AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999
REGISTRATION NO. 333-81235
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
AMENDMENT NO. 3
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 Resources LLC................. Delaware 5191 22-3652274
Royster-Clark Realty LLC.................... Delaware 6512 22-3648552
Royster-Clark AgriBusiness Realty LLC....... Delaware 6512 22-3648546
</TABLE>
Effective September 23, 1999, the Company intends to merge Royster-Clark
Hutson, Inc. with Royster-Clark AgriBusiness, Inc. and Royster-Clark
AgriBusiness, Inc. will continue as the surviving corporation. Effective
September 23, 1999, the Company intends to merge Royster-Clark Hutson's Realty
LLC and Royster-Clark Nitrogen Realty LLC with Royster-Clark AgriBusiness Realty
LLC and Royster-Clark AgriBusiness Realty LLC will continue as the surviving
corporation.
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 SEPTEMBER 23, 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 "Federal Tax Consequences" on page 126 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 THE MATERIAL
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 Beneficial Owners...... 75
Risk Factors..................................... 14 Relationships and Related Transactions....... 76
The Transactions................................. 22 Description of Other Indebtedness............ 78
Use of Proceeds.................................. 24 Description of First Mortgage Notes.......... 81
Capitalization................................... 25 Federal Tax Consequences..................... 126
Selected Historical Financial Data............... 26 Plan of Distribution......................... 130
Management's Discussion and Analysis of Legal Matters................................ 131
Financial Condition and Results of Operations.. 29 Experts...................................... 131
The Exchange Offer............................... 46 Forward-Looking Statements................... 132
Business......................................... 55 Additional Information....................... 133
Management....................................... 69 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. You are urged to read this
prospectus in its entirety before tendering your notes for exchange.
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, unless we
extend the exchange offer. You may withdraw a
tender of existing first mortgage notes under the
exchange offer at any time before the expiration
date. We will return any existing first mortgage
notes which are not accepted for exchange for any
reason. We will return unaccepted existing first
mortgage notes without expense to the tendering
holder and as promptly as practicable after the
exchange offer expires or terminates.
Conditions to the Exchange Offer.......... Customary conditions, which we may waive, apply to
the exchange offer. 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 provided 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 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 "Federal Tax
Consequences."
</TABLE>
1
<PAGE>
CONSEQUENCES OF EXCHANGING EXISTING FIRST MORTGAGE NOTES
IN 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, stated 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,
the 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 any resale of the
exchange first mortgage notes. See "The Exchange Offer -- Resales of Exchange
First Mortgage Notes;" "Plan of Distribution."
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.
2
<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 secured
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 and all of
our unsecured obligations, (including the unsecured
obligations of our subsidiaries who have provided
collateral for the first mortgage notes).
At June 30, 1999, we had $2.1 million of
indebtedness outstanding under industrial
revenue bonds, $5.0 million of indebtedness
outstanding under a note due to the seller of a
previously-acquired business and $98.8 million
outstanding under our senior secured credit
facility. 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
that collateral. Correspondingly, each item of
indebtedness is effectively subordinated to the
other indebtedness to the extent of the
different collateral that secures the other
indebtedness. See "Description of First Mortgage
Notes -- Brief Description of the First Mortgage
Notes and the Guarantees" and "Description of
Other Indebtedness -- Security."
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.
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 all of the membership interests,
which comprise the total equity, of
Royster-Clark Realty LLC and Royster-Clark
AgriBusiness LLC, two new limited liability
companies.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
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................................... Royster-Clark Group and our existing
subsidiaries have agreed to fully and
unconditionally guarantee the exchange first
mortgage notes on a joint and several basis. If
we or any of our subsidiaries acquire or create
a new subsidiary, that is determined to be a
restricted subsidiary under the indenture, then
that newly acquired or created restricted
subsidiary will also guarantee the exchange
first mortgage notes on a joint and several
basis. However, if that new restricted
subsidiary is organized under the laws of a
foreign jurisdiction, and if the guarantee by
the new restricted subsidiary would result in
the imposition of a tax or similar governmental
charge, then the foreign subsidiary will not be
required to be a guarantor. See "Description of
First Mortgage Notes -- Guarantees and --
Definitions."
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."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
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 First Mortgage Notes."
5
<PAGE>
THE TRANSACTIONS
On April 22, 1999, 399 Venture Partners, Inc., ("399 Ventures") 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 owns approximately 76% of the
stock of Royster-Clark Group, members of our management own approximately 20% of
the stock of Royster-Clark Group and have the right to acquire an additional 8%
through a new stock purchase plan and Royster-Clark Group owns all of the
outstanding stock of Royster-Clark and AgriBusiness.
The following chart shows our capital structure and our subsidiaries
who are guarantors of the first mortgage notes.
-------------------------
Royster-Clark Group, Inc.
-------------------------
|
| 100%
|
-------------------------
Royster-Clark, Inc.
-------------------------
| | |
100% | | 100% | 100%
| | |
------------------ -------------- -------------
Royster-Clark Royster-Clark Royster-Clark
AgriBusiness, Inc. Nitrogen, Inc. Realty LLC
------------------ -------------- -------------
| |
| 100% | 100%
| |
------------- -------------
Royster-Clark Royster-Clark
Resources AgriBusiness
LLC Realty LLC
------------- -------------
6
<PAGE>
SOURCES AND USES OF PROCEEDS
The sources and uses of funds related to the transactions discussed in this
prospectus are as follows (dollars in millions):
<TABLE>
<CAPTION>
SOURCES USES
------- ----
<S> <C> <C> <C>
Senior Secured Credit $114.9 Aggregate Purchase Price of
Facility...................... AgriBusiness and Royster-Clark.. $315.1
First Mortgage Notes............ 200.0 Refinanced Debt................... 67.8
Equity Investment............... 88.6 Transaction Fees and Expenses..... 20.6
------ ------
Total......................... $403.5 Total........................... $403.5
====== ======
</TABLE>
The Equity Investment includes $59.0 million contributed by 399 Ventures,
$19.6 million of management rollover equity and $10.0 million of Royster-Clark
Group junior subordinated non-cash pay notes maturing in 2010, owned by IMC
Global, Inc.
Transaction fees and expenses include 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,"
"Relationships and Related Transactions" and "Security Ownership of Beneficial
Owners."
7
<PAGE>
THE COMPANY
We are one of the largest independent retail and wholesale distributors, in
terms of retail sales, 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 are one of the largest North American sellers 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."
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.
8
<PAGE>
RISK FACTORS
You should carefully consider all of the information in this prospectus. In
particular, you should evaluate the following significant risk factors discussed
further under "Risk Factors," beginning on page 14 before deciding to tender
your existing first mortgage notes in the exchange offer:
o Failure to tender your existing first mortgage notes for exchange first
mortgage notes could limit your ability to resell the existing first
mortgage notes.
o Our indebtedness could adversely affect our financial health and limit
our ability to grow and compete.
o 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.
o We may not be able to successfully integrate the Royster-Clark and
AgriBusiness operations and therefore our overall business may suffer.
o We and our subsidiaries may be able to incur substantial additional
indebtedness in the future, which would increase our leverage.
o Poor weather conditions in advance of and during the spring planting
season can lead to a decline in our revenues.
o 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.
o The proceeds from the sale of the collateral may not be sufficient to
make all payments due under the first mortgage notes.
o 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.
o As a secured lender, you may be subject to claims and liabilities under
environmental laws and regulations.
o Downturns in the nitrogen industry or changes in end user market demands
could reduce the revenues and profitability of our business.
o Our operations have risks that may result in liability for pollution and
other damage not covered by insurance or which exceed our insurance
coverage.
o We have a long-term supply contract with IMG Global and IMC Global's
failure to perform under this contract could disrupt our operations.
o Our business is very competitive and increased competition could reduce
the value of an investment in our company.
o Our success depends on a limited number of key executives who we may not
be able to adequately replace in the event they leave the company.
o Government regulations and agricultural policy may affect our financial
viability.
9
<PAGE>
o We may have claims and liabilities under environmental health and safety
laws and regulations.
o We could suffer year 2000 problems that could disrupt our operations.
o We may not have sufficient funds necessary to finance a change of control
offer.
o Federal and state statutes allow courts, under specific circumstances, to
void guarantees and require noteholders to return payments received from
guarantors.
o 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.
10
<PAGE>
INTRODUCTION TO SUMMARY FINANCIAL INFORMATION
Included in the Summary Selected Pro Forma Financial Data and in the
Summary Selected Historical Financial Data is EBITDA, which 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 related
to our ability to meet our future debt service, capital expenditure and working
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.
SUMMARY SELECTED PRO FORMA 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. In the
opinion of management, the data includes 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.............................................. 178,216 118,641
Operating income.......................................... 52,588 45,444
Other Data:
EBITDA.................................................... $ 76,086 57,236
Depreciation and amortization............................. 23,498 11,792
Cash interest expense..................................... 34,491 15,984
Capital expenditures...................................... 32,245 10,956
Credit Ratios:
EBITDA to interest expense................................ 2.2x 3.6x
Net debt to EBITDA(a)..................................... 3.9x 5.3x
Pro forma earnings to fixed charges(b).................... 1.5x 2.7x
</TABLE>
- ------------------
(a) Net debt represents total debt less cash and cash equivalents. The ratio of
net debt to 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.
(b) The ratio of earnings to fixed charges is computed by adding fixed
charges to earnings 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.
11
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following tables provide summary historical financial and other data of
Royster-Clark, Inc., and AgriBusiness as of and for each of the years in the
five year period ended December 31, 1998, the three months ended March 31, 1998,
March 31, 1999, June 30, 1999 and as of June 30, 1999.
Effective April 1, 1999, Royster-Clark Group, a newly formed entity
capitalized with approximately $59,000 in cash, acquired all of the then
outstanding stock of Royster-Clark, Inc. 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 Royster-Clark by Royster-Clark
Group 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 Royster-Clark Inc.'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 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 as of and for the years ended
1996, 1997, and 1998 were derived from the audited financial statements of
Royster Clark prior to the acquisition by Royster Clark Group and AgriBusiness.
The financial data of Royster-Clark, Inc. as of June 30, 1999 and for the three
months then ended were derived from the unaudited condensed consolidated
financial statements. Selected financial data for Royster-Clark, Inc. prior to
acqusition by Royster Clark Group and for AgriBusiness as of and for the years
ended 1994 and 1995 and as of and for the three months ended March 31, 1999 and
1998 were derived from unaudited financial statements, which have been prepared
by management on a basis consistent with the audited financial statements. For
all interim periods, it should be noted that the results of operations are not
necessarily indicative of a full year's operations; however, in the opinion of
management the data presented includes 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> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... 492,608
Gross profit....................... 96,015
Operating income................... 55,219
Net earnings....................... 28,728
OTHER DATA:
EBITDA............................. 61,081
Depreciation and amortization...... 5,862
Capital expenditures............... 4,292
Net cash provided by operating
activities(a)...................... 93,996
Net cash used in investing
activities(a)...................... (259,261)
Net cash provided by financing
activities(a)...................... 165,605
</TABLE>
<TABLE>
<CAPTION>
AT
JUNE 30,
1999
------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... 209,491
Total assets......................... 560,463
Long-term debt less current portion.. 303,520
</TABLE>
(continued on next page)
12
<PAGE>
<TABLE>
<CAPTION>
ROYSTER-CLARK, PRIOR TO YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
ACQUISITION BY ROYSTER CLARK GROUP ---------------------------------------------------- -------------------
- ----------------------------------- 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................................. 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
Net cash provided by (used in) operating
activities............................. -- -- 12,333 (6,581) 13,157 (29,760) (29,740)
Net cash used in investing activities.... -- -- (1,119) (2,006) (26,532) (922) (956)
Net cash provided by (used in) financing
activities............................. -- -- (11,213) 8,647 13,388 30,682 30,696
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ------------
<S> <C> <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 less current portion.. 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................................. 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
Net cash provided by operating
activities(a).......................... -- -- 43,600 42,500 65,700 3,800 3,700
Net cash used in investing activities(a). -- -- (45,900) (78,600) (31,100) (7,400) (5,700)
Net cash provided by (used in) financing
activities(a).......................... -- -- (1,100) 38,700 (33,900) 200 (4,100)
AT DECEMBER 31, AT MARCH 31,
---------------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ------------
<S> <C> <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 less current portion.. 12,400 9,800 10,700 4,600 4,600 4,600
</TABLE>
- ------------------
(a) Cash flow data for 1995 and 1994 is not available due to both Royster-Clark,
Inc. and AgriBusiness having previously had fiscal years other than calendar
year.
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 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
14
<PAGE>
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."
OUR BUSINESS IS SUBJECT TO SEASONALITY BECAUSE OF THE LIMITED OPPORTUNITY WE
HAVE TO COMPLETE THE REQUIRED TASKS OF OUR CUSTOMERS AT EACH STAGE OF CROP
CULTIVATION.
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
15
<PAGE>
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. Seasonality also relates
to the limited windows of opportunity we have to complete required tasks, such
as planting, that our customers have at each stage of crop cultivation. Should
events such as adverse weather or transportation interruptions occur during
these seasonal windows, we would face the possibility of reduced revenue without
the opportunity to recover until the following season. In addition, because of
the seasonality of agriculture, we face the risk of significant inventory
carrying costs should our customers' activities be curtailed during their normal
seasons. We cannot assure you that we will not experience a material adverse
effect on our business arising from the seasonality of the industry we serve.
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. We believe that our
operating results were adversely affected by these weather conditions and the
resulting changes in planting activity. It is impractical to isolate the
impact of one factor among many different factors affecting our business;
nevertheless we believe that poor weather during the planting season of 1998 was
the largest single factor adversely affecting our retail sales and operating
results in 1998 when compared to 1997.
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 two
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 properties in Columbus, Ohio and Hartsville, South Carolina are
affected by title defects not typical of a first mortgage financing. The
ten acre Columbus, Ohio site includes two tracts totaling 5.164 acres
that may have been taken in condemnation in the 1940s by the State of
Ohio, although no title documents of record confirm this. While
the plant operations are not conducted on these tracts, there are minor
encroachments of plant buildings into the roadway, which could result in
a removal order. Such removal would be an expense to us. At our
Hartsville, South Carolina site, which
16
<PAGE>
covers approximately 21.82 acres, portions of three buildings,
including a corner of the main granulation plant, and an entire small
storage facility have been constructed in a 3.03 acre piece of land
that may not be owned by our company or its subsidiaries. A successful
adverse claim to this land could force us to remove the encroaching
portions of the buildings or purchase easements to continue the
encroachments, in either case, at our expense. To this date, no one
has asserted a claim to the land in question. However, both sets of
defects lower the value of the collateral requirements by these
properties.
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 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 have conveyed all but five 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 five properties to the limited liability companies as soon as
possible, and the seller of AgriBusiness has agreed to a limited
indemnity in favor of the holders of the first mortgage notes for its
failure to properly convey its properties, pursuant to which it is
obligated to pay the holders the fair market value of each parcel
determined by a current appraisal. This indemnity obligation is subject
to the aggregate maximum indemnity amount of ten percent of the purchase
price of approximately $300 million.
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 is obligated to indemnify us for
losses resulting from a failure to clear title to the 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
17
<PAGE>
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 the 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 the 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 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 be held liable
under 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 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 REVENUES AND PROFITABILITY 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 intense price competition from domestic and foreign sources
may exist. Most multi-nutrient fertilizers contain nitrogen materials to some
extent. Accordingly, a downturn in nitrogen prices can have a depressing affect
on the prices of most of the fertilizer products that we sell and can reduce our
ability to generate the dollar amount of margins available at higher price
levels.
In addition to the direct and indirect impact on the profitability of the
fertilizer products we sell, lower nitrogen fertilizer prices can have a very
strong impact on the profitability of our own nitrogen fertilizer manufacturing
operations. 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. During 1998, our revenues and earnings before interest, taxes,
depreciation and amortization on manufactured nitrogen fertilizer products were
adversely affected by changes in nitrogen fertilizer prices with both declining
by approximately $8.0 million compared to 1997 as a result of lower price levels
in the market.
18
<PAGE>
OUR OPERATIONS HAVE 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 have 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.
WE ENTERED INTO A LONG-TERM SUPPLY CONTRACT WITH IMC GLOBAL RELATED TO 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. In 1998, we sourced approximately 81% of
our potash requirements and 77% of our phosphate requirements from IMC Global.
Under the terms of our supply agreement with IMC Global, we expect to purchase
at about this same level in the future. 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
19
<PAGE>
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 HAVE 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 these 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 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 change of control events, we may 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 repurchases.
In addition, some important corporate events, such as leveraged
recapitalizations that would increase the level of our
20
<PAGE>
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 the guarantee; or
o was insolvent or rendered insolvent by reason of the 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.
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.
ROYSTER-CLARK GROUP
In January of 1999, 399 Ventures and management of Royster-Clark formed a
new company, now known as Royster-Clark Group, Inc., for the purpose of
acquiring all of the outstanding stock and stock options of Royster-Clark and
for Royster-Clark to acquire the AgriBusiness unit of IMC Global, Inc. 399
Ventures capitalized Royster-Clark Group by investing a total of $59.0 million
in cash in exchange for:
o $10 million in junior subordinated notes;
o $47.4 million of Royster-Clark Group non-cash pay preferred stock; and
o $1.6 million of Royster-Clark Group common stock.
ROYSTER-CLARK, INC.
In two transactions, on March 31 and April 22, 1999, Royster-Clark Group
acquired all of the outstanding stock of Royster-Clark from its stockholders,
including one of its largest stockholders, Terra International, Inc., ("Terra")
for approximately $55.6 million. On March 31, 1999, 399 Venturs provided a
bridge loan to Royster-Clark to finance the repurchase of th stock held by Terra
for $22.2 million. On April 22, Royster-Clark Group acquired all of the stock of
Royster-Clark. The aggregate consideration paid consisted of cash and securities
as follows:
o $34.8 million in cash (excluding the direct costs of the acquisition) or
64% of the total consideration paid; and
o Royster-Clark Group securities consisting of 13,264 shares of senior
preferred stock, 7,487 shares of junior preferred stock and 368,426
shares of common stock, representing 36% of the total consideration
paid.
In addition, as described below, some stockholders of Royster-Clark
received securities of Royster-Clark Group (or options to acquire securities)
for their stock or options in Roster-Clark. Royster-Clark effected a number of
transactions involving holders of its stock and stock options:
o Royster-Clark redeemed 2,498 shares of stock from a group of stockholders
who did not wish to be continuing investors in Royster-Clark Group for
$285 per share or an aggregate amount of approximately $712,000;
o Royster-Clark redeemed 23,677 common-equivalent shares of stock held by
Mr. Jenkins for $285 per share or an aggregate amount of approximately
$6.8 million;
o Royster-Clark redeemed 5,385 shares of stock from some stockholders,
including Messrs. Moshenek, Vance and Abood, who wished to remain
investors in Royster-Clark Group for $285 per share or an aggregate
amount of approximately $1.5 million; and
o some members of management who had options to acquire Royster-Clark
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. For each option exchanged, each
stockholder received one new option to purchase 2.03 shares of
Royster-Clark Group senior preferred stock, 1.14 shares of Royster-Clark
Group junior preferred stock and 5.49 shares of Royster-Clark Group
common stock.
o some stokholders of Royster-Clark exchanged their stock of
Royster-Clark for securities of Royster-Clark Group. For each share of
common-equivalent stock exchanged, each stockholder received, 2.1 shares
of senior preferred stock, 1.2 shares of junior preferred stock and 5.8
shares of Class A common stock in Royster-Clark Group Securities.
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, Royster-Clark effected a reverse stock split that resulted in cash
payments in lieu of fractional share interests in aggregate amounts of
approximately $649,000 and $2.9 million, respectively.
Overall, as a result 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,
22
<PAGE>
respectively, and $17.5 million, $1.2 million, $335,000 and $1.5 million in
securities of Royster-Clark Group, respectively.
AGRIBUSINESS
On April 22, 1999, 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 $252.3 million in cash, comprising 96% of
the total consideration paid and $10 million of Royster-Clark Group junior
subordinated notes issued to IMC by Royster-Clark Group, comprising 4% of the
total consideration paid, for an aggregate amount of $265.5 million, including
$3.2 million in direct costs of the acquisition. These three IMC entities are
referred to as "AgriBusiness." Royster-Clark financed the acquisition using the
proceeds of the first mortgage notes, borrowings under the senior secured credit
facility and $10 million of the Royster-Clark Group junior subordinated notes.
EFFECT OF THE TRANSACTIONS
As a result of the transactions discussed above, Mr. Jenkins, 399 Ventures
and some other members of our management team acquired all of the stock of
Royster-Clark Group and indirectly acquired all of the outstanding stock of
Royster-Clark and AgriBusiness. Specifically, management, including Mr. Jenkins,
now owns approximately 20% of the Royster-Clark Group stock and has the right to
acquire an additional 8% through a new stock purchase plan and 399 Ventures now
owns approximately 76% of the Royster-Clark Group stock.
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.
Some of the members of Royster-Clark management contributed $19.6 million in
rollover equity which consisted of:
o $13.3 million of non-cash pay preferred stock,
o $4.5 million of zero preferred stock,
o $0.4 million of common equity, and
o $1.4 million of rollover options
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," "Relationships and
Related Transactions," and "Security Ownership of Beneficial Owners."
23
<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 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 complete 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 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.
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<PAGE>
CAPITALIZATION
The following table shows 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, dependent upon
availability.
25
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables provide selected historical financial and other data
of Royster-Clark, Inc. as of and for the three months ended June 30, 1999; Old
Royster-Clark and AgriBusiness as of and for each of the years in the five-year
period ended December 31, 1998; and Old Royster-Clark and AgriBusiness at March
31, 1999 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, Inc.,
Old 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,
Inc. as of and for the three months ended June 30, 1999 were derived from the
unaudited pro-forma condensed consolidated financial statements. Selected
financial data for Old Royster-Clark and for AgriBusiness as of and for the
years ended 1994 and 1995 and as of and for the three months ended March 31,
1999 and 1998 were derived from unaudited financial statements, which have been
prepared by management on a basis consistent with the audited financial
statements. For all interim periods, it should be noted that the results of
operations are not necessarily indicative of a full year's operations; however,
in the opinion of management the data presented includes all normal and
recurring adjustments necessary for a fair presentation of the 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 tables show summary selected historical financial and other
data of Royster-Clark, Inc., before and after the purchase of its outstanding
stock by Royster-Clark Group, and AgriBusiness for each of the years in the
five-year period ended December 31, 1998, and at Match 31, 1999 and for each of
the three months ended March 31, 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
ROYSTER-CLARK, INC. JUNE 30, 1999
- ------------------- ------------------
(IN THOUSANDS)
<S> <C>
INCOME STATEMENT DATA:
Net sales................................................. 492,608
Gross profit.............................................. 96,015
Operating income.......................................... 55,219
Net earnings.............................................. 28,728
OTHER DATA:
EBITDA(1)................................................. 61,081
Depreciation and amortization............................. 5,862
Capital expenditures...................................... 4,292
Ratio of earnings to fixed charges(2)..................... 6.5x
Net cash provided by operating activities................. 93,996
Net cash used in investing activities..................... (259,261)
Net cash provided by financing activities................. 165,605
<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>
26
<PAGE>
<TABLE>
<CAPTION>
ROYSTER-CLARK, INC. 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 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
Net cash provided by (used
in) operating activities... -- -- 12,333 (6,581) 13,157 (29,760) (29,740)
Net cash used in investing
activities................. -- -- (1,119) (2,006) (26,532) (922) (956)
Net cash provided by (used
in) financing activities... -- -- (11,213) 8,647 13,388 30,682 30,696
</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>
27
<PAGE>
<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 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)
Net cash provided by
operating activities....... -- -- 43,600 42,500 65,700 3,800 3,700
Net cash used in investing
activities................. -- -- (45,900) (78,600) (31,100) (7,400) (5,700)
Net cash provided by (used
in) financing activities... -- -- (1,100) 38,700 (33,900) 200 (4,100)
</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
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............. $ 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.
28
<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
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.
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;
29
<PAGE>
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.
RECENT DEVELOPMENTS
We are in the process of assessing the damage done to our business in the
Southeast, especially in North Carolina, as a result of the unprecedented
flooding triggered by hurricanes Dennis and Floyd. In addition to direct damage
done to more than fifty sales locations and support facilities, there may also
be significant crop damage, which may impact our customers' financial condition
and ability to continue farming. Also, our ability to generate revenues during
the final quarter of the year will depend directly on how quickly floodwaters
recede and farmers restore their equipment to normal operation. We believe that
our direct losses are adequately covered by insurance and that by the spring
planting season activity will have returned to normal. However, we cannot be
certain that there will not be material adverse consequences arising from this
catastrophe in the form of increased bad debt expense and fourth quarter revenue
shortfalls in the affected areas.
