligation of RCGI, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general equity
principles.
2.2.4 Authorization. Except for (a) filings under Environmental Permits as
may be necessary to reflect the change of control of the Company contemplated
hereby and (b) such consents, authorizations, orders, approvals, filings or
registrations the failure of which to be obtained or made would not prevent the
consummation of any of the transactions contemplated hereby, no consent,
authorization, order or approval of, or filing or registration with, any person,
including any governmental authority or other regulatory agency, is required for
or in connection with the execution and delivery of this Agreement by RCGI, the
execution and delivery of any Ancillary Document to be executed or delivered by
RCGI or the consummation by RCGI of the transactions contemplated hereby or
thereby.
2.2.5 Conflict.
2.2.5.1. Assuming the receipt of all necessary consents and approvals and
the filing of all necessary documents as described in Section 2.2.4, neither the
execution and delivery of this Agreement or any of the Ancillary Documents to
which it is a party nor the consummation of any of the transactions contemplated
hereby or thereby nor compliance with or fulfillment of the terms, conditions
and provisions hereof or thereof will result in a breach of the terms,
conditions or provisions of, or constitute a default (or an event which would,
with the passage of time or the giving of notice or both, constitute a default),
an event of default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under (1) the charter or by-laws of RCGI, (2)
any note, instrument, mortgage, lease, franchise or financial obligation or any
other agreement or instrument to which RCGI is a party or any of its properties
is subject or by which RCGI or any of its assets may be bound or affected, (3)
any judgment, order, award or decree of any foreign, federal, state, local or
other court or tribunal and any award in any arbitration proceeding ("Court
Order") to which RCGI is a party or by which it is bound or (4) any foreign,
federal, state or local laws, statutes, regulations, rules, codes or ordinances
enacted, adopted, issued or promulgated by any governmental body ("Requirements
of Law") affecting RCGI, other than, in the case of clauses (2), (3) and (4)
above, any such breaches, defaults or rights that, individually or in the
aggregate, would not prevent the consummation of any of the transactions
contemplated hereby.
2.2.6. Finder's Fees. Neither RCGI nor any of its Affiliates has dealt with
any person, firm or entity entitled to a broker's commission, finder's fee,
investment banker's fee or similar payment for arranging the transactions
contemplated hereby or by the Ancillary Documents or introducing the parties to
each other, for which the Company or the Principal Stockholder could become
liable or obligated. As used in this Agreement, an "Affiliate" is any
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<PAGE>
person or entity which controls is controlled by or is under common control with
another person or entity, the term "control" meaning the power, direct or
indirect, to direct or cause the direction of management and policies of a
person or entity through voting securities, contract or otherwise.
2.2.7. Solvency. Assuming the accuracy of the Principal Stockholder's
representations and warranties, immediately after giving effect to the
consummation of the transactions contemplated hereby and by the Ancillary
Documents and the incurrence of any indebtedness herewith or therewith, the
assets of the Company will exceed its liabilities. In connection with the
consummation of the transactions contemplated hereby and by the Ancillary
Documents and the incurrence of any indebtedness herewith or therewith, RCGI
does not intend that the Company would incur, and does not believe that the
Company will incur, debts that would be beyond the Company's ability to pay as
such debts mature.
2.2.8. Securities Law Matters.
(a) RCGI is acquiring the Jenkins Shares and the Debentures for its
own account for investment and with no present intention of distributing or
reselling the Jenkins Shares or any part thereof in any transaction which would
constitute "distribution" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Neither the Company nor any person acting on its behalf has
offered to sell or sold any shares of the securities of the Company by any form
of general solicitation such as would violate Rule 502(c) promulgated under the
Securities Act.
2.2.9. Necessary Funds. RCGI has received the necessary financing
commitments required to finance its obligations in connection with the Closing
and, based upon information provided by RCGI to the Principal Stockholder, to
provide for currently anticipated working capital needs of the Company as of
Closing.
2.3. Representations and Warranties of the Principal Stockholder. The
Principal Stockholder represents and warrants to RCGI and to 399 Venture that:
2.3.1. Organization. Each of the Company and its Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation.
2.3.2. Good Standing. Each of the Company and its Subsidiary is duly
qualified to transact business and is in good standing as a foreign corporation
in the jurisdictions set forth on Schedule 2.3.2 of the Disclosure Schedules,
which jurisdictions are the only jurisdictions wherein the character of the
properties owned or leased or the nature of the activities conducted by each of
them makes such qualification necessary, except where the failure to so qualify,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. For purposes of this Agreement, "Material Adverse
Effect" means a material adverse effect on the business, properties, assets or
liabilities, results of operations or financial condition of the Company taken
as a whole, other than changes relating to or resulting from (a) the public
disclosure of the transactions contemplated by this Agreement or (b) any
condition or matter
-6-
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described in the Disclosure Schedules that is specifically identified as
potentially involving a Material Adverse Effect.
2.3.3. Power and Authority. The Company has full corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
and the Company has full corporate power and authority to execute, deliver and
perform its obligations under the Ancillary Documents to be executed and
delivered by the Company.
2.3.4. Execution and Delivery.
(a) This Agreement has been duly executed and delivered by the
Principal Stockholder and, assuming the valid authorization, execution and
delivery of this Agreement by the other parties hereto, constitutes the legal,
valid and binding obligation of the Principal Stockholder, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application relating to or affecting
creditors' rights and to general equity principles.
(b) The execution and delivery of this Agreement by the Company and
the performance by the Company of its obligations under this Agreement have been
duly authorized and approved by all requisite corporate action. This Agreement
has been duly executed and delivered by the Company and, assuming the valid
authorization, execution and delivery of this Agreement by the other parties
hereto, constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating to
or affecting creditors' rights and to general equity principles.
(c) Each Ancillary Document executed and delivered by the Company or
the Principal Stockholder, as the case may be, assuming the valid authorization,
execution and delivery by the other party or parties thereto, if any, will be
duly authorized, executed and delivered and will be a legal, valid and binding
obligation of the Company or the Principal Stockholder, as the case may be,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating to
or affecting creditors' rights and to general equity principles.
2.3.5. Ownership. Schedule 2.3.5(a) of the Disclosure Schedules contains a
complete, discrete list of all Jenkins Shares, including the name of the record
holder, the certificate number, and the number and type of securities issued
thereunder. Except as disclosed in Schedule 2.3.5(b) of the Disclosure
Schedules, the Jenkins Shares are free and clear of any Lien, and the Principal
Stockholder has full legal right, power and authority to enter into this
Agreement, surrender the Jenkins Shares in exchange for the Purchase Price and
to perform the Principal Stockholder's obligations hereunder, in each case
without the need for the consent of any other person or entity.
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<PAGE>
2.3.6. Authorization. Except as set forth in Schedule 2.3.6 of the
Disclosure Schedules and except for (a) filings under Environmental Permits as
may be necessary to reflect the change of control of the Company contemplated
hereby, and (b) such consents, authorizations, orders, approvals, filings or
registrations the failure of which to be obtained or made would not reasonably
be expected to have a Material Adverse Effect or would not prevent the
consummation of any of the transactions contemplated hereby, no consent,
authorization, order or approval of, or filing or registration with, any person,
including any governmental authority or other regulatory agency, is required for
or in connection with the execution and delivery of this Agreement by the
Company or the Principal Stockholder, the execution and delivery of any
Ancillary Documents to which the Company or the Principal Stockholder is a
party, as the case may be, and the consummation by the Company or the Principal
Stockholder and their Affiliates of the transactions contemplated hereby or
thereby.
2.3.7. Conflict. Assuming the receipt of all necessary consents and
approvals and the filing of all necessary documents as described in Section
2.3.6, except as set forth in Schedule 2.3.7 of the Disclosure Schedules,
neither the execution and delivery of this Agreement or any of the Ancillary
Documents or the consummation of any of the transactions contemplated hereby or
thereby nor compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof will result in a breach of the terms, conditions or
provisions of, or constitute a default (or an event which would, with the
passage of time or the giving of notice or both, constitute a default), an event
of default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the creation or imposition
of any lien, claim, charge, security interest, mortgage, pledge, easement,
conditional sale or other title retention agreement, defect in title or other
restrictions of a similar kind ("Encumbrance") upon any of the Jenkins Shares or
any of the assets of the Company, under (1) the charter or by-laws of the
Company, (2) any note, instrument, mortgage, lease, franchise or financial
obligation or any other agreement or instrument to which the Principal
Stockholder, the Company is a party or by which the Company or any of its assets
may be bound or affected, (3) any Court Order to which Principal Stockholder or
the Company is a party or by which the Principal Stockholder or Company is
bound, (4) any Requirements of Law affecting Principal Stockholder or the
Company or (5) any Permits, other than, in the case of clauses (2), (3), (4) and
(5) above, any such breaches, defaults, rights or Encumbrances that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect or would not prevent the consummation of any of the
transactions contemplated hereby.
2.3.8. Subsidiaries. The Company directly or indirectly, does not own any
of the stock of, or any other interest in, any other corporation, partnership or
business entity other than Conetoe Chemical, a North Carolina corporation (the
"Subsidiary").
2.3.9. Capitalization. The authorized capital of the Company consists of
350,000 shares of Common Stock, of which 72,409.732 shares are issued and
outstanding, and
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50,000 shares of Preferred Stock, of which 6,000 shares are issued and
outstanding. There are 11,831 options to acquire Common Stock issued and
outstanding.
Except as described above in this Section 2.3.9 or as set forth in Schedule
2.3.9 of the Disclosure Schedules, there are no shares of capital stock of any
other class authorized, issued or outstanding. All of the issued and outstanding
shares of capital stock of the Subsidiary owned by the Company have been validly
issued, are fully paid and nonassessable, are owned beneficially and of record
by the Company, and were not issued in violation of the terms of any agreement
or other understanding binding upon the Company. All of the issued and
outstanding shares of capital stock of the Company have been validly issued, are
fully paid and non-assessable and were not issued in violation of the terms of
any agreement or other understanding binding upon the Company. The Jenkins
Shares are owned beneficially and of record by the Principal Stockholder or his
Affiliates. Except as set forth in Schedule 2.3.9 of the Disclosure Schedules,
the Principal Stockholder owns all the Jenkins Shares free and clear of all
encumbrances or restrictions on transfer. Except as set forth on Schedule 2.3.9
of the Disclosure Schedules, neither the Company nor the Principal Stockholder
is a party to any voting trust, proxy or other voting agreement or understanding
with respect to the voting capital stock of the Company. Except as set forth on
Schedule 2.3.9(a) of the Disclosure Schedules or as provided in the Ancillary
Documents, there are no outstanding subscriptions, options, warrants, purchase
rights (including preemptive rights), calls, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock of the Company obligating the Company to issue, sell, transfer or
otherwise dispose of any securities of any kind. The capital stock of the
Company was issued in compliance with the applicable federal and state
securities laws.
2.3.10. Financial Statements. Schedule 2.3.10 of the Disclosure Schedules
contains copies of the audited consolidated balance sheets, statements of
earnings and statements of cash flows (together with any supplementary
information thereto) of the Company as of and for the fiscal years ended
December 31, 1996, 1997 and 1998. The financial statements described in the
preceding sentence are referred to herein as the "Financial Statements." The
Financial Statements are derived from the books and records of the Company and
have been prepared in conformity with GAAP and present fairly in accordance with
GAAP, in all material respects, the financial position of the Business, as of
the dates thereof and the results of operations and cash flows of the Business,
for the periods covered by said statements, except as disclosed in Schedule
2.3.10 of the Disclosure Schedules. The Financial Statements as of and for the
fiscal year ended December 31, 1998 comply with the requirements of Regulation
S-X promulgated under the Securities Act.
2.3.11. Absence of Liens. Except as set forth on Schedule 2.3.11 of the
Disclosure Schedules and except for assets disposed of in the ordinary course of
business, the Company has valid title to or a valid leasehold in, or a
contractual or common law right to use, each item of equipment, machinery,
inventory, tools and other tangible personal property reflected on the Financial
Statements and used in the conduct of the Business ("Assets") free and clear of
any Encumbrances, except for the following: (a) liens for Taxes and other
governmental charges
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and assessments which are not yet due and payable, (b) liens of landlords and
liens of carriers, warehousemen, mechanics and materialmen and other like liens
arising in the ordinary course of business for sums not yet due and payable, (c)
liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, performance and return of
money bonds and similar obligations, and (d) other liens or imperfections on
Assets which are not material in amount or do not materially detract from the
value of or materially impair the existing use of the Assets affected by such
lien or imperfection (collectively, "Permitted Liens").
2.3.12. Tax Matters.
(a) As used in this Agreement the term (i) "Taxes" means all federal,
state, provincial, local, foreign and other income, sales, use, ad valorem,
value added, transfer, withholding, payroll, real property or other taxes, fees,
assessments or similar charges of any kind, together with any interest and any
penalties, with respect thereto; (ii) the term "Tax" means any one of the
foregoing Taxes; (iii) the term "Code" means the Internal Revenue Code of 1986,
as amended; and (iv) the term "Returns" means all returns, declarations,
reports, statements, and other documents required to be filed in respect of
Taxes (the term "Return" meaning any one of the foregoing Returns).
(b) The Company has no Tax liability for any taxable period or portion
thereof ending on or before December 31, 1998, other than accrued but unpaid
Taxes due for the year ending December 31, 1998 reflected on the Financial
Statements for the year ending December 31, 1998 for which adequate reserves
have been established in accordance with generally accepted accounting
principles. Except as described in Schedule 2.3.12 of the Disclosure Schedules,
(i) there have been filed on a timely basis, all material Returns required to be
filed by or on behalf of the Company; (ii) no extension of time within which to
file any such Return has been requested or granted; (iii) there are no unpaid
Tax assessments, notifications of intention to examine or waivers of the
applicable statutes of limitation with respect to material Tax liabilities of
the Company; and (iv) the Company has not been notified in writing of any Return
filing obligation or proposed Tax liability by any taxing authority with which
it does not file Returns.
(c) Except as described in Schedule 2.3.12 of the Disclosure
Schedules, (i) with respect to all amounts in respect of Taxes imposed upon the
Company, or for which the Company is liable to taxing authorities, with respect
to all taxable periods or portions of periods ending on or before the Closing
Date, all applicable Tax laws have been complied with in all material respects,
all amounts required to be paid to taxing authorities as shown on Returns filed
with such authorities on or before the date hereof have been paid, all amounts
required to be paid to taxing authorities after the date hereof and on or before
the Closing Date to be shown on Returns to be filed with such authorities will
timely be paid; (ii) there are no ongoing examinations by any taxing authority
of the Company; (iii) there is currently in effect no consent agreement
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under section 341(f) of the Code, private ruling concerning Taxes from any
taxing authority, or closing agreement concerning Taxes with any taxing
authority that could affect the Tax liability of the Company for any period
after the Closing Date; (iv) neither the Company is required to make any
adjustments under section 481 of the Code (or any comparable provision of state,
local or foreign law) by reason of a change of accounting method; and (v) the
Company is not a partner in any entity considered to be a partnership for U.S.
federal income tax purposes.
(d) Except as provided under Treas. Reg. section 1.1502-6 (or any
similar provision of state, local or foreign law) and except as described in
Schedule 2.3.12 of the Disclosure Schedules, the Company has no liability for or
any obligation to pay Taxes of any other person as a transferee or successor, by
contract, or otherwise.
