<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1994
REGISTRATION NO. 33-52493
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TERRA INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MARYLAND 52-1145429
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
TERRA CENTRE
600 FOURTH STREET, P.O. BOX 6000
SIOUX CITY, IOWA 51102-6000
(712) 277-1340
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GEORGE H. VALENTINE, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
TERRA CENTRE
600 FOURTH STREET, P.O. BOX 6000
SIOUX CITY, IOWA 51102-6000
(712) 277-7302
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
CARTER W. EMERSON, ESQ. MARK ZVONKOVIC, ESQ.
KIRKLAND & ELLIS ANDREWS & KURTH L.L.P.
200 EAST RANDOLPH DRIVE 425 LEXINGTON AVENUE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10017
(312) 861-2052 ---------------- (212) 850-2828
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)(4)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, no par
value per share 10,350,000 shares $12.75 $131,962,500 $45,504
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 1,350,000 Common Shares which the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated in accordance with Rule 457(c), solely for purposes of
calculating the registration fee.
(3) Calculated on the basis of 1/29th of 1% of the proposed maximum aggregate
offering price.
(4) $43,786 was previously paid and $1,718 is being paid herewith.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1994
PROSPECTUS October , 1994
9,000,000
TERRA INDUSTRIES INC.
LOGO
COMMON SHARES
LOGO
All common shares, no par value (the "Common Shares"), offered hereby are being
sold by Terra Industries Inc. ("Terra" or the "Company"). Minorco (U.S.A.) Inc.
has advised the Company that, in order to maintain its current proportionate
beneficial ownership interest in the Company, it or an affiliate intends to
purchase from the Underwriters approximately 53% of the Common Shares offered
hereby at a price equal to the Price to Public less the Underwriting Discount.
The Common Shares are listed on the New York Stock Exchange and the Toronto
Stock Exchange under the symbol "TRA". On September 16, 1994, the last reported
sale price of the Common Shares as reported on the New York Stock Exchange
Composite Tape was $12.75 per share.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(/1/) DISCOUNT(/1/)(/2/) COMPANY(/3/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
- -------------------------------------------------------------------------------
Total(4)........................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Minorco (U.S.A.) Inc. or an affiliate will pay the Underwriters the Price
to Public less the Underwriting Discount for any Common Shares purchased.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $1,084,000.
(4) The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
1,350,000 Common Shares on the same terms as set forth above to cover over-
allotments, if any. Minorco (U.S.A.) Inc. has advised the Company that it
or an affiliate intends to purchase from the Underwriters approximately 53%
of any Common Shares so purchased at the price specified in Note 1. If the
option is exercised in full, the Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters, subject to
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and
reject orders in whole or in part. It is expected that delivery of the
certificates for the Common Shares will be made in New York, New York on or
about October , 1994.
S.G.WARBURG & CO. INC.
<PAGE>
[MAP APPEARS HERE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON SHARES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OPEN MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and consolidated financial
statements (and notes thereto) included elsewhere or incorporated by reference
in this Prospectus. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." Except as otherwise indicated, all financial information is
presented on the basis of generally accepted accounting principles. Unless
otherwise referred to herein or the context otherwise requires, references to
the "Company" or "Terra" shall mean Terra Industries Inc., including, where the
context so requires, its direct and indirect subsidiaries. Terms defined in
this Summary shall have the same meanings when used elsewhere in this
Prospectus. Prospective investors are urged to read this Prospectus in its
entirety. See "Investment Considerations" for a discussion of certain factors
that should be considered carefully in evaluating an investment in the Common
Shares.
THE COMPANY
The Company is a leading producer of nitrogen fertilizer and marketer of
fertilizer, crop protection products and seed. The Company recently announced
that it has entered into an agreement to acquire Agricultural Minerals and
Chemicals Inc., a Delaware corporation ("AMCI"), a leading producer of nitrogen
fertilizer and methanol. The Company will close this offering simultaneously
with the consummation of the acquisition of AMCI and the proceeds of this
offering will be used to finance, in part, such acquisition. See "The
Acquisition."
After giving effect to the acquisition of AMCI, the Company will be the third
largest producer of anhydrous ammonia and one of the two largest producers of
nitrogen solutions in the United States and Canada. Nitrogen fertilizer is a
basic crop nutrient which is applied seasonally by farmers to improve crop
yield and quality. Nitrogen fertilizer is produced by combining gaseous
nitrogen with hydrogen to form anhydrous ammonia, the simplest form of nitrogen
fertilizer, which can be further processed into other fertilizer products such
as urea and nitrogen solutions. The Company presently operates three nitrogen
fertilizer facilities and believes that, with the addition of AMCI's two
nitrogen fertilizer facilities, it will be among the most efficient nitrogen
fertilizer manufacturers in the markets it serves. The Company also believes
that it will benefit from favorable transportation logistics and other
operating synergies and current prices in the nitrogen fertilizer industry,
which is operating near capacity.
Through the AMCI acquisition, the Company will also substantially increase
its participation in the methanol production industry. It will have
approximately 320 million gallons per year of methanol production capacity,
representing approximately 16% of the total United States rated capacity.
AMCI's methanol facility in Beaumont, Texas is the largest such facility in the
U.S. Methanol is used primarily as a feedstock in the production of other
chemicals such as formaldehyde, acetic acid and chemicals used in the building
products industry, and is also a feedstock in MTBE, an additive in oxygenated
gasoline. Demand in the United States for oxygenated gasoline has been growing
as a result of current federally-mandated standards for gasoline. Reflecting
increased general economic activity in the U.S. and abroad and the phase-in of
such standards as well as industry production problems, demand for methanol has
been strong in 1994. A published index of contract prices for methanol
increased from $0.495 per gallon in January 1994 to $0.98 per gallon in August
1994.
The Company owns and operates the largest independent farm service center
network in the United States and Canada and is the second largest supplier of
crop production inputs in the United States. The Company's distribution network
for fertilizer, crop protection products and seed has grown over the last
several years to include approximately 350 farm service centers, 58 fertilizer
storage facilities and 770 affiliated dealer locations serving the United
States and the eastern region of Canada. This growth generally
3
<PAGE>
has been the result of a healthy farm economy, acquisitions, additional
facilities and aggressive marketing. The Company's distribution network is
served by independent suppliers and the Company's own production facilities,
which presently include one crop protection chemical dry flowable formulation
plant and seven liquid chemical formulation facilities in addition to three
nitrogen fertilizer plants. The production from AMCI's nitrogen fertilizer
plants will also be available for the Company's distribution network.
The Company's long-term strategy for growth is to (i) acquire and upgrade
production and distribution facilities, (ii) increase distribution volumes by
expanding sales from Company-operated locations and its affiliated dealer
network, (iii) change its product mix to include more profitable products and
(iv) continue to build customer loyalty by providing value-added services.
Towards this strategy, the Company made two significant acquisitions in 1993.
In April, the Company added a manufactured fertilizer facility and 32 farm
service centers in Canada and in December the Company added 12 farm service
centers in Florida. The acquisition of AMCI is a major element in the
continuation of this strategy.
As of the date hereof, approximately 53% of the outstanding Common Shares are
owned by Minorco (U.S.A.) Inc., a Colorado corporation ("Minorco USA"). Since
the Company became publicly-owned in 1983, Minorco USA and its affiliates have
owned a majority of the Company's outstanding equity securities. Minorco USA is
involved in mining and natural resource-related activities in North America.
Minorco USA is indirectly wholly-owned by Minorco, a company incorporated under
the laws of Luxembourg as a societe anonyme ("Minorco"). Minorco is an
international natural resources company with operations in gold, base metals,
industrial materials, paper and packaging and agribusiness. Six of the
Company's ten directors are also officers and/or directors of Minorco USA or
its affiliates. Minorco USA has advised the Company that, in order to maintain
its current proportionate interest in the Company, it or an affiliate intends
to purchase from the Underwriters approximately 53% of the Common Shares
offered hereby (and 53% of any Common Shares purchased under the Underwriters'
over-allotment option) at a price equal to the price to the public less the
underwriting discount. See "Underwriting."
The Company's principal executive offices are located at Terra Centre, 600
Fourth Street, P. O. Box 6000, Sioux City, Iowa 51102-6000 and its telephone
number is (712) 277-1340.
THE ACQUISITION
The Company has agreed to acquire AMCI (the "Acquisition") pursuant to a
Merger Agreement dated as of August 8, 1994 (as amended, the "Merger
Agreement") between the Company, AMCI and AMCI Acquisition Corporation, a
wholly-owned subsidiary of the Company ("Merger Sub"). The Acquisition is to be
accomplished by merging Merger Sub with and into AMCI, whereupon the present
stockholders and option holders of AMCI will receive cash in an aggregate
amount of approximately $400 million (subject to adjustment as described
herein) and AMCI will become a wholly-owned subsidiary of the Company.
Immediately following the consummation of the Acquisition, AMCI will be merged
with and into the Company. At the closing of the Acquisition, a subsidiary of
AMCI will enter into a methanol hedging agreement pursuant to which it will
receive $4 million in exchange for agreeing to make payments based on the
market prices of methanol and natural gas through 1997. See "The Acquisition."
AMCI owns and operates its nitrogen fertilizer facilities through
Agricultural Minerals Company, L.P., a Delaware limited partnership ("AMCLP").
Senior Preference Units representing a 39.8% partnership interest in AMCLP are
publicly traded on the New York Stock Exchange. See "Description of Certain
Indebtedness and Other Obligations" and "Investment Considerations--Holding
Company Structure and AMCLP."
THE PUT OPTION
The Company is offering the Common Shares as described herein in lieu of
exercising its rights under a put option agreement dated as of August 8, 1994
(the "Put Option Agreement") between the Company
4
<PAGE>
and Minorco USA, pursuant to which Minorco USA granted to the Company the right
to sell to Minorco USA and cause Minorco USA to purchase 13,333,333 Common
Shares, at a purchase price of $7.50 per Common Share, payable in cash, for
aggregate proceeds to the Company of $100 million. Under applicable rules of
the New York Stock Exchange, the Company's issuance of Common Shares upon
exercise of its rights under the Put Option Agreement must be approved by an
affirmative majority vote of stockholders. A special meeting of the Company's
stockholders for such purpose will be called for October 1994. If this offering
is consummated, the Company will cancel such meeting and will not exercise its
rights under the Put Option Agreement.
THE REFINANCING
The Company will apply the net proceeds of this offering, available cash of
the Company and AMCI and their subsidiaries and funds borrowed by the Company
and such subsidiaries under the Credit Agreement (the "Credit Agreement") to be
entered into in connection with the Acquisition to (a) the payment of the
Acquisition consideration to the holders of AMCI common stock and stock
options, (b) the retirement of bank loans to Terra International Inc., a
wholly-owned subsidiary of the Company ("Terra International"), under a 1992
revolving credit agreement, of which there were approximately $56 million
outstanding on June 30, 1994, (c) the retirement of an additional $40 million
in bank loans of the Company and its subsidiaries, (d) the retirement of a $35
million term loan of one of AMCI's subsidiaries and (e) the payment of fees and
expenses related to the Acquisition and the related financing transactions. In
addition, as a result of the merger of AMCI into the Company, the Company will
assume AMCI's obligations under $175 million in aggregate principal amount of
10.75% Senior Notes due 2003 (the "Senior Notes"). The borrowings under the
Credit Agreement (includes borrowings to repurchase any Senior Notes required
to be repurchased as described herein and working capital facilities), the
assumption of the Senior Notes and the retirement of the loans as described
above are referred to collectively herein as the "Refinancing." See "The
Refinancing."
After consummation of the Acquisition and the Refinancing, the primary
obligor with respect to the Credit Agreement will be Terra Capital, Inc.
("Terra Capital"), a new subsidiary of the Company to which the capital stock
of Terra International and AMCI's two directly-owned subsidiaries will be
contributed. Terra Capital will be wholly-owned by Terra Capital Holdings, Inc.
("Terra Holdings"), another new subsidiary of the Company, and Terra Holdings
will be wholly-owned by the Company. See "Post-Acquisition Company Structure"
below. Also, Terra International, which is currently the Company's principal
operating subsidiary, and one of its subsidiaries, Terra International (Canada)
Inc. ("Terra Canada"), will continue to have other obligations outstanding.
Capitalized lease obligations of a subsidiary of AMCI will also continue after
the closing of the Acquisition and the Refinancing. See "Capitalization,"
"Liquidity and Capital Resources After the Acquisition and the Refinancing" and
"Description of Certain Indebtedness and Other Obligations."
THE OFFERING
<TABLE>
<S> <C>
Common Shares being offered........ 9,000,000 shares(1)
Common Shares to be outstanding
after the Offering................ 79,864,645 shares(1)(2)
Use of Proceeds.................... To finance, in part, the Company's
acquisition of AMCI. See "Use of Proceeds."
New York Stock Exchange and Toronto
Stock Exchange symbol............. TRA
</TABLE>
- --------
(1) Does not include up to 1,350,000 Common Shares that may be sold pursuant to
the Underwriters' over-allotment option. See "Underwriting."
(2) Based on Common Shares outstanding at August 31, 1994. Does not include
outstanding stock options with respect to 1,310,500 Common Shares as of
such date.
5
<PAGE>
CERTAIN HISTORICAL AND PRO FORMA FINANCIAL DATA
THE COMPANY
The following table sets forth certain historical financial data of the
Company as of and for each of the fiscal years in the five-year period ended
December 31, 1993 and as of and for each of the six-month periods ended June
30, 1993 and 1994. See "Index to Financial Statements" and "Incorporation of
Certain Documents by Reference." The following table also sets forth summary
unaudited pro forma combined financial data of the Company after giving effect
to the Acquisition, the sale of Common Shares in this offering, the Refinancing
and the Company's 1993 Canada and Florida acquisitions. See footnote (a) below.
The unaudited pro forma combined financial data have been derived from, and
should be read in conjunction with, the historical consolidated financial
statements of the Company and AMCI, including the respective notes thereto,
which are included elsewhere in this Prospectus and incorporated herein by
reference. See "Index to Financial Statements" and "Pro Forma Combined
Financial Statements of the Company." THE FOLLOWING UNAUDITED PRO FORMA
FINANCIAL DATA ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT ACTUALLY WOULD HAVE OCCURRED HAD THE
ACQUISITION, THE REFINANCING AND THIS OFFERING BEEN CONSUMMATED ON THE DATES
INDICATED OR THE RESULTS THAT MAY OCCUR OR BE OBTAINED IN THE FUTURE.
6
<PAGE>
TERRA INDUSTRIES INC.
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30 (UNAUDITED),
-------------------------------------------------------------------- --------------------------------
PRO
FORMA PRO FORMA
1989 1990 1991 1992 1993 1993(A) 1993 1994 1994(A)
-------- --------- ---------- ---------- ---------- ----------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Total revenues....... $949,458 $ 962,202 $1,022,597 $1,082,191 $1,238,001 $1,716,332 $820,341 $1,077,756 $1,309,632
Cost of sales........ 798,407 806,772 849,684 904,246 1,021,187 1,372,161 681,611 897,685 1,034,690
Depreciation and
amortization........ 14,242 14,997 14,399 14,994 15,470 59,824 7,757 9,060 30,931
Selling, general and
administrative
expenses............ 124,628 138,315 132,845 137,232 161,791 191,199 84,137 100,172 111,418
Equity in earnings of
unconsolidated
affiliates.......... -- -- -- -- (2,275) (2,051) (940) (36) (438)
-------- --------- ---------- ---------- ---------- ---------- -------- ---------- ----------
Income before
interest, minority
interest and income
taxes............... 12,181 2,118 25,669 25,719 41,828 95,199 47,776 70,875 133,031
Net interest expense. 17,134 17,056 12,563 7,533 9,683 44,655 4,784 3,858 26,002
Minority interest.... -- -- -- -- -- 19,789 -- -- 15,526
-------- --------- ---------- ---------- ---------- ---------- -------- ---------- ----------
Income (loss) from
continuing
operations before
income taxes........ (4,953) (14,938) 13,106 18,186 32,145 30,755 42,992 67,017 91,503
Income tax
(provision) benefit. 316 816 (1,073) (7,757) (9,300) (17,280) (12,155) (25,400) (36,851)
-------- --------- ---------- ---------- ---------- ---------- -------- ---------- ----------
Income (loss) from
continuing
operations.......... (4,637) (14,122) 12,033 10,429 22,845 $ 13,475 30,837 41,617 $ 54,652
========== ==========
Income (loss) from
discontinued
operations.......... 29,808 (94,379) (168,808) (1,665) -- -- --
-------- --------- ---------- ---------- ---------- -------- ----------
Income (loss) before
extraordinary items
and cumulative
effect of accounting
changes............. 25,171 (108,501) (156,775) 8,764 22,845 30,837 41,617
Extraordinary gain
(loss).............. -- -- 5,115 -- -- -- (2,614)
Cumulative effect of
accounting changes.. -- -- -- 22,265 -- -- --
-------- --------- ---------- ---------- ---------- -------- ----------
Net income (loss).... $ 25,171 $(108,501) $ (151,660) $ 31,029 $ 22,845 $ 30,837 $ 39,003
======== ========= ========== ========== ========== ======== ==========
Per Common Share:
Income (loss) from
continuing
operations.......... $ (0.07) $ (0.21) $ 0.18 $ 0.15 $ 0.33 $ 0.17 $ 0.45 $ 0.59 $ 0.69
========== ==========
Income (loss) from
discontinued
operations.......... 0.45 (1.43) (2.51) (0.02) -- -- --
-------- --------- ---------- ---------- ---------- -------- ----------
Income (loss) before
extraordinary items. 0.38 (1.64) (2.33) 0.13 0.33 0.45 0.59
Extraordinary gain
(loss).............. -- -- 0.07 -- -- -- (0.04)
Cumulative effect of
accounting changes.. -- -- -- 0.32 -- -- --
-------- --------- ---------- ---------- ---------- -------- ----------
Net income (loss).... $ 0.38 $ (1.64) $ (2.26) $ 0.45 $ 0.33 $ 0.45 $ 0.55
======== ========= ========== ========== ========== ======== ==========
Dividends............ $ 0.09 $ 0.12 $ -- $ -- $ 0.02 $ 0.02 $ -- $ 0.04 $ 0.04
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1994
--------------------
ACTUAL PRO FORMA(A)
-------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $205,836 $ 239,546
Net property, plant and equipment......................... 124,786 550,619
Excess of purchase price over net assets acquired......... -- 318,910
Total assets.............................................. 876,895 1,754,955
Minority interest......................................... -- 155,645
Long-term debt (excluding current maturities)............. 45,782 530,012
Total stockholders' equity................................ 287,956 396,456
</TABLE>
7
<PAGE>
- --------
(a) The summary unaudited pro forma balance sheet data combines the financial
position of the Company as of June 30, 1994 with that of AMCI as if the
Acquisition, the Refinancing, and this offering had been consummated as of
June 30, 1994. The summarized unaudited pro forma income statement data
combines the statements of income of the Company for the year ended
December 31, 1993 and for the six months ended June 30, 1994 with those of
AMCI and its predecessors as if the Acquisition, the Refinancing and this
offering had been consummated as of January 1, 1993. Pro forma adjustments
include the write-up of property, plant and equipment to fair value,
recording of the Refinancing and related interest costs, decrease in cash
and related interest income used to consummate the Acquisition, recording
of purchase price in excess of net assets acquired and related
amortization, and the issuance of 9,000,000 Common Shares at an assumed
price of $12.75 per share (for aggregate net proceeds of approximately
$108.5 million) in the offering described herein. The summary unaudited
1993 pro forma income statement data also gives effect to the Company's (i)
March 31, 1993 acquisition of assets from ICI Canada Inc. and (ii) December
31, 1993 acquisition of assets from Asgrow Florida Company. See "Pro Forma
Combined Financial Statements of the Company."
AMCI
AMCI and its wholly-owned subsidiary, Agricultural Minerals Corporation
("AMC"), were formed in connection with the February 1990 acquisition of the
nitrogen fertilizer business of Freeport-McMoRan Resource Partners, Limited
Partnership ("FMRP") by The Morgan Stanley Leveraged Equity Fund II, L.P., a
Delaware limited partnership that is now the principal stockholder of AMCI
("MSLEF II"), and certain other investors. AMC serves as the general partner of
both AMCLP and Agricultural Minerals, Limited Partnership, a Delaware limited
partnership ("AMLP" or the "Operating Partnership"). AMC is also a limited
partner in AMCLP, holding all of the limited partnership interests in AMCLP,
except the Senior Preference Units. AMCLP, in turn, holds a 99% limited
partnership interest in the Operating Partnership. All of AMCI's operating
assets relating to its nitrogen fertilizer business are owned by the Operating
Partnership. AMCI also owns 100% of the capital stock of BMC Holdings Inc., a
Delaware corporation ("BMCH"), which in turn owns 100% of the capital stock of
Beaumont Methanol Corporation, a Delaware corporation ("BMC"). BMCH and BMC
were formed in connection with the December 1991 acquisition of the methanol
business of E. I. du Pont de Nemours and Company ("DuPont") by MSLEF II and
certain other investors. All of AMCI's operating assets relating to its
methanol business are owned by BMC. The businesses of BMC and AMC were
consolidated under AMCI and combined under common ownership in October 1993
after operating under common management since December 1991.
8
<PAGE>
The following table sets forth certain historical and pro forma financial
data for AMCI and BMCH and their predecessor operations on a combined basis for
the periods indicated. This information is qualified in its entirety by, and
should be read in conjunction with, the consolidated financial statements of
AMCI, including the notes thereto, included elsewhere herein. Information
presented for the predecessor operations for the periods prior to the years
ended December 31, 1990, 1991 and 1992 is not comparable to subsequent periods
as explained in footnotes (b), (c) and (e).
AGRICULTURAL MINERALS AND CHEMICALS INC.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -----------------
COMBINED PREDECESSOR COMBINED
OPERATIONS OPERATIONS
---------------------------- -----------------
PRO FORMA
1989(E) 1990(C)(D) 1991(B) 1992(A) 1993(A) 1993 1994
-------- ---------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $352,768 $324,940 $367,729 $324,953 $365,786 $193,579 $231,782
Gross profit............ 61,746 61,524 110,929 90,416 81,878 45,783 80,742
Income before
extraordinary expense.. 28,230 11,549 44,559 20,612 8,544 7,228 26,825
Income before
extraordinary expense
per share.............. $ 2.56 $ 1.18 $ 0.49 $ 0.41 $ 1.54
BALANCE SHEET DATA:
Net property, plant and
equipment.............. $140,919 $235,237 $364,366 $347,012 $326,899 $337,782 $319,383
Total assets............ 195,254 348,459 506,590 505,913 506,395 492,178 530,805
Long-term debt and
capitalized lease
obligations, including
current maturities..... 142,270 135,119 219,418 127,820 217,029
Stockholders' equity.... 135,437 112,244 45,053 107,744 65,065
Cash dividends declared
per share.............. $ 5.72 $ 3.18 $ 7.58 $ 1.17 $ 0.39
</TABLE>
- --------
(a) The financial data for the years ended December 31, 1992 and 1993, have
been derived from the audited financial statements of AMCI included
elsewhere herein.
(b) The financial data for the year ended December 31, 1991, have been derived
from (i) the audited financial statements of DuPont's methanol business for
the period January 1, 1991, to December 12, 1991, which are not included
herein and (ii) the audited financial statements of AMCI for the year ended
December 31, 1991. BMCH information prior to December 12, 1991, is at
DuPont's historical cost and is not comparable to subsequent periods.
Common costs incurred by DuPont on behalf of the methanol operations have
been allocated to the operations using assumptions and methods which AMCI
management believes are reasonable.
(c) The pro forma financial data for the year ended December 31, 1990, have
been derived from (i) the audited financial statements of DuPont's methanol
business for the year ended December 31, 1990, which are not included
herein, (ii) the audited financial statements of FMRP's nitrogen fertilizer
business for the two months ended February 28, 1990, which are not included
herein, and (iii) the audited financial statements of AMCI for the 10
months ended December 31, 1990, which are not included herein. This
information includes pro forma adjustments to reflect the 1990 acquisition
of the AMC business from FMRP as if it had occurred on January 1, 1990. As
a result of purchase accounting adjustments as well as other factors,
including FMRP's accounting policies relating to transfer pricing on
intercompany sales and freight costs, divisional accounting for operating
expenses prior to acquisition, capital costs related to the acquisition and
differences in taxable status, the 1990 financial data is not comparable to
earlier periods. Common costs incurred by DuPont on behalf of the methanol
operations have been allocated to the operations using assumptions and
methods which AMCI management believes are reasonable.
(d) Results for 1990 include the impact of a fire in the lubricating oil unit
which caused minor structural damage to BMC's methanol production facility
in Beaumont, Texas. The 1990 results include a $5.6 million charge for
repair costs.
(e) The financial data for the year ended December 31, 1989 have been derived
from the audited financial statements of FMRP's nitrogen fertilizer
business and the audited financial statements of DuPont's methanol business
for such period, which are not included herein, and are presented at FMRP's
and DuPont's historical cost (without giving retroactive effect to purchase
accounting adjustments in subsequent years). Combined results include a pro
forma tax provision of $15.7 million for the year ended December 31, 1989
for FMRP, a partnership, based on statutory corporate rates in effect
during the periods. Common costs incurred by FMRP and DuPont on behalf of
the fertilizer and methanol operations, respectively, have been allocated
to the operations using assumptions and methods which AMCI management
believes are reasonable.
9
<PAGE>
POST-ACQUISITION COMPANY STRUCTURE
The following chart represents the anticipated organization of the Company
and certain of its subsidiaries after the consummation of the Acquisition, the
merger of AMCI into the Company and the Refinancing. Shaded areas represent
entities to be acquired pursuant to the Acquisition.
(LOGO TK)
10
<PAGE>
INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully, in addition to the other
information in this Prospectus, the following factors before purchasing the
Common Shares offered hereby.
HOLDING COMPANY STRUCTURE AND AMCLP
Since the operations of the Company are currently conducted through
subsidiaries and the Company's assets consist primarily of investments in its
subsidiaries (which, after the consummation of the Acquisition, will include
AMCI's subsidiaries), the Company's ability to pay dividends on Common Shares
is dependent upon the earnings of its subsidiaries and the distribution of
those earnings to the Company (through loans, dividends or other payments).
Moreover, the limited partnership agreement governing AMCLP requires the
quarterly distribution to the partners of AMCLP of all "Available Cash," which
is generally defined to mean all cash receipts from all sources, less the sum
of all cash disbursements, adjusted for changes in certain reserves established
as AMC determines to be necessary or appropriate in its reasonable discretion
to provide for the proper conduct of the business of AMCLP or the Operating
Partnership (including reserves for future capital expenditures) or to provide
funds for distributions with respect to any of the next four calendar quarters.
The publicly-held Senior Preference Units (which represent a 39.8% interest in
AMCLP) are entitled to receive a minimum quarterly distribution of $0.605 per
unit, plus arrearages, before any amounts are paid to AMC as distributions on
its junior preference and common units. The nature of the businesses of the
Company and AMCLP may give rise to conflicts of interest between the two.
Conflicts could arise, for example, with respect to transactions involving
purchases, sales and transportation of fertilizer and natural gas and potential
acquisitions of businesses or properties. See "Description of Certain
Indebtedness and Other Obligations--AMCLP Senior Preference Units and Other
Obligations."
LEVERAGE
As a result of the Acquisition, the Refinancing and this offering, the
Company will become more leveraged. The Company's long-term debt to total
capitalization ratio will increase substantially and fixed charges will require
a greater percentage of available cash flow. See "Liquidity and Capital
Resources After the Acquisition and the Refinancing," "Unaudited Pro Forma
Combined Financial Statements of the Company" and "Capitalization."
The degree to which the Company is leveraged could have important
consequences to holders of the Common Shares, including the following: (i) a
substantial portion of the Company's cash flow from operations must be
dedicated to the payment of the principal of and interest on indebtedness; (ii)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes will
be limited; (iii) the Company's ability to pay dividends is and will be limited
by financing agreements of it and its subsidiaries (see "Price Range of Common
Shares and Dividend Data" and "Description of Certain Indebtedness and Other
Obligations"); (iv) the agreements governing the Company's long-term
indebtedness contain certain restrictive financial and operating covenants,
including limitations on the amount of acquisitions (which have been an
important part of the Company's growth strategy over the last several years);
(v) the Company will be more leveraged than certain of its competitors, which
might place the Company at a competitive disadvantage; (vi) upon consummation
of the Refinancing, a substantial portion of the Company's borrowings will be
at floating rates of interest, causing the Company to be sensitive to increases
in interest rates; and (vii) the Company could be more sensitive to a downturn
in general economic conditions or in the agricultural or methanol industries.
VOTING CONTROL BY PRINCIPAL STOCKHOLDER AND RELATED MATTERS
As of the date hereof, Minorco USA owns approximately 53% of the outstanding
Common Shares. Since the Company became publicly-owned in 1983, Minorco and its
affiliates have owned a majority of the Company's outstanding equity
securities. As a result of its beneficial ownership of Common Shares, Minorco
and Minorco USA are able to control the election of the Company's directors and
the
11
<PAGE>
management and policies of the Company. As of the date hereof, six of the
Company's ten directors are also officers and/or directors of Minorco USA or
its affiliates. Any future sale of all or a portion of the Common Shares owned
by Minorco USA could adversely affect the market price of the Common Shares.
