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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
</TABLE>
Commission file number 0-18797
CHEMI-TROL CHEMICAL CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Ohio 34-4439286
------------------------------------ ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2776 C.R. 69, Gibsonburg, Ohio 43431
------------------------------------ ------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code:
(419)665-2367
Securities registered pursuant to Section 12(b) of the Act:
None
Securities pursuant to Section 12(g) of the Act:
Common stock, without par value
----------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ].
The aggregate market value (based upon the closing price) of the voting
stock held by non-affiliates of the registrant as of March 4, 1998:
Common Stock, without par value -- $29,534,834
The number of shares outstanding of the issuer's classes of common stock as of
March 1, 1998:
Common Stock, Without Par Value -- 2,004,930 shares
DOCUMENTS INCORPORATED BY REFERENCE:
None
[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The Exhibit Index is located at page 38 of this filing. This document
contains 101 pages.
<PAGE> 2
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Chemi-Trol Chemical Co. ("the Company") was incorporated under the laws of
the State of Ohio in 1952.
(b) Financial Information About Industry Segments
The sales and operating profit of each industry segment and the
identifiable assets attributable to each industry segment for the three years
ended December 31, 1997 are set forth in Note 13 (Information pertaining to
industry segments) of the Notes to Financial Statements, which note is
incorporated herein by reference.
(c) Narrative Description of Business
PRESENT ORGANIZATION
The Company is organized on an operational basis into two divisions: Tank
Division, located in Fremont, Ohio and the Chemical Group, located in
Gibsonburg, Ohio. Each division is headed by a General Manager who reports
directly to the Company's executive officers in Gibsonburg, Ohio. In addition
the Company has a Leasing and Finance Division for the purpose of offering to
its qualified customers two alternate methods of financing the purchase of its
tank products. In 1997, consistent with the Company's prior practice, income and
expense of the Leasing and Finance Division are recorded either in the Tank
Division or in unallocated corporate income and expense.
The Company announced on December 6, 1996 it had retained McDonald &
Company to advise it in connection with the possible sale of two of its non-core
businesses, the Cal-Van Tools and the Cory Orchard & Turf Divisions. After a
strategic review of the Company's business segments Chemi-Trol's Board of
Directors determined that to maximize future growth and profitability it should
concentrate on its Chemical and Tank Segments, which offer the best opportunity
for sustained earnings growth for the Company.
On March 25, 1997, the Company sold its Cory Orchard and Turf Division to
Terra International, Inc. for approximately $4.8 million under an asset purchase
agreement.
On November 18, 1997, the Company completed the sale of certain assets of
its Cal-Van Tools Division to Eagle Tools, Inc. (Eagle), an Affiliate of Horizon
Tool, Inc. Eagle purchased inventory, machinery, equipment, fixtures, dies and
the Cal-Van Tools name for a cash payment of $1.5 million and a note of
approximately $2.3 million. Chemi-Trol retained and is currently collecting
accounts receivable of approximately $4.8 million. Real estate with an
approximate cost of $1.7 million and a carrying value of approximately $900,000
was also retained by Chemi-Trol and is being leased to Eagle under a one-year
lease expiring November 1998.
AGREEMENT FOR ACQUISITION OF THE COMPANY
On February 20, 1998 the Company and Harsco (NYSE:HSC) executed an
Agreement and Plan of Merger providing for the acquisition of the Company by
Harsco for approximately $46 million or $23.00 per share. Completion of the
transaction is subject to the affirmative vote of holders of at least 66 2/3% of
the outstanding shares of common stock of the Company and the expiration or
early termination of the applicable waiting period for antitrust review of the
transaction, among other conditions. The Company anticipates closing the
transaction in the Spring of 1998.
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TANK DIVISION
PRODUCTS
Through its Tank Division, the Company manufactures steel pressure tanks
for above ground and underground storage of liquefied petroleum gas ("LPG") and
anhydrous ammonia ("NH3") at its plant located in Fremont, Ohio. The steel tanks
are manufactured in sizes ranging from 120 gallon water capacity to 1990 gallon
water capacity for LPG tanks and from 250 gallon water capacity to 2050 gallon
water capacity for NH3 tanks. Approximately 95% of the tanks manufactured by the
Company are for the storage of LPG. The Tank Division accounted for 75%, 72%,
and 71% of the Company's total revenues for 1997, 1996 and 1995, respectively.
MARKETING AND DISTRIBUTION
Sales of the Company's tanks are made directly by the Company to either
regional independent dealers or major multi-state marketers within a marketing
radius of approximately 1,000 miles from Fremont, Ohio. The 20 largest
industrial customers of the Company accounted for approximately one third of the
net sales of this division for its fiscal year ended December 31, 1997.
The Company stimulates sales through the efforts of its own sales
personnel, personal telephone calls to existing and potential customers, direct
mail advertising, publication and distribution of catalogues, advertisements in
trade journals and attendance at various trade shows. Sales of the Company's
tanks to major multi-state marketers are made by the Tank Division's sales
manager from its principal office located in Fremont, Ohio. Sales to independent
dealers are made through Company salesmen and independent sales representative
organizations. Each of the independent sales organizations is assigned an
exclusive territory and are compensated by commissions based upon sales in their
respective territory under agreements terminated with notice by either party.
The Company transports its steel tanks to its customers by means of its own
truck fleet.
FINANCING OF CUSTOMER ACCOUNTS
Sales of this division's products are normally made on a net basis. The
Company does, however, offer to its qualified customers two alternate methods of
financing the purchase of its steel tanks, which are explained under "Leasing
and Finance Division," on page 4.
RAW MATERIALS AND SUPPLIES
Steel plate is the major raw material used by the Company in the
manufacture of steel pressure tanks. The Company purchases steel plate from a
variety of domestic and foreign sources. Although the Company believes that it
will be able to obtain its steel plate requirements from multiple sources on a
competitive basis, the inability of the Company to obtain a satisfactory supply
of steel plate could have a materially adverse effect on its tank manufacturing
operations.
BACKLOG
The dollar amounts of backlog of the Tank Division believed to be firm as
of March 1, 1998 and 1997 were $4,560,000 and $4,514,000, respectively. All of
the 1998 backlog is expected to be filled during 1998.
COMPETITION
The markets for the Company's steel tanks are highly competitive and the
Company competes with other companies having a higher total sales volume and
greater financial resources than the Company. The competition in these markets
is based primarily on service and price. Two of the Company's largest
competitors are Trinity Industries, Inc. of Dallas, Texas and American Welding
and Tank Co. of Harrisburg, Pennsylvania.
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REGULATIONS
The manufacture of steel pressure tanks by the Company is subject to close
regulation. The American Society of Mechanical Engineers ("ASME") prescribes
minimum standards and specifications relating to (i) the size and chemical
properties of steel plate, (ii) the manufacturing process (including welding
procedures and testing) and (iii) the pressure capacity of steel tanks and
valves. These standards are enforced by the National Board of Boiler and
Pressure Vessels Inspectors, which commissions inspectors who perform
independent inspection through insurance companies. These inspectors inspect all
phases of the manufacturing process as well as the finished product. Steel tanks
manufactured by the Company must be certified by these inspectors to be in
compliance with the regulations prescribed by the ASME, and all propane vessels
are registered with the National Board of Boiler and Pressure Vessels Inspectors
prior to their sales to the customers of the Company. Although the manufacture
of steel pressure tanks is subject to close regulation, the Company may be held
liable, by warranty or otherwise, for damages resulting from tank failure,
including damages to the environment.
CHEMICAL GROUP
PRODUCTS AND SERVICES
The Chemical Group's operations are divided into two divisions: the
Contracting Division & CADCO, the material distribution division.
The Contracting Division is comprised of the pavement marking and the
vegetation management departments. The pavement marking department provides,
under contract, various forms of pavement marking. These services include fast
dry alkyd, fast dry water-borne, and polyester paint striping, the installation
of preformed plastic and the measurement, determination and marking of
"no-passing" zones on highways. The vegetation management department applies
under contract various types of vegetation control materials including selective
herbicides for weed, brush and grass control, as well as nonselective herbicides
for total vegetation control.
The CADCO division sells herbicides, adjuvants, plant growth regulators,
sprayers, pavement marking products and other related equipment and products.
The Chemical Group accounted for 25%, 28% and 29% of the Company's revenues
for 1997, 1996 and 1995, respectively.
MARKETING AND DISTRIBUTION
Sales of the products and services offered by the Chemical Group are made
throughout 21 states in the midwestern, eastern and southern parts of the United
States. Approximately 95% of the total net sales of the Chemical Group are to
various state, county, municipal and township highway departments, drainage
commissions and toll road authorities. The balance of the net sales of this
division are derived primarily from public utilities, pipeline companies,
railroads, general contractors and other industrial, commercial and
noncommercial users. During the past three years, approximately 90% of the net
sales of this division were derived from contracts entered into with various
governmental authorities located in the states of Ohio, West Virginia, Michigan,
Indiana, New York, Kentucky and Tennessee.
The work performed by the Chemical Group is seasonal inasmuch as warm dry
weather is needed to apply pavement marking and vegetation control materials.
The season in the Company's general area of operations is from April 1 through
November 30. This season is extended on occasions when the Company is able to
obtain contracts in Southern states where the more favorable weather conditions
allow work to be performed December through March.
The Chemical Group's highway operations with various governmental
authorities are generally conducted under fixed price contracts awarded by the
governmental authorities for a fixed period of time ranging from a few months to
two years. These contracts generally require the Company to comply with
standards and specifications relating to (i) the type and amount of chemicals,
paints and polyesters used by the Company, (ii) the type, size and number of
applicating units used by the Company, (iii) the training, work experience and
licensing of the
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personnel used by the Company and (iv) the method of application of chemicals,
paints, polyesters and plastics used by the Company.
The Company owns the equipment it uses in its operation of the Chemical
Group.
SUPPLIES
The principal supplies used by the pavement marking department are paint,
polyester, glass beads, and preformed plastic materials. The Company obtains
these materials from a wide range of suppliers. Herbicides used in vegetation
management and CADCO material sales are obtained from a wide range of suppliers.
The Company does not believe that the loss of any one source of supply would
have a material effect on its business.
BACKLOG
The dollar amounts of backlog of the Chemical Group believed to be firm as
of March 1, 1998 and 1997 were approximately $6,011,000 and $2,909,000,
respectively. Dollar amounts of backlog can vary significantly based upon the
timing of bid lettings and the division's success in obtaining contracts and are
not necessarily indicative of the results for the year. All of the contracts
comprising the 1998 backlog are expected to be completed during 1998.
COMPETITION
The business done by the Chemical Group is highly competitive. Most
contracts are awarded on the basis of price, reputation, experience and ability
to perform. The number of competitors is greatly reduced as the size of the job
and the complexity of tasks to be performed are increased. Generally, the
competitors of the Company are local companies operating in a particular
geographical area. Although reliable statistics are not available, the Company
believes that based on annual net sales of the Chemical Group, it is one of the
larger contractors in the states in which it operates in the application of
highway vegetation control materials and of highway pavement marking and
striping materials.
Since the Company obtains all of its public contracts through competitive
bidding, there can be no assurance that the Company will retain all of its
present contracts after their respective dates of expiration nor is there any
assurance that the Company's record of obtaining additional contracts will
continue. Although the Company believes that its relationship with its customers
is good, loss of existing contracts due to expiration or cancellation could have
a materially adverse effect on the Company's net sales and net income.
REGULATIONS
Much of the Chemical Group's business is oriented to highway safety
considerations. Regulations applicable to the various public authorities with
whom the Company contracts affect the demand and specifications for highway
striping and vegetation control performed by the Company.
LEASING AND FINANCE DIVISION
Through the Company's Leasing and Finance Division, its qualified customers
are offered two alternate methods of financing the purchase of the Company's
steel tanks (the "Tank Finance Plan" and the "Tank Lease Plan").
Under the Tank Finance Plan, the Company finances 90% of the sales price
over a 24 to 48 month period at an effective annual interest rate which during
1997 was approximately 10.25%. The Company retains a security interest in the
tanks as additional security for the payment of the financed amount. The
installment paper evidencing the customer's obligation is either held by the
Company as an investment, sold with recourse for the principal amount thereof to
the Company's profit sharing plan or pledged as collateral for borrowings over a
like period. In 1997, the Company did not borrow under the latter arrangement
but sold with recourse $1,672,000 in notes to the Company's profit sharing plan.
For the fiscal year ended December 31, 1997, approximately 15% of the total net
sales of the Tank Division were sold to customers under the Tank Finance Plan.
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Under the Tank Lease Plan, leases of liquid propane gas tanks to customers
for noncancellable terms of five or ten years are recorded as sales at
inception. The present value of the minimum payments is included in net sales
and the cost of the tanks is charged to cost of sales. Estimated residual values
of the leased tanks are not significant. During the fiscal year ended December
31, 1997, the Leasing and Finance Division invested in approximately $395,220 in
customer sales type leases. Approximately 1% of the total net sales of the Tank
Division for the fiscal year ended December 31, 1997 were made under the Tank
Lease Plan.
In 1997, consistent with the Company's prior practice, income and expense
of the Leasing and Finance Division are recorded in the Tank Division and in
unallocated corporate income and expense.
PATENTS, LICENSES, FRANCHISES AND CONCESSIONS
The Company does not own any patents nor is it licensed under any patent
licenses. It does not hold any franchises or concessions from any governmental
body.
EMPLOYEES
The following table sets forth information with respect to the Company's
317 employees:
<TABLE>
<CAPTION>
DIVISION PERMANENT SEASONAL
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<S> <C> <C>
Corporate Staff............................................. 14 0
Tank Division............................................... 150 0
Chemical Group.............................................. 43 110
--- ---
Total............................................. 207 110
=== ===
</TABLE>
Employees at the Company's Tank Division Plant in Fremont, Ohio are subject
to a collective bargaining agreement between the Company and the United
Steelworkers of America, AFL-CIO-CLC, Local 1915. The current agreement will
expire April 30, 1999.
Seasonal employees in the Company's Chemical Group are subject to a
collective bargaining agreement between the Company and Laborers International
Union Local 480, which will expire March 1, 1999.
The Company believes that its relations with its Union and other employees
is good, and does not anticipate problems in negotiating new collective
bargaining agreements.
ENERGY AND ENVIRONMENT
The Company consumes electricity, propane gas, natural gas and various
fuels in manufacturing, in selling its products and services and in lighting and
heating the facilities it operates. Although the Company has never experienced
any significant interruptions of its operations due to shortages of energy,
there can be no assurance that a serious curtailment of the availability of such
fuels or acceptable substitutes would not adversely affect the Company's
operations.
Federal, state and local authorities are considering various legislation
and regulations related to environmental and energy matters. The Company is not
aware of any presently existing legislation relating to such matters which has
or will have a materially adverse effect upon the Company's operations or which
will require material capital expenditures in the next two years; however, the
Company cannot predict the effect of future legislation or regulations.
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ITEM 2. PROPERTIES
The following table lists the materially important physical properties used
in its operations together with certain information regarding such properties:
<TABLE>
<CAPTION>
LAND BUILDING
DESCRIPTION AND LOCATION (1) (ACRES) (SQ. FT.) USE
---------------------------- ------- --------- ---
<S> <C> <C> <C>
Land and buildings 80 30,400 Administrative offices of the Company;
2776 & 2780 CR 69 Chemical Group offices; maintenance and
Gibsonburg, Ohio 43431 storage for spraying, striping and
traffic survey equipment (2)
Land and buildings 6.28 45,000 Former Tank Division facility; currently
2098 West State Street being held for lease or sale
Fremont, Ohio 43420
Land and buildings 10.76 91,050 Former Cal-Van Tools Division warehouse
1500 Walter Avenue & offices; currently being leased
Fremont, Ohio 43420
Land and building 16.10 68,800 Tank Division offices; manufacture of
721 Graham Drive propane and anhydrous ammonia tanks.
Fremont, Ohio 43420 Operations commenced during the second
quarter of 1993 (See note 6 to the
financial statements for mortgage
information ) (2)
</TABLE>
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(1) The Company believes that its properties are adequately maintained, are in
good condition and are suitable and adequate for its business as presently
conducted.
(2) The Company believes these facilities are being used to approximately 75 to
100 percent of their capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company, along with fourteen other parties, has been designated in a
letter dated July 13, 1995, as a potentially responsible party by the United
States Environmental Protection Agency (the "EPA") at the County Line Landfill,
Fremont, Ohio under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended. The EPA is requesting that the potentially
responsible parties initiate an Engineering Evaluation and Cost Analysis (EECA)
to evaluate what future response activities may be necessary at the site, which
was licensed and operated as a landfill from 1969 to 1984. The potentially
responsible parties have commenced participation in an engineering evaluation at
the site. There is no volumetric ranking of the parties available. Although the
EPA takes a position that any potentially responsible party is liable jointly
and severally for response costs, the Company is only one of many parties
believed to have used the site. There is also no information as to the extent
and nature of any necessary future response action to the site. During the
period in question the Company maintained various insurance policies and
management is exploring the availability of coverage of claims which may arise.
Because of the preliminary state of this matter and lack of information, it is
not possible to estimate the financial impact or range of probable financial
impact on the Company. During the year ended December 31, 1995, the Company
expensed $9,132, its portion of the expenses of the current engineering
evaluation. Since 1995 the Company has not reflected any amount or accrued
expenses to cover any future cost of additional evaluation or remediation
relating to the site. While the ultimate outcome of this matter cannot now be
predicted, the Company believes, based on the facts now known to it, that costs
arising out of this matter will not have a material adverse effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the last quarter of the period covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) Market Information.
The Company's common stock trades on the NASDAQ Small Cap Market under the
symbol CTRL. The Company believes the range of high and low sales prices for
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997
- ---------------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C>
$9.25 - $11.00 $10.00 - $13.00 $11.75 - $14.50 $12.50 - $22.00
</TABLE>
<TABLE>
<CAPTION>
1996
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1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
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<S> <C> <C> <C>
$12.0625 - $10.50 $11.625 - $9.375 $11.75 - $9.25 $13.125 - $10.00
</TABLE>
(b) Numbers of Holders of Common Stock
There were 302 shareholders of record on March 1, 1998. Management believes
the number of holders of Chemi-Trol's Common Shares at March 1, 1998, including
persons holding through a nominee holder, was approximately 700.
(c) Dividends Paid per Common Share
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
QUARTER ENDED QUARTER ENDED
-------------------------- --------------------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
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Dividends declared were $.36 per common share
in 1997 and 1996............................. $.09 $.09 $.09 $.09 $.09 $.09 $.09 $.09
</TABLE>
The Company has paid a cash dividend on its Common Shares each year since its
incorporation in 1952.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Operating results:
Revenues from continuing
operations............... $50,348,978 $46,556,082 $47,804,671 $47,612,229 $42,695,793
Income from continuing
operations............... 2,057,274 1,313,471 1,371,449 1,306,137 775,705
Income (loss) from
discontinued operations
(a)...................... (916,813) (55,188) 103,256 303,582 5,031
Net Income.................. 1,140,461 1,258,283 1,474,705 1,609,719 896,731(b)
Income (loss) per common
share (c):
Continuing operations.... 1.03 .66 .69 .65 .39
Discontinued
operations............. (.46) (.03) .05 .15 --
Net income per common
share.................... .57 .63 .74 .80 .45(b)
At Year-end
Total Assets................ 34,719,538 47,423,367 48,592,539 45,917,360 41,186,807
Long-Term Debt.............. 1,920,222 3,329,267 9,789,973 7,235,827 8,761,989
Working Capital............. 11,317,456 11,945,525 14,430,716 12,218,263 12,174,075
Cash Dividends Declared Per
Common Share (c)............ $ .360 $ .360 $ .360 $ .327 $ .298
</TABLE>
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(a) See Footnote #2, Discontinued Operations, in Item 8. Financial Statements
for further information relating to the gain or loss from discontinued
operations.
(b) Effective January 1, 1993, the Company changed its method of accounting for
income taxes form the deferred method to the liability method required by
FASB Statement 109, "Accounting for Income Taxes". The cumulative effect of
adopting statement 109 as of January 1, 1993 was to increase net income by
$115,995, or $.06 per share.
(c) Share data has been computed on the basis of the weighted average number of
common shares outstanding during each period in accordance with SFAS. No 128
"Earnings per Share" and restated for the 10% stock dividends in March 1995
and 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the measure of a company's ability to generate adequate funds
to meet its needs. Funds can be generated internally from operations or
externally by borrowing. Primary measures of liquidity include the amount of
working capital, the working capital ratio and the ability to borrow funds. As
shown in the following chart, the Company's ability to borrow funds remains
strong as evidenced by the working capital ratio, the unused commitment for term
financing and the unpledged notes and leases at December 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Working capital....................................... $11,317,456 $11,945,525 $14,430,716
Working capital ratio................................. 2.3 to 1 1.6 to 1 1.9 to 1
Unused commitment for term financing of customer notes
and leases.......................................... $ 7,000,000 $ 4,780,500 $ 2,076,500
Unpledged notes and leases from Tank customers........ $ 6,016,264 $ 1,407,022 $ 1,310,185
</TABLE>
During 1997 both working capital and the working capital ratio increased as
proceeds from the sale of the Cory Orchard and Turf Division and the sale, late
in the year, of the Cal-Van Tools Division improved the Company's overall
liquidity. In 1997 cash flow provided by discontinued operations was $2,412,214
from operating activities and $6,299,533 from the cash proceeds from the sales
of discontinued operations.
The decreases in working capital and working capital ratio in 1996 were
largely the result of the balloon payment on the mortgage note, which is secured
by the Tank Production facility and was due in October of 1997. The Company
elected to refinance this note on a long-term basis and paid an additional
$1,500,000 towards principal late in 1997.
A substantial amount of the Company's working capital over the past three
years has been provided from operations. Long-term borrowings of $3,379,808 in
1996 and $8,300,500 in 1995 were used to finance customer sales type leases or
notes receivable for the purchase of steel tanks produced by the Company's Tank
Division, pursuant to the arrangements described under ITEM 1 BUSINESS Leasing
and Finance Division. This financing has been arranged through area banks. The
Company has a commitment to provide term financing for tank notes and leases
extended to customers for amounts up to $7,000,000, of which all $7,000,000 was
available at year end. The total amounts borrowed with collateral under the
lease and finance plans at December 31, 1997 were $-0- and $1,548,210,
respectively.
Due to the seasonal nature of the operations of the Company's Chemical
Group and extension of fall payment terms in the Tank division, the Company has
an uneven cash flow pattern. Operations of the Chemical Group begin
approximately mid-April and run through November. There are substantial cash
requirements in the second quarter for this division associated with inventory
build up and the purchase of equipment and supplies. Since the majority of the
contracts performed by this division are for political subdivisions and the
contracts stretch over the entire summer season, a fair percentage of the
payments are not received until mid-September and October. This creates a cash
shortage from June to October which has made it necessary for the Company to
borrow short-term funds. For this reason, the Company has arranged a short-term
borrowing line of
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$15,750,000 through local banks. In 1997 the Company used amounts ranging from
month-end amounts of $2,965,000 to $-0- at year end of its short-term credit
line.
Cash flows used by financing activities were $11,027,501 in 1997 and
$3,128,022 in 1996 compared to cash flows provided by financing activities of
$809,704 in 1995. The elimination of short term borrowings and the payments of
long term debt were the primary use of cash by financing activities in 1997.
Capital expenditures during 1997 increased slightly to $890,864 from the
previous year expenditures of $821,059. Expenditures during 1995 included the
addition of a 31,750 square foot warehouse to provide Cal-Van with better
storage of its inventory and a more efficient production layout.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
Capital expenditures............................ $890,864 $821,059 $1,747,523
</TABLE>
Capital expenditures are budgeted at $1,913,485 for 1998 and includes
budgeted additions of $1,331.000 in machinery and equipment at the Tank
Division. The Company intends to make these expenditures with funds provided
from operations.
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant events affecting the Company's earnings and financial condition
during the years included in the accompanying financial statements. The
Company's continuing operations are in two operating segments in separate
industries. The Tank division produces and sells steel pressure tanks for the
storage of liquid propane gas and anhydrous ammonia primarily to customers in
the U. S. and Canada. The Chemical Group operations involve the sale and
application of highway pavement marking and vegetation control materials
primarily in the northeastern quarter of the U. S. In March of 1997 the Company
sold its Cory Orchard and Turf Division and in November of 1997 the Company
completed the sale of certain assets of its Cal Van Tools Division. Accordingly,
these operations, have been reclassified and reported as discontinued
operations.
Except for historical information, all of the statements, expectations and
assumptions contained in the following are forward looking statements that
involve a number of risks and uncertainties, including possible adverse weather
conditions. Although the Company has made its best efforts to be accurate in
making these forward-looking statements it is possible that the assumptions made
by management may not materialize.
(a) 1997 versus 1996
Revenues from continuing operations increased by 7.9% to record levels of
$47,439,290 and resulted in operating profit increasing by 61.2% to $3,528,274
from 1996 levels of $2,188,471. The increase in operating profit was led by
record performance of the Company's Tank Division.
1997 revenues of the Tank division increased by 12.7% to $38,509,519 while
operating profits increased by 19.8% to $5,057,046 from $4,221,715 in 1996. Both
revenues and profits were at record levels. The increase in revenues was
comprised of a 13.3% increase in net sales and a reduction of 9.8% in interest
and financing income. The increase in sales was the result of a 19.9% increase
in units shipped which was partially offset by a lower net average selling
price. Selling and general administrative expenses decreased slightly by 1.6%.
The Chemical Group finished the year with a strong fourth quarter and while
sales for the year were down by 4.8% to $12,633,559 operating profits increased
by 13.3% to $764,904, the highest level during the past five years. This is also
the third consecutive year the division has increased operating profit over the
prior year level. Sales in the Contract division decreased by 4.3% while sales
in CADCO, the material sales division were down 6.5%. Gross profits in the
Contract division were down slightly, by 1.1%, while gross profits in the CADCO
division rebounded sharply by 36.8% and combined to increase the Group's gross
profit by 4.3%. Selling and general administrative expenses decreased by 8.0%
from 1996 levels largely as a result of decreases in the sales staff made
possible by the continuing trend toward bidding of work in the Contract
division.
9
<PAGE> 11
For the Company as a whole, net sales from continuing operations increased
by 8.1%, while cost of sales increased by the lesser rate of 6.9% resulting in
higher gross profits and margins. Selling expenses decreased by 7.0% while
general and administrative expenses increased by 4.9%. Interest expense
decreased sharply, by 44.4%, as the proceeds from the sale of discontinued
operations were used to significantly lower average borrowings during the year.
Interest and financing income decreased by 3.7% as the investment in Tank
customer notes and leases continued to decrease. The effective income tax rate
increased from 40.0% in 1996 to 41.7% in 1997 largely as a result of increased
state and local taxes. The Company reported income from continuing operations of
$2,057,274, or $1.03 per share, in 1997 an increase of 56.6% over income from
continuing operations of $1,313,471, or $.66 per share , in 1996.
In March of 1997, the Company sold its Cory Orchard & Turf division
("Cory") and in November of 1997 sold certain assets of the Cal-Van Tools
division ("Cal- Van"). See Note 2 to the financial statements for a further
discussion of these transactions. Operating results through the dates of sale of
these divisions are classified as discontinued operations. After provision for
applicable income taxes, the Company reported a loss from operations of
discontinued operations of $310,863, or $.16 per share, compared to a loss of
$55,188, or $.03 per share, in 1996. The sale of Cory resulted in a net gain
after income taxes of $270,000 while the sale of Cal-Van resulted in a net loss
of approximately $876,000 after a tax credit of $610,000. After provision for
applicable income taxes, the Company reported a combined loss on disposal of the
divisions of $605,950, or $.30 per share. After applicable tax credits, the
total loss from discontinued operations for 1997 was $916,813 compared to a loss
of $55,188 in 1996.
The Company reported net income of $1,140,461 or $.57 per share in 1997
compared to net income of $1,258,283 or $.63 per share in 1996.
(b) 1996 versus 1995
Despite the fact that the Company's revenues for the first half were down,
record sales in both the third and fourth quarters resulted in total revenues
decreasing only slightly, by 2.9%, from 1995 record levels. 1996 Income from
Continuing Operations decreased by 4.2% to $1,313,471 or $.66 per share.