(e) This Section 2.3.12 contains the exclusive representations and
warranties of the Principal Stockholder with regard to the subject matter
addressed herein.
2.3.13. Absence of Changes. Since December 31, 1998, there has been no
change, event or circumstance which, individually or in the aggregate, has had a
Material Adverse Effect. Except as set forth on Schedule 2.3.13 of the
Disclosure Schedules, since December 31, 1998, the Company has conducted the
Business only in the ordinary course. Without limiting the generality of the
foregoing, since December 31, 1998 (except with regard to Section 2.3.13(h)),
except as set forth in Schedule 2.3.13 of the Disclosure Schedule:
(a) the Company has not made or authorized any additions to or sold,
leased, transferred or assigned any assets or properties, tangible or
intangible, with a fair market value of more than $250,000, except in the
ordinary course of its business;
(b) the Company has not mortgaged, pledged or subjected to any
Encumbrance (except Permitted Liens) any of its assets or properties (whether
tangible or intangible) other than in the ordinary course of its business;
(c) no party (including the Company) has accelerated, terminated, made
material modifications to or canceled any agreement referred to in Section
2.3.14 or any other material agreement, contract, lease, license or Permit to
which the Company is a party or by which any of them is bound;
(d) the Company has not made or authorized any material capital
expenditures in excess of the budgeted amount for capital expenditures
previously provided by the Company;
(e) the Company has not discharged or satisfied any Encumbrance or
paid any material obligation or material liability (fixed or contingent) other
than in the ordinary course of business;
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(f) there has been no change made or authorized in the charter or
bylaws (or similar governing documents) of the Company and the Company has not
merged with or into or consolidated with any other entity, or voluntarily or
involuntarily dissolved or liquidated or changed or agreed to change in any
manner the rights of its outstanding capital stock;
(g) the Company has not purchased, redeemed, issued, sold or otherwise
acquired or disposed of any of its capital stock or any evidence of indebtedness
or other of its securities, or granted any options, warrants or other rights to
purchase or obtain (including upon conversion, exchange or exercise) any of its
capital stock or any evidence of indebtedness or other of its securities;
(h) since September 30, 1998 the Company has neither declared or paid
any dividend nor made any distribution to any stockholder of the Company,
including any extraordinary distribution, on account of such stockholder's
ownership of any shares of capital stock of the Company, other than the payment
of dividends payable on the Preferred Stock in the ordinary course of business,
and such payments have not, on an annualized basis, exceeded an aggregate amount
of $1.2 million;
(i) the Company has not granted any increase in the compensation
payable or to become payable to any of its directors or officers, except for
normal annual increases in the ordinary course of business consistent with past
practice, or entered into any other transaction with any of its directors or
officers other than reimbursement of reasonable business expenses incurred in
the ordinary course of business;
(j) the Company has not adopted, amended, modified or terminated any
bonus, profit-sharing, incentive, severance or other plan, contract or
commitment for the benefit of any of its directors and officers or any other
employee or group of employees (or taken any such action with respect to any
other Employee Benefit Plan), except in the ordinary course of its business;
(k) the Company has not made any change in its method of accounting;
(l) the Company has not entered into any transactions with any
Affiliate, except in the ordinary course of business as described in Schedule
2.3.13 of the Disclosure Schedule;
(m) the Company has not changed or modified in any material respect
its existing credit, collection and payment policies, procedures and practices
with respect to accounts receivable and accounts payable;
(n) the Company has not suffered any damage, destruction, loss or
claim, whether or not covered by insurance, in excess of $500,000; and
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(o) the Company has not entered into any agreement or arrangement with
respect to, or otherwise committed to, any of the foregoing.
2.3.14. Contracts. Schedule 2.3.14 of the Disclosure Schedules contains a
listing of the following undischarged written (or, to the knowledge of the
Principal Stockholder, oral) contracts, agreements, leases and other instruments
to which the Company is a party:
(a) agreements for the employment for any period of time whatsoever,
or in regard to the employment, or restricting the employment, including any
termination, severance or change in control agreements of any employee of the
Company who earns more than $75,000 per year;
(b) consulting agreements where the payment thereunder is in excess of
$100,000 per year and which have an unexpired term in excess of one year;
(c) collective bargaining agreements;
(d) contracts or arrangements providing for bonuses, options, deferred
compensation or stock appreciation rights;
(e) leases or subleases, either as lessee or sublessee, lessor or
sublessor, of personal property, where the lease or sublease provides for an
annual rent in excess of $100,000 and has an unexpired term in excess of one
year;
(f) service agreements affecting any of the assets of any of the
Company where the charges are reasonably expected to be in excess of $100,000
and which has an unexpired term as of the date hereof in excess of one year;
(g) loan agreements, promissory notes, indentures, bonds, security
agreements, guarantees or obligations for borrowed money or other instruments
involving Indebtedness in an amount in excess of $100,000;
(h) any partnership, joint venture or other similar agreement or
arrangement;
(i) any agreement containing any covenant or provision prohibiting the
Company from engaging in any line or type of business (except for such
agreements which shall not apply to the Company upon Closing) or competing with
any person;
(j) any agreement under which it has advanced or loaned any amount to
any of its directors, officers and employees outside the ordinary course of its
business;
(k) any agreement under which a sale of any of the Real Estate that is
material to the operation of the Business is pending;
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(l) any indemnification agreement by the Company running to any person
that involves, individually or in the aggregate, a contingent liability of the
Company of $100,000 or more, other than in connection with customer contracts,
agreements entered into in the ordinary course of business or with respect to
directors or executive officers of the Company;
(m) any long-term or continuing agreements or arrangements with
respect to discounts or allowances or extended payment terms that provide for
the receipt or expenditure following the date hereof of more than $500,000,
other than purchase orders and sales orders in the ordinary course of business;
or
(n) any other agreements that provide for the receipt or expenditure
following the date hereof of more than $500,000, other than purchase orders and
sales orders in the ordinary course of business.
2.3.15. Enforceability of Contracts. All agreements, leases, subleases,
licenses and other instruments described in Section 2.3.14 and Schedules 2.3.24
and 2.3.25 (collectively, "Contracts") are valid and in full force and effect,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
of general application relating to or affecting creditors' rights and to general
equity principles. No default (or an event which would, with the passage of time
or the giving of notice or both, constitute a default) by the Company has
occurred thereunder and, to the Principal Stockholder's knowledge, no default
(or an event which would, with the passage of time or the giving of notice or
both, constitute a default) by the other contracting parties has occurred
thereunder, which default, individually or in the aggregate with other defaults,
would reasonably be expected to have a Material Adverse Effect.
2.3.16. Permits. The Company holds, owns or possesses all licenses,
permits, registrations and government approvals (other than Environmental
Permits, which are exclusively provided for in Section 2.3.23) which are
required in order for them to conduct their respective businesses as conducted
immediately prior to the date of this Agreement (collectively, the "Permits"),
except where the failure to possess such Permits, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
All Permits have been duly obtained and are in full force and effect. The
Company is in compliance with the terms and conditions of the Permits in all
material respects. There are no proceedings pending or, to the knowledge of the
Principal Stockholder, threatened seeking to revoke, cancel, suspend or
adversely modify any of the Permits.
2.3.17. Employee Benefit Plans.
(a) Schedule 2.3.17 of the Disclosure Schedules contain a true and
complete list of each (i) employee pension benefit plan (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (collectively, the "Pension Plans"), (ii) employee welfare benefit
plan (as defined in Section 3(1) of ERISA) (collectively, the "Welfare Plans")
and (iii) bonus, deferred compensation, and severance plan which does not
constitute a Welfare Plan (collectively, the "Compensation Plans") maintained,
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contributed to or required to be contributed to by the Company for the benefit
of employees of the Company. The Pension Plans, the Welfare Plans and the
Compensation Plans sometimes are referred to herein collectively as the
"Employee Benefit Plans".
(b) All Employee Benefit Plans comply in all material respects with
ERISA, the Code (including the requirements of Code section 401(a) to the extent
any Pension Plan is intended to conform to that section) and other Requirements
of Law. A favorable determination as to the qualification under Code section
401(a) of each of the Pension Plans intended to be qualified under such section
has been made by the Internal Revenue Service ("IRS") or a request for a
favorable determination has been or will be filed within the remedial amendment
period applicable thereto.
(c) Neither the Company nor any Affiliate of the Company (as
determined under Code Section 414(b), (c), (m) or (o) of the Code) has taken any
action, nor has any event occurred, that has resulted or will likely result in
any liability under Section 302(c) or Title IV of ERISA, including any
withdrawal liability with respect to any "multiemployer plan" as defined in
Section 4001(a) of ERISA, which liability could reasonably be expected to become
a liability of RCGI or any Affiliate of RCGI (including, but not limited to, the
Company) following the Closing.
(d) RCGI and 399 Venture have received the most recent actuarial
report with respect to each Employee Benefit Plan that is a defined benefit
pension plan, as defined by Section 3(35) of ERISA. The information was supplied
to the actuary by the Company for use in preparing those reports and was
complete and accurate in all material respects and the Principal Stockholder has
no knowledge that the conclusions expressed in those reports are incorrect.
(e) This Section 2.3.17 contains exclusive representations and
warranties of the Principal Stockholder with respect to employee benefit
matters. The preceding sentence shall, however, not be construed to limit RCGI's
and 399 Venture's ability to rely on the relevant provisions of Sections 2.3.10,
2.3.11, 2.3.13(c), 2.3.13(i), 2.3.14(c) or 2.3.21 with respect to employee
benefit matters. The Principal Stockholder has furnished to RCGI and 399 Venture
(1) the amount of any contingent withdrawal liability to which the Company or
RCGI could become subject by reason of a transaction described in ERISA Section
4204 and (2) the amount of any withdrawal liability that would be incurred under
ERISA Section 4201 et seq. in the event of a complete withdrawal on the Closing
Date from any multiemployer plan, as defined in ERISA Section 4001(a), to which
the Company could reasonably expect to be required to contribute after Closing,
whether by reason of this Agreement or operation of law.
2.3.18. List of Employees. Schedule 2.3.18 of the Disclosure Schedules
contains a list of all employees of the Company as of the date hereof, whose
annual salaries exceed $75,000 and said list correctly reflects their employer,
base salaries, dates of employment and positions.
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2.3.19. Union Representation and Labor Relations. There is no labor strike,
dispute, slow-down or work stoppage actually pending or, to the knowledge of the
Principal Stockholder, threatened, against or involving the Company, other than
disputes with individual employees in which the liability of the Company is not
reasonably expected to exceed $100,000. Except as set forth on Schedule 2.3.19
of the Disclosure Schedules, none of the employees of the Company is covered by
any collective bargaining agreement, and no collective bargaining agreement is
currently being negotiated by any of the Company. There is no request for union
representation pending or, to the Principal Stockholder's knowledge, overtly
threatened against the business of the Company which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
Except as set forth in Schedule 2.3.19 of the Disclosure Schedules, the Company
has no labor negotiations in process with any labor union or other labor
organization. The Company is not, and has not been in the last three years,
engaged in any grievance or unfair labor practice that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect. There
is not, and in the last three years there has been no, charge pending or, to the
knowledge of the Principal Stockholder, threatened against the Company alleging
unlawful discrimination in employment practices before any court or agency that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, and there is no charge of or proceeding with regard to
any unfair labor practice against the Company pending before the National Labor
Relations Board.
2.3.20. Insurance. Schedule 2.3.20 of the Disclosure Schedules contains a
description of all policies of fire, liability, workers' compensation and other
forms of insurance providing insurance coverage to or for any of the Company,
and the name of the owner of each such policy. All such policies are outstanding
and in full force and effect. All premiums with respect thereto have been paid
when due and no notice of cancellation or termination has been received with
respect to any such policy. There is no default with respect to any provision
contained in any such policy, nor has there not been any failure to give any
notice or present any claim under any such policy in a timely fashion or in the
manner or detail required by the policy. Except as set forth in Schedule 2.3.20
of the Disclosure Schedules, there are no outstanding claims under such
policies. Except as set forth in Schedule 2.3.20 of the Disclosure Schedules,
the Company has not been refused any insurance coverage, nor has its coverage
been limited by any insurance carrier to which it has applied for insurance or
with which it has carried insurance during the last five years, except where
such coverage has been obtained from an alternative source under commercially
reasonable terms. Except as disclosed in Schedule 2.3.20 of the Disclosure
Schedules, on and after May 31, 1998, all products liability and general
liability policies maintained by or for the benefit of the Company have been
"occurrence" policies and not "claims made" policies. All such policies and the
coverage provided thereunder will continue to be in full force and effect
through the Closing Date.
2.3.21. Litigation and Claims. Except as set forth on Schedule 2.3.21 to
the Disclosure Schedules, there is no litigation, action, suit, claim or
proceeding (including arbitration proceedings) or investigation pending, in law
or in equity, and there are no proceedings, reviews or governmental
investigations before any commission or other administrative authority, pending
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or, to the Principal Stockholder's knowledge, threatened and no notice,
citation, summons or order (including arbitration orders or awards) has been
served upon and no penalty has been assessed against the Company, or any of its
officers, directors or Affiliates, with respect to or affecting the present or
former operations, business, products, sales practices or financial condition of
the Company or with respect to or affecting the Jenkins Shares or the Principal
Stockholder's rights thereto which, if decided adversely to such entity or
person, would reasonably be expected to have a Material Adverse Effect or
prevent the consummation of the transactions contemplated hereby.
2.3.22. Compliance with Law. Except as set forth on Schedule 2.3.22 to the
Disclosure Schedules, the Company is not in violation of, or delinquent with
respect to, any Requirements of Law (except for Environmental Laws, as to which
Section 2.3.23 applies) to which the property, assets, personnel or business
activities of the Company are subject. Except as set forth on Schedule 2.3.22 to
the Disclosure Schedules, no investigation, review, inquiry or proceeding by any
governmental body with respect to the Company is pending or, to the knowledge of
the Principal Stockholder, threatened.
2.3.23. Environmental Matters.
(a) For the purpose of this Agreement:
(i) "Contaminant" means any waste, pollutant, hazardous substance,
contaminant, extremely hazardous substance, hazardous material, toxic
substance, or hazardous waste, as such terms are defined under any
Environmental Laws, including, without limitation: (i) asbestos or
asbestos-containing material; (ii) polychlorinated biphenyls; (iii) any
radioactive waste or material; or (iv) any petroleum or petroleum-derived
substance or waste;
(ii) "Environmental Laws" means any federal, provincial, state, local,
or foreign law, rule or regulation, ordinance, code, permit, order, decree,
common law or civil code principle or other binding determination of any
governmental authority directed to, addressing or imposing liability or
standards of conduct with respect to: protection of the environment;
Releases or threatened Releases of Contaminants into the environment;
occupational and public safety and health; transportation of goods; or the
manufacture, processing, distribution, use, treatment, storage, disposal,
or handling of Contaminants, in each case as in effect as of the date
hereof (including the reauthorization, reissuance, redesignation or
renaming thereof). Environmental Laws include, without limitation, the
Clean Air Act, as amended (42 U.S.C. 7401 et seq.); the Clean Water Act, as
amended (33 U.S.C. 1251 et seq.); the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), as amended (42 U.S.C.