ENVIRONMENTAL MATTERS
At June 30, 1999, we had accruals of approximately $2,831 for future costs
associated with remediation of certain environmental matters. Approximately $335
relates to accruals recorded by Old Royster-Clark in conjunction with the
acquisition of Lebanon, and $2,496 relates to accruals recorded in conjunction
with the AgriBusiness acquisition. Costs charged against these accruals for the
three months ended June 30, 1999 were approximately $5.
Environmental remediation projects are related to cleanups of releases of
hazardous substances at approximately forty sites. Primarily the cleanup efforts
involve remediation of excess nitrates, phosphorous and pesticides in soils
and/or groundwater at certain sites, or costs to be incurred associated with
cleanup and monitoring of old underground storage tank locations. Certain of
these remediation efforts are of a long-term nature.
Capital expenditures for environmental projects were approximately $20
during the same period. Captial expenditures for environmental projects are
expected to be $425 over the next five years to perform containment work at five
sites in Kentucky.
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.
30
<PAGE>
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.
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.
31
<PAGE>
As a result of the acquisition of 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. The nature and amount of each significant
component is as follows:
<TABLE>
<CAPTION>
COST 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>
These costs represent management's estimates of the ultimate obligations
associated with executing its plans for the combined entity. In accordance with
management's plans, the sites to be closed (due to duplicative locations) and
the individuals to be terminated have all been specifically identified. The
closing of all facilities is expected to be complete by December 1999. The plans
to terminate 89 employees were announced in the second quarter of 1999. The
positions to be eliminated include redundant positions in the information
technology department, human resources, administrative jobs, sales, and
management. These employees have termination dates ranging from April 1999
through December 1999. As of June 30, 1999, 63 of the 89 employees have been
terminated.
ROYSTER-CLARK PRIOR TO THE ACQUISITION OF ITS STOCK BY ROYSTER-CLARK GROUP
We operated predominantly in the Southeast. We operated 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 in the amount of $0.7 million 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.
RESULTS OF OPERATIONS -- ROYSTER-CLARK PRIOR TO THE ACQUISITION OF ITS STOCK BY
ROYSTER-CLARK GROUP
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>
32
<PAGE>
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 by approximately
$6.0 million, 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.
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,
resulting in a decrease in net sales of approximately $1.2 million.
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. The ratio of gross
margins to sales improved in 1997 primarily due to favorable planting conditions
and strong customer demand, especially for seed and for application services.
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 attributable to increased labor expense in
support of the strong customer demand of approximately $0.3 million, higher
bonus levels directly related to the higher sales and earnings experience of
approximately $0.5 million and increased health care costs of approximately $0.3
million compared to the prior year. In addition, we incurred severance expenses
upon the separation of a senior
33
<PAGE>
marketing manager of approximately $0.1 million and also incurred an increased
level of consulting expense related to our implementation of new enterprise
software in the amount of $0.2 million.
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, Royster-Clark 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.
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>
34
<PAGE>
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.
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.
35
<PAGE>
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. Environmental
matters: 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 soil with elevated levels of crop nutrients and agricultural
chemicals in soil at facilities presently or previously owned or operated by the
Company. The Company also has purchased facilities that were identified with
soil with elevated levels of crop nutrients and agricultural chemicals 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 elevated levels of crop
nutrient and agricultural chemicals. The Company believes that, pursuant to
several indemnification agreements, it is entitled to at least partial, and in
many instances, complete indemnification for a portions 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
or private entities. The Company has 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 soil with elevated levels of crop nutrient and agricultural chemicals
were $4.6 million and $3.5 million, respectively. It is difficult to project
future environmental expenditures and their timing of payments for numerous
reasons. The difficulty in assessment includes interpretations of governmental
regulations, the lack of conclusive data, the different possibilities in
remedial solutions and the length of remediation and monitoring activities. The
above mentioned difficulties in assessment are not entirely due to Company
deficiencies, however, are predominantly driven by
36
<PAGE>
federal and state governmental agency requests and/or orders and in certain
cases inaction. Further, while the Company may eventually be entitled to receive
significant reimbursement of amounts expended from the Company's insurance
carriers; no amounts have been assumed in determining the accruals at December
31, 1997 or 1998. While the Company's potential exposure cannot be estimated, it
is the opinion of management that, based on its review and other factors,
including its experience to date, the existence of other financially viable
responsible parties, and the anticipated nature and scope of the clean-up
efforts, such matters will not have a material adverse effect on the financial
position or results of operation of the company.
RESULTS OF OPERATIONS -- AGRIBUSINESS
Presented below are management, discussion and analysis for AgriBusiness by
operating segment. Merger and restructuring charges and taxes have not been
allocable to the segments in the presentation below.
RETAIL:
The following table provides information regarding Retail 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%
Gross profit............................................... 21.0 22.2 20.9
Operating expenses......................................... 20.1 19.8 19.2
----- ----- -----
Operating income (loss).................................... 0.9 2.5 1.7
Interest expense........................................... 2.1 1.8 2.0
Other expense (income)..................................... (0.0) (0.1) 0.4
----- ----- -----
Earnings (losses) before tax............................... (1.2) 0.8 (0.7)
===== ===== =====
EBITDA..................................................... 4.6% 5.7% 5.6%
</TABLE>
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Net Sales. Net sales were $410.1 million for 1998 compared to $439.7
million for 1997, a decline of $29.6 million or 6.7%. Fertilizer sales declined
$34.8 million, or 6.7% due to declines in both volume and average sales price.
Fertilizer volumes declined due to abnormally wet field conditions in most of
the Retail's markets in the Midwest and Southeast. 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. The wet field conditions delayed
farmers in planting crops and caused some farmers to switch to crops utilizing
fewer crop inputs and services. Average sales prices for Retail fertilizer
products declined due to lower ammonia and nitrogen solutions prices. The
decline in fertilizer sales was partially offset by a $7.8 million increase in
seed sales. In addition, retail acquisitions made in 1997 contributed $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 $85.9 million in 1998 compared to $97.8
million for 1997, a decline of $11.9 million or 12.2%, due primarily to lower
sales volumes and depressed nitrogen fertilizer prices. Gross margins were 20.9%
in 1998 compared to 22.2% in 1997 due primarily from lower pricing of nitrogen
products.
Operating expenses. Operating expenses were $78.8 million for 1998
compared to $86.9 million for 1997, a decline of $8.1 million or 9.3%. The
decrease resulted predominantly from (1) lower bad debt expense ($0.5 million)
and sales commissions ($1.2 million) related to the decrease in sales and better
than expected collection experience on customer accounts in the Southeast retail
markets, and (2) declines in employee benefits costs and insurance costs related
to improvements in healthcare and business insurance experience.
37
<PAGE>
Operating income. Operating income was $7.1 million in 1998 compared to
$10.9 million for 1997, a decline of $3.8 million or 34.9%, as the result of
lower gross profit partially offset by lower operating expenses. Operating
margins were 1.7% for 1998 compared to 2.5% for 1997.
Interest expense. Interest expense was $8.3 million for 1998 compared to
$8.0 million for 1997.
Other expense (income). Other expense was $1.8 million for 1998 compared
to $0.5 million in other income for 1997, primarily related to the loss on the
sale of a seed processing facility.
Earnings (losses) before tax. Losses before tax were ($3.0) million for
1998 compared to earnings before tax of $3.4 million in 1997.
EBITDA. EBITDA was $22.8 million for 1998 compared to $25.2 million for
1997, a decline of $2.4 million or 9.5%, 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. Net sales were $439.7 million for 1997 compared to $361.7
million for 1996, an increase of $78.0 million or 21.6%. Sales increased $60.2
million, or 16.6% due to retail facility acquisitions made in 1997. Fertilizer
sales volumes from existing facilities increased in 1997 due to good field
conditions during both the spring and fall seasons during 1997 allowing
application of fertilizers without any significant disruptions due to inclement
weather. During 1996, some fertilizer applications were disrupted during the
spring season in areas of the Midwest retail market areas due to rain.
Gross Profit. Gross profit was $97.8 million in 1997 compared to $75.8
million for 1996, an increase of $22.0 million or 29.0%, due primarily to higher
margins on sales from acquired facilities of $12.1 million, higher sales on all
other fertilizer and higher cash received from crop protection product rebates.
Gross margins were 22.2% in 1997 compared to 21.0% in 1996 due primarily from
higher margins on crop protection products resulting from rebates discussed
above.
Operating expenses. Operating expenses were $86.9 million for 1997
compared to $72.6 million for 1996, an increase of $14.3 million or 19.7%. The
increase resulted predominantly from (1) expenses from acquired retail
facilities ($9.7 million), (2) employee benefits costs and insurance costs
related to healthcare due to program benefit changes with changing employees to
IMC Global. Employee benefit plans ($2.8 million), (3) higher depreciation from
capital expenditures ($1.2 million), and (4) higher salaries, overtime and
benefits from increased sales volumes ($1.8 million). These increases were
partially offset by lower expenses in a number of other categories.
Operating income. Operating income was $10.9 million in 1997 compared to
$3.2 million for 1996, an increase of $7.7 million or 240.6%, as the result of
higher gross profit partially offset by higher operating expenses. Operating
margins were 2.5% for 1997 compared to 0.9% for 1996.
Interest expense. Interest expense was $8.0 million for 1997 compared to
$7.7 million for 1996.
Other expense (income). Other income was ($0.5) million for 1997 compared
to ($0.1) million in other income for 1996, primarily related to gains on the
sale of various assets.
Earnings (losses) before tax. Earnings before tax were $3.4 million for
1997 compared to loss before tax of ($4.4) million in 1996.
EBITDA. EBITDA was $25.2 million for 1997 compared to $16.7 million for
1996, a increase of $8.5 million or 50.9%, as the result of higher gross profit
partially offset by higher operating expenses.
38
<PAGE>
RAINBOW:
The following table provides information regarding Rainbow statement of
operations as a percentage of total revenues.
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Gross profit............................................... 13.0 11.9 10.7
Operating expenses......................................... 7.5 8.3 6.9
----- ----- -----
Operating income (loss).................................... 5.5 3.6 3.9
Interest expense........................................... 1.2 1.3 1.3
Other expense (income)..................................... (0.0) (0.1) 0.0
----- ----- -----
Earnings (losses) before tax............................... 4.4 2.4 2.6
===== ===== =====
EBITDA..................................................... 5.8% 4.2% 4.6%
</TABLE>
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Net Sales. Net sales were $243.3 million for 1998 compared to $275.6
million for 1997, a decline of $32.3 million or 11.7% due to declines in volume.
Wet field conditions affecting the Retail segment, discussed above, also
affected the Rainbow segment as most of the Rainbow's markets in the Southeast
had unusually high rainfall totals. Also affecting Rainbow sales were heat and
drought conditions after planting occurred in June and July. Many farmers
elected to plow under cotton crops to qualify for insurance assistance and
eliminate costs associated with certain types of cottonseed fees payable to
vendors. Average sales prices for Rainbow fertilizer products increased by 1.0%
due to higher ammoniated mixed good prices.
Gross Profit. Gross profit was $26.1 million in 1998 compared to $32.9
million for 1997, a decline of $6.8 million or 20.7%, due primarily to lower
sales volumes. Gross margins were 10.7% in 1998 compared to 11.9% in 1997 due
primarily from manufacturing variances at the production facilities for Rainbow
due to the lower production and shipping volumes and lower margins on wholesale
materials sales to Rainbow dealers.
Operating expenses. Operating expenses were $16.7 million for 1998
compared to $23.0 million for 1997, a decline of $6.3 million or 27.4%. The
decline resulted from (1) a decline in bad debt expense ($2.8 million) and sales
commissions ($0.9 million) related to the decrease in sales and better than
expected collection experience on customer accounts in the Florida vegetable and
citrus markets, and (2) declines in employee benefits costs and insurance costs
related to improvements in healthcare and business insurance experience.
Operating income. Operating income was $9.4 million in 1998 compared to
$9.9 million for 1997, a decline of $0.5 million or 5.1%, as the result of lower
gross profit partially offset by lower operating expenses. Operating margins
were 3.9% for 1998 compared to 3.6% for 1997.
Interest expense. Interest expense was $3.2 million for 1998 compared to
$3.6 million for 1997.
Other expense (income). Other expense was $0.1 million for 1998 compared
to ($0.2) million in other income for 1997, primarily related to the small
losses on the sale of various assets in 1998 versus gains on other assets in
1997.
Earnings before tax. Earnings before tax were $6.1 million for 1998
compared to earnings before tax of $6.5 million in 1997.
EBITDA. EBITDA was $11.3 million for 1998 compared to $11.6 million for
1997, a decline of $0.3 million or 2.6%, as the result of lower gross profit
partially offset by lower operating expenses.
39
<PAGE>
Year Ended December 31, 1997 compared to Year Ended December 31, 1996
Net Sales. Net sales were $275.6 million for 1997 compared to $298.0
million for 1996, a decline of $22.4 million or 7.5% due to declines in volume
of commodity materials. In 1997 IMC Global took several large phosphate and
potash commodity customers from Rainbow and assigned the customers to the IMC
Global Phosphate and Potash segments. Average sales prices for Rainbow
fertilizer products were lower in 1997 by 3.2% due to competitive pressures on
commodity fertilizer material and ammoniated mixed good product prices.
Gross Profit. Gross profit was $32.9 million in 1997 compared to $38.7
million for 1996, a decline of $5.8 million or 15.0%, due to lower sales volume
and sales prices discussed above. Gross margins were 11.9% in 1997 compared to
13.0% in 1996 due to lower commodity fertilizer material and ammoniated mixed
good product prices.
Operating expenses. Operating expenses were $23.0 million for 1997
compared to $22.3 million for 1996, an increase of $0.7 million or 3.1%. The
increase resulted from higher bad debt expenses due to more stringent credit
management in the Florida vegetable and citrus markets.
Operating income. Operating income was $9.9 million in 1997 compared to
$16.4 million for 1996, a decline of $6.5 million or 39.6%, as the result of
lower gross profit and higher operating expenses. Operating margins were 3.6%
for 1997 compared to 5.5% for 1996.
Interest expense. Interest expense was $3.6 million for 1997 compared to
$3.5 million for 1996.
Other expense (income). Other income was ($0.2) million for 1997 compared
to ($0.1) million in 1996.
Earnings before tax. Earnings before tax were $6.5 million for 1997
compared to earnings before tax of $13.0 million in 1996.
EBITDA. EBITDA was $11.6 million for 1997 compared to $17.4 million for
1996, a decline of $5.8 million or 33.3%, as the result of lower gross profit
and slightly higher operating expenses.
NITROGEN:
The following table provides information regarding Nitrogen statement of
operations as a percentage of total revenues.
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Gross profit............................................... 28.5 21.0 11.8
Operating expenses......................................... 7.4 6.5 5.8
----- ----- -----
Operating income (loss).................................... 21.1 14.5 6.0
Interest expense........................................... 1.4 11.1 1.3
Other expense (income)..................................... 0.0 0.0 0.0
----- ----- -----
Earnings before tax........................................ 19.7 13.4 4.7
===== ===== =====
EBITDA..................................................... 23.2% 17.5% 10.3%
</TABLE>
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Net Sales. Net sales were $133.6 million for 1998 compared to $157.3
million for 1997, a decline of $23.7 million or 15.1% due predominantly from
declines in average sales price of various nitrogen-based products. Average
sales prices for anhydrous ammonia, urea, and nitrogen solutions declined 28.0%,
19.7 and 15.4%, respectively, due to worldwide product oversupply resulting from
excess production capacity.
Gross Profit. Gross profit was $15.8 million in 1998 compared to $33.0
million for 1997, a decline of $17.2 million or 52.1%, due primarily to lower
sales. Gross margins were 11.8% in 1998
40
<PAGE>
compared to 21.0% in 1997 due to lower margins on anhydrous ammonia, urea, and
nitrogen solution products as the result of lower prices.
Operating expenses. Operating expenses were $7.8 million for 1998 compared
to $10.2 million for 1997, a decline of $2.4 million or 23.5%. The decline
resulted from (1) lower shipping expenses through terminals and lower sales
commissions related to the decrease in sales, and (2) declines in employee
benefits costs and insurance costs related to improvements in healthcare and
business insurance experience.
Operating income. Operating income was $8.0 million in 1998 compared to
$22.8 million for 1997, a decline of $14.8 million or 64.9%, as the result of
lower gross profit partially offset by lower operating expenses. Operating
margins were 6.0% for 1998 compared to 14.5% for 1997.
Interest expense. Interest expense was $1.7 million for both 1998 and
1997.
Other expense (income). There was no Other expense in either 1998 or 1997
for Nitrogen.
Earnings before tax. Earnings before tax were $6.3 million for 1998
compared to earnings before tax of $21.1 million in 1997.
EBITDA. EBITDA was $13.7 million for 1998 compared to $27.6 million for
1997, a decline of $13.9 million or 50.4%, 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. Net sales were $157.3 million for 1997 compared to $138.1
million for 1996, an increase of $19.2 million or 13.9% due primarily to volume
increases of phosphate and nitrogen-based products. The increased volumes
resulted from acquired wholesale operations associated with the Hutson Company
acquisition in 1997 and increased marketing efforts to large national and
regional accounts for nitrogen-based products. Average sales prices for urea and
nitrogen solutions declined 11.4% and 9.0%, respectively, due to worldwide
product oversupply resulting from excess production capacity.
Gross Profit. Gross profit was $33.0 million in 1997 compared to $39.4
million for 1996, a decline of $6.4 million or 16.2%, due primarily to lower
sales prices of nitrogen solutions and urea. Gross margins were 21.0% in 1997
compared to 28.5% in 1996 due to lower margins on nitrogen solution and urea
products as the result of lower prices.
Operating expenses. Operating expenses of $10.2 million for 1997 remained
equal to 1996 operating expenses of $10.2 million.
Operating income. Operating income was $22.8 million in 1997 compared to
$29.2 million for 1996, a decline of $6.4 million or 21.9%, as the result of
lower gross profit. Operating margins were 14.5% for 1997 compared to 21.1% for
1996.
Interest expense. Interest expense was $1.7 million in 1997 compared to
$1.9 million in 1996.
Other expense (income). There was no Other expense in either 1997 or 1996
for Nitrogen.
Earnings before tax. Earnings before tax were $21.1 million for 1997
compared to earnings before tax of $27.3 million in 1996.
EBITDA. EBITDA was $27.6 million for 1997 compared to $32.1 million for
1996, a decline of $4.5 million or 14.0%, as the result of lower gross profit.
41
<PAGE>
OTHER:
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Provision for income taxes. Provision of 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.
Year Ended December 31, 1997 compared to Year Ended December 31, 1996
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 ($4.8 million),
recognizing impaired assets ($3.1 million), severance and termination benefit
costs of employees ($0.4 million), and environmental liabilities ($5.0 million).
The closure of facilities included locations with low profitability. These
locations accounted for net sales of $7.9 million and a net operating loss of
$0.9 million for the previous twelve-month period before the restructuring plan
was set in place. Locations were identified as losing money or at breakeven
resulting in unacceptable RONA% from IMC Global's perspective. Local market
conditions, physical facilities, etc. made increasing financial returns
unlikely. Closures also included the disposition of some seasonally operating
properties to reduce the future risks of possible environmental and personal
injury claims and real estate market risks.
Impaired assets included: (1) Idle equipment at operating locations ($0.9
million), (2) Slow moving or obsolete inventory ($0.3 million), (3) Goodwill
($1.0 million) -- fertilizer blending operation was part of the KOOS acquisition
by IMC Vigoro, an affiliate, and was transferred to IMC AgriBusiness management.
The location has now been reduced to a retail location to reduce anticipated
operating losses. Discounted future cash flows did not support the recorded
goodwill based on the change in operations. (4) Adjusting allowance for doubtful
accounts ($0.8 million) and (5) Environmental claim written off ($0.4 million).
Employee terminations included 20 individuals at plant, retail and
administrative locations performing various production, selling, credit and
sales management and administrative support staff.
Certain changes to estimates have been made which include:
o Plant City location was sold under contract that indemnified IMC Global
for any environmental clean up costs ($0.5 million in 1997)
o Three retail stores were kept open as operational only open for limited
portions of the year rather than being completely closed ($0.6 million in
1997)
o Retail store was sold for a price above the net book value, therefore the
reserve was not needed ($0.5 million in 1997)
o A reserve for the nitrogen manufacturing plant at Cincinnati, OH
refitting expense accrual was not required, as the refitting ultimately
was not performed ($0.5 million in 1998)
No material effects of the restructuring plan on future operations,
financial condition or liquidity are anticipated either on a short-term or
long-term basis. Excluding environmental matters, the restructuring plan will be
substantially completed by 12/31/99 except for consulting agreements to be paid
until June 30, 2001.
42
<PAGE>
At the time of the restructuring charges, IMC AgriBusiness did not maintain
separate segments. As a result of the IMC Global and The Vigoro Corporation
merger, production facilities for the Nitrogen and Rainbow segments were
transferred to IMC AgriBusiness for management and operating responsibilities.
The charges that would have been resulting from the various segments is noted
below:
o Rainbow -- Goodwill -- $1.0 million, impaired asset write-off -- $1.6
million), personnel reductions $0.2 million = $2.8 million
o Nitrogen -- Capitalized turnaround costs written off $1.2 million
o Admin -- Personnel reductions ($.1 million)
o Retail Balance from above $9.2 million
Provision for income taxes. Provision of income taxes was $12.2 million
for 1997 compared to $9.8 million for 1996. The effective tax rate was 39.4% for
1998 compared to 43.4% for 1996.
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>
43
<PAGE>
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. Our capital expenditures relate
primarily to repair, maintenance and replacement projects at our various
facilities. Capital expenditures are generally paid for through the use of cash
flows from operations.
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
financial ratios and limitations on our ability to incur additional
indebtedness. See "Description of 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.
Significant balance sheet movements for the three months ended June 30,
1999 are reflective of the seasonality of the business. 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.
44
<PAGE>
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.
To address all the information technology and non-information technology
issues we used a methodology on this project that was comprised of the following
steps:
o Awareness -- Make all individuals in the organization aware of the
year 2000 issue.
o Inventory -- Prepare a listing of all devices that have the potential
for problems.
o Assignment of Risk -- For each inventory item, assign a risk factor.
o Testing -- For all items with a high degree of business interruption
risk, test for year 2000 compliance.
o Remediation -- Fix or replace those high-risk items that have failed
testing.
We have completed the awareness, inventory, assignment of risk and testing
steps in our methodology above and are in the last step, which is the
remediation step. We are also in the process of developing a contingency plan.
During our awareness and inventory steps, we distributed memos throughout the
company on the subject of Year 2000 and were able to use our coordinators at our
Farmarkets units as well as personnel at our locations to disseminate
information as well as be focal points for retrieving information from our
locations. We inventoried all our farmarket units, locations and Nitrogen plant
for information technology and non-information technology issues. We provided
each unit with forms with which to document the item, make and model, quantity,
and to determine whether the item was Year 2000 compliant by testing it and/or
requesting verification from the manufacturer. This information was entered into
an access database and used for risk assessment. Items were grouped into logical
categories and risk factors assigned. Items with the highest risk factor were
addressed first. Our target is to have all business critical year 2000 problems
resolved by October 1999.
We have completed the compliance testing, validation and remediation of
computer applications on our mainframe system with the exception of the
Formulation, Billing and Inventory system. This system is in the process of
being replaced with a Year 2000 compliant point-of-sale program and Lawson
Enterprise Software which is also Year 2000 compliant. The remaining Informix
and custom applications are all Year 2000 compliant.
Currently, we have only some information concerning the Year 2000
compliance status of our suppliers and vendors. In June 1999, we contacted our
key management personnel and requested they identify which vendors/suppliers
were most critical to our operations. Specifically those suppliers who supply
products and services that if interrupted would cause the most serious impact to
safety, environmental, revenue and production. On June 25, 1999, we contacted
our critical suppliers and vendors to determine their Year 2000 compliance
status. Those critical suppliers that did not respond to our first request for
information were sent a second letter on August 13, 1999 and we are awaiting
their response. If we do not receive a response to the second letter, management
will be notified and alternate suppliers will be selected as backups where
appropriate.
To date, approximately 349 critical suppliers have been identified, and
letters have been sent to all of them. After reviewing the responses received,
the following figures have been determined. Over 48% of those surveyed have
responded, with over 94% of those that responded appearing to be Year 2000
compliant. This includes data from our second mailing.
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. We are in the process of developing a contingency
plan and estimate it will be completed by November 30, 1999.
The total costs to date to address our Year 2000 issues is $150,000.
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.
45
<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 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 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.
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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.
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,
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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 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.
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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 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 the 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 if 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 this 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, stated 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,
the 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 any resale of the
exchange first mortgage notes. By making this acknowledgment and by delivering a
prospectus, a broker-dealer will not be found 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 related 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 these 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 any 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 one of the largest independent retail and wholesale distributors, in
terms of retail sales, 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 one of the largest North American sellers 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
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competitive advantage and growth opportunities through selling other crop
production inputs using this recognized brand name.