Minorco USA has advised the Company that, in order to maintain its current
proportionate interest in the Company, Minorco USA or an affiliate intends to
purchase from the Underwriters approximately 53% of the Common Shares offered
hereby (and 53% of any Common Shares purchased under the Underwriters' over-
allotment option) at a price equal to the price to the public less the
underwriting discount. See "Underwriting."
DEPENDENCE ON NATURAL GAS; INDUSTRY CONSIDERATIONS
The principal raw material used to produce nitrogen fertilizer is natural
gas. The Company estimates that natural gas costs comprised nearly 50% of the
total costs and expenses associated with the Company's manufactured fertilizer
operations in 1993. Natural gas is also the primary raw material used in the
production of methanol. The Company estimates that natural gas represents over
50% of the costs and expenses associated with methanol operations. A
significant increase in the price of natural gas that could not be recovered
through an increase in nitrogen fertilizer or methanol prices could have a
material adverse effect on the Company's profitability and cash flow. The
Company's policy is to fix the unit cost for 40% to 80% of its natural gas
requirements for the upcoming 12-month period using supply contracts and
various hedging techniques. See "Factors Affecting Demand For Methanol and
MTBE" and "Business--Raw Materials."
The Company's future operating results are also subject to other external
factors which are beyond the Company's control, including the number of
planted acres; the types of crops planted; the effects of general weather
patterns on the timing and duration of field work for crop planting and
harvesting; the supply of crop inputs; the relative balance of supply and
demand for nitrogen fertilizers; the U.S. government's agricultural policy;
and market prices of methanol.
SEASONALITY AND VOLATILITY
The agricultural products business is seasonal, based upon the planting,
growing and harvesting cycles. Inventories must be accumulated in the first
few months of the calendar year to be available for seasonal sales, requiring
significant storage capacity. Inventory accumulations are financed by
suppliers or short-term borrowings, which are retired with the proceeds of the
sales of such inventory. In times of lower demand, the Company can reduce
purchases, thereby decreasing inventory carrying costs. In the past, over half
of the Company's sales generally occurred during the second quarter of each
year. This seasonality also generally results in higher fertilizer prices
during peak periods, with prices typically reaching their highest point in the
spring, dropping in the summer, increasing in the fall (as depleted
inventories are restored) and through the spring.
The agricultural products business can also be volatile as a result of a
number of other factors, the most important of which, for U. S. markets, are
weather patterns and field conditions (particularly during periods of high
fertilizer consumption), current and projected grain stocks and prices and the
U.S. government's agricultural policy. Among the governmental policies that
influence the markets for fertilizer are those directly or indirectly
influencing the number of acres planted, the level of grain stocks, the mix of
crops planted and crop prices.
As with any commodity chemical, the price of methanol is volatile. The
industry has experienced cycles of oversupply resulting in depressed prices
and idled capacity, followed by periods of shortage and rapidly rising prices.
In part, future demand for methanol will depend on the regulatory environment
with respect to oxygenated gasoline. During 1994, to date, increased world
demand for methanol combined with industry production problems to create a
tight market and dramatically increased prices over 1993 levels. There can be
no assurances that such conditions will continue. See "Factors Affecting
Demand For Methanol and MTBE."
12
<PAGE>
FACTORS AFFECTING DEMAND FOR METHANOL AND MTBE
Methanol is used as a feedstock in the production of MTBE, an oxygenate and
octane enhancer used in reformulated gasoline. Reformulated gasoline has lower
volatility and is less aromatic than gasoline. Future MTBE demand is dependent
on a number of market and regulatory forces that are beyond the control of the
Company and difficult to predict.
Federally-mandated standards (the "Clean Air Act Amendments") mandate
numerous comprehensive specifications for motor vehicle fuel, including
increased oxygenate content and lower volatility. Beginning in 1992, the first
phase of the Clean Air Act Amendments required that over thirty metropolitan
areas having the highest concentration of carbon monoxide pollution implement
an oxygenated gasoline program during the portion of the year, generally the
winter months, when maximum allowable carbon monoxide pollution levels are most
likely to be exceeded. In 1995, the second phase of the Clean Air Act
Amendments will require the year-round use of reformulated gasoline (with a
minimum of 2% oxygen) in the nine metropolitan areas having the highest
concentration of ozone pollution throughout the year and in any non-attainment
area in a state whose Governor elects to enter the reformulated gasoline
program. To date, the areas in which reformulated gasoline will be required to
be sold beginning in 1995 represent approximately 35% of total U.S. gasoline
demand.
Future demand for MTBE (and therefore methanol) will depend on, among other
things, the degree to which the Clean Air Act Amendments are implemented and
enforced, the possible adoption of additional legislation, the willingness of
the regulatory authorities to grant waivers for specific cities or regions, the
difficulties in isolating non-attainment areas from attainment areas and the
demand for oxygenated or reformulated gasolines in areas where its use is not
required. Certain of the areas subject to the Clean Air Act Amendments have
already requested waivers from the United States Environmental Protection
Agency (the "EPA") alleging either conflicts with other pollution control
requirements or that they are no longer non-attainment areas. Representatives
of such areas are in discussions with the EPA with respect to these matters.
Currently, MTBE is the oxygenate most used by the U.S. refining industry.
However, there are alternative oxygenates, principally ethanol, ethyl tertiary
butyl ether, an ethanol derivative, and tertiary amyl methyl ether, a methanol
derivative. Recently, the EPA mandated that, in 1995, at least 15% of
reformulated gasoline use an oxygenating additive made from a renewable source,
which for all practical purposes is ethanol, and that such percentage increase
to 30% in 1996. This mandate, however, has been temporarily stayed by a U.S.
Circuit Court of Appeals pending the outcome of legal challenges. Although the
Company expects there will be a continued market preference for MTBE, there can
be no assurance that MTBE will not be replaced by alternative oxygenates as a
result of price or regulatory changes.
COMPETITION
Nitrogen fertilizer is a global commodity, and customers, including end-
users, dealers and other fertilizer producers and distributors, base their
purchasing decisions principally on the delivered price of the product. The
Company competes with a number of U.S. producers, and producers in other
countries, including state-owned and government-subsidized entities. Some of
the Company's principal competitors may have greater total resources and may be
less dependent on earnings from nitrogen fertilizer sales than the Company.
Some foreign competitors may have access to lower cost or government-subsidized
natural gas supplies. The Company believes that it competes with other
manufacturers of nitrogen fertilizer on the basis of delivery terms and
availability of products as well as on price.
The market for the fertilizer, crop protection products and seed distributed
by the Company is highly competitive. In 1993, sales attributable to the
Company's farm service centers accounted for less than 10% of total crop
production products sold in the U. S. Within the specific market areas served
by its farm service centers, however, the Company's share of the market was
substantially higher in most instances. The Company's competitors include
cooperatives, divisions of diversified agribusiness companies, regional
distributors and independent dealers, some of which have substantially greater
financial and other resources than the Company. The Company competes primarily
by providing a comprehensive line of products and by providing what the Company
believes to be superior services to growers and dealers.
13
<PAGE>
The methanol industry, like the fertilizer industry, is highly competitive
and such competition is based largely on price, reliability and deliverability.
The relative cost and availability of natural gas and the efficiency of
production facilities are important competitive factors. Significant
determinants of a plant's competitive position are the natural gas acquisition
and transportation contracts that a plant negotiates with its major suppliers.
Domestic competitors for methanol include a number of large integrated
petrochemical producers, many of which are better capitalized than the Company.
In addition, the production and trade of methanol has become increasingly
global, and a number of foreign competitors produce methanol primarily for the
export market. See "Factors Affecting Demand for Methanol and MTBE" and
"Business--Competition."
DAMAGE TO FACILITIES; NATURAL HAZARDS
The operations of the Company may be subject to significant interruption if
one or more of its facilities were to experience a major accident or were
damaged by severe weather or other natural disaster. However, the Company
currently maintains, and expects that it will, to the extent economically
feasible, continue to maintain, insurance (including business interruption
insurance) in an amount which the Company believes is sufficient to allow the
Company to withstand major damage to any of its facilities.
ENVIRONMENTAL REGULATION
The Company's and AMCI's business activities are subject to stringent
environmental regulation by federal, provincial, state and local governmental
authorities. The Company and AMCI are also involved in the manufacture,
handling, transportation and storage of materials that are or may be classified
as hazardous or toxic by Federal, state, provincial or other regulatory
agencies. If such materials have been or are disposed at sites that are
targeted for cleanup by federal or state regulatory authorities, the Company or
AMCI (or subsidiaries thereof), as applicable, may be among those responsible
under such laws for all or part of the costs of such cleanup. Each of the
Company and AMCI has been designated as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1976, as amended ("CERCLA"), and analogous state laws with respect to one or
more sites. There can be no assurance that existing environmental regulations
will not be revised or that new regulations will not be adopted or become
applicable so as to have a material and adverse affect on the Company's
business or financial condition. See "Business--Environmental and Other
Regulatory Matters."
The Company endeavors to comply (and has incurred substantial costs in
connection with such compliance) in all material respects with applicable
environmental, safety and health regulations. The Company does not expect its
continued operation in compliance with such regulations (including operation of
the businesses acquired from AMCI) to have a material adverse effect on its
earnings or competitive position.
THE ACQUISITION
OVERVIEW
On August 8, 1994, the Company agreed to acquire AMCI pursuant to the Merger
Agreement between the Company, AMCI and Merger Sub. The Company will finance
the Acquisition, in part, through the net proceeds of this offering.
THE MERGER AGREEMENT
The Merger. Pursuant to the Merger Agreement, subject to the terms and
conditions described therein, Merger Sub will merge with and into AMCI (the
"Merger"). At the effective time of the Merger (the "Effective Time"), (i) AMCI
will become a wholly-owned subsidiary of the Company and the separate corporate
existence of Merger Sub will cease, (ii) each share of AMCI common stock
outstanding immediately prior to the Effective Time (other than those held in
the treasury of AMCI or owned by a subsidiary of AMCI and those with respect to
which dissenters rights have been perfected, if any) will be converted into the
right to receive $21.2066 in cash and (iii) each share of AMCI common stock
subject to a stock option outstanding immediately prior to the Effective Time
will be cancelled and converted into
14
<PAGE>
the right to receive $10.4765 in cash (calculated as $21.2066 less the exercise
price of $10.73 per share under each such option). Assuming no dissenting
shares, the aggregate consideration payable in the Merger with respect to all
such shares and options will be approximately $400 million. The aggregate
purchase price payable in the Merger is subject to adjustment based on the
working capital of AMCI at the Effective Time as described below. Immediately
following the Effective Time, AMCI will be merged into the Company and the
separate corporate existence of AMCI will cease.
Adjustment to the Merger Consideration. Pursuant to the Merger Agreement,
AMCI will be required to deliver to the Company a good faith estimate (the
"Estimate") of AMCI's Consolidated Working Capital (as defined) as of the
Effective Time prior to the closing of the Merger. In the event that such
estimate exceeds $86 million, AMCI shall pay to MSLEF II, on behalf of the
stockholders of AMCI (in such capacity, the "Sellers' Representative") an
amount equal to such excess. Such payment shall generally be made at the
Effective Time. In the event that the Estimate is less than $86 million, the
Sellers' Representative shall pay to AMCI such deficit at the Effective Time.
The Merger Agreement does not include a restriction on the ability of AMCI to
pay dividends. Thus, subject to such Consolidated Working Capital requirement
and the closing condition requiring a minimum level of cash as described below,
cash generated from the operation of AMCI through the closing of the Merger
will be for the benefit of the stockholders of AMCI.
Within 60 days following the Effective Time, the Sellers' Representative
shall be required to deliver to the Company a statement of the Consolidated
Working Capital of AMCI as of the Effective Time. After review by the Company
and resolution of any disputes pursuant to the procedures set forth in the
Merger Agreement, if the Consolidated Working Capital as finally determined is
less than the Estimate, the Sellers' Representative shall be required to pay to
the Company an amount equal to such deficit and if such Consolidated Working
Capital exceeds the Estimate, the Company shall be required to pay to the
Sellers' Representative an amount equal to such excess. Any amounts payable
after the Effective Time will be paid together with interest from the Effective
Time.
"Consolidated Working Capital" is defined to mean the excess of the
consolidated current assets of AMCI over the consolidated current liabilities
of AMCI, calculated in accordance with AMCI's accounting policies. For purposes
of calculating Consolidated Working Capital, (i) all fees and expenses of
financial, accounting, legal and other advisors to AMCI relating to services in
respect of the Merger billed or to be billed to AMCI and remaining unpaid at
the Effective Time will be deemed to be consolidated current liabilities and
(ii) all amounts expended by AMCI to purchase directors' and officers'
liability insurance to cover its directors and officers for two years after the
consummation of the Merger will be deemed to be a current receivable from the
Company.
Conditions to the Merger. The obligations of the Company and AMCI to
consummate the Merger are subject to the satisfaction or waiver at or prior to
the Effective Time of a number of conditions, including that (i) the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), shall have expired or been terminated (which
condition has been satisfied); (ii) no antitrust action or proceeding shall be
pending against the Company or AMCI to restrain, prohibit or invalidate the
Merger or that could reasonably be expected, if adversely determined, to
materially adversely affect the ability of the Company or AMCI to own or
operate any of the three principal facilities of either the Company or AMCI
after the Effective Time; (iii) no statute, rule, injunction or other order
(whether temporary, preliminary or permanent) shall be in effect which makes
the Merger illegal or otherwise prohibits consummation of the Merger; (iv) no
lawsuits or other litigation or proceedings shall be pending against AMCI or
any of its subsidiaries that, individually or in the aggregate, could
reasonably be expected, if adversely determined, to have a material adverse
effect on AMCI and its subsidiaries, considered as a whole; (v) the Methanol
Hedging Agreement (as defined below) shall have been executed by the parties
thereto; and (vi) the representations and warranties made by the other party in
the Merger Agreement shall be true and the other party shall have complied with
its covenants in the Merger Agreement.
15
<PAGE>
The obligation of the Company to effect the Merger is further conditioned on,
among other things, (i) dissenters' rights under Delaware law shall not have
been perfected with respect to more than 5% of AMCI's common stock; (ii) there
shall not have occurred any physical damage, destruction or catastrophic loss
to any of the physical assets (including software) of AMCI and its subsidiaries
that could, individually or in the aggregate, reasonably be expected to have a
material adverse effect on AMCI and its subsidiaries, considered as a whole;
(iii) there shall not have been any emissions, discharges, spills or releases,
or any use, treatment, storage, disposal, handling, manufacture, transportation
or shipment, of any substance by AMCI or any of its subsidiaries which could
reasonably be expected to give rise to liabilities, claims or costs pursuant to
environmental and safety requirements, and AMCI shall not have received any
written notice from any regulatory agency asserting any claim or requiring any
investigatory or remedial action under applicable environmental and safety
requirements, that, in either case, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on AMCI and its
subsidiaries, considered as a whole; (iv) Robert B. Gwyn and Harvey E. O'Neill,
AMCI's President and CEO and Senior Vice President--Marketing, respectively,
shall have executed and delivered agreements with respect to confidentiality
and non-solicitation of AMCI employees in the form attached to the Merger
Agreement; (v) the aggregate amount of cash and cash equivalents of AMCI and
its subsidiaries (other than AMCLP and AMLP) shall be at least $36 million.
If the offering described herein is consummated, no further approvals of the
Merger or the Merger Agreement are required from the stockholders of the
Company or the stockholders of AMCI. See "The Put Option."
THE PUT OPTION
The Company is offering the Common Shares as described herein in lieu of
exercising its rights under the Put Option Agreement between the Company and
Minorco USA, pursuant to which Minorco USA granted to the Company the right to
sell to Minorco USA and cause Minorco USA to purchase 13,333,333 Common Shares,
at a purchase price of $7.50 per Common Share, payable in cash, for aggregate
proceeds to the Company of $100 million. Under applicable rules of the New York
Stock Exchange (the "NYSE"), the Company's issuance of Common Shares upon
exercise of its rights under the Put Option Agreement must be approved by an
affirmative majority vote of stockholders. A special meeting of the Company's
stockholders for such purpose will be called for October 1994. If this offering
is consummated, the Company will cancel such meeting and not exercise its
rights under the Put Option Agreement.
THE METHANOL HEDGING AGREEMENT
As described above, the obligations of the parties to the Merger Agreement to
consummate the Merger are conditioned upon the execution at the closing of the
Merger of a methanol hedging agreement (the "Methanol Hedging Agreement")
between BMC and MSLEF II, as agent (in such capacity, the "Counterparty").
Pursuant to the Methanol Hedging Agreement, the Counterparty will pay to BMC
$4.0 million in cash concurrently with the execution and delivery of the
Methanol Hedging Agreement. In consideration of this payment, BMC will be
obligated, subject to the occurrence of certain events of force majeure, to
make payments to the Counterparty for the period from the closing of the Merger
to December 31, 1995, calendar year 1996 and calendar year 1997 in an amount
equal to the product of: (1) the excess, if any, over $0.65 per gallon of the
remainder of (a) the yearly average of the midpoint of the high and low
transaction prices for domestic barge methanol contracts in cents per gallon
for each month during such period over (b) 0.113 times the average spot price
index (large packages only), in cents per MMBtu, for natural gas, multiplied by
(2) a number of gallons equal to (i) for the period through December 31, 1995,
10.833 million multiplied by the number of whole months and fraction thereof
during such period; (ii) for calendar 1996, 140 million; and (iii) for calendar
1997, 130 million. BMC's methanol production facility in Beaumont, Texas has a
production capability of approximately 280 million gallons of methanol per
year.
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<PAGE>
The Company expects that BMC will be required to make payments to the
Counterparty under the Methanol Hedging Agreement only if methanol prices
increase relative to natural gas prices as compared to historical price levels.
The Company expects that, through BMC's Beaumont facility and the Company's
other methanol production capabilities, it will be benefiting from such market
price movements at any time at which it is required to make payments under the
Methanol Hedging Agreement.
The following table sets forth a calculation of the payment, if any, that
would be due under the Methanol Hedging Agreement for any year based on the
applicable price for methanol being equal to (i) $0.51 per gallon, the price
calculated over the 12 months ended June 30, 1994, and (ii) $0.98 per gallon,
the price calculated for the month of August 1994. In both examples, the
assumed quantity of methanol is 140 million gallons and the applicable price
for natural gas is equal to the price calculated over the 12 months ended June
30, 1994.
<TABLE>
<S> <C> <C>
Assumed methanol price............................... $0.51 $0.98
Natural gas price times .113......................... 0.24 0.24
----- -------------
Remainder.......................................... 0.27 0.74
Threshold price...................................... 0.65 0.65
----- -------------
Excess............................................. None $0.09
Assumed hedge quantity (gallons)..................... 140 million
-------------
Payment by BMC..................................... $12.6 million
=============
</TABLE>
Methanol prices are volatile. There can be no assurances as to the actual
prices of methanol and natural gas during the term of the Methanol Hedging
Agreement.
THE REFINANCING
The Company will apply the net proceeds of this offering, available cash of
the Company and AMCI and their subsidiaries and funds borrowed by the Company
and such subsidiaries under the Credit Agreement to be entered into in
connection with the Acquisition to (a) the payment of the Acquisition
consideration to the holders of AMCI common stock and stock options, (b) the
retirement of bank loans to Terra International under a 1992 revolving credit
agreement, of which there were approximately $56 million outstanding on June
30, 1994, (c) the retirement of an additional $40 million in bank loans of the
Company and its subsidiaries, (d) the retirement of a $35 million term loan of
one of AMCI's subsidiaries and (e) the payment of fees and expenses related to
the Acquisition and the Refinancing. In addition, as a result of the merger of
AMCI into the Company, the Company will assume AMCI's obligations under $175
million in aggregate principal amount of the Senior Notes. The indenture
governing the Senior Notes provides that holders may require repurchase of the
Senior Notes at a price equal to 101% of their principal amount plus accrued
interest under certain circumstances, including the Merger. The Company will
have available under the Credit Agreement funds to make any repurchase payments
so required. The Credit Agreement will also include working capital facilities
for the Company and its subsidiaries.
After consummation of the Acquisition and the Refinancing, the primary
obligor with respect to the Credit Agreement will be Terra Capital, a new
subsidiary of the Company to which the capital stock of Terra International,
AMC and BMCH will be contributed. Terra Capital will be wholly-owned by Terra
Holdings, another new subsidiary of the Company, and Terra Holdings will be
wholly-owned by the Company. See "Summary--Post-Acquisition Company Structure."
Also, Terra International, which is currently the Company's principal operating
subsidiary, and one of its subsidiaries, Terra Canada, will continue to have
other obligations outstanding. Capitalized leases of the Operating Partnership
will also
17
<PAGE>
continue after the closing of the Acquisition and the Refinancing. See also
"Capitalization," "Liquidity and Capital Resources After the Acquisition and
the Refinancing" and "Description of Certain Indebtedness and Other
Obligations."
USE OF PROCEEDS
The Company estimates the net proceeds of this offering to be approximately
$108.5 million (approximately $125 million if the Underwriters' over-allotment
option is exercised in full), assuming an Offering price to the public of
$12.75 per Common Share. The Company intends to use such net proceeds to
finance, in part, the Acquisition. See "The Acquisition" and "The Refinancing."
PRICE RANGE OF COMMON SHARES AND DIVIDEND INFORMATION
The Common Shares are listed on the NYSE and the Toronto Stock Exchange under
the symbol "TRA". On September 16, 1994, the last reported sale price of the
Common Shares as reported on the New York Stock Exchange Composite Tape was
$12.75 per share. Potential investors are encouraged to obtain current trading
price information. On August 31, 1994, the Common Shares were held by 5,812
stockholders of record.
The following table sets forth the range of high and low sales prices for the
Common Shares on the NYSE Composite Tape and the amount of dividends declared
for the periods indicated.
<TABLE>
<CAPTION>
DIVIDENDS DECLARED
PER COMMON
HIGH LOW SHARE
------ ------ ------------------
<S> <C> <C> <C>
1992
First quarter................................ $ 6 $4 3/8 $ --
Second quarter............................... 5 7/8 5 --
Third quarter................................ 6 3/4 4 1/2 --
Fourth quarter............................... 5 1/4 4 1/4 --
1993
First quarter................................ $4 7/8 $3 7/8 $ --
Second quarter............................... 4 1/4 3 1/2 --
Third quarter................................ 5 3 5/8 --
Fourth quarter............................... 7 7/8 4 1/2 0.02
1994
First quarter................................ $8 3/4 $6 1/4 $0.02
Second quarter............................... 8 1/4 6 5/8 0.02
Third quarter (through September 16, 1994)... 13 1/8 5 7/8 0.02
</TABLE>
While the Company intends to continue to pay regular cash dividends on its
Common Shares in the future, the decision to do so will be made quarterly by
its Board of Directors based upon the Company's earnings, financial position,
capital requirements and prospects and such other factors as the Board of
Directors deems relevant. The Company's ability to pay cash dividends will be
affected by the covenants and other terms of the financing agreements of the
Company and its subsidiaries, including the Credit Agreement and the indenture
under which the Senior Notes were issued. As a holding company, the Company's
ability to pay dividends will depend on its receipt of funds from its
subsidiaries which, in turn, will be affected by the Credit Agreement and other
obligations of such subsidiaries. See "Description of Certain Indebtedness and
Other Obligations," "Liquidity and Capital Resources After the Acquisition and
the Refinancing" and "Investment Considerations--Holding Company Structure and
AMCLP" and "--Leverage."
18
<PAGE>
CAPITALIZATION
Set forth below is the capitalization and short-term debt of the Company at
June 30, 1994, and as adjusted to reflect the Acquisition, this offering, the
merger of AMCI into the Company and the Refinancing. This table should be read
in conjunction with the consolidated financial statements of the Company and
the related notes and other financial information included or incorporated by
reference herein.
<TABLE>
<CAPTION>
AT JUNE 30, 1994
----------------------
(UNAUDITED)
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Borrowings under revolving credit agreements (a)...... $ 67,320 $ 67,320
Bank loans............................................ 40,000 --
Current maturities of long-term debt.................. 2,351 45,150
--------- ----------
Total short-term debt............................... $ 109,671 $ 112,470
========= ==========
Long-term debt (excluding current maturities):
10 3/4% Senior Notes Due 2003 (b)..................... $ -- $ 175,000
Operating Partnership term loan (a)................... -- 35,000
Operating Partnership capitalized lease obligations
due 2000............................................. -- 5,659
New senior secured term loans (a)(c).................. -- 268,571
Other long-term debt.................................. 45,782 45,782
--------- ----------
Total long-term debt (excluding current maturities)... 45,782 530,012
--------- ----------
Minority interest....................................... -- 155,645
--------- ----------
Common stockholders' equity:
Common Shares, 114,375,000 authorized, 70,553,045
(79,553,045 as adjusted) outstanding (d)(e).......... 123,550 132,550
Paid-in capital....................................... 523,915 623,415
Cumulative translation adjustment..................... (795) (795)
Accumulated deficit................................... (358,714) (358,714)
--------- ----------
Total stockholders' equity.......................... 287,956 396,456
--------- ----------
Total capitalization.............................. $ 333,738 $1,082,113
========= ==========
</TABLE>
- --------
(a) Adjusted amount reflects borrowings under the Credit Agreement. See
"Description of Certain Indebtedness and Other Obligations."
(b) As a result of the merger of AMCI into the Company, the Company will assume
AMCI's obligations under the Senior Notes. The indenture governing the
Senior Notes provides that holders may require repurchase of the Senior
Notes at a price equal to 101% of their principal amount plus accrued
interest under certain circumstances, including upon consummation of the
Merger. The Company will have available as part of the Refinancing funds to
make any repurchase payments so required.
(c) Included in this amount is the refinancing of $40 million of short-term
debt.
(d) Does not include 1,663,600 Common Shares subject to outstanding stock
options as of June 30, 1994, of which options with respect to 1,310,500
Common Shares were outstanding as of August 31, 1994.
(e) Adjusted amount reflects the sale of 9,000,000 Common Shares in this
offering at an assumed price of $12.75 per share (for aggregate net
proceeds of $108.5 million).
19
<PAGE>
PRO FORMA COMBINED
FINANCIAL STATEMENTS OF THE COMPANY
The pro forma combined financial statements of the Company have been prepared
to give effect to (1) the Acquisition, (2) the Refinancing, (3) the sale of
9,000,000 Common Shares in this offering at an assumed price to the public of
$12.75 per share (for aggregate net proceeds of $108.5 million), (4) the
purchase of assets from Asgrow Florida Company ("Asgrow") on December 31, 1993
by the Company's Florida operations ("Terra Asgrow Florida"), and (5) the
acquisition, effective March 31, 1993, of certain assets of ICI Canada Inc.
("ICI Canada") by Terra Canada. These pro forma combined financial statements
have been derived from, and should be read in conjunction with, the historical
financial statements and related notes of the Company and AMCI incorporated by
reference and/or included herein. The Pro Forma Combined Statement of Financial
Position assumes that the Acquisition, the Refinancing and this offering
occurred as of June 30, 1994. The Pro Forma Combined Statements of Income
assume that all such transactions occurred on January 1, 1993.
The pro forma adjustments are based on available financial information and
certain estimates and assumptions. Therefore, it is likely that actual results
will differ from the pro forma adjustments. Management of the Company believes
that any differences between the actual results and the pro forma adjustments
will not have a material effect on the pro forma combined financial statements
as presented herein.
THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL DATA ARE PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE OF THE RESULTS
THAT ACTUALLY WOULD HAVE OCCURRED HAD THE ACQUISITION, THE REFINANCING AND THIS
OFFERING BEEN CONSUMMATED ON THE DATES INDICATED OR THE RESULTS THAT MAY OCCUR
OR BE OBTAINED IN THE FUTURE.
20
<PAGE>
TERRA INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION
JUNE 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE PRO FORMA
COMPANY AMCI ADJUSTMENTS PRO FORMA
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term
investments................... $ 40,520 $ 88,718 $(64,813)(a) $ 64,425
Accounts receivable, net....... 352,464 41,866 -- 394,330
Inventories.................... 268,357 25,382 -- 293,739
Deferred tax asset--current.... 27,338 -- -- 27,338
Other current assets........... 25,459 15,673 (10,086)(b) 31,046
-------- -------- -------- ----------
Total current assets....... 714,138 171,639 (74,899) 810,878
-------- -------- -------- ----------
Property, plant and equipment,
net........................... 124,786 319,383 106,450 (b) 550,619
Deferred tax asset--non-
current....................... 5,772 -- -- 5,772
Net assets of discontinued
operations.................... 3,522 -- -- 3,522
Excess of purchase price over
net assets acquired........... -- -- 318,910 (b) 318,910
Distribution reserve fund...... -- 18,480 -- 18,480
Other assets................... 28,677 21,303 (3,206)(d) 46,774
-------- -------- -------- ----------
Total assets............... $876,895 $530,805 $347,255 $1,754,955
======== ======== ======== ==========
LIABILITIES
Debt due within one year....... $109,671 $ 1,370 $ 1,429 (a) $ 112,470
Accounts payable............... 293,361 28,531 -- 321,892
Accrued and other liabilities.. 105,270 24,625 7,075 (b) 136,970
-------- -------- -------- ----------
Total current liabilities.. 508,302 54,526 8,504 571,332
-------- -------- -------- ----------
Long-term debt................. 45,782 215,659 268,571 (a) 530,012
Deferred income taxes.......... 2,383 25,231 31,860 (b) 59,474
Other liabilities.............. 32,472 4,179 5,385 (a)(b) 42,036
Minority interest.............. -- 161,798 (6,153)(b) 155,645
Common stock and options with
liquidity rights.............. -- 4,347 (4,347)(b) --
-------- -------- -------- ----------
Total liabilities.......... 588,939 465,740 303,820 1,358,499
-------- -------- -------- ----------
STOCKHOLDERS' EQUITY
Capital stock.................. 123,550 172 8,828 (c) 132,550
Paid-in capital................ 523,915 40,472 59,028 (c) 623,415
Cumulative translation
adjustment.................... (795) -- -- (795)
Accumulated deficit............ (358,714) 24,421 (24,421)(c) (358,714)
-------- -------- -------- ----------
Total stockholders' equity. 287,956 65,065 43,435 396,456
-------- -------- -------- ----------
Total liabilities and
stockholders' equity...... $876,895 $530,805 $347,255 $1,754,955
======== ======== ======== ==========
</TABLE>
See accompanying Notes to the Pro Forma Combined Financial Statements.