9601 et seq.); the Resource Conservation and Recovery Act of 1976, as
amended (42 U.S.C. 6901 et seq.); the Toxic Substances Control Act, as
amended (15 U.S.C. 2601 et seq.); the
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Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 136 et seq.);
the Occupational Health and Safety Act, as amended (29 U.S.C. 651 et seq.);
the Hazardous Materials Transportation Act, as amended (49 U.S.C. 1801 et
seq.); and any corresponding state statutes and any regulations adopted by
the United States Environmental Protection Agency, the United States
Occupational, Health and Safety Administration or the United States
Department of Transportation or the states pursuant to any of the above;
(iii) "Environmental Permits" means all material licenses, permits,
registrations, governmental approvals, agreements and consents and other
authorizations which are required under Environmental Laws to operate the
Business as currently conducted;
(iv) "Release" means release, spill, emission, leaking, pumping,
injection, deposit (including the placement of contaminated media on or
offsite for any purpose), disposal, discharge, dispersal, escape, leaching,
or migration into or presence in the environment; and
(v) "Remedial Action" means actions required under CERCLA or any other
Environmental Laws to (i) clean up, remove, treat, remediate, or in any
other way address Contaminants in the environment; (ii) prevent the Release
or threatened Release or minimize the further Release of Contaminants;
(iii) investigate and determine if a remedial response is needed and to
design such a response; or (iv) perform post-remedial investigation,
monitoring, operation, maintenance, and care relating thereto.
(vi) "Principal Stockholder's knowledge" means, for purposes of this
Section 2.3.23, the actual knowledge as of the date hereof or as of the
Closing Date (as the case may be), after due inquiry, of the Principal
Stockholder, Randolph G. Abood, George Zolovick, Kenneth Moshenek, Walter
Vance, and Paul Murphy.
(b) To the Principal Stockholder's knowledge and except as set forth
in Schedule 2.3.23 of the Disclosure Schedules, (i) the Company holds and is in
compliance with all Environmental Permits required under all applicable
Environmental Laws as of the date hereof in connection with the Business, and
all of such Environmental Permits are in full force and effect, except for such
permits which the Company's failure to hold would not reasonably be expected to
have a Material Adverse Effect, and (ii) the Company are not and, for the past
five years, have not been in violation of any Environmental Law, except for such
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect and except for such past violations
which have been fully settled, corrected or otherwise resolved.
(c) To the Principal Stockholder's knowledge and except as set forth
in Schedule 2.3.23 of the Disclosure Schedules, no Real Estate or any other
property for which
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the Company has or may have legal obligations is currently subject to any
pending or threatened investigation by, order from or written agreement with any
governmental entity or third party respecting: (i) any violation of any
Environmental Law; (ii) any Remedial Action; or (iii) any claim of Damage
arising from the Release or threatened Release of a Contaminant into the
environment.
(d) To the Principal Stockholder's knowledge and except as set forth
in Schedule 2.3.23 of the Disclosure Schedules, the Company is not a party to or
subject to any pending or threatened judicial or administrative proceeding,
order, judgment, decree, or settlement alleging a violation of or liability or
obligation under any Environmental Law, the enforcement of which, the compliance
with, or the ongoing obligations of which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect, except such
orders, judgments, decrees, or settlements as have been fully resolved according
to the terms thereof.
(e) To the Principal Stockholder's knowledge and except as set forth
in Schedule 2.3.23 of the Disclosure Schedules, there have been no Releases or
threatened Releases at any of the Real Property during the periods of time that
such Real Property was owned or operated by the Company, except for such
Releases or threatened Releases which, individually or in the aggregate, have
not and would not reasonably be expected to have a Material Adverse Effect.
(f) To the Principal Stockholder's knowledge and except as set forth
in Schedule 2.3.23 of the Disclosure Schedules, the Real Estate is free from any
underground storage tanks for which Remedial Action or Actions are required by
any Environmental Law, except for such Remedial Actions which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(g) To the Principal Stockholder's knowledge, the Company has provided
RCGI and 399 Venture access to all environmental reports and data prepared by or
on behalf of the Company that disclose material environmental conditions or
material violations of Environmental Law at the Real Estate.
(h) Other than post-Closing filings under Environmental Permits that
may be necessary to reflect the change of control of the Company contemplated
hereby, neither the execution and delivery of this Agreement or any of the
Ancillary Documents nor the consummation of any of the transactions contemplated
hereby or thereby nor compliance with or fulfillment of the terms, conditions
and provisions hereof or thereof will result in a breach of the terms,
conditions or provisions of, or constitute a default (or an event which would,
with the passage of time or the giving of notice or both, constitute a default),
an event of default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the creation or imposition
of any Encumbrance upon any of the Jenkins Shares or any of the assets of the
Company, under any Environmental Permit, other than any such breaches, defaults,
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rights or Encumbrances that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect or would not prevent
the consummation of any of the transactions contemplated hereby.
(i) This Section 2.3.23 (collectively, the "Environmental
Representations and Warranties") contains the exclusive representations and
warranties of the Principal Stockholder with regard to Environmental Laws,
Environmental Permits and any other environmental matters in this Agreement.
2.3.24. Real Estate. (a) The Company owns interests in real estate
identified in Schedule 2.3.24 of the Disclosure Schedules (the "Owned
Premises"). With respect to each such parcel of owned real property:
(i) the Company has good and marketable title to the parcel of real
property, free and clear of any Encumbrance, easement, covenant or other
restriction, except for Permitted Liens, Encumbrances, easements, covenants
and other restrictions of record which do not affect materially and
adversely the current use, occupancy or marketability of title, of the
property subject thereto;
(ii) there are no pending or, to the knowledge of the Principal
Stockholder, threatened condemnation, expropriation, eminent domain or
other similar proceedings, lawsuits or administrative actions relating to
the property which materially and adversely affect the current use or
occupancy thereof;
(iii) except as set forth in Schedule 2.3.24 of the Disclosure
Schedules, there are no outstanding written or, to the knowledge of the
Principal Stockholder, oral rights, agreements, options or rights of first
refusal to purchase the parcel of real property, or any portion thereof or
interest therein, which have been granted to any other person; and
(iv) to the knowledge of the Principal Stockholder, there are no
parties (other than the Company) in possession of or holding any rights to
take possession of any parcel of real property set forth on Schedule 2.3.24
of the Disclosure Schedules, other than tenants under any leases disclosed
in Schedule 2.3.24 of the Disclosure Schedules who are in possession of
space to which they are entitled and other than any parties holding rights,
the exercise of which would not materially and adversely affect the current
use or occupancy of the real property subject thereto.
(b) The Company leases or subleases interests in real estate
identified in Schedule 2.3.24 of the Disclosure Schedules (the "Leased
Premises"; and, together with the Owned Premises, the "Real Estate"). With
respect to each such parcel of leased or subleased real property, except as set
forth in Schedule 2.3.24 of the Disclosure Schedules, the Company is the lessee
of each of the Leased Premises, and no party other than the Company has any
right to
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possession, occupancy or use of any of the Leased Premises. A copy of each lease
relating to the Leased Premises has been made available to RCGI and 399 Venture,
together with all amendments and modifications thereto and subordination,
attornment or non-disturbance agreements in respect thereof.
2.3.25. Intellectual Property.
(a) Each material (i) trademark, service mark, slogan, trade name,
trade dress and the like (collectively, and together with the associated
goodwill of each, "Trademarks") held by the Company exclusively in connection
with the Business, including information regarding each registration and pending
application to register any such Trademarks; (ii) patent on and pending
application to patent any technology or design used exclusively in connection
with the Business; (iii) registration of and application to register any
copyright held by the Company exclusively in connection with the Business; and
(iv) license of rights in Trademarks, patents, copyrights, unpatented
formulations and know-how, whether to or by the Company, is listed in Schedule
2.3.25 of the Disclosure Schedules. The scheduled rights are referred to herein
collectively as the "Intellectual Property."
(b) To the Principal Stockholder's knowledge, the patents, Trademark
registrations and copyright registrations for all Intellectual Property are
valid and in full force, are held of record in the Company's name free and clear
of all Encumbrances (other than liens or imperfections which are not material in
amount and do not materially detract from the value of or materially impair the
existing use of the patents, Trademark registrations and copyright registrations
affected by such lien or imperfection), and are not the subject of any
outstanding injunction, judgment, order, decree, ruling or charge, or any
pending or, to the Principal Stockholder's knowledge, threatened action, suit,
investigation, charge, complaint, claim, demand or cancellation or reexamination
proceedings or any other proceeding challenging their extent, validity,
legality, enforceability, use or ownership of the item. All fees or other costs
necessary for maintaining the same in full force and effect, including but not
limited to maintenance fees, annuities and renewal fees, which are due and
payable on or prior to the Closing Date have been paid. The Company is the
applicant of record in all patent applications, and applications for Trademark
and copyright registration for all Intellectual Property, and except as set
forth in Schedule 2.3.25 of the Disclosure Schedules, to the Principal
Stockholder's knowledge, no opposition, extension of time to oppose,
interference, rejection, or refusal to register has been received in connection
with any such application.
(c) Schedule 2.3.25 of the Disclosure Schedules identifies each item
of Intellectual Property that any third party owns or licenses as licensee and
that the Company uses pursuant to license, sublicense, agreement or permission.
With respect to each item of Intellectual Property required to be so identified
in the Disclosure Schedules, the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement or permission.
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(d) None of the trade secrets, know-how, or other confidential or
proprietary information of the Company has been disclosed to any person unless
such disclosure was, in respect of the Business, made pursuant to a
confidentiality agreement, except for any such disclosures which would not
reasonably be expected to have a Material Adverse Effect.
(e) The Company owns, licenses or has a right to use all material
computer hardware, software and data processing systems used in connection with
the operation of the Business (collectively, the "Company Software") which are
listed in Schedule 2.3.25 of the Disclosure Schedules. There are no material
malfunctions with respect to the Company Software as currently used by the
Company. Except as set forth in Schedule 2.3.25 of the Disclosure Schedules, to
the knowledge of the Principal Stockholder, Company Software owned by the
Company is capable of accurately processing, calculating, manipulating, storing,
and exchanging date/time data from, into, and between the twentieth and
twenty-first centuries, including, without limitation, the years 1999 and 2000
and any leap year calculations, provided that all other information technology
used in combination with such Company Software properly exchanges date/time data
with such Company Software.
(f) (i) To the Principal Stockholder's knowledge, no other firm,
corporation, association or person claims the right to use on or in connection
with similar or closely related goods and in the United States, any mark which
is identical or confusingly similar to any of the Trademarks; (ii) there are no
pending or, to the knowledge of the Principal Stockholder, threatened claims of
any third party (other than a licensor of Intellectual Property to the Company)
asserting ownership rights in any of the Intellectual Property; (iii) there are
no pending or, to the knowledge of the Principal Stockholder, threatened claims
that the use by the Company of any Intellectual Property infringes any right of
any third party; and (iv) to Seller's knowledge, no third party is infringing
any of the rights of the Company in any of the Intellectual Property, in each
case, except for matters not reasonably expected to have a Material Adverse
Effect.
(g) This Section 2.3.25 contains the exclusive representations and
warranties of the Principal Stockholder with regard to the subject matter
addressed herein. The preceding sentence shall, however, not be construed to
limit RCGI's or 399 Venture's ability to rely on the relevant provisions of
Sections 2.3.13(a), 2.3.13(c), 2.3.13(k), 2.3.14(i) or 2.3.14(l).
2.3.26. Finder's Fees. With the exception of Donaldson, Lufkin & Jenrette,
neither the Principal Stockholder nor the Company nor any of their Affiliates
has dealt with any person, firm or entity entitled to a broker's commission,
finder's fee, investment banker's fee or similar payment for arranging the
transactions contemplated hereby or by the Ancillary Documents or introducing
the parties to each other for which RCGI, the Company or 399 Venture could
become liable or obliged.
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2.3.27. Assets
(a) Sufficiency of Assets. Except as set forth in Schedule 2.3.27 of
the Disclosure Schedules, the assets owned or leased by the Company or which the
Company have a contractual right to use, together with the Company's
Intellectual Property, include all of the assets used in or otherwise necessary
for the conduct of the Business as currently conducted. Except as set forth in
Schedule 2.3.27 of the Disclosure Schedules, the Assets are in good condition
and repair in all material respects, subject to normal wear and tear. To the
knowledge of the Principal Stockholder, no additional assets, including
following the Closing, additional Intellectual Property, accounts receivable or
fixed assets, will be necessary in order to operate the Business on a
stand-alone basis as currently operated.
(b) Inventory. The inventory of the Company is of a quality and
quantity which is usable or saleable in the ordinary course of its business
consistent with the Company's past experience and practice, except to the extent
of the reserve for inventory writedown reflected in the Financial Statements.
Since the Financial Statement date, the inventory of the Company has been
replenished in a normal and customary manner consistent with past practices.
Except as set forth in Schedule 2.3.27 of the Disclosure Schedule, no inventory
is held on consignment by or for the Company.
2.3.28. Product Warranty. Except as set forth in Schedule 2.3.28 of the
Disclosure Schedules, the Company has not made written (or, to the knowledge of
the Principal Stockholder, oral) warranties with respect to the quality or
absence of defects of its products which it has sold and which are in force as
of the date hereof.
2.3.29. Top Customers and Suppliers. Schedule 2.3.29 of the Disclosure
Schedules sets forth a complete and correct list of the top 10 customers and top
10 suppliers by dollar volume of the Company, taken as a whole, during the
fiscal year ended December 31, 1998. Except as set forth in Schedule 2.3.29 of
the Disclosure Schedules and except in the ordinary course, to the knowledge of
the Principal Stockholder, none of such customers or suppliers intends to cease
doing business with the Company or to significantly reduce the general level of
business it is currently doing with the Company.
2.3.30. No Undisclosed Liabilities. Except for liabilities and obligations
(a) set forth in the consolidated balance sheet (including notes thereto)
included in the Financial Statements at and for the Company's fiscal year ended
December 31, 1998, (b) described or identified in Schedule 2.3.30 of the
Disclosure Schedules, or (c) incurred in the ordinary course of business since
December 31, 1998 and reflected as a liability on the books of account of the
Company, the Company is not subject to any indebtedness, obligation or liability
(contingent or otherwise). Notwithstanding the foregoing, no representation and
warranty is made pursuant to this Section 2.3.30 with respect to any matter that
is specifically addressed by another representation or warranty contained in
this Section 2.3 or any certificate delivered pursuant hereto.
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2.3.31. Limitation on Warranties. Neither the Principal Stockholder nor the
Company makes any representations or warranties except as set forth herein or in
any Ancillary Document. RCGI and 399 Venture acknowledge that they have
conducted an independent investigation of the financial condition, assets,
liabilities, properties and projected operations of the Company (including with
respect to environmental matters) in making their determination as to the
propriety of the transaction contemplated by this Agreement, and in entering
into this Agreement, have relied solely on the results of said investigation and
on the representations and warranties of the Principal Stockholder expressly
contained in this Agreement. The Principal Stockholder shall be deemed to have
made a misrepresentation with respect to or breach of the representations and
warranties in this Agreement with respect to any tax matter, employee benefit
matter, environmental matter or intellectual property matter only if such matter
breaches Section 2.3.12 (in the case of tax matters), 2.3.17 (in the case of
employee benefit matters), 2.3.23 (in the case of environmental matters) or
2.3.25 (in the case of intellectual property matters) of this Agreement,
respectively (it being understood that the other representations and warranties
in this Agreement shall not apply to such matters).