Revenues of the Tank Division, which accounted for 72.0% of the total
Company revenues, decreased by 1.2% from the prior year record level, while
operating profit increased by 1.2%. The decline in revenues was comprised of a
.9% decrease in net sales to $33,291,086 and a 13.3% decrease in interest and
financing income. Cost of sales decreased at the higher rate of 2.0% and
resulted in an increase of 7.1% in gross profit. Increases of 9.0% in selling
expense and 15.9% in general and administrative expenses combined to result in
operating profit increasing at the lesser rate of 1.2%.
Net sales of the Chemical Group decreased by 6.7%, while operating profit
increased by 17.4%. The increase in operating profit was largely the result of
increased gross profits of 22.0% in the Contract Division, which accounted for
80.2% of the Group's sales during the year. Selling and general administrative
increased by 3.3% over the prior year levels.
For the Company as a whole, net sales decreased by 2.6%, while cost of
sales decreased by 3.9% bettering margins and resulting in an increase in gross
profit of 7.9%. Selling expenses increased by 6.1% during the year. General and
administrative expenses increased by 11.8% largely as a result of increased bad
debt expenses. Interest and financing income decreased by 15.1% largely as a
result of reductions in the average balances of notes and lease receivable
outstanding during the year. Interest expense increased by 4.5% as average
borrowings to fund working capital needs increased over the prior year levels.
The effective income tax rate increased from 39.7% in 1995 to 40.0% in 1996.
Income from continuing operations decreased by 4.2% to $.66 per share from $.69
per share in 1995. Discontinued operations reported a loss of $55.188 or $.03
per share compared to income of $103,256 or $.05 per share in 1995. For the
year, net income decreased by 14.7% to $1,258,283, or $.63 per share.
10
<PAGE> 12
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND INCOME FROM OPERATIONS
The rate of inflation during recent years has not been such an important
consideration but the Company uses the following procedures to help monitor its
effects. First, selling prices of the Company's products are carefully and
constantly scrutinized so that selling prices reflect current costs. Price
increases can only be instituted, of course, to the extent that the Company's
prices remain competitive within the business segments in which the Company
operates. As a result, the Company constantly monitors alternative suppliers to
assure the lowest possible costs. The Chemical Group can reasonably account for
inflation in bidding on fixed price contracts because a majority of the
contracts are bid early in the year with completion dates during the current
year. Labor rates are generally established prior to the bid and these are
generally fixed for the duration of the contract. Materials necessary to perform
a contract can be price protected by purchasing under early order programs or by
purchasing sufficient quantities of the materials necessary to complete the
contract at the time it is awarded. This allows these costs to be considered at
the time a bid is prepared. The Company uses the LIFO method of accounting for
the cost of goods sold for the majority of its products. This charges current
costs to the results of operations for both financial reporting and income tax
purposes and during periods of inflation results in improved cash flow due to
lower income taxes paid by providing a closer matching of revenues and expenses.
Finally, increasing of productivity levels in all of the Company's operating
divisions has helped to lessen the effects of inflation in the past and will
continue to be part of the Company's objective for controlling the effects of
inflation in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 14 for an index to financial statements and financial statement
schedule.
11
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Chemi-Trol Chemical Co.
We have audited the accompanying balance sheets of Chemi-Trol Chemical Co.
as of December 31, 1997 and 1996, and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 Chemi-Trol Chemical Co. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. Also, in our opinion, the related
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.
/s/ ERNST & YOUNG LLP
Toledo, Ohio
February 6, 1998
12
<PAGE> 14
CHEMI-TROL CHEMICAL CO.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,516,078 $ 112,506
Trade receivables, less allowance of $255,000 in 1997 and
$210,000 in 1996:
Accounts................................................ 7,461,453 8,722,015
Notes (Note 6).......................................... 3,133,760 3,498,027
----------- -----------
10,595,213 12,220,042
Net investment in sales-type leases (Note 3).............. 450,834 684,120
Inventories (Notes 1 and 4)............................... 3,104,151 3,738,694
Prepaid expenses and deferred income taxes (Note 8)....... 1,074,763 1,008,913
Current assets of discontinued operations (Note 2)........ 3,122,103 14,345,775
----------- -----------
Total current assets........................................ 19,863,142 32,110,050
Property and equipment, at cost (Notes 5 and 6)............. 17,648,832 17,054,756
Less accumulated depreciation............................... 9,121,805 8,321,253
----------- -----------
Net property and equipment.................................. 8,527,027 8,733,503
Other assets:
Trade notes receivable, less current portion (Note 6)..... 3,200,482 3,165,486
Other note receivable (Note 2)............................ 2,085,783 --
Net investment in sales-type leases (Note 3).............. 779,398 1,254,330
Other..................................................... 263,706 216,266
----------- -----------
Total other assets.......................................... 6,329,369 4,636,082
Noncurrent assets, principally, property, plant and
equipment of discontinued operations (Note 2)............. -- 1,943,732
----------- -----------
$34,719,538 $47,423,367
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 6).................................... $ -- $ 2,964,916
Accounts payable.......................................... 4,428,316 6,067,381
Dividends payable......................................... 180,444 180,444
Income taxes.............................................. 281,912 230,485
Accrued liabilities:
Insurance............................................... 497,185 495,437
Compensation............................................ 708,501 677,289
Profit-sharing.......................................... 272,922 209,064
Other................................................... 160,566 162,564
Long-term debt due within one year (Note 6)............... 1,368,915 7,300,679
Current liabilities of discontinued operations (Note 2)... 646,925 1,876,266
----------- -----------
Total current liabilities................................... 8,545,686 20,164,525
Long-term debt (Note 6)..................................... 1,920,222 3,329,267
Deferred income taxes (Note 8).............................. 512,000 876,000
Other long-term liabilities................................. 1,063,707 794,337
Shareholders' equity:
Common stock, without par value; 6,000,000 shares
authorized, 2,004,930 shares issued
and outstanding (Note 7)................................ 4,590,767 4,590,767
Retained earnings......................................... 18,087,156 17,668,471
----------- -----------
Total shareholders' equity.................................. 22,677,923 22,259,238
----------- -----------
$34,719,538 $47,423,367
=========== ===========
</TABLE>
See accompanying notes.
13
<PAGE> 15
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net sales......................................... $50,348,978 $46,556,082 $47,804,671
Interest and financing income..................... 850,541 883,208 1,040,868
----------- ----------- -----------
51,199,519 47,439,290 48,845,539
Costs and expenses:
Cost of sales..................................... 43,764,588 40,925,918 42,585,113
Selling........................................... 1,071,137 1,151,647 1,085,034
General and administrative........................ 2,280,105 2,174,286 1,944,182
Interest.......................................... 555,415 998,968 955,761
----------- ----------- -----------
47,671,245 45,250,819 46,570,090
----------- ----------- -----------
Income from continuing operations before income
taxes............................................. 3,528,274 2,188,471 2,275,449
Income taxes (Note 8):
Federal:
Current........................................ 1,289,000 730,000 631,000
Deferred....................................... (131,000) 3,000 120,000
State and local................................... 313,000 142,000 153,000
----------- ----------- -----------
1,471,000 875,000 904,000
----------- ----------- -----------
Income from continuing operations................... 2,057,274 1,313,471 1,371,449
Discontinued operations (Note 2):
Income (loss) from discontinued operations, net of
income taxes................................... (310,863) (55,188) 103,256
Loss on disposal of divisions, net of income tax
credits........................................ (605,950) -- --
----------- ----------- -----------
Income (loss) from discontinued operations.......... (916,813) (55,188) 103,256
----------- ----------- -----------
Net income.......................................... $ 1,140,461 $ 1,258,283 $ 1,474,705
----------- ----------- -----------
Income (loss) per common share (Note 7):
Continuing operations............................. $ 1.03 $ .66 $ .69
Discontinued operations (Note 2):
Income (loss) from operations.................. (.16) (.03) .05
Loss on disposal of divisions.................. (.30) -- --
----------- ----------- -----------
Net income per common share......................... $ .57 $ .63 $ .74
=========== =========== ===========
</TABLE>
See accompanying notes.
14
<PAGE> 16
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance -- January 1, 1995............... 1,822,796 $2,792,174 $18,179,042 $20,971,216
Net income............................. 1,474,705 1,474,705
Cash dividends -- $.36 per share (Note
7).................................. (721,774) (721,774)
10% stock dividend issued.............. 182,134 1,798,593 (1,798,593) --
Cash dividend issued for fractional
shares.............................. (1,418) (1,418)
--------- ---------- ----------- -----------
Balance -- December 31, 1995............. 2,004,930 4,590,767 17,131,962 21,722,729
Net income............................. 1,258,283 1,258,283
Cash dividends -- $.36 per share (Note
7).................................. (721,774) (721,774)
--------- ---------- ----------- -----------
Balance -- December 31, 1996............. 2,004,930 4,590,767 17,668,471 22,259,238
Net income............................. 1,140,461 1,140,461
Cash dividends -- $.36 per share (Note
7).................................. (721,776) (721,776)
--------- ---------- ----------- -----------
Balance -- December 31, 1997............. 2,004,930 $4,590,767 $18,087,156 $22,677,923
========= ========== =========== ===========
</TABLE>
See accompanying notes.
15
<PAGE> 17
CHEMI-TROL CHEMICAL CO.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations................... $ 2,057,274 $ 1,313,471 $ 1,371,449
Adjustments to reconcile net income to net cash
provided by operating activities:
Notes receivable from product sales............... (5,637,645) (4,876,255) (7,476,136)
Collections from customers on notes receivable.... 4,336,463 5,145,795 4,681,181
Notes receivable sold............................. 1,671,710 2,001,692 2,348,145
Proceeds from sales-type leases................... 1,103,438 1,600,771 2,023,828
Additions to net investment in sales-type
leases......................................... (395,220) (279,234) (1,283,777)
Depreciation...................................... 1,069,192 1,064,628 962,987
Provision for deferred income taxes............... (131,000) 3,000 120,000
Gain on sale of property and equipment............ (31,644) (14,185) (33,232)
Changes in operating assets and liabilities:
Accounts receivable............................ 1,260,562 (2,065,417) 516,790
Inventories.................................... 634,543 1,744,837 (1,790,794)
Prepaid expenses............................... (73,850) 34,045 117,111
Other assets................................... (47,440) (29,067) (30,479)
Accounts payable............................... (1,639,065) 419,600 571,725
Income taxes payable........................... 51,427 81,856 43,132
Accrued liabilities............................ 364,190 301,843 (234,058)
------------ ----------- -----------
Net cash provided by continuing operations.......... 4,592,935 6,447,380 1,907,872
Cash flow provided by (used in) discontinued
operations........................................ 2,412,214 (2,391,137) (1,574,240)
------------ ----------- -----------
Net cash provided by operating activities........... 7,005,149 4,056,243 333,632
INVESTING ACTIVITIES
Proceeds from sale of discontinued operations....... 6,299,533 -- --
Additions to property and equipment................. (890,864) (821,059) (1,747,523)
Proceeds from disposals of property and equipment... 59,792 26,331 66,871
Discontinued operations, principally purchases of
equipment......................................... (42,537) (101,978) (380,361)
------------ ----------- -----------
Net cash provided by (used in) investing
activities........................................ 5,425,924 (896,706) (2,061,013)
FINANCING ACTIVITIES
Payments of long-term debt.......................... (7,340,809) (7,243,141) (4,791,733)
Net borrowings under line of credit................. (2,964,916) 1,457,085 (1,992,169)
Cash dividend payments.............................. (721,776) (721,774) (705,386)
Proceeds from long-term borrowings.................. -- 3,379,808 8,300,500
Payments in lieu of issuing fractional shares....... -- -- (1,418)
------------ ----------- -----------
Net cash provided by (used in) financing
activities........................................ (11,027,501) (3,128,022) 809,794
------------ ----------- -----------
Increase (decrease) in cash......................... 1,403,572 31,515 (917,587)
Cash at beginning of year........................... 112,506 80,991 998,578
------------ ----------- -----------
Cash at end of year................................. $ 1,516,078 $ 112,506 $ 80,991
============ =========== ===========
</TABLE>
See accompanying notes
16
<PAGE> 18
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CREDIT PRACTICES
Credit terms are granted and periodically revised based on general industry
practices and evaluations of the customers' credit reports, payment history and
financial condition. The Company retains a security interest in products sold on
the installment basis. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.
INVENTORY VALUATION
Substantially all inventories are valued at the lower of cost, determined
by the last-in, first-out (LIFO) method, or market.
NOTES RECEIVABLE
Notes receivable are due in installments from customers for sales of liquid
propane gas tanks. The notes are issued for three or four year terms and bear
interest based on the prevailing interest rate. At December 31, 1997, the
carrying value of notes receivable approximates their fair value based on the
Company's current incremental lending rates.
LEASES
Leases of liquid propane gas tanks to customers for noncancellable terms of
five or ten years are recorded as sales at inception. The present value of the
minimum payments is included in net sales, and the cost of the tanks is charged
to cost of sales. Estimated residual values of the leased tanks are not
significant. The leases are financed through notes payable to banks with terms
similar to the leases. The obligations to the banks are included in long-term
debt. Interest income computed at the rates implicit in the leases is recognized
on the interest method.
REVENUE RECOGNITION
Revenues for product sales are recognized when goods are shipped to
customers in accordance with their purchase orders. Contracts within the
Chemical segment are typically completed by December 31 of each year. On an
interim basis, these contracts are accounted for based on percentage completion.
DEPRECIATION
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets.
NET INCOME PER COMMON SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share." The
standard replaces the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Amounts presented in all years
reflect the requirements of the new standard. Basic net income per common share
is based on the weighted average number of shares outstanding of 2,004,930,
after giving retroactive effect to the 10% stock
17
<PAGE> 19
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
dividend issued in March 1995. Shareholders' rights have not been considered to
have a dilutive effect as conditions to the exercisability of such rights have
not been satisfied (see Note 7). The Company has no other potentially dilutive
securities.
RECLASSIFICATIONS
Certain 1996 financial statement amounts have been reclassified to conform
to the 1997 financial statement presentation.
2. DISCONTINUED OPERATIONS
On March 25, 1997, the Company sold its Cory Orchard and Turf Division to
Terra International, Inc. for approximately $4.8 million under an asset purchase
agreement. The sale resulted in a net gain of $270,000 after income taxes of
$180,000. The gain also includes the effects of LIFO quantity liquidations of
$167,000.
On November 18, 1997, the Company completed the sale of certain assets of
its Cal-Van Tools Division to Eagle Tools, Inc. (Eagle), an affiliate of Horizon
Tool, Inc. Eagle purchased inventory, machinery, equipment, fixtures, dies and
the Cal-Van Tools name for a cash payment of $1.5 million and a note of
approximately $2.3 million. Chemi-Trol retained and is currently collecting
accounts receivable of approximately $4.8 million. Real estate with an
approximate cost of $1.7 million and a carrying value of approximately $900,000
was also retained by Chemi-Trol and is being leased to Eagle under a one-year
lease expiring November 1998. The sale resulted in a net loss of approximately
$876,000 after a tax credit of $610,000. The loss includes income from the
liquidation of LIFO quantities amounting to $259,000.
Summary operating results of the discontinued Cory Orchard and Turf and the
Cal-Van Tools segments for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Cal-Van Tools............................. $12,468,638 $17,337,739 $15,527,740
Cory Orchard and Turf..................... 917,235 5,675,097 6,675,197
----------- ----------- -----------
$13,385,873 $23,012,836 $22,202,937
=========== =========== ===========
Income (loss) before income taxes:
Cal-Van Tools............................. $ (462,270) $ 4,768 $ 64,381
Cory Orchard and Turf..................... (71,593) (96,956) 106,875
----------- ----------- -----------
(533,863) (92,188) 171,256
Income taxes (credit)....................... (223,000) (37,000) 68,000
----------- ----------- -----------
Net income (loss)........................... $ (310,863) $ (55,188) $ 103,256
=========== =========== ===========
</TABLE>
Interest on borrowings under the Company's general credit facilities was
allocated to discontinued operations based on the ratio of net assets of the
discontinued Cory Orchard and Turf and the Cal-Van Tools segments to the total
net assets of the Company plus existing debt under the Company's general credit
facilities. Interest expense allocated to discontinued operations during the
years ended December 31, 1997, 1996 and 1995 was $248,253, $578,682 and
$435,448, respectively.
18
<PAGE> 20
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. DISCONTINUED OPERATIONS -- (CONTINUED)
Assets and liabilities of the discontinued segments at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Accounts receivable.............................. $2,699,753 $ 7,239,832
Inventory........................................ 422,350 6,973,983
Prepaid expenses................................. -- 131,960
---------- -----------
Total current assets............................. 3,122,103 14,345,775
Property, plant and equipment (net).............. -- 1,918,222
Other long-term assets........................... -- 25,510
---------- -----------
Total assets..................................... $3,122,103 $16,289,507
========== ===========
Accounts payable................................. $ 177,932 $ 1,291,780
Accrued liabilities.............................. 468,993 584,486
---------- -----------
Total liabilities................................ $ 646,925 $ 1,876,266
========== ===========
</TABLE>
Two customers of the discontinued Cal-Van Tools segment approximated $2.3
and $5.3 million of total Company accounts receivable at December 31, 1997 and
1996, respectively.
The financial statements of the Company and the related notes to financial
statements have been restated to reflect the Cal-Van Tools and Cory Orchard and
Turf segments as discontinued operations.
3. NET INVESTMENT IN SALES-TYPE LEASES
The components of the net investment in sales-type leases at December 31
are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Minimum lease payments receivable................. $1,472,528 $2,309,775
Unearned financing income......................... 242,296 371,325
---------- ----------
Net investment.................................... 1,230,232 1,938,450
Current portion................................... 450,834 684,120
---------- ----------
Noncurrent portion................................ $ 779,398 $1,254,330
========== ==========
</TABLE>
At December 31, 1997 minimum lease payments receivable for each of the five
subsequent years are as follows: 1998 -- $569,000; 1999 -- $424,000;
2000 -- $281,000; 2001 -- $137,000 and 2002 -- $61,000.
At December 31, 1997 the carrying value of sales-type leases approximates
fair value based on the Company's current incremental lending rates.
19
<PAGE> 21
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories are comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Manufacturing inventories:
Raw materials and supplies...................... $2,039,185 $2,198,548
Work in process................................. 6,118 14,611
Finished goods.................................. 358,913 532,098
Purchased inventory held for resale............... 440,039 640,913
Materials used in contracting..................... 259,896 352,524
---------- ----------
$3,104,151 $3,738,694
========== ==========
</TABLE>
Under the LIFO method, inventories have been reduced by approximately
$1,063,000 and $998,000 at December 31, 1997 and 1996, respectively, from
amounts which would have been reported under the first-in, first-out method.
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Land and land improvements....................... $1,136,924 $ 1,136,924
Buildings........................................ 4,068,859 4,068,859
Machinery and equipment.......................... 7,595,586 7,380,017
Automobiles and trucks........................... 4,656,204 4,448,038
Construction in process.......................... 191,259 20,918
---------- -----------
$17,648,832 $17,054,756
========== ===========
</TABLE>
6. DEBT
The Company has a $15,000,000 bank line of credit available for revolving
loans with interest payable at the bank's prime rate less .5% (8.0% and 7.75% at
December 31, 1997 and 1996, respectively); no revolving loans at December 31,
1997 ($2,964,916 at December 31, 1996) were outstanding. Under this credit
arrangement, the Company may convert, on or before May 2, 1998, up to $7,000,000
of revolving loans to term loans, payable over thirty-six or sixty months with
interest at an annual rate equal to the yield for U. S. Treasury obligations of
similar maturity plus a specified number of basis points. Converted term loans
reduce the line of credit available for revolving loans. No conversions were
made for the year ended December 31, 1997. Revolving loans are secured by
accounts receivable and inventory; term loans are secured as described below.
The credit agreement, amended as of May 2, 1997, contains provisions which
require the Company to, among other things, maintain minimum debt to net worth
and current ratios, minimum tangible net worth and certain working capital
levels.
The Company also has a $750,000 unused line of credit available for
short-term borrowings with interest payable at a rate to be determined.
20
<PAGE> 22
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT -- (CONTINUED)
Long-term debt outstanding at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
7.43% -- 7.75% (6.63% -- 9.35% in 1996), term
loans due in varying monthly amounts with a
final maturity in December 1999, secured by
trade notes receivable of approximately
$1,548,000 at December 31, 1997................ $1,548,210 $ 7,194,941
8.04% mortgage note due in monthly installments
of $40,237 with a final maturity in May 2002,
secured by tank production facility with a net
book value of $3,911,000 at December 31,
1997........................................... 1,740,927 3,435,005
---------- -----------
3,289,137 10,629,946
Amount due within one year....................... 1,368,915 7,300,679
---------- -----------
$1,920,222 $ 3,329,267
========== ===========
</TABLE>
Annual maturities of long-term debt for the five years subsequent to
December 31, 1997 are as follows: 1998 -- $1,369,000; 1999 -- $887,000;
2000 -- $415,000; 2001 -- $449,000 and 2002 -- $169,000.
At December 31, 1997, the carrying value of long-term debt approximates
fair value based on the Company's current incremental borrowing rates.
7. COMMON STOCK
In March 1995, the Company issued a 10% stock dividend. Income and cash
dividends per common share amounts for all years presented in the statements of
income and shareholders' equity have been adjusted to reflect the stock
dividend.
The Company has adopted a Shareholders' Rights Plan designed to ensure that
all of the Company's shareholders receive fair and equal treatment in the event
of any proposal to acquire control of the Company. Under the Rights Plan, each
right will entitle shareholders to buy one one-hundredth of a share of common
stock of the Company at an exercise price of $42.97 (as adjusted for the 10%
stock dividend issued in March 1995). The rights will be exercisable only if a
person or group acquires beneficial ownership of 20 percent or more of the
Company's common stock or announces a tender or exchange offer after which such
person or group would beneficially own 30 percent or more of the common stock
without the prior approval of the Company's Board of Directors, or if they
determine that any person is an "Adverse Person." Under certain circumstances,
the rights will become exercisable for common stock or other assets or
securities of the Company or common stock of the surviving corporation in a
merger involving the Company. In such event, the rights would entitle the
holders thereof to purchase such stock at 50% of the then-current market value
of the stock.
The Board of Directors of Chemi-Trol Chemical Co., except as otherwise
provided in the Rights Plan, will generally be able to redeem the rights at one
cent per right at any time during a 10-day period following any of the events
which result in the rights becoming exercisable. During this 10-day period, the
Board may also extend the time during which it may redeem the rights. The rights
are not exercisable until the expiration of the redemption period and will
expire upon the earlier to occur of May 27, 2003 or their redemption in
accordance with provisions of the plan.
21
<PAGE> 23
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued insurance............................... $ 425,000 $ 289,000
Inventories..................................... 228,000 156,000
Accrued compensation............................ 192,000 149,000
Allowance for doubtful accounts................. 119,000 129,000
Warranty reserve................................ 85,000 34,000
Other........................................... 108,000 18,000
---------- ----------
Total deferred tax assets......................... 1,157,000 775,000
Deferred tax liabilities:
Property and equipment.......................... 962,000 1,054,000
Prepaid expenses................................ -- 54,000
Sales-type leases............................... 5,000 10,000
---------- ----------
Total deferred tax liabilities.................... 967,000 1,118,000
---------- ----------
Net deferred tax assets (liabilities)............. $ 190,000 $ (343,000)
========== ==========
</TABLE>
Net deferred tax assets (liabilities) are included in the balance sheets at
December 31 as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Current assets...................................... $702,000 $ 533,000
Noncurrent liabilities.............................. 512,000 876,000
-------- ---------
Net deferred tax assets (liabilities)............... $190,000 $(343,000)
======== =========
</TABLE>
The effective income tax rate differs from the statutory U. S. federal
income tax rate for the following reasons and by the following percentages:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory U. S. federal income tax rate............. 34.0% 34.0% 34.0%
Increase resulting from:
State and local income taxes, net of federal tax
effect......................................... 5.8 4.3 4.5
Non-deductible expenses........................... 1.9 1.7 1.6
Other............................................. -- -- (.4)
---- ---- ----
Effective income tax rate........................... 41.7% 40.0% 39.7%
==== ==== ====
</TABLE>
9. EMPLOYEES' RETIREMENT PLAN
The Company has a profit-sharing plan which provides retirement benefits
for full-time employees. The plan provides for Company contributions at the
discretion of the Board of Directors of an amount not to exceed that deductible
for federal income tax purposes. Costs charged to continuing operations amounted
to $273,000 in 1997, $209,000 in 1996 and $222,000 in 1995.
22
<PAGE> 24
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SALE OF NOTES WITH RECOURSE
The Company has a contingent liability of approximately $2,691,000 at
December 31, 1997 for customers' installment notes sold with recourse to the
Chemi-Trol Chemical Company Profit Sharing Plan. The credit risk associated with
these notes is minimal as the Company retains a security interest in the product
sold on the installment basis.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest.............. $ 812,485 $1,574,702 $1,144,411
---------- ---------- ----------
Cash paid for income taxes.......... $1,299,671 $ 753,143 $ 615,483
========== ========== ==========
</TABLE>
The Company received a promissory note for approximately $2.3 million in
November 1997 from the purchase of its Cal-Van Tools Division.
12. ENVIRONMENTAL
In 1995, the Company was named a potentially responsible party (PRP) for
site investigation and cleanup costs under the Comprehensive Environmental
Response, Compensation, and Liability Act (Superfund) or similar state laws with
respect to a certain site. The Company has notified third party insurers about
this matter. While the ultimate outcome of this matter cannot now be predicted,
the Company believes, based on the facts now known to it, that costs arising out
of this matter will not have a material adverse effect on the Company's
financial position.
13. INFORMATION PERTAINING TO INDUSTRY SEGMENTS
The Company has two operating segments which are in separate industries.
The Tank division produces and sells steel pressure tanks for the storage of
liquid propane gas and anhydrous ammonia to customers in the U.S. and Canada.
The operations of the Chemical division involve the sale and application of
highway pavement marking and vegetation control materials in the U.S. Total
revenues by segment include sales to unaffiliated customers, as reported in the
Company's income statement. Operating profit (total revenues less operating
expenses) excludes general corporate expenses, interest expense, corporate
interest income, corporate other income and income taxes. Corporate assets
include cash investments, notes receivable from sale of discontinued operations,
administrative offices, and real estate held for lease.
The following summarizes the Company's continuing operations and
identifiable assets:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Tank........................... $38,509,519 $34,171,719 $34,599,551
Chemical....................... 12,633,559 13,264,996 14,221,281
Corporate interest............. 56,441 2,575 24,707
----------- ----------- -----------
Total revenues................... $51,199,519 $47,439,290 $48,845,539
=========== =========== ===========
</TABLE>
23
<PAGE> 25
CHEMI-TROL CHEMICAL CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. INFORMATION PERTAINING TO INDUSTRY SEGMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating profit:
Tank........................... $ 5,057,046 $ 4,221,715 $ 4,172,778
Chemical....................... 764,094 674,526 574,587
----------- ----------- -----------
Total operating profit........... 5,821,140 4,896,241 4,747,365
General corporate expenses....... (1,793,893) (1,711,377) (1,540,862)
Interest expense................. (555,415) (998,968) (955,761)
Corporate interest income........ 56,442 2,575 24,707
----------- ----------- -----------
Income from continuing operations
before income taxes............ $ 3,528,274 $ 2,188,471 $ 2,275,449
=========== =========== ===========
Identifiable assets:
Tank........................... $21,976,117 $25,346,790 $28,449,834
Chemical....................... 3,337,997 3,058,300 3,346,820
Corporate assets............... 6,283,321 2,728,770 2,859,573
Discontinued operations........ 3,122,103 16,289,507 13,936,312
----------- ----------- -----------
Total assets..................... $34,719,538 $47,423,367 $48,592,539
=========== =========== ===========
Depreciation:
Tank........................... $ 598,222 $ 576,549 $ 565,731
Chemical....................... 349,417 324,944 296,098
Corporate assets............... 121,553 163,135 101,158
----------- ----------- -----------
Total depreciation............... $ 1,069,192 $ 1,064,628 $ 962,987
=========== =========== ===========
Capital expenditures:
Tank........................... $ 334,308 $ 261,848 $ 581,785
Chemical....................... 517,870 347,026 439,773
Corporate assets............... 38,686 212,185 725,965
----------- ----------- -----------
Total capital expenditures....... $ 890,864 $ 821,059 $ 1,747,523
=========== =========== ===========
</TABLE>
14. YEAR 2000 ISSUES (UNAUDITED)
The Company has assessed its current computer software for proper
functioning with respect to dates in the year 2000 and thereafter. The year 2000
issue and related costs are not expected to have a material impact on the
operations of the Company.