21
<PAGE>
TERRA INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE PRO FORMA
COMPANY AMCI ADJUSTMENTS PRO FORMA
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES
Net sales...................... $1,059,475 $231,552 $ -- $1,291,027
Other income, net.............. 18,281 324 -- 18,605
---------- -------- -------- ----------
Total.......................... 1,077,756 231,876 -- 1,309,632
---------- -------- -------- ----------
COST AND EXPENSES
Cost of sales.................. 897,685 137,005 -- 1,034,690
Selling, general and
administrative expense........ 100,172 13,104 (1,858)(e) 111,418
Depreciation and amortization.. 9,060 14,269 7,602 (f) 30,931
Equity in earnings of
affiliates.................... (36) (402) -- (438)
Interest income................ (1,983) (1,971) 1,223 (g) (2,731)
Interest expense............... 5,841 12,622 10,270 (h) 28,733
---------- -------- -------- ----------
Total.......................... 1,010,739 174,627 17,237 1,202,603
---------- -------- -------- ----------
Income before minority
interest, income taxes and
extraordinary item............ 67,017 57,249 (17,237) 107,029
Minority interest.............. -- (15,526) -- (15,526)
---------- -------- -------- ----------
Income before income taxes and
extraordinary item............ 67,017 41,723 (17,237) 91,503
Income tax provision........... 25,400 14,898 (3,447)(o) 36,851
---------- -------- -------- ----------
INCOME BEFORE EXTRAORDINARY
ITEM.......................... $ 41,617 $ 26,825 $(13,790) $ 54,652
========== ======== ======== ==========
Weighted average shares
outstanding................... 70,336 9,000 79,336
========== ======== ==========
Income per share before
extraordinary item............ $ 0.59 $ 0.69
========== ==========
</TABLE>
See accompanying Notes to the Pro Forma Combined Financial Statements.
22
<PAGE>
TERRA INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TERRA PRO FORMA
THE ASGROW PRO FORMA TERRA PRO FORMA
COMPANY FLORIDA ADJUSTMENTS CANADA AMCI ADJUSTMENTS PRO FORMA
---------- ------- ----------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Net sales............... $1,212,510 $90,607 $(3,644) $24,565 $365,436 $ -- $1,689,474
Other income, net....... 25,491 1,470 (637) 140 394 -- 26,858
---------- ------- ------- ------- -------- -------- ----------
Total................... 1,238,001 92,077 (4,281)(i) 24,705 365,830 -- 1,716,332
COST AND EXPENSES
Cost of sales........... 1,021,187 74,108 (357)(i)(j) 19,775(n) 257,448 -- 1,372,161
Selling, general and
administrative......... 161,791 9,815 (2,347)(i)(k) 1,965 30,531 (10,556)(e) 191,199
Depreciation and
amortization........... 15,470 573 782 (i)(l) 77(n) 26,876 16,046 (f) 59,824
Equity in earnings of
affiliates............. (2,275) -- -- 1,242(n) (1,018) -- (2,051)
Interest income......... (3,261) -- 1,418 (m) -- (1,820) 2,468(g) (1,195)
Interest expense........ 12,944 15 -- 300 17,759 14,832(h) 45,850
---------- ------- ------- ------- -------- -------- ----------
Total................... 1,205,856 84,511 (504) 23,359 329,776 22,790 1,665,788
---------- ------- ------- ------- -------- -------- ----------
Income before minority
interest and income
taxes.................. 32,145 7,566 (3,777) 1,346 36,054 (22,790) 50,544
Minority interest....... -- -- -- -- (19,789) -- (19,789)
---------- ------- ------- ------- -------- -------- ----------
Income before income
taxes and extraordinary
item................... 32,145 7,566 (3,777) 1,346 16,265 (22,790) 30,755
Income tax provision.... 9,300 2,924 (1,450)(o) 1,006 7,721 (2,221)(o) 17,280
---------- ------- ------- ------- -------- -------- ----------
INCOME BEFORE
EXTRAORDINARY ITEMS.... $ 22,845 $ 4,642 $(2,327) $ 340 $ 8,544 $(20,569) $ 13,475
========== ======= ======= ======= ======== ======== ==========
Weighted average shares
outstanding............ 69,064 9,000 78,064
========== ======== ==========
Income per share before
extraordinary item..... $ 0.33 $ 0.17
========== ==========
</TABLE>
See accompanying Notes to the Pro Forma Combined Financial Statements.
23
<PAGE>
The pro forma adjustments necessary to present the combined financial
position are as follows:
(a) The adjustment to cash and short-term investments is determined as
follows (in thousands):
<TABLE>
<S> <C>
Issuance of long-term debt...................................... $ 310,000
Refinance short- to long-term debt.............................. (40,000)
Proceeds from sale of stock (Note (c)).......................... 108,500
Proceeds from sale of call under Methanol Hedging Agreement..... 4,000
Payment of finance fees--other assets........................... (11,200)
Payment of purchase price and working capital adjustment........ (431,113)
Payment of Acquisition related costs............................ (5,000)
---------
Net cash adjustment............................................. $ (64,813)
=========
</TABLE>
Bank loans totaling $40 million used by the Company to repurchase its
convertible subordinated debentures in March 1994 will be repaid with
borrowings under the Credit Agreement.
The proceeds from the sale of the call under the Methanol Hedge
Agreement were recorded as a long-term deferred credit. In the event
that BMC is required to make payments under this agreement, the first
$4 million in payments will be charged against the long-term deferred
credit. The liability, if any, of BMC under this agreement over $4
million will be expensed in the period to which such payment relates,
which will also be the period in which the Company realizes increased
gross profit on methanol sales.
(b) Adjustments to the net assets of AMCI to reflect fair values under
purchase accounting are as follows (in thousands):
<TABLE>
<S> <C> <C>
Equity purchase price of $400,000............................. $400,000
Working capital adjustment as of June 30, 1994 based
on actual working capital of $117,113............... $(31,113)
AMCI net assets at June 30, 1994..................... 65,065
Adjustments to conform AMCI's accounting for plant
turnaround costs to that used by the Company:
Other current assets................................. (10,086)
Other assets......................................... (3,994)
Accrued liabilities ................................. (7,075)
Write-up of property, plant & equipment to fair
value............................................... 106,450
Other assets write-off of deferred finance charges... (10,412)
Record liability for underfunded pension plan........ (1,385)
Minority interest in purchase accounting adjustments. 6,153
Adjust accrual for common stock and options with
liquidity rights.................................... 4,347
Record payment of merger related costs............... (5,000)
Provide deferred income taxes on basis differences... (31,860)
--------
Total............................................... 81,090 (81,090)
-------- --------
Excess of purchase price over net assets acquired.... $318,910
========
</TABLE>
The adjustment for plant turnaround costs is to conform AMCI's
accounting policy of capitalizing costs related to the periodic
scheduled maintenance of production facilities and amortization of such
costs over generally two years to the Company's policy of accruing for
such costs over the two-year period preceding the next scheduled
maintenance of the production facilities. The adjustment for the
accrual for common stock and options with liquidity rights is to
reflect the fact that the Company will settle all such outstanding
stock and options for cash as part of the Acquisition, and AMCI will no
longer be obligated to redeem such stock or options.
24
<PAGE>
(c) The pro forma adjustment reflects the elimination of the AMCI equity
accounts and the issuance of 9,000,000 Common Shares in this offering
for aggregate net proceeds of $108.5 million.
(d) The pro forma adjustment reflects the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Write-off of deferred finance charges of AMCI................. $(10,412)
<CAPTION>
Payment of finance fees for new financing..................... 11,200
Adjustment of other assets to conform accounting methods...... (3,994)
<S> <C>
--------
$ (3,206)
========
</TABLE>
The pro forma adjustments necessary to present the results of operations for
the six months ended June 30, 1994 and the year ended December 31, 1993 are as
follows:
(e) Reduce AMCI executive incentive plan expense that will not exist after
the Merger totaling approximately $1.2 million in 1994 and $10.6
million in 1993 and defer $0.7 million of AMCI acquisition related
costs expensed in the second quarter of 1994.
(f) Amortization of excess purchase price over net assets acquired net of
reduced depreciation expense on assets acquired of $7.6 million in 1994
and $16 million in 1993 based on an extended 18.5 year useful life for
assets acquired.
(g) Reduce interest income by $1.2 million in 1994 and $2.5 million in 1993
for cash utilized in purchase.
(h) Increase interest expense $10.3 million in 1994 and $14.8 million in
1993, net of adjusted amortization of loan finance fees. The pro forma
combined interest expense for new long-term debt is based upon an
assumed blend of 50% variable and 50% fixed interest rates on $270
million of debt. The blended interest rate assumed for 1993 was 7.3%
and for 1994 was 7.8%. These are added to the historical interest
expense of the Company and AMCI.
(i) Certain operations of Asgrow, principally a retail location in southern
Georgia and the seed distribution business to vegetable markets in
North Carolina, were not acquired. Revenues, costs of sales, selling
expenses and depreciation are reduced $4.3 million, $2.3 million, $0.5
million and $0.1 million respectively, to reflect operations not
acquired.
(j) Asgrow had purchased proprietary seed from Asgrow Seed Company ("Asgrow
Seed") at Asgrow Seed's cost. Terra Asgrow Florida will purchase seed
from Asgrow Seed at prices that represent wholesale market value. The
increase in seed purchase costs is estimated to increase pro forma cost
of sales by $1.9 million.
(k) Asgrow was charged a total of $1.8 million by its parent for
allocations of research and development costs and general
administrative services. These expenses will not continue.
(l) The acquisition price included approximately $13 million of unassigned
cost which will be charged against operations $0.9 million per year for
15 years.
(m) Interest income is reduced to reflect use of available cash to fund the
purchase from Asgrow.
(n) Terra Canada depreciation expense of $0.9 million for the three months
ended March 31, 1993 is eliminated and replaced with lease expense
computed from $3.3 million annual lease payments and amortization of
lease finance costs. In addition, as a condition of the acquisition,
certain employees were terminated subject to varying transition periods
averaging six months. Pro forma costs of sales is reduced for the full
effect of workforce reductions resulting in cost savings of $0.3
million for the three months ended March 31, 1993.
(o) Income taxes are provided at an assumed rate of 40% for pro forma
adjustments. No reduction in tax expense will result from charges
related to amortization of excess purchase price over net assets
acquired.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AFTER
THE ACQUISITION AND THE REFINANCING
The Company's primary uses for cash after the Acquisition and the Refinancing
will be to fund its working capital needs, make payments on its indebtedness
and other obligations, make quarterly distributions on AMCLP's Senior
Preference Units and make capital expenditures. Its principal sources of funds
will be cash flow from operations and borrowings under the Credit Agreement.
See "Pro Forma Combined Financial Statements of the Company."
The Company's working capital requirements will be greater with the addition
of AMCI's businesses and will continue to be seasonal. Net cash used by
operating activities of the Company was $1 million and $17.8 million,
respectively, for the year ended December 31, 1993 and the six months ended
June 30, 1994, and net cash provided by operations for AMCI was $65.9 million
and $66.3 million, respectively for the same periods. The fertilizer business
is highly seasonal and volatile due to a number of factors. The Company's
greatest need for working capital generally occurs in the spring and fall
months, as the inventory built by the Company during the summer and winter
months is converted into receivables from customers, but not yet collected. The
Company's lowest working capital need occurs in the summer, as receivables are
collected. See "Business--Seasonality and Volatility."
Because of the increase in the Company's indebtedness and other obligations
resulting from the Acquisition, the Company's need for cash to service such
obligations, as well as quarterly distributions on AMCLP's Senior Preference
Units, will substantially increase. On a pro forma basis, for the year ended
December 31, 1993, the Company's interest expense was $45.9 million, compared
with actual interest expense of $12.9 million for the Company and $17.8 million
for AMCI (and AMCLP paid $18.5 million on the Senior Preference Units in
quarterly distributions in such year.) See "Description of Certain Indebtedness
and Other Obligations--AMCLP Senior Preference Units and Other Obligations."
The Company intends to continue to make capital expenditures after the
Acquisition to maintain the operating efficiency of its manufacturing
facilities. Capital expenditures for the combined businesses are currently
estimated to be approximately $30 million in 1994 and 1995. Combined capital
expenditures of the Company and AMCI were $27.5 million in 1992 and $28.6
million in 1993.
In addition to operating cash flows, the Company will fund its working
capital needs through the Credit Agreement, which permits revolving borrowings
of up to $175 million and an additional $50 million in revolving borrowings by
AMLP, and Terra Canada's revolving credit agreement, which permits borrowings
of up to $35 million (Cdn.), in each case subject to compliance with various
financial ratios and other covenants. The Company will also utilize borrowings
under the Credit Agreement to pay for any Senior Notes which the Company is
required to repurchase. See "Description of Certain Indebtedness and Other
Obligations." Depending on market and other conditions, the Company may issue
debt or equity securities, including preferred stock and securities convertible
into Common Shares, in public or private offerings in the future in order to
repay portions of its indebtedness under the Credit Agreement.
The Company's leverage after the Acquisition and Refinancing may restrict the
Company's ability to take various actions and respond to circumstances in the
future. See "Investment Considerations-- Leverage." The Company believes,
however, that cash from operations and available financing sources will be
sufficient to meet its cash requirements for the next several years.
BUSINESS
GENERAL
The Company is a leading producer of nitrogen fertilizer and marketer of
fertilizer, crop protection products and seed. After giving effect to the
Acquisition, the Company will be the third largest producer of anhydrous
ammonia and one of the two largest producers of nitrogen solutions in the
United States and
26
<PAGE>
Canada. Through the acquisition of AMCI, the Company will also substantially
increase its participation in the methanol production industry. The Company
owns and operates the largest independent farm service center network in the
United States and Canada and is the second largest supplier of crop production
inputs in the United States.
The Company's production facilities are currently comprised of:
. 3 nitrogen fertilizer plants, which are located in Oklahoma (the
"Woodward Facility"), Iowa (the "Port Neal Facility") and Ontario (the
"Courtright Facility");
. 1 crop protection chemical formulation plant located in Arkansas (the
"Blytheville Formulation Facility"); and
. 7 additional liquid chemical formulation facilities.
The Company's distribution network serves the United States and the eastern
region of Canada and has grown over the last several years to include
approximately:
. 350 farm service centers;
. 58 fertilizer storage facilities; and
. 770 affiliated dealer locations.
AMCI's principal facilities are comprised of:
. a facility, located in Rogers County, Oklahoma, which produces
primarily ammonia and urea ammonium nitrate solution ("UAN") solutions
and which consists of two ammonia plants, two nitric acid plants and
two UAN solution plants (the "Verdigris Facility");
. a facility, located in Mississippi County, Arkansas, which produces
ammonia and urea and which consists of an ammonia plant and a granular
urea plant (the "Blytheville Facility");
. approximately 60 fertilizer storage facilities; and
. a facility located in Beaumont, Texas, for the production of methanol
(the "Beaumont Facility").
MANUFACTURED FERTILIZER
Nitrogen is one of three primary nutrients essential for plant growth.
Nitrogen fertilizer needs to be reapplied each year in areas of extensive
agricultural usage because of absorption by crops and its tendency to escape
from the soil. There are no substitutes for nitrogen fertilizer in the
cultivation of high-yield crops. Ammonia is the simplest form of nitrogen
fertilizer and is the primary raw material for the production of upgraded
nitrogen fertilizers. Ammonia is a gas under normal conditions and requires
special handling and application equipment and procedures. Ammonia is reacted
with other compounds to produce solid and liquid fertilizers, primarily urea
and UAN, which are easier to transport, store and apply than ammonia.
The Company is a major producer and distributor of nitrogen fertilizers and
will gain significant additional capacity with the acquisition of AMCI. The
Company's and AMCI's principal products are ammonia, urea and UAN. After giving
effect to the acquisition of AMCI, the Company will be the third largest
producer of anhydrous ammonia and one of the two largest producers of UAN in
the United States. A significant portion of the Company's and AMCI's ammonia
production is used to produce other nitrogen fertilizer products such as urea
and UAN, which are higher value-added products.
Products. Although, to some extent, the various nitrogen fertilizers are
interchangeable, each has its own distinct characteristics which produce
agronomic preferences among end users. Farmers decide which
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type of nitrogen fertilizer to apply based on the crop planted, soil and
weather conditions, regional farming practices and relative nitrogen fertilizer
prices.
Ammonia. Anhydrous ammonia is the simplest form of nitrogen fertilizer and is
the feedstock for the production of most other nitrogen fertilizers, including
urea and UAN. It is produced by reacting natural gas with steam and air at high
temperatures and pressures in the presence of catalysts. It has a nitrogen
content of 82% by weight and is generally the least expensive form of
fertilizer per unit of nitrogen.
Urea. Solid urea is produced for both the feed and fertilizer market by
converting ammonia into liquid urea, which can then be turned into a solid
which is either prilled or granulated. Urea has a nitrogen content of 46% by
weight, the highest level for any solid nitrogen product. Granular urea is
generally sold as fertilizer and prilled urea is generally sold as a feed
supplement. The Company produces both granular and prilled urea. AMCI produces
granular urea.
UAN Solution. The Company produces UAN at all three of its manufacturing
facilities. AMCI's Verdigris Facility in Oklahoma is the largest UAN production
facility in the United States. UAN is produced by combining liquid urea and
ammonium nitrate in water. The nitrogen content of UAN is typically 28% to 32%
by weight. UAN is a liquid fertilizer and, unlike ammonia, is generally
odorless and does not need to be refrigerated or pressurized for transportation
or storage.
UAN may be applied uniformly and may be mixed with various herbicides,
permitting the application of several materials simultaneously, and thus
reducing energy and labor costs. In addition, UAN may be applied from ordinary
tanks and trucks and can be sprayed or injected into the soil, or applied
through irrigation systems, throughout the growing season. UAN is relatively
expensive to transport and store because of its high water content. Due to its
stable nature, UAN may be used for no-till row crops where fertilizer is spread
upon the surface and is subject to volatilization losses. The use of
conservation tilling, which reduces erosion, is increasing in the United
States, and the Company believes this trend, if continued, should have a
positive impact on UAN demand.
The Company's and AMCI's nitrogen fertilizer sales mixes for the years ended
December 31, 1991, 1992 and 1993 were as follows (based on tons sold):
<TABLE>
<CAPTION>
THE COMPANY
--------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Ammonia.......................................................... 28% 30% 31%
Urea............................................................. 11% 11% 11%
UAN.............................................................. 61% 59% 58%
</TABLE>
<TABLE>
<CAPTION>
AMCI
--------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Ammonia.......................................................... 18% 16% 16%
Urea............................................................. 16% 16% 16%
UAN.............................................................. 66% 68% 68%
</TABLE>
Plants. The Company's Woodward Facility, Port Neal Facility and Courtright
Facility are integrated facilities for the production of ammonia, liquid urea
and UAN and other nitrogen fertilizer solutions. In addition, the Port Neal
Facility and the Courtright Facility produce solid urea. The Courtright
Facility's liquid urea and granulation capacity are expected to increase as a
result of a plant upgrade project, announced in February 1994. The project is
expected to be completed in 1995 and will enable the replacement of 65,000 tons
of annual ammonia sales with urea and nitrogen solution sales. The project cost
is estimated to be approximately $20 million and is expected to be funded
through lease financing.
Each of the Company's three manufacturing facilities is designed to operate
continuously, except for planned biennial shutdowns for maintenance and
installation of efficiency improvements. Utilization of the
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Company's manufacturing facilities for the years ended December 31, 1993, 1992
and 1991, in the aggregate, was approximately 92%, 95% and 91%, respectively.
AMCI's Verdigris Facility and Blytheville Facility are also integrated
facilities. The Verdigris Facility produces primarily ammonia and UAN and the
Blytheville Facility produces primarily ammonia and urea. Utilization of AMCI's
manufacturing facilities for the years ended December 31, 1993, 1992, and 1991,
in the aggregate, was approximately 101%, 107%, and 104%, respectively.
Marketing and Distribution. The Company's principal customers for its
manufactured nitrogen fertilizer products are large independent dealers,
national retail chains, cooperatives and industrial customers. Approximately
10% of the Company's fertilizer production is sold through its farm service
center locations to retail customers, while the rest is sold to outside
customers. In 1993, no customer accounted for greater than 10% of total
manufactured nitrogen fertilizer sales.
After giving effect to the acquisition of AMCI, the Company will have
production facilities and significant storage capacity nearby major fertilizer
consuming regions which should allow it to continue to be a major supplier of
nitrogen solutions to its customers.
DISTRIBUTION
The Company's distribution business manages a distribution and marketing
system for a comprehensive line of fertilizer, crop protection products and
seed. It also provides crop protection and other services to its customers. The
Company's customers are primarily farmers and dealers located in the
Midwestern, southern, southwestern and southeastern regions of the United
States, and the eastern region of Canada.
Products. The Company markets a comprehensive line of crop protection
products (herbicides, insecticides, fungicides, adjuvants, plant growth
regulators, defoliants, desiccants and other agricultural chemicals),
fertilizer (nitrogen, phosphates, potash and micronutrients) and seed. The
Company markets several major seed brands and, in its United States marketing
area, is the largest independent seed distributor. The Company focuses
particular marketing efforts on its proprietary brand of corn hybrids, soybean
and cotton seed varieties, which provide higher margins. These products
represented approximately 20% of total seed sales in 1993. The Company also has
an exclusive retail storefront marketing and distribution agreement for dekalb
brand seed in the Midwest, which accounted for approximately 7.5% of total 1993
seed sales.
Although most crop protection products marketed by the Company are
manufactured by unaffiliated suppliers, the Company also markets its own
Riverside(R) brand products. Riverside products represented approximately 16%
of total crop protection product sales in 1993. The Riverside line includes
over 100 products, nine of which were added in 1993, and consists of
herbicides, insecticides, fungicides, adjuvants, seed treatments, plant growth
regulators, defoliants and desiccants. The majority of Riverside products are
formulated and packaged in facilities owned by the Company. The Riverside line
includes several formulations produced exclusively by the Company, but does not
include proprietary agricultural chemicals. Riverside products generally
provide higher gross margins for the Company than products manufactured by
unaffiliated suppliers. The sale of such products, however, involves additional
indirect costs, including the cost of maintaining and disposing of excess
inventory and potentially greater liability for product defects. For Riverside
pesticide products, the Company possesses and processes the registrations
required by the EPA.
Services. In addition to selling products required to grow crops, the
Company's farm service centers offer a wide variety of services to grower
customers. These services include soil and plant tissue analysis and crop
production program recommendations, custom blending of fertilizers, field
application services and field inspections for pest control and crop program
performance follow-up. The farm service centers
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<PAGE>
utilize the Company's Ag Analytical Services laboratory in Elida, Ohio to
analyze nutrient levels in soil and plant tissue samples. The results of these
tests are analyzed by the Company's proprietary CropMaster(R) program, which
provides specific, localized soil fertility recommendations for specific crops
on a field-by-field basis. Crop input recommendations are provided through
computer terminals at most farm service center locations, which are linked to a
mainframe computer located at the Company's headquarters in Sioux City, Iowa.
Recommendations can be made for substantially all crops grown in the Company's
markets. The program also provides "least cost" nutrient blending formula
recommendations, makes seed variety recommendations based on hybrid
characteristics and other factors important to the individual grower, and
maintains crop input records for grower customers.
In connection with product sales to dealers, the Company provides warehousing
and delivery services. For selected dealer customers, the Company offers a
service package called MarketMaster(TM). The package includes environmental and
safety audits, special training courses, access to the Company's Ag Analytical
Services laboratory, use of the CropMaster program and other services. There
were approximately 475 MarketMaster dealer sites at December 31, 1993.
Marketing and Distribution. The Company markets its products primarily to
agricultural customers, including both dealers and growers. For 1993,
approximately 60% of the Company's distribution revenues were attributable to
retail sales through farm service center locations and approximately 40% were
attributable to wholesale sales to dealers.
The Company also markets its products through its Professional Products group
to non-farm customers, including turf growers, nurseries, golf courses, parks
and athletic facilities. The Company offers these customers herbicides,
insecticides, fungicides, fertilizer, adjuvants, plant growth regulators, seed
and agronomic services. The Professional Products personnel generally work
through the Company's farm service centers, using established delivery systems
and product lines.
The Company's distribution operations are organized into the Northern and
Southern Divisions, which include 13 separate regions. Field personnel receive
regular training through Terra University, a series of courses designed to
develop skills in agronomy, management, sales, environmental and personal
safety, and field application. The field salespeople are supported by the Ag
Analytical Services laboratory, a staff of agronomists and a research station
where the efficacy of various crop protection products and the performance of
numerous seed varieties are tested.
METHANOL
Through the acquisition of AMCI, the Company will substantially increase its
participation in the methanol production industry. After giving effect to such
acquisition, the Company will have approximately 320 million gallons of
methanol production capacity, representing approximately 16% of the total
United States rated capacity.
Product. Methanol is a liquid petrochemical made primarily from natural gas.
It is used primarily as a feedstock in the production of other chemical
products such as formaldehyde, acetic acid and chemicals used in the building
products industry. Methanol is also used as a feedstock in the production of
MTBE, an oxygenate and octane enhancer used as an additive in reformulated
gasoline. Reformulated gasoline has lower volatility and is less aromatic than
gasoline. The methanol manufacturing process involves heating the natural gas
feedstock, mixing it with steam and passing it over a nickel-based catalyst,
which breaks it down into carbon monoxide, carbon dioxide and hydrogen. This
reformed gas is then cooled, compressed and passed over a copper-zinc based
catalyst to produce crude methanol. Crude methanol consists of approximately
80% methanol and 20% water. In order to convert it to high-purity chemical
grade methanol suitable for sale, the crude methanol is distilled in a series
of distillation towers to remove the water and other impurities.
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<PAGE>
Plants. During the first half of 1994, the Company completed the capital
improvements necessary to produce methanol instead of ammonia for a portion of
the Woodward Facility's capacity. The project cost approximately $15 million
and gives the Company 40 million gallons of annual methanol capacity at the
Woodward Facility.
After the Acquisition, the Company will own, through BMC, the Beaumont
Facility, which is the largest methanol production facility in the United
States, with approximately 280 million gallons of annual methanol capacity.
The plant and processing equipment are owned by BMC and the land is leased
from DuPont for a nominal annual rental under a lease agreement which expires
in 2090. Because the Beaumont Facility is entirely contained in a complex
owned and operated by DuPont (the "Beaumont Complex"), BMC depends on DuPont
for access to the Beaumont Facility. BMC also relies on DuPont for access and
certain essential services relating to the wharf located at the Beaumont
Complex through which most of the finished product methanol is shipped to
customers and the pipelines used to transport finished product methanol and to
obtain natural gas, as well as for certain utilities and waste water treatment
facilities and other essential services.
Marketing and Distribution. The marketing of BMC's methanol is conducted on
an exclusive basis by Trammochem, a division of Transammonia, Inc., pursuant
to a Marketing Services Agreement between BMC and Trammochem. Trammochem is
one of the largest international traders and marketers of bulk petrochemicals,
including methanol. Affiliates of Transammonia, Inc. are currently
stockholders of AMCI and will receive a portion of any payments made to the
Counterparty under the Methanol Hedging Agreement. Pursuant to the Marketing
Services Agreement, Trammochem provides BMC with marketing services in
connection with the sale of BMC's methanol on a worldwide basis. These
services include analysis of market conditions for methanol, marketing and
sales on a contract basis and sales on a spot basis, arrangement of
transportation of methanol to customers and customer relations activities. BMC
retains responsibility for the invoicing and collection of payments from
customers and is responsible for loading transportation equipment in
accordance with customer requirements. BMC pays Trammochem an annual fee and a
monthly fee based on BMC's earnings and deliveries, respectively. The
Marketing Services Agreement continues until December 31, 1996 and from year
to year thereafter unless terminated by either party on not less than 180
days' written notice in advance of the end of any year. The agreement may also
be terminated in the event of a material default by either party or at the
option of BMC. The Company has no current intention to terminate the Marketing
Services Agreement.
BMC's customers are primarily large chemical or MTBE producers located in
the U.S. Some sales have been made to Central and South America.
Methanol Contracts. BMC has a number of long-term methanol sales contracts,
the most significant of which is with DuPont (the "DuPont Contract"). Through
August 31, 1994, BMC had sold over 85% of its 1994 production under such
contracts. For the remainder of 1994 and 1995, BMC has contracted to sell
nearly 100% of its production at prices indexed to published sources. Most of
BMC's sales contracts (other than the DuPont Contract) cover fixed volumes and
have terms of up to three years.