2.3.32. Definition of Knowledge. Except as otherwise provided herein, for
the purposes of this Agreement, the knowledge of the Principal Stockholder shall
be deemed to be limited to (and the phrases "the Principal Stockholder's
knowledge", "knowledge of the Principal Stockholder" or words of similar import
mean) the actual knowledge as of the date hereof or as of the Closing Date (as
the case may be) of, the Principal Stockholder, Randolph G. Abood, Kenneth
Moshenek, Walter Vance, George Zolonick, Paul Murphy and Max Baer, each after
due inquiry.
2.4. Representations and Warranties of 399 Venture. 399 Venture represents
and warrants to the Principal Stockholder that
2.4.1. Organization. 399 Venture is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation.
2.4.2. Power and Authority. 399 Venture has full corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the other Ancillary Documents to be executed and/or delivered pursuant to
this Agreement by 399 Venture.
2.4.3. Execution and Delivery by 399 Venture. The execution and delivery of
this Agreement by 399 Venture, the execution and delivery of the Ancillary
Documents to which it is a party and the performance by 399 Venture of its
obligations under this Agreement and the Ancillary Documents to which it is a
party have been duly authorized and approved by all requisite corporate action.
This Agreement has been duly executed and delivered by 399 Venture and, assuming
the valid authorization, execution and delivery of this Agreement by the other
parties hereto, constitutes the legal, valid and binding obligation of 399
Venture, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
relating to or affecting creditors' rights and to general equity principles.
Each of the Ancillary Documents executed and delivered by 399 Venture, assuming
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the valid authorization, execution and delivery thereof by the other party or
parties thereto, if any, will be a legal, valid and binding obligation of 399
Venture, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
relating to or affecting creditors' rights and to general equity principles.
2.4.4. Authorization. No consent, authorization, order or approval of, or
filing or registration with, any person, including any governmental authority or
other regulatory agency, is required for or in connection with the execution and
delivery of this Agreement by 399 Venture, the execution and delivery of the
Ancillary Documents to which 399 Venture is a party and the consummation by 399
Venture of the transactions contemplated hereby or thereby.
2.4.5. Conflict. Neither the execution and delivery of this Agreement or
any of the Ancillary Documents executed and delivered by 399 Venture nor the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will result in a breach of the terms, conditions or provisions of, or
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default), an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of rights
under (1) the charter or by-laws of 399 Venture (2) any note, instrument,
mortgage, lease, franchise or financial obligation or any other agreement or
instrument to which 399 Venture is a party or any of its properties is subject
or by which 399 Venture or any of its assets may be bound or affected, (3) any
Court Order to which 399 Venture is a party or by which it is bound or (4) any
Requirements of Law affecting 399 Venture, other than, in the case of clauses
(2), (3) and (4) above, any such breaches, defaults or rights that, individually
or in the aggregate, would not prevent the consummation of any of the
transactions contemplated hereby.
2.4.6. Finder's Fees. With the exception of Donaldson, Lufkin & Jenrette,
neither 399 Venture nor any of its Affiliates has dealt with any person, firm or
entity entitled to a broker's commission, finder's fee, investment banker's fee
or similar payment for arranging the transactions contemplated hereby or by the
Ancillary Documents or introducing the parties to each other, for which RCGI,
the Company or the Principal Stockholder could become liable or obligated.
ARTICLE 3
Conduct Prior to the Closing
3.1. General. 399 Venture, the Principal Stockholder and RCGI shall have
the rights and obligations with respect to the period between the date hereof
and the Closing Date which are set forth in the remainder of this Article III.
3.2. Obligations of the Company and the Principal Stockholder . The
following are the obligations of the Company and the Principal Stockholder:
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3.2.1. The Company shall, and the Principal Stockholder shall cause the
Company to, give to RCGI's and 399 Venture's officers, employees, and other
authorized representatives and financing sources reasonable access during normal
business hours to all of the properties, books, Returns, contracts, documents,
insurance policies, records and personnel of or with respect to the Company that
relate to the Business and shall furnish to RCGI and 399 Venture and such
persons as RCGI and 399 Venture shall designate to the Company such documents
and copies of documents and all information as RCGI and 399 Venture or such
persons may at any time and from time to time reasonably request. In furtherance
of the foregoing, the Company shall, and the Principal Stockholder shall cause
the Company to, provide RCGI and 399 Venture and their financing sources and
their respective agents and representatives with full access to any and all of
its management personnel, accountants, representatives, premises, properties,
contracts, commitments, books, records and other information during regular
Business hours, and shall furnish such financial and operating data,
projections, forecasts, business plans, strategic plans and other data relating
to the Business as RCGI and 399 Venture and their financing sources and its
agents and representatives shall reasonably request; provided, however, that
neither the Company nor the Principal Stockholder be required to violate any
obligation of confidentiality to which the Principal Stockholder or the Company
is subject or to waive any privilege which any of them may possess in
discharging their obligations pursuant to this Section 3.2.1. The Company shall,
and the Principal Stockholder shall cause the Company to, use its reasonable
best efforts to cause its officers, employees, consultants, agents, accountants
and attorneys to cooperate fully with RCGI and 399 Venture, their financing
sources, agents and representatives in connection with the financing of the
transactions contemplated hereby, including the preparation of any offering
documents related thereto. RCGI and 399 Venture agree that such investigation
shall be conducted in such a manner as not to interfere unreasonably with the
operations of the Company.
3.2.2. The Company shall and the Principal Stockholder shall use reasonable
efforts (and RCGI and 399 Venture shall cooperate with the Company) to cause the
Company to, obtain the approvals, authorizations, exemptions, waivers and
consents to the consummation of the transactions contemplated hereby under or
with respect to (a) each contract, lease, agreement, Permit, Environmental
Permit, and other instrument and (b) each foreign, federal, state or local
governmental approval, in each case, which is enumerated in Exhibit B attached
hereto (collectively, the "Material Consents"); provided, however, that such
action shall not include any requirement of the Principal Stockholder or the
Company to expend money, commence or participate in any litigation or offer or
grant any accommodation (financial or otherwise) to any third party.
3.2.3. The Company shall, and the Principal Stockholder shall cause the
Company to, carry on the Business in the ordinary course of business, except as
expressly permitted by this Agreement.
3.2.4. The Company and the Principal Stockholder, as the case may be, shall
give prompt written notice to RCGI and 399 Venture in the event any of their
respective
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representations and warranties are discovered to be untrue as of the
time made or in the event the Company or the Principal Stockholder determines
that such representations and warranties shall be untrue as if made at and as of
the Closing Date. Except as set forth in Section 9.4, no disclosure by the
Principal Stockholder pursuant to this Section 3.2.4 shall be deemed to amend or
supplement the Disclosure Schedules or to cure any misrepresentation or breach
of warranty.
3.2.5. Without the prior written consent of RCGI and 399 Venture, the
Company shall not, and the Principal Stockholder shall cause the Company not to,
other than in the ordinary course of business, as explicitly contemplated by
this Agreement or the Ancillary Documents or as set forth in Schedule 3.2.5 of
the Disclosure Schedules:
(a) amend its certificate of incorporation or by-laws, partnership
agreements or other organizational documents;
(b) make any change in the authorized capital stock of the Company or
issue any shares of stock of any class or issue or become a party to any
subscriptions, warrants, rights, options, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock of the Company, or to other equity securities of the Company, or
grant any stock appreciation or similar rights;
(c) institute any material increase or otherwise materially change the
compensation payable to or to become payable to any employee, officer or agent
of the Company;
(d) incur or commit to incur any capital expenditures not set forth in
Schedule 3.2.5(d) of the Disclosure Schedules or not included with the Company's
capital spending plan for its current fiscal year in excess of $2,500,000 in the
aggregate;
(e) sell, transfer or otherwise dispose of any asset or property
(including sales or transfers to Affiliates), except for sales of inventory and
for transfers of cash in payment of the liabilities of the Company;
(f) enter into any lease, contract or commitment which, if taken prior
to the date hereof, would be required to be disclosed in Schedule 2.3.14 of the
Disclosure Schedules;
(g) take any action or omit to take any action which will result in a
violation of any applicable law which, if taken prior to the date hereof, would
be required to be disclosed in Schedule 2.3.22 of the Disclosure Schedules;
(h) prepay any material obligation which, if taken prior to the date
hereof, would be required to be disclosed in Schedule 2.3.13 of the Disclosure
Schedules; or
(i) borrow any money;
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(j) take any action to change accounting policies or procedures
(including procedures with respect to revenue recognition, payments of accounts
payable and collection of accounts receivable) except as required by GAAP; or
(k) enter into any agreement to do any of the foregoing.
3.2.6. The Company shall, and the Principal Stockholder shall use his best
efforts as a stockholder to cause the Company to, use its best efforts, subject
to the requirements of applicable law, to take all action necessary to effect
the Reverse Stock Split and shall ensure that all agreements, certificates and
other documents delivered or received by the Company in connection with the
Reverse Stock Split are in form and substance satisfactory to RCGI and to 399
Venture, prior to such delivery or receipt.
3.2.7. The Company shall, and the Principal Stockholder shall use his best
efforts as a stockholder to cause the Company to, use its best efforts to ensure
that the Company effects the Jenkins Redemption and the Management Redemption on
the terms contemplated by this Agreement and shall ensure that all agreements
certificates and other documents delivered or received by the Company in
connection with such redemptions are in form and substance satisfactory to RCGI
and 399 Venture, prior to such delivery or receipt.
3.3. Reserved.
3.4. Joint Obligations. The following shall apply with equal force to 399
Venture, the Principal Stockholder, and RCGI:
3.4.1. Subject to the terms and conditions of this Agreement, each of the
parties hereto shall use all reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate the transactions contemplated hereby and by the
Ancillary Documents as soon as practicable.
3.4.2. RCGI and IMC Global filed on February 3, 1999 with the Federal Trade
Commission and the Antitrust Division of the Department of Justice the
notifications and other information required to be filed under the HSR Act with
respect to the transactions contemplated hereby and by the IMC Agreement. Each
of RCGI, 399 Venture, and Principal Stockholder warrants that all information
supplied by such party in connection with such filings was, as of the date
filed, true and accurate in all material respects and in material compliance
with the requirements of the HSR Act and any such rules and regulations. RCGI,
399 Venture and the Principal Stockholder shall each make available to the other
such information as each of them may reasonably request relative to the
Company's business, assets and property as may be required of each of them in
connection with the filing of any additional information requested by such
agencies under the HSR Act.
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ARTICLE 4
Conditions to Closing
4.1. Conditions to Obligations of the Company and the Principal
Stockholder. The obligations of the Company and the Principal Stockholder to
close the transactions contemplated hereby and by the Ancillary Documents is
subject to the fulfillment or, if permitted by applicable law, waiver by the
Company and the Principal Stockholder of all of the following conditions on or
prior to the Closing Date:
4.1.1. The representations and warranties made by each of RCGI and 399
Venture (i) that are qualified as to materiality shall be true and correct on
and as of the Closing Date as though made or given on and as of the Closing Date
(except to the extent such representations specifically relate to an earlier
date) and (ii) that are not qualified with respect to materiality shall be true
in all material respects on and as of the Closing Date as though made or given
on and as of the Closing Date (except to the extent such representations
specifically relate to an earlier date), except in each case for changes therein
(x) specifically permitted or contemplated by this Agreement or the Ancillary
Documents, (y) consented to in writing by RCGI or 399 Venture, or (z) breaches
of representations and warranties (other than any representation or warranty in
Sections 2.2.1, 2.2.2, 2.2.3, 2.2.4, 2.2.5(1), 2.4.1, 2.4.2, 2.4.3 and 2.4.4)
that are not, individually or in the aggregate, reasonably expected to have a
Material Adverse Effect.
4.1.2. There shall not have been any breach by RCGI or by 399 Venture in
the performance of any of their respective covenants and agreements herein which
shall not have been remedied or cured (it being understood that RCGI or 399
Venture, as the case may be, shall be given a reasonable opportunity to remedy
or cure any such breach), other than breaches which are not reasonably expected
to have a material adverse effect on their abilities to perform their respective
obligations under this Agreement and the Ancillary Documents to which either of
them is a party.
4.1.3. No action, suit or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation.
4.1.4. The Company shall have executed and delivered a release in a form
attached hereto as Exhibit C (the "Company Release").
4.1.5. The Principal Stockholder shall have received evidence satisfactory
to him of 399 Venture's investment in RCGI (in addition to the exchange of the
Debentures for the 399 Venture Shares) of (i) $10,000,000 through the purchase
from RCGI of a subordinated note, and (ii) $26,771,525 in exchange for (A)
251,799.25 shares of Series A Preferred, (B) 400,000 shares
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of Class A Common, and (C) 1,191600 shares of Class B Common Stock, par value
$.01 per share, of RCGI.
4.1.6. RCGI shall have received the financing contemplated by Section
2.2.9.
4.1.7. 399 Venture shall have delivered the Debentures to RCGI.
4.1.8. All conditions to the closing contemplated under the Stock Purchase
Agreement (the "IMC Agreement") dated as of January 21, 1999 among IMC Global
Inc., a Delaware corporation, the Vigoro Corporation, a Delaware corporation, as
amended pursuant to an amendment dated as of April 13, 1999, shall have been
satisfied or waived.
4.1.9. The Preferred Stockholder Agreement, in the form agreed to by the
parties hereto (the "Preferred Stockholders Agreement"), dated as of the date of
the Closing, among 399 Venture and certain individuals shall have been executed
and delivered by 399 Venture.
4.1.10. The Registration Rights Agreement, in the form agreed to by the
parties thereto (the "Registration Rights Agreement"), dated as of the date of
the Closing, among 399 Venture, RCGI, the Principal Stockholder and the other
parties thereto shall have been executed and delivered by RCGI and 399 Venture.
4.1.11. The Securities Purchase and Holders Agreement, in the form agreed
by the parties thereto (the "Securities Holders Agreement"), dated as of the
date of the Closing, among RCGI, 399 Venture, the Principal Stockholder and the
additional signatories thereto, shall have been executed and delivered by RCGI
and 399 Venture.
4.1.12. An employment agreement between the Principal Stockholder and RCGI,
in form and substance satisfactory to the parties thereto (the "Jenkins
Employment Agreement"), shall have been executed and delivered by RCGI.
4.1.13. The termination agreement in the form attached hereto as Exhibit E
(the "Termination Agreement" shall have been executed by 399 Venture and
delivered to the Principal Stockholder.
4.2. Conditions to RCGI's and 399 Venture's Obligations. The obligation of
RCGI and 399 Venture to close the transactions contemplated hereby and by the
Ancillary Documents is subject to the fulfillment or, if permitted by applicable
law, waiver by RCGI and 399 Venture of all of the following conditions on or
prior to the Closing Date:
4.2.1. The representations and warranties made by each of the Company and
the Principal Stockholder (i) that are qualified as to materiality shall be true
and correct on and as of the Closing Date as though made or given on and as of
the Closing Date (except to the extent such representations specifically relate
to an earlier date) and (ii) that are not qualified with
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respect to materiality shall be true in all material respects on and as of the
Closing Date as though made or given on and as of the Closing Date (except to
the extent such representations specifically relate to an earlier date), except
in each case for changes therein (x) specifically permitted or contemplated by
this Agreement or the Ancillary Documents, (y) consented to in writing by RCGI
or 399 Venture, or (z) breaches of representations and warranties (other than
any representation or warranty in Sections 2.3.1, 2.3.3, 2.3.4, 2.3.5 and 2.3.9)
that are not, individually or in the aggregate, reasonably expected to have a
Material Adverse Effect.