15. SALE OF COMPANY
On December 19, 1997, the Company announced it had entered into a
nonbinding letter of intent for the sale of the outstanding common shares of the
Company. The transaction is contingent upon the approval of the board of
directors of both companies, the shareholders of the Company, and the execution
of a definitive agreement.
24
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information as of March 1, 1998 is furnished with respect to
each director, each executive officer and certain significant employees:
<TABLE>
<CAPTION>
DIRECTOR
OFFICES AND POSITIONS CONTINUOUSLY CURRENT TERM
NAME AGE HELD WITH THE COMPANY SINCE THROUGH JULY
---- --- --------------------- ------------ ------------
<S> <C> <C> <C> <C>
Robert W. Woolf................ 55 Director, Chairman of the Board, President 1987 2000
and Chief Executive Officer
John P. Simcox................. 48 Director, Vice President and General 1990 1998
Manager -- Tank Division
Kevin D. Lauck................. 47 Director, Secretary / Treasurer and 1990 1999
Controller
Arthur F. Doust................ 74 Director 1952 1999
W. Burton Lloyd................ 59 Director 1986 1999
Robert H. Moyer................ 69 Director 1992 2000
Fred J. Roynon................. 65 Director 1993 1998
Richard J. Dudley.............. 67 Director 1993 2000
Asher B. Edelman............... 58 Director 1997 1998
James C. Herl.................. 51 General Manager -- Chemical Group -- --
</TABLE>
Robert W. Woolf joined the Company in 1972. He has served as Chairman of
the Board , President and CEO (1998 to date), President (1988 to date), Vice
President (1985 to 1988), Executive Administrator and Assistant Secretary (1977
to 1985) and as Assistant Controller (1972 to 1977) of the Company.
John P. Simcox joined the Company in 1972. He has served as Vice President
(1991 to date) and General Manager of the Tank Division (1990 to date), Director
of Sales for the Company (1987 to 1989), Sales Manager for Chemical Group and
Assistant Sales Manager for Tank Division (1977 to 1987), and as a salesman for
the Chemical Group and Tank Division in both Indiana and Ohio (1972 to 1977).
Kevin D. Lauck joined the Company in 1977. He has served as Secretary /
Treasurer and Controller (1997 to date), Secretary and Controller (1988 to
date), Assistant Secretary and Assistant Controller (1985 to 1987) and Assistant
Controller (1977 to 1985).
Arthur F. Doust joined the Company in 1952. He has served as Chairman of
the Board (1985 to 1998), Chief Executive Officer (1987 to 1998), President
(1969 to 1988) and as First Vice President and General Manager (1952 to 1969) of
the Company.
W. Burton Lloyd has been the President for more than the past five years of
Advanced Insulation Concepts, Inc. formerly American Isowall Corporation,
located in Florence, Kentucky, which manufactures various insulated panels for
use in the construction of cold storage units.
Robert H. Moyer is the President of The Mosser Group, located in Fremont,
Ohio, a holding company of: Mosser Construction, Inc. of which he is Chairman;
Contractors Equipment, Inc.; WMOG Investment, Inc.; and Telamon Construction,
Inc. Mosser Construction, a commercial construction and contracting company, is
located
25
<PAGE> 27
in Fremont, Ohio. He is also a Director of Croghan Bancshares, Inc., the
publicly owned holding company of Croghan Colonial Bank.
Fred J. Roynon is a retired bank executive with twenty-four years
experience in community bank management, including Chairman, President and CEO
of Society Bank Northwest Ohio (1980-1985).
Richard J. Dudley retired as Chairman of the Board, President and CEO of
S.E. Hyman Co., a manufacturing company located in Fremont, Ohio, and served as
Assistant to the President of Terra Technical College, Fremont, Ohio
(1987-1990).
Asher B. Edelman is President and Sole Director (1995 to date) of A.B.
Edelman Management Company, Inc., the sole general partner of Edelman Value
Partners, L.P.; General Partner (1984 to date), Asco Partners a general partner
of Edelman Securities Company; General Partner, Plaza Securities Company;
Chairman of the Board (1985 to date) and Chief Executive Officer (1993 to date)
of Datapoint Corporation; Investment Manager, (1996 to date) Edelman Value Fund,
Ltd.; Chairman of the Board, Canal Capital Corporation.
James C. Herl joined the Company in 1974. He has served as Engineer in the
Chemical Group, with primary responsibility in the Pavement Marking Division.
(1974-1994) and as General Manager of the Chemical Group (1995 to date).
Messrs. Doust, Woolf, and Dudley are members of the Executive Committee of
the Company. Messrs. Woolf, Doust and Lloyd are members of the Governance
Committee. Messrs. Doust, Moyer, Lloyd and Woolf are members of the Compensation
Committee and the Audit Committee is comprised of the following independent
directors, Messrs. Moyer, Roynon and Edelman.
The Company has no standing nominating committee or committee performing
similar tasks.
Directors of the Company are elected at the Company's annual meeting of
shareholders for a term of three years and until their successors are elected
and qualified. The executive officers of the Company are elected by and serve at
the pleasure of the Board of Directors of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
James R. LaBenne, Former General Manager at the Cal-Van Tools Division, was
delinquent in filing a Form 4 Statement of Changes in Beneficial Ownership, to
report the sale of 435 shares of stock in May of 1997, but timely filed Form 5
to rectify the delinquency. John P. Simcox inadvertently filed a 1997 Form 5
late to report the purchase of 50 shares of common stock in June of 1997. The
Company believes that all other Directors and Officers have timely filed all
reports required by Section 16(a) of the Act.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY INFORMATION
The following table summarizes the total compensation for each of the last
three years of (i) the Company's Chief Executive Officer and (ii) any of its
other four most highly compensated executive officers who received salary and
bonus in 1997 in excess of $100,000.
26
<PAGE> 28
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ALL OTHER
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY $ BONUS $ COMPENSATION (B)
--------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Arthur F. Doust 1997 $ 58,448 $24,000 $ 3,000(a) $ 31,372
Chairman and CEO 1996 55,996 24,000 3,000(a) 2,480
1995 53,225 17,000 3,000(a) 2,177
Robert W. Woolf 1997 109,985 35,000 3,000(a) 102,714
President and COO 1996 106,814 20,000 3,000(a) 3,931
1995 102,086 18,125 3,000(a) 3,726
John P. Simcox 1997 83,126 18,200 3,000(a) 73,302
Vice President and General 1996 79,538 13,200 3,000(a) 2,875
Manager Tank Division 1995 76,209 13,200 3,000(a) 2,772
Kevin D. Lauck 1997 83,201 18,200 3,000(a) 71,175
Secretary / Treasurer 1996 79,571 13,200 3,000(a) 2,876
and Controller 1995 76,246 10,000 3,000(a) 2,674
</TABLE>
- ---------------
(a) Director Fees paid for service on Board of Directors.
(b) Includes Company's profit sharing plan account contributions and for 1997,
the dollar amount of the cash surrender value of life insurance policies
held in the Deferred Compensation Plan which vested for the four named
officers in the amount of $28,486, $97,644, $69,755 and $67,626,
respectively.
During the year ended December 31, 1997, each Director of the Company was
compensated for services as a Director by the total payment of $3000 for the
four regularly scheduled meetings. Outside or independent Directors are
compensated $400 for attending special meetings that are scheduled on days other
than the regular quarterly meetings.
DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES
In 1997, Chemi-Trol Chemical Co. (the "Company") adopted the Deferred
Compensation Plan for Key Employees (the "Plan"). Pursuant to the Plan, certain
key employees participating in the Plan (the "Participants") were granted vested
interests in life insurance policies the Company had previously purchased on
their lives. If a Participant terminates employment for any reason other than
death, the Participant is entitled to the cash value of the policy. If the
Participant dies while employed by the Company, the Participant is entitled to
one-half of the death benefit under the policy. The Company has entered into a
Trust Agreement pursuant to which the insurance policies have been contributed
to a grantor trust.
EXECUTIVE EMPLOYMENT AGREEMENTS
In August 1996, the Company entered into agreements to employ Mr. Robert W.
Woolf as the President and Chief Operating officer, Mr. John P. Simcox as Vice
President and General Manager of the Tank Division, and Mr. Kevin D. Lauck, as
Secretary and Controller for terms of three years. The employment agreements
provide for annual base compensation equal to an amount which is not less than
the officers annual base compensation on the date of the agreement and for an
annual bonus which is not less than the greater of 15% annual base compensation
or the bonus paid in the preceding fiscal year. In addition the employment
agreements provide that during the term of the agreement and for one year
thereafter, the officers shall not compete with any business carried on by the
Company (provided that no change of control shall have occurred). The agreements
further provide that if the officer's employment is terminated following a
change of control, other than for cause, disability or retirement, the officer
shall be entitled to receive, in lieu of any salary or bonuses payable under the
agreement, an amount equal to three times the present value of his annual base
compensation and bonus plus the cash surrender value of all life insurance
maintained by the Company on the officer's life.
27
<PAGE> 29
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Arthur F. Doust and Robert W. Woolf,
each of whom is an executive officer of the Company, and Robert H. Moyer and W.
Burton Lloyd, independent directors.
Compensation Committee Report on Executive Compensation
This report sets forth the compensation policies of the Compensation
Committee applicable to the Company's executive officers and the relationship of
corporate performance to executive compensation.
The Company's compensation package for its executive officers consists of
base salary, annual performance-based bonus and participation in the Company's
Profit Sharing Plan and the deferred compensation plan. These particular
elements are further explained herein.
Base salaries are determined primarily on the basis of salaries being paid
in the competitive marketplace, Company-wide performance and each executive
officer's responsibilities, individual performance, knowledge, ability, time in
position and prior experience. Salaries are adjusted annually as determined by
individual performance, the competitive marketplace, Company-wide performance
and changes in the cost of living, subject to minimum specified in employment
contracts with certain key employees of the Company. In general, base salaries
are set at levels believed by the Committee to be sufficient to attract and
retain qualified individuals when considered with the other components of the
Company's compensation structure.
Annual performance-based bonuses are determined at year end by the
Committee for each executive officer, with the amount for each depending upon
individual accomplishments and the overall performance of the Company, as
weighted and applied on an individual basis by the Compensation Committee.
Performance bonuses for executive officers have historically not exceeded
one-third of base compensation.
The Company's Profit Sharing Plan is qualified under Section 401(a) of the
Internal Revenue Code and is for the benefit of all employees who complete a
specified number of hours of service to the Company each Plan year and are
employees through year-end. The Board of Directors of the Company determines the
amount to be contributed from income to the Plan for each year based upon
Company performance, historical contribution levels and other factors deemed
appropriate by the Board. Company contributions to the Plan are allocated to the
accounts of eligible employees pro rata according to each employee's annual
compensation, without any variance of such formula for executive officers.
Retirement, disability or death benefits under the Plan commence on the earlier
of retirement, disability or death of an eligible employee, based upon the
employee's Plan account balance. Upon termination of employment for reasons
other than retirement, disability or death, rights of eligible employees depend
upon their number of years of service to the Company. All executive officers of
the Company are currently participating in the Profit Sharing Plan.
The foregoing report has been furnished by members of the compensation
committee of the Board of Directors.
Arthur F. Doust W. Burton Lloyd Robert H. Moyer Robert W. Woolf
28
<PAGE> 30
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock against
the cumulative total return of the S & P 500 Stock Index and the Diversified
Mfg. Group for the period commencing December 31, 1992, and ending December 31,
1997.
<TABLE>
<CAPTION>
Measurement Period Chemi-Trol S&P 500 Manufacturing
(Fiscal Year Covered) Chemical Co. Comp-LTD (Divers)-500
<S> <C> <C> <C>
Dec-92 100 100 100
Dec-93 114.27 110.062 121.50
Dec-94 118.14 111.52 125.89
Dec-95 140.30 153.39 177.27
Dec-96 130.00 188.59 244.35
Dec-97 273.90 251.49 290.99
</TABLE>
Assumes that the value of the investment in Chemi-Trol Chemical Common
Stock and each index was $100 on December 31, 1992, and that all dividends were
reinvested monthly.
Source: S&P Compustat Base Year = 100: 12/31/92
29
<PAGE> 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are known by
the Company to own beneficially more than 5% of any class of the Company's
voting shares on December 31, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- -------------- ------------------------------------------------ ----------------------- --------
<S> <C> <C> <C>
Common Shares Arthur F. Doust 253,015(2) 12.62%
2690 CR 69
Gibsonburg, Ohio 43431
Common Shares Trilon Dominion Partners, L.L.C. 241,351(3) 12.03%
F/K/A Venture Capital,
Equities, L.L.C.
250 Park Avenue, Suite 2020
New York, New York 10022
Common Shares Asher B. Edelman 125,200(4) 6.24%
717 Fifth Ave.
New York, New York 10022
</TABLE>
- ---------------
(1) All shares are held of record with sole voting and investment power unless
otherwise indicated.
(2) Includes (a) 157,014 shares held in trust by Arthur F. Doust and Anna K.
Doust, Co-Trustees, of which 78,507 shares are held for their own benefit;
(b) 45,265 shares owned by Anna K. Doust, wife of Arthur F. Doust; and (c)
12,743 shares owned by the children of Arthur F. Doust.
(3) Based upon most recent Schedule 13D filing dated September 27, 1996. VC
Holdings, Inc., the sole manager and the holder of 100% of the voting
interests of Trilon Dominion Partners, L.L.C. ("L.L.C."), is the indirect
beneficial owner of the 241,351 shares of common stock of the issuer owned
by L.L.C. Ronald W. Cantwell ("Mr. Cantwell") is the holder of 100% of the
capital stock of VC Holdings, Inc., which is the sole manager and the holder
of 100% of the voting interests of L.L.C. Consequently, Mr. Cantwell is the
indirect beneficial owner of the 241,351 shares of common stock of the
issuer owned by the L.L.C. Dominion Capital, Inc. holds a 50% non-voting
preferred interest in the L.L.C. Dominion Capital, Inc. has disclaimed
beneficial ownership of these securities.
(4) Based upon Form 4 filing dated December 9, 1997. Edelman Value Partners,
L.P. owns 43,700 Shares and Edelman Value Fund, Ltd. owns 81,500 shares.
Asher B. Edelman is the President and Sole Director of A.B. Edelman
Management Company, Inc., which is the Sole General Partner of Edelman Value
Partners, L.P. and also the Investment Manager of Edelman Value Fund, Ltd.
Therefore, Mr. Edelman may be deemed the beneficial owner of both of these
holdings.
30
<PAGE> 32
(b) Security Ownership Management
The following table sets forth information as to the beneficial ownership
of the Common Shares of the Company, as of December 31, 1997, by each Director
of the Company and by all directors and officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP(1) PERCENT
---------------- -------------- ----------------------- -------
<S> <C> <C> <C>
Arthur F. Doust................................. Common Shares 253,015(2) 12.62%
Robert W. Woolf................................. Common Shares 4225 .21%
John P. Simcox.................................. Common Shares 1550 .08%
Kevin D. Lauck.................................. Common Shares 2952 .15%
W. Burton Lloyd................................. Common Shares 61,463(3) 3.07%
Robert H. Moyer................................. Common Shares 2,452 .12%
Fred J. Roynon.................................. Common Shares 500 .02%
Richard J. Dudley............................... Common Shares 242 .01%
Asher B. Edelman................................ Common Shares 125,200(4) 6.24%
All directors and
officers as a group (10 persons).............. Common Shares 454,555 22.67%
</TABLE>
- ---------------
(1) All shares are held of record with sole voting and investment power unless
otherwise indicated.
(2) Includes (a) 157,014 shares held in trust by Arthur F. Doust and Anna K.
Doust, Co-Trustees, of which 78,507 shares are held for their own benefit;
(b) 45,265 shares owned by Anna K. Doust, wife of Arthur F. Doust; and (c)
12,743 shares owned by the children of Arthur F. Doust.
(3) Includes (a) 58,269 shares owned by Roselyn Lloyd, wife of W. Burton Lloyd.
(4) Includes (a) 43,700 shares held by Edelman Value Partners, L.P., a Delaware
limited partnership of which A. B. Edelman Management Co., Inc., a New York
corporation is sole general partner. Mr. Edelman is President and sole
director of such corporation. (b) 81,500 shares held by Edelman Value Fund,
Ltd., a British Virgin Islands corporation for which Mr. Edelman serves as
Investment Manager.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No disclosure required.
31
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Balance sheets at December 31, 1997 and 1996................ 13
Statements of income for each of the three years in the
period ended December 31, 1997............................ 14
Statements of shareholders' equity for each of the three
years in the period ended December 31, 1997............... 15
Statements of cash flows for each of the three years in the
period ended December 31, 1997............................ 16
Notes to financial statements............................... 17-24
Schedule for each of the three years in the period ended
December 31, 1997:
VIII -- Reserves.......................................... 35
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
32
<PAGE> 34
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of February 20, 1998
by and among Harsco Corporation, H-Chemi Acquisition Corp.
and Chemi-Trol Chemical Co. whereby the Registrant agrees to
be acquired for cash price of approximately $46 million or
$23.00 per share.
3. (I) Amended Articles of Incorporation of the Registrant
(Incorporated herein by reference to Exhibit 3.1 to Form
10-K annual report for year ended December 31, 1993).
3. (ii) Amended and Restated Code of Regulations of the Registrant.
(Incorporated herein by reference to Exhibit 3.2 to Form
10-K annual report for year ended December 31, 1993).
4.1 Articles IV and V of the Amended Articles of Incorporation
of the Registrant (Incorporated herein by reference to
Exhibit 3.1 to Form 10-K annual report for year ended
December 31, 1993).
4.2 Articles II, III, VIII and XIII of the Amended and Restated
Code of Regulations of the Registrant (Incorporated herein
by reference to Exhibit 3.2 to Form 10-K annual report for
year ended December 31, 1993).
4.3 Specimen Common Share Certificate (Incorporated herein by
reference to Exhibit 4(d) to Form S-1 Registration Statement
No. 2-59959 of the Registrant filed on September 27, 1977
(the "Registration Statement")).
4.4 Shareholder Rights Plan of the Registrant dated May 27, 1993
(Incorporated herein by reference to Exhibit 5(a) to Form
8-K Current Report of the Registrant dated May 27, 1993).
4.5 Amended and Restated Credit Agreement between the Registrant
and Fifth Third Bank dated May 2, 1996 authorizing borrowing
by the Registrant of up to $15,000,000 (Incorporated herein
by reference to Exhibit 4.5 to Form 10-K annual report for
year ended December 31, 1996).
4.6 Amendment to credit agreement between the Registrant and
Fifth Third Bank dated as of February 28, 1997 (see Exhibit
4.5 above) amending the terms of the credit agreement
(Incorporated herein by reference to Exhibit 4.6 to Form
10-K annual report for year ended December 31, 1996).
4.7 Second amendment to credit agreement between Registrant and
Fifth Third Bank dated as of May 2, 1997 (See Exhibit 4.5
above) amending the terms of the Credit Agreement.
4.8 Stock Option Agreement dated as of February 20, 1998 among
Harsco Corporation ("Parent") a Delaware Corporation,
H-Chemi Aquisition Corp., a Pennsylvania Corporation and a
direct, wholly-owned subsidiary of Parent and Chemi-Trol
Chemical Co., an Ohio Corporation.
No other instruments defining the rights of holders of
long-term debt of the Registrant have been included as an
exhibit because the total amount of indebtedness authorized
by any such instrument does not exceed 10% of the total
assets of the Registrant. The Registrant hereby agrees to
furnish supplementally a copy of any omitted long-term debt
instrument to the Commission upon request.
10.1 Agreement between the Registrant and Sumitomo Shoji America,
Inc. dated September 14, 1976 granting Sumitomo a right of
first refusal to supply steel plate to the Tank Division
(Incorporated herein by reference to Exhibit 13(b) (2) to
the Registration Statement).
10.2 Collective Bargaining Agreement between the Registrant and
the United Steelworkers of America, AFL-CIO-CLC, Local Union
No. 1915, dated May 1, 1996 (Incorporated herein by
reference to Exhibit 10.2 to 10-K annual report for year
ended December 31, 1996).
10.3 Form of Employment Agreements dated August 1, 1996 between
the Registrant and Robert A. Woolf, President, John P.
Simcox, Vice President and Kevin D. Lauck, Secretary
(Incorporated by reference to exhibit 10.4 to Form 10-K
annual report for year ended December 31, 1996).
10.4 Agreement between the Registrant and Laborers Inter-National
Union, Local No. 480, effective March 1, 1998.
10.5 Form of Deferred Compensation Plan for Key Employees
effective August 15, 1997.
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.6 Agreement of Purchase and Sale of Assets dated November 18,
1997 between the Registrant and Eagle Tools, Inc. for the
sale of certain assets of the Registrant's Cal-Van Tools
Division. (Incorporated herein by reference to Exhibit 2.1
to Form 8-K dated November 24, 1997).
10.7 Asset Purchase Agreement dated March 25, 1997 between the
Registrant and Terra International, Inc. for the sale of
Certain assets of its Cory Orchard & Turf Division.
22 Subsidiaries of the Registrant (No Exhibit is included
because the Registrant has no Subsidiaries.)
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
On November 24, 1997 the Registrant filed a Form 8-K reporting under Item
2, acquisition or disposition of assets, completion of the sale of certain
assets of its Cal-Van Tools Division to Eagle Tools, Inc. "Eagle" an Ohio
Corporation having its principal office in Guilford County, North Carolina. The
8-K included an Unaudited ProForma Condensed Balance Sheet as of September 30,
1997 and Unaudited ProForma Condensed Statements of Income for: Fiscal year
ended December 31, 1997 and Nine Months ended September 30, 1997.
34
<PAGE> 36
CHEMI-TROL CHEMICAL CO.
SCHEDULE VIII -- RESERVES
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED
BEGINNING OF TO COSTS DEDUCTIONS FROM BALANCE AT END OF
DESCRIPTION PERIOD AND EXPENSES RESERVES PERIOD
----------- ------------ ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful
accounts...................... $210,000 $53,136 $ 8,136(a) $255,000
Year ended December 31, 1996
Allowance for doubtful
accounts...................... 150,000 97,511 37,511(a) 210,000
Year ended December 31, 1995
Allowance for doubtful
accounts...................... 141,000 18,095 9,095(a) 150,000
</TABLE>
- ---------------
(a) Doubtful accounts written off.
35
<PAGE> 37
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CHEMI-TROL CHEMICAL CO.
Registrant
/s/ ROBERT W. WOOLF
--------------------------------------
By: Robert W. Woolf, Chairman,
President and Chief Executive
Officer
/s/ KEVIN D. LAUCK
--------------------------------------
By: Kevin D. Lauck, Secretary,
Treasurer and Controller (Principal
Accounting Officer and Principal
Financial Officer)
Gibsonburg, Ohio
March 23, 1998
36
<PAGE> 38
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
/s/ ARTHUR F. DOUST /s/ ROBERT W. WOOLF
- ----------------------------------------------------- -----------------------------------------------------
Arthur F. Doust, March 23, 1998 Robert W. Woolf, March 23, 1998
(Director) (Director, Chairman, President and
Chief Executive Officer)
/s/ JOHN P. SIMCOX
- ----------------------------------------------------- -----------------------------------------------------
Richard J. Dudley, March 23, 1998 John P. Simcox, March 23, 1998
(Director) (Director and Vice President)
/s/ ROBERT H. MOYER /s/ ASHER B. EDELMAN
- ----------------------------------------------------- -----------------------------------------------------
Robert H. Moyer, March 23, 1998 Asher B. Edelman, March 23, 1998
(Director) (Director)
/s/ FRED J. ROYNON /s/ W. BURTON LLOYD
- ----------------------------------------------------- -----------------------------------------------------
Fred J. Roynon, March 23, 1998 (Director) W. Burton Lloyd, March 23, 1998
(Director)
/s/ KEVIN D. LAUCK
- -----------------------------------------------------
Kevin D. Lauck, March 23, 1998
(Director and Secretary / Treasurer)
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No Annual Report covering the Registrant's last fiscal year or proxy soliciting
material for any meeting of security holders since the 1997 Annual Meeting has
been sent to the Registrant's security holders. Such report and proxy material
for the Registrant's 1997 Annual Meeting will be furnished to security holders
subsequent to the filing of this Annual Report.
37
<PAGE> 39
FORM 10-K EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ----------------------- ------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of February 20, 1998 40
by and among Harsco Corporation, H-Chemi Acquisition Corp.
and Chemi-Trol Chemical Co. whereby the Registrant agrees to
be acquired for cash price of approximately $46 million or
$23.00 per share.
3. (I) Amended Articles of Incorporation of the Registrant
(Incorporated herein by reference to Exhibit 3.1 to Form
10-K annual report for year ended December 31, 1993).
3. (ii) Amended and Restated Code of Regulations of the Registrant.
(Incorporated herein by reference to Exhibit 3.2 to Form
10-K annual report for year ended December 31, 1993).
4.1 Articles IV and V of the Amended Articles of Incorporation
of the Registrant (Incorporated herein by reference to
Exhibit 3.1 to Form 10-K annual report for year ended
December 31, 1993).
4.2 Articles II, III, VIII and XIII of the Amended and Restated
Code of Regulations of the Registrant (Incorporated herein
by reference to Exhibit 3.2 to Form 10-K annual report for
year ended December 31, 1993).
4.3 Specimen Common Share Certificate (Incorporated herein by
reference to Exhibit 4(d) to Form S-1 Registration Statement
No. 2-59959 of the Registrant filed on September 27, 1977
(the "Registration Statement")).
4.4 Shareholder Rights Plan of the Registrant dated May 27, 1993
(Incorporated herein by reference to Exhibit 5(a) to Form
8-K Current Report of the Registrant dated May 27, 1993).
4.5 Amended and Restated Credit Agreement between the Registrant
and Fifth Third Bank dated May 2, 1996 authorizing borrowing
by the Registrant of up to $15,000,000 (Incorporated herein
by reference to Exhibit 4.5 to Form 10-K annual report for
year ended December 31, 1996).
4.6 Amendment to credit agreement between the Registrant and
Fifth Third Bank dated as of February 28, 1997 (see Exhibit
4.5 above) amending the terms of the credit agreement
(Incorporated herein by reference to Exhibit 4.6 to Form
10-K annual report for year ended December 31, 1996).
4.7 Second amendment to credit agreement between Registrant and 74
Fifth Third Bank dated as of May 2, 1997 (See Exhibit 4.5
above) amending the terms of the Credit Agreement.
4.8 Stock Option Agreement dated as of February 20, 1998 among 76
Harsco Corporation ("Parent") a Delaware Corporation,
H-Chemi Aquisition Corp., a Pennsylvania Corporation and a
direct, wholly-owned subsidiary of Parent and Chemi-Trol
Chemical Co., an Ohio Corporation.
No other instruments defining the rights of holders of
long-term debt of the Registrant have been included as an
exhibit because the total amount of indebtedness authorized
by any such instrument does not exceed 10% of the total
assets of the Registrant. The Registrant hereby agrees to
furnish supplementally a copy of any omitted long-term debt
instrument to the Commission upon request.
10.1 Agreement between the Registrant and Sumitomo Shoji America,
Inc. dated September 14, 1976 granting Sumitomo a right of
first refusal to supply steel plate to the Tank Division
(Incorporated herein by reference to Exhibit 13(b) (2) to
the Registration Statement).
</TABLE>
38
<PAGE> 40
FORM 10-K EXHIBIT INDEX -- (Continued)
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ----------------------- ------
<C> <S> <C>
10.2 Collective Bargaining Agreement between the Registrant and
the United Steelworkers of America, AFL-CIO-CLC, Local Union
No. 1915, dated May 1, 1996 (Incorporated herein by
reference to Exhibit 10.2 to 10-K annual report for year
ended December 31, 1996).