Under the DuPont Contract, DuPont has agreed to purchase 108 million gallons
of methanol each year until 2001 (representing 39% of the Beaumont Facility
capacity). The DuPont Contract will continue in effect after the initial term
unless terminated by either party on two years' notice. Commencing in 1998,
each of BMC and DuPont will have the unilateral right (exercisable one time
only for the remaining term of the contract) to permanently reduce the
contract quantity required to be delivered by BMC to DuPont in any contract
year by up to 54 million gallons. The price for the methanol delivered under
the DuPont Contract is generally indexed to certain published sources.
PRODUCT FORMULATIONS
The Company's Blytheville Formulation Facility formulates dry flowable
("DF") crop protection products and liquid crop protection chemicals in
separate production lines at the same location. DF formulations are small,
dry, water-dispersible granules that are mixed with water before application.
31
<PAGE>
Because of their dry form, the granules have several benefits compared with
liquid formulations, including: easier package disposal; easier cleanup of
accidental spills; absence of toxic solvents; no fumes; less weight; less space
required for storage; and no product loss from freezing temperatures or
settling. Because of these benefits, the Company expects more agricultural
chemicals will be offered to growers in DF form in the future. The Blytheville
Formulation Facility is one of 13 known DF plants in the U.S. and formulates
eight DF products and six liquid products. Approximately 40% of the plant's
volume in 1993 was attributable to the Company's own Riverside brand product
line. The Company has developed several DF formulations not available from any
other producer or formulator. The Company has also developed DF formulations
for a number of companies that contract all or portions of their production at
the Blytheville Formulation Facility.
CREDIT
A substantial portion of the Company's sales to its grower and dealer
customers is made on credit terms customary in the industry. During the third
quarter of 1992, the Company established a grower financing program to provide
crop input financing to certain grower customers for all operating requirements
on extended payment terms. In 1993, the Company provided approximately $25
million in financing to grower customers under this program and, in 1994, the
Company expects to finance approximately $60 million to $65 million. The
Refinancing is designed to allow the Company to continue such program.
SEASONALITY AND VOLATILITY
The agricultural products business is seasonal, based upon the planting,
growing and harvesting cycles. Inventories must be accumulated in the first few
months of the calendar year to be available for seasonal sales, requiring
significant storage capacity. Inventory accumulations are financed by suppliers
or short-term borrowings, which are retired with the proceeds of the sales of
such inventory. In times of lower demand, the Company can reduce purchases,
thereby decreasing inventory carrying costs. In the past, over half of the
Company's sales generally occurred during the second quarter of each year. This
seasonality also generally results in higher fertilizer prices during peak
periods, with prices typically reaching their highest point in the spring,
dropping in the summer, increasing in the fall (as depleted inventories are
restored) through the spring.
The agricultural products business can also be volatile as a result of a
number of other factors, the most important of which, for U.S. markets, are
weather patterns and field conditions (particularly during periods of high
fertilizer consumption), current and projected grain stocks and prices and the
U.S. government's agricultural policy. Among the governmental policies that
influence the markets for fertilizer are those directly or indirectly
influencing the number of acres planted, the level of grain stocks, the mix of
crops planted and crop prices.
As with any commodity chemical, the price of methanol is volatile. The
industry has experienced cycles of oversupply resulting in depressed prices and
idled capacity, followed by periods of shortage and rapidly rising prices.
During 1994 to date, increased world demand for methanol combined with industry
production problems to create a tight market and dramatically increased prices
over 1993 levels. There can be no assurances that such conditions will
continue. In part, future demand for methanol will depend on the regulatory
environment with respect to oxygenated gasoline. See "Investment
Considerations--Factors Affecting Demand For Methanol and MTBE." Most methanol
sold in the U.S. is sold pursuant to long-term contracts based on market index
pricing and a fixed volume. See "Methanol--Methanol Contracts."
RAW MATERIALS
The principal raw material used to produce nitrogen fertilizer is natural
gas. The Company estimates that natural gas costs comprised nearly 50% of the
total costs and expenses associated with the Company's manufactured fertilizer
operations in 1993. Natural gas is also the primary raw material used in the
production of methanol. Following the completion of the Acquisition, the
Company, through BMC, will
32
<PAGE>
own the largest methanol facility in the U.S. The Company estimates that
natural gas represents over 50% of the costs and expenses associated with
methanol operations. A significant increase in the price of natural gas that
could not be recovered through an increase in nitrogen fertilizer or methanol
prices could have a material adverse effect on the Company's profitability and
cash flow. The Company's policy is to fix the unit cost for 40% to 80% of its
natural gas requirements for the upcoming 12-month period using supply
contracts and various hedging techniques. See "Factors Affecting Demand For
Methanol and MTBE."
Reliable sources for supply of crop inputs at competitive prices are critical
to the distribution portion of the Company's business. The Company's sources
for fertilizer, agricultural chemicals and seed are typically manufacturers of
the products without an internal capability to distribute products to the North
American grower.
TRANSPORTATION
The Company uses several modes of transportation to receive and distribute
products to customers and its own locations, including railroad and tank cars,
common carrier trucks, barges, common carrier pipelines and Company-owned or
leased vehicles. The Company operates 35 liquid, 21 dry and two anhydrous
ammonia fertilizer terminal storage facilities in 18 states and Ontario,
Canada. The Company also has varying amounts of warehouse space at each of its
farm service centers. AMCI operates 45 liquid, 7 dry and 11 anhydrous ammonia
fertilizer storage facilities (some of which are in the same locations) in 21
states and one methanol storage facility in Beaumont, Texas.
Through Terra Express, Inc. and Terra Express of Oklahoma, Inc., wholly-owned
truck transportation subsidiaries of Terra International (together, "Terra
Express"), the Company provides transportation services to its own facilities
and customers as a contract carrier. Terra Express uses approximately 90 owner-
operated trucks and twenty Company-owned trucks to deliver fertilizer, crop
protection products, seed, feed ingredients and other products to its own
facilities and customers. At its manufacturing facilities, its Blytheville
Formulation Facility and liquid fertilizer storage locations, the Company
utilizes railcars as the major method of transportation. All of the Company's
approximately 1,100 railcars are leased.
Purchased natural gas is transported to the Port Neal Facility via an
interstate pipeline operating as an open access natural gas transporter. Under
a Federal Energy Regulatory Commission order, the Company maintains facilities
for direct access to its interstate pipeline shipper, avoiding additional costs
of local utility services. The Company transports purchased natural gas for its
Woodward Facility through an intrastate pipeline that is not an open access
carrier; however, the Company is able to transport gas supplies from any in-
state source connected to the widespread pipeline system. The Courtright
Facility utilizes local gas storage service provided by a local utility, and
purchased gas is transported from western Canada through the TransCanada
Pipeline under various delivery contracts.
AMCLP transports product primarily via barge and rail car. Additionally,
AMCLP uses trucks to transport smaller quantities of product, and the Verdigris
Facility distributes ammonia through the MAPCO pipeline. As of December 31,
1993, AMCLP's transportation equipment included 104 leased ammonia rail cars,
and 818 leased UAN rail cars. AMCI transports purchased natural gas for its
facilities through several natural gas pipeline companies under agreements with
various terms.
BMC transports methanol primarily by marine transport via the Neches River to
the Intercoastal Canal and the Gulf of Mexico and via pipeline to selected
customers. Access to the wharf and pipeline use at the Beaumont Facility is
provided through BMC's agreements with DuPont.
RESEARCH AND DEVELOPMENT
The Company operates a 70-acre Agronomy Research Station near its Port Neal
Facility for product and program development and testing, and routinely
conducts product evaluation and testing with growers and universities. The
Company also develops DF and other chemical formulations for its Riverside
product line and for basic chemical products at its product development
laboratory located in Blytheville, Arkansas.
33
<PAGE>
COMPETITION
Nitrogen fertilizer is a global commodity and customers, including end-users,
dealers and other fertilizer producers, base their purchasing decisions
principally on the delivered price of the product. The Company competes with a
number of U.S. producers, and producers in other countries, including state-
owned and government-subsidized entities. Some of the Company's principal
competitors may have greater total resources and may be less dependent on
earnings from nitrogen fertilizer sales than is the Company. Some foreign
competitors may have access to lower cost or government-subsidized natural gas
supplies. The Company believes that it competes with other manufacturers of
nitrogen fertilizer on the basis of delivery terms and availability of products
as well as on price.
The market for the fertilizer, crop protection products and seed distributed
by the Company is highly competitive. In 1993, sales attributable to the
Company's farm service centers accounted for less than 10% of total crop
production products sold in the U.S. Within the specific market areas served by
its farm service centers, however, the Company's share of the market was
substantially higher in most instances. The Company's competitors include
cooperatives, divisions of diversified agribusiness companies, regional
distributors and independent dealers, some of which have substantially greater
financial and other resources than the Company. The Company competes primarily
by providing a comprehensive line of products and by providing what the Company
believes to be superior services to growers and dealers.
The methanol industry, like the fertilizer industry, is highly competitive
and such competition is based largely on price, reliability and deliverability.
The relative cost and availability of natural gas and the efficiency of
production facilities are important competitive factors. Significant
determinants of a plant's competitive position are the natural gas acquisition
and transportation contracts that a plant negotiates with its major suppliers.
Domestic competitors for methanol include a number of large integrated
petrochemical producers, many of which are better capitalized than the Company.
In addition, the production and trade of methanol has become increasingly
global, and a number of foreign competitors produce methanol primarily for the
export market. See "Investment Considerations--Factors Affecting Demand for
Methanol and MTBE".
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's and AMCI's operations are subject to various federal, state and
local environmental, safety and health laws and regulations, including laws
relating to air quality, hazardous and solid wastes and water quality. Terra
Canada's operations are subject to various federal and provincial regulations
regarding such matters, including the Canadian Environmental Protection Act
administered by Environment Canada, and the Ontario Environmental Protection
Act administered by the Ontario Ministry of the Environment. The Company and
AMCI are also involved in the manufacture, handling, transportation and storage
of materials that are or may be classified as hazardous or toxic by federal,
state, provincial or other regulatory agencies. Precautions are taken to reduce
the likelihood of accidents involving these materials. If such materials have
been or are disposed of at sites that are targeted for cleanup by federal or
state regulatory authorities, the Company or AMCI may be among those
responsible under CERCLA or analogous state laws for all or part of the costs
of such cleanup.
Terra International has been designated as a PRP under CERCLA or its state
analogues with respect to various sites. Under CERCLA, all PRPs may be held
jointly and severally liable for the costs of investigation and remediation of
an environmentally damaged site. After consideration of such factors as the
number and levels of financial responsibility of other PRPs, the existence of
contractual indemnities, the availability of defenses and the speculative
nature of the costs involved, the Company's management believes that its
liability with respect to these matters will not be material.
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<PAGE>
AMCLP has been named as a PRP at the Glenn Wynn Lagoon portion of the Sand
Springs, Oklahoma, Superfund site. Soil remediation has been completed at the
site, and a long-term ground water monitoring program is in place. FMRP entered
into and paid a de minimis settlement relating to this site in 1991 and has
agreed to indemnify AMCLP for any further liability, if any, incurred by AMCLP.
AMCI believes that such agreement will provide a full indemnity for any further
liability, if any, incurred by the Operating Partnership in connection with
such Superfund site. Except for AMCLP's involvement at the Glenn Wynn Lagoon
portion of the Sand Springs Superfund site, AMCI has not been named as a PRP by
any regulatory agency or other party.
Certain state regulatory agencies have enacted requirements to provide
secondary containment for bulk agricultural chemical storage facilities present
at the Company's farm service centers and AMCI's terminals. It is expected that
other states will adopt similar requirements pursuant to federal mandate. The
Company and AMCI have commenced construction of these facilities at their farm
service centers and terminals, respectively, and estimate that the future cost
of complying with these regulations in 1994 and beyond will be approximately
$6.5 million.
On September 27, 1993, Region 6 of the EPA filed a complaint, compliance
order and notice of opportunity for hearing against BMC in connection with the
Beaumont Facility's past management of an ignitable alcohol-containing waste
stream pursuant to the Resource Conservation and Recovery Act, as amended
("RCRA"), and the Texas Solid Waste Disposal Act. In its complaint, U.S. EPA
proposed to assess a civil penalty of $583,950 against BMC for violations of
hazardous waste treatment, storage and disposal, and management and record-
keeping requirements. AMCI has implemented modifications to ensure that its
alcohol-containing stream is non-hazardous under RCRA. AMCI filed its answers
to the complaint, is in negotiations with the EPA and expects to reach a
settlement for less than the proposed civil penalty. Except for this matter,
minor exceedances of permit limitations and AMCI's involvement at the Sand
Springs Superfund site, AMCI is not currently a party to any regulatory
proceeding or litigation relating to environmental matters.
With respect to the Verdigris Facility and Blytheville Facility, FMRP retains
liability for certain environmental matters. With respect to the Beaumont
Facility, DuPont retains responsibility for certain environmental costs and
liabilities stemming from conditions or operations at the Beaumont Plant to the
extent such conditions or operations existed or occurred prior to the 1991
acquisition of BMC from DuPont. AMCI does not believe that any such
environmental matters, whether or not retained by FMRP or DuPont, will have a
material effect on AMCI's financial condition or results of operations.
Insulation and other construction or building materials at AMCI's plants
contain asbestos. Over 400 suits have been filed by contractors' employees
against DuPont based on exposure to asbestos-containing material at the complex
in which the Beaumont Facility is located. At least nine of these are directly
related to the Beaumont Facility. An estimate of potential liability associated
with these suits is not available. DuPont will retain responsibility for all
claims based on exposure to hazardous materials, including asbestos, prior to
the 1991 acquisition of BMC from DuPont. Although no suits relating to asbestos
exposure have been filed against BMC to date, the possibility exists that
liability could be incurred in the future for claims based on exposure to
asbestos-containing material after such acquisition.
AMCI and the Company may be required to install additional air and water
quality control equipment, such as low NOx burners, scrubbers, ammonia sensors
and continuous emission monitors, at certain of its facilities in order to
maintain compliance with Clean Air Act and Clean Water Act requirements. These
equipment requirements are also typically applicable to competitors as well.
The Company estimates that the cost of complying with these requirements will
be approximately $11 million to $13 million through 1997.
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The Company endeavors to comply (and has incurred substantial costs in
connection with such compliance) in all material respects with applicable
environmental, safety and health regulations. The Company does not expect its
continued operation in compliance with such regulations (including operation of
the business acquired from AMCI) to have a material adverse effect on its
earnings or competitive position.
EMPLOYEES
The Company had approximately 2,390 full-time employees at December 31, 1993,
none of whom were covered by a collective bargaining agreement. In addition,
the Company, which annually hires temporary employees on a seasonal basis,
hired approximately 1,500 temporary employees during its spring selling season
in 1993. As of December 31, 1993, AMCI had 398 employees. None of AMCI's
employees are subject to collective bargaining agreements.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The total number of shares of stock of all classes which the Company has
authority to issue is 133,500,000 shares of capital stock (without par value).
As of the completion of this offering, all such shares will be classified as
Common Shares. A stockholder of the Company has no preemptive rights to
subscribe for additional shares of stock or other securities of the Company
except as may be granted by the Board of Directors.
COMMON SHARES
A holder of Common Shares is entitled to one vote for each share held on all
matters submitted generally to a vote of stockholders and, subject to the
voting rights of the holders of preferred shares, if any, the exclusive voting
power for all purposes is vested in the holders of the Common Shares. Holders
of Common Shares do not have the right of cumulative voting in connection with
the election of directors. The Common Shares have no conversion rights and are
not subject to redemption.
Subject to the rights of the holders of preferred shares, if any, the holders
of Common Shares of the Company are entitled to receive, pro rata, dividends
when, as and if declared by the Board of Directors from funds legally available
therefor. In the event of any liquidation, dissolution or winding up of the
Company, after payment or providing for the payment of all liabilities and
amounts due the holders of preferred shares, if any, the holders of Common
Shares are entitled to share ratably in all the remaining assets.
All of the outstanding Common Shares are, and the Common Shares offered
hereby will be, validly issued, fully paid and nonassessable.
The Transfer Agent for the Common Shares is First Chicago Trust Company of
New York in the United States and Montreal Trust Company in Canada.
OTHER CLASSES AND SERIES OF STOCK
The Board of Directors may classify and reclassify any unissued shares of
capital stock into other classes and series, including one or more series of
preferred shares, by setting or changing in any one or
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more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock. Such stock may rank senior to
the Common Shares in one or more respects.
CERTAIN PROVISIONS OF MARYLAND LAW
The Company is incorporated under the laws of the State of Maryland. The
following paragraphs summarize certain provisions of Maryland General
Corporation Law (the "MGCL") and the Company's Articles of Incorporation (the
"Charter") and By-Laws. The summary does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and the
Company's Charter and By-Laws for complete information.
Business Combinations. The MGCL prohibits certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and an "Interested Stockholder." An
Interested Stockholder is any person (a) who beneficially owns 10% or more of
the voting power of the corporation's shares or (b) an affiliate or associate
of the corporation who, at any time within the two-year period prior to the
date in question, was an Interested Stockholder or an affiliate or an associate
thereof. Such business combinations are prohibited for five years after the
most recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by all holders of voting
shares of the corporation, and (b) 66 2/3% of the votes entitled to be cast by
all holders of voting shares of the corporation other than voting shares held
by the Interested Stockholder or an affiliate or associate of the Interested
Stockholder, with whom the business combination is to be effected, unless,
among other things, the corporation's stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. A Maryland corporation may adopt an amendment to its
charter or by-laws electing not to be subject to the special voting
requirements of the foregoing legislation. Any such amendment would have to be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding shares of voting stock and 66 2/3% of the
votes entitled to be cast by holders of outstanding shares of voting stock who
are not Interested Stockholders. The Company has not adopted such an amendment
to its Charter. These provisions of the MGCL also do not apply to certain
corporations (including the Company) which had an Interested Stockholder on May
31, 1983 unless a resolution is passed by the directors of such corporation
electing to have these provisions apply. The directors of the Company have not
passed such a resolution and, thus, such provisions of the MGCL do not
currently apply to the Company.
Control Share Acquisitions. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
Control shares are voting shares of stock which, if aggregated with all other
shares of stock previously acquired by such a person, would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (a) 20% or more but less than 33 1/3%; (b) 33
1/3% or more but less than a majority; or (c) a majority of all voting power.
Control shares do not include shares of stock an acquiring person is entitled
to vote as a result of having previously obtained stockholder approval. A
control share acquisition means, subject to certain exceptions, the acquisition
of, ownership of or the power to direct the exercise of voting power with
respect to, control shares.
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A person who has made or proposed to make a "control share acquisition," upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand therefor to consider the voting rights of the
shares. If no request for a meeting is made, the corporation may itself present
the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as permitted by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and
not approved. If voting rights for "control shares" are approved at a
stockholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the stock as determined for purposes of such
appraisal rights may not be less than the highest price per share paid in the
control share acquisition, and certain limitations and restrictions otherwise
applicable to the exercise of dissenters' rights do not apply in the context of
a "control share acquisition."
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction, or to acquisitions previously approved or exempted by a provision
in the articles of incorporation or by-laws of the corporation. The By-Laws of
the Company contain an exception from the control share acquisition statute for
shares held by Minorco, any affiliate, associate or immediate transferee of
Minorco, or any associate or affiliate of such immediate transferee of Minorco.
DESCRIPTION OF CERTAIN INDEBTEDNESS
AND OTHER OBLIGATIONS
The following is a brief description of the basic terms of and instruments
governing certain indebtedness and other obligations of the Company and its
subsidiaries which will be in existence after the consummation of the
Acquisition and the Refinancing. Capitalized terms used in such instruments but
not defined herein have the meaning ascribed to them in such instruments. These
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the instruments governing such indebtedness and
other obligations.
SENIOR NOTES
AMCI presently has outstanding, and the Company will assume by virtue of the
merger of AMCI into the Company, $175 million in aggregate principal amount of
the Senior Notes. The Senior Notes are issued under an Indenture dated as of
October 15, 1993 (the "Indenture"), between AMCI and Society National Bank, as
trustee and will mature on September 30, 2003. Following such merger, the
Senior Notes will be senior, unsecured obligations of the Company and will rank
pari passu in right of payment with any other senior indebtedness of the
Company. Because the Company is a holding company, all existing and future
liabilities of the Company's subsidiaries, including those under the Credit
Agreement, will be effectively senior to the Senior Notes. In addition, the
Senior Preference Units of AMCLP described below will be effectively senior to
the Senior Notes.
The Senior Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after September 30, 1998, initially at 105.375% of
their principal amount, plus accrued interest, declining to 100% of their
principal amount on September 30, 2000. In addition, at any time prior to
September 30, 1996, the Company may, at its option, redeem up to $61.25 million
aggregate principal amount of Senior Notes out of the proceeds of one or more
underwritten public offerings of equity securities at a redemption price of
110% of their principal amount, plus accrued interest.
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<PAGE>
The Indenture provides that upon a Change of Control each holder may require
the repurchase of its Senior Notes in cash at a purchase price of 101% of the
principal amount thereof, plus accrued interest, pursuant to an offer to
repurchase which must be mailed within 45 days after the Change of Control.
Because the Acquisition will constitute a Change of Control, the Company will
be required to make such a repurchase offer after consummation of the
Acquisition. The Company will have funds available under the Credit Agreement
to make such repurchases. The Senior Notes are publicly-held and the Company
presently does not know the extent to which Noteholders may accept such offer.
The Indenture contains certain covenants which will limit various actions by
the Company and its subsidiaries, including the incurrence of indebtedness, the
payment of dividends and other distributions, the extent to which the Company
and its subsidiaries may agree to consensual restrictions on the ability of
subsidiaries to pay dividends and indebtedness owed to the Company and other
subsidiaries, the sale of subsidiary stock to third parties, transactions with
affiliates and shareholders, the incurrence of liens, participation in sale-
leaseback transactions, sales of assets and mergers. In general, the Indenture
will permit the Company and certain subsidiaries to incur indebtedness if,
after giving effect to the incurrence of such indebtedness and the receipt and
application of the proceeds therefrom, the Interest Coverage Ratio of the
Company and its consolidated subsidiaries would be greater than 2:1.
CREDIT AGREEMENT
The following description is based upon the commitment letter which the
Company has received from Citibank, N.A., who will act as agent for the
ultimate lenders under the Credit Agreement. The terms of the final Credit
Agreement are not anticipated to differ materially from those described below.
The Facilities. The Credit Agreement will establish the following credit
facilities: a $150 million five-year term loan facility ("Terra Facility A"), a
$80 million seven-year term loan facility ("Terra Facility B"), a $177 million
seven-year term loan facility ("Terra Facility C"), a $80 million seven-year
term loan facility ("Terra Facility D"), a $175 million five-year revolving
credit facility ("Terra Facility E"), a $35 million five-year term facility
("AMLP Facility A") and a $50 million five-year revolving credit facility
("AMLP Facility B").
Terra Facilities A, B and D will be used to finance the consummation of the
Acquisition and to refinance certain outstanding indebtedness of the Company
and Terra International. Terra Facility C will be available to finance any
required repurchase of the Senior Notes. Terra Facility E will be available to
provide for the on-going working capital needs of Terra Capital, Terra
International, BMCH and BMC. AMLP Facility A will be used to refinance existing
indebtedness of the Operating Partnership and AMLP Facility B will be available
to provide for the on-going working capital needs of the Operating Partnership.
After consummation of the Acquisition and the Refinancing, the primary obligor
with respect to the Credit Agreement will be Terra Capital, which will own
Terra International, AMC and BMCH. Terra Capital will be wholly-owned by Terra
Holdings, another new subsidiary of the Company, and Terra Holdings will be
wholly-owned by the Company. See "Summary--Post Acquisition Company Structure."
Interest and Commitment Fees. Loans under the Credit Agreement will bear
interest at one, three or six-month LIBOR, plus the Applicable Margin. The
Applicable Margin will be 2% for all of the Facilities except Terra Facility B
until loans under Terra Facility D are paid in full; thereafter the Applicable
Margin for such Facilities will be 1.5%; provided that such Applicable Margin
will be subject to adjustment up to 2% and down to 1% depending on the
Company's consolidated ratio of debt to cash flow. The Applicable Margin for
Terra Facility B will be 2.5%. Comparable interest rates based on Citibank's
Base Rate will also be available. Commitment fees of 0.5% per year (subject to
reduction if the ratio of debt to cash flow falls to a certain level) will be
charged for unused facilities.
Amortization. Subject to prepayment as summarized below, the loans under the
Facilities will be due as follows: Terra Facility A--semiannual payments over
the first five years after closing of the Merger, Terra Facility B--semiannual
payments over the sixth and seventh years after closing of the Merger, Terra
Facility C--semiannual payments over the six years following the first year
after any Senior Notes are required to
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<PAGE>
be repurchased, Terra Facility D--semiannual payments over the first seven
years after closing of the Merger, Terra Facility E--five years after closing,
AMLP Facilities A and B--five years after closing. Prepayments will be required
in an amount equal to 75% of Terra Capital's consolidated annual Excess Cash
Flow (earnings before interest, taxes, depreciation and amortization less the
sum of cash interest expense, minority interest payments, capital expenditures,
"Specified Payments" (meaning all interest due on the Senior Notes, dividends
on the Common Shares not exceeding $10 million in 1995, $13 million in 1996,
$17 million in 1997, $20 million in 1998 and $23 million thereafter, dividends
on equity securities issued to retire loans under the Credit Agreement and
ordinary expenses of the Company plus up to $5 million per year for other pre-
existing obligations), scheduled payments of principal on indebtedness and cash
payments of taxes), reducing to 50% after $20 million has been so paid in any
year; 100% of the net proceeds over $10 million per year of non-ordinary course
asset sales, reducing to 75% after Terra Facilities C and D have been retired;
and 100% of the net proceeds of any equity security issuances until Terra
Facilities C and D have been retired.
Collateral. Loans under the Credit Agreement will be guaranteed by the
Company, Terra Holdings, Terra Capital, AMC, and BMC and will be secured by
pledges of the stock of Terra Capital, Terra International, AMC and BMCH and
security interests in substantially all of the personal property of BMCH and
BMC and the Operating Partnership, provided that the security interest granted
in the Operating Partnership's assets will only secure the AMLP Facilities A
and B.
Covenants. The Credit Agreement will contain covenants customary for
financings of this type including: (a) a limitation on annual capital
expenditures to $40 million, (b) a prohibition on optional redemptions and
repurchases of subordinated indebtedness, (c) limitations on additional debt,
liens, receivables sales, investments, changes in lines of business and
transactions with affiliates and (d) an annual limitation on acquisitions of
$15 million (increasing to $50 million when Terra Facilities C and D have been
retired, Terra Facilities A and B have been paid down to $100 million or less
and the debt to cash flow ratio has reached 2.5 to 1 or better), subject to a
50% carryover for one year of any unused amount.
The Credit Agreement will also include financial covenants requiring the
Company to meet and maintain certain financial tests. These include
requirements that the Company maintain, on a consolidated basis, ratios of
earnings before interest, taxes, amortization and depreciation to interest
charges of greater than 4.0 to 1 increasing to 4.50 in 1998 and 5.0 in 2001 and
debt to cash flow of less than 3.75 to 1 until 1996 and 3.0 thereafter, a
current ratio of at least 1.25 to 1 through 1997 and 1.50 thereafter (to be
replaced by a ratio of debt to capital once Terra Facilities C and D are
retired) and a minimum net worth of $375 million plus increases in capital
stock and 50% of net income.
Events of Default and Other Matters. The Credit Agreement will also contain
customary events of default, including those relating to failure to pay amounts
due, misrepresentation, failure to perform covenants, bankruptcy or insolvency,
litigation and unsatisfied judgments, violations of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and environmental laws and
changes in control or ownership (except that after Terra Facilities C and D
have been retired, it will not be an event of default if Minorco's ownership is
at least 20% of the outstanding number of Common Shares and Minorco remains the
single largest holder of Common Shares). In addition, if dividends and other
payments with respect to the capital stock of Terra Capital exceed the sum of
Specified Payments plus 50% of the portion of Excess Cash Flow from the
previous year that is not required to be used to prepay the facilities, the
lenders under the Credit Agreement may choose to terminate their commitments to
lend or cause the Company to repurchase their loans.
OTHER OBLIGATIONS OF THE COMPANY'S SUBSIDIARIES
The following briefly describes certain indebtedness and other obligations of
Terra International and Terra Canada that will remain outstanding after the
consummation of the Acquisition and the Refinancing. See the Company's
financial statements and the notes thereto included herein and incorporated by
reference.
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Terra International is a party to a receivables purchase agreement dated as
of March 31, 1994, which expires March 31, 1996, allowing for the sale of an
undivided interest in a designated revolving pool of accounts receivable up to
$50 million in proceeds. As of June 30, 1994, $50 million of proceeds were
received.
Terra International also has outstanding $9.2 million Industrial Development
Revenue Bonds dated April 1, 1992 which bear interest at an average of 6.8% and
are subject to sinking fund requirements of $145,000 in 1994 and increasing to
$1,240,000 for the final payment in 2011. The bonds are secured by a first
mortgage on the Company's headquarters building in Sioux City, Iowa.
Terra International has $37.5 million unsecured notes outstanding as of June
30, 1994 with various institutional investors. Such notes bear interest at
rates between 8.48% and 9.625% and mature between 1996 and 2005. Terra
International is also a party to various non-cancelable operating leases for
agricultural equipment, rail cars and office, production and storage facilities
expiring on various dates through 2001. In addition, it is a party to various
letters of credit and swap agreements and financial derivatives to manage
exposure to interest rates and natural gas prices.