4.2.2. There shall not have been any breach by the Principal Stockholder or
the Company in the performance of any of their respective covenants and
agreements herein which shall not have been remedied or cured (it being
understood that the Company and the Principal Stockholder, as the case may be,
shall be given a reasonable opportunity to remedy or cure any such breach),
other than breaches which are not reasonably expected to have a Material Adverse
Effect.
4.2.3. The Principal Stockholder or the Company shall have procured all
Material Consents.
4.2.4. No action, suit or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect materially and adversely the right of RCGI to own the
Jenkins Shares and to control the Company, (D) affect materially and adversely
the right of the Company to own its assets and to operate its business (and no
such injunction, judgment, order, decree, ruling or charge shall be in effect)
or (E) otherwise would reasonably be expected to have a Material Adverse Effect.
4.2.5. The Principal Stockholder shall have executed and delivered a
release in a form attached hereto as Exhibit D (the "Principal Stockholder
Release").
4.2.6. RCGI shall have received the financing contemplated by Section
2.2.9.
4.2.7. The Principal Stockholder shall have delivered the Jenkins
Redemption Shares to the Company for the Jenkins Redemption.
4.2.8. The Principal Stockholder shall have delivered the Jenkins Exchange
Shares to RCGI for exchange.
4.2.9. All conditions to the closing contemplated under the IMC Agreement
shall have been satisfied or waived.
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4.2.10. Since September 30, 1998, the Company shall have made no
distributions to any stockholder of the Company, including any extraordinary
distribution, on account of such stockholder's ownership of any shares of
capital stock of the Company, other than the payments of dividends payable on
the Preferred Stock in the ordinary course of business, such payments not to
exceed an aggregate annual amount of $1.2 million.
4.2.11. The Securities Holders Agreement shall have been executed and
delivered by the Company and the Principal Stockholder.
4.2.12. The Preferred Stockholder Agreement shall have been executed and
delivered by the Principal Stockholder.
4.2.13. The Registration Rights Agreement shall have been executed and
delivered by the Principal Stockholder and the Company.
4.2.14. The Jenkins Employment Agreement shall have been executed and
delivered by the Principal Stockholder.
4.2.15. No Material Adverse Effect shall have occurred nor shall any event
or circumstance which could reasonably be expected to have a Material Adverse
Effect have occurred.
4.2.16. The Termination Agreement shall have been executed by the Principal
Stockholder and the Company and delivered to RCGI.
ARTICLE 5
Closing
5.1. Form of Documents. At the Closing, the parties shall deliver the
documents, and shall perform the acts, which are set forth in this Article V.
5.2. The Company's Deliveries. Subject to the fulfillment or waiver of the
conditions set forth in Section 4.1, the Company shall deliver to the Principal
Stockholder the Jenkins Redemption Amount by wire transfer of immediately
available funds.
5.3. RCGI's Deliveries. Subject to the fulfillment or waiver of the
conditions set forth in Section 4.2, RCGI shall execute and/or deliver to the
Principal Stockholder all of the following:
5.3.1. Certificates representing the RCGI Shares.
5.3.2. A certificate of good standing of RCGI, issued not earlier than ten
(10) days prior to the Closing Date by the Secretary of State of Delaware.
5.3.3. An incumbency certificate with respect to the officers of RCGI
executing this Agreement, and any RCGI Ancillary Document delivered hereunder,
on behalf of RCGI.
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5.3.4. A certified copy of resolutions of RCGI's board of directors,
authorizing the execution, delivery and performance of this Agreement, and any
other document delivered by RCGI hereunder.
5.3.5. A closing certificate executed by the President of RCGI (or any
other authorized officer of RCGI), on behalf of RCGI, as to the matters
described in Sections 4.1.1 and 4.1.2 and stating that all documents to be
executed and delivered by RCGI at the Closing have been executed and delivered
by duly authorized officers of RCGI.
5.3.6. Certified copies of the charter and by-laws of RCGI.
5.4. The Principal Stockholder's Deliveries. Subject to the fulfillment or
waiver of the conditions set forth in Section 4.1, the Principal Stockholder
shall execute or deliver all of the following:
5.4.1. Deliveries to RCGI:
(i) Certified copies of the charter and by-laws of the Company.
(ii) Certificate of good standing of the Company issued not earlier
than ten (10) business days prior to the Closing Date by the Secretary of
State of Delaware.
(iii) Certificates representing the Jenkins Exchange Shares, in each
case duly endorsed in blank or with duly executed stock powers attached.
(iv) A closing certificate executed by the Principal Stockholder and
the President of the Company, as to the matters described in Sections 4.2.1
and 4.2.2. and stating that all documents to be executed by the Company and
delivered at the Closing have been executed and delivered by duly
authorized officers of the Company;
(v) The written resignations, effective as of the Closing Date, of the
directors of the Company (other than the Principal Stockholder and Randolph
G. Abood).
(vi) The minute books and stock records of the Company.
(vii) A legal opinion in a form agreed to by the parties hereto.
(viii) An incumbency certificate with respect to the officers of the
Company executing this Agreement, and any Ancillary Document delivered
hereunder, on behalf of the Company.
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5.4.2. Deliveries to the Company:
(i) The Jenkins Redemption Shares.
5.5. 399 Venture Deliveries. Subject to the fulfillment or waiver of the
conditions set forth in Section 4.2, 399 Venture shall execute and/or deliver to
the Principal Stockholder all of the following:
5.5.1. A certificate of good standing of 399 Venture, issued not earlier
than five (5) days prior to the Closing Date by the Secretary of State of
Delaware.
5.5.2. An incumbency certificate with respect to the officers of 399
Venture executing this Agreement, and any Ancillary Document delivered
hereunder, on behalf of 399 Venture.
5.5.3. A closing certificate executed by the President of 399 Venture (or
any other authorized officer of 399 Venture), on behalf of 399 Venture, as to
the matters described in Sections 4.1.1 and 4.1.2 and stating that all documents
to be executed and delivered by 399 Venture at the Closing have been executed
and delivered by duly authorized officers of 399 Venture.
5.6. Other Transactions Occurring at the Closing. In addition to the
deliveries to be made at the Closing pursuant to Sections 5.2 and 5.3:
5.6.1. The Company will execute and deliver the Company Release.
5.6.2. The Principal Stockholder will execute and deliver the Principal
Stockholder Release.
5.6.3. RCGI will deliver certificates representing the 399 Venture Shares
to 399 Venture.
5.6.4. 399 Venture will deliver the Debentures to RCGI.
ARTICLE 6
Post Closing Agreements
6.1. Post Closing Agreements. From and after the Closing, the parties shall
have the respective rights and obligations which are set forth in the remainder
of this Article VI.
6.2. Confidentiality; Non Competition; Non-Solicitation.
6.2.1. Confidentiality. From and after the Closing, the Principal
Stockholder shall, and shall cause his representatives and agents to, keep
confidential and not disclose to any other person (other than his legal and
financial advisors and accountants) or use for their own
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benefit or the benefit of any other person, any information regarding the
business and affairs of the Company or its Subsidiary. The obligation of the
Principal Stockholder under this Section 6.2 shall not apply to information
which: (i) is or becomes generally available to the public without breach of the
commitment provided for in this Section 6.2; (ii) was otherwise available to the
Principal Stockholder on a non-confidential basis; or (iii) is required to be
disclosed by law, order or regulation of a court or tribunal or government or
disclosures necessary to implement the provisions of this Agreement or the
Ancillary Documents; provided, however, that, in the case of clause (iii) above,
the Principal Stockholder shall provide RCGI and 399 Venture as much advance
notice of the possibility of such disclosure as practical so RCGI may attempt to
stop such disclosure or obtain a protective order concerning such disclosure.
6.2.2. Non-Competition.
(a) In consideration of the benefits of this Agreement to the
Principal Stockholder and in order to induce RCGI to enter into this Agreement,
the Principal Stockholder hereby covenants and agrees that from and after the
Closing and until the later of (i) the third anniversary of the Closing Date and
(ii) one (1) year after the termination of the Principal Stockholder's
employment by the Company, the Principal Stockholder shall not, and shall cause
any employee or Affiliate not to, directly or indirectly, as a partner,
stockholder, director, consultant, joint venturer, investor or in any other
capacity, engage in, or own, manage, operate or control, or participate in the
ownership, management, operation or control of, any business or entity which
engages anywhere in the United States of America in (x) the sale of crop
production inputs and services at retail or (y) the sale of the crop production
inputs set forth in Schedule 6.2.2 at wholesale (a "Competing Business");
provided, however, that nothing herein shall prohibit the Principal Stockholder
from (i) owning not more than 5.0% of any class of securities of a publicly
traded entity in a Competing Business, (ii) acquiring and following such
acquisition, actively engaging in, any business enterprise partially engaged in
a Competing Business, so long as not more than 20% of the fair market value of
such business, as determined in good faith by the Principal Stockholder and
certified to RCGI by the Principal Stockholder, is attributable to such
Competing Business, or (iii) acquiring, and following such acquisition, actively
engaging in, any business enterprise partially engaged in a Competing Business,
provided that if more than 20% of the fair market value of such business, as
determined in good faith by the Principal Stockholder and certified to RCGI by
the Principal Stockholder, is attributable to such Competing Business, then such
business shall divest itself of the subsidiary, division, group, franchise or
segment which engages in such Competing Business as soon as practicable after
the date of such acquisition, and provided, further, that with respect to any
purchase intended to be accounted for as a pooling of interests under GAAP or
treated for federal income tax purposes as a tax-free reorganization, no such
divestiture shall be required until, in the reasonable opinion of the acquiror,
such divestiture would no longer endanger the accounting of such acquisition as
a pooling of interests under GAAP or the treatment for federal income tax
purposes of such acquisition as a tax-free reorganization.
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6.2.3. Non Solicitation. From the date hereof until the later of (i) the
third anniversary of the Closing Date and (ii) one (1) year after the
termination of the Principal Stockholder's employment by the Company, the
Principal Stockholder shall not, without prior written approval of RCGI,
directly or indirectly, solicit for employment any current officer, senior
manager, general manager, sales or technical employee of the Company; provided,
however, that the foregoing shall not prevent the Principal Stockholder, or any
of his Affiliates from hiring any such person (i) who contacts the Principal
Stockholder or his Affiliates on his or her own initiative without solicitation
from any of the Principal Stockholder or his Affiliates, (ii) in connection with
general employment advertisements published in magazines, journals, newspapers
and other publications that are not targeted at the Company or any of the
Company's employees or (iii) who has been discharged by the Company prior to any
such solicitation.
6.2.4. The Principal Stockholder acknowledges that given the nature of the
Business the covenants contained in this Section 6.2 contain reasonable
limitations as to time, geographic area and scope of activity to be restrained,
and do not impose a greater restraint than is necessary to protect and preserve
for the benefit of RCGI the goodwill of the Company and to protect the
legitimate business interests of the Company. If, however, this Section 6.2 is
determined by any court of competent jurisdiction to be unenforceable by reason
of its extending for too long a period of time or over too large a geographic
area or by reason of its being too extensive in any other respect or for any
other reason it will be interpreted to extend only over the longest period of
time for which it may be enforceable and/or over the largest geographic area as
to which it may be enforceable and/or to the maximum extent in all other aspects
as to which it may be enforceable, all as determined by such court and in such
action.
6.2.5. The Principal Stockholder agrees that RCGI's remedies at law for any
breach or threat of breach by the Principal Stockholder of the provisions of
this Section 6.2 will be inadequate, and that RCGI shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this Section
6.2 and to enforce specifically the terms and provisions hereof, in addition to
any other remedy to which RCGI may be entitled at law or equity. In the event of
litigation regarding this Section 6.2, the prevailing party in such litigation
shall, in addition to any other remedies that prevailing party may obtain in
such litigation, be entitled to recover from the other party all reasonable
legal fees and out-of-pocket expenses incurred by such party in enforcing or
defending its rights hereunder.
6.3. Further Assurances. The parties shall execute such further documents,
and perform such further acts, as may be reasonably necessary to transfer and
convey the Jenkins Shares to Purchaser, on the terms herein contained, and to
otherwise comply with the terms of this Agreement and consummate the
transactions contemplated hereby and by the Ancillary Documents.
6.4. Transfer Taxes RCGI and the Principal Stockholder shall each pay, and
shall indemnify the other party against, 50 percent of any sales Tax, use Tax,
stamp Tax, stock transfer Tax or other similar Tax imposed on the transactions
contemplated by this Agreement.
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6.5. Agreement to Defend and Indemnify. Without prejudicing its right to
indemnification under Article VII hereof, RCGI acknowledges and accepts as
contract rights (and agrees to cause the Company to honor in accordance with
their terms) the provisions of the Company's charter and/or by-laws or other
organizational documents as in effect on the date hereof with respect to
indemnification of officers, directors, employees and agents of each of them
(collectively, "Indemnified Persons") (including provisions relating to
contribution, advancement of expenses and the like), and agrees that, for a
period of six years after the Closing Date, indemnity provisions of the charter
and by-laws or other organizational documents of the Company, to the extent the
Company is still in existence, shall not be modified or amended except as
required by law, unless such modification or amendment expands the rights of the
Indemnified Persons to indemnification (including with respect to contribution,
advancement of expenses and the like).
6.6. Registration and Legend. RCGI agrees and understands that the Jenkins
Shares have not been, and will not be, registered under the Securities Act or
the securities laws of any state and that the Jenkins Shares may be sold or
disposed of only in one or more transactions registered under the Securities Act
and applicable state securities laws or as to which an exemption from the
registration requirements of the Securities Act and applicable state securities
laws is available. RCGI acknowledges and agrees that no person has any right to
require the Principal Stockholder to cause the registration of any of the
Jenkins Shares. The certificates representing the Jenkins Shares shall contain a
legend similar to the following and other legends necessary or appropriate under
applicable state securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
A REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS WITH RESPECT TO SUCH SHARES IS EFFECTIVE OR UNLESS THE
COMPANY IS IN RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO IT TO
THE EFFECT THAT SUCH SHARES MAY BE SOLD WITHOUT REGISTRATION UNDER THE
ACT AND SUCH LAWS.
6.7. Section 351 Transaction. The parties hereto intend that the
transactions contemplated by this Agreement regarding the transfer of securities
or cash to RCGI in exchange for RCGI Shares shall be treated as transfers under
Section 351 of the Code. None of the parties hereto will take a position on
their respective tax returns that is inconsistent with such treatment.
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ARTICLE 7
Indemnification
7.1. General. From and after the Closing, the parties shall indemnify each
other as provided in this Article VII. All payments made by RCGI, the Company or
Principal Stockholder, as the case may be, under this Article VII shall be
treated as adjustments to the value of the property exchanged pursuant to
Section 1.2 for all tax purposes.