10.3 Form of Employment Agreements dated August 1, 1996 between
the Registrant and Robert A. Woolf, President, John P.
Simcox, Vice President and Kevin D. Lauck, Secretary
(Incorporated by reference to exhibit 10.4 to Form 10-K
annual report for year ended December 31, 1996).
10.4 Agreement between the Registrant and Laborers Inter-National 84
Union, Local No. 480, effective March 1, 1998.
10.5 Form of Deferred Compensation Plan for Key Employees 88
effective August 15, 1997.
10.6 Agreement of Purchase and Sale of Assets dated November 18,
1997 between the Registrant and Eagle Tools, Inc. for the
sale of certain assets of the Registrant's Cal-Van Tools
Division. (Incorporated herein by reference to Exhibit 2.1
to Form 8-K dated November 24, 1997).
10.7 Asset Purchase Agreement dated March 25, 1997 between the 92
Registrant and Terra International, Inc. for the sale of
Certain assets of its Cory Orchard & Turf Division.
22 Subsidiaries of the Registrant (No Exhibit is included
because the Registrant has no Subsidiaries.)
27 Financial Data Schedule 101
</TABLE>
39
<PAGE> 1
EXHIBIT 2.1
40
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 20, 1998
BY AND AMONG
HARSCO CORPORATION,
H-CHEMI ACQUISITION CORP.
AND
CHEMI-TROL CHEMICAL CO.
41
<PAGE> 3
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to
which it is attached but is inserted for convenience only.
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
ARTICLE I PLAN OF MERGER.................................... 1
1.01 The Merger.......................................... 1
1.02 Effective Time...................................... 1
1.03 Closing............................................. 1
1.04 Articles of Incorporation; Bylaws of the Surviving
Corporation; Location of Principal Office........... 1
1.05 Directors and Officers of the Surviving
Corporation......................................... 2
1.06 Effects of the Merger............................... 2
1.07 Further Assurances.................................. 2
1.08 Consent to be Sued and Served with Process.......... 2
1.09 Transaction of Business............................. 2
1.10 Other Matters....................................... 2
ARTICLE II CONVERSION OF SHARES............................. 2
2.01 Conversion of Capital Stock......................... 2
2.02 Exchange of Certificates............................ 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY... 4
3.01 Organization and Qualification...................... 4
3.02 Capital Stock....................................... 4
3.03 Authority Relative to this Agreement and the Stock
Option Agreement.................................... 5
3.04 Non-Contravention; Approvals and Consents........... 5
3.05 SEC Reports and Financial Statements................ 6
3.06 Absence of Certain Changes or Events................ 6
3.07 Absence of Undisclosed Liabilities.................. 7
3.08 Legal Proceedings................................... 7
3.09 Information Supplied................................ 7
3.10 Compliance with Laws and Orders..................... 7
3.11 Compliance with Agreements; Certain Agreements...... 8
3.12 Taxes............................................... 8
3.13 Benefit Plans; ERISA................................ 9
3.14 Insurance........................................... 11
3.15 Labor Matters....................................... 11
3.16 Environmental Matters............................... 12
3.17 Tangible Property and Assets........................ 13
3.18 Intellectual Property Rights........................ 14
3.19 Vote Required....................................... 14
3.20 Opinion of Financial Advisor........................ 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HARSCO AND
ACQUISITION SUB........................................... 14
4.01 Organization and Qualification...................... 14
4.02 Authority Relative to this Agreement and the Stock
Option Agreement.................................... 14
4.03 Non-Contravention; Approvals and Consents........... 15
4.04 Legal Proceedings................................... 15
4.05 Information Supplied................................ 15
4.06 Financing........................................... 16
</TABLE>
42
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
ARTICLE V COVENANTS OF THE COMPANY.......................... 16
5.01 Conduct of Business................................. 16
5.02 No Solicitations.................................... 17
ARTICLE VI ADDITIONAL AGREEMENTS............................ 18
6.01 Access to Information; Confidentiality.............. 18
6.02 Preparation of Proxy Statement...................... 18
6.03 Approval of Shareholders............................ 19
6.04 Regulatory and Other Approvals...................... 19
6.05 Benefit Plans....................................... 19
6.06 Stock Option Agreement.............................. 20
6.07 Expenses............................................ 20
6.08 Brokers or Finders.................................. 20
6.09 Notice and Cure..................................... 20
6.10 Fulfillment of Conditions........................... 21
6.11 1997 Audited Financial Statements................... 21
ARTICLE VII CONDITIONS...................................... 21
7.01 Conditions to Each Party's Obligation to Effect the
Merger.............................................. 21
7.02 Conditions to Obligation of Harsco and Acquisition
Sub to Effect the Merger............................ 21
7.03 Conditions to Obligation of the Company to Effect
the Merger.......................................... 22
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.............. 23
8.01 Termination......................................... 23
8.02 Effect of Termination............................... 23
8.03 Amendment........................................... 24
8.04 Waiver.............................................. 24
ARTICLE IX GENERAL PROVISIONS............................... 24
9.01 Non-Survival of Representations, Warranties,
Covenants and Agreements............................ 24
9.02 Knowledge........................................... 24
9.03 Notices............................................. 24
9.04 Entire Agreement.................................... 25
9.05 Public Announcements................................ 25
9.06 No Third Party Beneficiary.......................... 25
9.07 No Assignment; Binding Effect....................... 25
9.08 Headings............................................ 26
9.09 Invalid Provisions.................................. 26
9.10 Governing Law....................................... 26
9.11 Counterparts........................................ 26
</TABLE>
EXHIBITS
EXHIBIT A Opinion of Counsel to the Company
EXHIBIT B Opinion of Counsel to Harsco and Acquisition Sub
43
<PAGE> 5
This AGREEMENT AND PLAN OF MERGER dated as of February 20, 1998 is made and
entered into by and among HARSCO CORPORATION, a Delaware corporation ("Harsco"),
H-CHEMI ACQUISITION CORP., a Pennsylvania corporation wholly owned by Harsco
("Acquisition Sub"), and CHEMI-TROL CHEMICAL CO., an Ohio corporation (the
"Company").
WHEREAS, the Boards of Directors of Harsco, Acquisition Sub and the Company
have each determined that it is advisable and in the best interests of their
respective shareholders to consummate, and have approved, the business
combination transaction provided for herein in which Acquisition Sub would merge
with and into the Company and the Company would become a wholly-owned subsidiary
of Harsco (the "Merger"); and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Harsco's and Acquisition Sub's willingness to
enter into this Agreement, the Company, Harsco and Acquisition Sub have entered
into a stock option agreement of even date herewith (the "Stock Option
Agreement") granting Acquisition Sub an option to purchase from the Company
190,468 authorized and unissued shares of Company Common Stock (as defined in
Section 2.01(b)), subject to the terms and conditions set forth therein; and
WHEREAS, Harsco, Acquisition Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PLAN OF MERGER
1.01 The Merger. At the Effective Time (as defined in Section 1.02), upon
the terms and subject to the conditions of this Agreement, Acquisition Sub shall
be merged with and into the Company in accordance with the General Corporation
Law of the State of Ohio (the "OGCL") and the Business Corporation Law of the
Commonwealth of Pennsylvania (the "PBCL"). The Company shall be the surviving
corporation in the Merger (the "Surviving Corporation"). Acquisition Sub and the
Company are sometimes referred to herein as the "Constituent Corporations." As a
result of the Merger, the outstanding shares of capital stock of the Constituent
Corporations shall be converted or canceled in the manner provided in Article
II.
1.02 Effective Time. At the Closing (as defined in Section 1.03), a
certificate of merger (the "Certificate of Merger") and articles of merger
("Articles of Merger") shall be duly prepared and executed by the Constituent
Corporations and thereafter delivered to the Secretary of State of the State of
Ohio (the "Ohio Secretary of State") for filing, as provided in Section 1701.81
of the OGCL, and the Secretary of State of the Commonwealth of Pennsylvania (the
"Pennsylvania Secretary of State") for filing, as provided in Section 1927 of
the PBCL, on, or as soon as practicable after, the Closing Date (as defined in
Section 1.03). The Merger shall become effective on the date the Certificate of
Merger and Articles of Merger are filed (the date so provided in the Certificate
of Merger being referred to herein as the "Effective Time").
1.03 Closing. The closing of the Merger (the "Closing") will take place
at the offices of Morgan, Lewis & Bockius LLP, One Commerce Square, 417 Walnut
Street, Harrisburg, Pennsylvania 17101, or at such other place as the parties
hereto mutually agree, on a date and at a time to be specified by the parties,
which shall in no event be later than 10:00 a.m., local time, on the 5th
business day following satisfaction of the condition set forth in Section
7.01(a), provided that the other closing conditions set forth in Article VII
have been satisfied or, if permissible, waived in accordance with this
Agreement, or on such other date as the parties hereto mutually agree (the
"Closing Date"). At the Closing there shall be delivered to Harsco, Acquisition
Sub and the Company the certificates and other documents and instruments
required to be delivered under Article VII.
1.04 Articles of Incorporation; Bylaws of the Surviving Corporation;
Location of Principal Office. At the Effective Time, (i) the Articles of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be amended so that such articles are identical (except for (i) the
name, which shall remain "Chemi-
44
<PAGE> 6
Trol Chemical Co.", and (ii) the state of incorporation, which shall remain
Ohio, to the articles of incorporation of Acquisition Sub as in effect
immediately prior to the Effective Time, and, as so amended, such Articles of
Incorporation shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Articles of
Incorporation, and (ii) the Bylaws of Acquisition Sub as in effect immediately
prior to the Effective Time shall be the Regulations of the Surviving
Corporation until thereafter amended as provided by law, the Articles of
Incorporation of the Surviving Corporation and such Regulations. The location of
the principal office of the Surviving Corporation shall be 2776 Country Road 69,
Gibsonburg, OH 43431.
1.05 Directors and Officers of the Surviving Corporation. The directors
and the officers of the Company at or following the Effective Time, at the
request of Harsco, shall submit their resignations as of the Effective Time and
the persons appointed by Harsco, in its sole discretion, to be the directors and
officers of the Surviving Corporation shall be the directors and officers,
respectively, of the Surviving Corporation until their successors shall have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and Regulations.
1.06 Effects of the Merger. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the OGCL and the
PBCL.
1.07 Further Assurances. Each party hereto will execute such further
documents and instruments and take such further actions as may reasonably be
requested by one or more of the others to consummate the Merger, to vest the
Surviving Corporation with full title to all assets, properties, rights,
approvals, immunities and franchises of either of the Constituent Corporations
or to effect the other purposes of this Agreement.
1.08 Consent to be Sued and Served with Process. The Surviving
Corporation consents to be sued and served with process in the State of Ohio and
irrevocably appoints the Ohio Secretary of State as its agent to accept service
of process in any proceeding in the state and to enforce against the Surviving
Corporation any obligation of any Ohio domestic constituent corporation or to
enforce the rights of any holders of Dissenting Shares.
1.09 Transaction of Business. If Harsco exercises its rights under
Section 1.10 hereof, the Surviving Corporation shall transact business in the
State of Ohio as a foreign corporation and shall appoint a statutory agent with
respect to service of any process, notice or demand upon such statutory agent or
the Ohio Secretary of State, as required when a foreign corporation applies for
a license to transact business in the State of Ohio.
1.10 Other Matters. Notwithstanding any terms of this Agreement to the
contrary, Harsco shall have the right to cause Acquisition Sub to be the
Surviving Corporation of the Merger, so long as the exercise of such right does
not have a material adverse effect on the interests of the holders of the
Company's Common Stock in a manner which has not been disclosed to them in the
Proxy Statement (as defined herein at Section 3.09) or cause a material delay
in, or otherwise adversely affect, consummation of the transaction described
herein; if such right is exercised, this Agreement shall be deemed to be
modified to accord such change, including, without limitation, that the laws of
the Commonwealth of Pennsylvania, together with the OGCL, will govern the
Merger.
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Capital Stock of Acquisition Sub. All of the issued and
outstanding shares of the common stock, par value $.01 per share, of
Acquisition Sub ("Acquisition Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall remain outstanding and
unchanged after the Merger and shall thereafter constitute all of the
issued and outstanding shares of the capital stock of the Surviving
Corporation ("Surviving Corporation Common Stock").
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(b) Cancellation of Treasury Stock. All shares of common stock,
without par value, of the Company ("Company Common Stock") that are owned
by the Company as treasury stock shall be canceled and retired and shall
cease to exist and no stock of Harsco or other consideration shall be
delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Each issued and
outstanding share of Company Common Stock (other than shares to be canceled
in accordance with Section 2.01(b) and other than Dissenting Shares (as
defined in Section 2.01(d))) shall be converted into the right to receive
$23.00 in cash (the "Merger Price"). All such shares of Company Common
Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Price per share, upon the
surrender of such certificate in accordance with Section 2.02, without
interest.
(d) Dissenting Shares.
(i) To the extent applicable, each outstanding share of Company
Common Stock the holder of which has not voted in favor of the Merger,
has perfected such holder's right to an appraisal of such holder's
shares in accordance with the applicable provisions of the OGCL and has
not effectively withdrawn or lost such right to appraisal (a "Dissenting
Share"), shall not be converted into or represent a right to receive the
Merger Price pursuant to Section 2.01(c), but the holder thereof shall
be entitled only to such rights as are granted by the applicable
provisions of the OGCL; provided, however, that any Dissenting Share
held by a person at the Effective Time who shall, after the Effective
Time, withdraw the demand for appraisal or lose the right of appraisal,
in either case pursuant to the OGCL, shall be deemed to be converted
into, as of the Effective Time, the right to receive the Merger Price
pursuant to Section 2.01(c).
(ii) The Company shall give Harsco (x) prompt notice of any
written demands for appraisal, withdrawals of demands for appraisal and
any other instruments served pursuant to the applicable provisions of
the OGCL relating to the appraisal process received by the Company and
(y) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the OGCL. The Company will not
voluntarily make any payment with respect to any demands for appraisal
and will not, except with the prior written consent of Harsco, settle or
offer to settle any such demands.
2.02 Exchange of Certificates.
(a) Exchange Agent. At the Closing or immediately prior to the
Effective Time, Harsco shall make available to the Surviving Corporation
for deposit with The Fifth Third Bank of Northwestern Ohio, N.A., by Harsco
(the "Exchange Agent"), a cash amount equal to the aggregate Merger Price
to which holders of shares of Company Common Stock shall be entitled upon
consummation of the Merger, to be held for the benefit of and distributed
to such holders in accordance with this Section. The Exchange Agent shall
agree to hold such funds (such funds, together with earnings thereon, being
referred to herein as the "Exchange Fund") for delivery as contemplated by
this Section and upon such additional terms as may be agreed upon by the
Exchange Agent, the Company and Harsco.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") whose shares are converted
pursuant to Section 2.01(c) into the right to receive the Merger Price (i)
a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as the Surviving Corporation may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Price. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with such letter of transmittal duly executed and completed in accordance
with its terms, the holder of such Certificate shall be entitled to receive
in exchange therefor a check representing the Merger Price per share of
Company Common Stock represented thereby which such holder has the right to
receive pursuant to the provisions of this Article II,
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<PAGE> 8
and the Certificate so surrendered shall forthwith be canceled. In no event
shall the holder of any Certificate be entitled to receive interest on any
funds to be received in the Merger. In the event of a transfer of ownership
of Company Common Stock which is not registered in the transfer records of
the Company, the Merger Price may be issued to a transferee if the
Certificate representing such Company Common Stock is presented to the
Exchange Agent accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 2.02(b), each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger Price
per share of Company Common Stock represented thereby as contemplated by
this Article II.
(c) No Further Ownership Rights in Company Common Stock. All cash
paid upon the surrender of shares of Company Common Stock in accordance
with the terms hereof shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Company Common
Stock. From and after the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of the Company twenty-four
(24) months after the Effective Time shall be delivered to the Surviving
Corporation, upon demand, and any shareholders of the Company who have not
theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation (subject to abandoned property, escheat and other
similar laws) as general creditors for payment of their claim for the
Merger Price per share. Neither Harsco nor the Surviving Corporation shall
be liable to any holder of shares of Company Common Stock for cash
representing the Merger Price delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Harsco and Acquisition Sub as
follows:
3.01 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its assets and properties. The Company is duly qualified, licensed or
admitted to do business and is in good standing in each jurisdiction listed on
Schedule 3.01 hereto in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, (i) are not having and could not be reasonably expected to have a
material adverse effect on the Company, and (ii) could not be reasonably
expected to have a material adverse effect on the validity or enforceability of
this Agreement or the Stock Option Agreement or on the ability of the Company to
perform its obligations hereunder or thereunder. As used in this Agreement, any
reference to any event, change or effect being "material" or "materially
adverse" or having a "material adverse effect" on or with respect to an entity
(or group of entities taken as a whole) means such event, change or effect is
material or materially adverse, as the case may be, to the business, condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities (including contingent liabilities), prospects or results of
operations of such entity (or, if with respect thereto, of such group of
entities taken as a whole). The Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
3.02 Capital Stock. (a) The authorized capital stock of the Company
consists solely of 6,000,000 shares of Company Common Stock. As of the date
hereof, 2,004,930 shares of Company Common Stock were issued
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and outstanding, and 0 shares were held in the treasury of the Company. There
has been no change in the number of issued and outstanding shares of Company
Common Stock or shares of Company Common Stock held in the treasury since such
date other than the reservation of 190,468 shares pursuant to the Stock Option
Agreement. All of the issued and outstanding shares of Company Common Stock are,
and all shares reserved for issuance will be, upon issuance in accordance with
the terms specified in the instruments or agreements pursuant to which they are
issuable, duly authorized, validly issued, fully paid and nonassessable. Except
pursuant to this Agreement and the Stock Option Agreement, there are no
outstanding subscriptions, options, warrants, rights (including "phantom" stock
rights), preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, "Options"), obligating
the Company to issue or sell any shares of capital stock of the Company or to
grant, extend or enter into any Option with respect thereto.
(b) There are no outstanding contractual obligations of the Company
to repurchase, redeem or otherwise acquire any shares of Company Common
Stock or to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in any other person.
3.03 Authority Relative to this Agreement and the Stock Option
Agreement. The Company has full corporate power and authority to enter into
this Agreement and the Stock Option Agreement and, subject (in the case of this
Agreement) to obtaining the Company Shareholders' Approval (as defined in
Section 6.03), to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Stock Option Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of Directors
of the Company, the Board of Directors of the Company has recommended adoption
of this Agreement by the shareholders of the Company and directed that this
Agreement be submitted to the shareholders of the Company for their
consideration, and no other corporate proceedings on the part of the Company or
its shareholders are necessary to authorize the execution, delivery and
performance of this Agreement and the Stock Option Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby, other than obtaining the Company Shareholders' Approval. This Agreement
and the Stock Option Agreement have been duly and validly executed and delivered
by the Company and, subject (in the case of this Agreement) to the obtaining of
the Company Shareholders' Approval, constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.04 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement and the Stock Option
Agreement by the Company do not, and the performance by the Company of its
obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any person any
right of payment or reimbursement, termination, cancellation, modification
or acceleration of, or result in the creation or imposition of any liens,
claims, mortgages, encumbrances, pledges, security interests, equities and
charges of any kind (each a "Lien") upon any of the assets or properties of
the Company under, any of the terms, conditions or provisions of (i) the
articles of incorporation or regulations (or other comparable charter
documents) of the Company, or (ii) subject to the obtaining of the Company
Shareholders' Approval and the taking of the actions described in paragraph
(b) of this Section, (x) any statute, law, rule, regulation or ordinance
(together, "Laws"), or any judgment, decree, order, writ, permit or license
(together, "Orders"), of any court, tribunal, arbitrator, authority,
agency, commission, official or other instrumentality of the United States,
any foreign country or any domestic or foreign state, county, city or other
political subdivision (a "Governmental or Regulatory Authority"),
applicable to the Company or any of its assets or properties, or (y) any
note, bond, mortgage, security agreement, indenture, license, franchise,
permit, concession, contract, lease or other instrument, obligation or
agreement of any kind (together, "Contracts") to which the Company is a
party or by which the Company or any of its assets or properties is bound,
excluding from the foregoing clauses (x) and (y)
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conflicts, violations, breaches, defaults, terminations, modifications,
accelerations and creations and impositions of Liens which, individually or
in the aggregate, could not be reasonably expected to have a material
adverse effect on the Company taken as a whole or on the ability of the
Company to consummate the transactions contemplated by this Agreement and
the Stock Option Agreement.
(b) Except (i) for the filing of a premerger notification report by
the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder (the "HSR Act"), (ii)
for the filing of the Proxy Statement (as defined in Section 3.09) with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(the "Exchange Act"), (iii) for the filing of the Certificate of Merger,
the Articles of Merger and other appropriate merger documents required by
the OGCL and the PBCL with the Ohio Secretary of State and the Pennsylvania
Secretary of State and appropriate documents with the relevant authorities
of other states in which the Constituent Corporations are qualified to do
business, and (iv) as disclosed in Schedule 3.04 hereto, no consent,
approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or
Order of any Governmental or Regulatory Authority or any Contract to which
the Company is a party or by which the Company or any of its assets or
properties is bound for the execution and delivery of this Agreement and
the Stock Option Agreement by the Company, the performance by the Company
of its obligations hereunder and thereunder or the consummation of the
transactions contemplated hereby and thereby, other than such consents,
approvals, actions, filings and notices which the failure to make or
obtain, as the case may be, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on the Company or on
the ability of the Company to consummate the transactions contemplated by
this Agreement and the Stock Option Agreement.
3.05 SEC Reports and Financial Statements. The Company delivered to
Harsco prior to the execution of this Agreement a true and complete copy of each
form, report, schedule, registration statement, definitive proxy statement and
other document (together with all amendments thereof and supplements thereto)
filed by the Company with the SEC since December 2, 1997 (as such documents have
since the time of their filing been amended or supplemented, the "Company SEC
Reports"), which are all the documents (other than preliminary material) that
the Company was required to file with the SEC since such date. As of their
respective dates, the Company SEC Reports (i) complied as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "Securities Act"), or the
Exchange Act, as the case may be, and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements (including, in each case,
the notes, if any, thereto) included in the Company SEC Reports (the "Company
Financial Statements") complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto and except with respect to unaudited statements
as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case
of the unaudited interim financial statements, to normal, recurring year-end
audit adjustments which are not expected to be, individually or in the
aggregate, materially adverse to the Company) the financial position of the
Company as at the respective dates thereof and the results of its operations and
cash flows for the respective periods then ended.
3.06 Absence of Certain Changes or Events. Except as disclosed Schedule
3.06 hereto, (a) since September 30, 1997 there has not been any change, event
or development having, or that could be reasonably expected to have,
individually or in the aggregate, a material adverse effect on the Company,
other than those occurring as a result of general economic or financial
conditions or other developments which are not unique to the Company but also
generally affect other persons who participate or are engaged in the lines of
business in which the Company participates or is engaged, and (b) except as
disclosed in Schedule 3.06 hereto, between such date and the date hereof (i) the
Company has conducted its business only in the ordinary course consistent with
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past practice and (ii) the Company has not taken any action which, if taken
after the date hereof, would constitute a breach of any provision of clause (ii)
of Section 5.01(b).
3.07 Absence of Undisclosed Liabilities. Except for matters reflected or
reserved against in the balance sheet dated September 30, 1997 included in the
Company Financial Statements or as disclosed in Schedule 3.07 hereto, the
Company has not at such date, or has not incurred since that date, any
liabilities or obligations of any nature that would be required by generally
accepted accounting principles to be reflected on a balance sheet of the Company
(including the notes thereto), except liabilities or obligations (i) which were
incurred in the ordinary course of business consistent with past practice and
(ii) which have not been, and could not be reasonably expected to be,
individually or in the aggregate, materially adverse to the Company.
3.08 Legal Proceedings. Except as disclosed in Schedule 3.08 hereto, (i)
there are no actions, suits, arbitrations or proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting, nor to
the knowledge of the Company are there any Governmental or Regulatory Authority
investigations or audits pending or threatened against, relating to or
affecting, the Company or any of its assets and properties which, individually
or in the aggregate, could be reasonably expected to have a material adverse
effect on the Company or on the ability of the Company to consummate the
transactions contemplated by this Agreement or the Stock Option Agreement, and
there are no facts or circumstances known to the Company that could be
reasonably expected to give rise to any such action, suit, arbitration,
proceeding, investigation or audit, and (ii) the Company is not subject to any
Order of any Governmental or Regulatory Authority which, individually or in the
aggregate, is having or could be reasonably expected to have a material adverse
effect on the Company or on the ability of the Company to consummate the
transactions contemplated by this Agreement or the Stock Option Agreement.
3.09 Information Supplied. (a) The proxy statement relating to the
Company Shareholders' Meeting (as defined in Section 6.03), as amended or
supplemented from time to time (as so amended and supplemented, the "Proxy
Statement"), and any other documents to be filed by the Company with the SEC or
any other Governmental or Regulatory Authority in connection with the Merger and
the other transactions contemplated hereby or by the Stock Option Agreement will
not, on the date of its filing or, in the case of the Proxy Statement, at the
date it is mailed to shareholders, and at the time of the Company Shareholders'
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, except that no representation is made
by the Company with respect to information supplied in writing by or on behalf
of Harsco and Acquisition Sub expressly for inclusion therein and information
incorporated by reference therein from documents filed by Harsco or any of its
Subsidiaries with the SEC. The Proxy Statement and any such other documents
filed by the Company with the SEC under the Exchange Act will comply as to form
in all material respects with the requirements of the Exchange Act. As used in
this Agreement, "Subsidiary" means, with respect to any party, any corporation
or other organization, whether incorporated or unincorporated, of which more
than fifty percent (50%) of either the equity interests in, or the voting
control of, such corporation or other organization is, directly or indirectly
through Subsidiaries or otherwise, beneficially owned by such party.
(b) Neither the information supplied or to be supplied in writing by
or on behalf of the Company for inclusion in any document to be filed by
Harsco or Acquisition Sub with the SEC or any other Governmental or
Regulatory Authority in connection with the Merger and the other
transactions contemplated hereby or by the Stock Option Agreement will on
the date of its filing contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
3.10 Compliance with Laws and Orders. The Company holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental and
Regulatory Authorities necessary for the lawful conduct of its business (the
"Company Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals which, individually or in the
aggregate, are not having and could not be reasonably expected to have a
material adverse effect on the Company. The Company is in compliance with the
terms of the Company Permits, except failures so to comply which, individually
or in the aggregate, are not having and could not be
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reasonably expected to have a material adverse effect on the Company. Except as
set forth in Schedule 3.10,the Company is not in violation of or default under
any Law or Order of any Governmental or Regulatory Authority, except for
violations which, individually or in the aggregate, are not having and could not
be reasonably expected to have a material adverse effect on the Company.
3.11 Compliance with Agreements; Certain Agreements.
(a) Except as disclosed in Schedule 3.11 hereto, neither the Company
nor, to the knowledge of the Company, any other party thereto, is in breach
or violation of, or in default in the performance or observance of any term
or provision of, and no event has occurred which, with notice or lapse of
time or both, could be reasonably expected to result in a default under,
(i) the articles of incorporation or regulations (or other comparable
charter documents) of the Company or (ii) any Contract to which the Company
is a party or by which the Company or any of its assets or properties is
bound, except in the case of clause (ii) for breaches, violations and
defaults which, individually or in the aggregate, are not having and could
not be reasonably expected to have a material adverse effect on the
Company.