Terra Canada has a $37.8 million (Cdn.) lease arrangement covering certain
assets of the Courtright Facility, which will be increased by approximately $20
million (Cdn.) to provide for an expanded urea plant. Current annual lease
payments are approximately $4 million (Cdn.). The lease expires April 8, 1997,
but can be extended for up to an additional five years with the consent of the
lessor and is guaranteed by Terra International.
Terra Canada also has a $35 million (Cdn.) revolving credit facility used to
provide for working capital needs which expires May 31, 1995 and is renewable
every 120 days for a 360 day term. Terra International provides a guarantee for
this facility. Terra Canada has various foreign exchange forward and option
contracts to manage exposure to currency fluctuations. These agreements are
entered as designated hedges of fixed obligations and hedges of net foreign
currency transaction exposures. It also has various swap agreements to manage
exposure to interest rates.
AMCLP SENIOR PREFERENCE UNITS AND OTHER OBLIGATIONS
AMC holds a 2% interest as general partner in AMCLP and the Operating
Partnership on a combined basis. AMCLP's limited partnership interests are
divided into publicly held Senior Preference Units with a 39.8% interest and
Junior Preference Units and Common Units with a 58.2% interest, both of which
are owned by AMC. The Senior Preference Units are entitled to receive the
minimum quarterly distribution of $0.605 per unit, plus arrearages, before any
amounts are paid to AMC as limited partner. In addition, the limited
partnership agreement requires that 100% of any excess available cash after
payment of the minimum quarterly distribution on Senior Preference Units be
used to fund an $18.5 million reserve fund for the payment of future
distributions on the Senior Preference Units. This reserve was fully funded at
June 30, 1994. After payment of the minimum quarterly distribution on the
Senior Preference Units, assuming the reserve is fully funded, the Junior
Preference Units are entitled to receive the minimum quarterly distribution,
plus arrearages, and after the Junior Preference Units are paid, the Common
Units are entitled to receive the minimum quarterly distribution, plus
arrearages other than arrearages outstanding on June 30 of any year on or prior
to the Junior Conversion Date (as defined in AMCLP's limited partnership
agreement), which shall be eliminated. Available cash remaining after the
Common Units have received the minimum quarterly distribution is distributed to
all unit holders pro rata, except that the right of the Senior Preference Units
to participate in any such additional distribution terminates on the Senior
Conversion Date, which is generally defined as the date (but no sooner than
December 31, 1996) on which cash distributions of at least $2.64 per Senior
Preference Unit have been paid for three consecutive 12-month periods. AMC, as
general partner, also receives 2% of all distributions of Available Cash and is
entitled, as an incentive, to larger percentage interests to the extent that
distributions significantly exceed the minimum quarterly distributions.
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For a description of the capitalized lease obligations of the Operating
Partnership that will continue after the consummation of the Acquisition and
the Refinancing, see Note 6 to the Consolidated Financial Statements of AMCI
included herein.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the underwriters named below (the "Underwriters") have severally agreed to
purchase from the Company, and the Company has agreed to sell to them, the
respective numbers of shares set forth opposite the names of such Underwriters
below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
S. G. Warburg & Co. Inc.........................................
---------
Total....................................................... 9,000,000
=========
</TABLE>
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters are committed to purchase all of the Common Shares, if any are
so purchased.
The Underwriters propose to offer such Common Shares to the public initially
at the offering price per share as set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share on sales to certain other
dealers. This offering of the Common Shares is made for delivery when, as, and
if accepted by the Underwriters and subject to prior sale and withdrawal,
cancellation, or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares. After
this offering of the Common Shares, the public offering price and the
concessions may be changed by the Underwriters.
Each Underwriter has represented and agreed that: (a) it has not offered or
sold and will not offer or sell in the United Kingdom, by means of any
document, any Common Shares other than to persons whose ordinary business it is
to buy or sell shares or debentures (whether as principal or agent) or in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act of 1985, as amended; (b) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Common Shares in, from or otherwise
involving the United Kingdom; and (c) it has issued or passed on and will issue
or pass on in the United Kingdom any document received by it in connection with
the issue of the Common Shares only to a person who is of a kind described in
Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988 or is a person to whom the document may otherwise
lawfully be issued or passed on.
The Company has granted to the Underwriters an option for 30 days from the
date of this Prospectus to purchase up to 1,350,000 additional Common Shares.
The Underwriters may exercise such option only to cover over-allotments of the
Common Shares offered hereby. To the extent the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of additional Common Shares proportionate to such
Underwriter's initial commitment.
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The Underwriters expect that Minorco USA and its affiliates will purchase
from the Underwriters approximately 53% of the Common Shares offered hereby
(and 53% of any Common Shares purchased under the over-allotment option) at a
price equal to the price to the public less the underwriting discount.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
Each of the Company, Minorco USA and certain directors and officers of the
Company has agreed not to offer, sell, contract to sell or otherwise dispose of
any Common Shares, or securities convertible into or exchangeable for Common
Shares, except in limited circumstances, for a period of 90 days from the date
of this Prospectus without the prior written consent of S.G.Warburg & Co. Inc.
S. G. Warburg & Co. Inc. has provided financial advisory services to the
Company in connection with the Acquisition for which it will receive customary
fees and also has provided financial advisory services to Minorco and its
affiliates for which it received customary fees.
LEGAL MATTERS
Certain legal matters regarding the issuance of the Common Shares pursuant to
this offering will be passed upon for the Company by Kirkland & Ellis, Chicago,
Illinois (who will rely upon Piper & Marbury, Baltimore, Maryland, with respect
to certain matters of Maryland law) and for the Underwriters by Andrews & Kurth
L.L.P. (who will rely upon Piper & Marbury with respect to certain matters of
Maryland law).
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1992 and 1993, and for each of the two years in the period ended
December 31, 1993, included and incorporated by reference in this Prospectus
and in the Registration Statement in which this Prospectus is included have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are included and incorporated by reference herein, and have been
so included and incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements and schedules of the Company as of
December 31, 1991 and for the year then ended included elsewhere and
incorporated by reference in this Prospectus and in the Registration Statement
in which this Prospectus is included have been audited by Price Waterhouse LLP,
independent certified public accountants, as indicated in their reports
thereon, which are incorporated by reference herein. The financial statements
and schedules audited by Price Waterhouse LLP have been included herein in
reliance on their reports given their authority as experts in accounting and
auditing.
The consolidated financial statements of AMCI at December 31, 1992 and 1993,
and for each of the three years in the period ended December 31, 1993,
appearing in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 13th Floor, Seven World
Trade Center, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained by mail from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In
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<PAGE>
addition, reports, proxy statements and other information concerning the
Company may be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005 and the Toronto Stock Exchange, Exchange
Tower, 2 First Canadian Place, Toronto, Ontario M5X 1J2 Canada.
Additional information regarding the Company and the Common Shares offered
hereby is contained in the registration statement on Form S-3 (together, with
all exhibits and amendments, the "Registration Statement") filed with the
Commission under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the Commission's rules. For further information
pertaining to the Company and the Common Shares offered hereby, reference is
made to the Registration Statement (including the exhibits thereto), which may
be inspected without charge at the office of the Commission at 450 Fifth Street
N.W., Washington, D.C. 20549, and copies thereof may be obtained from the
Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-8520) are
incorporated herein by reference: (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993; (ii) the Company's Quarterly
Report on Form 10-Q for the fiscal quarters ended March 31, 1994 and June 30,
1994; (iii) the Company's Current Report on Form 8-K dated August 9, 1994; and
(iv) the description of the Common Shares, set forth in the Registration
Statement on Form 8-A dated May 2, 1988.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offering of the Common Shares offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other
than exhibits, unless such exhibits are specifically incorporated by reference
in such documents). Written requests for such copies should be directed to
George H. Valentine, Vice President, General Counsel and Corporate Secretary,
Terra Industries Inc., Terra Centre, 600 Fourth Street, P.O. Box 6000, Sioux
City, Iowa 51102-6000, telephone: (712) 277-1340.
INFORMATION WITH RESPECT TO AMCI
AMCI and AMCLP are subject to certain of the informational requirements of
the Exchange Act and, in accordance therewith, file reports and other
information with the Commission. Information herein with respect to AMCI and
its subsidiaries, including the AMCI consolidated financial statements (and
related notes) included herewith, have been derived from AMCI's and AMCLP's
Annual Reports on Form 10-K for the year ended December 31, 1993 and Quarterly
Reports on Form 10-Q for the quarter ended June 30, 1994. Copies of all such
reports filed by AMCI and AMCLP are available from the Commission as described
under "Available Information."
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TERRA INDUSTRIES INC. CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-2
Consolidated Statement of Financial Position--June 30, 1994 (unaudited)
and December 31, 1993 and 1992......................................... F-3
Consolidated Statements of Income--Six Months Ended June 30, 1994 and
1993 (unaudited), Year Ended December 31, 1993, 1992 and 1991.......... F-4
Consolidated Statements of Stockholders' Equity--Six Months Ended June
30, 1994 (unaudited), Year Ended December 31, 1993, 1992 and 1991...... F-5
Consolidated Statements of Cash Flows--Six Months Ended June 30, 1994
and 1993 (unaudited), Year Ended December 31, 1993, 1992 and 1991...... F-6
Notes to Consolidated Financial Statements.............................. F-7
AGRICULTURAL MINERALS AND CHEMICALS INC. CONSOLIDATED FINANCIAL
STATEMENTS:
Report of Independent Auditors.......................................... F-21
Consolidated Balance Sheets--June 30, 1994 (unaudited) and December 31,
1993 and 1992.......................................................... F-22
Consolidated Statements of Income--Six Months Ended June 30, 1994 and
1993 (unaudited), and Years Ended December 31, 1993, 1992 and 1991..... F-23
Consolidated Statements of Stockholders' Equity--Six Months Ended June
30, 1994 (unaudited), and Years Ended December 31, 1993, 1992 and 1991. F-24
Consolidated Statements of Cash Flows--Six Months Ended June 30, 1994
and 1993 (unaudited), and Years Ended December 31, 1993, 1992 and 1991. F-25
Notes to Consolidated Financial Statements.............................. F-26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Terra Industries Inc.
We have audited the accompanying consolidated statement of financial position
of Terra Industries Inc. and its subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, cash flows and changes in
stockholders' equity for the years then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of the Corporation for the year ended December 31, 1991
were audited by other auditors whose report, dated February 13, 1992, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such 1993 and 1992 consolidated financial statements present
fairly, in all material respects, the financial position of the Corporation at
December 31, 1993 and 1992, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the financial statements, the Corporation changed
its method of accounting for post-retirement medical benefits and income taxes
effective January 1, 1992 to conform with Statements of Financial Accounting
Standards No. 106 and 109.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 1, 1994
F-2
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1994 1993 1992
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and short-term investments.............. $ 40,520 $ 65,102 $ 121,789
Accounts receivable, less allowance for
doubtful accounts of $7,348, $5,788 and
$6,427...................................... 352,464 122,774 71,995
Inventories.................................. 268,357 244,995 198,621
Deferred tax asset--current.................. 27,338 26,011 22,660
Other current assets......................... 25,459 10,586 7,611
--------- --------- ---------
Total current assets..................... 714,138 469,468 422,676
--------- --------- ---------
Equity and other investments................. -- 2,218 480
Property, plant and equipment, net........... 124,786 110,670 91,969
Deferred tax asset--non-current.............. 5,772 24,742 23,599
Net assets of discontinued operations........ 3,522 3,488 32,369
Other assets................................. 28,677 23,896 9,099
--------- --------- ---------
Total assets............................. $ 876,895 $ 634,482 $ 580,192
========= ========= =========
LIABILITIES
Debt due within one year..................... $ 109,671 $ 9,636 $ 12,508
Accounts payable............................. 293,361 99,886 86,941
Accrued and other liabilities................ 105,270 128,659 107,410
--------- --------- ---------
Total current liabilities................ 508,302 238,181 206,859
--------- --------- ---------
Long-term debt............................... 45,782 119,061 121,171
Deferred tax liability--non-current.......... 2,383 451 --
Other liabilities............................ 32,472 33,809 30,686
Commitments and contingencies (Note 11)...... -- -- --
--------- --------- ---------
Total liabilities........................ 588,939 391,502 358,716
--------- --------- ---------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 114,375 shares;
outstanding 70,553, 69,455 and 65,346
shares.................................... 123,550 122,257 83,931
Trust Shares, authorized 16,500 shares;
outstanding none, none and 4,010 shares... -- -- 22,312
Paid-in capital.............................. 523,915 516,128 531,609
Cumulative translation adjustment............ (795) (488) --
Accumulated deficit.......................... (358,714) (394,917) (416,376)
--------- --------- ---------
Total stockholders' equity............... 287,956 242,980 221,476
--------- --------- ---------
Total liabilities and stockholders'
equity.................................. $ 876,895 $ 634,482 $ 580,192
========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- ----------------------------------
1994 1993 1993 1992 1991
---------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales............. $1,059,475 $807,153 $1,212,510 $1,062,045 $1,003,766
Other income, net..... 18,281 13,188 25,491 20,146 18,831
---------- -------- ---------- ---------- ----------
1,077,756 820,341 1,238,001 1,082,191 1,022,597
---------- -------- ---------- ---------- ----------
COST AND EXPENSES
Cost of sales......... 897,685 681,611 1,021,187 904,246 849,684
Depreciation and
amortization......... 9,060 7,757 15,470 14,994 14,399
Selling, general and
administrative
expense.............. 100,172 84,137 161,791 137,232 132,845
Equity in earnings of
unconsolidated
affiliates........... (36) (940) (2,275) -- --
Interest income....... (1,983) (1,868) (3,261) (3,084) (1,789)
Interest expense...... 5,841 6,652 12,944 10,617 14,352
---------- -------- ---------- ---------- ----------
1,010,739 777,349 1,205,856 1,064,005 1,009,491
---------- -------- ---------- ---------- ----------
Income from continuing
operations before
income taxes and
extraordinary items.. 67,017 42,992 32,145 18,186 13,106
Income tax provision.. 25,400 12,155 9,300 7,757 1,073
---------- -------- ---------- ---------- ----------
Income from continuing
operations before
extraordinary items.. 41,617 30,837 22,845 10,429 12,033
Loss from discontinued
operations:
(Loss) income from
operations, net of
taxes.............. -- -- -- (4,025) 1,192
Gain (loss) on
disposition, net of
taxes.............. -- -- -- 2,360 (170,000)
---------- -------- ---------- ---------- ----------
Income (loss) before
extraordinary items
and cumulative effect
of accounting
changes.............. 41,617 30,837 22,845 8,764 (156,775)
Extraordinary gain
(loss) on early
retirement of debt... (2,614) -- -- -- 5,115
Cumulative effect of
accounting changes... -- -- -- 22,265 --
---------- -------- ---------- ---------- ----------
NET INCOME (LOSS)....... $ 39,003 $ 30,837 $ 22,845 $ 31,029 $ (151,660)
========== ======== ========== ========== ==========
Weighted average number
of shares outstanding.. 70,336 69,033 69,064 69,103 67,103
========== ======== ========== ========== ==========
EARNINGS (LOSS) PER
SHARE:
Continuing operations. $ 0.59 $ 0.45 $ 0.33 $ 0.15 $ 0.18
Discontinued
operations........... -- -- -- (0.02) (2.51)
---------- -------- ---------- ---------- ----------
Income (loss) before
extraordinary items.. 0.59 0.45 0.33 0.13 (2.33)
Extraordinary gain
(loss) on early
retirement of debt... (0.04) -- -- -- 0.07
Cumulative effect of
accounting changes... -- -- -- 0.32 --
---------- -------- ---------- ---------- ----------
Net Earnings (Loss)..... $ 0.55 $ 0.45 $ 0.33 $ 0.45 $ (2.26)
========== ======== ========== ========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON CLASS A TRUST PAID-IN TRANSLATION ACCUMULATED
SHARES SHARES SHARES CAPITAL ADJUSTMENT DEFICIT TOTAL
-------- ------- ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1990....... $ 52,203 $17,898 $28,821 $527,607 $(8,823) $(295,745) $321,961
Exchange of HBMS
Special Shares........ 1,366 -- (796) (570) -- -- --
Translation adjustment. -- -- -- -- 8,823 -- 8,823
Retirement of
convertible
debentures............ 2,626 -- -- 8,533 -- 5,115 16,274
Conversion of Class A
Shares................ 17,898 (17,898) -- -- -- -- --
Stock Incentive Plan... 4 -- -- 9 -- -- 13
Net Loss............... -- -- -- -- -- (156,775) (156,775)
-------- ------- ------- -------- ------- --------- --------
December 31, 1991....... 74,097 -- 28,025 535,579 -- (447,405) 190,296
Exchange of HBMS
Special Shares........ 9,791 -- (5,713) (4,078) -- -- --
Exercise of stock
options............... 36 -- -- 95 -- -- 131
Stock Incentive Plan... 7 -- -- 13 -- -- 20
Net Income............. -- -- -- -- -- 31,029 31,029
-------- ------- ------- -------- ------- --------- --------
December 31, 1992....... 83,931 -- 22,312 531,609 -- (416,376) 221,476
Exchange of HBMS
Special Shares........ 38,213 -- (22,312) (15,901) -- -- --
Exercise of stock
options............... 213 -- -- 767 -- -- 980
Stock repurchase....... (107) -- -- (360) -- -- (467)
Translation adjustment. -- -- -- -- (488) -- (488)
Stock Incentive Plan... 7 -- -- 13 -- -- 20
Dividends.............. -- -- -- -- -- (1,386) (1,386)
Net Income............. -- -- -- -- -- 22,845 22,845
-------- ------- ------- -------- ------- --------- --------
December 31, 1993....... 122,257 -- -- 516,128 (488) (394,917) 242,980
Stock Incentive Plan... 120 -- -- 847 -- -- 967
Exercise of stock
options............... 442 -- -- 1,764 -- -- 2,206
Conversion of
convertible
debentures............ 731 -- -- 5,176 -- -- 5,907
Translation adjustment. -- -- -- -- (307) -- (307)
Dividends.............. -- -- -- -- -- (2,800) (2,800)
Net Income............. -- -- -- -- -- 39,003 39,003
-------- ------- ------- -------- ------- --------- --------
June 30, 1994
(unaudited)............ $123,550 $ -- $ -- $523,915 $ (795) $(358,714) $287,956
======== ======= ======= ======== ======= ========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-5
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- ------------------------------
1994 1993 1993 1992 1991
--------- --------- -------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ 39,003 $ 30,837 $ 22,845 $ 31,029 $ (151,660)
Adjustments to reconcile
net income from
continuing operations
to net cash (used in)
provided by operating
activities:
Depreciation and
amortization......... 9,060 7,757 15,470 14,994 14,399
Income taxes.......... 20,902 5,494 5,500 6,313 (345)
(Gain) loss on early
retirement of debt... 2,614 -- -- -- (5,115)
Cumulative effect of
accounting changes... -- -- -- (22,265) --
Loss from discontinued
operations........... -- -- -- 1,665 168,808
Unfunded retiree
medical costs........ -- -- 723 1,161 --
Equity in earnings of
unconsolidated
affiliates........... (36) -- (2,275) -- --
Other................. 533 508 713 -- --
Change in current assets
and liabilities,
excluding working
capital purchased/sold:
Accounts receivable... (241,589) (223,463) (24,540) (1,764) (30,847)
Inventories........... (22,032) 20,160 (6,718) (32,136) (30,452)
Other current assets.. (1,214) 2,241 (2,893) (875) 917
Accounts payable...... 193,442 134,573 (9,945) (2,071) 12,693
Accrued and other
liabilities.......... (16,945) (5,887) 2,452 38 20,048
Other................... (1,526) (1,001) (2,354) 684 (4,891)
--------- --------- -------- -------- ----------
NET CASH USED IN
OPERATING ACTIVITIES... (17,788) (28,781) (1,022) (3,227) (6,445)
--------- --------- -------- -------- ----------
INVESTING ACTIVITIES
Proceeds from asset
sales................ -- 5,773 24,391 23,065 124,983
Discontinued
operations........... (1,794) (3,337) 5,630 (5,504) (42,755)
Purchase of property,
plant and equipment.. (20,978) (13,431) (21,620) (17,620) (12,728)
Acquisitions.......... (13,833) (17,160) (58,260) -- --
Proceeds from
investments.......... 582 -- -- -- --
Dividends of
unconsolidated
affiliates........... -- -- 537 -- --
--------- --------- -------- -------- ----------
NET CASH (USED IN)
PROVIDED BY INVESTING
ACTIVITIES............. (36,023) (28,155) (49,322) (59) 69,500
--------- --------- -------- -------- ----------
FINANCING ACTIVITIES
Net short-term
borrowings........... 100,007 42,628 7,313 -- --
Retirement of
convertible
debentures........... -- -- -- -- (14,430)
Premium paid on
retirement of
convertible
debentures........... (2,533) -- -- -- --
Proceeds from issuance
of long-term debt.... -- -- 250 30,000 --
Principal payments on
long-term debt....... (67,344) (6,468) (12,545) (5,842) (5,832)
Dividends............. (2,800) -- (1,386) -- --
Stock
issuance/repurchase--
net.................. 2,206 -- 513 -- --
--------- --------- -------- -------- ----------
NET CASH (USED IN)
PROVIDED BY FINANCING
ACTIVITIES............. 29,536 36,160 (5,855) 24,158 (20,262)
--------- --------- -------- -------- ----------
Foreign exchange effect
on cash and short-term
investments............ (307) -- (488) -- --
--------- --------- -------- -------- ----------
(DECREASE) INCREASE IN
CASH AND SHORT-TERM
INVESTMENTS............ (24,582) (20,776) (56,687) 20,872 42,793
CASH AND SHORT-TERM
INVESTMENTS AT
BEGINNING OF PERIOD.... 65,102 121,789 121,789 100,917 58,124
--------- --------- -------- -------- ----------
CASH AND SHORT-TERM
INVESTMENTS AT END OF
PERIOD................. $ 40,520 $ 101,013 $ 65,102 $121,789 $ 100,917
========= ========= ======== ======== ==========
INTEREST PAID........... $ 11,800 $ 10,400 $ 14,700
======== ======== ==========
TAXES PAID.............. $ 3,800 $ 6,000 $ 1,100
======== ======== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-6
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The Consolidated Financial Statements include the accounts of Terra
Industries Inc., formerly Inspiration Resources Corporation, and all majority-
owned subsidiaries ("the Corporation").
Operating results and, where appropriate, other data presented for prior
years have been reclassified to reflect discontinued operations described in
Note 4.
Business segment:
The Corporation operates in the agribusiness industry through its wholly
owned subsidiary, Terra International, Inc., a marketer and producer of
fertilizer, crop protection products, seed and services for agriculture.
Foreign Exchange:
Results of operations for the Canadian subsidiary are translated using
average currency exchange rates during the period, while assets and liabilities
are translated using current rates. Resulting translation adjustments are
recorded as currency translation adjustments in stockholders' equity.
Cash and short-term investments:
The Corporation considers short-term investments with an original maturity of
three months or less to be cash equivalents which are reflected at their
approximate fair value.
Inventories:
Inventories are stated at the lower of cost or estimated net realizable
value. The cost of inventories is determined using the first-in, first-out
method.
Property, plant and equipment:
Expenditures for plant and equipment additions, replacements and major
improvements are capitalized. Related depreciation is charged to expense on a
straight-line basis over estimated useful lives. Maintenance and repair costs
are expensed as incurred.
Reclassifications:
Certain reclassifications have been made to prior years' financial statements
to conform with current year presentation.
Per-share results:
Earnings-per-share data are based on the weighted average number of Common
Shares that would become outstanding after allowing for the full exchange of
Hudson Bay Mining and Smelting Co., Limited Special Shares held by the public
and exercise of outstanding stock options. All previously unexchanged Special
Shares were automatically exchanged for Common Shares of the Corporation on
July 6, 1993. The dilutive effect of the Corporation's outstanding restricted
shares, stock options and convertible debentures was not significant.
Interim Financial Information:
The unaudited consolidated financial statements as of June 30, 1994 contain
all adjustments necessary to summarize fairly the financial position of Terra
Industries Inc. and all majority-owned subsidiaries and
F-7
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the results of the Corporation's operations for the six months ended June 30,
1994 and 1993. All such adjustments are of a normal recurring nature. Because
of the seasonal nature of the Corporation's operations and effects of weather-
related conditions in several of its marketing areas, earnings of any single
reporting period should not be considered as indicative of results for a full
year.
2. ACQUISITIONS
On April 8, 1993, a wholly owned subsidiary of the Corporation, Terra
International (Canada) Inc. ("Terra Canada") acquired rights to an anhydrous
ammonia manufacturing plant and related upgrading facilities ("the nitrogen
plant") located at Courtright, Ontario effective as of March 31, 1993. In
addition, Terra Canada purchased working capital associated with the nitrogen
plant and interests in 32 farm service centers operating under the trademark,
Agromart(TM). All but two of the Agromarts(TM) are owned by corporations in
which Terra Canada has a 50% interest, and the remaining 50% interests are
owned by local management and other investors. The remaining two Agromarts(TM)
are wholly owned by Terra Canada. The amount paid in connection with the
transaction was approximately $73 million (Cdn) of which approximately $47
million (Cdn) was provided through lease financing and the remainder was funded
by a working capital line of credit and cash.
On December 31, 1993, Terra International, Inc. purchased net assets of
certain operations of Asgrow Florida Company, Inc. ("Terra Asgrow Florida"), a
distributor of fertilizer, chemicals and seed, for $39 million. Terra Asgrow
Florida operates 12 distribution centers and is a supplier to the vegetable and
ornamental markets, mostly in Florida. The amount paid at closing was
approximately $31 million which was provided from available cash.
Terra Canada's operating results from the date of acquisition are included in
the Consolidated Statements of Income. The following represents unaudited pro
forma summary results of operations as if both acquisitions had occurred at the
beginning of 1992:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
SIX MONTHS 31,
ENDED ---------------------
JUNE 30, 1994 1993 1992
------------- ---------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE
DATA)
<S> <C> <C> <C>
Revenues................................... $887,700 $1,351,000 $1,282,800
Income before extraordinary items and
cumulative effect of accounting changes... $ 31,847 $ 25,500 $ 14,300
Net income................................. $ 31,847 $ 25,500 $ 36,600
Net income per share....................... $ 0.46 $ 0.37 $ 0.53
</TABLE>
The pro forma operating results were adjusted to include lease expense rather
than depreciation for the nitrogen plant, increased costs of seed sales,
amortization of intangibles, interest expense on the acquisition borrowings and
the effect of income taxes.
The pro forma information listed above does not purport to be indicative of
the results that would have been obtained if the operations were combined
during the above period. In addition, they are not intended to be a projection
of future operating results or trends.
3. ACCOUNTING CHANGES
In 1992, the Corporation adopted Statement of Financial Accounting Standard
("SFAS") 106, "Employers Accounting for Post-Retirement Benefits Other than
Pensions" and SFAS 109, "Accounting for Income Taxes." In connection with the
adoption of SFAS 106, the Corporation elected to recognize
F-8
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
immediately the prior service cost of providing post-retirement medical
benefits during the active service of the employee. This resulted in a one-time
charge of $5.7 million, net of income taxes of $3.5 million. Net income from
continuing operations for 1992 was reduced $0.7 million from that which would
have been reported under the Corporation's previous accounting method. The pro
forma effect of the change on prior years is not determinable. Prior to 1992,
the Corporation recognized expense in the period the benefits were paid. These
benefit costs were not significant in 1991.
Accounting for income taxes under SFAS 109 requires recognition of deferred
tax assets and liabilities for the effect of future tax consequences of events
recognized in the Corporation's financial statements or tax returns. SFAS 109
requires the Corporation to recognize the income tax benefit of operating loss
and tax credit carryforwards expected to be realized; such recognition was
prohibited under SFAS 96, the Corporation's previous method of accounting for
income taxes. A $28.0 million credit was recorded as the effect at January 1,
1992 of a change in accounting principle. Income tax expense from continuing
operations was increased $6.5 million for 1992 pursuant to SFAS 109.
4. DISCONTINUED OPERATIONS
During 1993, the Corporation sold the leasing business and the construction
materials businesses, discontinued in 1992.
As of December 31, 1992, the Corporation's Board of Directors approved plans
to sell the leasing and construction materials businesses as well as equity
interests in a copper alloy producer, an undeveloped beryllium mine property
and its gold mining affiliate. As a result of this decision and a gain on the
sale of remaining coal properties, discontinued in 1990, the Corporation
realized a $2.4 million gain on disposition of discontinued operations during
1992.
During the 1991 third quarter, the Corporation sold its interests in its base
metals segment consisting of Hudson Bay Mining and Smelting Co., Limited
("HBMS") and related metals marketing and trading operations. The base metals
segment was sold to Minorco, the Corporation's majority stockholder, for $87
million. The Corporation recognized a $170 million loss on the disposal of the
base metals segment.