7.2. Certain Definitions. As used in this Agreement, the following terms
shall have the indicated meanings:
7.2.1. "Damages" shall mean all losses, damages (including, with respect to
Environmental Claims, costs of Remedial Actions), awards, fines, penalties,
deficiencies, judgments, costs, expenses and fees (including reasonable
attorneys' fees, accountants' fees, court costs and all other reasonable
expenses incurred in investigating or defending any litigation or proceeding,
commenced or threatened), resulting from, arising out of or incident to any of
the indemnifiable items in this Article VII. Damages, however, shall be net of:
(i) any federal, state, or local income tax benefits actually realized by the
Indemnified Party as a result of the matter for which indemnification is sought
offset by any additional tax burden actually suffered by the Indemnified Party
as a result of the matter giving rise to indemnification; provided that no
Indemnified Party shall be required solely for the purpose of realizing a
benefit to take any tax position that could have an adverse effect on such
Indemnified Party if taken; and provided, further, that the Indemnified Party
shall not be required to disclose its (or its Affiliates) tax returns, work
papers or other information with respect to the preparation of such returns, but
shall be required to disclose the foregoing only to a nationally recognized
accounting firm that agrees to disclose only its conclusions to the Indemnifying
Party that accrues to or is realized by the Indemnified Party in respect of the
matter for which a claim is asserted; (ii) any proceeds received by the
Indemnified Party from any separate indemnification or contribution from or
against any person or entity; and (iii) insurance proceeds or coverage pursuant
to any insurance (including title insurance) held by the Indemnified Party or
its Affiliates and covering the event for which indemnification is sought or
insurance proceeds recovered from any other person or entity by the
Indemnifiable Party (less any costs, expenses, premium increases or taxes
incurred in connection therewith).
7.2.2. "Environmental Claim" shall mean any Third Party Claim arising under
any Environmental Law; provided that Environmental Claims shall not include any
enforcement actions by any government agency following the Closing Date with
respect to, or related to compliance of the Business on or prior to the Closing
Date with "process safety management regulations" (as defined under 29 C.F.R.
1910.119) ("Process Safety Management Claims") or state or federal laws or
regulations concerning the transportation of hazardous materials
("Transportation Claims").
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7.2.3. "Indemnified Party" shall mean, with respect to a particular matter,
a party hereto seeking indemnification from another party hereto pursuant to
this Article VII.
7.2.4. "Indemnifying Party" shall mean, with respect to a particular
matter, a party against whom indemnification under this Article VII is sought by
an Indemnified Party.
7.2.5. "Third Party Claim" shall mean any claim, action, suit, proceeding,
investigation, judicial or administrative order, or like matter which is
asserted, requested or threatened by, or initiated at the request of, a person
other than the parties hereto and their Affiliates, their successors and
permitted assigns, against any Indemnified Party.
7.3. The Principal Stockholder's Indemnification Obligations. The Principal
Stockholder shall indemnify, defend and hold harmless RCGI, 399 Venture, the
officers, directors, shareholders, employees and Affiliates thereof and their
successors and permitted assigns (each referred to in this Agreement as an "RCGI
Indemnitee" and, collectively, the "RCGI Indemnitees") against and from all
Damages sustained or incurred, by any RCGI Indemnitee, as a result of or arising
out of:
7.3.1. any inaccuracy in or breach of any representation and warranty made
by the Principal Stockholder in Section 2.3 or in any Ancillary Document
delivered by the Principal Stockholder or the Company to RCGI or 399 Venture in
connection herewith;
7.3.2. any breach by the Principal Stockholder or the Company of, or
failure of the Principal Stockholder or the Company to comply with, any of the
covenants or obligations under this Agreement or in any Ancillary Document to be
performed by the Principal Stockholder or the Company;
7.3.3. any inaccuracy in or breach of any of the Environmental
Representations and Warranties, whether made pursuant to this Agreement or in
the certificate delivered to RCGI pursuant to Section 5.4.1(iv);
7.3.4. any Environmental Claim solely to the extent that such Environmental
Claim is associated with, arises from, or relates to (a) conditions existing
prior to the Closing Date on the Real Estate, (b) conditions existing prior to
the Closing Date on real estate (other than the Real Estate) formerly owned,
leased or operated by the Company or any of their predecessors, (c) the
operation of the Business or the operation of the businesses of any Company
predecessor prior to the Closing Date or (d) the offsite disposal,
transportation, recycling or Release or threatened Release of any Contaminants
as a result of the Company's operations, or those of their predecessors, before
the Closing Date, in each case, including Environmental Claims for a Release or
threatened Release of any Contaminant on, in, at, to, beneath or from the Real
Estate before the Closing Date (whether or not such Environmental Claim also
constitutes a breach of the Environmental Representations and Warranties);
provided that RCGI's activities (including communications), other than those
activities required by Environmental Law, have not directly or indirectly
triggered or caused to be ripened such Environmental Claim (it being understood
that
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RCGI Indemnitees' right to indemnification under this Section 7.3.4 shall not be
nullified or limited by RCGI Indemnitees' compliance with Environmental Laws,
including the conduct of investigations, in connection with facility operations,
expansion or closure activities or the sale of the Business or other reasonable,
good faith activities in connection with the operation of the Business in the
ordinary course);
7.3.5. any inaccuracy in or breach of any representation or warranty made
by the Principal Stockholder in Section 2.3.30 or in respect thereof under the
certificate delivered to RCGI pursuant to Section 5.3.4.
7.3.6. Notwithstanding the foregoing provisions of this Section 7.3:
(a) the Principal Stockholder shall be required to indemnify and hold
harmless RCGI Indemnitees pursuant to Sections 7.3.1 through 7.3.5 only to the
extent that the aggregate amount of Damages incurred by RCGI Indemnitees
pursuant to Sections 7.3.1 through 7.3.5 exceeds $2,000,000 (it being understood
that such $2,000,000 shall constitute a "deductible" for which the Principal
Stockholder bears no indemnification responsibility and that such "deductible"
shall be separate from and independent of any other such "deductible" set forth
in this Agreement);
(b) the Principal Stockholder shall be required to indemnify and hold
harmless RCGI Indemnitees under this Section 7.3 only to the extent that the
aggregate amount required to be paid by the Principal Stockholder pursuant to
this Section 7.3 does not exceed $5 million.
(c) Notwithstanding the foregoing the limitations contained in clauses
(a) and (b) of this Section 7.3.6 shall not apply to any Damages: (i) sustained
or incurred by any RCGI Indemnitee as a result of or arising out of any breach
of any representation or warranty in Section 2.3.1, Section 2.3.3, Section
2.3.4, or Section 2.3.9; (ii) sustained or incurred by any RCGI Indemnitee as a
result of or arising out of any breach of or failure to comply with any covenant
or obligation in Articles I, VI, VII or IX; or (iii) resulting or arising from
an intentional or willful breach by the Company or the Principal Stockholder of
any representation or warranty in Section 2.3 or any covenant under this
Agreement or any Ancillary Document to which the Principal Stockholder or the
Company is party which, in each case, would constitute common law fraud.
7.3.7. Notwithstanding any other provision of this Agreement, the Company
shall be required to indemnify and hold harmless RCGI Indemnitees pursuant to
this Section 7.3 with the same force and effect as if the Company were the
Principal Stockholder; provided, however, that (i) the Company shall not be
required to make any payments under this Section 7.3 until the aggregate amount
paid by the Principal Stockholder under such Section shall equal $5 million and
(ii) the Company shall be required to indemnify and hold harmless RCGI
Indemnitees under this Section 7.3 only to the extent that the aggregate amount
required to be paid by the Company pursuant to this Section 7.3 does not exceed
$6 million.
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7.3.8. In addition to the foregoing indemnification provisions of this
Section 7.3, the Principal Stockholder shall indemnify, defend and hold harmless
RCGI, 399 Venture, the Company, and the officers, director, shareholders,
employees and Affiliates thereof and their successors and permitted assigns from
and against (i) any claims by the ESOP, the ESOP Trust, or any ESOP participant
or beneficiary of any such participant, for any payments following the Closing
Date in connection with the Reverse Stock Split other than the payment of
$2,877,853.62 specified in Recital H hereof (it being understood that the
Principal Stockholder shall also be entitled to apply the $118,274 deposited in
escrow by the Company plus any additional amounts deposited in escrow by the
Rollover Investors towards any amounts payable under this clause (i)); (ii) any
claim for any excise tax or penalty imposed under any provision of applicable
law, including but not limited to ERISA or the Code by any governmental agency,
including but not limited to the Internal Revenue Service or the United States
Department of Labor; (iii) any payments in excess of $9,622,021.99 in the
aggregate (inclusive of amounts deposited by the Rollover Investors into escrow
for the benefit of the ESOP Trust) made or required to be made in cash to
stockholders of the Company (other than the ESOP or the ESOP Trust) on account
of (A) shares of the Company and options to purchase shares of Common Stock
redeemed by the Company pursuant to the transactions contemplated by this
Agreement, and (B) any payment made or required to be made by the Company to the
Rollover Investors (including the Principal Stockholder) on account of shares of
Common Stock and options to purchase shares of Common Stock which are being
redeemed by the Company pursuant to the Management Redemption. The Principal
Stockholder's indemnification obligations hereunder shall not be subject the
limitations set forth in Section 7.3.6. Notwithstanding the foregoing, the
Principal Stockholder shall have no obligation to any person or entity to pay,
reimburse or be responsible for any legal, accounting or financial advisory
fees, costs or disbursements, including the cost of any appraisal of shares of
Common Stock held by the ESOP or the ESOP Trust prior to the Reverse Stock
Split, incurred by or on behalf of the ESOP or the ESOP Trust or any of their
respective officers, directors or trustees in connection with the sale,
cancellation or redemption of any shares of Common Stock held by the ESOP or the
ESOP Trust, whether in connection with the Reverse Stock Split or otherwise.
7.4. Survival of Indemnification Obligations. The indemnification provided
for in Section 7.3 shall terminate 18 months after the Closing Date (and no
claims shall be made by any RCGI Indemnitee under Section 7.3 thereafter),
except that the indemnification by the Principal Stockholder (and, subject to
Section 7.3.7, by the Company) shall continue as to:
(i) the covenants of the Principal Stockholder set forth in Article I
or Article VI shall survive for the periods of time set forth therein or,
if no period of time is set forth, such covenants shall survive
indefinitely;
(ii) claims for indemnification for breaches of representations and
warranties set forth in Section 2.3.12 with respect to matters occurring on
or after September 15, 1994, which survive until the expiration of the
applicable statute of limitations (it being understood that indemnification
for claims related to breaches of representations and warranties set forth
in Section 2.3.12 to the extent attributable to matters occurring prior to
September 15, 1994 shall terminate 18 months after the Closing Date);
(iii) claims for indemnification under Sections 7.3.3, and 7.3.4 which
shall survive until the fifth anniversary of the Closing Date (it being
understood that indemnification for any such claims to the extent
attributable to circumstances or events occurring prior to September 15,
1994 shall terminate 18 months after the Closing Date);
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(iv) the indemnification obligation under Section 7.3.8 relating in
any way to claims for payments to the ESOP or the ESOP Trust, or any
participant or beneficiary claiming benefits under the ESOP or the ESOP
Trust, or to the proposed or asserted imposition of any taxes or penalties
asserted by any governmental agency in respect of the ESOP or the ESOP
Trust, shall survive until the 90th day following the close of any
applicable statute of limitations with respect to such claims; and
(v) any Damages of which any RCGI Indemnitee has notified the
Principal Stockholder or the Company, as the case may be, in accordance
with the requirements of Section 7.7 on or prior to the date such
indemnification would otherwise terminate in accordance with this Section
7.4, as to which the obligation of the Principal Stockholder or the
Company, as the case may be, shall continue until the liability of the
Principal Stockholder or the Company, as the case may be, shall have been
determined pursuant to this Article VII, and the Principal Stockholder or
the Company, as the case may be, shall have reimbursed all RCGI Indemnitees
for the full amount of such Damages that are payable in accordance with
this Article VII.
7.5. Limitation on Indemnification Obligations. In the event that the
Principal Stockholder or the Company, as the case may be (the "Defending Party")
is conducting any defense against a Third Party Claim for which an RCGI
Indemnitee has sought indemnification under Section 7.3, expenses incurred by
the Defending Party in connection therewith, including legal costs and expenses,
shall constitute RCGI Indemnitee Damages for purposes of determining the maximum
aggregate amount to be paid by the Defending Party pursuant to Section 7.3.
7.6. RCGI's Indemnification Covenants. RCGI shall indemnify, defend and
hold harmless the Principal Stockholder and his respective Affiliates,
successors and assigns (individually, a "Stockholder Indemnitee" and,
collectively, the "Stockholder Indemnities"), against and from all Damages
sustained or incurred by any Stockholder Indemnitee as a result of or arising
out of or by virtue of:
7.6.1. any inaccuracy in or breach of any representation and warranty made
by RCGI to the Principal Stockholder herein or in any Document delivered to the
Principal Stockholder by RCGI in connection herewith;
7.6.2. any breach by RCGI of, or failure by RCGI to comply with, any of the
covenants or obligations under this Agreement or any Document to be performed by
RCGI, unless the Principal Stockholder had waived or consented to such breach or
failure as of the Closing Date; or
7.6.3. any Environmental Claim solely to the extent that such Environmental
Claim is associated with, arises from or relates to (a) conditions arising on
the Real Estate on or after the Closing Date, (b) the operation of the Company
on or after the Closing Date or (c) the offsite disposal, transportation,
recycling, Release or Threatened Release of any Contaminants as
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a result of the Company's operations on or after the Closing Date, in each case,
including Environmental Claims for a Release or threatened Release of any
Contaminant on, in, at, to, beneath or from the Real Estate on or after the
Closing Date.
7.7. Indemnification Procedures.
7.7.1. An Indemnified Party shall give prompt written notice to the
Indemnifying Party of the assertion of any claim for indemnification (a "Claim
Notice"). Each Claim Notice shall set forth, with reasonable specificity, the
facts and circumstances of any such claim for indemnification or Third Party
Claim and the grounds for which indemnification is sought and shall include in
such Claim Notice (if then known) the amount or the method of computation of the
amount of such claim, and a reference to the provision of this Agreement or any
other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based; provided, however, that a Claim Notice
in respect of any action at law or suit in equity by or against a third Person
as to which indemnification will be sought shall be subject to the provisions of
Sections 7.7.3.
7.7.2. After the giving of any Claim Notice, the amount of indemnification
to which an Indemnified Party shall be entitled under this Article VII shall be
determined: (i) by the written agreement between the Indemnified Party and the
Indemnifying Party; (ii) by a final judgment or decree of any court of competent
jurisdiction; or (iii) by any other means to which the Indemnified Party and the
Indemnifying Party shall agree. The judgment or decree of a court shall be
deemed final when the time for appeal, if any, shall have expired and no appeal
shall have been taken or when all appeals taken shall have been finally
determined. The Indemnified Party shall have the burden of proof in establishing
the amount of Damages suffered by it.
7.7.3. (a) In order for a party to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or involving a
Third Party Claim, the Indemnified Party must notify the Indemnifying Party in
writing, and in reasonable detail, of the Third Party Claim within 20 days after
receipt by such Indemnified Party of written notice of the Third Party Claim.