(b) Except as disclosed in Schedule 3.11 hereto, as of the date
hereof, the Company is not a party to any oral or written (i) consulting
agreement not terminable on 30 days' or less notice involving the payment
of more than $25,000 per annum or $100,000 per annum in the aggregate for
all such agreements, (ii) union or collective bargaining agreement, (iii)
agreement with any executive officer or other key employee of the Company
the benefits of which are contingent or vest, or the terms of which are
materially altered, upon the occurrence of a transaction involving the
Company of the nature contemplated by this Agreement, (iv) agreement with
respect to any executive officer or other key employee of the Company
providing any term of employment or compensation guarantee extending for a
period longer than 3 years and for the payment of more than $200,000 per
annum or $500,000 per annum in the aggregate for all such agreements or (v)
agreement or plan, including any stock option, stock appreciation right,
restricted stock or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement
or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
3.12 Taxes.
(a) The Company has filed all federal and all material foreign, state
and local tax reports and returns required to be filed and except as
disclosed on Schedule 3.12, has duly paid all such taxes, including,
without limitation, income, capital stock, gross receipts, net proceeds, ad
valorem, value added, turnover, sales, use, real estate transfer, property,
personal property (tangible and intangible), stamp, leasing, lease, user,
excise, franchise, transfer, fuel, vehicle sales, excess profits,
occupational and interest equalization, unitary, severance, withholding,
social security, employment and other taxes, duties, assessments and
charges (including, without limitation, the recapture of any tax items such
as investment tax credits), together with all interest, penalties and
additions imposed with respect to such amounts, which are due on or before
the date hereof or claimed to be due by federal, state, or local taxing
authorities or which are payable on or before the date hereof with respect
to the business and operations of the Company (collectively, "Taxes"). All
such returns are accurate and complete in all material respects. There are
no tax liens upon any property or assets of the Company, except liens for
Taxes not yet due and payable. All such Taxes (including interest and
penalties) applicable for all periods prior to the Closing or other
governmental charges upon the Company or its assets, income or revenues
have been or will be paid (if due) or reserved against if required under
GAAP. The Company has not executed any waivers of the statute of
limitations on the right of the Internal Revenue Service (the "IRS") or any
state or local taxing authority to assess additional Taxes or to contest
the income or loss with respect to any tax return. The basis of any
depreciable assets, and the methods used in determining allowable
depreciation (including cost recovery), held by the Company, are
substantially correct and in compliance with the Internal Revenue Code of
1986, as amended (the "Code"), and all regulations thereunder.
(b) No issues have been raised that are currently pending by any
taxing authority in connection with any of the aforesaid tax returns or
reports. No issues have been raised in any examination by any taxing
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authority with respect to the Company which, by application of similar
principles, reasonably could be expected to result in a material proposed
deficiency for any other period not so examined. The items of income and
deductions reflected on the federal income tax returns and comparable state
and local returns filed by or on behalf of the Company for all taxable
years (including the supporting schedules filed therewith), available
copies of which have been supplied (or will be promptly supplied upon
request) to Harsco, state accurately in all material respects the receipts
and expenditures of the Company, and the same were derived from the books
and records of the Company.
(c) The Company has not entered into any joint venture, partnership,
or other arrangement or contract which is treated as a partnership for
federal income tax purposes, except as set forth on Schedule 3.12.
The Company has never been a "consenting corporation," within the
meaning of Section 341(f)(l) of the Code, or comparable provisions of any
state statutes, and none of the assets of the Company is subject to an
election under Section 341(f) of the Code or comparable provisions of any
state statutes.
(e) No property of the Company is property which the Company or Harsco
is or will be required to treat as being owned by another person pursuant
to the provisions of Section 168(f)(8) of the Code, as in effect prior to
the Tax Reform Act of 1986, or pursuant to any provision of law.
(f) No property of the Company is "tax exempt use property" as such
term is defined in Section 168(h) of the Code.
(g) None of the properties or assets of the Company is tax-exempt bond
financed property within the meaning of Section 168(g)(5) of the Code,
except as disclosed on Schedule 3.12.
(h) Neither the Company nor any predecessor thereof is or has been, or
has filed a tax return claiming that it is or has been, an Electing Small
Business Corporation pursuant to the provisions of Subchapter S of the
Code.
3.13 Benefit Plans; ERISA.
(a) All Benefit Plans are listed in Schedule 3.13, and copies of all
documentation relating to such Benefit Plans have been delivered or made
available to Harsco (including copies of written Benefit Plans, written
descriptions of oral Benefit Plans, summary plan descriptions, trust
agreements, the three most recent annual returns, employee communications,
and IRS determination letters). Except as disclosed in Schedule 3.13
hereto:
(i) each Benefit Plan has at all times been maintained and
administered in all material respects in accordance with its terms and
with the requirements of all applicable law, including ERISA and the
Code, and each Benefit Plan intended to qualify under Section 401(a) of
the Code has at all times since its adoption been so qualified, and each
trust which forms a part of any such plan has at all times since its
adoption been tax-exempt under Section 501(a) of the Code;
(ii) no Benefit Plan has incurred any "accumulated funding
deficiency" within the meaning of Section 302 of ERISA or Section 412 of
the Code;
(iii) the "amount of unfunded benefit liabilities" within the
meaning of Section 4001(a)(18) of ERISA does not exceed zero with
respect to any Benefit Plan subject to Title IV of ERISA;
(iv) no "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred with respect to any Benefit Plan or any Plan
maintained by an ERISA Affiliate since the effective date of Section
4043;
(v) with respect to each Multiemployer Plan (i) no withdrawal
liability has been incurred by the Company or any ERISA Affiliate , and
the Company has no reason to believe that any such liability will be
incurred, prior to the Closing Date, (ii) no such plan is in
"reorganization" (within the meaning of Section 4241 of ERISA), (iii) no
notice has been received that increased contributions may be required to
avoid a reduction in plan benefits or the imposition of an excise tax,
or that the plan is or may become "insolvent" (within the meaning of
Section 4241 of ERISA), (iv) no proceedings have been instituted by the
Pension Benefit Guaranty Corporation against the plan, (v) there is no
contingent
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liability for withdrawal liability by reason of a sale of assets
pursuant to Section 4204 of ERISA, and (vi) except as disclosed in
Schedule 3.13, if the Company or any ERISA Affiliate were to have a
complete or partial withdrawal under Section 4203 of ERISA as of the
Closing, no obligation to pay withdrawal liability would exist on the
part of the Company or any ERISA Affiliate;
(vi) no direct, contingent or secondary liability has been incurred
or is expected to be incurred by the Company under Title IV of ERISA to
any party with respect to any Benefit Plan or Multiemployer Plan, or
with respect to any other Plan presently or heretofore maintained or
contributed to by any ERISA Affiliate;
(vii) neither the Company nor any ERISA Affiliate has incurred any
liability for any tax imposed under Section 4971 through 4980B of the
Code or civil liability under Section 502(i) or (l) of ERISA;
(viii) no benefit under any Benefit Plan, including, without
limitation, any severance or parachute payment plan or agreement, will
be established or become accelerated, vested or payable by reason of any
transaction contemplated under this Agreement;
(ix) no tax has been incurred under Section 511 of the Code with
respect to any Benefit Plan (or trust or other funding vehicle pursuant
thereto);
(x) no Benefit Plan provides health or death benefit coverage
beyond the termination of an employee's employment, except as required
by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code
or any State laws requiring continuation of benefits coverage following
termination of employment;
(xi) no suit, actions or other litigation (excluding claims for
benefits incurred in the ordinary course of plan activities) have been
brought or, to the knowledge of the Company, threatened against or with
respect to any Benefit Plan and there are no facts or circumstances
known to the Company that could reasonably be expected to give rise to
any such suit, action or other litigation; and
(xii) all contributions to Benefit Plans and Multiemployer Plans
that were required to be made under such Benefit Plans have been made,
and all benefits accrued under any unfunded Benefit Plan have been paid,
accrued or otherwise adequately reserved in accordance with GAAP, all of
which accruals under unfunded Benefit Plans are as disclosed in Schedule
3.13, and the Company has performed all material obligations required to
be performed under all Benefit Plans.
(b) Except as set forth in Schedule 3.13 hereto, neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby constitutes a change of control or has or will
accelerate benefits under any Benefit Plan.
(c) As used herein:
(i) "Benefit Plan" means any Plan, existing at the Closing Date or
prior thereto, established or to which contributions have at any time
been made by the Company, or any predecessor of the foregoing, or under
which any employee, former employee or director of the Company or any
beneficiary thereof is covered, is eligible for coverage or has benefit
rights.
(ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
(iii) "ERISA Affiliate" means any business entity which is, or at
any time was, a member of a controlled group (within the meaning of
Section 412(n)(6) of the Code) that includes, or at any time included,
the Company or any predecessor of the foregoing.
(iv) "Multiemployer Plan" means a multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA with respect to which the Company
or any ERISA Affiliate has an obligation to contribute or has or could
have withdrawal liability under Section 4201 of ERISA.
(v) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom
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stock, leave of absence, layoff, vacation, day or dependent care, legal
services, cafeteria, life, health, accident, disability, workmen's
compensation or other insurance, severance, separation or other employee
benefit plan, practice, policy or arrangement of any kind, whether
written or oral, or whether for the benefit of a single individual or
more than one individual including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
3.14 Insurance. The Company delivered to Harsco prior to the execution of
this Agreement a true and complete list of all liability, property, workers'
compensation, directors' and officers' liability and other insurance policies
currently in effect that insure the business, operations, properties, assets or
employees of the Company.
3.15 Labor Matters.
(a) Except as set forth in Schedule 3.15, (i) no employees of the
Company or any affiliated enterprise of the Company ("Affiliate") are
represented by a labor union or organization, no labor union or
organization has been certified or recognized as a representative of any
such employees, and neither the Company nor any Affiliate of the Company is
a party to or has any obligation under any collective bargaining agreement
or other labor union contract, white paper or side agreement with any labor
union or organization, or has any obligation to recognize or deal with any
labor union or organization, and there are no such contracts, white papers
or side agreements pertaining to or which determine the terms or conditions
of employment of any employee of the Company or any Affiliate of the
Company; (ii) there are no pending or threatened representation campaigns,
elections or proceedings or questions concerning union representation
involving any employees of the Company or any Affiliate of the Company;
(iii) neither the Company nor any Affiliate of the Company has any
knowledge of any activities or efforts of any labor union or organization
(or representatives thereof) to organize any employees of the Company or
any Affiliate of the Company, nor of any demands for recognition or
collective bargaining, nor of any strikes, slowdowns, work stoppages or
lock-outs of any kind, or threats thereof, by or with respect to any
employees of the Company or any Affiliate of the Company or any actual or
claimed representatives thereof, and no such activities, efforts, demands,
strikes, slowdowns, work stoppages or lock-outs occurred during the
24-month period preceding the date hereof; (iv) neither the Company nor any
Affiliate of the Company has engaged in, admitted committing or been held
in any administrative or judicial proceeding to have committed any unfair
labor practice under the National Labor Relations Act, as amended; (v)
neither the Company nor any Affiliate of the Company is involved in any
industrial or trade dispute or any dispute or negotiations regarding a
claim of material importance with any labor union or organization; and (vi)
there are no controversies, claims, demands or grievances of material
importance pending or, so far as the Company or any Affiliate of the
Company is aware, threatened, between the Company or any Affiliate of the
Company and any of their respective employees or any actual or claimed
representative thereof. The Company agrees to take such action as shall be
required to fulfill any and all contractual or statutory obligations it or
any Affiliate of the Company may have to any unions or labor organizations
or otherwise as a result of or relating to the execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby.
(b) Schedule 3.15 (and the exhibits thereto) set forth all contracts
and agreements, including, without limitation, employment agreements,
consulting agreements, independent contractor agreements, retainers and
severance agreements under which the Company or any Affiliate of the
Company has any obligation to provide wages, salary, commissions, or other
compensation or remuneration (other than obligations to make current wage
or salary payments terminable at will without notice) to or on behalf of
any employee, former employee, consultant or contractor (or any designee,
assignee or beneficiary thereof). The original or a complete and correct
copy of each written (and a complete and correct written description of
each such oral) contract or agreement, has been delivered or made available
to Harsco.
(c) A true and correct statement of the names, current rates of base
compensation and amounts of (or, where no amount is specified, the formula
for computing) supplemental or bonus compensation of all officers,
directors and employees of the Company and Affiliates of the Company as of
the date hereof, is set forth in Schedule 3.15. Except as set forth in
Schedule 3.15, (i) the Company and Affiliates of the Company have no
obligation (including an obligation for the payment of any fee,
extraordinary bonus, or "golden parachute" based upon the successful
completion of the transactions contemplated hereunder) under any
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<PAGE> 16
employment contract, consulting agreement, or any other similar agreements,
employment policies (including vacation and severance pay policies) or
retirement or employee benefit plans, arrangements or understandings,
written or otherwise, with any officer, director, employee or agent of the
Company or any Affiliate and (ii) since January 1, 1998, the Company and
the Affiliates have (A) not paid or agreed to pay any bonuses or made or
agreed to make any increase in the rate of wages, salaries or other
compensation or remuneration of any of its officers, directors, consultants
or employees (except for increases in accordance with written binding
commitments, true, correct and complete copies of which have been
previously delivered to Harsco, or in accordance with a past practice
described in Schedule 3.15), or (B) become a party to any employment
contract or arrangement with any of its officers or employees providing for
any new or additional bonuses, profit sharing payments, severance pay or
retirement benefits or any other form of employee compensation or benefits.
(d) The Company and each Affiliate of the Company has at all times
complied in all material respects and is in material compliance with all
applicable federal, state, and local laws, rules and regulations respecting
employment, wages, hours, compensation, benefits, occupational health and
safety, and payment and withholding of taxes in connection with employment.
The Company and each Affiliate of the Company has withheld all amounts
required by law or agreement to be withheld from wages, salaries,
commissions, etc., and neither the Company nor any Affiliate of the Company
is liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing. There are no claims, complaints or legal
or administrative proceedings pending or, so far as the Company and any
Affiliate of the Company is aware, threatened, against the Company or any
Affiliate of the Company before any federal, state or municipal court or
governmental agency, or any federal, state or municipal taxing authority
involving or relating to any past or present employee(s) or applicant(s)
for employment of the Company or any Affiliate of the Company, or relating
to any acts, omissions or practices of the Company or any Affiliate of the
Company relating to employment, compensation or benefits. Neither the
Company nor any Affiliate of the Company is party to or bound by any court
or administrative order, judgment, decree or ruling of any kind respecting
the employment, compensation or benefits of any employees or prospective
employees of the Company or any Affiliate of the Company.
3.16 Environmental Matters. Except as disclosed in Schedule 3.16 hereto, to
the best of the Company's knowledge:
(a) The Company has obtained all licenses, permits, authorizations,
approvals and consents from Governmental or Regulatory Authorities which
are required in respect of its business, operations, assets or properties
under any applicable Environmental Law (as defined below). The Company is
in compliance in all material respects with the terms and conditions of all
such licenses, permits, authorizations, approvals and consents and with any
applicable Environmental Law.
(b) No Order has been issued, no complaint has been filed, no penalty
has been assessed and no investigation or review is pending or threatened
by any Governmental or Regulatory Authority with respect to any alleged
failure by the Company to have any license, permit, authorization, approval
or consent from Governmental or Regulatory Authorities required under any
applicable Environmental Law in connection with the conduct of the business
or operations of the Company or with respect to any treatment, storage,
recycling, transportation, disposal or "release" as defined in 42 U.S.C.
sec.9601(22) ("Release"), by the Company of any Hazardous Material (as
defined below), which Order, complaint, penalty or investigation,
individually or in the aggregate, is having or could be reasonably expected
to have a material adverse effect on the Company, and the Company is not
aware of any facts or circumstances which could be reasonably expected to
form the basis for any such Order, complaint, penalty or investigation.
(c) Neither the Company nor any prior owner or lessee of any property
now or previously owned or leased by the Company has handled any Hazardous
Material on any property now or previously owned or leased by the Company;
and, without limiting the foregoing, (i) no polychlorinated biphenyl is or
has been present, (ii) no asbestos is or has been present, (iii) there are
no underground storage tanks, active or abandoned and (iv) no Hazardous
Material has been Released in a quantity reportable under, or in violation
of, any Environmental Law, at, on or under any property now or previously
owned or leased by the
55
<PAGE> 17
Company, during any period that the Company owned or leased such property
and which could reasonably be expected to have a material adverse effect on
the Company.
(d) The Company has not transported or arranged for the transportation
of any Hazardous Material to any location which is the subject of any
action, suit, arbitration or proceeding that could be reasonably expected
to lead to claims against the Company for clean-up costs, remedial work,
damages to natural resources or personal injury claims, which could be
reasonably expected to have a material adverse impact on the Company
including, but not limited to, claims under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and the rules
and regulations promulgated thereunder ("CERCLA").
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company and no property now
or previously owned or leased by the Company is listed or proposed for
listing on the National Priorities List promulgated pursuant to CERCLA or
on any similar state list of sites requiring investigation or clean-up.
(f) There are no Liens arising under or pursuant to any Environmental
Law with respect to any real property owned or leased by the Company, other
than any such Liens against real property not individually or in the
aggregate material to the Company, and no action of any Governmental or
Regulatory Authority has been taken or is in process which could subject
any of such properties to such Liens, and the Company would not be required
to place any notice or restriction relating to the presence of Hazardous
Material at any such property owned by it in any deed to such property.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or which are in the
possession of, the Company in relation to any property or facility now or
previously owned or leased by the Company which have not been delivered to
Harsco prior to the execution of this Agreement.
(h) As used herein:
(i) "Environmental Law" means any Law of any Governmental or
Regulatory Authority relating to human health, safety or protection of
the environment or to emissions, discharges, releases or threatened
releases of pollutants, contaminants or Hazardous Materials in the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), or otherwise relating
to the treatment, storage, disposal, transport or handling of any
Hazardous Material; and
(ii) "Hazardous Material" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
regulated polychlorinated biphenyls (PCBs); (B) any chemicals,
materials, substances or wastes which are now or hereafter become
defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants" or
words of similar import, under any Environmental Law; and (C) any other
chemical, material, substance or waste, exposure to which is now or
hereafter prohibited, limited or regulated by any Governmental or
Regulatory Authority.
3.17 Tangible Property and Assets. Except as disclosed in Schedule 3.17
hereto, the Company has good and marketable title to, or has valid leasehold
interests in or valid rights under contract to use, all tangible property and
assets used in and, individually or in the aggregate, material to the conduct of
the businesses of the Company free and clear of all Liens other than (i) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent and (ii) any minor
imperfection of title or similar Lien which individually or in the aggregate
with other such Liens does not materially impair the value of the property or
asset subject to such Lien or the use of such property or asset in the conduct
of the business of the Company. All such property and assets are, in all
material respects, in good working order and condition, ordinary wear and tear
excepted, and adequate and suitable for the purposes for which they are
presently being used.
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3.18 Intellectual Property Rights. The Company has all right, title and
interest in, or a valid and binding license to use, all Intellectual Property
(as defined below) individually or in the aggregate material to the conduct of
the businesses of the Company. The Company is not in default (or with the giving
of notice or lapse of time or both, would be in default) in any material respect
under any license to use such Intellectual Property, such Intellectual Property
is not being infringed by any third party, and the Company is not infringing any
Intellectual Property of any third party, except for such defaults and
infringements which, individually or in the aggregate, are not having and could
not be reasonably expected to have a material adverse effect on the Company. For
purposes of this Agreement, "Intellectual Property" means patents and patent
rights, trademarks and trademark rights, trade names and trade name rights,
service marks and service mark rights, service names and service name rights,
copyright and copyright rights and other proprietary intellectual property
rights and all pending applications for and registrations of any of the
foregoing.
3.19 Vote Required. The affirmative vote of the holders of record of at
least two-thirds of the outstanding shares of Company Common Stock with respect
to the adoption of this Agreement is the only vote of the holders of any class
or series of the capital stock of the Company required to adopt this Agreement
and approve the Merger and the other transactions contemplated hereby and by the
Stock Option Agreement.
3.20 Opinion of Financial Advisor. If McDonald & Company Securities
delivers to the Company an opinion, dated the date hereof, to the effect that,
as of the date hereof, the consideration to be received in the Merger by the
shareholders of the Company is fair from a financial point of view to the
shareholders of the Company, a true and complete copy of such opinion shall be
delivered to Harsco prior to the execution of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HARSCO AND ACQUISITION SUB
Harsco and Acquisition Sub represent and warrant to the Company as follows:
4.01 Organization and Qualification. Each of Harsco and Acquisition Sub is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation. Acquisition Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
the Stock Option Agreement, has engaged in no other business activities and has
conducted its operations only as contemplated hereby. Each of Harsco and
Acquisition Sub is duly qualified, licensed or admitted to do business and is in
good standing in each jurisdiction in which the ownership, use or leasing of its
assets and properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for such failures to be
so qualified, licensed or admitted and in good standing which, individually or
in the aggregate, could not be reasonably expected to have a material adverse
effect on the validity or enforceability of this Agreement or the Stock Option
Agreement or on the ability of Harsco or Acquisition Sub to perform its
obligations hereunder or thereunder.
4.02 Authority Relative to this Agreement and the Stock Option Agreement.
Each of Harsco and Acquisition Sub has full corporate power and authority to
enter into this Agreement and the Stock Option Agreement and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the Stock Option Agreement by each of Harsco and Acquisition Sub
and the consummation by each of Harsco and Acquisition Sub of the transactions
contemplated hereby and thereby have been duly and validly approved by their
respective Boards of Directors and by Harsco in its capacity as the sole
shareholder of Acquisition Sub and no other corporate proceedings on the part of
Harsco or Acquisition Sub or their shareholders are necessary to authorize the
execution, delivery and performance of this Agreement and the Stock Option
Agreement by Harsco or Acquisition Sub and the consummation by Harsco or
Acquisition Sub of the transactions contemplated hereby and thereby. This
Agreement and the Stock Option Agreement have been duly and validly executed and
delivered by Harsco and Acquisition Sub and constitute legal, valid and binding
obligation of Harsco and Acquisition Sub enforceable against Harsco and
Acquisition Sub in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors'
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rights generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.03 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement and the Stock Option
Agreement by Harsco and Acquisition Sub do not, and the performance by
Harsco and Acquisition Sub of their obligations hereunder and thereunder
and the consummation of the transactions contemplated hereby and thereby
will not, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under, result
in or give to any person any right of termination, cancellation,
modification or acceleration of, or result in the creation or imposition of
any Lien upon any of the assets or properties of Harsco or any of its
Subsidiaries under, any of the terms, conditions or provisions of (i) the
certificates or articles of incorporation or bylaws (or other comparable
charter documents) of Harsco or any of its Subsidiaries, or (ii) subject to
the taking of the actions described in paragraph (b) of this Section, (x)
any Law or Order of any Governmental or Regulatory Authority applicable to
Harsco or any of its Subsidiaries or any of their respective assets or
properties, or (y) any Contract to which Harsco or any of its Subsidiaries
is a party or by which Harsco or any of its Subsidiaries or any of their
respective assets or properties is bound, excluding from the foregoing
clauses (x) and (y) conflicts, violations, breaches, defaults,
terminations, modifications, accelerations and creations and impositions of
Liens which, individually or in the aggregate, could not be reasonably
expected to have a material adverse effect on the ability of Harsco and
Acquisition Sub to consummate the transactions contemplated by this
Agreement and the Stock Option Agreement.
(b) Except (i) for the filing of a premerger notification report by
Harsco under the HSR Act, (ii) for the filing of the Certificate of Merger,
the Articles of Merger and other appropriate merger documents required by
the OGCL and the PBCL with the Ohio Secretary of State and the Pennsylvania
Secretary of State and appropriate documents with the relevant authorities
of other states in which the Constituent Corporations are qualified to do
business, and (iii) as disclosed in Schedule 4.03 hereto, no consent,
approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or
Order of any Governmental or Regulatory Authority or any Contract to which
Harsco or any of its Subsidiaries is a party or by which Harsco or any of
its Subsidiaries or any of their respective assets or properties is bound
for the execution and delivery of this Agreement and the Stock Option
Agreement by Harsco and Acquisition Sub, the performance by Harsco and
Acquisition Sub of their obligations hereunder and thereunder or the
consummation of the transactions contemplated hereby and thereby, other
than such consents, approvals, actions, filings and notices which the
failure to make or obtain, as the case may be, individually or in the
aggregate, could not be reasonably expected to have a material adverse
effect on the ability of Harsco and Acquisition Sub to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement.
4.04 Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of Harsco and its Subsidiaries,
threatened against, relating to or affecting, nor to the knowledge of Harsco and
its Subsidiaries are there any Governmental or Regulatory Authority
investigations or audits pending or threatened against, relating to or
affecting, Harsco or any of its Subsidiaries or any of their respective assets
and properties which, if determined adversely to Harsco or any of its
Subsidiaries, individually or in the aggregate, could be reasonably expected to
have a material adverse effect on the ability of Harsco and Acquisition Sub to
consummate the transactions contemplated by this Agreement. Neither Harsco nor
any of its Subsidiaries is subject to any Order of any Governmental or
Regulatory Authority which, individually or in the aggregate, could be
reasonably expected to have a material adverse effect on the ability of Harsco
and Acquisition Sub to consummate the transactions contemplated by this
Agreement or the Stock Option Agreement.
4.05 Information Supplied. Neither the information supplied or to be
supplied in writing by or on behalf of Harsco or Acquisition Sub for inclusion,
nor the information incorporated by reference from documents filed by Harsco or
any of its Subsidiaries with the SEC, in the Proxy Statement or any other
documents to be filed by Harsco, Acquisition Sub or the Company with the SEC or
any other Governmental or Regulatory Authority in connection with the Merger and
the other transactions contemplated hereby or by the Stock Option Agreement
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will on the date of its filing or, in the case of the Proxy Statement, at the
date it is mailed to shareholders, and at the time of the Company Shareholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. All such documents filed by Harsco or Acquisition Sub with the SEC
under the Exchange Act will comply as to form in all material respects with the
requirements of the Exchange Act.
4.06 Financing. Harsco has sufficient cash and/or available credit
facilities to pay the aggregate Merger Price in accordance with this Agreement
and to make all other necessary payments of fees and expenses in connection with
the transactions contemplated by this Agreement and the Stock Option Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
5.01 Conduct of Business. At all times from and after the date hereof
until the Effective Time, the Company covenants and agrees that (except as
expressly contemplated or permitted by this Agreement or the Stock Option
Agreement, or to the extent that Harsco shall otherwise consent in writing,
which consent shall not be unreasonably withheld):
(a) Ordinary Course. The Company shall conduct its business only in,
and the Company shall not take any action except in, the ordinary course
consistent with past practice.
(b) Without limiting the generality of paragraph (a) of this Section,
(i) the Company shall use all commercially reasonable efforts to preserve
intact in all material respects its present business organization and
reputation, to keep available the services of its key officers and
employees, to maintain its assets and properties in good working order and
condition, ordinary wear and tear excepted, to maintain insurance on its
tangible assets and businesses in such amounts and against such risks and
losses as are currently in effect, to preserve its relationships with
customers and suppliers and others having significant business dealings
with them and to comply in all material respects with all Laws and Orders
of all Governmental or Regulatory Authorities applicable to them, and (ii)
the Company shall not:
(A) amend or propose to amend its articles of incorporation or
regulations (or other comparable corporate charter documents);
(B) (w) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock other than the
regular cash dividend for the first quarter of 1998 in an amount
consistent with past practice, and payable at a time prior to April 30,
1998; provided, however, that in no event shall such first quarter
regular cash dividend exceed $.09 per share; and provided further, that
in no event shall such dividend be paid after April 30, 1998; (x) split,
combine, reclassify or take similar action with respect to any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock, (y) adopt a plan of complete or partial liquidation
or resolutions providing for or authorizing such liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (z) directly or indirectly redeem, repurchase or
otherwise acquire any shares of its capital stock or any Option with
respect thereto;
(C) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any Option with
respect thereto, or modify or amend any right of any holder of
outstanding shares of capital stock or Options with respect thereto;
(D) acquire (by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets
of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets other than
in the ordinary course of its business consistent with past practice;
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(E) other than dispositions in the ordinary course of its business
consistent with past practice, sell, lease, grant any security interest
in or otherwise dispose of or encumber any of its assets or properties;
(F) except to the extent required by applicable law or GAAP, (x)
permit any material change in (A) any pricing, marketing, purchasing,
investment, accounting, financial reporting, inventory, credit,
allowance or tax practice or policy or (B) any method of calculating any
bad debt, contingency or other reserve for accounting, financial
reporting or tax purposes or (y) make any material tax election or
settle or compromise any material income tax liability with any
Governmental or Regulatory Authority;
(G) (x) incur (which shall not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee any such indebtedness other than in the
ordinary course of its business consistent with past practice, or (y)
voluntarily purchase, cancel, prepay or otherwise provide for a complete
or partial discharge in advance of a scheduled repayment date with
respect to, or waive any right under, any indebtedness for borrowed
money other than in the ordinary course of its business consistent with
past practice;
(H) enter into, adopt, amend in any material respect (except as
may be required by applicable law) or terminate any Company Benefit Plan
or other agreement, arrangement, plan or policy between the Company and
one or more of its directors, officers or employees, or, except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company, increase in any manner
the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan or arrangement in effect as
of the date hereof, except for normal increases in the ordinary course
of business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to the
Company;
(I) enter into any contract or amend or modify any existing
contract, or engage in any new transaction outside the ordinary course
of business consistent with past practice or not on an arm's length
basis, with any affiliate of the Company;
(J) make any capital expenditures or commitments for additions to
plant, property or equipment constituting capital assets, except in the
ordinary course of business consistent with past practice;
(K) make any change in the lines of business in which it
participates or is engaged; or
(L) enter into any contract, agreement, commitment or arrangement
to do or engage in any of the foregoing.