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. In terms of retail
sales, we are one of the largest distributors of crop production inputs
in North America and one of the largest independent retail and wholesale
distributors. 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.
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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 September 1994, Mr. Jenkins took over
management control of Royster-Clark. He installed our current management
team, which by the end of 1996 had improved revenues by $26.2 million or
13.5% compared to 1994 and earnings before interest, taxes, depreciation
and amortization by $4.2 million or 47.4% compared to 1994. In succeeding
years, this management team has continued operations at these improved
levels and has 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
We believe that 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.
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.
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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.
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.
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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.
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
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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.
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.
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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.
We are one of the largest North American sellers of agricultural granulated
fertilizer. In terms of number of plants, 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.
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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 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 $492,608
========== ========== ========== ========
</TABLE>
COMPETITION
The market for the distribution of fertilizer, seed and crop protection
products and agronomic services is highly competitive. We believe our products
and services are well positioned in both the retail and wholesale agricultural
market sectors and in the industrial market sector. We compete in the retail
business primarily by providing competitive prices for a comprehensive line of
products and, in our management's opinion, superior services. Currently there
are approximately 10,500 farm retail centers in North America, operated by three
primary types of distribution organizations. Principal competitors in
agricultural crop production inputs distribution include agricultural
cooperatives, which have the largest market share in a majority of the locations
served by us, national fertilizer producers, major grain companies and
independent distributors and brokers. As shown in the following chart, we are
the largest independent distributor in North America.
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PROFILE OF MAJOR AGRICULTURAL DEALER NETWORKS
The following table presents our understanding of the retail outlets,
percentages of revenues attributable to fertilizer, crop protection and seed and
other information for various independent distributors, major producers and
cooperatives.
<TABLE>
<CAPTION>
% OF REVENUES
STATES ------------------------------ 1998
FOCUS RETAIL WITH RETAIL CROP RETAIL SALES
COMPANY NAME REGIONS(A) OUTLETS OUTLETS FERTILIZER PROTECTION SEED ($ IN MILLIONS)
------------ ----------- ------- ----------- ---------- ---------- ---- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Large independent distributors
Royster-Clark(b).............. C, S, SE, E 330(c) 18 67% 22% 6% Between $100 and $499(f)
Wilbur-Ellis.................. W 179 15 31 63 6 Over $500
John Taylor Fertilizer........ W 12 1 44 55 1 Between $100-$499
Miles Farm Supply............. C, S 22 3 50 29 13 Between $50-$99
The McGregor Co............... W 34 NA 60 33 6 Between $50-$99
Jimmy Sanders................. S, SE 35 4 21 62 16 Between $100-$499
Kova Fertilizer............... C 10 1 51 39 3 Between $25-$49
Brandt Consolidated........... C 9 1 51 41 1 Between $25-$49
Major producers
Terra Industries (d).......... C, S, SE 409 36 46% 46% 4% Over $500
United Agri Products(e)....... W, C, SE 300 46 20 78 2 Over $500
Agrium........................ W, C 232 22 48 43 2 Between $100 and $499(g)
Helena Chemical............... W, C, SE 230 47 14 82 4 Over $500
Simplot Soilbuilders.......... W 85 13 45 45 10 Between $100-$499
Cargill....................... P, C 72 12 52 30 9 Between $100-$499
Cooperatives
Farmland Industries........... W, C 1,400 NA 46% 49% 5% Over $500
AgWay......................... E 515 10 67 13 4 Between $100-$499
Growmark...................... C 500 3 19 18 7 Over $500
Countrymark................... C 400 3 22 15 8 Over $500
Southern States............... SE, S 360 6 56 25 16 Between $100-$499
Tennessee Farmers............. S 153 1 62 23 15 Between $100-$499
Cenex/Land O'Lakes(d)......... C, W 65 10 54 36 4 Between $100-$499
</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.
(f) Range of retail sales of Royster-Clark prior to the acquisition of IMC
AgriBusiness, Inc.
(g) Agrium includes the retail sales of Western Farm Services, Inc. and Crop
Production Services, Inc.
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. In 1998, we sourced approximately 81% of
our potash requirements and 77% of our phosphate requirements from IMC Global.
Under the terms of our supply agreement with IMC Global, we expect to purchase
from them at about this level in the future. The amounts paid to date to IMC
Global under this agreement were $36.7 million. 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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<PAGE>
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.
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OTHER PROPERTIES
The first mortgage notes are secured by first mortgages on seventeen of our
principal facilities. In addition to these seventeen facilities, our two 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.
Environmental laws may 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 some instances, 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, with the 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.
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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, 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 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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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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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 is 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
"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
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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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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
"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 "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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SECURITY OWNERSHIP OF 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.
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 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. 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.
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.
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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 OTHER INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
GENERAL. The following is a summary of 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:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL EXPENDITURE AMOUNT
- ----------- --------------------------
<S> <C>
1999......................................... $27 million
2000......................................... 28 million
2001......................................... 30 million
2002......................................... 30 million
2003......................................... 32 million
2004......................................... 35 million
</TABLE>
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. We generally must prepay the senior secured credit facility
and may have to reduce the commitments under the credit facility, with customary
exceptions to be agreed upon, 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 "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 and
Royster-Clark AgriBusiness Realty LLC, (together, 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:
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;
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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 and Royster-Clark AgriBusiness 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 two 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.
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
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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
(2) a pledge of all of the equity interests of Royster-Clark Realty
LLC and Royster-Clark AgriBusiness LLC, our Special Purpose Restricted
Subsidiaries that own or will own approximately 280 properties used in our
business.
The collateral does not include the following assets, which secure
Royster-Clark's and the guarantors' obligations under the Credit Agreement
(collectively, the "Excluded Assets"): all of
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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 two limited liability companies that own substantially all of
the owned retail farm markets.
Royster-Clark granted the pledge to the trustee as collateral agent for the
holders of the first mortgage notes under the indenture. Royster-Clark and its
Restricted Subsidiaries entered into a mortgage agreement. Under the mortgage
agreement, Royster-Clark and its Restricted Subsidiaries granted to the
collateral agent a mortgage in real property and improvements for the
proportional benefit of the first mortgage note holders. Royster-Clark and its
Restricted Subsidiaries entered into a security and pledge agreement. Under the
security and pledge agreement. Royster-Clark and its Restricted Subsidiaries
pledged and granted to the collateral agent a first priority security interest
in equipment and other assets of Royster-Clark and its Restricted Subsidiaries,
other than the Excluded Assets, for the proportional benefit of the first
mortgage note holders. 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.
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
losses if the 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 may permit the release
of a Nitrogen Facility without substitution of collateral if an offer is made to
repurchase first mortgage notes. See "Repurchase at the Option of Holders --
Sale of Nitrogen Facility."
Royster-Clark has merged 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,
Royster-Clark and its Subsidiaries may be 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;
(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 the 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 mortgage and 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.
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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 mortgage and 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 mortgage and 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>
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
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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 the 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 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;
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(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 above 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 mortgage notes. An Asset
Sale Offer will contain 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
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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
(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.
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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
related to 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, related to 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 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
(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
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(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
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 the Equity Interests represent a portion
of the exercise price of the options;
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(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 related 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 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
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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 for, contingently or
otherwise, any Indebtedness including Acquired Debt. Royster-Clark will not
issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock. However, 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. The Fixed Charge Coverage Ratio is
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.
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"):
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(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 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
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(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.
In the event that proposed Indebtedness satisfies more than one of the
categories of Permitted Debt described above, or is permitted under the first
paragraph of this covenant, Royster-Clark may classify the Indebtedness on the
date of its incurrence, or reclassify all or a portion of the 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
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indenture shall be found to have been incurred on this 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 securing the Collateral or Indebtedness, Attributable Debt or
trade payables on any asset now owned or later acquired, except Permitted Liens.
However, 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 Subsidiary has been duly designated as
an Unrestricted Subsidiary and no longer constitutes a
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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 provisions of
the indenture or the first mortgage notes. This prohibition does not apply where
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," " -- Covenants -- Restricted Payments," " --
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" or
" -- 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 mortgage and
security agreements, the repudiation by Royster-Clark or any Restricted
Subsidiary of any obligations under the mortgage and security agreements or
the unenforceability of the mortgage and 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;
(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
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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.
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;
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(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 mortgage and security
agreements or release any of the collateral from a Lien or the mortgage and
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 may limit its right to obtain payment of claims, or to realize on
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 generally will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
trustee. 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,
as defined below, 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; 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 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 may be found to have agreed
to indemnify Royster-Clark and the guarantors against losses arising out of
information furnished by the holder in writing for inclusion in any shelf
registration statement. Holders of existing first mortgage notes may also be
required to suspend their use of the prospectus included in the shelf
registration statement upon receipt of written notice to that effect from
Royster-Clark.
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 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. However, Acquired Debt
does not include indebtedness of the other individual or entity that is
redeemed, defeased, retired or otherwise repaid at the time, or immediately
upon completion, of the transaction by which the other person is merged
with or into or became a Restricted Subsidiary of the individual or entity;
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 "-- 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
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
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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 mortgage and 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 "-- 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 Citicorp Venture
Capital, Ltd., 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 " -- 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; all investments by an entity in other entities
(including Affiliates) in the forms of:
o direct or indirect loans (including guarantees or other obligations),
o advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business) or,
o purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities.
All items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP are also Investments. However, 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 found to be an Investment. If Royster-Clark or any Restricted Subsidiary
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary so that,
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after giving effect to the sale or disposition, the entity is no longer a
Restricted Subsidiary of Royster-Clark, Royster-Clark shall be found 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 paragraph of the
covenant described above under the caption " -- Covenants -- Restricted
Payments." The acquisition by Royster-Clark or any Restricted Subsidiary of an
entity that holds an Investment in a third entity shall be found 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 " -- 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;
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(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 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;
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(2) Liens in favor of Royster-Clark or the Restricted Subsidiaries;
(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 Royster-Clark Realty LLC
and Royster-Clark AgriBusiness 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 the original documentation
governing the Indebtedness, and shall not include any contingent
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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 " -- 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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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 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
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under the graduated United States federal income tax rates that are
applicable to United States citizens and resident aliens, and you may be
subject to withholding.
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 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
129
<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
stated 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 stated 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 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 related 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.
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<PAGE>
In addition, in 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 related 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 the resale of the 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 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
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.
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
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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 the forward-looking statements are reasonable, we cannot assure you
that the 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."
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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:
o 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
o 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.
133
<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-16
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1998.................. F-17
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 1999................ F-18
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements............................................. F-19
(2) Old Royster-Clark
Report of KPMG LLP, independent auditors............................. F-26
Balance Sheets of Old Royster-Clark, Inc. as of December 31,
1997 and 1998...................................................... F-27
Statements of Income of Old Royster-Clark, Inc. for the
years ended December 31, 1996, 1997 and 1998....................... F-28
Statements of Stockholders' Equity of Old Royster-Clark,
Inc. for the years ended December 31, 1996, 1997 and 1998.......... F-29
Statements of Cash Flows of Old Royster-Clark, Inc. for the
years ended December 31, 1996, 1997 and 1998....................... F-30
Notes to Financial Statements of Old Royster-Clark, Inc.............. F-32
(3) AgriBusiness
Report of Ernst & Young LLP, independent auditors.................... F-45
Combined Balance Sheets of AgriBusiness as of December 31,
1997 and 1998...................................................... F-46
Combined Statements of Earnings of AgriBusiness for the
years ended December 31, 1996, 1997 and 1998....................... F-47
Combined Statements of Cash Flows of AgriBusiness for the
years ended December 31, 1996, 1997 and 1998....................... F-48
Notes to Combined Financial Statements of AgriBusiness............... F-49
Unaudited Combined Balance Sheet as of March 31, 1999................ F-63
Unaudited Combined Statements of Loss of AgriBusiness for
the three months ended March 31, 1998 and 1999..................... F-64
Unaudited Combined Statements of Cash Flows of AgriBusiness
for the three months ended March 31, 1998 and 1999................. F-65
Notes to the Unaudited Combined Financial Statements of
AgriBusiness....................................................... F-66
</TABLE>
F-1
<PAGE>
ROYSTER-CLARK, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
JUNE 30, 1999
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
========
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>
|
OLD ROYSTER-CLARK (NOTE 1) |.ROYSTER-CLARK, 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 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.
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)
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 shares 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 shares
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.
(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.
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 -- (CONTINUED)
(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 valued at
$13,264, 7,487 shares of Junior Preferred Stock valued at $4,535, 368,426 shares
of Common Stock valued at $368 and 7,284 options to purchase additional RCG
securities valued at $1,389. 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. Goodwill of
$16,941 is being amortized over 15 years under the straight-line method.
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. An adjustment to depreciation expense recognized to date may be
necessary depending on the final allocation to depreciable assets. Management is
of the opinion that such an adjustment, if any, will not be material.
(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 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
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)
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.
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
========
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. An adjustment to depreciation expense recognized to date may be
necessary depending on the final allocation to depreciable assets. Management is
of the opinion that such an adjustment, if any, will not be material.
In addition, the Company and IMC Global, Inc. are in negotiations over
potential adjustments to the purchase price paid for AgriBusiness related to the
amount of working capital acquired.
(C) RESTRUCTURING LIABILITIES
In connection with the acquisition 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. In accordance with management's plans, the sites to be closed (due to
duplicative locations) and the individuals to be terminated have all been
specifically identified. The closing of all facilities is expected to be
complete by December 1999. The plans to terminate 89 employees were announced in
the second quarter of 1999. The positions to be eliminated include redundant
positions in the information technology department, human resources,
administrative jobs, sales, and management. These employees have termination
dates ranging from April 1999 through December 1999. As of June 30, 1999, 63 of
the 89 employees have been terminated.
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>
(D) 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..................................... $ 9,875 $ 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. 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 tables
below, for the year ended December 31, 1998 and three months ended March
31, 1999, respectively, include payroll costs and benefits associated with
the elimination of 89 positions; elimination of costs associated with the
former practice of ourscourcing 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
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)
(4) ACQUISITIONS -- (CONTINUED)
purchase agreement. The effect has been allocated between cost of sales and
selling, general and administrative expenses.
Summary pro forma adjustments to other cost of sales and other selling,
general and administrative expenses:
DECEMBER 31, 1998:
Other cost of sales:
Elimination of costs associated with the closing of a
production plant....................................... $1,446
Elimination of costs of oursourcing 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
======
MARCH 31, 1999:
Other cost of sales:
Elimination of costs associated with the closing of a
production plant....................................... $ 404
Elimination of incremental employee benefit and insurance
costs.................................................. 170
------
Total pro forma adjustments to other costs 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
======
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)
(4) ACQUISITIONS -- (CONTINUED)
Additionally, in connection with AgriBusiness, management identified six
AgriBusiness locations for closure. Pro forma adjustments to sales, costs of
sales, and other expenses are also required to eliminate the operating results
for these locations at December 31, 1998. 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>
Closed location................................... $7,544 $6,399 $1,579 $(434)
====== ====== ====== =====
</TABLE>
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 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
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)
(6) ROYSTER-CLARK, INC. 10 1/4% FIRST MORTGAGE NOTES DUE 2009 -- (CONTINUED)
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.
(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.
F-13
<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
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 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.
F-14
<PAGE>
ROYSTER-CLARK, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(10) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
(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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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
Elimination of costs associated with Lebanon headquarters
and one regional office................................... $1,282
Elimination of incremental employee benefit and insurance
costs..................................................... 815
Elimination of costs associated with implementation of point
of sale system............................................ 180
------
Total pro forma adjustments to other selling, general and
administrative expenses................................... $2,277
======
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-21
<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-22
<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-23
<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-24
<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:
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
======
March 31, 1999:
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
======
(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-25
<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-26
<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-27
<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-28
<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>
F-29
<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-30
<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-31
<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. Vendor rebates earned are recorded in cost of
goods sold in the accompanying statements of income.
(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:
YEARS OF LIFE YEARS OF LIFE
IF NEW IF USED
------------- -------------
Building and land improvements.................. 40 25
Machinery and equipment......................... 10-20 7-15
Furniture, fixtures and office equipment........ 5-7 5-7
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)
(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-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)
(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:
AMOUNT
-------
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
=======
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)
(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.
PRO FORMA (UNAUDITED)
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
-------- --------
Net sales.......................................... $296,374 $286,280
-------- --------
Net income......................................... $ 4,982 $ 2,141
======== ========
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-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)
(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:
1997 1998
------- -------
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
======= =======
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 1997 and 1998 consist of the
following:
1997 1998
------- -------
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
======= =======
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-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)
(6) LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998, consists of the following:
1997 1998
------- -------
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
======= =======
The prime interest rate at December 31, 1997 and 1998 was 8.50 percent and
7.75 percent, respectively.
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)
(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:
OTHER
REVOLVING LONG-TERM
LOAN DEBT TOTAL
--------- --------- -------
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
======= ======= =======
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-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)
(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-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)
(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:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
<S> <C>
1999........................................................ $3,651
2000........................................................ 2,440
2001........................................................ 1,428
2002........................................................ 795
2003........................................................ 351
------
Total minimum lease payments........................... $8,665
</TABLE>
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-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)
(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-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)
(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:
<TABLE>
<CAPTION>
GRANT DATE NUMBER OF OPTIONS EXERCISE PRICE
----------------- ----------------- --------------
<S> <C> <C>
March 15, 1995 5,278 $105
October 1, 1996 4,000 $126
October 1, 1997 6,000 $165
</TABLE>
F-42
<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:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
WEIGHTED-AVG. WEIGHTED-AVG.
RANGE OF NUMBER EXERCISE REMAINING
PRICES OUTSTANDING PRICE CONTRACTUAL LIFE
- ------------------- ----------- ------------- -----------------
<S> <C> <C> <C>
$105.00 to $126.00 5,891 $116.17 7.0 years
$165.00 6,000 $165.00 8.8 years
</TABLE>
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:
<TABLE>
<S> <C>
Risk-free interest rate.............................................. 5-6%
Weighted-average expected life....................................... 10 years
</TABLE>
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-43
<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:
<TABLE>
<CAPTION>
YEAR ENDING TONS
----------- ------
<S> <C>
1999............................................. 20,000
2000............................................. 15,000
2001............................................. 9,000
------
Total minimum purchases.......................... 44,000
======
</TABLE>
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-44
<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-45
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
COMBINED BALANCE SHEETS
DECEMBER 31,
---------------
1997 1998
------ ------
(IN MILLIONS)
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
====== ======
See accompanying notes.
F-46
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
COMBINED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
------------------------
1996 1997 1998
------ ------ ------
(IN MILLIONS)
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
====== ====== ======
See accompanying notes.
F-47
<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-48
<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-49
<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-50
<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-51
<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):
<TABLE>
<CAPTION>
LONG-TERM DAILY
--------------------- SHORT-TERM, NET
TOTAL ADVANCES REPAYMENTS NET EARNINGS
------ -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ $272.2 $124.7 $ -- $147.5 $ --
Net earnings.......................... 12.8 -- -- -- 12.8
Net advances from Global.............. 0.9 42.5 -- (41.6) --
------ ------ ------ ------ -----
Balance at December 31, 1996............ 285.9 167.2 -- 105.9 12.8
Net earnings.......................... 18.8 -- -- -- 18.8
Net advances from Global.............. 33.7 36.9 -- (3.2) --
------ ------ ------ ------ -----
Balance at December 31, 1997............ 338.4 204.1 -- 102.7 31.6
Net earnings.......................... 5.3 -- -- -- 5.3
Net repayments to Global.............. (25.9) -- (48.3) 22.4 --
------ ------ ------ ------ -----
Balance at December 31, 1998............ $317.8 $204.1 $(48.3) $125.1 $36.9
====== ====== ====== ====== =====
</TABLE>
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-52
<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-53
<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 IMPAIRED
RESTRUCTURING ACCRUALS ASSETS ENVIRONMENTAL TOTAL
------------- ------------- -------- ------------- -----
<S> <C> <C> <C> <C> <C>
Original charge.................... $4.8 $0.4 $3.1 $5.0 $13.3
Addition due to transfer from IMC
Global........................ -- -- -- 1.5 1.5
Change in estimate............... (0.7) 0.1 0.8 -- 0.2
Cash (paid)...................... (0.2) (0.5) -- (0.3) (1.0)
Costs charged.................... (0.7) -- (3.9) -- (4.6)
---- ---- ---- ---- -----
Balance at 12/31/96........... 3.2 -- -- 6.2 9.4
Addition due to Farmarket
acquisitions.................. -- -- -- 0.7 0.7
Change in estimate............... (1.1) 0.1 -- (2.0) (3.0)
Cash (paid)/received............. 0.3 (0.1) -- (0.3) (0.1)
Costs charged.................... (0.7) -- -- -- (0.7)
---- ---- ---- ---- -----
Balance at 12/31/97........... 1.7 -- -- 4.6 6.3
Addition due to acquisitions..... -- -- -- -- --
Change in estimate............... (0.5) -- -- (0.7) (1.2)
Cash paid........................ (0.1) -- -- (0.4) (0.5)
Costs charged.................... (0.5) -- -- -- (0.5)
---- ---- ---- ---- -----
Balance at 12/31/98........... $0.6 $ -- $ -- $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
$6.8 million. Goodwill of $16.0 million was recorded related to this
transaction.
F-54
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. BUSINESS ACQUISITIONS -- (CONTINUED)
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.
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
F-55
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT -- (CONTINUED)
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
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.
F-56
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES -- (CONTINUED)
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.
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ----- -----
(IN MILLIONS EXCEPT
PERCENTAGES)
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%
===== ===== =====
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.
F-57
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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. STOCK-BASED COMPENSATION PLANS
The Company participates in various stock option plans (Stock Plans)
sponsored by Global under which Global may grant non-qualified stock options,
stock appreciation rights (SARs) and restricted stock awards to officers and key
managers of the Company, accounted for under APB Opinion No. 25, "Accounting for
Stock Issued to Employees."
Under the terms of the Stock Plans, the option price per share may not be
less than 100 percent of the fair market value on the date of the grant. Stock
options and SARs granted under the Stock Plans extend for ten years and
generally become exercisable either 50 percent one year after the date of the
grant, and 100 percent two years after the date of the grant, or in one-third
increments: one-third one year after the date of the grant, two thirds two years
after the date of the grant, and 100 percent three years after the date of the
grant.
The following tables summarize the stock option activity relating to the
Company:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1.................... 200,966 $33.47 359,158 $30.62 304,573 $20.99
Granted..................................... -- -- 163,150 39.94 102,000 40.88
Exercised................................... 2,441 25.38 18,433 15.57 38,722 16.11
Canceled.................................... 1,339 38.20 2,468 30.07 8,693 32.41
------- ------ ------- ------ ------- ------
Outstanding at December 31.................. 197,186 33.39 501,407 33.47 359,158 30.62
======= ====== ======= ====== ======= ======
Exercisable at December 31.................. 197,186 $33.39 501,407 $33.47 359,158 $30.62
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OF OPTIONS CONTRACTUAL LIFE PRICE OF OPTIONS PRICE
- ------------------------ ---------- ---------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$10.17 to 16.50.............................. 15,659 3 $16.50 15,659 $16.50
$16.51 to 24.16.............................. 105,144 3 22.58 105,144 22.58
$24.17 to 37.13.............................. 88,228 3 32.24 88,258 32.24
$37.14 to 40.88.............................. 276,532 3 38.82 142,734 39.23
------- -- ------ ------- ------
$10.17 to 40.88.............................. 485,593 3 $33.39 351,795 $31.49
======= == ====== ======= ======
</TABLE>
All options will continue to vest in accordance with their original vesting
schedule and will remain exercisable for the three-year period following the
date of acquisition of IMC AgriBusiness by Royster-Clark, Inc. (note 20), until
April 22, 2002. Individuals who terminate employment will
F-58
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
15. STOCK-BASED COMPENSATION PLANS -- (CONTINUED)
have 90 days following such termination to exercise vested options and any
unvested options will be cancelled automatically.
If the Company's stock option plans' compensation cost had been determined
based on the fair value at the grant date for awards beginning in 1995,
consistent with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net earnings would have been reduced to the
following pro forma amounts:
1998 1997 1996
---- ---- ----
Net earnings:
As reported.................................. $5.3 $18.8 $12.8
Pro forma.................................... $5.1 $18.3 $12.5
For the pro forma disclosures, the estimated fair value of the options is
amortized to expense over their expected six-year life. These pro forma amounts
are not indicative of anticipated future disclosures because SFAS No. 123 does
not apply to grants before 1995.
There were no options granted in 1998. Weighted average fair values of
options at grant date during 1997, and 1996 were $6.29 and $6.14, respectively.