Thereafter, the Indemnified Party shall deliver to the Indemnifying Party,
within 10 business days after the Indemnified Party's receipt thereof, copies of
all notices and documents (including court papers) received by the Indemnifying
Party relating to the Third Party Claim. Notwithstanding the foregoing, should a
party be physically served with a complaint with regard to a Third Party Claim,
the Indemnified Party must notify the Indemnifying Party with a copy of the
complaint within 10 business days after receipt thereof and shall deliver to the
Indemnifying Party within seven business days after the receipt of such
complaint copies of notices and documents (including court papers) received by
the Indemnified Party relating to the Third Party Claim. Failure to notify the
Indemnifying Party shall not relieve the Indemnifying Party of its indemnity
obligation, except to the extent the Indemnifying Party is actually prejudiced
in its defense of the action by such failure. Subject to attorney-client
privilege, the parties hereto agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any such legal
proceeding, claim or demand. Except as hereinafter provided in this Section 7.7,
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the Indemnified Party shall not, and the Indemnifying Party shall, have the
right using counsel reasonably acceptable to the Indemnified Party to contest,
defend, litigate or settle any such Third Party Claim which involves (and
continues to involve) solely monetary damages; provided that the Indemnifying
Party shall have notified the Indemnified Party in writing of its intention to
do so within 90 days of the Indemnified Party having given notice of the Third
Party Claim to the Indemnifying Party and provided further that (i) the
Indemnifying Party expressly agrees in such notice to the Indemnified Party
that, if the Third Party Claim is adversely determined, the Indemnifying Party
shall have an obligation to indemnify against such Third Party Claim; (ii) the
defense of such Third Party Claim by the Indemnifying Party will not, in the
reasonable opinion of the Indemnified Party, reasonably be likely to have a
Material Adverse Effect; and (iii) the Indemnifying Party shall diligently
address the Third Party Claim (the conditions set forth in clauses (i), (ii) and
(iii) being collectively referred to as the "Litigation Conditions"). The
Indemnified Party shall have the right to participate, and to be represented by
counsel at its own expense, in any such contest, defense, litigation or
settlement conducted by the Indemnifying Party, provided that the Indemnified
Party shall be entitled to reimbursement therefor if the Indemnifying Party
shall lose its right to contest, defend, litigate and settle the Third Party
Claim.
(b) The Indemnifying Party shall not be entitled, or shall lose its
right, to contest, defend, litigate and settle the Third Party Claim if the
Indemnified Party shall give written notice to the Indemnifying Party of any
objection thereto based upon the Litigation Conditions. The Indemnifying Party,
if it shall have assumed the defense of any Third Party Claim as provided in
this Agreement, shall not consent to a settlement of, or the entry of any
judgment arising from, any such Third Party Claim, enter into any compromise or
settlement which commits the Indemnified Party to take, or to forbear to take,
any action or which does not provide for a complete release by such third party
of the Indemnified Party without the prior written consent of the Indemnified
Party (which consent shall not be unreasonably withheld or delayed).
Notwithstanding the foregoing, the Indemnified Party shall have the right to
pay, settle or compromise any such Third Party Claim, provided that, in such
event, the Indemnified Party shall waive any right to indemnity therefor.
(c) If an Indemnified Party is entitled to indemnification against a
Third Party Claim, and the Indemnifying Party fails to accept a tender of, or
assume the defense of, a Third Party Claim pursuant to this Section 7.2, or if,
in accordance with Section 7.2.3(b), the Indemnifying Party shall not be
entitled, or shall lose its right, to contest, defend, litigate and settle such
a Third Party Claim or if such Third Party Claim involves equitable or other
non-monetary relief, the Indemnified Party shall have the right to contest,
defend and litigate such Third Party Claim; provided that the Indemnifying Party
shall have the right to participate in, and to be represented by counsel (at its
own expense) in any such contest, defense, litigation or settlement conducted by
the Indemnified Party. The Indemnified Party, if it shall have assumed the
defense of any Third Party Claim as provided in this Agreement, shall not
consent to a settlement of, or the entry of any judgment arising from, any such
Third Party Claim, enter into any compromise or settlement which commits the
Indemnifying Party to take, or to forbear to take, any action (other
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than the payment of money) without the prior written consent of the Indemnifying
Party (which consent shall not be unreasonably withheld or delayed).
7.7.4. In any case where an Indemnified Party recovers from third Persons
any amount in respect of a matter with respect to which an Indemnifying Party
has indemnified it pursuant to this Article VII, such Indemnified Party shall
promptly pay over to the Indemnifying Party the amount so recovered (after
deducting therefrom the full amount of the expenses incurred by it in procuring
such recovery), but not in excess of the sum of (i) any amount previously so
paid by the Indemnifying Party to or on behalf of the Indemnified Party in
respect of such matter and (ii) any amount expended by the Indemnifying Party in
pursuing or defending any claim arising out of such matter.
7.8. Cooperation on Environmental Claims
7.8.1. RCGI's Rights to Remedial Action. In addition to the provisions of
Section 7.7, if any claim for indemnification is sought against the Principal
Stockholder with respect to any Environmental Claim, the resolution of which
involves or includes Remedial Action at Real Estate owned, leased, or operated
by the Company at the time such Remedial Action is to be conducted, RCGI may, in
its discretion, elect to assume full control over any Remedial Action in
connection with any such claim. Upon such election, RCGI shall: (i) after the
Principal Stockholder gives reasonable notice, permit representatives of the
Principal Stockholder (including the Principal Stockholder's advisors and
consultants) to visit and inspect from time to time any properties to which the
Environmental Claim relates; (ii) after the Principal Stockholder gives
reasonable notice, allow the Principal Stockholder to enter on such properties
from time to time for the purpose of conducting such environmental tests as the
Principal Stockholder may reasonably desire with respect to the Environmental
Claim; all during normal business hours and at the Principal Stockholder's
expense; and (iii) prior to submission to any government agency, provide the
Principal Stockholder with a reasonable opportunity to review and approve, which
approval shall not be unreasonably withheld, all proposals, reports,
submissions, data, correspondence, or other documents. RCGI may, at its
discretion, elect to allow the Principal Stockholder to assume full control over
Remedial Action upon providing written notice to the Principal Stockholder of
such election and upon providing the Principal Stockholder with sufficient
opportunity to assume such control. In the event that RCGI shall refuse to
cooperate as set forth in this Section 7.8.1 and Section 7.8.2 with respect to
the taking of a Remedial Action with respect to an Environmental Claim, the
Principal Stockholder shall have no further liability to RCGI with respect to
the Environmental Claim.
7.8.2. The Principal Stockholder's Rights to Remedial Action. If RCGI
elects to allow the Principal Stockholder to assume full control over Remedial
Actions pursuant to Section 7.8.1, RCGI shall: (i) provide the Principal
Stockholder with access to the Real Estate at all reasonable times to enable the
Principal Stockholder to perform such Remedial Action; provided that unless
required by a final government order, the Principal Stockholder shall not
undertake a Remedial Action or other action in settlement of a claim that would
materially and adversely
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affect RCGI's or the Company's operations at the Real Estate unless consented to
by RCGI; (ii) furnish the Principal Stockholder with such relevant records,
information, reports, studies, data, and cost estimates in RCGI's or the
Company's possession; and (iii) attend such conferences, proceedings, hearings,
trials, or appeals regarding any Remedial Action or any Environmental Claim as
the Principal Stockholder shall reasonably request with sufficient advance
notice. For any Principal Stockholder performed Remedial Actions, the Principal
Stockholder shall: (i) provide RCGI with reasonable advance notice to allow RCGI
to attend any conferences, proceedings, hearings, trials, or appeals regarding
any Remedial Action; and (ii) prior to submission to any government agency,
provide RCGI with a reasonable opportunity to review and approve, which approval
shall not be unreasonably withheld, all proposals, reports, submissions, data,
correspondence, or other documents.
7.8.3. Minimization of Remedial Action Costs and Disruption of Operation.
(a) The Principal Stockholder and RCGI Indemnitees agree to use their
best efforts to minimize costs of Remedial Actions and minimize disruption of
operations with respect to Environmental Claims, and, in deciding among various
alternative courses of remedial action, due consideration shall be given to
minimization of costs and the minimization of interference with the ongoing
operations and to the prompt resolution of the Environmental Claim; provided,
however, that if any Remedial Action subject to indemnification hereunder is
reasonably expected to have a Material Adverse Effect, the Principal Stockholder
shall compensate RCGI and/or the Company therefor. and provided further, that
any amount paid by the Principal Stockholder pursuant to this Section 7.8.3
shall be credited toward the amount payable by the Principal Stockholder
pursuant to Section 7.3.6(b) and shall be subject to the payment limitation of
such section.
(b) RCGI will make available its employees at each site and equipment
and other fixed assets purchased hereunder and located at such site to assist in
the remediation work to the extent such employees and equipment are reasonably
capable of doing such work and permitted to do so under Environmental Law;
provided, however, that no such employee shall be required to assist in the
remediation effort if to do so will materially diminish such employee's
availability to perform and be utilized for such employee's normal job purpose
or would otherwise materially interfere with RCGI's operations.
7.9. Mitigation. Each of the parties agrees to take all reasonable steps
(taking into account the nature of the event or condition, and the other demands
on the time and attention of the officers of each respective party) to mitigate
their respective Damages upon and after becoming aware of any event or condition
which could reasonably be expected to give rise to any Damages that are
indemnifiable hereunder; provided that such mitigation shall not interfere with
or disrupt in any material respect the business or operations of a party.
7.10. Indemnification Exclusive Remedy. Except to the extent remedies
cannot be waived as a matter of law and except for injunctive relief pursuant to
Section 6.2, if the Closing occurs, indemnification pursuant to the provisions
of this Article VII shall be the exclusive remedy of the parties for any
misrepresentation or breach of any representation, warranty, agreement or
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covenant contained herein or in any Ancillary Document (other than the Preferred
Stockholders Agreement, the Securities Holders Agreement, the Registration
Rights Agreement and the Jenkins Employment Agreement) (it being understood
that, without limiting the generality of the foregoing, (a) no action in tort or
strict liability may be maintained by any Indemnified Party, (b) the only action
which may be asserted by any Indemnified Party with respect to any Environmental
Claim shall be a contract action to enforce, or to recover Damages pursuant to,
this Article VII, and (c) each of the Principal Stockholder and RCGI, for itself
and the other RCGI Indemnitees or Stockholder Indemnitees, as the case may be,
hereby waives any and all statutory rights, including rights of contribution or
indemnification that any of them might otherwise be entitled to under any
federal, state or local law (including Environmental Laws (including CERCLA)).
ARTICLE 8
Effect of Termination/Proceeding
8.1. General. The parties shall have the rights and remedies with respect
to the termination and/or enforcement of this Agreement which are set forth in
this Article VIII.
8.2. Right to Terminate. Anything to the contrary herein notwithstanding,
this Agreement and the transactions contemplated hereby may be terminated at any
time prior to the Closing:
8.2.1. by the mutual written consent of RCGI and the Principal Stockholder;
8.2.2. by prompt notice given in accordance with Section 9.3, by either of
such parties if the Closing shall not have occurred at or before 11:59 p.m. on
June 30, 1999 and provided that the right to terminate this Agreement under this
Section 8.2.2 shall not be available to any party whose failure to fulfill any
of its obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or prior to the aforesaid date; or
8.2.3. by RCGI or the Principal Stockholder if any court of competent
jurisdiction in the United States or other United States governmental body shall
have issued a final and non-appealable order, decree or ruling permanently
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby.
8.3. Certain Effects of Termination. In the event of the termination of
this Agreement by either the Principal Stockholder or RCGI as provided in
Section 8.2:
8.3.1. each party, if so requested by the other party, will return promptly
every document furnished to it by the other party (or any subsidiary, division,
associate or Affiliate of such other party) in connection with the transactions
contemplated hereby, whether so obtained before or after the execution of this
Agreement, and any copies thereof (except for copies of documents publicly
available) which may have been made, and will use reasonable efforts to cause
its representatives and any representatives of financial institutions and
investors and others to
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whom such documents were furnished promptly to return such documents and any
copies thereof any of them may have made; and
This Section 8.3 and Section 8.7 shall survive any termination of this
Agreement.
8.4. Remedies. Notwithstanding any termination right granted in Section
8.2, in the event of the nonfulfillment of any condition to a party's closing
obligations, in the alternative, such party may elect to do one of the
following:
8.4.1. proceed to close despite the nonfulfillment of any closing
condition, it being understood that consummation of the Closing shall be deemed
a waiver of a breach of any representation, warranty, agreement or covenant or
of such party's rights and remedies with respect thereto to the extent that such
party shall have knowledge of such breach and the Closing shall nonetheless
occur;
8.4.2. decline to close, terminate this Agreement as provided in Section
8.2, and thereafter seek damages to the extent permitted in Section 8.5; or
8.4.3. seek specific performance of the obligations of the other party,
each party hereby agreeing that in the event of any breach by such party of this
Agreement, remedies at law for any such breach will be inadequate, and that such
non-breaching party shall be entitled to enforce specifically the terms and
provisions hereof, in addition to any other remedy to which such non-breaching
party may be entitled at law or equity.
8.5. Right to Damages. If this Agreement is terminated pursuant to Section
8.2, neither party hereto shall have any claim against the other except as set
forth in Section 8.4 or, if the circumstances giving rise to such termination
were caused by the other party's willful failure to comply with a material
covenant set forth herein, such termination shall not be deemed or construed as
limiting or denying any legal or equitable right or remedy of said party.
8.6. Non-Solicitation. If this Agreement is terminated, neither RCGI nor
399 Venture nor any of their Affiliates will, for a period of one year
thereafter, without the prior written approval of the Company, directly or
indirectly solicit, induce or attempt to persuade any person who is an employee
of the Company on the date hereof or at any time hereafter that precedes such
termination, to terminate his or her employment with the Company. Each of 399
Venture and RCGI agrees that the Company's remedies at law for any breach or
threat of breach by RCGI or 399 Venture, as the case may be, of the provisions
of this Section 8.6 will be inadequate, and that the Company shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Section 8.6 and to enforce specifically the terms and provisions hereof, in
addition to any other remedy to which the Company may be entitled at law or in
equity. It is the intent and understanding of each party hereto that if, in any
action before any court or agency legally empowered to enforce this Section 8.6,
any term, restriction, covenant or promise in this Section 8.6 is found to be
unreasonable and for that reason unenforceable, then such term, restriction,
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covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency.
8.7. Confidentiality. (a) 399 Venture shall, and shall cause its
representatives and agents to, keep confidential and not disclose to any other
person (other than its legal and financial advisors and accountants) or use for
their own benefit or the benefit of any other person, any information regarding
the business and affairs of the Company. The obligation of 399 Venture and its
representatives and agents under this Section 8.7 shall not apply to information
which: (i) is or becomes generally available to the public without breach of the
commitment provided for in this Section 8.7; (ii) was otherwise available to 399
Venture on a non-confidential basis; or (iii) is required to be disclosed by
law, order or regulation of a court or tribunal or government or disclosures
necessary to implement the provisions of this Agreement or the Ancillary
Documents; provided, however, that, in the case of clause (iii) above, 399
Venture shall provide the Principal Stockholder and the Company as much advance
notice of the possibility of such disclosure as practicable so the Principal
Stockholder and the Company may attempt to stop such disclosure or obtain a
protective order concerning such disclosure. Notwithstanding anything contained
in the foregoing, the parties hereto expressly acknowledge and agree that the
representations, covenants, and other agreements of 399 Venture and Citicorp
Venture Capital, Ltd. contained in this Section 8.7 apply only to 399 Venture
and Citicorp Venture Capital, Ltd. and not to any of its affiliates or
shareholders, including, without limitation, Citibank, N.A., Citicorp or
Citigroup.