Financial results of the base metals, coal, leasing and other discontinued
businesses for 1993 have been applied against their respective reserves and
1992 and 1991 amounts have been included in discontinued operations and are as
follows:
<TABLE>
<CAPTION>
1992 1991
----- ------
(IN
MILLIONS)
<S> <C> <C>
Revenues:
Base metals................................................... $ -- $176.8
Leasing....................................................... 5.9 8.3
Construction materials........................................ 27.8 29.4
----- ------
$33.7 $214.5
===== ======
Income (loss) from operations, net of income taxes:
Base metals................................................... $ -- $ (4.8)
Leasing....................................................... (2.8) 3.8
Construction materials........................................ (0.8) (0.2)
Other......................................................... (0.4) 2.4
----- ------
$(4.0) $ 1.2
===== ======
</TABLE>
F-9
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. RELATIONSHIP WITH MAJORITY STOCKHOLDER
Minorco, through its beneficial ownership of Common Shares, owns
approximately 53 percent of the equity of the Corporation. In 1992, the
Corporation discontinued its remaining operations in the gold mining business
conducted through its 50 percent interest in Western Gold Exploration and
Mining Company, Limited Partnership ("WestGold"). The remaining 50 percent
interest is owned by Minorco. During 1991, the Corporation sold its base metals
segment to Minorco as described in Note 4. The Corporation subleases office
space to Minorco, procures certain insurance coverages for Minorco and related
companies and shares the cost of an executive of both organizations. Payments
in settlement of these services are made on an ongoing basis.
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1994 DECEMBER 31,
----------- -----------------
1993 1992
(IN THOUSANDS) (UNAUDITED) -------- --------
<S> <C> <C> <C>
Raw materials..................................... $ 28,751 $ 22,983 $ 14,770
Finished goods.................................... 239,606 222,012 183,851
-------- -------- --------
Total......................................... $268,357 $244,995 $198,621
======== ======== ========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1994 DECEMBER 31,
----------- --------------------
1993 1992
(IN THOUSANDS) (UNAUDITED) --------- ---------
<S> <C> <C> <C>
Land and buildings........................... $ 75,359 $ 66,343 $ 59,589
Plant and equipment.......................... 190,582 179,095 152,766
--------- --------- ---------
265,941 245,438 212,355
Less accumulated depreciation and
amortization................................ (141,155) (134,768) (120,386)
--------- --------- ---------
Total.................................... $ 124,786 $ 110,670 $ 91,969
========= ========= =========
</TABLE>
8. DEBT DUE WITHIN ONE YEAR
Debt due within one year consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1994 DECEMBER 31,
----------- --------------
1993 1992
(IN THOUSANDS) (UNAUDITED) ------ -------
<S> <C> <C> <C>
Short-term borrowings............................... $107,320 $7,313 $ --
Current maturities of long-term debt................ 2,351 2,323 12,508
-------- ------ -------
Total........................................... $109,671 $9,636 $12,508
======== ====== =======
</TABLE>
The Corporation has short-term domestic bank lines of credit consisting of a
$130 million revolving credit facility, which is used primarily to provide for
domestic seasonal working capital needs, a $26.2
F-10
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
million ($35 million Cdn) revolving credit facility used to provide for working
capital needs for its Canadian operations, and a $15 million uncommitted line
for working capital needs. There was $7.3 million outstanding at December 31,
1993 under the Canadian facility at an average rate of 4.6%. Interest on
borrowings under these lines is charged at current market rates.
Under both the domestic and Canadian facility, the Corporation has agreed,
among other things, to maintain certain levels of working capital and net
worth, adhere to maximum debt leverage limitations and restrict payments to the
Corporation from operating subsidiaries. The Corporation's $130 million
revolving credit agreement expires December 31, 1995. A commitment fee of 1/4
percent is paid on the unused portion of the facility, and no borrowings were
outstanding at December 31, 1993. The Corporation's $35 million (Cdn) revolving
credit agreement expires January 5, 1995 and is renewable every 120 days for a
360-day term. A commitment fee of 1/8 percent is paid on the facility. The
Corporation's $15.0 million line is subject to periodic review and may be
withdrawn by the bank at any time.
9. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1994 DECEMBER 31,
----------- -----------------
1993 1992
(IN THOUSANDS) (UNAUDITED) -------- --------
<S> <C> <C> <C>
Customer deposits................................. $ 7,751 $ 50,714 $ 41,714
Payroll and benefit costs......................... 24,085 17,072 15,167
Income taxes...................................... 16,983 17,025 9,551
Other............................................. 56,451 43,848 40,978
-------- -------- --------
Total......................................... $105,270 $128,659 $107,410
======== ======== ========
</TABLE>
10. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1994 DECEMBER 31,
----------- ------------------
1993 1992
(IN THOUSANDS) (UNAUDITED) -------- --------
<S> <C> <C> <C>
8.5% Convertible Subordinated Debentures, due
2012.......................................... $ -- $ 72,057 $ 72,057
Unsecured Senior Notes, 8.48%, due 2005........ 30,000 30,000 30,000
Industrial Development Revenue Bonds bearing
interest at an average 6.78% with increasing
payments from 1994 to 2011.................... 9,210 9,355 9,485
Industrial Development Revenue Bonds bearing a
variable interest rate repaid December, 1993.. -- -- 5,000
Unsecured Notes, 8.75% to 9.63%, due 1996 to
1998.......................................... 7,500 8,500 10,500
Bank Note, floating rate repaid January, 1993.. -- -- 5,258
Other.......................................... 1,423 1,472 1,379
------- -------- --------
48,133 121,384 133,679
Less current maturities........................ (2,351) (2,323) (12,508)
------- -------- --------
Total...................................... $45,782 $119,061 $121,171
======= ======== ========
Estimated Fair Value........................... $45,800 $121,500 $121,000
======= ======== ========
</TABLE>
Scheduled principal payments for each of the five years 1994 through 1998 are
$2.3 million, $2.3 million, $2.8 million, $1.3 million and $6.5 million,
respectively. See Note 19 for subsequent events.
F-11
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Corporation's 8.5 percent Convertible Subordinated Debentures
("Debentures") are convertible into Common Shares any time prior to maturity,
unless previously redeemed, at a conversion price of $8.083 per share. The
Debentures are subject to redemption, upon not less than 20 days notice by
mail, at any time, as a whole or in part, at the election of the Corporation.
The redemption price, expressed as a percent of the principal amount of the
Debentures to be redeemed, is 103.40% until May 31, 1994, 102.55% until May 31,
1995 and decreasing yearly thereafter to 100% at June 1, 1997.
During 1992, the Corporation entered into a long-term note purchase agreement
of $30 million in 8.48 percent Senior Notes requiring semi-annual payments
through May 1, 2005. The Corporation has executed interest rate swap agreements
to convert one-half of these notes to LIBOR-based floating rate instruments.
The interest rate agreements became effective on April 15, 1993 and terminates
on April 15, 2003. At December 31, 1993, the interest rate spread, in the
Company's favor, amounted to 1.5% on the underlying instruments and resulted in
an effective interest rate 7.7% on the $30 million Senior Notes. The debt
agreement includes covenants similar to the Revolving Credit Agreement
described in Note 8 and a requirement for rental and interest obligations
coverage.
The Industrial Development Revenue Bonds due in 2011 are secured by a letter
of credit guaranteed by the Corporation and, along with other long-term debt
due in 2003, by the Corporation's headquarters building located in Sioux City,
Iowa.
The fair value of long-term debt was established by reference to the public
exchange market for the publicly traded long-term securities of the Corporation
and consideration of redemption provisions. Estimates of fair value developed
by the Corporation were utilized for other long-term debt.
11. COMMITMENTS AND CONTINGENCIES
The Corporation and its subsidiaries are committed to various non-cancelable
operating leases for agricultural equipment, and office, production, and
storage facilities expiring on various dates through 2001. Total minimum rental
payments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1994.............................................................. $25,178
1995.............................................................. 21,329
1996.............................................................. 16,998
1997.............................................................. 11,244
1998 and thereafter............................................... 5,061
-------
Total......................................................... $79,810
=======
</TABLE>
The Corporation entered a lease financing agreement in connection with the
purchase of an ammonia manufacturing plant and related upgrading facilities
located near Sarnia, Ontario. The agreement is for a four-year term requiring
annual lease payments of approximately $4.0 million (Cdn). Terra Canada has an
option to purchase the nitrogen plant during the term of the lease and at
expiration for approximately $47 million (Cdn). If, at the end of the lease
term, Terra Canada elects not to exercise its purchase option, the Corporation
must pay to the lessor approximately $40 million (Cdn), subject to
reimbursement based on the proceeds realized upon the sale of the nitrogen
plant by the lessor. Terra Canada has entered into certain agreements in order
to convert its obligations with respect to the nitrogen plant set forth above
from Canadian dollar and fixed rental obligations to U.S. dollar and variable
rental obligations based on interest rate changes tied to LIBOR.
F-12
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total rental expense under all leases, including short-term cancelable
operating leases, was approximately $24.7 million, $19.4 million and $18.9
million for the years ended December 31, 1993, 1992 and 1991, respectively.
In 1988, the Corporation formulated a fungicide for E. I. DuPont de Nemours
and Company ("DuPont") at the Blytheville facility. The fungicide was recalled
and claims in excess of $90 million, plus punitive damages, have been filed by
third parties alleging damages from product use. During 1993, the Corporation
reached a settlement with DuPont whereby DuPont will assume responsibility for
all related pending product claims and will reimburse the Corporation for
claims previously settled and not reimbursed by insurers. As a result of this
settlement, reserves established in 1989 to cover expected recall and claims
costs will not be required. Accordingly, the Corporation reduced 1993 costs in
the fourth quarter by $4.2 million, the remaining amount of such reserves.
A subsidiary of the Corporation has been notified by the United States
Environmental Protection Agency ("EPA") that it is a potentially responsible
party ("PRP") in the Matter of Valley Chemical Site, Greenville, Mississippi.
Ten other companies have also been named as PRPs. Based on discussions with the
EPA and review of information from other PRPs, the Corporation believes its
responsibility is limited to a portion of material removal costs which should
not be significant to its operating results.
The Corporation is contingently liable for retiree medical benefits of
employees of coal mining operations sold on January 12, 1993. Under the
purchase agreement, the purchaser agreed to indemnify the Corporation against
its obligations under certain employee benefit plans. Due to the Coal Industry
Retiree Health Benefit Act of 1992, certain retiree medical benefits of union
coal miners have become statutorily mandated, and all companies owning 50
percent or more of any company liable for such benefits as of certain specified
dates becomes liable for such benefits if the company directly liable is unable
to pay them. As a result, if the purchaser becomes unable to pay its retiree
medical obligations assumed pursuant to the sale, the Corporation may have to
pay such amount. The Corporation has estimated that the present value of
liabilities for which it retains contingent responsibility approximates $12
million at December 31, 1993. In the event the Corporation would be required to
assume this liability, mineral reserves associated with the sold coal
subsidiary would revert to the Corporation.
The Corporation and certain of its subsidiaries are involved in the above
mentioned and various other legal actions and claims, including environmental
matters, arising from the normal course of business. Although it is not
possible to predict with any certainty the outcome of such matters, it is the
opinion of management that these matters will not have a material adverse
effect on either the financial position or results of operations of the
Corporation.
12. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial Instruments--The Corporation enters into foreign exchange forward
and option contracts to manage exposure to currency fluctuations. These
agreements are entered as designated hedges of fixed obligations and hedges of
net foreign currency transaction exposures. At December 31, 1993, the notional
amounts for all foreign exchange forward and foreign currency option contracts
totaled $98.2 million. These amounts are a reflection of the extent of such
activity and are disclosed for informational purposes only. They do not
indicate the significantly smaller credit or economic risks involved in these
agreements.
These contracts had a carrying amount of $0.1 million and a fair value of
$0.9 million. Fair value of foreign exchange forward contracts is based on
quotations received from a quotation service and on computations prepared by
the Corporation which are based on current rates of exchange. Maturities, which
F-13
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are consistent with the settlement dates of items being hedged, extend through
April 1997. The gains and losses on these contracts are deferred and included
as a component of the related transaction.
The Corporation fixes some natural gas supply prices through the use of swap
agreements and financial derivatives. The Corporation had gas contracts with a
computed value of $24.7 million and a fair value of $24.2 million based on
contract prices and rates in effect at December 31, 1993. Gains and losses on
futures contracts and swap agreements are credited or charged to manufacturing
cost in the month to which the hedged transaction relates.
At December 31, 1993, the Corporation had letters of credit outstanding
totaling $19.5 million, guaranteeing various insurance and financing
activities. Short-term investments of $13.0 million at December 31, 1993 and
1992 are restricted to collateralize certain of the letters of credit.
The Corporation enters into the above agreements with a limited number of
major international financial institutions. The Corporation does not expect any
losses from credit exposure due to review and control procedures established by
corporate policy.
Concentrations of Credit Risk--The Corporation is subject to credit risk
through trade receivables and short-term investments. Although a substantial
portion of its debtors' ability to pay is dependent upon the agribusiness
economic sector, credit risk with respect to trade receivables is minimized due
to a large customer base and its geographic dispersion. Short-term cash
investments are placed with well capitalized, high quality financial
institutions and in short duration corporate and government debt securities
funds. By policy, the Corporation limits the amount of credit exposure in any
one type of investment instrument.
13. STOCKHOLDERS' EQUITY
The Corporation allocates $1.00 per share upon the issuance of Common Shares
to the Common Share capital account.
On July 6, 1993, the outstanding HBMS Special Exchangeable Non-Voting Shares
("HBMS Special Shares") were each automatically exchanged for one Common Share
of the Corporation. Through the Corporation's Trust Shares, each HBMS Special
Share had a vote equivalent to one Common Share of the Corporation. For Common
Shares issued upon the exchange of HBMS Special Shares subsequent to August 31,
1986, the Corporation allocated $9.53 per share to the Common Share capital
account, representing the average historical capitalization of the HBMS Special
Shares.
In 1992, the Corporation issued 375,500 restricted Common Shares under its
1992 Stock Incentive Plan to certain key employees of the Corporation. During
1993 an additional 38,500 shares were issued and 45,500 shares were forfeited.
At December 31, 1993, 368,500 of the unvested shares remain outstanding. Under
terms of the issuance, vesting of stock granted is contingent upon the
attainment, prior to March 1999, of pre-established market price objectives for
the Corporation's shares and/or, for approximately 31 percent of participants,
specified regional or divisional three-year operating profit objectives. In
1991, the Corporation issued 33,300 restricted Common Shares under its 1987
Stock Incentive Plan. The agreement restricts the shares to vesting in equal
annual installments over five years. The shares issued are entitled to normal
voting rights and earn dividends as declared during the performance periods.
Compensation expenses are accrued on ratable bases through the performance
periods.
The Corporation has authorized 16,500,000 Trust Shares for issuance. All
Trust Shares previously outstanding were cancelled in July 1993.
In addition to the Common and Trust Shares, the Corporation has authorized
19,125,000 Class A Shares for issuance. All Class A Shares previously
outstanding were converted to Common Shares in 1991.
F-14
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of changes in the Corporation's outstanding capital stock follows:
<TABLE>
<CAPTION>
COMMON CLASS A TRUST TOTAL
SHARES SHARES SHARES SHARES
(IN THOUSANDS) ------ ------- ------ ------
<S> <C> <C> <C> <C>
December 31, 1990.............................. 43,207 17,898 5,181 66,286
Exchanges of HBMS Special Shares............. 144 -- (144) --
Retirement of Convertible Debentures......... 2,626 -- -- 2,626
Conversion of Class A Shares................. 17,898 (17,898) -- --
Stock Incentive Plan......................... 33 -- -- 33
------ ------- ------ ------
December 31, 1991.............................. 63,908 -- 5,037 68,945
Exchange of HBMS Special Shares.............. 1,027 -- (1,027) --
Exercise of stock options.................... 36 -- -- 36
Stock Incentive Plan......................... 375 -- -- 375
------ ------- ------ ------
December 31, 1992.............................. 65,346 -- 4,010 69,356
Exchange of HBMS Special Shares.............. 4,010 -- (4,010) --
Exercise of stock options.................... 213 -- -- 213
Repurchase of shares......................... (107) -- -- (107)
Stock Incentive Plan......................... (7) -- -- (7)
------ ------- ------ ------
December 31, 1993.............................. 69,455 -- -- 69,455
====== ======= ====== ======
</TABLE>
At December 31, 1993, 12.5 million Common Shares were reserved for issuance
upon award of restricted shares, exercise of employee stock options and
conversion of convertible debentures.
14. STOCK OPTIONS
The Corporation's 1992 Stock Incentive Plan authorized granting key employees
options to purchase Common Shares at not less than fair market value on the
date of grant and also authorizes the award of performance units and restricted
shares. The Corporation's 1983 Stock Option Plan and 1987 Stock Incentive Plan
authorized granting key employees similar options to purchase Common Shares. No
further options may be granted under the 1983 and 1987 Plan. Awards to a
maximum of 2.5 million Common Shares may be granted under the 1992 Plan.
Options generally may not be exercised prior to one year or more than ten years
from the date of grant. At December 31, 1993, 1,763,500 Common Shares were
available for grant under the 1992 Plan. A summary of activity under the 1992,
1987 and 1983 Plans follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
UNDER OPTION PER SHARE
(IN THOUSANDS) ------------ ----------------
<S> <C> <C>
Balance at December 31, 1990..................... 2,603 $4.13 to $13.11
Granted........................................ 356 3.38
Expired/terminated............................. 505 3.38 to 13.11
Exercised...................................... -- --
----- ----------------
Balance at December 31, 1991..................... 2,454 $3.38 to $13.11
Granted........................................ 328 5.00
Expired/terminated............................. 163 3.38 to 11.15
Exercised...................................... 36 3.38 to 4.13
----- ----------------
Balance at December 31, 1992..................... 2,583 $3.38 to $13.11
Granted........................................ 41 5.00
Expired/terminated............................. 266 4.125 to 13.11
Exercised...................................... 213 3.38 to 6.75
----- ----------------
Balance at December 31, 1993..................... 2,145 $3.38 to $11.38
===== ================
</TABLE>
F-15
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The number of options exercisable at December 31 for each of the past three
years follows:
<TABLE>
<CAPTION>
PRICE RANGE
OPTIONS PER SHARE
(IN THOUSANDS) ------- ---------------
<S> <C> <C>
1991............................................ 2,101 $4.13 to $13.11
1992............................................ 2,255 3.38 to 13.11
1993............................................ 1,777 3.38 to 11.38
===== ===============
</TABLE>
15. RETIREMENT PLANS
The Corporation and its subsidiaries maintain non-contributory pension plans
that cover substantially all salaried and hourly employees. Benefits are based
on a final pay formula for the salaried plans and a flat benefit formula for
the hourly plans. The plans' assets consist principally of equity securities
and corporate and government debt securities. The Corporation and its
subsidiaries also have certain non-qualified pension plans covering executives,
which are unfunded. The Corporation accrues pension costs based upon annual
independent actuarial valuations for each plan and funds these costs in
accordance with statutory requirements. The components of net periodic pension
expense (credit) were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(IN THOUSANDS) ------ ------ ------
<S> <C> <C> <C>
Current service cost.................................... $2,627 $2,019 $1,914
Interest on projected benefit obligation................ 3,539 2,322 2,077
Actual return on assets................................. (4,629) (2,290) (4,251)
Net amortization and other.............................. 853 28 2,395
------ ------ ------
Pension expense......................................... $2,390 $2,079 $2,135
====== ====== ======
</TABLE>
The following table reconciles the plans' funded status to amounts included
in the Consolidated Statements of Financial Position at December 31:
<TABLE>
<CAPTION>
1993 1992
----------------------- -----------------------
PLANS WITH PLANS WITH PLANS WITH PLANS WITH
ASSETS IN ACCUMULATED ASSETS IN ACCUMULATED
EXCESS OF BENEFITS IN EXCESS OF BENEFITS IN
ACCUMULATED EXCESS OF ACCUMULATED EXCESS OF
BENEFITS PLAN ASSETS BENEFITS PLAN ASSETS
(IN THOUSANDS) ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligations... $(32,550) $(1,532) $(21,764) $(1,069)
Accumulated benefit
obligations................. $(36,213) $(1,680) $(24,376) $(1,109)
Projected benefit
obligations................. $(51,173) $(1,993) $(33,558) $(1,155)
Plan assets at fair value...... 45,626 -- 30,732 --
-------- ------- -------- -------
Funded status.................. (5,547) (1,993) (2,826) (1,155)
Unrecognized net experience
loss (gain)................... 4,061 295 1,673 (386)
Unrecognized prior service
cost.......................... 636 107 667 116
Unrecognized net transition
(asset) obligation............ (3,469) 645 (3,835) 705
Additional minimum liability... -- (734) -- (389)
-------- ------- -------- -------
Pension liability included in
the Consolidated Statements of
Financial Position............ $ (4,319) $(1,680) $ (4,321) $(1,109)
======== ======= ======== =======
</TABLE>
Under the terms of the Canadian purchase agreement, the Corporation
established a pension plan for transferring employees, whereby the seller will
transfer assets, which approximate the projected benefit
F-16
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
obligations of $9.8 million. The assumptions used to determine the actuarial
present value of benefit obligations and pension expense during each of the
years in the three-year period ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rates to determine:
Pension expense................................................ 7.5% 8.5% 8.5%
Present value of benefit obligations........................... 7.5% 8.5% 8.5%
Long-term per annum compensation increase........................ 5.0% 6.0% 6.0%
Long-term return on plan assets.................................. 9.5% 9.5% 9.5%
==== ==== ====
</TABLE>
The Corporation also sponsors a qualifying savings plan covering most full-
time employees. Contributions made by participating employees are matched based
on a specified percentage of employee contributions to 6% of the employees' pay
base. The cost of the Corporation's matching contribution to the savings plan
totaled $1.4 million in 1993, and $1.1 million in 1992 and 1991.
16. POST-RETIREMENT BENEFITS
The Corporation also provides health care benefits for eligible retired
employees of its agribusiness subsidiary. Participants generally become
eligible after reaching retirement age with ten years of service. The plan pays
a stated percentage of most medical expenses reduced for any deductible and
payments made by government programs. The plan is unfunded.
Employees hired prior to January 1, 1990 are eligible for participation in
the plan. Participant contributions and co-payments are subject to escalation.
The following table indicates the components of the post-retirement medical
benefits obligation included in the Corporation's Consolidated Statement of
Financial Position at December 31, 1993:
<TABLE>
<CAPTION>
1993 1992
(IN THOUSANDS) -------- --------
<S> <C> <C>
Accumulated post-retirement medical benefit obligation:
Retirees................................................. $ 2,054 $ 2,168
Fully eligible active plan participants.................. 1,946 2,075
Other active participants................................ 5,305 6,205
-------- --------
Funded status............................................ (9,305) (10,448)
Unrecognized net (gain) loss............................. 149 37
Unrecognized prior service (benefit)..................... (2,040) --
-------- --------
(Accrued) post-retirement benefit cost..................... $(11,196) $(10,411)
======== ========
</TABLE>
Net periodic post-retirement medical benefit cost consisted of the following
components:
<TABLE>
<CAPTION>
1993 1992
(IN THOUSANDS) ------ ------
<S> <C> <C>
Service cost of benefits earned................................. $ 526 $ 723
Interest cost on accumulated post-retirement medical benefit
obligation..................................................... 614 730
Net amortization and other...................................... (127) --
------ ------
Net periodic post-retirement medical benefit cost............... $1,013 $1,453
====== ======
</TABLE>
F-17
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Corporation limits its future obligation for post-retirement medical
benefits by capping at 5% the annual rate of increase in the cost of claims it
assumes under the Plan. The weighted average discount rate used in determining
the accumulated post-retirement medical benefit obligation is 7.5% and was 8.0%
in 1992. The determination of the Corporation's accumulated post-retirement
benefit obligation as of December 31, 1993 utilizes the annual limit of 5% for
increases in claims costs.
17. OTHER INCOME, NET
Other income consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
(IN THOUSANDS) ------- ------- -------
<S> <C> <C> <C>
Fertilizer service revenue.............................. $13,531 $10,354 $ 9,743
Service charge income................................... 3,930 3,963 3,833
Other, net.............................................. 8,030 5,829 5,255
------- ------- -------
Total............................................... $25,491 $20,146 $18,831
======= ======= =======
</TABLE>
18. INCOME TAXES
Components of the income tax provision (benefit) applicable to continuing
operations are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(IN THOUSANDS) ------- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................... $ 4,884 $ 640 $ 600
Foreign............................................... 3,750 -- --
State................................................. 4,709 804 818
------- ------ ------
13,343 1,444 1,418
------- ------ ------
Deferred:
Federal............................................... (4,126) 6,288 (119)
Foreign............................................... 451 -- --
State................................................. (368) 25 (226)
------- ------ ------
(4,043) 6,313 (345)
------- ------ ------
Total income tax provision.......................... $ 9,300 $7,757 $1,073
======= ====== ======
</TABLE>
Effective January 1, 1992, the Corporation adopted SFAS 109 to account for
income taxes as described in Note 3 above. The Corporation has accumulated net
operating loss ("NOL") carryforwards and, in prior years under provisions of
its previous accounting method, the benefits from loss carryforwards had been
included as a reduction of income tax expense in the year utilized.
F-18
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The income tax provision differs from the federal statutory provision for the
following reasons:
<TABLE>
<CAPTION>
1993 1992 1991
(IN THOUSANDS) ------- ------- -------
<S> <C> <C> <C>
Income (loss) from continuing operations before
taxes:
U.S............................................... $19,046 $18,186 $13,106
Canada............................................ 13,099 -- --
------- ------- -------
$32,145 $18,186 $13,106
======= ======= =======
Statutory income tax:
U.S............................................... $ 6,666 $ 6,183 $ 4,456
Canada............................................ 4,978 -- --
------- ------- -------
11,644 6,183 4,456
Non-deductible expenses............................. 698 710 705
State and local income taxes........................ 3,061 547 391
Benefit of loss carryforwards....................... (4,494) -- (5,036)
Change in federal tax rates......................... (1,233) -- --
Undistributed equity earnings....................... (865) -- --
Other............................................... 489 317 557
------- ------- -------
Income tax provision................................ $ 9,300 $ 7,757 $ 1,073
======= ======= =======
</TABLE>
Deferred tax assets totaled $50.8 million and $46.3 million at December 31,
1993 and 1992, respectively. At December 31, 1993, undistributed earnings of
the Canadian subsidiary, considered permanently invested, for which deferred
income taxes have not been provided, was $8.9 million. The tax effect of NOL
and tax credit carryforwards and significant temporary differences between
reported and taxable earnings that gave rise to net deferred tax assets were as
follows:
<TABLE>
<CAPTION>
1993 1992
(IN THOUSANDS) -------- -------
<S> <C> <C>
NOL, capital loss and tax credit carryforwards............... $ 28,937 $31,209
Discontinued business costs.................................. 7,295 8,992
Unfunded employee benefits................................... 8,146 8,354
Accrued liabilities.......................................... 8,658 5,705
Inventory valuation.......................................... 4,059 3,418
Account receivable allowances................................ 2,176 2,286
Depreciation................................................. (6,297) (4,020)
Valuation allowance.......................................... (2,765) (9,554)
Other........................................................ 93 (131)
-------- -------
$ 50,302 $46,259
======== =======
</TABLE>
Remaining unutilized NOL carryforwards were approximately $55 million and $51
million at December 31, 1993 and 1992, respectively. NOL carryforwards that
have not been utilized expire in 2005. Investment tax credits of approximately
$1.7 million expire in varying amounts from 1998 through 2000. Alternative
minimum taxes paid of $5.2 million are available to offset future tax
liabilities and have an indefinite life. The Corporation's capital loss
carryforwards totalled $7.9 million and $28.1 million at December 31, 1993 and
1992, respectively. Capital loss carryforwards that are not utilized will
expire in 1997. The change in the valuation allowance reflects current
utilization of capital losses against capital gains and changes in tax rates. A
valuation allowance is provided since the realization of tax benefits of
capital loss carryforwards is not assured.
F-19
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Components of income tax provision (benefit) included in net income other
than from continuing operations are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(IN THOUSANDS) ------- -------- ------
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ 120 $2,496
State and local..................................... -- 5,479 1,992
------- -------- ------
-- 5,599 4,488
------- -------- ------
Deferred:
Federal............................................. -- (18,887) 554
State and local..................................... -- (2,001) (629)
------- -------- ------
-- (20,888) (75)
------- -------- ------
$ -- $(15,289) $4,413
======= ======== ======
</TABLE>
19. SUBSEQUENT EVENTS
Subsequent to June 30, 1994 the following events occurred:
On August 9, 1994, the Corporation announced it had signed a definitive
agreement to acquire Agricultural Minerals and Chemicals Inc. ("AMCI"). AMCI
has annual sales of approximately $366 million and operates two fertilizer and
one methanol manufacturing facilities. The acquisition will be accounted for
under the purchase method of accounting. The Corporation will obtain additional
funds from a combination of debt financing, offering of equity securities and
utilization of available cash. See Pro Forma Condensed Consolidated Financial
Statements appearing elsewhere in this Prospectus.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Agricultural Minerals and Chemicals Inc.