The fair value of these options was estimated at the date of grant using the
Black Scholes option-pricing model using the following weighted-average
assumptions:
1998 1997 1996
------- ------- -------
Expected dividend yield............ 0.90% 0.85% 0.85%
Expected stock price volatility.... 29.1% 25.0% 26.0%
Risk free interest rate............ 4.7% 5.8% 6.3%
Expected life of options........... 6 years 6 years 6 years
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not provide a reliable single
measure of the value of the employee stock options.
16. 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-59
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
16. 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
===== =====
17. 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 soil with elevated levels of crop nutrients and agricultural chemicals in
soil at facilities presently or previously owned or operated by the Company. The
Company also has purchased facilities that were identified with soil with
elevated levels of crop nutrients and agricultural chemicals 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 elevated levels of crop
nutrient and agricultural chemicals.
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 or private
entities. The Company has received and
F-60
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
17. CONTINGENCIES -- (CONTINUED)
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 soil with elevated levels of
crop nutrient and agricultural chemicals were $4.6 million and $3.5 million,
respectively. It is difficult to project future environmental expenditures and
their timing of payments for numerous reasons. The difficulty in assessment
includes interpretations of governmental regulations, the lack of conclusive
data, the different possibilities in remedial solutions and the length of
remediation and monitoring activities. The above mentioned difficulties in
assessment are not entirely due to Company deficiencies, however, are
predominantly driven by federal and state governmental agency requests and/or
orders and in certain cases inaction. Further, while the Company may eventually
be entitled to receive significant reimbursement of amounts expended from the
Company's insurance carriers; no amounts have been assumed in determining the
accruals at December 31, 1997 or 1998. While the Company's potential exposure
cannot be estimated, it is the opinion of management that, based on its review
and other factors, including its experience to date, the existence of other
financially viable responsible parties, and the anticipated nature and scope of
the clean-up efforts, such matters will not have a material adverse effect on
the financial position or results of operation of the company.
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.
18. 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 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):
F-61
<PAGE>
IMC AGRIBUSINESS
(A BUSINESS UNIT OF IMC GLOBAL INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
18. OPERATING SEGMENTS -- (CONTINUED)
<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.
19. 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>
20. 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-62
<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-63
<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-64
<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-65
<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-66
<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.*
10.08 Employment Agreement dated as of July 6, 1999 by and among
Royster-Clark Group, Inc., Royster-Clark, Inc. and Frederick
I. Sharp III.
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.
(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:
(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. 3 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 23rd day of
September 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on September
23, 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. 3 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 23rd day of
September 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on September
23, 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. 3 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 23rd day of
September 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on September
23, 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. 3 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 23rd day of
September 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on September
23, 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. 3 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 23rd day of
September 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on September
23, 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)
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-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. 3 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 23rd day of
September 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on September
23, 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-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. 3 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 23rd day of
September 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. 3 to the Registration Statement has been signed below by the
following persons in the capacities at the above-named Registrant on September
23, 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)
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-11
<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.*
10.08 Employment Agreement dated as of July 6, 1999 by and among
Royster-Clark Group, Inc., Royster-Clark, Inc. and Frederick
I. Sharp III.
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.
EXHIBIT 5.1
[DECHERT PRICE & RHOADS LETTERHEAD]
September 23, 1999
Royster-Clark, Inc.
10 Rockefeller Plaza - Suite 1120
New York, NY 10020
Re: Registration Statement on Form S-4
----------------------------------
Dear Gentlemen and Ladies:
We have acted as special counsel to Royster-Clark, Inc., a Delaware
corporation (the "Company"); Royster-Clark Group, Inc., a Delaware corporation;
Royster-Clark AgriBusiness, Inc., a Delaware corporation; Royster-Clark
Nitrogen, Inc., a Delaware corporation; Royster-Clark Resources LLC, a Delaware
limited liability company; Royster-Clark Realty LLC, a Delaware limited
liability company; and Royster-Clark AgriBusiness Realty LLC, a Delaware limited
liability company (collectively, the "Guarantors") in connection with the filing
of the Registration Statement (the "Registration Statement") on Form S-4
(Registration No. 333-81235) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"). The
Registration Statement relates to the proposed issuance of up to $200 million
aggregate principal amount of 10 1/4% First Mortgage Notes due 2009 (the
"Exchange Notes") of the Company and the guarantee thereof (the "Exchange
Guaranties") by each of the Guarantors. The Exchange Notes are to be issued in
exchange for an equal aggregate principal amount of the Company's outstanding 10
1/4% First Mortgage Notes due 2009 (the "Existing Notes" and together with the
Exchange Notes, the "Notes") and the Guarantors' guaranties thereof pursuant to
the Registration Rights Agreement dated April 22, 1999 among the Company, the
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and J.P. Morgan
Securities Inc. The Exchange Notes are to be issued pursuant to the terms of an
Indenture, filed as Exhibit 4.01 to the Registration Statement (the
"Indenture"), among the Company, the Guarantors and United States Trust Company
of New York, as trustee (the "Trustee"). The Indenture is to be qualified under
the Trust Indenture Act of 1939, as amended.
We have participated in the preparation of the Registration Statement and
have made such legal and factual examination and inquiry which we have deemed
advisable for the rendering of the opinions set forth below. In making our
examination, we have assumed the
<PAGE>
Royster-Clark, Inc.
September 23, 1999
Page 2
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to all authentic original documents of all
documents submitted to us as copies.
To the extent that it may be relevant to the opinion expressed herein, we
have assumed, for purposes of the opinions expressed herein, that (i) the
Trustee has the power and authority to enter into and perform the Indenture and
(ii) the Indenture has been duly authorized, executed and delivered by the
Trustee and is a legal, valid and binding obligation of the Trustee, enforceable
against the Trustee in accordance with its term. Based on the foregoing, it is
our opinion that:
1. The Exchange Notes have been duly authorized by the Company, and when
the Registration Statement has been declared effective, when the Exchange Notes
have been duly executed, authenticated and delivered in accordance with the
terms of the Indenture, and when the Exchange Notes have been issued and
delivered against the exchange of the Existing Notes in accordance with the
terms set forth in the Prospectus included in the Registration Statement, the
Exchange Notes will constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization or other similar laws affecting creditors' rights or debtors'
obligations and to general principles of equity.
2. The Exchange Guaranties have been duly authorized by the respective
Guarantors, and when the Registration Statement has been declared effective,
when the Exchange Notes have been duly executed, authenticated and delivered in
accordance with the terms of the Indenture, and when the Exchange Notes have
been issued and delivered against the exchange of the Existing Notes in
accordance with the terms set forth in the Prospectus included in the
Registration Statement, the Exchange Guaranties will constitute the legal, valid
and binding obligations of the respective Guarantors, enforceable against the
respective Guarantors in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization or
other similar laws affecting creditors' rights or debtors' obligations and to
general principles of equity.
The opinions expressed herein are limited to the laws of the United States
of America, the State of New York and the Delaware General Corporation Law, and
we express no opinion concerning any other laws.
The opinions expressed herein are rendered for your benefit in connection
with the transaction contemplated herein. The opinions expressed herein may not
be used or relied upon by any other person, nor may this letter or any copies
hereof be furnished to a third party, filed with a governmental agency, quoted,
cited or otherwise referred to without our prior written consent, except as
noted below.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the use of our name in the Prospectus contained
therein under the caption
<PAGE>
Royster-Clark, Inc.
September 23, 1999
Page 3
"Legal Matters." In giving such consent we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ Dechert Price & Rhoads
SUPPLY AGREEMENT
DATED AS OF APRIL 22, 1999
AMONG
IMC KALIUM LTD.,
IMC-AGRICO COMPANY
AND
ROYSTER-CLARK, INC.
<PAGE>
TABLE OF CONTENTS
(not part of the Agreement)
Page No.
--------
1. Sale and Purchase 1
2. Term 2
3. Price Terms
(a) Procedure for Determination of Price Terms 2
(b) Basis of Determination 3
(c) ** 3
4. Quantity 4
(a) Quantities 4
(b) Purchases in Excess of Requirements 4
(c) Purchase Estimates 4
(d) Purchase and Sale Requirements; Remedies 5
5. Delivery, Title and Risk of Loss 6
(a) Delivery 6
(b) Title and Risk of Loss 6
6. Purchase Orders 6
7. Product Exchanges 6
8. Billing and Payment 7
9. Taxes and Duties 7
10. Specifications/Quality 7
11. Warranties and Disclaimer 7
12. Claims Limited Remedies 7
13. Indemnification 8
(a) Scope of Indemnification by Purchaser 8
(b) Scope of Indemnification by Seller 8
(c) Defense 8
14. Measurements 8
15. Force Majeure 8
16. Breach; Termination 9
(a) Late Payment 9
(b) Termination 10
17. Consent to Jurisdiction; Service of Process 10
18. Miscel1aneous 10
(a) Entire Agreement 10
(b) Non-waiver 10
(c) Counterparts 10
(d) Assignment 11
(e) Severability and Violation of Laws 11
(f) Applicable Law 11
(g) Notices 11
(h) Headings 12
(i) Bankrurpcy/Insolvency 12
(j) Confidentiality 13
(k) Good Faith 13
(l) Setoff 13
(m) Binding Effect 13
(o) Storage and Handling Agreements 13
- ------------
** These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
<PAGE>
SUPPLY AGREEMENT
----------------
This SUPPLY AGREEMENT ("Agreement") is made and entered into as of April
-----------
22, 1999 among IMC KALIUM LTD., a Delaware corporation ("Kalium"), IMC-AGRICO
--------
COMPANY, a Delaware partnership ("Agrico"); and together with Kalium the
------
"Seller"), and Royster-Clark, Inc., a Delaware corporation ("Purchaser")
------ ---------
(successor in interest to Royster-Clark Group, Inc., formerly known as R-C
Delaware Acquisition Inc.).
R E C I T A L
-------------
Pursuant to that certain Stock Purchase Agreement dated January 21, 1999
------------------------
(the "Stock Purchase Agreement") between IMC Global Inc., The Vigoro Corporation
------------------------
("TVC") and R-C Delaware Acquisition Inc., TVC has agreed to sell, and Purchaser
---
has agreed to purchase, the capital stock of three (3) subsidiaries of TVC
engaged in the business of manufacturing or purchasing and selling (through
wholesale and retail channels) crop production inputs and services (the
"Business").
--------
A G R E E M E N T S
-------------------
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in connection with the closing
of the transactions contemplated by the Stock Purchase Agreement, the parties
hereby agree as follows.
1. Sale and Purchase. During the Term (as defined herein), Seller shall sell and
-----------------
Purchaser shall purchase and take delivery of those products identified in
Schedule 1 hereto (individually, a "Product", and collectively, the "Products").
- ---------- ------- --------
Purchases and sales shall be made hereunder on the Price Terms (as defined
herein), in the quantities and upon the terms herein set forth. Seller and
Purchaser acknowledge that all parties to this Agreement are entering into a
long-term agreement, and that Purchaser's ability to conduct its business and
service its customers in a timely and professional manner will be to a
significant extent dependent on Seller's performance hereunder. Either Seller or
Purchaser may at any time initiate an audit to verify the other parties'
compliance with the terms of this Agreement, including Sections 3(a), 3(b), 3(c)
or 4 (the party initiating such an audit is referred to as the "Auditing Party"
--------------
and the party being audited is referred to as the "Audited Party"). Any such
-------------
audit shall be conducted by a national accounting firm (the "Accounting Firm")
---------------
selected by the Audited Party and consented to by the Auditing Party, such
consent not to be unreasonably withheld or delayed. The Accounting Firm shall be
directed by the Audited Party and the Auditing Party to identify the books and
records, and any other relevant information, including accountant's work papers
and reasonable access to personnel, of the Audited Party which are necessary for
the resolution of the disputed matter. The Audited Party shall make available to
the Accounting Firm such books, records and other information (including work
papers and reasonable access to personnel) as the Accounting Firm may reasonably
request during the review; provided that the audit performed by the Accounting
-1-
<PAGE>
Firm may not unreasonably interfere with the business and operations of the
Audited Party. The Accounting Firm may share the results of the audit with the
Auditing Party, but the Accounting Firm shall not disclose to the Auditing Party
the names of any customers or suppliers of the Audited Party or other
confidential information (including, without limitation, specific pricing or
volume information as to particular customers) to the Auditing Party. The fees
and expenses of the Accounting Firm shall be paid by the Auditing Party unless
the audit by the Accounting Firm demonstrates that the Audited Party has not
been in material compliance with the provisions of this Agreement, in which case
the Audited Party shall pay such fees and expenses. In the event that following
the audit, the parties disagree over any matter, such matter shall be determined
pursuant to the procedures set forth on Schedule 6.
2. Term. The initial term of this Agreement (the "Initial Term") shall be a
---- -------------
period of ten (10) consecutive Contract Years (as defined herein), unless
otherwise earlier terminated as provided herein. As used herein, a "Contract
--------
Year" shall be a one (1) year period commencing on January 1 of any calendar
- ----
year, except that the initial Contract Year shall commence on the date of this
Agreement and end on December 31, 1999 (the "Initial Contract Year"). Any
---------------------
termination of this Agreement shall not affect any rights or unsatisfied
obligations accrued hereunder prior to the date of termination. Following
expiration of the initial term, this contract shall be automatically renewed for
subsequent periods of five (5) years unless otherwise canceled, by either party
giving written notice six (6) months prior to the end of the Initial Term or any
renewal term. The Initial Term, together with and any renewal term(s) shall be
referenced herein as the "Term."
----
3. Price Terms.
-----------
(a) Procedure for Determination of Price Terms.
-------------------------------------------
(i) The Price Terms shall be established annually for each Contract
Year based upon the criteria set forth in Section 3(b) as negotiated in
good faith by Seller and Purchaser.**
(b) Basis of Determination. The purchase and sale of each Product purchased
-----------------------
hereunder shall be on the Price Terms determined pursuant to this Section 3,
subject to Section 5(a)(i) if to be delivered by truck or Section 5(a)(ii) if to
be delivered by rail or barge. The Price Terms for each Product offered by
Seller to Purchaser for such Product** With respect to the Initial Contract
Year, the Price Terms shall be as set forth on Schedule 2.
- ------------
** These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
-2-
<PAGE>
4. Quantity.
--------
(a)**
(b) Purchases in Excess of Requirements. If Purchaser shall desire to
-----------------------------------
purchase a quantity of any Product in excess of the Requirements, Purchaser
shall solicit quotations from suppliers thereof, including Seller. Purchaser
shall have the right to purchase such quantities in excess of Requirements from
suppliers other than Seller.
(c) Purchase Estimates. Pursuant to good faith negotiations between the
------------------
parties, Purchaser shall provide Seller with an estimate (the "Initial
Estimate") not later than sixty (60) days prior to the commencement of each
Contract Year of the quantity of each Product to be purchased by Purchaser
during such Contract Year, and of the Quarterly (as defined herein) amounts
thereof, in substantially the form of Schedule 5 hereto. The Quarterly amounts
shall be a good faith estimate of delivery requirements for the upcoming
Contract Year and shall be based substantially upon delivery requirements
- ------------
** These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
-3-
<PAGE>
experienced during the preceding Contract Year (without giving effect to special
accommodations made by Purchaser to accept early delivery of Product); provided
that Purchaser shall be permitted to make reasonably adjustments to such
Quarterly amounts from year to year. As used herein, "Quarter" means a calendar
-------
quarter, that is, a 3-month period beginning on January 1, April 1, July 1 and
October 1. The Initial Estimate for the Initial Contract Year is included in
Schedule 5 attached hereto. Pursuant to good faith negotiations between the
parties, Purchaser shall update such estimate not later than the first day of
the month immediately preceding each Quarter (December 1, March 1, June 1 and
September 1, as applicable).
(d) Purchase and Sale Requirements; Remedies.
----------------------------------------
(i) (A) (1) Subject to compliance by Purchaser with this Section 4,
during each Contract Year, Seller shall be obligated to**
(2) During each Contract Year, Seller shall use commercially
reasonable efforts to supply any Requirements in excess of the Initial
Estimate for each Product and to fill reasonable requests by Purchaser for
Product in excess of forecasted amounts in any particular Quarter.
(3) Notwithstanding any other provision of this Section 4, if Seller
is unable to supply the Requirements and shall have declared a national or
regional allocation for a Product or Products on account of any
circumstance other than a Force Majeure, Seller shall allocate its
available Product to Purchaser on a basis which is equal to or more
favorable than the allocation of Product to **
other large customer, and such allocation shall be Seller's sole supply
obligation for such Product or Products during such period of allocation.
(B) In the event Seller fails to supply any quantities of Product as
required by Section 4 (d)(i)(A)(1) or Section 4(d)(i)(A)(3), Purchaser
shall be entitled to obtain cover supplies of Product on such reasonable
terms and conditions as are available in the market for such quantities
from suppliers other than Seller, and Purchaser's sole and exclusive remedy
for any cause of action related thereto, whether based on breach of
contract, breach of warranty, strict liability in tort or any other cause
of action, is expressly limited to the greater of (x) the difference in the
price terms obtained by Purchaser for the quantities required by such
Sections to be supplied by Seller (but which were not so supplied) and the
applicable Price Terms or (y) 3% of the Price Terms for the Product Seller
failed to supply as required Section 4(d)(i)(A)(1) or Section
- ------------
** These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
-4-
<PAGE>
4(d)(i)(A)(3); provided, however, that, at the election of Seller, Seller
-------- -------
may satisfy its failure to supply Product as required by Section
4(d)(i)(A)(1) or Section 4(d)(i)(A)(3) by delivering to Purchaser on the
Price Terms the quantity and type of Product it so failed to supply, or
another Product on the Price Terms in quantities to be agreed to by Seller
and Purchaser, in each case, pursuant to a Purchase Order agreed to by the
parties specifying the location for delivery of the Products. Seller and
Purchaser agree that with respect to any quantities to which Purchaser is
not entitled to an allocation pursuant to Section 4(d)(i)(A)(3), and with
respect to any quantities Seller is unable to supply pursuant to Section
4(d)(i)(A)(2), Purchaser shall have no recourse against Seller hereunder
with respect to such quantities, and the purchase of cover supplies by
Purchaser for such quantities from suppliers other than Seller shall not
constitute a breach of Purchaser's obligations hereunder.
(ii) (A) Each Contract Year, Purchaser shall deliver an officer's
certificate certifying that Purchaser purchased all of its Requirements for
such Product from Seller and not from an alternate producer or supplier
during such Contract Year.
(B) In the event it is determined that Purchaser has failed to
purchase the Requirements for any Product during a Contract Year, Purchaser
shall be obligated to pay Seller the greater of (x) 3% of the aggregate
price which would have been payable for such quantities pursuant to the
Price Terms or (y) the difference in the aggregate price paid by Purchaser
for such Product and the aggregate price which would have been paid for
such Product if purchased on the Price Terms; provided, however, that, at
-------- -------
the election of Purchaser, Purchaser may satisfy any such failure to
purchase Product by purchasing from Seller on the Price Terms the quantity
and type of Product Purchaser so failed to purchase, or another Product on
the Price Terms in quantities to be agreed to by Seller and Purchaser, in
each case, in excess of Requirements for such Contract Year pursuant to a
Purchase Order placed by Purchaser and accepted by Seller specifying the
location for delivery of the Products. The foregoing remedies shall be
Seller's sole and exclusive remedy for any cause of action related thereto,
whether based on breach of contract, breach of warranty, strict liability,
and tort, or any other cause of action, is expressly limited to such
payment.
5. Delivery, Title and Risk of Loss.
--------------------------------
(a) Delivery. Unless the parties otherwise mutually agree with respect to a
--------
particular Purchase Order: (i) Purchaser shall arrange for Product to be
delivered by truck to be picked up at a mutually agreeable Seller shipping point
and such Product shall be sold F.O.B. shipping point, and (ii) Seller shall
arrange for shipment of Product to be delivered by rail or barge and such
Product shall be sold F.O.B. destination.
(b) Title and Risk of Loss. Title to and risk of loss of any Product sold
----------------------
-5-
<PAGE>
hereunder F.O.B. destination shall pass to Purchaser upon delivery by the
carrier to Purchaser at the destination, and title to and risk of loss to any
Product sold hereunder F.O.B. shipping point shall pass to Purchaser upon
delivery to the carrier at the shipping point.
6. Purchase Orders. All sales and purchases of Product shall be made pursuant to
---------------
a specified purchase order from Purchaser to Seller ("Purchase Order"),
identifying and stating the quantity of Product to be purchased by Purchaser,
the Purchase Price for the Product to be purchased by Purchaser, the location to
which Product should be delivered and the means of transportation by which the
Product should be delivered. Product to be delivered by truck shall be only in
whole truckload quantities.
7. Product Exchanges. Seller may (a) fill any purchase order with Product
-----------------
obtained through exchange with a third party, or (b) provide Product, produced
by Seller to a mutually agreeable third party for sale to Purchaser; provided,
--------
however, that, in either event, Seller shall remain responsible for Product
- -------
quality as though Product were produced by Seller or its Affiliates and sold
directly to Purchaser.
8. Billing and Payment. Seller shall invoice Purchaser separately on the date of
-------------------
shipment for each shipment of Product sold hereunder.**
9. Taxes and Duties. Purchaser shall be responsible for, and shall promptly pay
----------------
or reimburse Seller if Seller pays, all taxes, charges, fees, duties and other
governmental charges (other than income taxes) imposed on the sale,
transportation or use of any Product sold hereunder.
10. Specifications/Quality. Seller shall provide Products meeting the
----------------------
specifications set forth in Schedule 1 hereto.
----------
11. Warranties and Disclaimer. Seller makes no warranty of any kind, express or
-------------------------
implied, except that Seller represents and warrants that (i) Products sold
hereunder shall at the time of delivery substantially conform to the
specifications set forth in Schedule 1 hereto, (ii) Seller will convey good
----------
title thereto, free from any security interest (except for a security interest
created by or through Purchaser) (iii) Products sold hereunder shall be of a
quality that is usual and customary in the industry, (iv) Products sold
hereunder shall have free-flowing characteristics, (v) Products sold hereunder
shall not be adulterated, and be generally free of foreign materials, all in
accordance with and subject to industry standards, and (vi) Products sold
hereunder shall contain only a immaterial amount of dust and shall have been
"cured" for an appropriate amount of time, all in accordance with industry
standards and (vii) Products sold hereunder shall be in conformity with, in all
material respects, any applicable statutes, rules or regulations.
- ------------
** These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
-6-
<PAGE>
THE ABOVE WARRANTIES ARE EXCLUSIVE AND IN LIEU OF ANY OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WHICH ARE HEREBY EXPRESSLY DISCLAIMED. Seller makes no recommendations
for use of any of the Products and no warranty of the results to be obtained by
such use.
12. Claims/Limited Remedies. In the event any Product fails to conform to any of
-----------------------
the above warranties, Purchaser's sole and exclusive remedy for any cause of
action related thereto, whether based on breach of contract, breach of warranty,
strict liability in tort or any other cause of action, is expressly limited, at
Purchaser's option, with the consent of Seller, which consent shall not be
unreasonably withheld or delayed, to (a) a refund of the purchase price for the
nonconforming Product, (b) the replacement of the nonconforming Product or (c) a
refund of a portion of the purchase price for the nonconforming Product (as
determined by the parties in good faith). To the extent Purchaser is entitled to
either of the remedies set forth in clause (a) or (b) above, Purchaser shall
return, reroute or dispose of the nonconforming Product as requested by Seller.
All claims relating to quantity or condition of any Product delivered hereunder
(other than on account of the representations in Section 11(v), (vi) or (vii)
shall be waived unless received by Seller in writing within seven (7) days after
delivery. All claims relating to condition of any Product delivered hereunder on
account of the representations in Section 11(v), (vi) or (vii) shall be waived
unless received by Seller in writing within seven (7) days after noncomformity
with such representations shall have been discovered or should have been
discovered by Purchaser (and in no event later than ninety (90) days following
delivery).
13. Indemnification.
---------------
(a) Scope of Indemnification by Purchaser. Purchaser will indemnify and hold
-------------------------------------
harmless, and at Seller's election defend, Seller, its Affiliates and the third
parties referred to in Section 7, and their respective officers, directors,
shareholders, employees and agents and the heirs, personal representatives,
successors and assigns of all of the foregoing (collectively, the "Seller
Indemnitees") from and against all liabilities, demands, claims, actions and
causes of action, assessments, losses, penalties, costs, damages and expenses
(including reasonable attorneys' and expert witness fees) ("Losses") sustained
or incurred by any of the Seller Indemnitees as a result of or arising out of or
by virtue of the sale, use or storage of Products except to the extent such
Losses arise out of a breach of the representations and warranties of Seller in
Section 11 (whether or not Purchaser has a remedy under Section 12 in respect
thereof).