ARTICLE 9
Miscellaneous
9.1. Fees. Each party hereto shall bear all fees and expenses incurred by
such party in connection with, relating to or arising out of the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, including financial
advisors', attorneys', accountants' and other professional fees and expenses;
provided, however, that Company shall pay such fees and expenses incurred by the
Company prior to the Closing Date.
9.2. Publicity. Except as otherwise required by law or applicable stock
exchange rules, press releases and other publicity concerning this transaction
shall be made only with the prior agreement of the Principal Stockholder, the
Company and RCGI (and in any event, the Principal Stockholder and RCGI shall use
all reasonable efforts to consult and agree with each other with respect to the
content of any such required press release or other publicity); provided,
however, that the foregoing shall not preclude communications or disclosures
necessary to implement the provisions of this Agreement.
9.3. Notices. All notices required or permitted to be given hereunder shall
be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three business days after being deposited in the United
States mail, postage prepaid, registered or certified mail, return receipt
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requested. Notices delivered by hand, by facsimile, or by nationally recognized
private courier shall be deemed given on the first business day following
receipt; provided, however, that a notice delivered by facsimile shall only be
effective if such notice is also delivered by hand, or deposited in the United
States mail, postage prepaid, registered or certified mail, on or before two
business days after its delivery by facsimile. All notices shall be addressed as
follows:
If to the Company or the Principal Stockholder:
Francis P. Jenkins, Jr.
Royster-Clark, Inc.
10 Rockefeller Plaza
Suite 1120
New York, NY 10020
Fax: (212) 332-2999
with a copy to:
Randolph G. Abood
Royster-Clark, Inc.
10 Rockefeller Plaza
Suite 1120
New York, NY 10020
Fax (212) 332-2994
If to RCGI or 399 Venture:
c/o 399 Venture Partners, Ltd
399 Park Avenue, 14th Floor, Zone 4
New York, New York 10043
Attention: Thomas F. McWilliams
Fax: (212) 888-2940
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103
Attention: Craig Godshall, Esq.
Fax: (212) 994-2222
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and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 9.3.
9.4. Entire Agreement; Interpretation. This Agreement and the Ancillary
Documents constitute the entire agreement between the parties and shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives, successors and permitted assigns. Articles, titles and
headings to sections herein are inserted for convenience of reference only and
are not intended to be a part of or to affect the meaning or interpretation of
this Agreement. The Disclosure Schedules and Exhibits referred to herein shall
be construed with and as an integral part of this Agreement to the same extent
as if they were set forth verbatim herein. Any amendments, or alternative or
supplementary provisions, to this Agreement must be made in writing and duly
executed by an authorized representative or agent of each of the parties hereto.
Neither the specification of any dollar amount in any representation or warranty
contained in this Agreement nor the inclusion of any specific item in the
Disclosure Schedules is intended to imply that such amount, or higher or lower
amounts, or the item so included or other items, are or are not material, and no
party shall use the fact of the setting forth of any such amount or the
inclusion or omission of any such item in any dispute or controversy between the
parties as to whether any obligation, item or matter not described herein or
included in the Disclosure Schedules is or is not material for purposes of this
Agreement. Unless this Agreement specifically provides otherwise, neither the
specification of any item or matter in any representation or warranty contained
in this Agreement nor the inclusion of any specific item in the Disclosure
Schedules is intended to imply that such item or matter, or other items or
matters, are or are not in the ordinary course of business, and no party shall
use the fact of the setting forth or the inclusion of any such item or matter in
any dispute or controversy between the parties as to whether any obligation,
item or matter not described herein or included in the Disclosure Schedules is
or is not in the ordinary course of business for purposes of this Agreement. The
Principal Stockholder may once not later than 20 days after the date hereof (or,
in the event the Closing shall not have occurred prior to the date set forth in
Section 8.2.2, then once per 30 days thereafter) by notice in accordance with
the terms of this Agreement, supplement or amend the Disclosure Schedules, in
order to add information arising from events after the date hereof. No such
supplement or amendment shall be evidence, in and of itself, that the
representations and warranties in the Agreement are no longer true and correct
in accordance with their terms. It is specifically agreed that the Disclosure
Schedules may be so supplemented or amended to add immaterial, as well as
material, items thereto. No such supplemental or amended Disclosure Schedules
shall be deemed to cure any breach for purposes of Section 4.2. If, however, the
Closing occurs, any such supplement or amendment will be effective to cure and
correct for all other purposes any breach of any representation, warranty,
covenant or agreement which would have existed if Seller had not made such
supplement or amendment, and all references to the Disclosure Schedules which
are supplemented or amended as provided in this Section 9.4 shall for all
purposes after the Closing be deemed to be a reference to the Disclosure
Schedules as so supplemented or amended.
-51-
<PAGE>
9.5. Non-Waiver. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
9.6. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
9.7. Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
9.8. Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their successors and permitted
assigns. Except as set forth in Section 6.5 or in respect of any RCGI Indemnitee
or Stockholder Indemnitee which is not a party hereto, nothing in this
Agreement, express or implied, shall confer on any person other than the parties
hereto, and their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
including third party beneficiary rights.
9.9. Assignability. This Agreement shall not be assignable by RCGI without
the prior written consent of the Principal Stockholder; provided, however, that
RCGI may assign its rights hereunder to the Company, any Affiliates of RCGI, to
any successor to its business, or as collateral security to any person providing
financing to RCGI to consummate the transactions contemplated hereunder; and
provided further, however, that no such assignment shall relieve RCGI of its
obligations hereunder.
9.10. Governmental Reporting. Anything to the contrary in this Agreement
notwithstanding, nothing in this Agreement shall be construed to mean that a
party hereto or other person must make or file, or cooperate in the making or
filing of, any return or report to any governmental authority in any manner that
such person or such party reasonably believes or reasonably is advised is not in
accordance with law.
9.11. Applicable Law. This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of New York applicable to contracts
made in that State.
9.12. Waiver of Trial by Jury. Each of the parties hereto waives the right
to a jury trial in connection with any suit, action or proceeding seeking
enforcement of such party's rights under this Agreement.
-52-
<PAGE>
9.13. Consent to Jurisdiction. This Agreement has been executed and
delivered in and shall be deemed to have been made in New York, New York. Each
of the Principal Stockholder, 399 Venture, the Company and RCGI agrees to the
exclusive jurisdiction of any state or Federal court within the City of New
York, Borough of Manhattan with respect to any claim or cause of action arising
under or relating to this Agreement, and waives personal service of any and all
process upon it or him, and consents that all services of process be made by
hand, by registered mail or certified mail, return receipt requested, directed
to it or him at its or his address as set forth in Section 9.3, and service so
made shall be deemed to be completed when received. Each of the Principal
Stockholder, 399 Venture, the Company and RCGI waives any objection based on
forum non conveniens and waives any objection to venue of any action instituted
hereunder. Nothing in this paragraph shall affect the right of each of the
Principal Stockholder, 399 Venture, the Company or RCGI to serve legal process
in any other manner permitted by law.
9.14. Amendments. This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of each of
the parties hereto.
9.15. Construction. The titles and headings contained in this Agreement are
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement. The term "including" means "including, without
limitation".
-53-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Exchange Agreement on
the date first above written.
ROYSTER-CLARK GROUP, INC.
By: /s/ Paul M. Murphy
------------------------------------
Name: Paul M. Murphy
Title: Vice President
399 VENTURE PARTNERS, INC.
By: /s/ Thomas F. McWilliams
------------------------------------
Name: Thomas F. McWilliams
Title:
ROYSTER-CLARK, INC.
By: /s/ Paul M. Murphy
------------------------------------
Name: Paul M. Murphy
Title: Vice President
/s/ Francis P. Jenkins, Jr.
-----------------------------------------
Francis P. Jenkins, Jr.
-54-
<PAGE>
Annex A
Redemptions - Shares and Amounts
<PAGE>
Annex B
Exchange - Shares and Amounts
EXHIBIT 12.01
STATEMENT re COMPUTATION OF RATIOS
Page 10: Pro forma ratio of earnings to fixed charges for the year ended
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Earnings
Income from continuing operations before taxes 17,265
Loss from equity investees 1,857
Fixed charges 36,190
-------
55,312
Fixed charges:
Interest expensed 33,475
Interest capitalized --
Amortized premiums, discounts, capital expenses
related to indebtedness 1,921
Estimated interest within rental expense 794
-------
36,190
------
1.5x
</TABLE>
Page 10: Pro forma ratio of earnings to fixed charges for the six
months ended June 30, 1999
<TABLE>
<S> <C>
Earnings:
Pre-tax income from continuing operations 10,424
Loss from equity investees 100
Fixed charges 17,540
-------
(28,064)
Fixed charges:
Interest expensed 15,984
Interest capitalized --
Amortized premiums, discounts, capital expenses
related to indebtedness 951
Estimated interest within rental expense 605
-------
17,540
-------
1.6x
Page 10: Pro forma adjusted EBITDA to interest expense for the year ended December 31,
1998
Adjusted EBITDA:
Pre-tax income from continuing operations 17,265
Loss from equity investees 1,857
Interest expense 33,475
Depreciation and amortization 23,489
Additional pro forma adjustments 2,528
-------
78,614
Interest expense 33,475
-------
2.3x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT RE COMPUTATION OF RATIOS--(CONTINUED)
<S> <C>
Page 10: Pro forma adjusted EBITDA to interest expense for the six months ended June
30, 1999
Adjusted EBITDA:
Pre-tax income (loss) from continuing operations 45,444
Loss from equity investees 100
Interest expense 15,984
Depreciation and amortization 6,990
Additional pro forma adjustments --
-------
68,418
Interest expense 15,984
------
4.3x
Page 10: Pro forma net debt to Adjusted EBITDA for the year ended December 31, 1998
Net debt:
Pro forma Senior Secured Credit Facility 90,655
Pro forma other long-term debt, including current portion 7,302
First Mortgage Notes 200,000
Less cash and cash equivalents (82)
-------
297,875
Adjusted EBITDA, as above 78,614
-------
3.8x
Page 10: Pro forma net debt to Adjusted EBITDA for the six months ended June 30, 1999
Net debt:
Pro forma Senior Secured Credit Facility 98,848
Pro forma other long-term debt, including current portion 7,252
First Mortgage Notes 200,000
Less cash and cash equivalents (422)
-------
305,678
Adjusted EBITDA, as above 68,418
-------
4.5x
Page 25: Ratio of earnings to fixed charges for the three months ended June
30, 1999
Earnings:
Income from continuing operations before taxes 47,342
Fixed charges 8,661
-------
56,003
Fixed Charges:
Interest expensed 7,877
Interest capitalized --
Amortized premiums, discounts, capital expenses
related to indebtedness 477
Estimated interest within rental expense 307
------
8,661
-------
6.5x
</TABLE>
<PAGE>
Page 26: Ratio of earnings to fixed charges for Royster-Clark, Inc.
<TABLE>
<CAPTION>
Three Months
Year Ending December 31, Ending March 31
----------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income from continuing
operations before taxes 386 4,265 6,440 7,110 3,054 843 617
Income (loss) from equity
investees -- -- -- -- -- -- --
Fixed charges 5,179 5,916 5,596 5,330 6,509 1,408 1,921
----- ----- ----- ----- ----- ----- -----
5,565 10,181 12,036 12,440 9,563 2,251 2,538
----- ----- ----- ----- ----- ----- -----
Interest expensed 4,370 5,306 5,004 4,672 5,489 1,219 1,607
Interest capitalized -- -- -- -- -- -- --
Amortized premiums,
discounts, capital expenses
related to indebtedness 230 62 61 62 226 8 16
Estimated interest within
rental expense 579 548 531 596 794 181 298
----- ----- ----- ----- ----- ----- -----
5,179 5,916 5,596 5,330 6,509 1,408 1,921
----- ----- ----- ----- ----- ----- -----
1.07x 1.72x 2.15x 2.33x 1.47x 1.60x 1.32x
===== ====== ====== ====== ===== ===== =====
</TABLE>
Page 26: Ratio of earnings to fixed charges for IMC Agribusiness
<TABLE>
<CAPTION>
Three Months
Year Ending December 31, Ending March 31
----------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing
operations before taxes 20,772 40,600 22,600 31,001 9,408 (10,142) (18,100)
Income (loss) from equity
investees 1,200 500 200 661 (1,897) 295 (100)
Fixed charges 9,269 14,099 15,343 16,117 16,467 3,650 3,837
------ ------ ------ ------ ------ ------ -------
31,241 55,199 38,143 47,779 23,978 (6,197) (14,363)
------ ------ ------ ------ ------ ------ -------
Interest expensed 7,331 11,900 13,100 13,327 13,245 2,917 3,134
Interest capitalized -- -- -- -- -- -- --
Amortized premiums,
discounts, capital expenses
related to indebtedness -- -- -- -- -- -- --
Estimated interest within
rental expense 1,938 2,199 2,243 2,790 3,222 733 703
------ ------ ------ ------ ------ ------ -------
9,269 14,099 15,343 16,117 16,467 3,650 3,837
------ ------ ------ ------ ------ ------ -------
3.37x 3.92x 2.49x 2.96x 1.46x (1.70)x (3.74)x
====== ====== ====== ====== ====== ====== =======
</TABLE>
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
The Board of Directors
Royster-Clark, Inc.:
The audits referred to in our report dated February 10, 1999 included the
related financial statement schedule, Schedule I - Allowance for Doubtful
Accounts, as of December 31, 1998, and for each of the years in the three-year
period ended December 31, 1998, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
Norfolk, Virginia
August 24, 1999
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Historical Financial Data", and "Experts" in the Second Amended Registration
Statement (Form S-4 No. 333-81235) and the related Prospectus of Royster-Clark,
Inc. for the registration of 10-1/4% percent First Mortgage Notes due 2009, and
to the inclusion of our report dated January 18, 1999 with respect to the
combined financial statements of IMC AgriBusiness as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998.
Our audits also included the related financial statement schedule of IMC
AgriBusiness included in the Registration Statement as Schedule 2 - Allowance
for Doubtful Accounts. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
St. Louis, Missouri
August 24, 1999
SCHEDULE 1
ROYSTER-CLARK, INC.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE, AMOUNTS
BEGINNING CHARGED TO BALANCE,
OF YEAR EXPENSE DEDUCTIONS(1) END OF YEAR
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996........... $ 802,401 $1,509,338 $(894,465) $1,417,274
Year Ended December 31, 1997........... $1,417,274 $ 687,706 $(304,980) $1,800,000
Year Ended December 31, 1998........... $1,800,000 $ 451,259 $(451,259) $1,800,000
</TABLE>
- ------------------
(1) Amounts determined not to be collectible, net of recoveries.
S-1
SCHEDULE 2
IMC AGRIBUSINESS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE, AMOUNTS
BEGINNING CHARGED TO BALANCE,
OF YEAR EXPENSE DEDUCTIONS(1) END OF YEAR
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996.......... $2,828,287 $3,687,300 $(2,406,772) $4,108,815
Year Ended December 31, 1997.......... $4,108,815 $4,177,554 $(3,956,848) $4,329,521
Year Ended December 31, 1998.......... $4,329,521 $ 905,138 $(1,550,731) $3,683,928
</TABLE>
- ------------------
(1) Amounts determined not to be collectible, net of recoveries.
S-2