We have audited the accompanying consolidated balance sheets of Agricultural
Minerals and Chemicals Inc. as of December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Agricultural Minerals and Chemicals Inc. at December 31, 1993 and 1992, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 11, 1994
F-21
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------
1994 1993 1992
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 88,718 $ 60,653 $ 44,367
Receivables:
Trade--net of allowance for doubtful
accounts of $630 at December 31, 1993 and
$500 at December 31, 1992.................. 37,534 24,893 18,722
Other, including related party (Note 9)..... 4,332 5,017 3,922
Inventory--finished products.................. 14,546 21,262 32,435
Inventory--materials and supplies............. 10,836 10,365 14,998
Prepaid expenses.............................. 15,673 15,399 8,555
-------- -------- --------
Total current assets...................... 171,639 137,589 122,999
Net property, plant and equipment (Notes 4 and
6)............................................. 319,383 326,899 347,012
Deferred finance charges, net of accumulated
amortization of $2,338 and $3,734 at December
31, 1993 and 1992, respectively................ 10,412 11,450 7,297
Distribution reserve fund (Note 10)............. 18,480 18,480 18,480
Other assets.................................... 10,891 11,977 10,125
-------- -------- --------
Total assets.............................. $530,805 $506,395 $505,913
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 28,531 $ 35,379 $ 30,549
Accrued liabilities........................... 24,197 15,491 11,974
Customer prepayments.......................... 428 2,928 4,377
Revolving credit borrowings (Note 6).......... -- 9,000 24,000
Current portion of long-term debt (Note 6).... 1,370 726 14,691
-------- -------- --------
Total current liabilities................. 54,526 63,524 85,591
Long-term debt and capital lease obligations
(Note 6)....................................... 215,659 218,692 120,428
Other liabilities............................... 4,179 2,055 2,999
Deferred income taxes........................... 25,231 16,425 13,816
Minority interest............................... 161,798 156,352 155,043
Common stock and options with liquidity rights
(Note 5)....................................... 4,347 4,294 15,792
Stockholders' equity:
Agricultural Minerals and Chemicals Inc.
common stock, par value $.01 per share (Notes
1 and 8):
Class A: 25,000,000 and 15,000,000 shares
authorized, 16,951,630 and 9,717,080 shares
issued and outstanding at December 31, 1993
and 1992, respectively..................... 170 170 97
Class B: 25,000,000 and 15,000,000 shares
authorized, 207,000 and 1,067,000 shares
issued and outstanding at December 31, 1993
and 1992, respectively..................... 2 2 11
BMC Holdings Inc. common stock, par value $.01
per share (Note 1):
Class A: 15,000,000 shares authorized,
5,775,000 shares issued and outstanding.... -- -- 58
Class B: 15,000,000 shares authorized,
1,050,000 shares issued and outstanding.... -- -- 10
Capital in excess of par value................ 40,472 40,485 106,005
Retained earnings............................. 24,421 4,396 6,063
-------- -------- --------
Total stockholders' equity................ 65,065 45,053 112,244
-------- -------- --------
Total liabilities and stockholders'
equity................................... $530,805 $506,395 $505,913
======== ======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
------------------ ----------------------------
1994 1993 1993 1992 1991
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................... $231,782 $193,579 $365,786 $324,953 $252,729
Cost of goods sold........... 151,040 147,796 283,908 234,537 173,500
-------- -------- -------- -------- --------
Gross profit................. 80,742 45,783 81,878 90,416 79,229
Operating expenses........... (12,973) (11,657) (27,775) (25,033) (18,231)
Other operating income....... 37 34 299 230 795
-------- -------- -------- -------- --------
Operating income............. 67,806 34,160 54,402 65,613 61,793
Interest income.............. 1,971 798 1,820 2,317 3,252
Interest expense............. (12,622) (7,368) (17,759) (14,870) (21,448)
Other income (expense)....... 94 316 (2,409) 486 (29)
-------- -------- -------- -------- --------
Income before income taxes,
minority interest and
extraordinary expense....... 57,249 27,906 36,054 53,546 43,568
Income taxes (Note 3)........ (14,898) (6,868) (7,721) (12,484) (16,484)
Minority interest............ (15,526) (13,810) (19,789) (20,450) (1,325)
-------- -------- -------- -------- --------
Income before extraordinary
expense..................... 26,825 7,228 8,544 20,612 25,759
Extraordinary expense--early
retirement of debt, net of
income tax benefit of $1,313
in 1993 and $3,616 in 1991.. -- -- (2,550) -- (5,899)
-------- -------- -------- -------- --------
Net income................... $ 26,825 $ 7,228 $ 5,994 $ 20,612 $ 19,860
======== ======== ======== ======== ========
Weighted average shares
outstanding................. 17,435 17,438 17,438 17,438 11,402
======== ======== ======== ======== ========
EARNINGS PER SHARE:
Income before extraordinary
expense..................... $ 1.54 $ 0.41 $ 0.49 $ 1.18 $ 2.26
Extraordinary expense........ -- -- (0.15) -- (0.52)
-------- -------- -------- -------- --------
Net income................... $ 1.54 $ 0.41 $ 0.34 $ 1.18 $ 1.74
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES AND PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
AGRICULTURAL
MINERALS
AND CHEMICALS
INC. BMC HOLDINGS INC. CAPITAL
COMMON STOCK COMMON STOCK IN
------------------ ------------------ EXCESS OF RETAINED
SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS
---------- ------ ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1990................... 10,900,000 $109 -- $-- $108,891 $ 3,015
Capital contributed at
BMCH formation....... -- -- 7,000,000 70 69,930 --
Net income............ -- -- -- -- -- 19,860
Capital contribution
from Equity Incentive
Plan compensation.... -- -- -- -- 1,560 --
Dividends paid (AMCI--
$5.72 per share)..... -- -- -- -- (46,074) (16,274)
Issuance of liquidity
rights on shares and
options.............. (115,920) (1) -- -- (5,649) --
---------- ---- ---------- ---- -------- -------
Balance at December 31,
1991................... 10,784,080 108 7,000,000 70 128,658 6,601
Net income............ -- -- -- -- -- 20,612
Capital contribution
from Equity Incentive
Plan compensation.... -- -- -- -- 1,000 --
Dividends paid (AMCI--
$3.18 per share)..... -- -- -- -- (13,512) (21,150)
Issuance of liquidity
rights on shares and
options.............. -- -- (175,000) (2) (1,858) --
Change in value of
liquidity rights on
shares and options... -- -- -- -- (8,283) --
---------- ---- ---------- ---- -------- -------
Balance at December 31,
1992................... 10,784,080 108 6,825,000 68 106,005 6,063
Net income............ -- -- -- -- -- 5,994
Capital contribution
from Equity Incentive
Plan compensation.... -- -- -- -- (2,061) --
Dividends paid (AMCI--
$7.58 per share)..... -- -- -- -- (74,961) (7,661)
Change in value of
liquidity rights on
shares and options... -- -- -- -- 11,498 --
Exchange of BMCH
shares for AMCI
shares (Note 1)...... 6,374,550 64 (6,825,000) (68) 4 --
---------- ---- ---------- ---- -------- -------
Balance at December 31,
1993................... 17,158,630 172 -- -- 40,485 4,396
Net income
(unaudited).......... -- -- -- -- -- 26,825
Dividends paid (AMCI-
$0.39 per share
(unaudited))......... -- -- -- -- -- (6,800)
Repurchase of Common
Shares (unaudited)... (3,248) -- -- -- (37) --
Capital contribution
from Equity Incentive
Plan Compensation
(unaudited).......... -- -- -- -- 77 --
Change in value of
liquidity rights on
shares and options
(unaudited).......... -- -- -- -- (53) --
---------- ---- ---------- ---- -------- -------
Balance at June 30, 1994
(unaudited)............ 17,155,382 $172 -- $-- $ 40,472 $24,421
========== ==== ========== ==== ======== =======
</TABLE>
See accompanying notes.
F-24
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------- --------------------------
1994 1993 1993 1992 1991
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................... $26,825 $ 7,228 $ 5,994 $20,612 $ 19,860
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization. 14,269 13,285 26,876 26,713 16,168
Amortization and write-off of
deferred finance charges..... 1,042 1,315 6,448 2,816 5,416
Provision for deferred income
taxes........................ 8,806 468 2,609 5,782 6,119
Minority interest in earnings. 15,526 13,810 19,789 20,450 1,325
Changes in operating assets
and liabilities:
Receivables................. (9,172) (10,506) (7,266) 2,614 (2,678)
Inventories................. 6,245 20,368 15,806 (13,600) (336)
Prepaid expenses............ (274) (4,564) (6,844) (1,648) (151)
Accounts payable, accrued
liabilities and customer
prepayments................ (642) 3,491 6,898 (1,313) 14,409
Other....................... 3,650 (2,001) (4,370) 181 (2,193)
------- ------- ------- ------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES..................... 66,275 42,894 65,940 62,607 57,939
INVESTING ACTIVITIES
Purchase of methanol assets... -- -- -- -- (164,869)
Capital expenditures.......... (5,576) (4,261) (6,968) (9,878) (3,163)
Proceeds from sale of assets.. -- -- -- 1,100 --
------- ------- ------- ------- --------
NET CASH USED IN INVESTING
ACTIVITIES..................... (5,576) (4,261) (6,968) (8,778) (168,032)
FINANCING ACTIVITIES
Borrowings under revolving
line of credit............... 2,500 35,000 80,000 37,000 5,000
Repayments of revolving line
of credit.................... (17,500) (45,500) (89,000) (18,000) --
Proceeds from issuance of
long-term obligations........ -- -- 175,000 -- 140,000
Repayment of long-term debt... (315) (7,299) (96,701) (9,085) (170,567)
Capital contribution.......... -- -- -- -- 70,000
Proceeds from public offering. -- -- -- -- 153,033
Financing fees and transaction
costs paid................... (439) (545) (10,883) (7,469) (8,792)
Distribution reserve funding.. -- -- -- (18,480) --
Partnership distributions to
minority interests........... (10,080) (9,240) (18,480) (15,265) --
Dividends to shareholders..... (6,800) (12,752) (82,622) (34,662) (62,348)
------- ------- ------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES........... (32,634) (40,336) (42,686) (65,961) 126,326
------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS........... 28,065 (1,703) 16,286 (12,132) 16,233
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............ 60,653 44,367 44,367 56,499 40,266
------- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD...................... $88,718 $42,664 $60,653 $44,367 $ 56,499
======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
1. ORGANIZATION AND BUSINESS
Agricultural Minerals and Chemicals Inc. ("AMCI"), a holding company
incorporated in the State of Delaware, owns 100% of the common stock of both
BMC Holdings Inc. ("BMCH") and Agricultural Minerals Corporation ("AMC"), the
general partner of Agricultural Minerals Company, L.P. ("AMCLP"). AMCLP is a
Delaware limited partnership which owns a 99% limited partner interest as the
sole limited partner in Agricultural Minerals, Limited Partnership (the
"Operating Partnership"). The Morgan Stanley Leveraged Equity Fund II, L.P.
("MSLEF II"), is majority owner of AMCI, formerly AMC Holdings Inc. MSLEF II,
which owns AMCI common stock representing 74.2% of all the AMCI common equity
on a fully diluted basis as of June 30, 1994, is a Delaware limited partnership
whose general partner, MSLEF II, Inc., is a wholly owned subsidiary of Morgan
Stanley Group Inc.
In October 1993, AMCI completed the following principal elements of a
recapitalization (the "1993 AMCI Recapitalization"): (a) the transfer to AMCI
of all the outstanding shares of common stock of BMCH by the equity holders of
BMCH in exchange for shares of AMCI common stock, and the exchange of all the
outstanding options to purchase shares of common stock of BMCH for options to
purchase shares of AMCI common stock, at a rate of .934 of a share of AMCI
common stock for each share of common stock of BMCH (the "BMCH Transfer"),
including the exchange by MSLEF II of all the outstanding shares of voting
common stock of BMCH for shares of common stock of AMCI, resulting in BMCH
becoming a wholly owned subsidiary of AMCI; (b) the public offering of $175
million aggregate principal amount of 10 3/4% Senior Notes due 2003 of AMCI
(the "Notes"), the net proceeds of which ($169.8 million) were used to (i)
prepay the entire $85.5 million principal amount of a term loan outstanding
under the then existing credit agreement of Beaumont Methanol Corporation
("BMC"), (ii) pay dividends or dividend equivalents in an aggregate amount of
$75 million to the holders (prior to the BMCH Transfer) of the outstanding
common equity of AMCI, and (iii) for general corporate purposes; (c) the
execution and delivery of a credit agreement among BMCH, BMC and certain
lenders and the agent named therein, providing for the establishment of (i) a
$20 million revolving credit facility, which was used to repay all revolving
loans outstanding under BMC's existing $20 million revolving credit facility
and to provide for BMC's ongoing working capital requirements and for other
general corporate purposes, (ii) a $50 million letter of credit facility (for
the account of BMC and for the benefit of AMCI) to support the payment of
interest on the Notes for a period not to extend beyond December 31, 1996, and
(iii) a guaranty by BMCH of BMC's obligations thereunder. In addition, the
holders of shares of AMCI Class B common stock exchanged their shares for AMCI
Class A common stock. The BMCH Transfer was accounted for as a merger of
entities under common control. Accordingly, the assets and obligations of BMCH
were recorded at their historical cost as of the date of the BMCH Transfer.
The Operating Partnership was organized by AMC, the general partner, to
succeed to and acquire the nitrogen fertilizer business of AMC on December 4,
1991. AMC, as the general partner, conducts, directs, manages and exercises
full control over all business and affairs of AMCLP.
The Operating Partnership is in the business of manufacturing, distributing
and selling fertilizer products, including ammonia, urea and urea ammonium
nitrate solution which are principally used by farmers to improve the yield and
quality of their crops. Customers vary in size and are primarily related to the
agriculture industry. The Operating Partnership sells products throughout the
United States and internationally. The Partnership's customers vary in size and
are primarily related to the agricultural industry. Credit is extended based on
an evaluation of the customer's financial condition, and generally collateral
is not required. Expected credit losses have been provided for in the financial
statements.
F-26
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
On December 4, 1991, AMCLP completed a public offering of 7,636,364 Senior
Preference Units at $21.50 per unit. Immediately prior to the closing, AMC
conveyed substantially all its assets (except for $107.6 million in cash plus
certain assets necessary to provide general and administrative services) and
operations to the Operating Partnership, and the Operating Partnership assumed
substantially all its liabilities (excluding income tax liabilities) in
exchange for a 99% limited partnership interest and a 1% general partnership
interest in the Operating Partnership. The contributed net assets and assumed
obligations of the Operating Partnership were recorded at AMC's historical cost
as of December 4, 1991. AMC then contributed all of its limited partner
interest in the Operating Partnership to AMCLP in exchange for (i) 6,000,000
Junior Preference Units and 5,172,414 Common Units and (ii) 1.0101% or 1/99th
general partnership interest in AMCLP. Thereafter, AMCLP contributed the net
proceeds of the offering to the Operating Partnership. The $148.5 million net
proceeds from the sale of the units, after deducting underwriting discounts and
offering expenses of $15.6 million, were used, along with other available
funds, to repay $150.5 million of long-term debt. Following these transactions,
the Senior Preference Unitholders, which are reported as minority interests in
these consolidated financial statements, have a 39.8% limited partnership
interest in the combined Partnership (AMCLP and the Operating Partnership). AMC
has a 58.2% limited partnership interest in the combined Partnership through
its ownership of Junior Preference Units and Common Units. In addition, AMC
owns a 2% general partnership interest in the combined Partnership.
BMCH, a holding company, owns 100% of BMC. BMCH was incorporated in the State
of Delaware on November 27, 1991. Prior to the acquisition discussed below,
BMCH did not have significant operations. BMC is in the business of
manufacturing, distributing and selling methanol, which is principally used as
a raw material in the production of a variety of chemical derivatives and in
the production of MTBE, an oxygenate and an octane enhancer for gasoline. BMC
sells methanol produced at its facility located in Beaumont, Texas. BMC's
customers are primarily large chemical or MTBE producers.
On December 12, 1991, BMCH invested $70 million in BMC to provide funding for
BMC's acquisition of certain assets of E. I. du Pont de Nemours and Company's
("DuPont") methanol business in Beaumont, Texas for a purchase price of
approximately $165 million and to provide start-up capital. The balance of the
acquisition was financed by BMC with $105 million of bank term notes which were
subsequently repaid in connection with the 1993 AMCI Recapitalization discussed
above. The acquisition was accounted for as a purchase, and the purchase price
was allocated to the assets and liabilities based upon their estimated fair
values at the date of the acquisition as follows (in millions):
<TABLE>
<CAPTION>
Property, plant and equipment...................................... $ 158
<S> <C>
Receivables........................................................ 2
Other assets and obligations (net)................................. 5
-----
$ 165
=====
</TABLE>
Concurrent with the acquisition, BMC entered into several agreements with
DuPont, including the DuPont Services Agreement, whereby DuPont provides
certain operating services to the facility on substantially the same terms and
conditions as it provides services and allocates costs to the other
manufacturing processes at the Beaumont complex. Under the Interim Operating
Agreement, which ended November 30, 1992, DuPont operated the facility,
assisted BMC in training new employees and provided consulting and advisory
services. The DuPont carbon dioxide Supply Agreement provides that DuPont will
supply carbon dioxide to the Beaumont facility at agreed quantities and prices.
Under the methanol purchase and sale agreement, BMC sells methanol to DuPont
for a term of ten years from the date of
F-27
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
acquisition at agreed quantities and prices. Under this agreement, DuPont must
purchase a minimum of 108 million gallons of methanol per year at market-based
prices. For the years ended December 31, 1993, 1992 and 1991, sales to DuPont
were $41.3 million, $46.6 million and $5.3 million, respectively.
BMC also has an exclusive marketing services agreement with Trammochem, a
division of Transammonia, Inc., to provide marketing services for the methanol
produced at the Beaumont facility. Trammochem is a major marketer of chemicals,
including methanol, throughout the world (see Note 8).
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
These financial statements present the consolidated financial position,
results of operations and cash flows of AMCI. As discussed in Note 1, the BMCH
Transfer completed in October 1993 resulted in BMCH becoming a wholly owned
subsidiary of AMCI. Subsequent to its formation in late 1991 and until the BMCH
Transfer, the financial statements of BMCH have been combined and presented as
a single entity with those of AMCI because of common ownership, management and
control. Accordingly, the consolidated financial statements of AMCI for all
periods presented include the account balances of that company, AMC, AMCLP and
the Operating Partnership and BMCH and BMC subsequent to their formation.
AMCLP's income is allocated to AMC in accordance with the provisions of the
Agreement of Limited Partnership. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents:
AMCI considers liquid debt instruments with a maturity of three months or
less to be cash equivalents. At December 31, 1993, substantially all cash and
cash equivalents ($60.7 million) is placed with three high credit quality
financial institutions. Cash on hand includes $27.8 million maintained at AMC
(see Note 10 for AMC minimum net worth requirements).
Inventories:
Product inventories are stated at the lower of average cost or market. Cost
includes labor, materials, depreciation and other production costs. Materials
and supplies inventories are stated at the lower of average cost or market.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets,
principally on the straight-line basis. Expenditures for additions, major
renewals and betterments are capitalized, and expenditures for maintenance and
repairs are charged to income as incurred. When properties are retired or
otherwise disposed of, the cost thereof and the applicable accumulated
depreciation are removed from the respective accounts, and the resulting gain
or loss is reflected in income.
Deferred Finance Charges:
Deferred finance charges consist of debt issuance costs related to the
issuance of debt securities and are amortized using the interest method over
the term of the related debt.
F-28
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
Plant Turnaround and Catalyst Replacement Costs:
Costs related to the periodic scheduled maintenance of production facilities
(plant turnarounds) and catalyst replacement are capitalized when incurred and
amortized on a straight-line basis, generally over one or two years, until the
next scheduled turnaround for plant turnarounds and over the life of the
catalyst for catalyst replacements. Included in prepaid expenses and other
assets at December 31, 1993 and 1992 are $17.5 million and $8.4 million,
respectively, of unamortized plant turnaround and catalyst replacement costs
incurred by the Operating Partnership and BMC. Prior to 1993, BMC had not
incurred any plant turnaround or catalyst replacement costs.
Hedging Transactions:
Realized gains or losses from natural gas hedging transactions are deferred
on the balance sheet as a current liability or asset at the end of the
accounting period, and credited or charged to production costs in the month to
which the hedged transaction relates.
Income Taxes:
Subsequent to the BMCH Transfer discussed in Note 1, BMCH will be included in
the consolidated tax return of AMCI. Prior to the BMCH Transfer, AMCI and BMCH
filed separate consolidated tax returns.
Deferred income taxes are computed using the liability method and are
provided on all temporary differences between the financial reporting basis and
the tax basis of AMCI's assets and liabilities.
Earnings Per Share:
Earnings per share are calculated based on the weighted average number of
shares of AMCI common stock outstanding, including shares subject to put
rights, retroactively adjusted for the BMCH Transfer. Shares issuable upon
exercise of outstanding stock options have been excluded from the calculation
since the effect would be antidilutive.
Dividends Per Share:
Dividends per share, prior to the 1993 AMCI Recapitalization, are calculated
based on 10,900,000 shares of common stock issued and outstanding for AMCI,
including 115,920 shares subject to put rights. Distributions to participants
in the 1993 AMCI Management Equity Plan and the 1990 AMCI Equity Incentive Plan
resulting from their right to participate in AMCI dividends are not included in
dividends or the computation of dividends per share. These dividend equivalent
payments are classified as compensation expense.
Environmental Liabilities:
Environmental liabilities are recognized when it is probable that a loss has
been incurred and the amount of that loss is reasonably estimable.
Environmental liabilities are accrued based upon estimates of expected future
costs without discounting to present value the estimated costs to be paid in
the future, and without consideration of possible recoveries from third
parties.
F-29
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
3. INCOME TAXES
AMCI follows the provisions of FASB Statement No. 109, "Accounting for Income
Taxes."
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1993 1992 1991
(IN THOUSANDS) ------ ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal......................................... $3,537 $ 6,526 $ 7,096
State........................................... 262 176 230
------ ------- -------
3,799 6,702 7,326
Deferred tax expense:
Federal......................................... 3,235 4,070 6,925
State........................................... 687 1,712 2,233
------ ------- -------
3,922 5,782 9,158
------ ------- -------
Total income taxes............................ $7,721 $12,484 $16,484
====== ======= =======
</TABLE>
Effective with the 1993 AMCI Recapitalization, BMCH became part of the
consolidated AMCI federal tax return. Operating losses generated by BMCH prior
to the 1993 AMCI Recapitalization can only be used to offset BMCH taxable
income. Operating losses generated by BMCH after the 1993 AMCI Recapitalization
can be used by AMCI to offset any taxable income reported on the consolidated
return.
At December 31, 1993, AMCI has net operating losses of $8.3 million and BMCH
has a net operating loss of $87.6 million and an Alternative Minimum Tax net
operating loss of $24.4 million available to carry forward to future periods
for federal tax purposes which, if not utilized, will expire beginning in 2005
and 2007, respectively. AMCI's current federal tax expense results from the
application of the Alternative Minimum Tax. As of December 31, 1993, deferred
taxes have been reduced by AMCI's Alternative Minimum Tax Credit carryover of
$13.6 million and the benefit of AMCI's and BMCH's net operating loss carry
forwards.
Significant components of AMCI's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1992
(IN THOUSANDS) ------- -------
<S> <C> <C>
Deferred tax liabilities:
Investment in AMCLP.................................... $30,852 $31,583
Tax over book depreciation............................. 29,788 17,660
Other.................................................. 612 --
------- -------
Total deferred tax liabilities........................... 61,252 49,243
Deferred tax assets:
Net operating loss carryover........................... 30,962 18,945
Alternative Minimum Tax credit carryover............... 13,630 12,577
Overhead allocations to inventory...................... 235 2,508
Other.................................................. -- 1,397
------- -------
Total deferred tax assets................................ 44,827 35,427
------- -------
Net deferred tax liability............................... $16,425 $13,816
======= =======
</TABLE>
F-30
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
The provision for income taxes differs from the amounts computed by applying
the statutory federal income tax rate of 35% (34% for 1992 and 1991) to income
before income taxes and extraordinary expense for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-------------------------
1993 1992 1991
(IN THOUSANDS) ------- ------- -------
<S> <C> <C> <C>
Tax at U.S. statutory rates.................. $12,619 $18,204 $14,812
Minority interest in consolidated
partnership................................. (6,926) (6,953) (450)
Change in federal tax rates.................. 628 -- --
BMCH losses not benefited.................... 782 -- --
State income taxes, net of federal benefit... 618 1,233 1,694
Other........................................ -- -- 428
------- ------- -------
Total income taxes....................... $ 7,721 $12,484 $16,484
======= ======= =======
</TABLE>
During the six months ended June 30, 1994 and the years ended December 31,
1993, 1992 and 1991, income taxes paid were $6.1 million, $4.9 million, $6.5
million and $7.1 million, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
JUNE 30,
1994 1993 1992
----------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements...................... $ 5,223 $ 5,223 $ 5,092
Plant and equipment........................ 404,351 397,624 391,285
Terminals and transportation equipment..... 5,887 5,882 5,866
-------- -------- --------
415,461 408,729 402,243
Less accumulated depreciation and
amortization.............................. 96,078 81,830 55,231
-------- -------- --------
$319,383 $326,899 $347,012
======== ======== ========
</TABLE>
Included in the amounts above are assets under capital leases, principally
two terminals and certain processing equipment, amounting to approximately
$3.4 million at both December 31, 1993 and 1992. Accumulated amortization of
such assets was $576,000 and $371,000 at December 31, 1993 and 1992,
respectively. Amortization of these assets has been included in depreciation
and amortization expense.
5. EMPLOYEE BENEFIT PLANS
PENSION PLANS--
Effective July 1, 1990 and January 1, 1992, AMC and BMC, respectively,
adopted noncontributory defined benefit pension plans covering substantially
all employees. Benefits are based on years of service and average final
compensation. Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974.
F-31
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
Net periodic pension cost of the plans consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1993 1992 1991
(IN THOUSANDS) ------ ------ ------
<S> <C> <C> <C>
Service cost...................................... $1,026 $ 926 $ 778
Interest cost..................................... 304 228 182
Return on plan assets............................. (166) (109) --
Net amortization and deferrals.................... 71 73 72
------ ------ ------
Net periodic pension cost......................... $1,235 $1,118 $1,032
====== ====== ======
</TABLE>
The following table reconciles the funded status of the plans to the amount
included in the balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1992
(IN THOUSANDS) ------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $2,806 $1,263
Nonvested benefit obligation........................... 700 544
------ ------
Accumulated benefit obligation........................... 3,506 1,807
Effect of salary projection.............................. 2,136 1,782
------ ------
Projected benefit obligation............................. 5,642 3,589
Fair value of plan assets (which are substantially
publicly traded mutual funds)........................... (2,308) (1,495)
Unrecognized amount for prior service cost............... (1,081) (1,109)
Unrecognized net gain.................................... (304) 328
------ ------
Pension liability........................................ $1,949 $1,313
====== ======
</TABLE>
Included in the vested benefit obligation is $250,000 for former DuPont
employees. An equal amount of assets were transferred from DuPont to the BMC
pension plans.
The discount rate used to measure the present value of benefit obligations is
7.0% and 8.5% and the assumed rate of increase in future compensation levels is
4.0% and 5.5% at December 31, 1993 and 1992, respectively. The expected long-
term rate of return on the plans' assets is 9.0% at December 31, 1993 and 1992.
OTHERS BENEFIT PLANS--
AMC and BMC have defined contribution plans under which employees who meet
specified service requirements may contribute a percentage of their total
compensation, up to a maximum defined by the plan. Each employee's
contribution, up to a specified maximum, may be matched in full by the
respective company at its discretion. Employee contributions vest immediately,
while company contributions vest over five years. The companies' contributions
to the plans were $800,000, $700,000 and $500,000 for the years ended December
31, 1993, 1992 and 1991, respectively.
AMC and BMC also have incentive compensation plans covering substantially all
of their employees. Incentive compensation is paid to employees under the plans
based on specified levels of earnings before
F-32
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
interest, taxes, depreciation and amortization generated during the 12 month
period ended June 30. Incentive compensation expense under AMC's plan for the
years ended December 31, 1993, 1992 and 1991 was $3.4 million, $3.6 million and
$3.6 million, respectively. There was no such compensation under the BMC plan
for 1993, 1992 or 1991.
As a part of the 1993 AMCI Recapitalization, AMCI adopted the 1993 AMCI
Management Equity Plan, pursuant to which the Compensation Committee granted
options ("AMCI Options") to purchase shares of AMCI common stock and granted
the right to purchase restricted shares of AMCI common stock ("AMCI Restricted
Shares") to officers and key employees of AMCI and its subsidiaries, including
AMC and BMC. Each AMCI Option represents the right to purchase one share of
AMCI common stock. All AMCI Options are nonqualified options. The maximum
number of shares of AMCI common stock that may be issued in connection with
AMCI Options or as AMCI Restricted Shares is 3,056,838, constituting 15.0% of
the fully diluted common equity of AMCI following the 1993 AMCI
Recapitalization.
Following the 1993 AMCI Recapitalization, the officers and key employees of
AMC and BMC own 279,370 AMCI Restricted Shares and 1,729,367 AMCI Options. Such
AMCI Options have an exercise price of $10.73 per share. The AMCI Options
generally vest and become exercisable on September 30, 1998. The 1993 AMCI
Management Equity Plan provides for accelerated vesting of all AMCI Options in
the event of the holder's death, and for partial accelerated vesting (based on
the number of years elapsed from the date of grant) in the event of the
holder's disability, retirement, involuntary termination without cause or
resignation for good reason. In the event that cash dividends are paid on the
outstanding AMCI common stock, each holder of an outstanding AMCI Option is
entitled, pursuant to the 1993 AMCI Management Equity Plan, to receive in cash
a dividend equivalent payment in respect of the shares subject to such AMCI
Option and an additional dividend equivalent payment in respect of a pro rata
portion of the shares, if any, available at such time for future awards of AMCI
Options or AMCI Restricted Shares under the 1993 AMCI Management Equity Plan.