(b) Scope of Indemnification by Seller. Seller will indemnify and hold harmless,
----------------------------------
and at Purchaser's election defend, Purchaser, its Affiliates and their
respective officers, directors, shareholders, employees and agents and the
heirs, personal representatives, successors and assigns of all of the foregoing
(collectively, the "Purchaser Indemnitees") from and against all Losses
sustained or incurred by any of the Purchaser Indemnitees as a result of or
-7-
<PAGE>
arising out of or by virtue of the sale, use or storage of Products to the
extent such Losses arise out of a breach of the representations and warranties
of Seller in Section 11.
(c) Defense. Either party shall have the right, at its own expense, to
-------
participate in the defense of any action or proceeding brought by a third party
which results in a claim for indemnification, and if said right is exercised,
the parties shall cooperate in the defense of said action or proceeding.
14. Measurements. Seller's weights and analysis shall determine the quantities
------------
sold hereunder unless proved to be in material error.
15. Force Majeure. Either party's failure or inability to make or take any
-------------
delivery or deliveries when due, or the failure or inability of either party to
effect timely performance of any other obligation required of it hereunder,
except any obligation to pay money, if caused by Force Majeure (as defined
herein) shall not constitute a default hereunder or subject the party claiming
Force Majeure to any liability to the other party, if the party so claiming
shall have promptly notified the other party of the existence and expected
duration thereof and the estimated effect thereof on its ability to perform
hereunder. The party claiming Force Majeure shall promptly notify the other
party when the Force Majeure has ceased to affect its ability to perform
hereunder. In the event of Force Majeure, the total quantities to be delivered
hereunder shall be reduced to the extent of deliveries omitted during the Force
Majeure period and as a result of the Force Majeure. For so long as Seller's
ability to perform is affected by Force Majeure, Seller shall allocate its total
production among its various requirements therefor among Purchaser
** and other large customers on a basis which is more favorable
than the allocation of Product to any ** other large
customer, and Seller shall not be obligated to procure any quantity of Product
from any alternate producer or supplier and Seller shall not be liable for
resulting incomplete fulfillment of this Agreement. As used herein, "Force
Majeure" means and includes any act of God, the public enemy, any accident,
explosion, fire, storm, earthquake, flood, drought, perils at sea, strikes,
lockouts, labor disputes, riots, sabotage, embargo, war (whether or not declared
and whether or not the United States of America is a participant), prorations
mandated by federal, state, provincial or municipal law, failure or delay of
transportation beyond the reasonable control of the party affected thereby,
inability to obtain raw materials, supplies, equipment, fuel, power, labor, or
other operational necessity beyond the reasonable control of the party affected
thereby, interruption or curtailment of power supply, or any other circumstance
of a similar or different nature beyond the reasonable control of the party
affected thereby. In this connection, neither party shall be required to resolve
labor disputes or disputes with suppliers of raw materials, supplies, equipment,
fuel or power, except in accordance with such party's business judgment as to
its best interest.
- ------------
** These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
-8-
<PAGE>
16. Breach; Termination.
-------------------
(a) Late Payment. If Purchaser shall be late in making any payment for Products
------------
hereunder (other than for payments which are the subject of a good faith dispute
between the parties, as to which no penalty shall accrue until the dispute has
been resolved), all late payments shall bear interest from the due date to the
date of payment in full at the rate of one and one-half percent (1.5%) per
month, and, if such delinquency remains uncured for 30 days following notice
thereof, Seller may at its sole discretion by notice to Purchaser elect one or
more of the following courses of action:
(i) cease to make any further deliveries hereunder until Purchaser has made
up the late payment and has taken steps to assure Seller to its
satisfaction that there shall be no such delinquencies in the future; and
(ii) refuse to make any further deliveries hereunder except upon cash
payments on delivery until Purchaser has made up the late payment and has
taken steps to assure Seller to its satisfaction that there shall be no
such delinquencies in the future.
If Purchaser has not paid in full all late payments within thirty (30) days of
such notice, Seller may at its option by notice to Purchaser terminate this
Agreement. The election by Seller of any of the remedies hereunder shall in no
way limit any other rights and remedies available to Seller in law or in equity.
(b) Termination. If either party shall fail to perform any material part of this
-----------
Agreement (other than provided for in Section 16(a)) and, upon notice of such
failure by the other party, shall fail to remedy the same within thirty (30)
days of such notice, then, in such event, this Agreement may be terminated
forthwith by written notice at the option of the other party with such other
party retaining all its other rights and remedies available to it in law and in
equity.
17. Consent to Jurisdiction; Service of Process. This Agreement has been
----------------------- ------------------
executed and delivered in Chicago, Illinois. Seller and Purchaser each
agrees to the exclusive jurisdiction of any state or Federal court within the
City of Chicago, 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, and consents that all services of process be made by registered or
certified mail, return receipt requested, directed to it at its address set
forth in Section 18(g), and service so made shall be deemed to be completed when
received. Seller and Purchaser each waive any objection based upon forum non
---------
conveniens and waive any objection to venue of any action instituted hereunder.
- ----------
Nothing in this Section 17 shall affect the right of Seller or Purchaser to
serve legal process in any other manner permitted by law. Seller and Purchaser
each waives the right to a jury trial in connection with any suit, action or
proceeding seeking enforcement of such party's rights under, or by virtue of any
party's breach of, this Agreement.
-9-
<PAGE>
18. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement contains the entire agreement of the
----------------
parties hereto with respect to the subject matter of this Agreement. Any and all
prior discussions or agreements with respect hereto are merged into and
superseded by the terms of this Agreement. This Agreement may be modified or
amended only in a writing signed by both parties which expressly refers to this
Agreement and states its intention to modify or amend this Agreement. No such
amendment or modification shall be effected by use of any purchase order,
acknowledgment, invoice or other form of either party and in the event of
conflict between the terms of this Agreement and any such form, the terms of
this Agreement shall control (it being understood that no Purchase Order may
contain terms which are inconsistent with the terms of this Agreement).
(b) Non-waiver. The failure in any one or more instances of a party to
----------
insist upon performance 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 shall continue and remain in
full force 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.
(c) 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.
(d) Assignment. Neither party shall assign this Agreement, in whole or in
----------
part, without the prior written consent of the other party, provided, however,
-------- -------
that any party, its successors and other permitted assigns may assign this
Agreement and its rights and obligations hereunder, to a successor to or
assignee of substantially all of the assets and business of the assignor to
which this Agreement applies, or as a result of a merger or consolidation or to
an Affiliate, its successors or other permitted assigns. Any assignment or
attempted assignment in contravention of the foregoing shall be null and void,
shall be considered a material breach of the Agreement and shall permit the
other party, in addition to any other rights and remedies which may be available
by law or in equity, to terminate this Agreement.
(e) Severability and Violation of Laws. The invalidity of any provision of
----------------------------------
this Agreement or a portion of the provisions shall not effect the validity of
any other provision of this Agreement or the remaining portion of the applicable
provision. Notwithstanding anything herein to the contrary, no party shall be
obligated to perform any obligation herein or comply with any provision herein
to the extent such obligation or provision conflicts with or is in violation of
any applicable law.
(f) Applicable Law. This Agreement shall be governed and controlled as to
--------------
validity, enforcement, interpretation, construction, effect and all other
-10-
<PAGE>
respects while the internal laws of the State of Illinois applicable to
contracts made in that state, without giving effect to the conflict of laws
principles thereof.
(g) Notices. All notices and other communications hereunder, shall be in
-------
writing and shall be deemed validly given if delivered personally or sent by
certified or registered mail, postage prepaid, or by telex, fax or cable to the
following addresses, unless otherwise designated or changed by written notice to
the other parties hereto:
If to Agrico addressed to:
2345 Waukegan Road
Suite E-200
Bannockburn, IL 60015
Attention: Bob Turner
Fax: (847) 607-3535
with a copy to:
IMC Global Inc.
2100 Sanders Road
Northbrook, Illinois 60062-6146
Attention: General Counsel
Fax: (847) 205-4916
If to Kalium addressed to:
2345 Waukegan Road
Suite E-200
Bannockburn, IL 60015
Attention: Bob Turner
Fax: (847) 607-3535
with a copy to:
IMC Global Inc.
2100 Sanders Road
Northbrook, Illinois 60062-6146
Attention: General Counsel
Fax: (847) 205-4916
-11-
<PAGE>
If to Purchaser addressed to:
Royster-Clark, Inc.
10 Rockefeller Plaza, Suite 1120
New York, New York 10020
Attention: Randolph G. Abood
Fax: (212) 332-2994
Any notice delivered personally shall be deemed received when such delivery is
tendered and if mailed in one of the manners provided above, it shall be deemed
received on the second business day after it is postmarked. Notices sent by
other methods shall be deemed received when actually received by the addressee
or its authorized agent.
(h) Headings. The Section headings as to the contents of particular
--------
Sections are for the convenience of the parties and are in no way to be
construed as part of this Agreement or as a limitation of the scope of the
particular Sections to which they refer.
(i) Bankruptcy/Insolvency. If either Purchaser or Seller becomes insolvent
---------------------
or ceases to function as a going concern, or if a receiver for it is appointed
or applied for, or a petition under any bankruptcy or reorganization statute is
filed by it or against it, or if it makes an assignment for the benefit of
creditors or takes advantage of any insolvency statute, the other party hereto,
in addition to any other rights and remedies which may be available by law or in
equity, may terminate this Agreement.
(j) Confidentiality. During the Term, the parties shall keep in strict
---------------
confidence the content of this Agreement and all information disclosed by the
other parties hereunder or Affiliates of such parties unless otherwise required
by a governmental body or a court of law or by the applicable rules of any stock
exchange.
(k) Good Faith. Each party shall at all times act in good faith in taking
----------
all actions and performing all obligations, covenants and agreements in
connection with the transaction contemplated hereby.
(l) Setoff. Purchaser and Seller each hereby waives all rights of setoff
------
and recoupment it may have against the other party hereto with respect to all
amounts which may be owed from time to time pursuant to this Agreement.
(m) Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto, and their successors and permitted assigns.
(n) No Consequential Damages. IN NO EVENT SHALL SELLER OR PURCHASER BE
------------------------
LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL (INCLUDING LOSS OF
PROFIT) OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT, WHETHER BASED ON
BREACH OF CONTRACT, BREACH OF WARRANTY, STRICT LIABILITY IN TORT OR ANY OTHER
CAUSE OF ACTION.
(o) Storage and Handling Agreements. Within 45 days following the date of
-------------------------------
this Agreement, Purchaser and Agrico agree to enter into Storage and Handling
-12-
<PAGE>
Agreements in the form attached as Exhibit A hereto (the "Phosphate Warehousing
------- ---------------------
Agreements"), and Purchaser and Kalium agree to enter into Storage and Handling
- ----------
Agreements in the form attached as Exhibit B hereto (the "Potash Warehousing
------------------
Agreements" and, together with the Phosphate Warehousing Agreement,
- ----------
collectively, the "Warehousing Agreements" or, individually, a "Warehousing
---------------------- -----------
Agreement"). The Warehousing Agreements will provide for storage and handling at
- ---------
each of the facilities of IMC AgriBusiness which are being used by Kalium and
Agrico, respectively, to store Product as of the date hereof. The forms of each
of the Potash Warehousing Agreements and the Phosphate Warehousing Agreements
will be completed based upon the present arrangements under which Product is
stored at such facilities. Until the parties enter into the Warehousing
Agreements, the terms of such arrangements will be continued based upon existing
letter agreements between IMC AgriBusiness Inc. and each Seller.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
IMC KALIUM LTD.
By: /s/ Lynn F. White
-----------------------------
Its: SVP
-----------------------------
IMC-AGRICO COMPANY
By: IMC-AGRICO MP, INC.,
its managing general partner
By: /s/ Lynn F. White
-----------------------------
Its: SVP
-----------------------------
ROYSTER-CLARK, INC.
By: /s/ G. Kenneth Moshenek
-----------------------------
Its:
-----------------------------
-14-
<PAGE>
Exhibit A
STORAGE AND HANDLING AGREEMENT
THIS AGREEMENT made this ____ day of __________, 1999 between
ROYSTER-CLARK, INC., a Delaware Corporation, having its principal office at
_____________________________________________________________________________
(hereinafter called "WAREHOUSEMAN") and IMC-AGRICO Company, a Delaware General
Partnership, having its principal office at 2100 Sanders Road, Northbrook, IL,
60062 (hereinafter called "IMC-AGRICO");
W I T N E S S E T H:
WHEREAS, IMC-AGRICO desires to have certain of its Product (as hereinafter
defined) stored and handled at______________________________ and WAREHOUSEMAN is
willing to provide such storage and handling.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set out herein, the parties agree as follows:
1. TERM: The initial term of this Agreement shall begin on the date herof
-----
and shall end on the first anniversary of the date hereof. This Agreement shall
automatically renew for an indefinite number of successive one (1) year renewal
terms at the end of the initial term and each such renewal term unless and until
terminated by either WAREHOUSEMAN or IMC-AGRICO upon written notice to the
other, effective at the end of the initial term or the then current renewal
term, delivered not less than sixty (60) days before the end of the initial term
or the then current renewal term. The rates, charges and other terms and
conditions during any renewal term shall be the same as the rates, charges and
other terms and conditions during the term immediately preceding that renewal
term unless otherwise agreed by WAREHOUSEMAN and IMC-AGRICO in writing not less
than sixty (60) days before the beginning of that renewal term.
2. PROVISIONS OF FACILITIES: WAREHOUSEMAN shall provide adequate segregated
-------------------------
storage space for __________ tons of IMC-AGRICO's ______________ (hereinafter
called "Product") at WAREHOUSEMAN's warehouse facility located in _________
(City or Town), ________(State or Province) (hereinafter called the "Facility");
WAREHOUSEMAN shall not store IMC-AGRICO's Product at any other location without
IMC-AGRICO's prior written consent. If such consent is provided, such other
locations shall be the designated "Facility" hereunder.
<PAGE>
WAREHOUSEMAN shall not commingle IMC-AGRICO's Product with any other product
without IMC-AGRICO's prior written consent.
3. STORAGE AND HANDLING: IMC-AGRICO's Product received by WAREHOUSEMAN and
---------------------
stored hereunder shall be delivered to WAREHOUSEMAN by __________________ and
shall be shipped out by __________________. WAREHOUSEMAN shall be responsible
for IMC-AGRICO's Product from the time it arrives at the Facility until such
time as Product is loaded for shipment from the Facility. WAREHOUSEMAN agrees
that it will follow, in all material respects, the procedures described in
Schedule A attached hereto and incorporated herein by reference in the storage
and handling of IMC-AGRICO's Product.
4. CHARGES: WAREHOUSEMAN shall charge IMC-AGRICO for contracted services
--------
according to Schedule B attached hereto and incorporated herein by reference.
The charges for first month's storage and handling shall be paid by
IMC-AGRICO upon receipt by IMC-AGRICO of a proper invoice from WAREHOUSEMAN,
based on origin inbound bills of lading. Subsequent storage and other charges
will be paid monthly upon receipt by IMC-AGRICO of a proper invoice from
WAREHOUSEMAN detailing the charges for the preceding month. All invoices are due
and payable within thirty (30) days following the invoice date provided that
IMC-AGRICO need not pay disputed charges pending resolution of said dispute.
WAREHOUSEMAN shall not assert against IMC-AGRICO any warehouseman's lien on
IMC-AGRICO's Product stored under this Agreement, including any such lien
arising under Section 7-209 of the Uniform Commercial Code, except for a
warehouseman's lien limited in amount to those accrued and unpaid warehouse fees
owing under this Agreement and invoiced by WAREHOUSEMAN to IMC-AGRICO as
hereinabove provided.
5. ACCESS TO FACILITY: IMC-AGRICO's representatives shall have full access
-------------------
to the Facility at reasonable intervals during normal working hours in order to
inspect the Facility, take inventory of IMC-AGRICO's Product stored therein, and
examine all of WAREHOUSEMAN's records pertaining to IMC-AGRICO's Product.
6. TITLE: IMC-AGRICO shall retain title to all IMC-AGRICO Product received
------
by WAREHOUSEMAN. WAREHOUSEMAN's responsibility for IMC-AGRICO's Product shall be
limited exclusively to the supplying storage space and handling of Product, as
specified in Schedule A attached hereto and incorporated herein by reference.
7. SHRINKAGE: WAREHOUSEMAN's responsibility for IMC-AGRICO's Product shall
----------
be limited exclusively to the supplying of storage space and careful handling of
the Product as specified in Schedule A attached hereto; and to shipping
<PAGE>
out, pursuant to Sections 3 and 8 hereof, not less than 99% of the quantity of
each Product received by WAREHOUSEMAN. It is understood that the above 1%
shrinkage allowance shall be based upon actual shrinkage and WAREHOUSEMAN shall
not be entitled to retain IMC-AGRICO's Product up to the allowable shrinkage.
Shrinkage shall be determined by comparison of origin inbound certified weight
receipts and outbound certified weight receipts, when physical inventory is at a
zero level. WAREHOUSEMAN shall be responsible for any Product loss or damage in
excess of the allowable shrinkage. Payment for shrinkage in excess of that
provided above shall be at IMC-AGRICO's current price at mine or production
point, plus transportation from such mine or production point to WAREHOUSEMAN's
Facility, plus WAREHOUSEMAN's inbound handling charge.
Settlement for shrinkage shall be made each time inventory reaches a zero
level, which such action shall be taken not less than once every contract year,
and there shall be no carry-over from year to year of unused shrinkage
allowance. IMC-AGRICO shall not be obligated to pay WAREHOUSEMAN for any
accumulated, unused credit which remains after settlement hereunder on
termination.
8. LOADING INSTRUCTIONS: On written instructions from IMC-AGRICO,
---------------------
WAREHOUSEMAN shall use its reasonable best efforts to load each truck and/or
railcar to maximum legal capacity to gain the minimum tariff rate provided for
said truck and/or railcar. Any costs or penalties associated with overloads
shall be for the account of WAREHOUSEMAN.
9. INSURANCE: IMC-AGRICO agrees to insure or self-insure its Product stored
----------
by WAREHOUSEMAN against all risks covered by IMC-AGRICO's Fire and Extended
Coverage Insurance. WAREHOUSEMAN shall, at its own expense, maintain insurance
as follows for the terms of this Agreement:
A. Workers' Compensation Insurance as prescribed by law and
-------------------------------
Employer's Liability insurance with a limit per accident of not less than
$500,000. If WAREHOUSEMAN's workers' compensation liability is required to
be insured with a state fund, WAREHOUSEMAN shall furnish IMC-AGRICO with
evidence that is satisfactory to IMC-AGRICO that WAREHOUSEMAN is so
insured.
B. All Risk Comprehensive General Liability Insurance covering
--------------------------------------------------
public liability, property damage insurance, with respect to the Facility,
including a contractual liability provision to cover the liability assumed
by WAREHOUSEMAN under this Agreement and automobile liability, all with a
combined single limit for bodily injury and property damage liability of
not less than $1,000,000 with respect to any one occurrence.
<PAGE>
WAREHOUSEMAN shall deliver to IMC-AGRICO Certificates of Insurance evidencing
the issuance of the required policies and the fact that they are in force, and
stating that such policies will not be canceled or materially changed without
sixty (60) days prior notice to IMC-AGRICO. Such insurance policies shall be
obtained from companies satisfactory to IMC-AGRICO.
10. SUBCONTRACTOR INSURANCE: If any of WAREHOUSEMAN's obligations under
------------------------
this Agreement are, with IMC-AGRICO's prior written consent, subcontracted,
WAREHOUSEMAN shall require each subcontractor to maintain insurance as described
in Section 9 hereof and shall provide IMC-AGRICO with evidence of such
insurance.
11. LIABILITY:
----------
A. IMC-AGRICO, its partners and/or affiliates (including but not
limited to IMC Global Inc., IMC Global Operations Inc. and Phosphate
Resource Partners Limited Partnership), and/or their agents, officers,
directors, attorneys and/or employees, shall not be responsible or liable
to WAREHOUSEMAN or to any of WAREHOUSEMAN's agents, including
WAREHOUSEMAN's insurance carrier, for any workers' compensation benefits
paid to WAREHOUSEMAN's employees. WAREHOUSEMAN waives any claims, liens,
causes of action, or any other rights it or its agents, including insurance
carriers, may have against IMC-AGRICO, its partners and/or affiliates
(including but not limited to IMC Global Inc., IMC Global Operations Inc.
and Phosphate Resource Partners Limited Partnership), and/or their agents,
officers, directors, attorneys and/or employees, for sums paid or to be
paid by IMC-AGRICO, relating to any payments made to WAREHOUSEMAN's
employees by WAREHOUSEMAN pursuant to its workers' compensation
obligations. WAREHOUSEMAN also waives any claims, liens, causes of action,
or any other rights it or its agents, including insurance carriers, may
have against IMC-AGRICO, its partners and/or affiliates (including but not
limited to IMC Global Inc., IMC Global Operations Inc. and Phosphate
Resource Partners Limited Partnership), and/or their agents, officers,
directors, attorneys and/or employees, for any sums paid or to be paid by
IMC-AGRICO, relating to any actions or claims by WAREHOUSEMAN's employees
against IMC-AGRICO, its partners and/or affiliates (including but not
limited to IMC Global Inc., IMC Global Operations Inc. and Phosphate
Resource Partners Limited Partnership), and/or their agents, officers,
directors, attorneys and/or employees. IN NO EVENT SHALL IMC-AGRICO, ITS
PARTNERS AND/OR AFFILIATES, AND/OR THEIR AGENTS, OFFICERS, DIRECTORS,
ATTORNEYS AND/OR EMPLOYEES, BE LIABLE FOR SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER BASED UPON
<PAGE>
NEGLIGENCE, BREACH OF CONTRACT, BREACH OF WARRANTY, OR OTHERWISE.
B. WAREHOUSEMAN, its partners and/or affiliates, and/or their
agents, officers, directors, attorneys and/or employees, shall not be
responsible or liable to IMC-AGRICO or to any of IMC-AGRICO's agents,
including IMC-AGRICO's insurance carrier, for any workers' compensation
benefits paid to IMC-AGRICO's employees. IMC-AGRICO waives any claims,
liens, causes of action, or any other rights it or its agents, including
insurance carriers, may have against WAREHOUSEMAN, its partners and/or
affiliates, and/or their agents, officers, directors, attorneys and/or
employees, for sums paid or to be paid by WAREHOUSEMAN, relating to any
payments made to IMC-AGRICO's employees by IMC-AGRICO pursuant to its
workers' compensation obligations. IMC-AGRICO also waives any claims,
liens, causes of action, or any other rights it or its agents, including
insurance carriers, may have against WAREHOUSEMAN, its partners and/or
affiliates, and/or their agents, officers, directors, attorneys and/or
employees, for any sums paid or to be paid by WAREHOUSEMAN, relating to any
actions or claims by IMC-AGRICO's employees against WAREHOUSEMAN, its
partners and/or affiliates, and/or their agents, officers, directors,
attorneys and/or employees. IN NO EVENT SHALL WAREHOUSEMAN, ITS PARTNERS
AND/OR AFFILIATES, AND/OR THEIR AGENTS, OFFICERS, DIRECTORS, ATTORNEYS
AND/OR EMPLOYEES, BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED UPON NEGLIGENCE, BREACH OF CONTRACT, BREACH OF
WARRANTY, OR OTHERWISE.
12. INDEMNIFICATION:
----------------
A. WAREHOUSEMAN agrees to indemnify, defend, and hold harmless
IMC-AGRICO, its partners and affiliates (including but not limited to IMC
Global Inc., IMC Global Operations Inc. and Phosphate Resource Partners
Limited Partnership), and their agents, insurers, officers, attorneys,
directors, and employees, from and against any and all liabilities, losses,
expenses, damages, demands and claims, including third party claims for
contribution, attorneys' fees, arising out of injury or alleged injury to
any persons (including death), damage or alleged damage to any property
(including IMC-AGRICO's Product stored under this Agreement), any
adulteration, misformulation or contamination of IMC's raw materials or
finished goods, any violation or alleged violation of any environmental,
health or safety laws, whether federal, state or local, or any "release" or
"threatened release" of any "hazardous substance" (as those terms are
defined under the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.ss. 9601 et seq. or the Resource Conservation
-------
and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq.) resulting
-------
<PAGE>
from or occurring in connection with WAREHOUSEMAN's possession or handling
of any IMC-AGRICO Product or other performance by WAREHOUSEMAN under this
Agreement but only if due to the negligence or willful act or omission of
WAREHOUSEMAN, its employees, agents, representatives or subcontractors. The
parties intend this provision to be construed broadly.
B. IMC-AGRICO agrees to indemnify, defend, and hold harmless
WAREHOUSEMAN, its partners and affiliates, and their agents, insurers,
officers, attorneys, directors, and employees, from and against any and all
liabilities, losses, expenses, damages, demands and claims, including third
party claims for contribution, attorneys' fees, arising out of injury or
alleged injury to any persons (including death), damage or alleged damage
to any property, any adulteration, misformulation or contamination of
IMC-AGRICO's raw materials or finished goods, any violation or alleged
violation of any environmental, health or safety laws, whether federal,
state or local, or any "release" or "threatened release" of any "hazardous
substance" (as those terms are defined under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss.