(c) Advice of Changes. The Company shall confer on a regular and
frequent basis with Harsco with respect to its business and operations and
other matters relevant to the Merger, and shall promptly advise Harsco, in
writing, of any change or event, including, without limitation, any
complaint, investigation or hearing by any Governmental or Regulatory
Authority (or communication indicating the same may be contemplated) or the
institution or threat of litigation, having, or which, insofar as can be
reasonably foreseen, could have, a material adverse effect on the Company
or on the ability of the Company to consummate the transactions
contemplated hereby.
5.02 No Solicitations. The Company shall not, and it shall not authorize
or permit any officer, director, employee, investment banker, financial advisor,
attorney, accountant or other agent or representative (each, a "Representative")
retained by or acting for or on behalf of the Company to, directly or
indirectly, initiate, solicit, encourage, or, unless the Board of Directors of
the Company believes, on the basis of written advice furnished by independent
legal counsel, that the failure to take such actions would constitute a breach
of applicable fiduciary duties, participate in any negotiations regarding,
furnish any confidential information in connection with, endorse or otherwise
cooperate with, assist, participate in or facilitate the making of any proposal
or offer for, or which may reasonably be expected to lead to, an Acquisition
Transaction (as defined below), by any person, corporation, partnership or other
entity or group (a "Potential Acquiror"). The Company shall promptly inform
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Harsco, in writing, of the material terms and conditions of any proposal or
offer for, or which may reasonably be expected to lead to, an Acquisition
Transaction that it receives and the identity of the Potential Acquiror. The
Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Transaction. As used in this Agreement,
"Acquisition Transaction" means any merger, consolidation or other business
combination involving the Company, or any acquisition in any manner of all or a
substantial portion of the equity of, or all or a substantial portion of the
assets of the Company whether for cash, securities or any other consideration or
combination thereof other than pursuant to the transactions contemplated by this
Agreement and the Stock Option Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality.
(a) The Company shall, throughout the period from the date hereof to
the Effective Time, (i) provide Harsco and its Representatives with full
access, upon reasonable prior notice and during normal business hours, to
all officers, employees, agents and accountants of the Company and its
assets, properties, books and records, and (ii) furnish promptly to such
persons (x) a copy of each report, statement, schedule and other document
filed or received by the Company pursuant to the requirements of federal or
state securities laws or filed with any other Governmental or Regulatory
Authority, and (y) all other information and data (including, without
limitation, copies of Contracts, Company Benefit Plans and other books and
records) concerning the business and operations of the Company as Harsco or
any of such other persons reasonably may request. No investigation pursuant
to this paragraph or otherwise shall affect any representation or warranty
contained in this Agreement or any condition to the obligations of the
parties hereto.
(b) Harsco will hold, and will use its best efforts to cause its
Representatives to hold, in strict confidence, unless (i) compelled to
disclose by judicial or administrative process or by other requirements of
applicable Laws of Governmental or Regulatory Authorities (including,
without limitation, in connection with obtaining the necessary approvals of
this Agreement or the transactions contemplated hereby of Governmental or
Regulatory Authorities), or (ii) disclosed in an action or proceeding
brought by a party hereto in pursuit of its rights or in the exercise of
its remedies hereunder, all documents and information concerning the
Company furnished to it by the Company or its Representatives in connection
with this Agreement or the transactions contemplated hereby, except to the
extent that such documents or information can be shown to have been (x)
previously known by Harsco or its Representatives, (y) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of Harsco and its Representatives or (z) later
acquired by Harsco or its Representatives from another source if Harsco or
such Representative is not aware that such source is under an obligation to
the Company to keep such documents and information confidential. In the
event that this Agreement is terminated without the transactions
contemplated hereby having been consummated, upon the request of the
Company, Harsco will, and will cause its Representatives to, promptly
redeliver or cause to be redelivered all copies of documents and
information furnished by the Company or its Representatives to Harsco and
its Representatives in connection with this Agreement or the transactions
contemplated hereby and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other writings related
thereto or based thereon prepared by Harsco or its Representatives.
6.02 Preparation of Proxy Statement. The Company shall prepare and file
with the SEC the Proxy Statement as soon as reasonably practicable after the
date hereof, and shall use its best efforts to have the Proxy Statement cleared
by the SEC. If at any time prior to the Effective Time any event shall occur
that should be set forth in an amendment of or a supplement to the Proxy
Statement, the Company shall prepare and file with the SEC such amendment or
supplement as soon thereafter as is reasonably practicable. Harsco, Acquisition
Sub and the Company shall cooperate with each other in the preparation of the
Proxy Statement, and the Company shall notify Harsco of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests by
the SEC for any amendment or supplement thereto or for additional information,
and shall provide to Harsco promptly copies of all correspondence between the
Company or any representative of the Company and the SEC
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with respect to the Proxy Statement. The Company shall give Harsco and its
counsel the opportunity to review the Proxy Statement and all responses to
requests for additional information by and replies to comments of the SEC before
their being filed with, or sent to, the SEC. Each of the Company, Harsco and
Acquisition Sub agrees to use its best efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC and to cause the Proxy Statement to be mailed to the holders of
Company Common Stock entitled to vote at the Company Shareholders' Meeting at
the earliest practicable time.
6.03 Approval of Shareholders. The Company shall, through its Board of
Directors, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Company Shareholders' Meeting") for the purpose of voting on
the adoption of this Agreement (the "Company Shareholders' Approval") as soon as
reasonably practicable after the date hereof. Except to the extent legally
required for the discharge of its fiduciary duties as reflected in a written
opinion of counsel, the Company shall, through its Board of Directors, include
in the Proxy Statement the recommendation of the Board of Directors of the
Company that the shareholders of the Company adopt this Agreement, and shall use
its best efforts to obtain such adoption. At such meeting, Harsco shall, and
shall cause its Subsidiaries to, cause all shares of Company Common Stock then
owned by Harsco or any such Subsidiary to be voted in favor of the adoption of
this Agreement.
6.04 Regulatory and Other Approvals. Subject to the terms and conditions
of this Agreement and without limiting the provisions of Sections 6.02 and 6.03,
each of the Company and Harsco will proceed diligently and in good faith and
will use all commercially reasonable efforts to do, or cause to be done, all
things necessary, proper or advisable to, as promptly as practicable, (a) obtain
all consents, approvals or actions of, make all filings with and give all
notices to Governmental or Regulatory Authorities or any other public or private
third parties required of Harsco, the Company or any of their Subsidiaries to
consummate the Merger and the other matters contemplated hereby and by the Stock
Option Agreement, and (b) provide such other information and communications to
such Governmental or Regulatory Authorities or other public or private third
parties as the other party or such Governmental or Regulatory Authorities or
other public or private third parties may reasonably request. In addition to and
not in limitation of the foregoing, (i) each of the parties will (x) take
promptly all actions necessary to make the filings required of Harsco and the
Company or their affiliates under the HSR Act, (y) comply at the earliest
practicable date with any request for additional information received by such
party or its affiliates from the Federal Trade Commission (the "FTC") or the
Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act, and (z) cooperate with the other party in connection
with such party's filings under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the Merger or the other matters
contemplated by this Agreement commenced by either the FTC or the Antitrust
Division or state attorneys general
6.05 Benefit Plans.
(a) Company Employees Not Subject to Collective Bargaining Agreements
("Non-Unionized Employees"):
(i) Harsco shall have the right (but not the obligation) to
employ, as officers and employees of Harsco or the Surviving
Corporation, any persons who are officers and Non-Unionized Employees of
the Company immediately before the Effective Time. It shall be a
condition to employment by Harsco or the Surviving Corporation that any
former officer or Non-Unionized Employee of the Company agree to cancel
any existing employment contract, agreement or understanding between him
or herself and the Company, including without limitation, all benefits
related to severance arrangements upon a change of control or otherwise,
prior to accepting such new employment and without accepting any of the
severance benefits or other benefits or payments associated with such
contract, agreement or understanding.
(ii) Each Non-Unionized Employee employed by the Company prior to
the Effective Time who remains an employee of the Surviving Corporation
or Harsco, following the Effective Time (each a "Continued Employee")
shall be entitled, as an employee of Harsco or the Surviving
Corporation, to participate in whatever employee benefit plans, as
defined in Section 3(3) of ERISA, or whatever stock option, bonus or
incentive plans or other fringe benefit programs that may be in effect
generally for employees of Harsco or its Subsidiaries from time to time
("Harsco's Plans"), if such Continued
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Employee shall be eligible or selected for participation therein and
otherwise shall not be participating in a similar plan which continues
to be maintained by the Surviving Corporation for such employee. All
such participation shall be subject to such terms of such plans as may
be in effect from time to time provided, further that Continued
Employees will be eligible to participate in Harsco's Plans on the same
basis as similarly situated employees of Harsco or its Subsidiaries.
Such Continued Employees will receive credit for past service with the
Company for purposes of eligibility and vesting, but not benefit
accrual, under Harsco's Plans.
(iii) the Company shall take all timely and necessary action to
cease participation or accrual of benefits, effective as of the
Effective Time, by each Non-Unionized Employee employed by the Company
prior to the Effective Time in each Company Benefit Plan, and to
terminate each Company Benefit Plan, effective as of the Effective Time;
provided that Harsco may, in its sole discretion, give notice to the
Company, not less than 20 days (61 days in the case of any pension plan)
prior to the Effective Time, that any Company Benefit Plan shall not be
terminated and/or participation or accrual of benefits thereunder shall
not cease pursuant to this Section 6.05. At the sole discretion of
Harsco, the assets of any Company Benefit Plan may be transferred to any
similar such plan maintained and designated by Harsco, effective at or
after the Effective Time, as elected by Harsco, and if Harsco so elects,
the Company shall take any and all timely and necessary action to effect
such transfer.
(b) Company Employees Subject to Collective Bargaining Agreements
("Unionized Employees"):
(i) the rights, duties and obligations of the Company's Unionized
Employees after the Effective Time shall be governed and controlled by
such employees' respective collective bargaining agreements with the
Company as in effect at the Effective Time.
6.06 Stock Option Agreement. The Company, Harsco and Acquisition Sub
shall perform fully their respective obligations under the Stock Option
Agreement.
6.07 Expenses. Except as set forth in Section 8.02, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the Stock Option Agreement and the transactions contemplated
hereby and thereby shall be paid by the party incurring such cost or expense.
6.08 Brokers or Finders. Each of Harsco and the Company represents, as to
itself and its affiliates, that no agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement except McDonald & Company
Securities, Inc. whose fees and expenses will be paid by the Company in
accordance with the Company's agreement with such firm (a true and complete copy
of which has been delivered by the Company to Harsco prior to the execution of
this Agreement), and each of Harsco and the Company shall indemnify and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other such fee or commission or expenses related thereto
asserted by any person on the basis of any act or statement alleged to have been
made by such party or its affiliate.
6.09 Notice and Cure. Each of Harsco and the Company will notify the
other promptly in writing of, and contemporaneously will provide the other with
true and complete copies of any and all information or documents relating to,
and will use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance occurring after the date of this Agreement
that causes or will cause any covenant or agreement of Harsco or the Company, as
the case may be, under this Agreement to be breached or that renders or will
render untrue any representation or warranty of Harsco or the Company, as the
case may be, contained in this Agreement as if the same were made on or as of
the date of such event, transaction or circumstance. Each of Harsco and the
Company also will notify the other promptly in writing of, and will use all
commercially reasonable efforts to cure, before the Closing, any violation or
breach of any representation, warranty, covenant or agreement made by Harsco or
the Company, as the case may be, in this Agreement, whether occurring or arising
prior to, on or after the date of this Agreement. No notice given pursuant to
this Section shall have any effect on the representations, warranties, covenants
or agreements contained in this Agreement for purposes of determining
satisfaction of any condition contained herein.
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6.10 Fulfillment of Conditions. Subject to the terms and conditions of
this Agreement, each of Harsco and the Company will take or cause to be taken
all commercially reasonable steps necessary or desirable and proceed diligently
and in good faith to satisfy each condition to the other's obligations contained
in this Agreement and to consummate and make effective the transactions
contemplated by this Agreement, and neither Harsco nor the Company will, nor
will it permit any of its Subsidiaries to, take or fail to take any action that
could be reasonably expected to result in the nonfulfillment of any such
condition.
6.11 1997 Audited Financial Statements. The Company shall cause to be
delivered to Harsco the audited financial statements of the Company for the year
ended December 31, 1997 as soon as the same are available, but in no event later
than 5 days prior to Closing.
ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) Shareholder Approval. This Agreement shall have been adopted by
the requisite vote of the shareholders of the Company under the OGCL and
the Company's Articles of Incorporation.
(b) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(c) No Injunctions or Restraints. No court of competent jurisdiction
or other competent Governmental or Regulatory Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) which is then in effect and has the
effect of making illegal or otherwise restricting, preventing or
prohibiting consummation of the Merger or the other transactions
contemplated by this Agreement and the Stock Option Agreement.
(d) Governmental and Regulatory Consents and Approvals. Other than
the filing provided for by Section 1.02, all consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory
Authority or any other public or private third party required of Harsco,
the Company or any of their Subsidiaries to consummate the Merger and the
other matters contemplated hereby and by the Stock Option Agreement, the
failure of which to be obtained or taken could be reasonably expected to
have a material adverse effect on Harsco and its Subsidiaries or the
Surviving Corporation and its Subsidiaries, in each case taken as a whole,
or on the ability of Harsco and the Company to consummate the transactions
contemplated hereby or by the Stock Option Agreement shall have been
obtained, all in form and substance reasonably satisfactory to Harsco and
no such consent, approval or action shall contain any term or condition
which could be reasonably expected to result in a material diminution of
the benefits of the Merger to Harsco.
7.02 Conditions to Obligation of Harsco and Acquisition Sub to Effect the
Merger. The obligation of Harsco and Acquisition Sub to effect the Merger is
further subject to the fulfillment, at or prior to the Closing, of each of the
following additional conditions (all or any of which may be waived in whole or
in part by Harsco and Acquisition Sub in their sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by the Company in this Agreement shall be true and correct
in all material respects as of the Closing Date as though made on and as of
the Closing Date or, in the case of representations and warranties made as
of a specified date earlier than the Closing Date, on and as of such
earlier date and the Company shall have delivered to Harsco a certificate,
dated the Closing Date and executed on behalf of the Company by its
Chairman of the Board, President or any Vice President, to such effect.
(b) Performance of Obligations. The Company shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with
by the Company at or prior to the Closing, and the Company shall have
delivered to Harsco
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a certificate, dated the Closing Date and executed on behalf of the Company
by its Chairman of the Board, President or any Vice President, to such
effect.
(c) Orders and Laws. There shall not have been issued, enacted,
promulgated or deemed applicable to Harsco, the Surviving Corporation, any
of their respective Subsidiaries or the transactions contemplated by this
Agreement any Order or Law of any Governmental or Regulatory Authority
which is then in effect and which could be reasonably expected to result in
a material diminution of the benefits of the Merger to Harsco, and there
shall not be pending or threatened on the Closing Date any action, suit or
proceeding in, before or by any Governmental or Regulatory Authority which
could be reasonably expected to result in any such issuance, enactment,
promulgation or deemed applicability of any such Order or Law or of any
Order or Law referred to in Section 7.01(c).
(d) Governmental and Regulatory Consents and Approvals. Other than
the filing provided for by Section 1.02, all consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory
Authority, the failure of which to be obtained or taken could be reasonably
expected to have a material adverse effect on Harsco and its Subsidiaries
or the Surviving Corporation and its Subsidiaries, in each case taken as a
whole, or on the ability of Harsco and the Company to consummate the
transactions contemplated hereby or by the Stock Option Agreement shall
have been obtained, all in form and substance reasonably satisfactory to
Harsco and no such consent, approval or action shall contain any term or
condition which could be reasonably expected to result in a material
diminution of the benefits of the Merger to Harsco.
(e) Contractual Consents. The Company shall have received, all in
form and substance reasonably satisfactory to Harsco, all material consents
(or in lieu thereof waivers) from parties to each Contract disclosed or
which should have been disclosed pursuant to Section 3.04(b), and no such
consent or waiver shall contain any term or condition which could be
reasonably expected to result in a material diminution of the benefits of
the Merger to Harsco.
(f) Opinion of Counsel. Harsco and Acquisition Sub shall have
received the opinion of Squire, Sanders & Dempsey LLP, counsel to the
Company, dated the Closing Date, substantially in the form and to the
effect of Exhibit A hereto.
(g) Proceedings. All proceedings to be taken on the part of the
Company in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form
and substance to Harsco, and Harsco shall have received copies of all such
documents and other evidences as Harsco may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(h) Dissenting Shares. No more than seven percent (7%) of the
outstanding Company Common Stock shall be Dissenting Shares.
7.03 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the Company
in its sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by Harsco and Acquisition Sub in this Agreement shall be
true and correct in all material respects as of the Closing Date as though
made on and as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing Date, on
and as of such earlier date, and Harsco and Acquisition Sub shall each have
delivered to the Company a certificate, dated the Closing Date and executed
on behalf of Harsco by its Chairman of the Board, President or any Vice
President and on behalf of Acquisition Sub by its Chairman of the Board,
President or any Vice President, to such effect.
(b) Performance of Obligations. Harsco and Acquisition Sub shall have
performed and complied with, in all material respects, each agreement,
covenant and obligation required by this Agreement to be so performed or
complied with by Harsco or Acquisition Sub at or prior to the Closing, and
Harsco and Acquisition Sub shall each have delivered to the Company a
certificate, dated the Closing Date and executed
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on behalf of Harsco by its Chairman of the Board, President or any Vice
President and on behalf of Acquisition Sub by its Chairman of the Board,
President or any Vice President, to such effect.
(c) Opinion of Counsel. The Company shall have received the opinion of
Morgan, Lewis & Bockius LLP, counsel to Harsco and Acquisition Sub, dated
the Closing Date, substantially in the form and to the effect of Exhibit B
hereto.
(d) Proceedings. All proceedings to be taken on the part of Harsco and
Acquisition Sub in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company, and the Company shall
have received copies of all such documents and other evidences as the
Company may reasonably request in order to establish the consummation of
such transactions and the taking of all proceedings in connection
therewith.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned, at any time prior to the Effective Time,
whether prior to or after the Company Shareholders' Approval:
(a) by mutual written agreement of the parties hereto duly authorized
by action taken by or on behalf of their respective Boards of Directors;
(b) by either the Company or Harsco upon notification to the
non-terminating party by the terminating party:
(i) at any time after April 30, 1998 if the Merger shall not have
been consummated on or prior to such date and such failure to consummate
the Merger is not caused by a breach of this Agreement by the
terminating party; provided however, the date may be extended
indefinitely by the mutual written agreement of the parties; and
provided further, that such date shall be extended by the parties for a
reasonable period if the only condition hereunder that remains
unsatisfied as of such date relates to the receipt of any Governmental
or Regulatory Authority Consent or approval required in connection with
this transaction including, without limitation, any consent or approval
required under the HSR Act;
(ii) if the Company Shareholders' Approval shall not be obtained by
reason of the failure to obtain the requisite vote upon a vote held at a
meeting of such shareholders, or any adjournment thereof, called
therefor;
(iii) if any Governmental or Regulatory Authority, the taking of
action by which is a condition to the obligations of either the Company
or Harsco to consummate the transactions contemplated hereby, shall have
determined not to take such action and all appeals of such determination
shall have been taken and have been unsuccessful;
(iv) if there has been a material breach of any representation,
warranty, covenant or agreement on the part of the non-terminating party
set forth in this Agreement which breach has not been cured within 5
business days following receipt by the non-terminating party of notice
of such breach from the terminating party or assurance of such cure
reasonably satisfactory to the terminating party shall not have been
given by or on behalf of the non-terminating party within such 5
business day period; or
(v) if any court of competent jurisdiction or other competent
Governmental or Regulatory Authority shall have issued an Order making
illegal or otherwise restricting, preventing or prohibiting the Merger
and such Order shall have become final and nonappealable.
8.02 Effect of Termination. (a) If this Agreement is validly terminated by
either the Company or Harsco pursuant to Section 8.01, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of either the Company or Harsco (or any of their respective
Representatives or affiliates), except (i) that the provisions of Sections
6.01(b), 6.06, 6.07, and 6.08 will continue to apply following any such
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termination, and (ii) that nothing contained herein shall relieve any party
hereto from liability for wilful breach of its representations, warranties,
covenants or agreements contained in this Agreement and (iii) as provided in
paragraph (b) below.
(b) In the event that (i) Harsco terminates this Agreement pursuant to
Section 8.01(b)(iv), or (ii) either Harsco or the Company terminates this
Agreement pursuant to Section 8.01(b)(ii) following a failure of the
shareholders of the Company to approve this Agreement and, before the
Company Shareholders' Meeting the Board of Directors of the Company shall
have recommended that its shareholders accept any tender or exchange offer
with respect to their Company Common Stock (other than an offer made by or
on behalf of Harsco) or shall have withdrawn or modified in any manner
adverse to Harsco its recommendation with respect to the Merger, then the
Company shall, within one business day after receipt of a request from
Harsco, pay to Harsco in cash a termination fee of $1.7 million.
8.03 Amendment. This Agreement may be amended, supplemented or modified by
action taken by or on behalf of the respective Boards of Directors of the
parties hereto at any time prior to the Effective Time, whether prior to or
after adoption of this Agreement at the Company Shareholders' Meeting, but after
such adoption only to the extent permitted by applicable law. No such amendment,
supplement or modification shall be effective unless set forth in a written
instrument duly executed by or on behalf of each party hereto.
8.04 Waiver. At any time prior to the Effective Time any party hereto, by
action taken by or on behalf of its Board of Directors, may to the extent
permitted by applicable law (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the covenants, agreements or conditions of the other
parties hereto contained herein. No such extension or waiver shall be effective
unless set forth in a written instrument duly executed by or on behalf of the
party extending the time of performance or waiving any such inaccuracy or
non-compliance. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion.
ARTICLE IX
GENERAL PROVISIONS
9.01 Non-Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties, covenants and agreements contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall not
survive the Merger but shall terminate at the Effective Time.
9.02 Knowledge. With respect to any representations or warranties contained
herein which are made to the knowledge of the Company or Harsco or any of their
respective Subsidiaries, as the case may be, the knowledge of the officers,
directors and employees of the Company or Harsco, as the case may be, and of the
officers, directors and employees of its respective Subsidiaries, shall be
imputed to the Company or Harsco, as the case may be, and such Subsidiaries.
9.03 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to Harsco or Acquisition Sub, to:
Harsco Corporation
350 Poplar Church Road
P.O. Box 8888
Camp Hill, PA 17001-8888
Facsimile No.: (717) 763-6426
Attn: General Counsel
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with a copy to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101
Facsimile No.: (717) 237-4013
Attn: Charles L. O'Brien, Esquire
If to the Company, to:
Chemi-Trol Chemical Co.
2776 County Road 69
Gibsonburg, OH 43431
Facsimile No.: (419) 334-5285
Attn: Robert W. Woolf, Chairman, President and CEO
with a copy to:
Squire, Sanders & Dempsey LLP
4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
Facsimile No.: (216) 479-8780
Attn: David A. Zagore, Esquire
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other parties hereto.
9.04 Entire Agreement. Except for the Confidentiality Agreement executed by
and between Harsco and the Company, dated October 28, 1997, which shall remain
in full force and effect as provided therein, this Agreement and the Stock
Option Agreement supersede all prior discussions and agreements among the
parties hereto with respect to the subject matter hereof and thereof, including,
without limitation, that certain letter of intent between the Company and Harsco
dated December 8, 1997, and contain the sole and entire agreement among the
parties hereto with respect to the subject matter hereof and thereof.
Notwithstanding anything herein to the contrary, Harsco shall have the right to
exercise its rights and option under the Stock Option Agreement.
9.05 Public Announcements. Except as otherwise required by law or the rules
of any applicable securities exchange or national market system, so long as this
Agreement is in effect, Harsco and the Company will not, and will not permit any
of their respective Representatives to, issue or cause the publication of any
press release or make any other public announcement with respect to the
transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld. Harsco and the Company
will cooperate with each other in the development and distribution of all press
releases and other public announcements with respect to this Agreement and the
transactions contemplated hereby, and will furnish the other with drafts of any
such releases and announcements as far in advance as practicable.
9.06 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and except as provided in Section 6.06, it is
not the intention of the parties to confer third-party beneficiary rights upon
any other person.
9.07 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other parties hereto and any attempt to do so will
be void, except that Acquisition Sub may assign any or all of its rights,
interests and obligations
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<PAGE> 30
hereunder to another direct or indirect wholly-owned Subsidiary of Harsco,
provided that any such Subsidiary agrees in writing to be bound by all of the
terms, conditions and provisions contained herein. subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
9.08 Headings.The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
9.09 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the legal, invalid or unenforceable provision
or by its severance herefrom and (iv) in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
9.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to a
contract executed and performed in such State without giving effect to the
conflicts of laws principles thereof.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
69
<PAGE> 31
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its officer thereunto duly authorized as of the date first above
written.
<TABLE>
<S> <C>
Attest: HARSCO CORPORATION
/s/ Paul C. Coppock By: /s/ Barry M. Sullivan
- -----------------------------------------------------
Secretary -----------------------------------------------------
Name: Barry M. Sullivan
Title: Vice President -- Corporate Development
and Treasurer
Attest: H-CHEMI ACQUISITION CORP.
/s/ Paul C. Coppock By: /s/ Barry M. Sullivan
- -----------------------------------------------------
Secretary -----------------------------------------------------
Name: Barry M. Sullivan
Title: Treasurer
Attest: CHEMI-TROL CHEMICAL CO.
/s/ Kevin D. Lauck By: /s/ Robert W. Woolf
- -----------------------------------------------------
Secretary -----------------------------------------------------
Name: Robert W. Woolf
Title: Chairman, President and CEO
</TABLE>
70
<PAGE> 32
EXHIBIT A
[OPINION OF COUNSEL TO THE COMPANY]
, 1998
Harsco Corporation
350 Poplar Church Road
P. O. Box 8888
Camp Hill, PA 17001-8888
H-Chemi Acquisition Corp.
350 Poplar Church Road
P. O. Box 8888
Camp Hill, PA 17001-8888
Dear Sirs:
We have acted as [special] counsel to Chemi-Trol Chemical Co., an Ohio
corporation (the "Company"), in connection with the Agreement and Plan of Merger
dated as of February , 1998, (the "Merger Agreement"), by and among Harsco
corporation, a Delaware corporation, H-Chemi Acquisition Corp., a Pennsylvania
corporation, and the Company and the transactions contemplated thereby.
Capitalized terms not defined herein shall have the meanings ascribed to them in
the Merger Agreement. We are rendering this opinion to you pursuant to Section
7.02(f) of the Merger Agreement.
In rendering the opinions expressed below, we have examined such documents
and such corporate records of the Company as we have deemed necessary as a basis
for the opinions hereinafter expressed. In such examination, we have assumed the
genuineness of all signatures, the authenticity of documents submitted to us as
originals, the conformity with the original documents of all documents submitted
to us as copies and the authenticity of the originals of such latter documents.