9601 et seq. or the Resource Conservation and Recovery Act, 42 U.S.C.
------
ss.ss. 6901 et seq.) resulting from or occurring in connection with
------
IMC-AGRICO's production or handling of any its Product or other performance
by IMC-AGRICO under this Agreement. The parties intend this provision to be
construed broadly.
13. INDEPENDENT CONTRACTOR: In the performance of the Agreement,
-----------------------
WAREHOUSEMAN will not be under IMC-AGRICO's control as to the persons engaged by
WAREHOUSEMAN to assist in said performance, or to the means and methods employed
by WAREHOUSEMAN in accomplishing said performance, WAREHOUSEMAN's responsibility
to IMC-AGRICO being only for results in accordance with arrangements set forth
herein. All employees, agents, or other representatives engaged by WAREHOUSEMAN
in connection with the performance of this Agreement will be of WAREHOUSEMAN's
own account, and at WAREHOUSEMAN's own expense, and the terms and tenure and
hours of their employment and their wages or salaries shall be under
WAREHOUSEMAN's exclusive control and direction at all times.
It is further understood and agreed by the parties hereto that WAREHOUSEMAN
is, and for all purposes shall be considered, an independent contractor and
fully and exclusively liable: (a) for the payment of any and all taxes now or
hereafter imposed by any governmental authority which are measured by wages,
salaries, or commissions paid to persons in its employment; (b) for any accident
to persons or property that may occur at the Facility or on other premises of
WAREHOUSEMAN; and
<PAGE>
(c) to procure and maintain such workers' compensation insurance covering its
employees as may be required by law.
14. COMPLIANCE WITH LAWS:
---------------------
A. WAREHOUSEMAN and its facilities will comply in all material
respects with any and all applicable laws, statutes, regulations, rules,
ordinances, and orders (including but not limited to environmental, health
and safety laws and regulations). WAREHOUSEMAN agrees to provide prompt
notice to IMC-AGRICO of any inspection carried out by any federal, state,
or local official to determine WAREHOUSEMAN'S (or its facilities)
compliance with such requirements. (Such notice will be made by __________
to __________ and will be followed by written notification to ___________.)
In that regard, should any fines, penalties, or like impositions be levied
by reason of WAREHOUSEMAN's failure to fulfill its obligations under this
Section 14, WAREHOUSEMAN does specifically agree that it shall have sole
and complete responsibility therefor and does hereby release, discharge,
indemnify and hold IMC-AGRICO harmless therefrom to the extent caused by
WAREHOUSEMAN'S breach. WAREHOUSEMAN agrees to promptly inform IMC-AGRICO of
all allegations of any adverse health or environmental effect associated
with release of or exposure to IMC-AGRICO'S raw materials or finished goods
subject to this Agreement (including but not limited to, accidental
environmental releases of IMC-AGRICO'S products or reports from
WAREHOUSEMAN'S employees of such illnesses or injuries).
B. IMC-AGRICO and its facilities will comply in all material
respects with any and all applicable laws, statutes, regulations, rules,
ordinances, and orders (including but not limited to environmental, health
and safety laws and regulations). IMC-AGRICO agrees to provide prompt
notice to WAREHOUSEMAN of any inspection carried out by any federal, state,
or local official to determine IMC-AGRICO'S (or its facilities) compliance
with such requirements. (Such notice will be made by __________ to
__________ and will be followed by written notification to ___________.) In
that regard, should any fines, penalties, or like impositions be levied by
reason of IMC-AGRICO's failure to fulfill its obligations under this
Section 14, IMC-AGRICO does specifically agree that it shall have sole and
complete responsibility therefor and does hereby release, discharge,
indemnify and hold WAREHOUSEMAN harmless therefrom to the extent caused by
IMC-AGRICO'S breach. IMC-AGRICO agrees to promptly inform WAREHOUSEMAN of
all allegations of any adverse health or environmental effect associated
with release of or exposure to WAREHOUSEMAN'S raw materials or finished
goods subject to this Agreement (including but not limited to, accidental
environmental releases of
<PAGE>
WAREHOUSEMAN'S products or reports from IMC-AGRICO'S employees of such
illnesses or injuries).
15. TAXES AND FEES: All taxes assessed against WAREHOUSEMAN for the
---------------
operation of its warehousing business, as well as the cost of any permits and
licenses for said business, shall be for the account of WAREHOUSEMAN. IMC-AGRICO
shall pay all ad valorem taxes which may be levied against the Product stored
for IMC-AGRICO.
16. EXCUSE OF NONPERFORMANCE: Neither IMC-AGRICO, its partners and
-------------------------
affiliates, and/or their agents, officers, directors, attorneys and/or
employees, nor WAREHOUSEMAN, and/or its agents, officers, directors and/or
employees, shall be responsible to the other for any failure to perform
hereunder as a result of any cause beyond its reasonable control including,
without limitation, acts of God, the public enemy, any accident, explosion,
fire, storm, earthquake, flood, drought, strikes, lockouts, labor disputes,
riots, sabotage, war (whether or not declared) or civil unrest, failure or delay
of transportation beyond the reasonable control of the party affected thereby,
inability to obtain supplies, equipment, fuel, power, labor or other operational
necessity beyond the reasonable control of the party effected thereby, or
interruption or curtailment of power supply, if the party claiming such
inability to perform shall have promptly notified the other party, by telephone
and by writing, of the existence and expected duration thereof and the estimated
effect thereof on its ability to perform hereunder, and shall have proceeded
diligently to correct such inability to perform to the extent reasonably
possible. Should WAREHOUSEMAN fail to perform or become unable to perform
loading or unloading or storage services for IMC-AGRICO as a result of any such
cause beyond its reasonable control, IMC-AGRICO will be entitled to an abatement
of any storage and guaranteed throughput charges hereunder, calculated pro rata
on the respective storage or guaranteed throughput charge for the period of the
failure. The party claiming an inability to perform shall promptly notify the
other party when such inability has ceased to affect its ability to perform
hereunder.
Neither IMC-AGRICO nor WAREHOUSEMAN shall be required to resolve labor
disputes or disputes with suppliers of raw materials, supplies, equipment, fuel
or power, except in accordance with such party's business judgment as to its
best interest. Nevertheless, in the event of a work stoppage at the Facility due
to strike or other labor difficulty, WAREHOUSEMAN will make all reasonable
efforts to handle IMC-AGRICO's Product with WAREHOUSEMAN's supervisory help.
17. DEFAULT:
--------
A. Any one or more of the following events shall constitute a
default by WAREHOUSEMAN under this Agreement: (a) if WAREHOUSEMAN fails or
<PAGE>
neglects to perform, keep or observe, in all material respects, any term,
provision, condition, covenant, warranty or representation contained in
this Agreement, which term, provision, condition, covenant, warranty or
representation is required to be performed, kept or observed by
WAREHOUSEMAN; (b) if any representation, statement, or warranty made or
furnished by or on behalf of WAREHOUSEMAN is not true and correct in all
material respects when made; (c) if WAREHOUSEMAN fails to pay when due and
payable or declared due and payable any of its liabilities to IMC-AGRICO;
(d) if all or any of WAREHOUSEMAN's assets are attached, seized, subjected
to a writ or distress warrant, or are levied upon, or come within the
possession of any receiver, trustee, custodian or assignee for the benefit
of creditors; (e) if a proceeding under the Bankruptcy Code shall be filed
by or against WAREHOUSEMAN; (f) if WAREHOUSEMAN shall make an assignment
for the benefit of creditors; (g) if any proceeding is filed or commenced
by or against WAREHOUSEMAN for its dissolution or liquidation; (h) if a
notice of lien, levy or assessment is filed of record with respect to all
or any of WAREHOUSEMAN's assets by the United States or any department,
agency or instrumentality thereof, or by any state, county, municipality or
other governmental agency, or if any taxes or debts owing at any time or
times hereafter to any one or more of them becomes a lien, whether choate
or otherwise, upon all or any of WAREHOUSEMAN's assets; or (i) if a
judgment or other claim becomes a lien or encumbrance upon all or any of
WAREHOUSEMAN's assets; provided, however, that WAREHOUSEMAN shall not be
deemed to be in default under subsections (a)-(d) or (g)-(i) of this
Section 17 if WAREHOUSEMAN remedies the event of default within thirty (30)
days after written notice from IMC-AGRICO of the existence of such event of
default.
Upon the occurrence of an event of default by WAREHOUSEMAN under
this Agreement, IMC-AGRICO shall have the right, at its sole option, and in
addition to any other right or remedy available to IMC-AGRICO, to terminate
this Agreement by written notice. In addition, IMC-AGRICO shall have the
right to take possession of all Product in which it retains title or other
interest hereunder in a manner permitted by law without liability for
trespass or for damages. Any re-entry, resumption, or possession of the
Facility by IMC-AGRICO shall in no event be deemed to be a surrender of
this Agreement or a waiver of any right or remedy of IMC-AGRICO under this
Agreement.
B. Any one or more of the following events shall constitute a
default by IMC-AGRICO under this Agreement: (a) if IMC-AGRICO fails or
neglects to perform, keep or observe, in all material respects, any term,
provision, condition, covenant, warranty or representation contained in
this Agreement, which term, provision, condition, covenant, warranty or
representation is required to be performed, kept or observed by IMC-AGRICO;
(b) if any representation, statement, or warranty
<PAGE>
made or furnished by or on behalf of IMC-AGRICO is not true and correct in
all material respects when made; (c) if IMC-AGRICO fails to pay when due
and payable or declared due and payable any of its liabilities to
WAREHOUSEMAN; (d) if a proceeding under the Bankruptcy Code shall be filed
by or against IMC-AGRICO; (e) if IMC-AGRICO shall make an assignment for
the benefit of creditors; provided, however, that IMC-AGRICO shall not be
deemed to be in default under subsections (a)-(c) of this Section 17 if
IMC-AGRICO remedies the event of default within thirty (30) days after
written notice from WAREHOUSEMAN of the existence of such event of default.
Upon the occurrence of an event of default by IMC-AGRICO under
this Agreement, WAREHOUSEMAN shall have the right, at its sole option, and
in addition to any other right or remedy available to WAREHOUSEMAN, to
terminate this Agreement by written notice.
If IMC-AGRICO shall be late in making any payment hereunder (other
than for payments which are the subject of a good faith dispute between the
parties, as to which no penalty shall accrue until the dispute has been
resolved), all late payments shall bear interest from the due date to the
date of payment in full at the rate of one and one-half percent (1.5%) per
month.
18. WAIVER: The waiver by either party hereto of any breach of or other
-------
default under this Agreement (or any earlier Agreement between the parties) by
the other party hereto shall not be deemed to be a waiver of any successive
breach of this Agreement. Each and every right, power and remedy may be excused
from time to time and so often and in such order as may be deemed expedient by
the party, and the exercise of any such right, power or remedy shall not be
deemed a waiver of the right to exercise at the same time or thereafter, any
other right, power or remedy.
19. BINDING EFFECT: This Agreement shall be binding upon and shall inure to
---------------
the benefit of the parties hereto and their respective successors and assigns;
provided that no party hereto shall assign, or subcontract any of its
obligations under, this Agreement in whole or in part without the prior written
consent of the other parties hereto, which consent shall not be unreasonably
withheld.
20. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
-----------------
between the parties relative to the transaction contemplated hereby and
supersedes any and all correspondence or other agreements whether written or
oral relating to the subject matter hereof.
<PAGE>
21. AMENDMENTS: This Agreement may be amended only by written document
-----------
signed by duly authorized representatives or employees of each of the parties
hereto; provided, however, that any printed terms or conditions on warehouse
receipts or any other printed forms used by WAREHOUSEMAN in connection with its
performance hereunder shall not have the effect of amending this Agreement in
any respect unless specifically identified and accepted in writing as an
amendment of this Agreement by a duly authorized representative of IMC-AGRICO;
provided further, that the terms and conditions set forth herein shall be deemed
to supersede language contained in warehouse receipts or any other printed forms
used by WAREHOUSEMAN in connection with its performance hereunder.
22. FINANCING STATEMENTS: As reasonably required by IMC-AGRICO to protect
---------------------
and perfect its interest in its Product placed into storage hereunder,
WAREHOUSEMAN shall, at the request of IMC-AGRICO, join with IMC-AGRICO in
executing one or more financing statements (UCC-1 Form) pursuant to Article 9 of
the Uniform Commercial Code as enacted by the State in which WAREHOUSEMAN's
Facility is located for filing with the appropriate state and/or county
officials, and post signs as provided by IMC-AGRICO to identify IMC-AGRICO
Product as belonging to IMC-AGRICO.
23. PARAGRAPH HEADINGS: Paragraph headings have been inserted in the
-------------------
Agreement for convenience. If they conflict with text in the construction of
this Agreement, the text shall control.
24. NOTICES: Any notice under the Agreement shall be in writing and shall
--------
be delivered personally or by certified mail, return receipt request, postage
prepaid, as follows:
TO IMC-AGRICO: 2345 Waukegan Road
Suite E-200
Bannockburn, IL, 60015
TO WAREHOUSEMAN: _________________________
_________________________
_________________________
25. GOVERNING LAW: Without regard to principles of conflicts of laws, this
--------------
Agreement shall be construed in accordance with, and any and all disputes
arising under or out of this Agreement shall be governed by, the laws and
decisions of the State of ______________.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
---------------------------------
(WAREHOUSEMAN)
BY
-------------------------------
ITS
------------------------------
IMC-AGRICO COMPANY, a Delaware
general partnership.
By: IMC-AGRICO MP, INC.,
a Delaware corporation as
its managing general partner
BY
-------------------------------
ITS
------------------------------
<PAGE>
"SCHEDULE A" TO STORAGE AND HANDLING AGREEMENT
----------------------------------------------
I. HANDLING PRODUCT
----------------
A. WAREHOUSEMAN shall not unload or load Product under adverse
weather conditions such as rain, snow, sleet, hail or drizzle if
unloading or loading stations are located in an exposed area.
B. WAREHOUSEMAN shall immediately advise IMC-AGRICO by
telephone and withhold unloading, pending inspection by IMC-AGRICO, if
any inbound shipments of Product show any evidence of damage or other
unsatisfactory condition. Demurrage caused by delay in unloading
pending inspection and instructions shall be for IMC-AGRICO's account.
C. WAREHOUSEMAN shall unload barges/railcars at a rate of
_________ net tons per eight-hour, weather-free day.
D. WAREHOUSEMAN shall screen and load bulk hopper cars and/or
bulk trucks at the rate of ________ net tons per eight-hour
weather-free day, excluding Saturdays, Sundays and holidays.
E. WAREHOUSEMAN shall be responsible for demurrage if it fails
to meet the above minimum volume schedules, except if such failure is
due to causes reasonably beyond WAREHOUSEMAN's control.
II. SUPPLIES
--------
IMC-AGRICO shall supply and WAREHOUSEMAN shall receive, handle and
store, without charge, various receiving, shipping and inventory forms
necessary for the performance of WAREHOUSEMAN's obligation hereunder.
III. QUALITY CONTROL
---------------
WAREHOUSEMAN shall be certain at all times that Bulk Product is kept
clean and dry, and that various grades are kept separate in the
warehouse and free from adulteration or contamination by any
incompatible material.
IV. EQUIPMENT
---------
Equipment to be supplied by WAREHOUSEMAN shall include but not be
limited to Equipment suitable for receiving and unloading bulk material
from railcars and barges, and reloading to railcars or trucks.
<PAGE>
V. STANDARD OF CARE
----------------
WAREHOUSEMAN shall perform the contracted services in a manner
consistent with that level of care and skill ordinarily exercised by
other warehousemen in similar circumstances. WAREHOUSEMAN shall take
reasonable efforts to protect Product from loss in quantity, damage,
contamination, adulteration, or pilferage.
VI. EXTENDED HOURS OF SERVICE
-------------------------
Normal hours of operation are ____ a.m. to _____ p.m., Monday through
Friday. During peak season, however, extended hours of service shall be
provided. These extended hours of service during peak season will be
provided at no additional cost or expense to IMC-AGRICO.
<PAGE>
"SCHEDULE B" TO STORAGE AND HANDLING AGREEMENT
----------------------------------------------
FOR IMC-AGRICO PRODUCT
----------------------
CHARGES
-------
HANDLING IN-BULK $ 3 per ton
HANDLING OUT-BULK $ 3 per ton
Storage charges are included in the handling charges above. Compensation to
WAREHOUSEMAN for its performance of the following services shall be
included in the charges for storage and handling set out above:
Acknowledging of receipts of Product on behalf of IMC-AGRICO on inbound bills of
lading; ordering of transportation equipment for outbound shipments as
requested by IMC-AGRICO; in the case of bulk shipments, requesting the
weighing of outbound materials and providing IMC-AGRICO with completed
copies of certified weight certificates; preparing bills of lading and
other necessary documents for outbound shipments; maintaining adequate
records relating to receipts, shipments, purchases by WAREHOUSEMAN and
inventory in reasonable detail as IMC-AGRICO shall require; and
advising IMC-AGRICO as of the beginning of each working day of all
shipments of Product handled on the immediately preceding working day.
IMC-AGRICO may supply WAREHOUSEMAN, for its use only during the term of
this Agreement, with a personal computer interface system ("PC
Interface"). In such case WAREHOUSEMAN shall use the PC Interface to
monitor all inventories of IMC-AGRICO Product by daily entering all
additions to and subtractions from inventories, in accordance with
IMC-AGRICO's instructions.
<PAGE>
Exhibit B
STORAGE AND HANDLING AGREEMENT
THIS AGREEMENT made this _____ day of _____________, 1999 between between
ROYSTER-CLARK, INC., a Delaware Corporation, having its principal office at
_____________________________________________________________________________
Corporation, having its principal office at
_____________________________________________________________________________
(hereinafter called "WAREHOUSEMAN") and IMC Kalium Ltd., a Delaware
Corporation, having its principal office at 2345 Waukegan Road, Suite E-200,
Bannockburn, IL, 60015 (hereinafter called "IMC KALIUM")
W I T N E S S E T H:
WHEREAS, IMC KALIUM desires to have certain of its Product (as hereinafter
defined) stored and handled at______________________________ and WAREHOUSEMAN is
willing to provide such storage and handling.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set out herein, the parties agree as follows:
1. TERM: The initial term of this Agreement shall begin on the date hereof
-----
and shall end on the first anniversary of the date hereof. This Agreement shall
automatically renew for an indefinite number of successive one (1) year renewal
terms at the end of the initial term and each such renewal term unless and until
terminated by either WAREHOUSEMAN or IMC KALIUM upon written notice to the
other, effective at the end of the initial term or the then current renewal
term, delivered not less than sixty (60) days before the end of the initial term
or the then current renewal term. The rates, charges and other terms and
conditions during any renewal term shall be the same as the rates, charges and
other terms and conditions during the term immediately preceding that renewal
term unless otherwise agreed by WAREHOUSEMAN and IMC KALIUM in writing not less
than sixty (60) days before the beginning of that renewal term.
2. PROVISIONS OF FACILITIES: WAREHOUSEMAN shall provide adequate segregated
-------------------------
storage space for __________ tons of IMC KALIUM's ______________ (hereinafter
called "Product") at WAREHOUSEMAN's warehouse facility located in _________
(City or Town), ________(State or Province) (hereinafter called the "Facility");
WAREHOUSEMAN shall not store IMC KALIUM's Product at any other location without
IMC KALIUM's prior written consent. If such consent is
<PAGE>
provided, such other locations shall be the designated "Facility" hereunder.
WAREHOUSEMAN shall not commingle IMC KALIUM's Product with any other product
without IMC KALIUM's prior written consent.
3. STORAGE AND HANDLING: IMC KALIUM's Product received by WAREHOUSEMAN and
---------------------
stored hereunder shall be delivered to WAREHOUSEMAN by __________________ and
shall be shipped out by __________________. WAREHOUSEMAN shall be responsible
for IMC KALIUM's Product from the time it arrives at the Facility until such
time as Product is loaded for shipment from the Facility. WAREHOUSEMAN agrees
that it will follow, in all material respects, the procedures described in
Schedule A attached hereto and incorporated herein by reference in the storage
and handling of IMC KALIUM's Product.
4. CHARGES: WAREHOUSEMAN shall charge IMC KALIUM for contracted services
--------
according to Schedule B attached hereto and incorporated herein by reference.
The charges for first month's storage and handling shall be paid by IMC
KALIUM upon receipt by IMC KALIUM of a proper invoice from WAREHOUSEMAN, based
on origin inbound bills of lading. Subsequent storage and other charges will be
paid monthly upon receipt by IMC KALIUM of a proper invoice from WAREHOUSEMAN
detailing the charges for the preceding month. All invoices are due and payable
within thirty (30) days following the invoice date provided that IMC KALIUM need
not pay disputed charges pending resolution of said dispute. WAREHOUSEMAN shall
not assert against IMC KALIUM any warehouseman's lien on IMC KALIUM's Product
stored under this Agreement, including any such lien arising under Section 7-209
of the Uniform Commercial Code, except for a warehouseman's lien limited in
amount to those accrued and unpaid warehouse fees owing under this Agreement and
invoiced by WAREHOUSEMAN to IMC KALIUM as hereinabove provided.
5. ACCESS TO FACILITY: IMC KALIUM's representatives shall have full access
-------------------
to the Facility at reasonable intervals during normal working hours in order to
inspect the Facility, take inventory of IMC KALIUM's Product stored therein, and
examine all of WAREHOUSEMAN's records pertaining to IMC KALIUM's Product.
6. TITLE: IMC KALIUM shall retain title to all IMC KALIUM Product received
------
by WAREHOUSEMAN. WAREHOUSEMAN's responsibility for IMC KALIUM's Product shall be
limited exclusively to the supplying storage space and handling of Product, as
specified in Schedule A attached hereto and incorporated herein by reference.
<PAGE>
7. SHRINKAGE: WAREHOUSEMAN's responsibility for IMC KALIUM's Product shall
----------
be limited exclusively to the supplying of storage space and careful handling of
the Product as specified in Schedule A attached hereto; and to shipping out,
pursuant to Sections 3 and 8 hereof, not less than 99% of the quantity of each
Product received by WAREHOUSEMAN. It is understood that the above 1% shrinkage
allowance shall be based upon actual shrinkage and WAREHOUSEMAN shall not be
entitled to retain IMC KALIUM's Product up to the allowable shrinkage. Shrinkage
shall be determined by comparison of origin inbound certified weight receipts
and outbound certified weight receipts, when physical inventory is at a zero
level. WAREHOUSEMAN shall be responsible for any Product loss or damage in
excess of the allowable shrinkage. Payment for shrinkage in excess of that
provided above shall be at IMC KALIUM's current price at mine or production
point, plus transportation from such mine or production point to WAREHOUSEMAN's
Facility, plus WAREHOUSEMAN's inbound handling charge.
Settlement for shrinkage shall be made each time inventory reaches a zero
level, which such action shall be taken not less than once every contract year,
and there shall be no carry-over from settlement period to settlement period of
unused shrinkage allowance. IMC KALIUM shall not be obligated to pay
WAREHOUSEMAN for any accumulated, unused credit which remains after settlement
hereunder on termination.
8. LOADING INSTRUCTIONS: On written instructions from IMC KALIUM,
---------------------
WAREHOUSEMAN shall use its reasonable best efforts to load each truck and/or
railcar to maximum legal capacity to gain the minimum tariff rate provided for
said truck and/or railcar. Any costs or penalties associated with overloads
shall be for the account of WAREHOUSEMAN.
9. INSURANCE: IMC KALIUM agrees to insure or self-insure its Product stored
----------
by WAREHOUSEMAN against all risks covered by IMC KALIUM's Fire and Extended
Coverage Insurance. WAREHOUSEMAN shall, at its own expense, maintain insurance
as follows for the terms of this Agreement:
A. Workers' Compensation Insurance as prescribed by law and
-------------------------------
Employer's Liability insurance with a limit per accident of not less than
$500,000. If WAREHOUSEMAN's workers' compensation liability is required to
be insured with a state fund, WAREHOUSEMAN shall furnish IMC KALIUM with
evidence that is satisfactory to IMC KALIUM that WAREHOUSEMAN is so
insured.
B. All Risk Comprehensive General Liability Insurance covering
--------------------------------------------------
public liability, property damage insurance, with respect to the Facility,
including a contractual liability provision to cover the liability assumed
by WAREHOUSEMAN
<PAGE>
under this Agreement and automobile liability, all with a combined single
limit for bodily injury and property damage liability of not less than
$1,000,000 with respect to any one occurrence.
WAREHOUSEMAN shall deliver to IMC KALIUM Certificates of Insurance evidencing
the issuance of the required policies and the fact that they are in force, and
stating that such policies will not be canceled or materially changed without
sixty (60) days prior notice to IMC KALIUM. Such insurance policies shall be
obtained from companies satisfactory to IMC KALIUM.
10. SUBCONTRACTOR INSURANCE: If any of WAREHOUSEMAN's obligations under
------------------------
this Agreement are, with IMC KALIUM's prior written consent, subcontracted,
WAREHOUSEMAN shall require each subcontractor to maintain insurance as described
in Section 9 hereof and shall provide IMC KALIUM with evidence of such
insurance.
11. LIABILITY:
----------
A. IMC KALIUM, its partners and/or affiliates (including but not
limited to IMC Global Inc. and IMC Global Operations Inc.), and/or their
agents, officers, directors, attorneys and/or employees, shall not be
responsible or liable to WAREHOUSEMAN or to any of WAREHOUSEMAN's agents,
including WAREHOUSEMAN's insurance carrier, for any workers' compensation
benefits paid to WAREHOUSEMAN's employees. WAREHOUSEMAN waives any claims,
liens, causes of action, or any other rights it or its agents, including
insurance carriers, may have against IMC KALIUM, its partners and/or
affiliates (including but not limited to IMC Global Inc. and IMC Global
Operations Inc.), and/or their agents, officers, directors, attorneys
and/or employees, for sums paid or to be paid by IMC KALIUM, relating to
any payments made to WAREHOUSEMAN's employees by WAREHOUSEMAN pursuant to
its workers' compensation obligations. WAREHOUSEMAN also waives any claims,
liens, causes of action, or any other rights it or its agents, including
insurance carriers, may have against IMC KALIUM, its partners and/or
affiliates (including but not limited to IMC Global Inc. and IMC Global
Operations Inc.), and/or their agents, officers, directors, attorneys
and/or employees, for any sums paid or to be paid by IMC KALIUM, relating
to any actions or claims by WAREHOUSEMAN's employees against IMC KALIUM,
its partners and/or affiliates (including but not limited to IMC Global
Inc. and IMC Global Operations Inc.), and/or their agents, officers,
directors, attorneys and/or employees. IN NO EVENT SHALL IMC KALIUM, ITS
PARTNERS AND/OR AFFILIATES, AND/OR THEIR AGENTS, OFFICERS, DIRECTORS,
ATTORNEYS AND/OR EMPLOYEES, BE LIABLE FOR SPECIAL, INCIDENTAL OR
<PAGE>
CONSEQUENTIAL DAMAGES, WHETHER BASED UPON NEGLIGENCE, BREACH OF CONTRACT,
BREACH OF WARRANTY, OR OTHERWISE.
B. WAREHOUSEMAN, its partners and/or affiliates, and/or their
agents, officers, directors, attorneys and/or employees, shall not be
responsible or liable to IMC KALIUM or to any of IMC KALIUM's agents,
including IMC KALIUM's insurance carrier, for any workers' compensation
benefits paid to IMC KALIUM's employees. IMC KALIUM waives any claims,
liens, causes of action, or any other rights it or its agents, including
insurance carriers, may have against WAREHOUSEMAN, its partners and/or
affiliates, and/or their agents, officers, directors, attorneys and/or
employees, for sums paid or to be paid by WAREHOUSEMAN, relating to any
payments made to IMC KALIUM's employees by IMC KALIUM pursuant to its
workers' compensation obligations. IMC KALIUM also waives any claims,
liens, causes of action, or any other rights it or its agents, including
insurance carriers, may have against WAREHOUSEMAN, its partners and/or
affiliates, and/or their agents, officers, directors, attorneys and/or
employees, for any sums paid or to be paid by WAREHOUSEMAN, relating to any
actions or claims by IMC KALIUM's employees against WAREHOUSEMAN, its
partners and/or affiliates, and/or their agents, officers, directors,
attorneys and/or employees. IN NO EVENT SHALL WAREHOUSEMAN, ITS PARTNERS
AND/OR AFFILIATES, AND/OR THEIR AGENTS, OFFICERS, DIRECTORS, ATTORNEYS
AND/OR EMPLOYEES, BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED UPON NEGLIGENCE, BREACH OF CONTRACT, BREACH OF
WARRANTY, OR OTHERWISE.
12. INDEMNIFICATION:
----------------
A. WAREHOUSEMAN agrees to indemnify, defend, and hold harmless IMC
KALIUM, its partners and affiliates (including but not limited to IMC
Global Inc. and IMC Global Operations Inc.), and their agents, insurers,
officers, attorneys, directors, and employees, from and against any and all
liabilities, losses, expenses, damages, demands and claims, including third
party claims for contribution, attorneys' fees, arising out of injury or
alleged injury to any persons (including death), damage or alleged damage
to any property (including IMC KALIUM's Product stored under this
Agreement), any adulteration, misformulation or contamination of IMC's raw
materials or finished goods, any violation or alleged violation of any
environmental, health or safety laws, whether federal, state or local, or
any "release" or "threatened release" of any "hazardous substance" (as
those terms are defined under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et seq. or the
-------
Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq.)
-------
resulting
<PAGE>
from or occurring in connection with WAREHOUSEMAN's possession or
handling of any IMC KALIUM Product or other performance by WAREHOUSEMAN
under this Agreement but only if due to the negligence or willful act or
omission of WAREHOUSEMAN, its employees, agents, representatives or
subcontractors. The parties intend this provision to be construed broadly.
B. IMC KALIUM agrees to indemnify, defend, and hold harmless
WAREHOUSEMAN, its partners and affiliates, and their agents, insurers,
officers, attorneys, directors, and employees, from and against any and all
liabilities, losses, expenses, damages, demands and claims, including third
party claims for contribution, attorneys' fees, arising out of injury or
alleged injury to any persons (including death), damage or alleged damage
to any property, any adulteration, misformulation or contamination of IMC
KALIUM's raw materials or finished goods, any violation or alleged
violation of any environmental, health or safety laws, whether federal,
state or local, or any "release" or "threatened release" of any "hazardous
substance" (as those terms are defined under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss.
9601 et seq. or the Resource Conservation and Recovery Act, 42 U.S.C.
------
ss.ss. 6901 et seq.) resulting from or occurring in connection with IMC
------
KALIUM's production or handling of any its Product or other performance by
IMC KALIUM under this Agreement. The parties intend this provision to be
construed broadly.
13. INDEPENDENT CONTRACTOR: In the performance of the Agreement,
-----------------------
WAREHOUSEMAN will not be under IMC KALIUM's control as to the persons engaged by
WAREHOUSEMAN to assist in said performance, or to the means and methods employed
by WAREHOUSEMAN in accomplishing said performance, WAREHOUSEMAN's responsibility
to IMC KALIUM being only for results in accordance with arrangements set forth
herein. All employees, agents, or other representatives engaged by WAREHOUSEMAN
in connection with the performance of this Agreement will be of WAREHOUSEMAN's
own account, and at WAREHOUSEMAN's own expense, and the terms and tenure and
hours of their employment and their wages or salaries shall be under
WAREHOUSEMAN's exclusive control and direction at all times.
It is further understood and agreed by the parties hereto that
WAREHOUSEMAN is, and for all purposes shall be considered, an independent
contractor and fully and exclusively liable: (a) for the payment of any and all
taxes now or hereafter imposed by any governmental authority which are measured
by wages, salaries, or commissions paid to persons in its employment; (b) for
any accident to persons or property that may occur at the Facility or on other
premises of WAREHOUSEMAN; and
<PAGE>
(c) to procure and maintain such workers' compensation insurance covering its
employees as may be required by law.
14. COMPLIANCE WITH LAWS:
---------------------
A. WAREHOUSEMAN and its facilities will comply in all material
respects with any and all applicable laws, statutes, regulations, rules,
ordinances, and orders (including but not limited to environmental, health
and safety laws and regulations). WAREHOUSEMAN agrees to provide prompt
notice to IMC KALIUM of any inspection carried out by any federal, state,
or local official to determine WAREHOUSEMAN'S (or its facilities)
compliance with such requirements. (Such notice will be made by __________
to __________ and will be followed by written notification to ___________.)
In that regard, should any fines, penalties, or like impositions be levied
by reason of WAREHOUSEMAN's failure to fulfill its obligations under this
Section 14, WAREHOUSEMAN does specifically agree that it shall have sole
and complete responsibility therefor and does hereby release, discharge,
indemnify and hold IMC KALIUM harmless therefrom to the extent caused by
WAREHOUSEMAN'S breach. WAREHOUSEMAN agrees to promptly inform IMC KALIUM of
all allegations of any adverse health or environmental effect associated
with release of or exposure to IMC KALIUM'S raw materials or finished goods
subject to this Agreement (including but not limited to, accidental
environmental releases of IMC KALIUM'S products or reports from
WAREHOUSEMAN'S employees of such illnesses or injuries).
B. IMC KALIUM and its facilities will comply in all material
respects with any and all applicable laws, statutes, regulations, rules,
ordinances, and orders (including but not limited to environmental, health
and safety laws and regulations). IMC KALIUM agrees to provide prompt
notice to WAREHOUSEMAN of any inspection carried out by any federal, state,
or local official to determine IMC KALIUM'S (or its facilities) compliance
with such requirements. (Such notice will be made by __________ to
__________ and will be followed by written notification to ___________.) In
that regard, should any fines, penalties, or like impositions be levied by
reason of IMC KALIUM's failure to fulfill its obligations under this
Section 14, IMC KALIUM does specifically agree that it shall have sole and
complete responsibility therefor and does hereby release, discharge,
indemnify and hold WAREHOUSEMAN harmless therefrom to the extent caused by
IMC KALIUM'S breach. IMC KALIUM agrees to promptly inform WAREHOUSEMAN of
all allegations of any adverse health or environmental effect associated
with release of or exposure to WAREHOUSEMAN'S raw materials or finished
goods subject to this Agreement (including but not limited to, accidental
environmental releases of
<PAGE>
WAREHOUSEMAN'S products or reports from IMC KALIUM'S employees of such
illnesses or injuries).
15. TAXES AND FEES: All taxes assessed against WAREHOUSEMAN for the
---------------
operation of its warehousing business, as well as the cost of any permits and
licenses for said business, shall be for the account of WAREHOUSEMAN. IMC KALIUM
shall pay all ad valorem taxes which may be levied against the Product stored
for IMC KALIUM.
16. EXCUSE OF NONPERFORMANCE: Neither IMC KALIUM, its partners and
-------------------------
affiliates, and/or their agents, officers, directors, attorneys and/or
employees, nor WAREHOUSEMAN, and/or its agents, officers, directors and/or
employees, shall be responsible to the other for any failure to perform
hereunder as a result of any cause beyond its reasonable control including,
without limitation, acts of God, the public enemy, any accident, explosion,
fire, storm, earthquake, flood, drought, strikes, lockouts, labor disputes,
riots, sabotage, war (whether or not declared) or civil unrest, failure or delay
of transportation beyond the reasonable control of the party affected thereby,
inability to obtain supplies, equipment, fuel, power, labor or other operational
necessity beyond the reasonable control of the party effected thereby, or
interruption or curtailment of power supply, if the party claiming such
inability to perform shall have promptly notified the other party, by telephone
and by writing, of the existence and expected duration thereof and the estimated
effect thereof on its ability to perform hereunder, and shall have proceeded
diligently to correct such inability to perform to the extent reasonably
possible. Should WAREHOUSEMAN fail to perform or become unable to perform
loading or unloading or storage services for IMC KALIUM as a result of any such
cause beyond its reasonable control, IMC KALIUM will be entitled to an abatement
of any storage and guaranteed throughput charges hereunder, calculated pro rata
on the respective storage or guaranteed throughput charge for the period of the
failure. The party claiming an inability to perform shall promptly notify the
other party when such inability has ceased to affect its ability to perform
hereunder.
Neither IMC KALIUM nor WAREHOUSEMAN shall be required to resolve labor
disputes or disputes with suppliers of raw materials, supplies, equipment, fuel
or power, except in accordance with such party's business judgment as to its
best interest. Nevertheless, in the event of a work stoppage at the Facility due
to strike or other labor difficulty, WAREHOUSEMAN will make all reasonable
efforts to handle IMC KALIUM's Product with WAREHOUSEMAN's supervisory help.
17. DEFAULT:
--------
A. Any one or more of the following events shall constitute a
default by WAREHOUSEMAN under this Agreement: (a) if WAREHOUSEMAN fails or
<PAGE>
neglects to perform, keep or observe, in all material respects, any term,
provision, condition, covenant, warranty or representation contained in
this Agreement, which term, provision, condition, covenant, warranty or
representation is required to be performed, kept or observed by
WAREHOUSEMAN; (b) if any representation, statement, or warranty made or
furnished by or on behalf of WAREHOUSEMAN is not true and correct in all
material respects when made; (c) if WAREHOUSEMAN fails to pay when due and
payable or declared due and payable any of its liabilities to IMC KALIUM;
(d) if all or any of WAREHOUSEMAN's assets are attached, seized, subjected
to a writ or distress warrant, or are levied upon, or come within the
possession of any receiver, trustee, custodian or assignee for the benefit
of creditors; (e) if a proceeding under the Bankruptcy Code shall be filed
by or against WAREHOUSEMAN; (f) if WAREHOUSEMAN shall make an assignment
for the benefit of creditors; (g) if any proceeding is filed or commenced
by or against WAREHOUSEMAN for its dissolution or liquidation; (h) if a
notice of lien, levy or assessment is filed of record with respect to all
or any of WAREHOUSEMAN's assets by the United States or any department,
agency or instrumentality thereof, or by any state, county, municipality or
other governmental agency, or if any taxes or debts owing at any time or
times hereafter to any one or more of them becomes a lien, whether choate
or otherwise, upon all or any of WAREHOUSEMAN's assets; or (i) if a
judgment or other claim becomes a lien or encumbrance upon all or any of
WAREHOUSEMAN's assets; provided, however, that WAREHOUSEMAN shall not be
deemed to be in default under subsections (a)-(d) or (g)-(i) of this
Section 17 if WAREHOUSEMAN remedies the event of default within thirty (30)
days after written notice from IMC KALIUM of the existence of such event of
default.
Upon the occurrence of an event of default by WAREHOUSEMAN under
this Agreement, IMC KALIUM shall have the right, at its sole option, and in
addition to any other right or remedy available to IMC KALIUM, to terminate
this Agreement by written notice. In addition, IMC KALIUM shall have the
right to take possession of all Product in which it retains title or other
interest hereunder in a manner permitted by law without liability for
trespass or for damages. Any re-entry, resumption, or possession of the
Facility by IMC KALIUM shall in no event be deemed to be a surrender of
this Agreement or a waiver of any right or remedy of IMC KALIUM under this
Agreement.
B. Any one or more of the following events shall constitute a
default by IMC KALIUM under this Agreement: (a) if IMC KALIUM fails or
neglects to perform, keep or observe, in all material respects, any term,
provision, condition, covenant, warranty or representation contained in
this Agreement, which term, provision, condition, covenant, warranty or
representation is required to be performed, kept or observed by IMC KALIUM;
(b) if any representation, statement, or warranty
<PAGE>
made or furnished by or on behalf of IMC KALIUM is not true and correct in
all material respects when made; (c) if IMC KALIUM fails to pay when due
and payable or declared due and payable any of its liabilities to
WAREHOUSEMAN; (d) if a proceeding under the Bankruptcy Code shall be filed
by or against IMC KALIUM; (e) if IMC KALIUM shall make an assignment for
the benefit of creditors; provided, however, that IMC KALIUM shall not be
deemed to be in default under subsections (a)-(c) of this Section 17 if IMC
KALIUM remedies the event of default within thirty (30) days after written
notice from WAREHOUSEMAN of the existence of such event of default.
Upon the occurrence of an event of default by IMC KALIUM under
this Agreement, WAREHOUSEMAN shall have the right, at its sole option, and
in addition to any other right or remedy available to WAREHOUSEMAN, to
terminate this Agreement by written notice.
If IMC KALIUM shall be late in making any payment hereunder (other
than for payments which are the subject of a good faith dispute between the
parties, as to which no penalty shall accrue until the dispute has been
resolved), all late payments shall bear interest from the due date to the
date of payment in full at the rate of one and one-half percent (1.5%) per
month.
18. WAIVER: The waiver by either party hereto of any breach of or other
-------
default under this Agreement (or any earlier Agreement between the parties) by
the other party hereto shall not be deemed to be a waiver of any successive
breach of this Agreement. Each and every right, power and remedy may be excused
from time to time and so often and in such order as may be deemed expedient by
the party, and the exercise of any such right, power or remedy shall not be
deemed a waiver of the right to exercise at the same time or thereafter, any
other right, power or remedy.
19. BINDING EFFECT: This Agreement shall be binding upon and shall inure to
---------------
the benefit of the parties hereto and their respective successors and assigns;
provided that no party hereto shall assign, or subcontract any of its
obligations under, this Agreement in whole or in part without the prior written
consent of the other parties hereto, which consent shall not be unreasonably
withheld.
20. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
-----------------
between the parties relative to the transaction contemplated hereby and
supersedes any and all correspondence or other agreements whether written or
oral relating to the subject matter hereof.
<PAGE>
21. AMENDMENTS: This Agreement may be amended only by written document
-----------
signed by duly authorized representatives or employees of each of the parties
hereto; provided, however, that any printed terms or conditions on warehouse
receipts or any other printed forms used by WAREHOUSEMAN in connection with its
performance hereunder shall not have the effect of amending this Agreement in
any respect unless specifically identified and accepted in writing as an
amendment of this Agreement by a duly authorized representative of IMC KALIUM;
provided further, that the terms and conditions set forth herein shall be deemed
to supersede language contained in warehouse receipts or any other printed forms
used by WAREHOUSEMAN in connection with its performance hereunder.
22. FINANCING STATEMENTS: As reasonably required by IMC KALIUM to protect
---------------------
and perfect its interest in its Product placed into storage hereunder,
WAREHOUSEMAN shall, at the request of IMC KALIUM, join with IMC KALIUM in
executing one or more financing statements (UCC-1 Form) pursuant to Article 9 of
the Uniform Commercial Code as enacted by the State in which WAREHOUSEMAN's
Facility is located for filing with the appropriate state and/or county
officials, and post signs as provided by IMC KALIUM to identify IMC KALIUM
Product as belonging to IMC KALIUM.
23. PARAGRAPH HEADINGS: Paragraph headings have been inserted in the
-------------------
Agreement for convenience. If they conflict with text in the construction of
this Agreement, the text shall control.
24. NOTICES: Any notice under the Agreement shall be in writing and shall
--------
be delivered personally or by certified mail, return receipt request, postage
prepaid, as follows:
TO IMC KALIUM: 2345 Waukegan Road
Suite E-200
Bannockburn, IL, 60015
TO WAREHOUSEMAN: ---------------------------------
---------------------------------
---------------------------------
25. GOVERNING LAW: Without regard to principles of conflicts of laws, this
--------------
Agreement shall be construed in accordance with, and any and all disputes
arising under or out of this Agreement shall be governed by, the laws and
decisions of the State of ______________.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
-------------------------------------
(WAREHOUSEMAN)
BY
-----------------------------------
ITS
----------------------------------
IMC KALIUM LTD., a
BY
-----------------------------------
ITS
----------------------------------
<PAGE>
"SCHEDULE A" TO STORAGE AND HANDLING AGREEMENT
----------------------------------------------
I. HANDLING PRODUCT
----------------
A. WAREHOUSEMAN shall not unload or load Product under adverse
weather conditions such as rain, snow, sleet, hail or drizzle if
unloading or loading stations are located in an exposed area.
B. WAREHOUSEMAN shall immediately advise IMC KALIUM by
telephone and withhold unloading, pending inspection by IMC KALIUM, if
any inbound shipments of Product show any evidence of damage or other
unsatisfactory condition. Demurrage caused by delay in unloading
pending inspection and instructions shall be for IMC KALIUM's account.
C. WAREHOUSEMAN shall unload barges/railcars at a rate of
_________ net tons per eight-hour, weather-free day.
D. WAREHOUSEMAN shall screen and load bulk hopper cars and/or
bulk trucks at the rate of ________ net tons per eight-hour
weather-free day, excluding Saturdays, Sundays and holidays.
E. WAREHOUSEMAN shall be responsible for demurrage if it fails
to meet the above minimum volume schedules, except if such failure is
due to causes reasonably beyond WAREHOUSEMAN's control.
II. SUPPLIES
--------
IMC KALIUM shall supply and WAREHOUSEMAN shall receive, handle and
store, without charge, various receiving, shipping and inventory forms
necessary for the performance of WAREHOUSEMAN's obligation hereunder.
III. QUALITY CONTROL
---------------
WAREHOUSEMAN shall be certain at all times that Bulk Product is kept
clean and dry, and that various grades are kept separate in the
warehouse and free from adulteration or contamination by any
incompatible material.
IV. EQUIPMENT
---------
Equipment to be supplied by WAREHOUSEMAN shall include but not be
limited to Equipment suitable for receiving and unloading bulk material
from railcars and barges, and reloading to railcars or trucks.
<PAGE>
V. STANDARD OF CARE
----------------
WAREHOUSEMAN shall perform the contracted services in a manner
consistent with that level of care and skill ordinarily exercised by
other warehousemen in similar circumstances. WAREHOUSEMAN shall take
reasonable efforts to protect Product from loss in quantity, damage,
contamination, adulteration, or pilferage.
VI. EXTENDED HOURS OF SERVICE
-------------------------
Normal hours of operation are ____ a.m. to _____ p.m., Monday through
Friday. During peak season, however, extended hours of service shall be
provided. These extended hours of service during peak season will be
provided at no additional cost or expense to IMC KALIUM.
<PAGE>
"SCHEDULE B" TO STORAGE AND HANDLING AGREEMENT
----------------------------------------------
FOR IMC KALIUM PRODUCT
----------------------
CHARGES
-------
HANDLING IN-BULK $ 3 per ton
HANDLING OUT-BULK $ 3 per ton
Storage charges are included in the handling charges above. Compensation to
WAREHOUSEMAN for its performance of the following services shall be
included in the charges for storage and handling set out above:
Acknowledging of receipts of Product on behalf of IMC KALIUM on inbound bills of
lading; ordering of transportation equipment for outbound shipments as
requested by IMC KALIUM; in the case of bulk shipments, requesting the
weighing of outbound materials and providing IMC KALIUM with completed
copies of certified weight certificates; preparing bills of lading and
other necessary documents for outbound shipments; maintaining adequate
records relating to receipts, shipments, purchases by WAREHOUSEMAN and
inventory in reasonable detail as IMC KALIUM shall require; and
advising IMC KALIUM as of the beginning of each working day of all
shipments of Product handled on the immediately preceding working day.
IMC KALIUM may supply WAREHOUSEMAN, for its use only during the term of
this Agreement, with a personal computer interface system ("PC
Interface"). In such case WAREHOUSEMAN shall use the PC Interface to
monitor all inventories of IMC KALIUM Product by daily entering all
additions to and subtractions from inventories, in accordance with IMC
KALIUM's instructions.
<PAGE>
SCHEDULE 1
Products
--------
Kalium
------
K-MAG Standard
K-MAG Granular
SOP Standard
SOP Granular
MOP Standard
MOP Granular/Coarse
Agrico
------
DAP
GMAP
GTSP
SMAP (powdered)
PFS (phos. acid)
Phosphate Rock
<PAGE>
SCHEDULE 2
**
**These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
<PAGE>
SCHEDULE 3
**
**These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
<PAGE>
SCHEDULE 4
Requirements
------------
See attached list of "ship to" points for retail business.
See attached list of "ship from" points for wholesale business.