When facts relevant to such opinions were not independently established, we have
relied upon the representations and warranties as to factual matters made in or
pursuant to the Merger Agreement and upon certificates of government officials
and of the Company and its officers.
Based upon the foregoing and having regard to legal considerations we deem
relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation
and has full corporate power and authority to conduct its business as and
to the extent now conducted and to own, use and lease its assets and
properties.
2. The authorized capital stock of the Company consists solely of
shares of Company Common Stock. As of , , shares
of Company Common Stock were issued and outstanding, shares were
held in the treasury of the Company. To our knowledge there has been no
change in the number of issued and outstanding shares of Company Common
Stock or shares of Company Common Stock held in treasury or reserved for
issuance since such date other than the reservation of shares
pursuant to the Stock Option Agreement. All of the issued and outstanding
shares of Company Common Stock are, and all shares reserved for issuance
will be, upon issuance in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable, duly
authorized, validly issued, fully paid and nonassessable. To our knowledge,
except pursuant to the Merger Agreement and the Stock Option Agreement and
except as set forth in Schedule 3.02 to the Merger Agreement, there are no
outstanding Options obligating the Company to issue or sell any shares of
capital stock of the Company or to grant, extend or enter into any Option
with respect thereto.
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<PAGE> 33
3. The Company has full corporate power and authority to enter into
the Merger Agreement and the Stock Option Agreement, to perform its
obligations thereunder and to consummate the transactions contemplated
thereby. The execution, delivery and performance of the Merger Agreement
and the Stock Option Agreement by the Company and the consummation by the
Company of the transactions contemplated thereby have been duly and validly
approved by the Board of Directors of the Company and the shareholders of
the Company and no other corporate proceedings on the part of the Company
or its shareholders are necessary to authorize the execution, delivery and
performance of the Merger Agreement and the Stock Option Agreement by the
Company and the consummation by the Company of the transactions
contemplated thereby. The Merger Agreement and the Stock Option Agreement
have been duly and validly executed and delivered by the Company and
constitute legal, valid and binding obligation of the Company enforceable
against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
4. The execution and delivery of the Merger Agreement and the Stock
Option Agreement by the Company did not, and the performance by the Company
of its obligations thereunder and the consummation of the transactions
contemplated thereby will not, conflict with, result in a violation or
breach of, constitute (with or without notice or lapse of time or both) a
default under, result in or give to any person any right of termination,
cancellation, modification or acceleration of, or result in the creation or
imposition of any Lien upon any of the assets or properties of the Company
under, any of the terms, conditions or provisions of (a) the articles of
incorporation or regulations (or other comparable charter documents) of the
Company, (b) any statute, law, rule or regulation, or any other Law or
Order of any Governmental or Regulatory Authority known to us, applicable
to the Company or any of its assets or properties, or (c) any Contract
known to us to which the Company is a party or by which the Company or any
of their respective assets or properties is bound.
5. No consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority is necessary or required under any of
the terms, conditions or provisions of any statute, law, rule or
regulation, or any other Law or Order of any Governmental or Regulatory
Authority known to us, applicable to the Company or any of its assets or
properties for the execution and delivery of the Merger Agreement and the
Stock Option Agreement by the Company, the performance by the Company of
its obligations thereunder or the consummation of the transactions
contemplated thereby, except as disclosed in Section 3.04(b) of the Merger
Agreement or Schedule 3.04 thereto, all of which consents, approvals,
actions, filings and notices have been obtained, made or given, as the case
may be, are not subject to the satisfaction of any condition that has not
been satisfied or waived and are in full force and effect.
6. Except as disclosed in the Company SEC Reports filed prior to the
date hereof or in Schedule 3.08 to the Merger Agreement, to our knowledge
there are no actions, suits, arbitrations, proceedings or Governmental or
Regulatory Authority investigations or audits pending or threatened
against, relating to or affecting the Company or any of its assets and
properties which, individually or in the aggregate, could be reasonably
expected to have a material adverse effect on the Company or on the ability
of the Company to consummate the transactions contemplated by the Merger
Agreement or the Stock Option Agreement.
We are members of the bar of the State of and we do not
herein express any opinion as to any matters governed by any laws other than the
laws of the State of , the General Corporation Law of the State
of Ohio and the federal law of the United States of America.
This opinion is furnished by as solely for your benefit in connection with
the consummation of the transactions contemplated by the Merger Agreement and
may not be referred to or used for any other purpose or in any other context or
otherwise relied upon by any other person, firm or corporation without our prior
written consent.
Very truly yours,
72
<PAGE> 34
EXHIBIT B
[OPINION OF COUNSEL TO HARSCO AND ACQUISITION SUB]
, 1998
Chemi-Trol Chemical Co.
2776 CR 69
Gibsonburg, OH 43431
Dear Sirs:
We have acted as special counsel to Harsco Corporation, a Delaware
corporation ("Harsco"), and H-Chemi Acquisition Corp., a Pennsylvania
corporation wholly owned by Harsco ("Acquisition Sub"), in connection with the
Agreement and Plan of Merger dated as of February , 1998 (the
"Merger Agreement"), by and among Harsco, Acquisition Sub and Chemi-Trol
Chemical Co., an Ohio corporation, and the transactions contemplated thereby.
Capitalized terms not defined herein shall have the meanings ascribed to them in
the Merger Agreement. We are rendering this opinion to you pursuant to Section
7.03(c) of the Merger Agreement.
In rendering the opinions expressed below, we have examined such documents
and such corporate records of Harsco and its Subsidiaries as we have deemed
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of documents
submitted to us as originals, the conformity with the original documents of all
documents submitted to us as copies and the authenticity of the originals of
such latter documents. When facts relevant to such opinions were not
independently established, we have relied upon the representations and
warranties as to factual matters made in or pursuant to the Merger Agreement and
upon certificates of government officials and of Harsco and its Subsidiaries and
their respective officers.
Based upon the foregoing and having regard to legal considerations we deem
relevant, we are of the opinion that:
1. Harsco is a corporation validly existing and in good standing under
the laws of its jurisdiction of incorporation. Acquisition Sub is a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation.
2. Each of Harsco and Acquisition Sub has full corporate power and
authority to enter into the Merger Agreement and the Stock Option
Agreement, to perform its obligations thereunder and to consummate the
transactions contemplated thereby to be consummated by it. The execution,
delivery and performance of the Merger Agreement and the Stock Option
Agreement by each of Harsco and Acquisition Sub and the consummation by
each of Harsco and Acquisition Sub of the transactions contemplated thereby
to be consummated by it have been duly and validly approved by its Board of
Directors and by Harsco in its capacity as the sole shareholder of
Acquisition Sub, and no other corporate proceedings on the part of Harsco
or Acquisition Sub or their shareholders are necessary to authorize the
execution, delivery and performance of this Agreement and the Stock Option
Agreement by Harsco or Acquisition Sub and the consummation by Harsco or
Acquisition Sub of the transactions contemplated thereby. The Merger
Agreement and the Stock Option Agreement have been duly and validly
executed and delivered by Harsco and Acquisition Sub and constitute legal,
valid and binding obligation of Harsco and Acquisition Sub enforceable
against Harsco and Acquisition Sub in accordance with their terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
We are members of the bar of the State of Pennsylvania, and we do not
herein express any opinion as to any matters governed by any laws other than the
laws of the State of Pennsylvania, the General Corporation Law of the State of
Ohio and the federal law of the United States of America.
This opinion is furnished by as solely for your benefit in connection with
the consummation of the transactions contemplated by the Merger Agreement and
may not be referred to or used for any other purpose or in any other context or
otherwise relied upon by any other person, firm or corporation without our prior
written consent.
Very truly yours,
73
<PAGE> 1
EXHIBIT 4.7
74
<PAGE> 2
SECOND AMENDMENT TO AMENDED
---------------------------
AND RESTATED CREDIT AGREEMENT
-----------------------------
This Second Amendment to Amended and Restated Credit Agreement is
executed as of the 2nd day of May, 1997, between Chemi-Trol Chemical Co., an
Ohio corporation ("Borrower"), and The Fifth Third Bank of Northwestern Ohio,
N.A. ("Bank").
The parties executed (a) an Amended and Restated Credit Agreement
dated as of May 2, 1996, whereby Bank agreed to make Revolving Loans to Borrower
up to an amount of Fifteen Million Dollars ($15,000,000.00) through May 1, 1997,
and (b) an Amendment to Credit Agreement dated as of February 28, 1997. For
purposes herein, the Amended and Restated Credit Agreement dated as of May 2,
1996, as amended by the Amendment to Credit Agreement dated as of February 28,
1997, shall be referred to as the "Credit Agreement".
Pursuant to Section 7.9 of the Credit Agreement, the parties desire
to amend the terms of the Credit Agreement by extending the Termination Date.
Capitalized terms defined in the Credit Agreement shall have the same meaning
when used herein.
NOW, THEREFORE, in consideration of the parties agreement to amend
the Credit Agreement, the premises and covenants herein, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree to amend the Credit Agreement as follows:
1. Section 2.1 of the Credit Agreement is hereby amended to provide
that the Termination date shall be May 2, 1998.
2. Section 2.3 of the Credit Agreement is hereby amended to change
May 2, 1997, in both instances, to May 2, 1998.
3. Section 2.4 of the Credit Agreement is hereby amended to change
May 2, 1997, to May 2, 1998.
Except as specifically amended herein, all terms and provisions of
the Credit Agreement shall remain in full force and effect through the extended
Termination Date of May 2, 1998. Borrower hereby reaffirms the original and
amended notes, security agreements financing statements and other security
documents previously executed by it in connection with the Credit Agreement and
acknowledges that such documents remain in full force and effect as evidence of
and security for the Revolving Loans, and the repayment of the Revolving Loans,
as the same may be amended hereby.
Executed as of the date first written above.
CHEMI-TROL CHEMICAL CO. FIFTH THIRD BANK OF
NORTHWESTERN OHIO, N.A.
By:/S/ Arthur F. Doust By:/S/ Jeffery C. Shrader
C.E.O. Vice President
By:/S/ Robert W. Woolf
President
75
<PAGE> 1
EXHIBIT 4.8
76
<PAGE> 2
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT, dated as of February 20, 1998 (the
"Agreement"), among Harsco Corporation, a Delaware corporation ("Parent"),
H-Chemi Acquisition Corp., a Pennsylvania corporation and a direct, wholly-owned
subsidiary of Parent ("Subsidiary") and Chemi-Trol Chemical Co., an Ohio
corporation (the "Company").
WHEREAS, Parent, Subsidiary and the Company propose to enter into an
Agreement and Plan of Merger dated the date hereof (the "Merger Agreement"),
which provides, among other things, that upon the terms and subject to the
conditions thereof, Parent will acquire all outstanding shares of Common Stock
of the Company (the "Company Common Stock"), Subsidiary will be merged with the
Company pursuant to the merger contemplated in the Merger Agreement (the
"Merger") and, thereafter, the Company will be a wholly-owned subsidiary of
Parent; and
WHEREAS, as a condition to the willingness of Parent and Subsidiary to
enter into the Merger Agreement, Parent and Subsidiary have requested that the
Company agree, and in order to induce Parent and Subsidiary to enter into the
Merger Agreement the Company has agreed, to grant Subsidiary an option to
purchase up to 190,468 shares of Company Common Stock, all in accordance with
the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. GRANT OF STOCK OPTION. The Company hereby grants to Subsidiary an
irrevocable option (the "Option") to purchase up to 190,468 shares of Company
Common Stock (the "Option Shares") at a purchase price of $13.75 per Option
Share (the "Purchase Price").
2. EXERCISE OF OPTION.
(a) Subject to the conditions set forth in paragraph 3 hereof,
the Option may be exercised by Subsidiary, in whole or in part, at any
time or from time to time after the date hereof and prior to the
earlier to occur of (a) the Effective Time of the Merger or (b) upon a
Purchase Event (as defined below), the date six months following such
Purchase Event, provided that if an Exercise Notice (as hereinafter
defined) had been given on or before the expiration of such six-month
period and if the Option cannot be exercised on such day because of any
injunction, order or similar restraint issued by a court of competent
jurisdiction, the Option shall expire on the tenth business day after
such injunction, order or restraint shall have been dismissed, been
withdrawn or become
77
<PAGE> 3
permanent and no longer subject to appeal, as the case may be (the
"Termination Date"). In the event Subsidiary wishes to exercise the
Option, Subsidiary shall send a written notice (an "Exercise Notice")
to the Company specifying the total number of Option Shares it wishes
to purchase. Each closing of a purchase of Option Shares (a "Stock
Option Closing") shall take place at the executive offices of the
Company at the address referred to in Section 13(d) hereof, on a date
and at a time designated by Subsidiary in its Exercise Notice (which
date and time may be as early as one day after the Exercise Notice or
earlier if reasonably practicable).
(b) As used in this Agreement, a "Purchase Event" shall mean
any of the following events:
(1) any person (other than Parent or any subsidiary
of Parent) shall have commenced (as such term is defined in
Rule 14d-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), a tender offer or exchange
offer to purchase Company Common Stock such that, upon
consummation of such offer, such person could own or control
20 percent or more of the outstanding Company Common Stock,
and such person has obtained approval of shareholders of the
Company in accordance with Section 1701.831 of the Ohio
Revised Code in respect of such control share acquisition;
(2) the Company shall have authorized, recommended,
proposed or announced an intention to authorize, recommend or
propose, or entered into, an agreement with any person (other
than Parent or any subsidiary of Parent) to (A) merge or
consolidate with the Company or enter into any similar
transaction with such person, (B) sell, lease or otherwise
dispose of all or substantially all of the assets of the
Company to such person, or (C) sell or otherwise dispose of
(including by way of merger, consolidation, share exchange or
similar transaction) securities representing 20 percent or
more of the voting power of the Company, and the same shall
have been scheduled by the Company to close within 365
calendar days following the date of termination of the Merger
Agreement;
(3) any person (other than Parent or any subsidiary
of Parent) shall have acquired beneficial ownership (as such
term is defined in Rule 13d-3 under the Exchange Act) or the
right to acquire beneficial ownership of, or a new group has
been formed which beneficially owns, 20 percent or more of the
outstanding Company Common Stock, and such person has obtained
approval of shareholders of the Company in accordance with
Section 1701.831 of the Ohio Revised Code in respect of such
control share acquisition; or
(4) the shareholders of the Company shall have
disapproved the Merger after any person (other than Parent or
any subsidiary of Parent) shall have publicly announced a
proposal to acquire the Company by merger, consolidation,
78
<PAGE> 4
purchase of all or substantially all of its assets or any
other similar transaction, and the same shall have been
scheduled by the Company to close within 365 calendar days
following the date of termination of the Merger Agreement.
As used in this Agreement, "person" shall have the meanings specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(c) Notwithstanding anything herein to the contrary, in the event that
Parent receives payment in full of the $1.7 million termination fee set forth in
Section 8.02(b) of the Merger Agreement, the number of Option Shares that
Subsidiary shall have the option to purchase hereunder shall be reduced from
190,468 to 95,234.
3. STOCK OPTION CLOSINGS. At each Stock Option Closing, the Company
will deliver to Subsidiary a certificate or certificates representing the number
of Option Shares being purchased upon exercise of the Option in the
denominations designated by Subsidiary in its Exercise Notice, and Subsidiary
will purchase such Option Shares from the Company at the Purchase Price per
share. Any payment made by Subsidiary to the Company pursuant to this Section 3
shall be paid in New York Clearing House funds by wire transfer or certified or
official bank check or checks payable to the order of the Company in an amount
equal to the aggregate Purchase Price of the Option Shares purchased at the
Stock Option Closing.
4. OPTION SHARE APPRECIATION RIGHT. If a Purchase Event shall occur at
any time prior to the expiration of the Stock Option, at Subsidiary's request
the Company shall promptly pay to Subsidiary in New York Clearing House funds by
wire transfer or certified or official bank check payable to the order of
Subsidiary an amount equal to the product of (a) the excess, if any of (i) the
greater of (A) the highest price paid or proposed to be paid in connection with
such Purchase Event for any shares of Company Common Stock and (B) the aggregate
consideration paid or proposed to be paid in connection with such Purchase Event
divided by the number of shares of Company Common Stock then outstanding (the
value of any consideration other than cash to be determined, in the case of
consideration with a readily ascertainable market value, by reference to such
market value and, in the case of any consideration other than cash, by agreement
in good faith between Subsidiary and the Company) over (ii) the Purchase Price,
as adjusted pursuant to Section 7, multiplied by (b) the total number of Option
Shares as to which the Option has not theretofore been exercised, as adjusted
pursuant to Section 7. Such payment shall extinguish all other rights of Parent
and Subsidiary under this Agreement, but shall not affect the rights of Parent
and Subsidiary under the Merger Agreement or otherwise.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Parent and Subsidiary as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full
corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the
79
<PAGE> 5
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement has been duly
executed and delivered by Parent and Subsidiary, this Agreement
constitutes a valid and binding agreement of the Company enforceable in
accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement
of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be
brought.
(b) AUTHORITY TO ISSUE SHARES. The Company has taken all
necessary corporate action to authorize and reserve and to permit it to
issue, and at all times from the date hereof through the Termination
Date will have reserved, all of the Option Shares issuable pursuant to
this Agreement, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered
free and clear of all claims, liens, encumbrances and security
interests of any nature whatsoever and not subject to any preemptive
rights.
(c) NO CONFLICT. The execution and delivery of this Agreement
by the Company do not, and the performance of this Agreement by the
Company will not, (i) require the consent, waiver, approval, license or
authorization of or any filing with any person or public authority,
(ii) violate the Articles of Incorporation or Regulations or other
organizational or governance documents of the Company, (iii) with or
without the giving of notice or the lapse of time, or both, conflict
with or result in a breach of any terms or provisions of, or constitute
a default or give rise to a right of acceleration under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company under, any indenture, mortgage,
agreement or other instrument to which the Company is a party or by
which any of its property is bound or (iv) violate any existing
applicable law, rule, regulation, judgment, order or decree of any
governmental instrumentality or court having jurisdiction over the
Company or any of its property. The execution and performance of this
Agreement and the Merger Agreement do not constitute a "1704.
Transaction" as that term is used in the Ohio General Corporation Law.
6. REPRESENTATIONS AND WARRANTIES OF PARENT. Each of Parent and
Subsidiary hereby represents and warrants to the Company as follows:
(a) Each of Parent and Subsidiary has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Boards of
80
<PAGE> 6
Directors of Parent and Subsidiary and no other corporate proceedings
on the part of Parent or Subsidiary are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by each of
Parent and Subsidiary and, assuming this Agreement has been duly
executed and delivered by the Company, this Agreement constitutes a
valid and binding agreement of each of Parent and Subsidiary
enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding
therefor may be brought.
(b) NO CONFLICT. The execution and delivery of this Agreement
do not, and the performance of this Agreement by Parent and Subsidiary
will not, (i) require the consent, waiver, approval, license or
authorization of or any filing with any person or public authority,
(ii) violate the charter documents or By-Laws or other organizational
or governance documents of Parent or Subsidiary, (iii) with or without
the giving of notice or the lapse of time, or both, conflict with or
result in a breach of any terms or provisions of, or constitute a
default or give rise to a right of acceleration under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of Parent or Subsidiary under, any indenture,
mortgage, agreement or other instrument to which Parent or Subsidiary
is a party or by which any of their respective property is bound or
(iv) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental instrumentality or court having
jurisdiction over Parent or Subsidiary or any of their respective
property.
(c) INVESTMENT INTENT. Each of Parent and Subsidiary hereby
represents and warrants to the Company that it will acquire the Option
Shares for investment purposes only and not with a view to any resale
or distribution thereof, and will not sell any Option Shares purchased
pursuant to the Option except in compliance with the Securities Act of
1933, as amended (the "Securities Act").
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any
change in the number of issued and outstanding shares of Company Common Stock by
reason of any stock dividend, split-up, merger, recapitalization, combination,
conversion, exchange of shares or the like, or any other change in the corporate
or capital structure of the Company which would have the effect of diluting
Subsidiary's rights hereunder, the number and kind of Option Shares and the
consideration payable in respect of such Option Shares shall be appropriately
adjusted to restore to Subsidiary its rights hereunder; PROVIDED, HOWEVER, that
nothing in this Agreement shall be construed as permitting the Company to take
any action or enter into any transaction prohibited by the Merger Agreement.
8. LISTING. The Company will use its best efforts to qualify the Option
Shares for trading on NASDAQ as promptly as practicable following the date of
this Agreement.
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9. FURTHER ASSURANCES. The Company, Parent and Subsidiary will execute
and deliver all such further documents and instruments and take all such further
action as may be necessary in order to consummate the transactions contemplated
hereby.
10. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement and that the
obligations of the parties hereto shall be specifically enforceable.
11. EXPENSES. Except as otherwise explicitly stated herein and in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the
subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them
with respect to the subject matter hereof.
(b) ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise, PROVIDED that Subsidiary may assign its
rights and obligations to Parent or any wholly-owned direct or indirect
subsidiary of Parent or the parent of Parent, but no such assignment
shall relieve Subsidiary of its obligations hereunder if such assignee
does not perform such obligations.
(c) VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall
remain in full force and effect.
(d) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram or telex, or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties at their addresses as specified in the Merger
Agreement.
(e) GOVERNING LAW. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of
the Commonwealth of Pennsylvania, applicable to contracts made and to
be performed in that state.
(f) DESCRIPTIVE HEADINGS; DEFINITIONS. The descriptive
headings herein are inserted for convenience of reference only and are
not intended to be part of or to affect the meaning or interpretation
of this Agreement. All capitalized terms used herein but not defined
herein shall have the meaning ascribed to them in the Merger Agreement.
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(g) PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized, all as of the
day and year first above written.
HARSCO CORPORATION
By: /s/ Barry M. Sullivan
---------------------------------------
Name: Barry M. Sullivan
Title: Vice President-Corporate
Development and Treasurer
H-CHEMI ACQUISITION CORP.
By: /s/ Barry M. Sullivan
---------------------------------------
Name: Barry M. Sullivan
Title: Treasurer
CHEMI-TROL CHEMICAL CO.
By: /s/ Robert W. Woolf
---------------------------------------
Name: Robert W. Woolf
Title: Chairman, President and CEO
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EXHIBIT 10.4
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AGREEMENT
This agreement made and entered into by and between Chemi-Trol
Chemical Co., The Laborers' District Council of Ohio and Laborers' International
Union, Local 480, 1205 West Perkins Ave., Sandusky, Ohio, hereafter collectively
called the Union.
This agreement takes effect March 1, 1998.
Chemi-Trol Chemical Company recognizes and acknowledges that the
Laborers' District Council of Ohio and Laborers' Local 480, Laborers'
International Union of North America, AFL-CIO, are the sole representatives of
all employees in the classifications of work under their jurisdiction covered by
this Agreement, for the purposes of collective bargaining. The Union recognizes
Chemi-Trol Chemical Company as the sole bargaining agent for those members they
represent, in the 88 Counties of Ohio, and the Counties of Boone, Campbell and
Kenton in Kentucky.
Subject to the provisions and limitations of the National Labor
Relations Act, as amended, all present employees who are members of the Union on
the effective date of the Agreement shall continue their membership in the Union
for the duration of this Agreement to the extent of paying admission fees and
minimum monthly dues as uniformly required as a condition of acquiring or
retaining membership in the Union. All employees who are not members of the
Union and all persons who hereafter become employees shall become members of the
Union on the eighth (8th) day following the effective date of this agreement, or
the eighth (8th) day following their employment, whichever is later, and shall
remain a member in good standing with the Union to the extent of paying
admission fees and minimum monthly dues uniformly required as a condition of
acquiring or retaining membership in the Union, whenever employed under and for
the duration of this Agreement.
Chemi-Trol Chemical Company will not discriminate in hiring of
employees and will conform to laws with respect to hiring. It is understood
Chemi-Trol Chemical Company shall have the right to reject any employee referred
for hire by the Union for just cause. Any employee referred by the Union to
Chemi-Trol Chemical Company at their request and then not put to work shall be
paid reporting pay unless the employee is not capable or qualified to perform
the work required.
It is a condition of this Agreement, agreed to by both the Union and
Chemi-Trol Chemical Company, to provide equal opportunity in employment for all
qualified persons, and to prohibit discrimination in employment because of race,
creed, color, sex, age or national origin. There shall be full compliance with
all applicable Federal and State statutes, regulations, rules and orders of
appropriate Federal or State agencies having jurisdiction over the subject
matter of discrimination in employment.
The Union may notify Chemi-Trol Chemical Company in writing of any
default on the part of an employee to pay his admission or re-admission fee and
membership dues, and if the employee has not paid his admission or re-admission
fee and/or membership dues within three (3) days from the receipt of written
notice, Chemi-Trol Chemical Company shall discharge such employee, provided
membership was available under the same terms and conditions generally
applicable to other members. Further, all employees who fail to maintain their
Union membership as above provided shall be discharged by Chemi-Trol Chemical
Company.
The Laborers' District Council of Ohio, Laborers' Local 480, and the
Chemi-Trol Chemical Company, recognize the problems that drug and alcohol abuse
have created and agree that the Employer may implement uniformly a drug and
alcohol abuse prevention program that will work toward maintaining a safe
work-place, free of drugs and alcohol.
Possession of or Use of any narcotic drug as defined in Sec. 3719.01
of the Ohio Revised Code, or any barbiturate or amphetamine as defined in Sec.
3719.23, or any hallucinogen as defined in Sec. 3719.40, or any harmful
intoxicant as defined in Sec. 3719.50, or any dangerous drug as defined in Sec.
4729.50, or any alcoholic beverage, especially beer, wine and whisky, upon or
near the property, real or personal, including trucks or equipment of Chemi-Trol
Chemical Company, by an employee or agent, shall be grounds for immediate
dismissal.
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Page 2 Agreement
A urine drug screen and/or alcohol test shall be administered under
the following circumstances:
1. PRE-HIRE DRUG SCREENING - All potential employees of the Employer
will be required to submit to a urine drug screen. Pre-hire drug screening will
test for the presence of illegal drugs and substances only. This screen will not
include an alcohol test.
2. TESTING FOR CAUSE - All employees may be tested for cause under
the following situations:
A. A reasonable suspicion exists that the employee appears
to be under the influence of illegal drugs or substances
and/or alcohol.
B. An employee incurs a work-related injury or illness which
requires medical treatment or following a serious
accident or incident in which safety precautions were
violated, unusually careless acts were performed, or
severe property damage was incurred. Continued screening
in these circumstances will include a urine screen for
illegal drugs and substances and may include an alcohol
screen.
Chemi-Trol Chemical Company agrees to pay prevailing wage rates and
fringe benefits in areas where the wage rates have been stipulated in the
contracts between Chemi-Trol Chemical Company and their customers. All fringe
benefits will be paid directly to seasonal employees weekly. No time and a half
will be paid on fringe benefits.
It was further agreed that Chemi-Trol Chemical Company will pay one
(1) man for driving equipment (at drive time rate), either from Gibsonburg,
Ohio, to a job or from a job to Gibsonburg, Ohio, or between jobs, unless
equipment is being used only to furnish transportation for employees. It was
further agreed to pay driving time each work day as follows: EXAMPLE: Each man's
prevailing wage rate time will start in the morning when he starts pavement
markings. His prevailing wage rate time stops in the evening whenever he stops
pavement markings. Driving or other time will be paid from the time he stops
pavement markings. Driving or other time will be paid from the time he stops
pavement markings or spraying and returns the equipment to the base of operation
and completes all filling, either of chemical or paint. This will also apply to
cleanup time for paint crews. The driving time or other time rate allowed will
be $5.15 per hour. Drive time does not include coffee stops, time necessary for
eating meals, etc.
Chemi-Trol Chemical Company further agrees to pay two (2) hours show
up time at the prevailing wage rate per day in the event no work could be
accomplished due to inclement weather or equipment failure. In the case of
equipment failure, if a piece of equipment is broken down for a period of longer
than one (1) day, Chemi-Trol Chemical Company agrees to guarantee at lease four
(4) hours work per day at the prevailing wage rate.
Chemi-Trol Chemical Company further agrees to pay reasonable lodging
expenses and four (4) hours show up time at the prevailing wage rate per day in
the event no work could be accomplished due to inclement weather or equipment
failure from December 1st thru March 1st.