<PAGE>
Schedule 4
Agribusiness Retail Sites/"Ship to" Points
<TABLE>
<CAPTION>
Name State DAP GMAP MAP GTSP K-Mag MOP SOP
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aliceville AL x x x x
Dothan AL x x x x
Florence AL x x x x x x x
Hartford AL x x x
Montgomery AL x x
Robertsdale AL x x x
Indiantown FL x x x x
Jay FL x x x
Malone FL x x x
Mulberry FL x x x x x x x
Princetown FL x
New Wales FL x x x
Americus GA x x x
Athen GA x x x
Augusta GA x
Bainbridge GA x
Donaldsonville GA x x x
Jesup GA x
LaFayette GA x x
Meigs GA x x
Moultrie GA x x
Oglethorpe GA x x x x
Swainsboro GA x x x x
Sylvester GA x x x x
Tifton GA x x x
Tifton GA x x
Baileyville IL x x
Clay City IL x x
Danville IL x x x
Edgewood IL x x
Greenfield IL x x x
Greenview IL x x
Harvel IL x x x x
Harvel IL x x
Iuka IL x x
Kansas IL x x
Lanark IL x
Litchfield IL x x x
Marseilles IL x
Mason City IL x x
May's Station IL x x
Metcalf IL x
Morrisonville IL x x x
Mt. Erie IL x
Neoga IL x x x
New Memphis IL x x x
Nokomis IL x
Paris IL x x x
Stolletown IL x x x
Toledo IL x x x
Virden IL x x x
Louisville IL x
Arcadia IN x x x
Bargersville IN x x x
Belle Union IN x x
</TABLE>
<PAGE>
Schedule 4
Agribusiness Retail Sites
<TABLE>
<CAPTION>
Name State DAP GMAP MAP GTSP K-Mag MOP SOP
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blackhawk IN x x
Boston IN x
Converse IN x x x x
Crown Center IN x
Dana IN x x
Decker IN x x x
Delphi IN x x x
Fairmount IN x x x
Fillmore IN x x
Fulton IN x x
Greentown IN x x
Jasper IN x x x
Kitchel IN x
LaFontaine IN
Liberty IN x x
Mentone IN x x x
Miami IN x x x
Middlefork IN x x x
Mt. Vernon IN x x x x
Mulberry IN x x x
New Brunswick IN x x x
New Harmony IN x x
New Lebanon IN x x
New Berry IN x x
North Salem IN x x x
Oaktown IN x x x x
Otwell IN x x
Petersburg IN x x x
Poseyville IN x x
Reiffsburg IN x
Roachdale IN x x x
Roann IN x x
Rushville IN x x x x
Saratoga IN x x
Shelburn IN x x x
Straughn IN x x x
Warren IN x x x
Washington IN x x
Wheatland IN x x x
Williamsburg IN x x x
Adairville KY x x x
Fancy Farm KY x x
Franklin KY x x x
Guthrie KY x x x x x
Hardin KY x x x
Murray KY x x x x x
Sedilia KY x x x
Utica KY x x x
Covington LA x x
Ann Arbor MI x x x
Blissfield MI x
Cass City MI x x x
Deckerville MI x x
Dundee MI x x x
Freeland MI x x x
</TABLE>
<PAGE>
Schedule 4
Agribusiness Retail Sites
<TABLE>
<CAPTION>
Name State DAP GMAP MAP GTSP K-Mag MOP SOP
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Greenville MI x x
Holland MI x x x x
Melvin MI x x
Mendon MI x x x
Morenci MI x x
Muir MI x x x
North Branch MI x x
Pompeii MI x x x
Riga MI x x x
St. Johns MI x x x
Tecumseh MI x x x
Bowling Green MO x x x
Clarence MO x x x
Becker MS x x x
Tupelo MS x x x x
Vicksburg MS x
Dunn NC x x x x
Elizabeth City NC x x x
Harrells NC x
Norwood NC x
Shelby NC x x x
Waynesville NC x x x x x
Wilson NC x x x
Winston Salem NC x x x x x x
Ansonia OH x x x
Ashville OH x x x
Belle Center OH x x x
Bellevue OH x x x
Botkins OH x x x
Bradford OH x x x x
Campbellstown OH x
Carey OH x x
Cincinnati OH x
Circleville OH x
Columbus OH x x x x
Decatur OH x x
Delphos OH x x x
Delta OH x x
Dunkirk OH x
Eaton OH x x
Findlay OH x x x
Frankfort OH x
Hamler OH x x x
Highland OH x x x
Hillsboro OH x
Holgate OH x x
Jeffersonville OH x
Kirkwood OH x x x
Leesburg OH x
Leipsic OH x x x
London OH x x x
Midland City OH x x
Mowrystown OH x
Mt. Gilead OH x x
Mt. Sterling OH x
</TABLE>
<PAGE>
Schedule 4
Agribusiness Retail Sites
<TABLE>
<CAPTION>
Name State DAP GMAP MAP GTSP K-Mag MOP SOP
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Holland OH x
Ottawa OH x
Ottoville OH x x x
Polk OH x x x
Shandon OH x x
Springfield OH x
Thurston OH x x x
Troy OH x x
Unionville OH x
Urbana OH x x x
Washington C.H. OH x x x x x
Waynesfield OH x x x
West Manchester OH x x x
Hartsville SC x x x x x
Orangeburg SC x x x x x
Starr SC x x
Clarksville TN x
Ethride TN x x
Huntindon TN x
Jackson TN x x
Lawrenceburg TN x
Palmersville TN x
Paris TN x
Springfield TN x
Yorkville TN x x
Jackson WI x x x x
Randolph WI x x
</TABLE>
<PAGE>
Schedule 4
"Ship from" Points
Wholesale: Supply Sources -
- ----------
P(2)O(5)
- ----------------------------------------------------------
Source
------
DAP GTSP GMAP
---------------------------------
New Wales, FL x x x
Fort Madison, IA x x x
Granite City, IL x
Jewett, IL x x x
Delphi, IN x x
Henderson, KY x x x
Melbourne, KY x x
Murray, KY x
Donaldsonville/Taft, LA x x x
Brunswick, MO x x x
K(2)O
- ----------------------------------------------------------
Source
------
K-Mag MOP SOP
---------------------------------
Carlsbad, NM x x x
Canada x
Minneapolis, MN x
Wildwood, FL x
Tampa, FL x x x
Mulberry, FL x
Murray, KY x x
Melbourne, KY x x
<PAGE>
Schedule 4
Source
------
K-Mag MOP SOP
---------------------------------
Mount Vernon, IN x x
Petersburg, IN x
Jeffersonville, IN x
Washington Court House, OH x x
East Liverpool, OH x
Brunswick, MO x
St Louis, MO x
Kansas City, MO x
Jefferson City, MS x
Boonville, MS x
Hersey, MI x
Bensenville, IL x
Danville, IL x
Granite City, IL x
Henderson, IL x
Jewett, IL x
Bainbridge, GA x
Albany, GA x
Fort Valley, GA x
Nashville, TN x
Moscow, TN x
Ogden, UT x
Mobile, AL x
Hanceville, AL x
Fort Madison, IA x
<PAGE>
Schedule 5
**These portions of this agreement were omitted and filed separately with the
Commission pursuant to a request for confidential treatment.
<PAGE>
SCHEDULE 6
Alternative Dispute Resolution
------------------------------
(a) Dispute Notification. In the event of a dispute between Purchaser and Seller
arising our of or related to the Agreement (a "Dispute"), either Seller or
Purchaser may submit the Dispute to binding arbitration (the date of receipt as
indicated by the Postal Service return receipt, the "Arbitration Institution
Date") by giving notice to the other party. Such notice shall describe in detail
the nature of the Dispute, the specific facts that constitute the Dispute, and
shall identify an individual with authority to settle the Dispute on behalf of
that Party (the "Dispute Notice"). The scope of the arbitration shall be limited
to the facts of the Dispute Notice, though the arbitration can address all of
the ramifications resulting from such facts through the date of such
arbitration.
(b) Choosing an Arbitration Panel. The Party electing to arbitrate shall request
the American Arbitration Association to supply the Parties with a list, within
fourteen (14) days after such request, of at least four (4) potential
arbitrators who are knowledgeable in the crop production inputs business. Within
seven (7) days after receipt of such list, each Party shall select one (1)
arbitrator from the list. The two arbitrators selected by the Parties shall
select, within ten (10) days, a third arbitrator with the requisite
qualifications to serve as chair of the arbitration panel. The third arbitrator
can be, but need not be, selected from the list of four candidates. If the two
(2) selected arbitrators are unable to agree to the third arbitrator within the
specified time, they shall notify the American Arbitration Association which
shall select a third arbitrator in accordance with its Commercial Arbitration
Rules. Notwithstanding the provisions of this Section (b), Purchaser and Seller
-----------
may, by written agreement, elect to submit the Dispute to a single arbitrator
who shall be chosen in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, unless such election specifies an alternative
selection method.
(c) Arbitration Date and Rules. The three (3) arbitrators shall agree upon a
date for the arbitration to begin, which date shall be as soon as reasonably
practicable after the Arbitration Institution Date, and notify the Parties of
such date as soon as possible. The arbitration shall be conducted, to the extent
not inconsistent herewith, in accordance with the then-prevailing Commercial
Arbitration Rules of the American Arbitration Association. The arbitrators shall
render their decision and award, upon the concurrence of at least two (2) of
them, not later than thirty (30) days after the arbitration is completed. Their
decision and award shall be in writing and counterpart copies thereof shall be
delivered to each of Seller and Purchaser. In rendering their decision and
award, the arbitrators shall not have any power to modify any of the provisions
of this Agreement (including liability limitations), and the jurisdiction of the
arbitrators is limited accordingly.
(d) Fees and Costs. The fees and authorized costs of any arbitrators shall be
shared equally by Seller and Purchaser. Any costs incurred by a party, including
counsel fees, witnesses, etc., shall be borne entirely by that party.
<PAGE>
(e) Federal Aribitration Act. Seller and Purchaser acknowledge and agree that
performance of the obligations under the Agreement necessitates the use of
instrumentalities of interstate commerce and, notwithstanding other general
choice of law provisions in the Agreement, Seller and Purchaser agree that the
Federal Arbitration Act shall govern and control with respect to relevant
provisions of this Exhibit 6.
---------
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated July 6, 1999 between Royster-Clark Group Inc.,
a Delaware Corporation (the "Company"), Royster-Clark, Inc., a Delaware
-------
corporation and wholly-owned subsidiary of the Company ("RCI") , and Frederick
---
I. Sharp III ("Executive") .
---------
Background
RCI and the Company wish to retain the services of Executive to assist in
the management of the Company and its subsidiaries, and to assure the continued
availability to it of Executive's services, and Executive is willing to make his
services available to the Company, in both instances on the terms and conditions
set forth herein; now therefore, it is agreed as follows:
Terms
1. Position. During the term of Executive's employment with RCI and the
--------
Company hereunder, Executive shall serve as Managing Director and Chief
Administrative Officer, or in such other key executive positions as the Chief
Executive Officer of the Company may request for the period commencing on the
date of this agreement and terminating on the date specified in Section 2 of
this Agreement. Executive shall diligently devote his business skill, time and
effort to his employment hereunder provided that Executive shall be entitled to
such annual vacation, sick leave and holidays pursuant to policies adopted by
the Company from time to time for senior executives of the Company, or such
other arrangements as shall be mutually agreed between Executive and the Chief
Executive Officer. Executive shall perform the duties and have the
responsibilities assigned to him from time to time by the Chief Executive
Officer and, if requested by the Company, shall also serve as an officer and/or
director of subsidiaries or affiliates of the Company. Executive will not engage
in other business or activities which, in the opinion of the Company, would
hinder or interfere with the performance of his duties. He may be a member of
the Board of Directors of such other companies or non-profit organizations as
may be approved by the Chief Executive Officer. Unless otherwise agreed,
Executive's principal place of business shall be at or within a 50
<PAGE>
mile radius of the Company location at which he was initially employed, and he
shall not be required to render any service under this Agreement which would
require him to change his residence.
2. Term of Employment. Executive's employment under this Agreement shall
------------------
begin on the date hereof and shall continue for a period of 60 months (the
"Employment Term") (the termination date being hereafter referred to as the
---------------
"Normal Termination Date") and shall continue for successive additional 12 month
-----------------------
periods thereafter (each continued term the "Extended Employment Term") unless
------------------------
written notice to the contrary is given either by Executive or the Company to
the other at least 180 days prior to the then current termination date, unless
sooner terminated as hereinafter provided.
3. Compensation. As compensation for the services contemplated hereunder,
------------
Executive shall receive from the Company during the Employment Term and each
Extended Employment Term, a base salary equal to $225,000 per annum to be paid
in accordance with and at such regular intervals as is the Company's normal
policy for its senior executives. Such salary shall be subject to annual merit
increase reviews by the Chief Executive Officer of the Company (such salary as
adjusted upward from time to time being the "Base Salary"). The Base Salary
-----------
(including any increases thereto) shall not be decreased during the Employment
Term or any Extended Employment Term.
4. Other Payments and Benefits. In addition to the compensation provided to
---------------------------
Executive in Section 3 hereof, Executive shall be entitled to participate in any
annual bonus or incentive compensation plans and any long term incentive plans
and/or equity incentive plans established from time to time by the Company.
Executive shall be entitled to participate, during the Employment Term and any
Extended Employment Terms, in any and all employee benefit plans that may be
established by the Company or its subsidiaries from time to time for senior
executives.
5. Termination.
-----------
a. Death. In the event that Executive dies during the Employment Term,
-----
Executive's estate shall be entitled to receive (i) all Base Salary earned and
accrued to the date of death and (ii) any Performance Bonus for the year in
which Executive dies
2
<PAGE>
which shall be payable at the time such bonus would otherwise have been payable,
but all other rights of Executive hereunder shall terminate as of the date of
Executive's termination due to death, except as otherwise provided by law.
b. Total Disability. If Executive becomes incapacitated as a result of
----------------
injury, or physical or mental illness and unable to perform the duties incident
to Executive's employment hereunder as determined in good faith by the Board of
Directors of the Company, and which incapacity has continued for a period of not
less than 90 consecutive days in any twelve-month period or 180 total days in
any twelve-month period, and which is expected to be of permanent duration, the
Board of Directors may terminate Executive's employment hereunder, or Executive
may resign, by reason of Total Disability, at a date specified in notice by
either party to the other. During the period between the date of such notice and
the effective date of termination of employment, Executive's salary shall
continue to be payable in normal pay period installments, subject to reduction
by an amount equal to any long term disability benefits payable to Executive
under any disability plan maintained by the Company, and Executive shall
continue to be eligible for benefits on the applicable terms and conditions of
the respective employee benefits plans. Executive shall permit a licensed and
board certified physician designated by the Company and reasonably acceptable to
Executive to examine him from time to time prior to Executive being determined
to be Totally Disabled, and to enable the Board of Directors to determine
whether Executive is Totally Disabled. Notwithstanding the foregoing, the Board
of Directors of the Company may, in its sole discretion, determine that
Executive has suffered a Total Disability prior to the 90th consecutive day
referred to above and terminate Executive by reason of Total Disability, at
which time Executive shall be considered for purposes of this Agreement and this
Section 5.b. to have been terminated due to Total Disability, provided, however,
-------- -------
that if Executive submits to the Board of Directors of the Company the written
opinion of a licensed and board certified physician that Executive did not have
a Total Disability at any time following his termination pursuant to this
provision and on or prior to the 90th consecutive day referred to above, then
Executive shall be considered to have been terminated Without Cause for purposes
of this Agreement. In the event Executive is terminated by reason of Total
3
<PAGE>
Disability, Executive will receive base salary and bonus payments as if
terminated without cause.
c. Termination by the Company for Cause or Without Cause. The Company may
-----------------------------------------------------
terminate Executive's employment for Cause or Without Cause at any time by
giving notice of termination to Executive. In the event Executive is terminated
by the Company Without Cause, or Executive resigns for Good Reason, and for so
long as Executive complies with the provisions of Sections 6 and 7, Executive
shall be entitled to receive all payment due as Base Salary during the remainder
of the Employment Term, or the then current Extended Employment Term (as
applicable) as and when the same would have been otherwise payable had Executive
not been terminated, but under no circumstances, notwithstanding the remaining
duration of the Employment Term or any Extended Employment Term, will Executive
receive less than the equivalent of 12 months Base Salary at the rate in effect
just prior to his termination if Executive is terminated Without Cause or
resigns for Good Reason. Executive shall also be entitled in such event to
receive any bonus or incentive compensation payments for the year in which
Executive is terminated Without Cause or resigns with Good Reason, which
amount(s) shall be payable at such time as the bonus or incentive compensation
would have otherwise been payable had Executive not been terminated Without
Cause or resigned with Good Reason. During the period when Executive is
receiving Base Salary payments for termination Without Cause or for resignation
with Good Reason Executive shall remain eligible for employee benefits on the
applicable terms and conditions of the respective employee benefit plans, but at
Company expense. In the event Executive is terminated for Cause, Executive shall
be entitled to receive all Base Salary earned and/or accrued to the date of
termination, but all other rights of Executive hereunder shall terminate except
as otherwise provided by law. As used herein, "Cause" means (A) the willful and
-----
continued failure of Executive to perform Executive's duties hereunder other
than failure resulting from Executive's termination for death, Total Disability
or Resignation for Good Reason, after written notice of such failure has been
given to Executive by the Chief Executive Officer and which failure has not been
corrected within a 30-day period after the notice has been received by
Executive; (B) the willful commission by Executive of acts that in the good
4
<PAGE>
faith judgment of the Chief Executive Officer and the Board of Directors of the
Company are dishonest and demonstrably and materially injurious to the Company,
monetarily or otherwise; (C) Executive's conviction of a felony; (D) a breach of
Section 6 or 7 hereof; or (E) the willful breach by Executive of any material
provision of this agreement. "Without Cause" means any termination of Executive
-------------
(other than by the Company for Cause, by reason of Executive's resignation
without Good Reason, Total Disability or death), but shall include resignation
by Executive for Good Reason. "Good Reason" means (i) the failure of the Company
-----------
to pay Executive in accord with the terms of this agreement, or to provide any
other material benefits contained in this Agreement, during the Employment Term
or any Extended Employment Term or while Executive is receiving termination
benefits hereunder, (ii) assignments of duties inconsistent with Executive's
position as defined herein or a material reduction in his duties or authority;
(iii) the requirement that Executive perform such duties as would require him to
relocate his residence (in each case which situation has not been cured to
executive's reasonable satisfaction within 30 days after notice thereof has been
given to the Chief Executive Officer or the Board of Directors), (iv) the
resignation or removal for any reason of Francis P. Jenkins, Jr. as Chief
Executive Officer of the Company or (v) the willful breach by RCI or the Company
of any material provision of this agreement.
d. Resignation by Executive. In the event that Executive resigns (except in
------------------------
the case of resignation due to Total Disability or for Good Reason), Executive
shall be entitled to receive all Base Salary earned and/or accrued to the date
of resignation, but all other rights of Executive hereunder shall terminate as
of the date of Executive's resignation, except as otherwise provided by law.
6. Protection of Confidential Information. Executive acknowledges that his
--------------------------------------
employment by the Company will bring him into close contract with many
confidential affairs of the Company and its Affiliates including information on
the Company's finances and operating results, its markets, key personnel,
operating methods and other business affairs and methods, technical data,
computer software and other proprietary intellectual property, other information
not readily available to the public, and plans for future developments relating
thereto. In recognition of the foregoing Executive agrees that he
5
<PAGE>
shall keep confidential and not disclose to any other person (other than this
legal and financial advisors and accountants) or use for his own benefit or the
benefit of any other person, any information regarding the business and affairs
of the Company or any of its subsidiaries or affiliates. Executive's obligations
hereunder shall not apply to information which is or becomes generally available
to the public without breach of the commitment provided for in this Section 6;
was otherwise available to Executive on a non-confidential basis; or is required
to be disclosed by law, order or regulation of a court or tribunal or government
or disclosures necessary to implement or enforce the provisions of this
Agreement; provided, however, that in the case of legal or regulatory required
disclosure, Executive will provide the Company as much advance notice as
practical so the Company may attempt to stop such disclosure or obtain a
protective order concerning such disclosure. If Executive commits a breach of
any of the provisions concerning Protection of Confidential Information, the
Company shall have the right and remedy to have such provisions enforced by any
court having equity jurisdiction, it being agreed that any such breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company.
7. Covenant Not to Compete and Non-Interference. In consideration of the
--------------------------------------------
benefits of this Agreement to Executive, Executive agrees that until a date that
is one year after the cessation of Executive's employment by the Company,
Executive shall not directly or indirectly anywhere in the United States of
America as a partner, stockholder, director, consultant, joint venturer,
investor or in any other capacity, engage in, or own, manage, operate or control
any business or entity which engages in a substantially similar business or line
of business as those conducted by the Company or its subsidiaries; provided,
--------
however, that nothing herein shall prohibit executive from owning not more than
- -------
2% of any class of securities of a publicly traded company. Until a date that is
one year after the cessation of Executive's employment by the Company, Executive
shall not without prior written approval from the Company directly or indirectly
solicit for employment any officer, manager, sales or technical employee of the
Company or its subsidiaries or any such prospective employee to whom an offer of
employment has been made and not rejected or withdrawn; provided however, than
nothing shall prohibit
6
<PAGE>
Executive from hiring any such person who contacts Executive on his or her own
initiative without solicitation by Executive, in conjunction with general
employment advertising that is not targeted at the Company or any employee of
the Company or any of its subsidiaries, or any employee who has been terminated
by the Company prior to any such solicitation. If this Section 7 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 for the longest period of time and over
the largest geographic area for which it may be enforceable, all as determined
by such court and in such action.
8. Independence and Severability. Each of the rights and remedies for
-----------------------------
breach of any provision hereunder shall be independent of the others and shall
be severally enforceable and shall be in addition to and not in lieu of any
other rights and remedies available to the parties under the law or in equity.
If any of the provisions contained in this Agreement is hereafter construed to
be invalid or unenforceable, this shall not effect the remainder of the
provisions or rights or remedies which shall be given full effect without regard
to the invalid portions.
9. Assignment, Successor and Assigns. Subject to the provisions contained
---------------------------------
herein and the laws of descent and distribution, and absent the written consent
of the Company, Executive shall have no right to transfer, assign, exchange,
convert, encumber or dispose of the rights of Executive to receive benefits and
payments under this agreement. This agreement shall inure to the benefit of and
shall be binding upon RCI, the Company and Executive, and subject to the
preceding sentence, their respective heirs, executors, personal,
representatives, successors and assigns. Nothing in this Section 9, however,
shall prevent Executive from making assignments or transfers for purposes of
personal estate planning.
10. Notices. All notices hereunder shall be given in writing by personal
-------
delivery or by registered or certified mail, return receipt requested, addressed
to the Company at its principal place of business, and to Executive at his
residence address as then listed in the Company records.
11. General.
-------
7
<PAGE>
a. Governing Law; Arbitration. This Agreement shall be governed by and
--------------------------
construed and enforced in accordance with the laws of the State of New York
without giving effect to conflicts of laws or principles thereof which might
refer such interpretations to the laws of a different state or jurisdiction. Any
controversy or claim arising out of or relating to this Agreement, or any breach
thereof, shall be settled by arbitration in accordance with the rules of the
American Arbitration Association and judgment upon such award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitration shall be held in New York, New York unless another location shall be
mutually agreed to by the parties at the time of arbitration.
b. Captions and Headings. The section headings contained herein are for
---------------------
reference only and shall not affect the meaning or interpretation of the
Agreement.
c. Entire Agreement. This Agreement sets forth the entire agreement between
----------------
the parties, and supersedes all prior agreements, arrangements and
understandings, written or oral, between the parties.
d. No Other Representations. No representation, promise or inducement has
------------------------
been made by any party hereto that is not embodied in the Agreement, and no
party shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
e. Amendments: Waivers. This Agreement may be amended, modified, canceled,
-------------------
renewed or extended, and the terms and covenants hereof may be waived, only by a
written instrument executed by the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of any party at any time or times
to require performance of any provision hereof shall in no manner affect the
right of such party at a later time to enforce the same. No waiver by any party
of the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant in this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this agreement as of the
date written above.
ROYSTER-CLARK GROUP, INC. and Frederick I. Sharp III
ROYSTER-CLARK, INC.
By: /s/ Francis P. Jenkins, Jr. /s/ Frederick I. Sharp III
-------------------------------- -------------------------------
Francis P. Jenkins, Jr.
Chief Executive Officer
9
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 16,240
Loss from equity investees 1,857
Fixed charges 37,206
-------
55,303
Fixed charges:
Interest expensed 34,491
Interest capitalized --
Amortized premiums, discounts, capital expenses
related to indebtedness 1,921
Estimated interest within rental expense 794
-------
37,206
------
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 29,360
Loss from equity investees 100
Fixed charges 17,540
-------
47,000
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
-------
2.7x
Page 10: Pro forma EBITDA to interest expense for the year ended December 31, 1998
EBITDA:
Pre-tax income from continuing operations 16,240
Loss from equity investees 1,857
Interest expense 34,491
Depreciation and amortization 23,498
-------
76,086
Interest expense 34,491
-------
2.2x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT RE COMPUTATION OF RATIOS--(CONTINUED)
<S> <C>
Page 10: Pro forma EBITDA to interest expense for the six months ended June 30, 1999
EBITDA:
Pre-tax income from continuing operations 29,360
Loss from equity investees 100
Interest expense 15,984
Depreciation and amortization 11,792
-------
57,236
Interest expense 15,984
------
3.6x
Page 10: Pro forma net debt to 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
EBITDA, as above 76,086
-------
3.9x
Page 10: Pro forma net debt to 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
EBITDA, as above 57,236
-------
5.3x
Page 25: Ratio of earnings to fixed charges for Royster-Clark, Inc. 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 (loss) to fixed charges for Old Royster-Clark
<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 (loss) 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
September 23, 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 Amendment No. 3 to the 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
September 23, 1999