Overtime will be paid on the basis of work performed over forty (40)
hours per week, however, show up time will be paid at straight time rate. The
overtime pay will be based on the rate being paid for work time and rate being
paid for drive time. EXAMPLE: A man has worked fifty (50) hours. In this
particular week, the work performed over forty (40) hours constituted seven (7)
hours at rate for which he would be paid at one and one-half (1-1/2) times the
prevailing rate. Three (3) hours of time was comprised of drive time, which he
would be paid at one and one-half (1-1/2) times the rate of $5.15 per hour or
$7.73 per hour. So his overtime paid was seven (7) hours at one and one-half
(1-1/2) time the prevailing rate, the three (3) hours at $7.73 per hour.
All terms and conditions of this agreement, as amended, shall be
effective as of the first (1) day of March, 1998, and shall remain in full force
and effect until the Twenty Eighth (28) day of February, 1999, and shall
continue to remain in full force and effect from year to year thereafter, unless
either party notifies the other
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Page 3 Agreement
party in writing of its intention to amend, notify or terminate said Agreement
at least sixty (60) days prior to expiration of this agreement.
The above items were mutually agreed upon January 23, 1998.
LABORERS' INTERNATIONAL UNION CHEMI-TROL CHEMICAL COMPANY
LOCAL 480
By: /S/ CARL W. MAINES By: /S/ CHARLES ARDNER
Opr. Mgr. Chemical Group
LABORERS' DISTRICT COUNCIL OF OHIO
By: /S/ JACK L. SHAW
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EXHIBIT 10.5
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CHEMI-TROL CHEMICAL CO.
DEFERRED COMPENSATION PLAN
FOR KEY EMPLOYEES
ARTICLE I
Purpose of the Plan
The purpose of the CHEMI-TROL CHEMICAL CO. (the "Company")
Deferred Compensation Plan for Key Employees is to provide for severance and
death benefits for certain key employees of the Company.
ARTICLE II
Definitions
As used herein, the following words shall have the meaning
stated after them unless otherwise specifically provided:
2.1 "Committee" shall mean the Committee described in Section
4.1 hereof.
2.2. "Company" shall mean Chemi-Trol Chemical Co.
2.3. "Participant" shall mean a key employee of the Company
chosen by the Committee to participate in this Plan.
2.4. "Plan" shall mean this Deferred Compensation Plan for Key
Employees.
2.5. "Trust Agreement" shall mean the Rabbi Trust Agreement
dated as of August 15, 1997 entered into between the Company and the Trustee in
connection with the Plan.
ARTICLE III
Benefits
3.1. Benefits will be payable by the Company under this Plan
(i) upon any termination of a Participant's employment or (ii) upon the death of
a Participant while still employed by the Company.
3.2. The benefit payable to a Participant upon termination of
employment (other than as a result of the Participant's death) will be equal to
the cash value (at the time of such termination of employment) of the insurance
policy (or policies) owned by the Company reflecting Participant as insured and
shown on Exhibit A hereto (as amended from time to time) (the "Life Insurance
Policy").
3.3. The benefit payable to a Participant upon his or her
death while still an
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employee of the Company will be equal to fifty percent of the death benefit of
the Life Insurance Policy at the time of the Participant's death.
3.4. Any benefit payable to a Participant under this Article
will be paid within 30 days of Participant's termination of employment or death
(as the case may be), provided that no benefit will be payable by reason of
Participant's death if the Company has not yet received from the applicable
insurance company payment of the death benefit provided in the Life Insurance
Policy.
3.5. Any benefit payable by reason of the death of a
Participant shall be paid to the beneficiary or beneficiaries designated by him
or her. If there is no designated beneficiary, or if the designated beneficiary
is not surviving at the time of a Participant's death, payment of any benefit
shall be made to his or her estate. Beneficiary designations shall be made by
the Participant by submitting a written designation to the Committee, which
designation may be changed from time to time by the Participant.
3.6. The Company has entered into a Trust Agreement in
connection with the establishment of this Plan and it is intended that the trust
established thereto shall own the Life Insurance Policies related to the
Participants. It is further intended that said trust shall be treated as a
grantor trust of the Company for federal income tax purposes and that any income
or expenses associated with such trust shall be reflected on the Company's tax
returns.
ARTICLE IV
Administration
4.1. The Board of Directors of the Company shall appoint a
Committee to administer the Plan. Members of the Committee shall hold office at
the pleasure of the Board of Directors and may be dismissed at any time with or
without cause. Such persons serving on the Committee need not be members of the
Board of Directors of the Company.
4.2. The Committee shall administer the Plan and resolve all
questions of interpretation arising under the Plan with the help of legal
counsel, if necessary. Whenever directions, designations, applications, requests
or other notices are to be given by a Participant under the Plan, they shall be
filed with the Committee. The Committee shall have no discretion with respect to
Plan contributions or distributions but shall act in an administrative capacity
only.
ARTICLE V
Miscellaneous
5.1. The Company reserves the right to amend or terminate the
Plan at any time; provided, however, that no amendment or termination shall
affect the vested rights of Participants.
5.2. No right or interest of any Participant (or any person
claiming through or under such Participant, other than the surviving spouse of
such Participant after he or she is deceased) in any benefit or payment herefrom
shall be assignable or transferable in any manner or be subject to alienation,
anticipation, sale, pledge, encumbrance or other legal process or in
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any manner be liable for or subject to the debts or liabilities of such
Participant. If any Participant or any such person (other than the surviving
spouse of such Participant after he or she is deceased) shall attempt to or
shall transfer, assign, alienate, anticipate, sell, pledge or otherwise encumber
his or her benefits hereunder or any part thereof, or if by reason of his or her
bankruptcy or other event happening at any time such benefits would devolve upon
anyone else or would not be enjoyed by him or her, then the Committee, in its
discretion, may terminate his or her interest in any such benefit to the extent
the Committee considers necessary or advisable to prevent or limit the effects
of such occurrence. Termination shall be effected by filing a written
"termination declaration" with the Committee records and making reasonable
efforts to deliver a copy to such Participant or his or her legal
representative.
As long as any Participant is alive, any benefits affected by
the termination shall be retained by the Trust and, in the Committee's sole and
absolute judgment, may be paid to or expended for the benefit of such
Participant, his or her spouse, his or her children or any other person or
persons in fact dependent upon him or her in such a manner as the Committee
shall deem proper. Upon the death of any Participant, all benefits withheld from
him or her and not paid to others in accordance with the preceding sentence
shall be distributed to such Participant's estate or to his or her creditors.
5.3. A Participant or beneficiary shall have no rights against
or security interest in the assets of the Trust Fund and shall have only the
Company's unsecured promise to pay benefits. All assets of the Trust Fund shall
remain subject to the claims of the Company's general creditors.
5.4. This Plan is intended to be treated as an unfunded
deferred compensation Plan under the Internal Revenue Code. It is the intention
of the Company that the benefits pursuant to this Plan shall not be included in
the gross income of the Participants or their beneficiaries until such time as
the benefits are distributed from the Plan.
5.5. This Plan shall be effective as of August 15, 1997.
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EXHIBIT 10.7
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement') is made and entered into as
of this 25th day of March, 1997, by and between CHEMI-TROL CHEMICAL COMPANY, an
Ohio corporation having offices at 2776 C.R. 69, Gibsonburg, Ohio 43431
("Seller"), and TERRA INTERNATIONAL, INC., a Delaware corporation, having an
address of 600 Fourth Street, P.0. Box 6000, Sioux City, IA 51102-6000
("Purchaser").
RECITALS
WHEREAS, Seller, through its Cory Orchard & Turf Division ("Division")
has been engaged in, among other things, the business of selling wholesale and
retail turf and ornamental chemicals and fertilizer at locations in
Indianapolis, Indiana and Louisville, Kentucky (the "Locations"); and
WHEREAS, the Seller owns and leases certain real property, rolling
stock, buildings, equipment and inventories at the Locations; and
WHEREAS, Seller desires to sell and Purchaser desires to purchase
certain Division assets, subject to the terms and conditions hereinafter stated.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is hereby agreed as follows:
1. AGREEMENT TO PURCHASE. On the Closing Date, as hereinafter defined,
and subject to the terms and conditions of this Agreement, Seller shall sell,
convey, grant, assign, transfer and deliver to Purchaser, and Purchaser shall
buy, accept and receive from Seller, all of the Seller's right, title and
interest in and to the following:
A. The real property described in Exhibit A attached
hereto, together with all buildings, fixtures and
other improvements located thereon and all rights,
easements, hereditaments and appurtenances related
thereto (collectively the "Real Property").
B. The machinery, equipment, motor vehicles, furniture
and fixtures and other personal property listed in
Exhibit B and attached hereto (the "Machinery and
Equipment").
C. The Seller's customer information, credit files,
facility records and all other books and records
related to the Business Assets as hereinafter
described plus any and all patents, patent
applications, and other intangible assets relating to
"know-how", proprietary information and customer
lists that relate to Seller's Division assets (the
"Books and Records"). In addition, Seller shall
retain, preserve and maintain all bank and tax
records related to the Division or its assets and
provide Purchaser access to the same for four (4)
years from the date of this Agreement.
D. All trade inventory owned by Seller to be identified
prior to closing and added to this Agreement prior to
closing as Exhibit C (the "Inventory").
E. The contract and lease rights identified in Exhibit D
attached hereto (the "Contract Rights").
The Real Property, Machinery and Equipment, Books and Records,
Inventory and Contract Rights related to the Division are herein sometimes
called the "Business Assets."
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2. CLOSING. Subject to the fulfillment of the closing conditions
contained in this Agreement, the closing (the "Closing") shall take place on
March 25, 1997, or on another mutually agreeable date (the "Closing Date"). The
Seller shall furnish marketable title to the Real Property and shall convey the
property free of liens, encumbrances, easements, restrictions, rights and
conditions of record or known to Seller, other than the following:(a) current
taxes not yet payable and liens arising therefrom, (b) convenants, conditions,
restrictions and public utility easements of record, if any, provided the same
do not render title unmarketable or prevent the present use of the property, (c)
matters which would be disclosed by inspection of the premises or by an accurate
survey of the premises, (d) any matter that a title insurance company would
ordinarily insure against without additional premium, (e) zoning regulations and
local ordinances. Seller shall furnish an owner's title insurance policy,
insuring the title in the amount of the purchase price, issued by a title
insurance company acceptable to the Purchaser. In the event of title objections,
either by Purchaser, Purchaser's attorney or by the title company, Seller shall
have a reasonable time within which to cure such objections. On Seller's failure
to furnish marketable title within a reasonable time, Purchaser may cancel this
Agreement. Conveyance shall be by general Warranty Deed, in proper statutory
form for record, and shall be duly executed and acknowledged so as to convey to
the Purchaser the fee simple title of the Real Property, free from all liens and
encumbrances, except as stated herein.
Any taxes on the Real Property being transferred hereunder, for the
calendar year 1996, shall be paid by Seller by giving Purchaser a credit at the
time of Closing, unless the Seller shall present acceptable proof that such 1996
taxes have been paid. Any Real Property taxes for the calendar year 1997 shall
be pro-rated to the date of Closing, a credit shall be given Purchaser in such
pro-rated amount, and Purchaser agrees to any such taxes when they become due.
3. Purchase Price
The purchase price (the "Purchase Price") for the business Assets shall
be as follows:
A. Real Property (land, $1,320,000.00
land improvements
and buildings)
B. Machinery and $ 180,000.00
Equipment,
Books and Records
Contract Rights
C. Inventory (net To be determined prior to closing
of customer based upon Seller's cost.
prepays)
D. Seller's Accounts To be determined prior to closing
Receivable based on the value of the
accounts as mutually agreed
by the parties.
(Exhibit F)
4. PAYMENT OF PURCHASE PRICE. On the Closing Date, Purchaser shall pay
an amount equal to the Purchase Price to Seller. Purchaser shall pay the sales
tax in respect of the transfer of the motor vehicles and shall pay the recording
fees in respect of the recording of the deeds to the Real Property.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to Purchaser that the representations and warranties contained in
this Section 5 are true and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date.
A. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the
State of Ohio. Seller has corporate power and
authority to make, execute and deliver this Agreement
and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement
have been duly authorized and approved by all
necessary and proper corporate proceedings,
including, but not limited to, approval by the Board
of Directors of Seller.
B. Since December 31, 1996, there have been no material
changes with respect to the condition of the Business
Assets, normal wear and tear excepted.
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C. The Seller has good and Marketable title to the
Business Assets, free and clear of all claims, liens,
security interests and other encumbrances, except as
disclosed to and accepted by Purchaser or as
specified herein.
D. There is no litigation, proceeding unpaid judgment or
investigation, pending or threatened, against the
Division or the Business Assets. There is no
litigation, proceeding or investigation, pending or
threatened, against the Seller that would, if
adversely determined, affect the validity of this
Agreement or the ability of the Seller to complete
the transactions contemplated hereby.
E. The execution and delivery of this Agreement, and the
completion of the transactions contemplated hereby,
do not violate or conflict with the articles of
incorporation or by-laws of Seller, any law to which
Seller is subject or any agreement by which the
Seller or the Business Assets are bound. No consent
of any third parties or governmental authorities is
required to complete the transactions contemplated by
this Agreement.
F. The Seller has filed all required tax returns and
paid all taxes due or claimed to be due related to
the Division and the Business Assets.
G. The Seller has delivered to Purchaser true and
complete copies of each contract listed on Exhibits D
and G. To Seller's knowledge, with respect to each
such contract: (i) the contract is legal, valid,
binding, enforceable and in full force and effect
(subject to bankruptcy and other laws affecting
creditors' rights generally); (ii) no party is in
breach or default, and no event has occurred which
with notice or lapse of time would constitute a
breach or default or permit termination,
modification, or acceleration under the contract; and
(iii) no party has repudiated any provision of the
contract.
H. All improvements located on and the use presently
being made of the Real Property owned by the Seller
comply in all material respects with (i) all
applicable zoning and building code ordinances and
(ii) all applicable occupational safety and health
standards established by law or regulation under
current interpretations.
I. No work has been performed nor any material provided
to the Seller during the ninety (90) days preceding
Closing which would give rise to any mechanics,
materialmen, artisans or other liens.
J. Except for a fee to be paid to McDonald & Company
Securities, Inc. (which fee shall be paid by Seller),
the Seller has not committed or obligated itself or
Purchaser to the payment of any broker's fee or
finder's fee or commission in connection with the
transactions contemplated by this Agreement.
K. This Agreement has been duly executed and delivered
by the Seller and, assuming due execution and
delivery by Purchaser, is a valid and binding
agreement of Seller, enforceable against Seller in
accordance with its terms subject to bankruptcy laws
affecting creditor's rights generally.
L. The Seller is solvent and has sufficient assets to
discharge its liabilities as they come due.
M. The Business Assets constitute all of the tangible
personal property held or used by the Seller in
connection with the manufacture, sale and marketing
of turf and ornamental fertilizer and chemicals. All
buildings and other improvements used by the Seller
in the conduct of its business are located entirely
on the Real Property described on Exhibit A or on the
leased premises in Louisville, Kentucky 13000
Middletown Industrial Blvd., Suite J-K and 13005
Middletown Industrial Blvd., Suite B ("Leased
Premises").
N. Except as set forth on Exhibit I, or in the
environmental audits performed by Purchaser, on the
date hereof there are no hazardous or toxic materials
(as hereinafter defined) located in, on or under the
Real Property or the Leased Premises in violation of
any applicable law or regulation. Except as set forth
on Exhibit I, to the best of Seller's knowledge, on
the date hereof there are no subterranean tunnels,
cavities, wells, mines, sinkholes, springs or
concealed fill in, on or under
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the Real Property or Leased Premises. "Hazardous or
toxic materials", as used in this Agreement,shall
include the following materials: (i) any "Hazardous
waste," as defined by the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. Section 6901 et.
seq.), as amended from time to time, and regulations
promulgated thereunder, (ii) a "hazardous substance"
as defined by the Comprehensive Environmental
Response Compensation and Liability Act of 1980 (42
U.S.C. Section 9601 et. seq.), as amended from time
to time, and regulations promulgated thereunder,
(iii) asbestos, (iv) petroleum and petroleum based
products, flammables, explosives and radioactive
materials, (V) chemicals known to cause cancer or
reproductive toxicity, (vi) pollutants, (vii)
polychlorinated biphenyls, (viii) any substance the
presence of which on the Real Property is prohibited
by any governmental requirement, and (ix), other than
Inventory, any other substance which is declared to
be hazardous or toxic under any law or regulation or
which, under any governmental law or regulation,
requires special handling in its use, collection,
storage, treatment, or disposal. The parties agree
that Seller's warranties contained in this paragraph
5. N. shall cease and be of no further force or
effect beginning March 25, 2000.
O. Exhibit F contains a complete and accurate list of
all of the accounts receivable of Seller relating to
the Business Assets and the amounts owed to Seller by
each purchaser. On the Closing Date, Purchaser shall
pay Seller the agreed value of the accounts
receivable listed on Exhibit F and shall undertake
reasonable efforts to collect such accounts. On
August 1, 1997, Purchaser shall return to Seller all
of Seller's accounts receivable remaining uncollected
and Seller shall pay Purchaser, no later than August
15, 1997, the value of all accounts remaining
uncollected. Purchaser shall not, in its efforts to
collect Seller's accounts receivable, take any action
which impairs Seller's right to collect the accounts.
P. The Seller is the sole legal and equitable owner of
the Real Property and all interests therein, and has
the full and exclusive right, power and authority to
convey or assign its interest in the Real Property.
There are no adverse or other parties in possession
of the Real Property or any portion or portions
thereof. There are no pending or threatened
condemnation, eminent domain or similar proceedings
affecting the Real Property or any portion thereof.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to the Seller that the representations and warranties contained in
this Section 6 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date.
A. Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of the
State of Delaware and is qualified to do business and
in good standing in the State of Indiana. Purchaser
has full corporate power and authority to make,
execute and deliver this Agreement, and to perform
its obligations hereunder. The execution, delivery
and performance of this Agreement have been duly
authorized and approved by all necessary and proper
corporate proceedings.
B. There is no litigation, proceeding or investigation,
pending or threatened, against purchaser that would,
if adversely determined, affect the validity of this
Agreement or the ability of Purchaser to complete the
transactions contemplated hereby.
C. The execution and delivery of this Agreement, and the
completion of the transactions contemplated hereby,
do not violate or conflict with the certificate of
incorporation or by-laws of Purchaser, any law to
which Purchaser is subject or any agreement by which
Purchaser is bound. No consent of any third parties
or governmental authorities is required to complete
the transactions contemplated by this Agreement.
D. This Agreement has been duly executed and delivered
by Purchaser and is a valid and binding agreement of
Purchaser, enforceable against purchaser in
accordance with its terms.
E. Purchaser has not committed nor obligated itself or
the Seller to the payment of any broker's or finder's
fee or commission in connection with the transaction
contemplated by this Agreement.
96
<PAGE> 6
7. PAYMENTS RECEIVED FOR UNDELIVERED GOODS . Any payments received from
customers by the Seller for goods which have not been delivered prior to the
date of this Agreement shall be assigned to Purchaser and Purchaser shall assume
the responsibility of delivering the goods ordered by the customer and shall
indemnify and hold Seller harmless from all claims, actions, damages, loss or
expense relating to or arising from Purchaser's failure to perform those
contracts or agreements. The customers who have made prepayments, the amounts of
prepayments and the goods ordered are specified on Exhibit G attached hereto,
and Purchaser shall receive a credit therefor at Closing.
8. CONDITIONS TO CLOSING
A. PURCHASER'S CONDITIONS. The obligations of
Purchaser under this Agreement shall be subject to
the fulfillment, on or prior to the Closing Date, of
each of the following conditions:
Seller shall have agreed to indemnify and hold Purchaser harmless from
all claims, actions, damages, loss or expenses relating to or arising from the
Indiana Bulk Sales Act.
B. SELLER'S CONDITIONS. The obligations of the Seller
under this Agreement shall be subject to the
fulfillment, on or prior to the Closing Date, of each
of the following conditions:
(1) The representations and warranties of
Purchaser under the Agreement shall be true
and complete as of the Closing Date.
(2) Purchaser shall have tendered the Purchase
Price payable pursuant to Section 4 of the
Agreement.
9. DOCUMENTS TO BE PROVIDED AT CLOSING
A. At the Closing, the Seller shall deliver to Purchaser
the following:
(1) A warranty deed conveying good and
marketable title to the Real Property.
(2) A bill of sale conveying title to Purchaser
to the Machinery and Equipment, Inventory
and Books and Records.
(3) Certificates of title to the motor vehicles.
Conveyance of title shall be by assignment
duly endorsed on certificates of title.
(4) A certified copy of resolutions by Seller's
Board of Directors authorizing the execution
and performance of this Agreement.
(5) All further conveyances, assignments,
confirmations, satisfactions, releases,
powers of attorney, instruments of further
assurance, approvals, consents and any and
all such further instruments and documents
as may be reasonably necessary, expedient or
proper in the opinion of Purchaser in order
to complete any and all conveyances,
transfers, sales and assignments herein
provided.
(6) Executed and delivered covenants not to
compete by Seller in the form attached
hereto as Exhibit H.
(7) An Assignment and Assumption of Contract
Rights.
(8) Assignment and Assumption of Customer
Prepayments and Assumption of Customer
Orders.
97
<PAGE> 7
(9) Releases of all liens, security interests
and other encumbrances on the Business
Assets.
(10) The Books and Records.
B. Purchaser shall deliver to Seller the sum described
in Section 4, less any adjustments thereto under the
terms of this Agreement.
10. DELIVERIES SUBSEQUENT TO CLOSING. The Seller, upon the request of
Purchaser, shall deliver such additional documents, instruments and materials
as may be necessary or advisable in order to carry out the provisions and
purposes of this Agreement or to report the transaction to appropriate
governmental authorities, including additional specific bills of sale and
instruments of assignment.
11. OTHER. The parties agree to the following:
A. At Closing, Seller's Division business shall cease
and Purchaser shall make or have made employment
offers to all of Seller's employees listed on Exhibit
J. The duties and compensation included in such
employment offers shall be in Purchaser's sole
discretion. If Seller's employees accept such offers,
they shall become at-will employees of Purchaser and
no additional rights or guarantees of employment is
granted to the employees by Purchaser.
12. SURVIVAL. All of the respective representations, warranties,
covenants, indemnities, and other agreements of the Seller and Purchaser
hereunder or contained in any certificate or other document given in connection
herewith or contemplated hereby shall survive the Closing Date. The
representation and warranties of the Seller contained in this Agreement or any
document or certificate by or on behalf of the Seller delivered pursuant hereto
shall not be affected or deemed waived by reason of any investigation made by
Purchaser or its representatives.
13. INDEMNIFICATION. Except as otherwise provided in this Agreement,
Seller shall indemnify and hold Purchaser free and harmless from and against any
actions, suits, proceedings, demands, claims, assessments, judgments,
liabilities, losses, damages, costs or expenses (including reasonable attorneys'
fees) incurred by Purchaser as a result of (a) any breach of any representation,
warranty, covenant or agreement of the Seller under this Agreement or any
agreement or instrument delivered by the Seller pursuant to this Agreement, (b)
the operation of the Business Assets prior to the date of this Agreement, except
to the extent expressly assumed by Purchaser under this Agreement. Purchaser
shall indemnify and hold Seller free and harmless from and against any actions,
suits, proceedings, demands, claims, assessments, judgments, liabilities,
losses, damages, costs or expenses (including reasonable attorneys' fees)
incurred by the Seller as a result of (c) any breach of any representation,
warranty, covenant or agreement of Purchaser under this Agreement or any
agreement or instrument delivered by Purchaser pursuant to this Agreement and
(d) the operation of the Business Assets after closing.
14. MISCELLANEOUS. No waiver and no modification or amendment of this
Agreement shall be valid unless the same is in writing and signed by the party
against which the enforcement of such modification or amendment is sought. This
Agreement, including all documents, agreements and instruments delivered
pursuant hereto, constitutes the entire agreement between the parties and
supersedes any prior understandings, agreements, or representations by or
between the parties, written or oral, that may have related in any way to the
subject matter hereof. This Agreement shall be binding upon and inure to the
benefit of the parties named herein and their respective successors and
permitted assigns.
15. NO ASSUMPTION OF LIABILITIES. Except with respect to obligations
(i) arising after the date of this Agreement under the contracts listed on
Exhibits D and G, (ii) prepayments received by Seller before the closing and
assigned to Purchaser and (iii) contracts for the delivery of inventory to be
performed by Purchaser after the closing, Purchaser does not assume or agree to
pay any liabilities, debts or obligations of the Seller. It is specifically
understood that Purchaser is not assuming any of the Seller's employment
contracts or other obligations to the Seller's employees and Seller shall defend
and indemnify Purchaser in respect to all claims or costs brought by employees
of Seller or the Division arising or relating to employment with Seller or the
Division.
16. NOTICES. All notices, demands, requests and other communications
under this Agreement shall be in writing and shall be deemed properly served if
delivered by hand to the party to whose attention it is directed or if
98
<PAGE> 8
sent by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
A. If intended for the Seller:
Mr. Robert W. Woolf, President
Chemi-Trol Chemical Company
2776 C.R. 69
Gibsonburg, OH 43431
B. If intended for Purchaser:
Terra International, Inc.
600 Fourth Street
P.O. Box 6000
Sioux City, IA 51102-6000
Attention: General Counsel
or such other address of which any party entitled to receive notice hereunder
designates to the other in writing.
17. GOVERNING LAW AND JURISDICTION. The validity, meaning and effect of
this Agreement shall be determined in accordance with the laws of the State of
Indiana applicable to contracts made and to be performed in that state.
18. CAPTIONS. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe or limit the scope
or intent of this Agreement or any of the provisions hereof.
19. ASSIGNABILITY. Neither this Agreement nor the right to receive any
payment from Purchaser hereunder shall be assignable without prior written
consent of Purchaser, and without such consent, there shall be no right to
designate a payee of such proceeds. Any attempt at assignment without such
consent shall be void.
20. SEVERABILITY. Should any part or provision contained in this
Agreement be rendered or declared invalid by reason of any existing or
subsequently enacted legislation or by any decree of a court of competent
jurisdiction, the remaining provisions shall nevertheless remain in full force
and effect to the maximum extent permitted by law.
21. COUNTERPARTS. This Agreement may he executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
CHEMI-TROL CHEMICAL COMPANY TERRA INTERNATIONAL, INC.
By: /s/ Robert W. Woolf By: /s/ Mark A. Kalafut
-------------------- --------------------
Name: Robert W. Woolf Name: Mark A. Kalafut
-------------------- --------------------
Title: President Title: Vice President
-------------------- --------------------
99
<PAGE> 9
SCHEDULE AND EXHIBIT SUMMARY
Exhibit A Real Property
Exhibit B Machinery, Rolling Stock and Equipment
Exhibit C Inventory
Exhibit D Contract Rights
Exhibit E Allocations of Purchase Price
Exhibit F List of Accounts Receivable
Exhibit G Prepayments by Customers and Items Purchased
Exhibit H Covenant Not to Compete
Exhibit I Exceptions to Environmental Representations and
Warranties
Exhibit J Employee List
100
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHEMI-TROL
CHEMICAL CO. YEAR ENDED DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,516,078
<SECURITIES> 0
<RECEIVABLES> 10,850,213
<ALLOWANCES> 255,000
<INVENTORY> 3,104,151
<CURRENT-ASSETS> 19,863,142
<PP&E> 17,648,832
<DEPRECIATION> 9,121,805
<TOTAL-ASSETS> 34,719,538
<CURRENT-LIABILITIES> 8,545,686
<BONDS> 3,289,137
0
0
<COMMON> 4,590,767
<OTHER-SE> 18,087,156
<TOTAL-LIABILITY-AND-EQUITY> 34,719,538
<SALES> 50,348,978
<TOTAL-REVENUES> 51,199,519
<CGS> 43,764,588
<TOTAL-COSTS> 43,764,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 53,136
<INTEREST-EXPENSE> 555,415
<INCOME-PRETAX> 3,528,274
<INCOME-TAX> 1,471,000
<INCOME-CONTINUING> 2,057,274
<DISCONTINUED> (916,813)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,140,461
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