Dividend equivalent payments are made at the same rate as cash dividends are
paid on outstanding shares. As of December 31, 1993, no payments have been made
under this plan.
Prior to the 1993 AMCI Recapitalization, both AMCI and BMCH sponsored an
Equity Incentive Plan which, among other things, provided for the sale of
restricted Class B common stock and the granting of options to purchase one
share of Class B common stock of the respective holding company (AMCI or BMCH)
per option to officers and key employees of AMC and BMC. The total number of
AMCI options authorized was 1,787,153, of which 1,598,000 had been granted as
of December 31, 1992. The total number of BMCH options authorized was 175,000
of which 134,150 had been granted as of December 31, 1992. Holders of the
options received dividend equivalent payments based on AMCI and BMCH dividends,
respectively. The AMCI and BMCH Equity Incentive Plans were terminated as part
of the 1993 AMCI Recapitalization.
The restricted shares of common stock and options to purchase shares of
common stock under the 1993 AMCI Management Equity Plan (as previously under
the Equity Incentive Plans) are subject to liquidity rights under which the
officers and key employees may require the companies to redeem such shares and
options at prices based on the fair value of the shares and underlying options
at specified future dates. The liquidity rights may be exercised with respect
to 25% of such shares and options per year on September 30, 1998, 1999, 2000
and 2001.
F-33
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
Shares and options subject to liquidity rights are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1992
---------- ---------------------
AMCI AMCI BMCH
---------- ---------- ----------
<S> <C> <C> <C>
Restricted shares subject to liquidity
rights................................ 279,370 115,920 175,000
Redemption value per share............. $ 11.47 $ 17.50 $ 10.63
Redemption value (in thousands)........ $ 3,204 $ 2,029 $ 1,860
Options subject to liquidity rights.... 1,729,367 1,407,000 175,000
Redemption value per option............ $ 0.63 $ 8.46 $ --
Redemption value (in thousands)........ $ 1,090 $ 11,903 $ --
</TABLE>
The redemption value of the restricted shares of common stock and options has
been reported as a reduction in common stock and capital in excess of par value
and as a separate component outside of stockholders' equity.
Both the AMCI and BMCH Equity Incentive Plans were combination plans
comprised of options with fixed exercise prices and a liquidity right.
Normally, a combination plan with a liquidity right would be accounted for as a
variable plan, under the presumption that the optionholder would elect to
exercise the liquidity right. However, prior to the 1993 AMCI Recapitalization,
AMCI management estimated the likelihood that the optionholders would elect to
exercise their liquidity rights based on current economic conditions and
expected future dividend payout levels, concluding that it was more likely that
optionholders would elect to hold or exercise their options rather than
exercise their liquidity right. Accordingly, no compensation expense was
recorded for changes in the redemption value of the options subsequent to the
measurement date of December 31, 1991, at which time, as a result of a $3.67
per share reduction in the exercise price of AMCI options, AMCI measured
compensation of $4.0 million, representing the aggregate excess of fair value
over the exercise price of the granted options, which was being recognized over
the service period. The fair value of BMCH shares was less than the exercise
price of the options, and, accordingly, no compensation had been recorded. In
connection with the 1993 AMCI Recapitalization and certain resulting covenants
in the indenture for the Notes which restrict the payment of dividends,
management has concluded that the presumption that the previously existing AMCI
optionholders would not elect to exercise their liquidity rights no longer
exists and, accordingly, are accounting for the 1993 AMCI Management Equity
Plan as a variable plan. Compensation expense related to these plans was $10.5
million, including $12.6 million of dividend equivalent payments, $7.6 million,
including $6.6 million of dividend equivalent payments, and $5.2 million,
including $3.6 million of dividend equivalent payments, for the years ended
December 31, 1993, 1992 and 1991, respectively.
It is anticipated that certain of BMC's employee benefit plans, including the
pension plan and the defined contribution plan, will be merged into the
corresponding AMC plans effective December 31, 1993. These new AMC plans will
be renamed, amended and restated as plans of AMCI effective January 1, 1994,
subject to the review and approval of the Internal Revenue Service.
F-34
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term obligations are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------
1994 1993 1992
----------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
10 3/4% Senior Notes due 2003.......... $175,000 $175,000 $ --
BMC term loan at LIBOR plus 2.5%....... -- -- 96,000
BMC Revolver........................... -- 6,000 --
Operating Partnership term loan at
LIBOR plus 2.0%....................... 35,000 35,000 35,000
Operating Partnership capitalized lease
obligations due through 2000.......... 7,029 3,418 4,119
-------- -------- --------
217,029 219,418 135,119
Less current maturities................ 1,370 726 14,691
-------- -------- --------
$215,659 $218,692 $120,428
======== ======== ========
</TABLE>
During October 1993, in conjunction with the 1993 AMCI Recapitalization
discussed in Note 1, AMCI issued $175 million of unsecured 10 3/4% Senior
Notes. The Senior Notes are due in full on September 30, 2003, and interest is
payable semiannually at the stated rate. The AMCI Senior Notes rank senior to
all other indebtedness of AMCI in right of payment; however, the Senior
Preference Units of AMCLP are effectively senior to the Senior Notes. The
Senior Notes are redeemable at AMCI's option at any time on or after September
30, 1998, upon 30 to 60 days' prior written notice. The following table sets
forth the redemption price if the Senior Notes are redeemed during the 12-month
period beginning September 30, of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1998........................................................... 105.375%
1999........................................................... 102.688%
2000 and thereafter............................................ 100.000%
</TABLE>
In addition, at any time prior to September 30, 1996, AMCI may, at its
option, redeem up to $61.25 million of the Senior Notes in connection with one
or more public equity offerings following which there is a public market at a
redemption price of 110% plus accrued interest. The aggregate principal amount
of the Senior Notes so redeemed may not exceed the aggregate proceeds of such
public equity offering.
The Senior Note Indenture, under which the Senior Notes were issued, contains
certain financial tests, as well as other limitations and covenants, each of
which would only be measured in the event that AMCI or a restricted subsidiary
engages in certain activities, including the issuance of additional debt,
payment of certain dividends, issuance of capital stock, certain transactions
with affiliates, incurrence of liens, sale of assets, other than in the
ordinary course of business, and sale-leaseback transactions. Dividend payments
are effectively restricted to an amount not to exceed fifty percent of AMCI's
Adjusted Consolidated Net Income, as defined in the Indenture.
In conjunction with the 1993 AMCI Recapitalization discussed in Note 1, AMCI
contributed $85.5 million to BMCH and BMCH loaned $85.5 million to BMC to
prepay its entire outstanding term loan balance. BMC also amended and restated
its credit agreement which provides for (a) a new $20 million revolving credit
facility, that will mature on December 31, 1996 and which was used to repay all
revolving
F-35
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
loans outstanding under BMC's previously existing $20 million revolving credit
facility, (b) a $50 million letter of credit facility (for the account of BMC
and the benefit of AMCI) to support the payment of interest on the Notes for a
period not to extend beyond December 31, 1996, (c) a guaranty by BMCH of BMC's
obligations thereunder. The indebtedness is secured by a lien on all of BMC's
assets and the guarantee is secured by a pledge by BMCH of BMC's capital stock.
AMCI has the right to terminate the letter of credit established under the
letter of credit facility at any time.
As a result of the debt retirement discussed above, the interest rate swap
agreement BMC has with Chemical Bank is no longer associated with outstanding
debt. Under the interest rate swap agreement, BMC makes 6.1% fixed rate
payments and receives variable-rate interest payments (3.375% at December 31,
1993). At December 31, 1993, the notional amount of the swap agreement was $41
million and the obligation assumed and recorded for the uncovered swap was $1.1
million. The agreements expire March 31, 1995. BMC is exposed to favorable or
unfavorable market risk to the extent LIBOR increases or decreases,
respectively.
As of December 31, 1993, BMC had no drawings on the letter of credit
facility. Borrowings under the revolving credit facility were $6.0 million and
$7.0 million at December 31, 1993 and 1992, respectively. Interest on the
letter of credit and revolving credit facility is based on the Eurodollar
lending rate plus 3.5% and 2.5%, respectively, or a prime commercial rate plus
2.5% and 1.5%, respectively, at BMC's option, selected at the start of each
interest period. The effective interest rate was 7.5% at December 31, 1993. BMC
incurs certain fees in connection with the borrowings discussed above,
including a commitment fee equal to 1/2 of 1% of the unused amount of the
revolving credit facility, and a letter of credit exposure fee of 3% on the
outstanding unused amount.
The Operating Partnership has a credit agreement (the "Agreement") with a
syndicate of banks which provides for a nonamortizing $35 million term loan and
a $50 million revolving credit facility. Borrowings outstanding under the
revolving credit facility were $9 million and $17 million at December 31, 1993
and 1992, respectively. The $35 million term loan is due in full and the
revolving credit facility expires on December 4, 1996. Subject to certain
exceptions, borrowings under the revolving credit facility must be repaid for a
30-day period between July 1 and September 30 each year. Interest on both the
term loan and revolving credit facility is based on the prime commercial
lending rate plus 1%, or a Eurodollar rate plus 2%, at AMC's option. The
Operating Partnership Agreement contains financial tests, as well as other
restrictive covenants relating to the use of proceeds of borrowings. Borrowings
under the Operating Partnership Agreement are secured by substantially all of
the Operating Partnership's assets. At December 31, 1993, the term loan and the
outstanding borrowings under the revolving credit facility bore interest at the
rate of 5.4% and 6.3%, respectively. The Operating Partnership incurs a
commitment fee equal to 1/2 of 1% of the unused amount of the revolving credit
facility.
Future minimum payments and sinking fund requirements under long-term debt
and capital lease obligations at December 31, 1993 are (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1994........................................................... $ 726
1995........................................................... 763
1996........................................................... 41,386
1997........................................................... 386
1998........................................................... 386
Later years.................................................... 175,771
--------
$219,418
========
</TABLE>
In conjunction with its long-term debt, the Operating Partnership had
obligations under two interest rate swap agreements at December 31, 1992 with
an aggregate notional amount of $103 million. The swap
F-36
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
agreements, which effectively converted the variable interest rates on the
borrowings under the Agreement to fixed interest rates, expired on March 12,
1993 and April 23, 1993. At December 31, 1992, $68 million of the notional
amount of the swap agreements was no longer associated with outstanding debt,
and accordingly, an obligation was assumed and recorded for such uncovered
swaps in the amount of $1.9 million. The Operating Partnership had no such
obligation outstanding at December 31, 1993.
Interest paid, including payments under the interest rate swap agreements,
was $10.3 million, $11.8 million, $15.9 million and $20.3 million for the six
months ended June 30, 1994 and the years ended December 31, 1993, 1992 and
1991, respectively.
7. LEASES
The Operating Partnership leases certain land, buildings and equipment.
Minimum rental commitments under capital and noncancellable operating leases as
of December 31, 1993 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
(IN THOUSANDS) ------- ---------
<S> <C> <C>
Year ending December 31:
1994.................................................. $ 973 $6,261
1995.................................................. 966 1,880
1996.................................................. 559 774
1997.................................................. 525 610
1998.................................................. 490 301
Later years........................................... 876 70
------ ------
Total minimum lease payments............................ 4,389 9,896
Less amount representing interest....................... 971 --
------ ------
Net minimum lease payments.............................. $3,418 $9,896
====== ======
</TABLE>
Rent expense under noncancellable operating leases, including contingent
rentals of $2.7 million in 1993, $2.6 million in 1992 and $1.6 million in 1991
based primarily on throughput, amounted to approximately $9.6 million, $6.3
million and $5.4 million for 1993, 1992 and 1991, respectively.
8. COMMON STOCK
AMCI has two classes of common stock, Class A common voting stock and Class B
common nonvoting stock. The rights and privileges to which the holders of Class
A and Class B common stock are entitled, other than voting privileges, are
essentially the same.
9. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1994 and the years ended December 31,
1993, 1992 and 1991, the Operating Partnership and AMC sold $18.0 million,
$21.2 million, $23.0 million and $28.7 million, respectively, of nitrogen
fertilizer products to Transammonia, Inc. ("Transammonia"). A key executive and
principal owner of Transammonia is a general partner of two partnerships which
own common stock representing approximately 7.4% of the common equity of AMCI
on a fully diluted basis. Additionally, one of the members of the board of
directors of AMC and AMCI is an executive of both Transammonia and Trammochem,
Inc. ("Trammochem") a division of Transammonia. Accounts receivable from
Transammonia are $3.6 million, $2.5 million and $1.7 million at June 30, 1994,
December 31, 1993 and 1992, respectively.
F-37
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
Trammo Partners II is a major shareholder in AMCI. The partners in Trammo
Partners II include the principal shareholder and employees of Transammonia. In
addition, a key executive and principal owner of Transammonia serves as a
director of BMCH. Trammochem has exclusive marketing rights to the methanol
produced at the Beaumont facility. Trammochem's compensation for the marketing
of methanol is based on the quantity of methanol sold and the earnings before
depreciation interest and taxes of BMCH. This agreement began December 12, 1991
and continues until December 31, 1996, and from year to year thereafter, unless
terminated by either party. Compensation under this agreement began January 1,
1992. Compensation for the six months ended June 30, 1994 and for the years
ended December 31, 1993 and 1992 was $1.4 million, $1.2 million and $2.2
million, respectively.
Transammonia holds an option to purchase 163,450 shares of common stock of
AMCI which is initially exercisable in 1998 at a price of $10.73 per share.
10. AGREEMENTS OF LIMITED PARTNERSHIP
In accordance with the Agreement of Limited Partnership of AMCLP, AMCLP makes
quarterly distributions to Unitholders and the General Partner in an amount
equal to 100% of its Available Cash, as defined, unless Available Cash is
required to fund a reserve amount. AMCLP must fund and maintain a reserve of
$18.5 million to support Minimum Quarterly Distributions on the Senior
Preference Units (the "Reserve Amount"). Such Reserve Amount was fully funded
during 1992 and is invested in Eurodollars at a financial institution.
During the period commencing December 4, 1991, and not ending prior to
December 31, 1996 (the "Preference Period"), Senior Preference, Junior
Preference and Common Units participate equally in distributions after each
class of units has received its Minimum Quarterly Distribution, subject to the
General Partner's right to receive cash distributions.
The General Partner receives a combined minimum 2% of total cash
distributions, and as an incentive, the General Partner's participation
increases if cash distributions exceed specified target levels. During the
Preference Period, distributions are subject to the rights of Senior Preference
Units to receive the Minimum Quarterly Distribution of $.605 per unit plus any
arrearages, before any other distributions. After such amounts have been paid,
the Reserve Amount must be funded before distributions to Junior or Common
Unitholders. Distributions to Common Unitholders are subject to the
preferential rights of the Junior Preference Units to receive Minimum Quarterly
Distributions plus arrearages. Subject to certain conditions, the Junior
Preference Units will become Senior Preference Units on December 31, 1995. As a
result of this conversion, distributions on the converted Junior Preference
Units will be made with, and not after, distributions on the Senior Preference
Units and payment of the Minimum Quarterly Distributions on the converted
Junior Preference Units will also be supported by the Reserve Amount. In
addition, the converted Junior Preference Units will be entitled to receive
Minimum Quarterly Distributions before funds are set aside, if necessary, to
restore the Reserve Amount to its required level.
After the Preference Period the Senior Units will still be entitled to the
Minimum Quarterly Distribution, but will not participate with the Common Units
in any distributions above the Minimum Quarterly Distribution.
For a 90-day period after the end of the Preference Period, the holders of
Senior Preference Units will have the right, subject to fulfillment of certain
stock exchange listing requirements, to convert their Senior Preference Units
into fully participating Common Units.
F-38
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
In order for AMCLP and the Operating Partnership to continue to be classified
as partnerships for federal income tax purposes, AMC, as general partner, must
maintain a minimum level of net worth without regard to its interest in AMCLP.
In order to meet this requirement, AMC has maintained a cash balance ($27.8
million at December 31, 1993) since it does not have material assets other than
its partnership interests. However, AMC is not required to maintain a cash
balance to meet this requirement if other assets of equivalent value are
acquired in order to satisfy the substantial net worth requirement.
11. OTHER FINANCIAL INFORMATION
FAIR VALUES OF FINANCIAL INSTRUMENTS--
The following methods and assumptions were used by AMCI in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Distribution reserve fund: The carrying amount reported in the balance
sheet for the distribution reserve fund approximates its fair value.
Accrued interest rate swap obligation: The fair value of the interest
rate swap obligation is based on current settlement prices, taking into
account remaining terms of the agreement.
Revolving credit borrowings and long-term debt: The carrying amounts of
the borrowings under revolving credit and long-term debt agreements
approximate fair value.
Off-balance-sheet instruments: Fair values of the off-balance-sheet
instruments (natural gas swaps) are based on contract prices in effect at
December 31, 1993.
Financial instruments with a carrying value different from fair value at
December 31 are as follows:
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(IN THOUSANDS) -------- ------- -------- -------
<S> <C> <C> <C> <C>
Natural gas swaps..................... $ -- $(4,849) $ -- $(3,827)
Interest rate swaps................... (1,096) (1,096) (2,096) (4,634)
</TABLE>
The Operating Partnership and BMC enter into natural gas swap agreements and
futures contracts to cover approximately 50% of their natural gas requirements
to effectively maintain fixed prices for natural gas to be purchased. The
agreements and contracts vary in length from one month to eighteen months.
Gains and losses on futures contracts and swap agreements are credited or
charged to production cost in the month to which the hedged transaction
relates. The Operating Partnership and BMC are exposed to favorable or
unfavorable market risk to the extent that natural gas prices increase or
decrease, respectively.
INDUSTRY SEGMENT DATA--
AMCI operates in two principal industries--nitrogen fertilizer and methanol,
respectively. The nitrogen fertilizer business produces and distributes
ammonia, urea and urea ammonium nitrate solution which are principally used by
farmers to provide crops with nitrogen, an essential nutrient for plant growth.
The methanol business manufactures, distributes, and sells methanol, which is
principally used as a raw
F-39
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
material in the production of a variety of chemical derivatives and in the
production of MTBE, an oxygenate and an octane enhancer for gasoline. The
following summarizes additional information about the reported industry
segments:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) -------- -------- --------
<S> <C> <C> <C>
Revenues:
Nitrogen fertilizer....................... $259,782 $243,397 $247,209
Methanol.................................. 106,004 81,556 5,520
-------- -------- --------
Total revenues.......................... $365,786 $324,953 $252,729
======== ======== ========
Operating profit:
Nitrogen fertilizer....................... $ 46,090 $ 53,350 $ 60,374
Methanol.................................. 8,312 12,263 1,419
-------- -------- --------
Total operating income.................. 54,402 65,613 61,793
Interest expense............................ (17,759) (14,870) (21,448)
Interest and other income (expense)......... (589) 2,803 3,223
-------- -------- --------
Income before income taxes, minority
interests and extraordinary expense........ $ 36,054 $ 53,546 $ 43,568
======== ======== ========
Depreciation and amortization expense:
Nitrogen fertilizer....................... $ 16,045 $ 15,709 $ 15,587
Methanol.................................. 10,831 11,004 581
-------- -------- --------
$ 26,876 $ 26,713 $ 16,168
======== ======== ========
Capital expenditures:
Nitrogen fertilizer....................... $ 6,524 $ 9,262 $ 3,085
Methanol.................................. 444 616 78
-------- -------- --------
$ 6,968 $ 9,878 $ 3,163
======== ======== ========
<CAPTION>
DECEMBER 31,
------------------
1993 1992
-------- --------
<S> <C> <C> <C>
Identifiable assets:
Nitrogen fertilizer....................... $330,169 $317,035
Methanol.................................. 176,226 188,878
-------- --------
Total assets............................ $506,395 $505,913
======== ========
</TABLE>
12. CONTINGENCIES
On September 27, 1993, U.S. EPA Region 6 filed a complaint, compliance order
and notice of opportunity for hearing against BMC in connection with the
Beaumont facility pursuant to the Resource Conservation and Recovery Act, as
amended ("RCRA"), and the Texas Solid Waste Disposal Act. Among other things,
the complaint requires BMC to cease disposing of its waste alcohol stream by
burning the waste in its furnace, and prohibits any such further disposal
except under an operating permit issued pursuant to RCRA. In its complaint,
U.S. EPA proposes to assess a civil penalty of $583,950 against BMC for
violations of hazardous waste treatment, storage and disposal, and management
and recordkeeping
F-40
<PAGE>
AGRICULTURAL MINERALS AND CHEMICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Information pertaining to the six months ended June 30, 1994 and 1993 is
unaudited)
requirements. The Company has implemented modifications to ensure that its
waste alcohol stream is nonhazardous under RCRA. The Company intends to contest
such allegations vigorously and to request a hearing at the time it files its
answer. The Company expects the ultimate amount of such loss to be less than
the proposed penalty. Based on current knowledge, the Company does not expect
this matter, or any other known environmental matter, to have a material
adverse effect on its results of operations, financial condition or cash flow.
BMCH has protested the 1994, 1993 and 1992 assessed value of its plant in
Jefferson County, Texas. Jefferson County has assessed the 1993 value of the
plant at an amount which, if it prevails, would increase 1993 property taxes by
approximately $800,000 over the current amount recorded by BMCH. Management
believes that it has adequately provided for property taxes and does not expect
this matter to have a material adverse effect on the Company's financial
position or future results of operations.
F-41
<PAGE>
[Inside Back Cover Page.]
[FOUR COLOR ART WORK AND DESCRIPTION OF THE
COMPANY'S BUSINESS CYCLE APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN
THIS PROSPECTUS OR AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...... 3
Investment
Considerations......... 11
The Acquisition......... 14
The Refinancing......... 17
Use of Proceeds......... 18
Price Range of Common
Shares and Dividend
Data................... 18
Capitalization.......... 19
Pro Forma Combined
Financial Statements of
the Company............ 20
Liquidity and Capital
Resources After the
Acquisition and the
Refinancing............ 26
Business................ 26
Description of Capital
Stock.................. 36
Description of Certain
Indebtedness and Other
Obligations............ 38
Underwriting............ 42
Legal Matters........... 43
Experts................. 43
Available Information... 43
Incorporation of Certain
Documents by Reference. 44
Information With Respect
To AMCI................ 44
Index to Financial
Statements............. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9,000,000
TERRA INDUSTRIES INC.
LOGO
COMMON SHARES
---------------------
P R O S P E C T U S
---------------------
S.G.WARBURG & CO. INC.
OCTOBER , 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate (except for the Securities and
Exchange Commission Registration Fee and NYSE Fee) of all expenses, other than
the underwriting discount, payable by the Company in connection with the
issuance and sale of securities being registered.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 45,504
NYSE Filing Fee............................................... 66,525
NASD Filing Fee............................................... 13,696
Printing Costs................................................ 200,000
Accounting Fees and Expenses.................................. 138,000
Legal Fees and Expenses (not including Blue Sky).............. 400,000
Blue Sky Fees and Expenses.................................... 20,000
Miscellaneous................................................. 200,275
----------
Total..................................................... $1,084,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland General Corporate Law provides the following with respect to the
indemnification of directors, officers, employees and agents:
(a) Any director made a party to any proceeding in its capacity as a
director, may be indemnified by registrant against certain liabilities
unless it is established that: (i) the act or omission of the director was
material to such proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; or (ii) the director actually
received an improper benefit in money, property or services, or (iii) in
the case of criminal proceedings, the director had reasonable cause to
believe that the act or omission was unlawful.
(b) A director who performs his duties in accordance with the standard of
care required of directors by Maryland law has no liability by reason of
being or having been director of a corporation.
The indemnification provided by Maryland General Corporate Law and the
registrant's By-Laws is not exclusive of any other rights to which a director
or officer of the registrant may be entitled. The registrant also carries
directors' and officers' liability insurance.
The Company's Articles of Incorporation provide that the Company shall
indemnify (i) its directors to the fullest extent provided by the general laws
of the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures provided by such laws; (ii) its officers to the
same extent as it shall indemnify its directors; and (iii) its officers who
are not directors to such further extent as shall be authorized by the Board
of Directors and be consistent with law.
The foregoing shall not limit the authority of the Company to indemnify
other employees and agents consistent with law.
The proposed form of Underwriting Agreement for the Common Shares to be sold
in the offering contains provisions under which the Underwriters agree to
indemnify the Company's directors and officers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<C> <S> <C>
1 Form of Underwriting Agreement*
2 Merger Agreement
4.1.1 Articles of Restatement of the Company filed with the
State of Maryland on September 11, 1990, filed as Exhibit
3.1 to the Company's Form 10-K for the year ended December
31, 1990, is incorporated herein by reference.
4.1.2 Articles of Amendment of the Company filed with the State
of Maryland on May 6, 1992, filed as Exhibit 3.1.2 to the
Company's Form 10-K for the year ended December 31, 1992,
is incorporated herein by reference.
4.2 By-Laws of the Company, as amended through August 7, 1991,
filed as Exhibit 3 to the Company's Form 8-K dated Septem-
ber 30, 1991, is incorporated herein by reference.
5 Opinion re Legality*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Kirkland & Ellis*
23.5 Consent of Piper & Marbury (included in Exhibit 5)
24 Power of Attorney
</TABLE>
- --------
* To be supplied by Amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 13(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions described under Item 15, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is,
II-2
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF SIOUX CITY AND THE STATE OF IOWA, ON SEPTEMBER
22, 1994.
Terra Industries Inc.
/s/ GEORGE H. VALENTINE
By: _________________________________
George H. Valentine
Its:
Vice President, General Counsel
and Corporate Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED ON THE DATE OR DATES INDICATED,
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE(S)
--------- ----- -------
<S> <C> <C>
* Chairman of the Board September 22, 1994
____________________________________
Reuben F. Richards
* Chief Executive Officer, September 22, 1994
____________________________________ President and Director
Burton M. Joyce (Principal Executive
Officer)
* Vice President, Chief September 22, 1994
____________________________________ Financial Officer
Francis G. Meyer (Principal Financial
Officer and Principal
Accounting Officer)
* Director September 22, 1994
____________________________________
Edward G. Beimfohr
* Director September 22, 1994
____________________________________
Carol L. Brookins
* Director September 22, 1994
____________________________________
Edward M. Carson
* Director September 22, 1994
____________________________________
David E. Fisher
* Director September 22, 1994
____________________________________
Basil T.A. Hone
* Director September 22, 1994
____________________________________
Antony W. Lea
* Director September 22, 1994
____________________________________
John R. Norton III
* Director September 22, 1994
____________________________________
Henry R. Slack
</TABLE>
/s/ GEORGE H. VALENTINE
By: ______________________________________
George H. Valentine
Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement*......................
2 Merger Agreement.....................................
4.1.1 Articles of Restatement of the Company filed with the
State of Maryland on September 11, 1990, filed as
Exhibit 3.1 to the Company's Form 10-K for the years
ended December 31, 1990, is incorporated herein by
reference............................................
4.1.2 Articles of Amendment of the Company filed with the
State of Maryland on May 6, 1992, filed as Exhibit
3.1.2 to the Company's Form 10-K for the year ended
December 31, 1992, is incorporated herein by refer-
ence.................................................
4.2 By-Laws of the Company, as amended through August 7,
1991, filed as Exhibit 3 to the Company's Form 8-K
dated September 30, 1991, is incorporated herein by
reference............................................
5 Opinion re Legality*.................................
23.1 Consent of Deloitte & Touche LLP.....................
23.2 Consent of Price Waterhouse LLP......................
23.3 Consent of Ernst & Young LLP.........................
23.4 Consent of Kirkland & Ellis*.........................
23.5 Consent of Piper & Marbury (included in Exhibit 5) ..
24 Power of Attorney....................................
</TABLE>
- --------
*To be supplied by amendment.
II-5
<PAGE>
Graphic Material Cross-Reference Page
Appearing on page 2 is a map of the principal manufacturing facilities and
storage terminals for Terra Industries Inc. ("TRA"), including the principal
manufacturing facilities and storage terminals of the operations to be acquired
from Agricultural Minerals and Chemicals Inc. ("AMCI"). The map includes
locations of the following facilities: TRA UAN terminals; TRA dry terminals; TRA
anhydrous ammonia storage; TRA manufacturing plants; AMCI terminals; AMCI
manufacturing plants; and the AMCI methanol plant. Underneath the map is a
caption containing the following text: "The map is not intended to represent the
entire operations of Terra Industries Inc. or those to be acquired through the
acquisition of Agricultural Minerals and Chemicals Inc."
Appearing on page 10 is a chart representing the anticipated organization of the
Company and certain of its subsidiaries after the consummation of the
Acquisition, the Merger of AMCI into the Company and the Refinancing.
Appearing on the inside back cover page of the prospectus is a graphical
representation, including textual description, of the Company's business cycle.
The graphical image is separated into four quadrants, labeled: "First Quarter",
"Second Quarter", "Third Quarter", and "Fourth Quarter". The quadrant containing
the heading "First Quarter" appears in the upper left section of the page; the
quadrant containing the heading "Second Quarter" appears in the upper right
section of the page; the quadrant containing the heading "Third Quarter" appears
in the lower right section of the page; and the quadrant containing the heading
"Fourth Quarter" appears in the lower left section of the page. In the quadrant
labeled "First Quarter", the following textual items appear as bullet points:
"Wholesale sales of fertilizer and chemicals occur to fill storage and build
inventory."; Crop input planning with growers continues."; Dealer program sign-
ups continue."; and "Planting in the Southwest begins." In the quadrant labeled
"Second Quarter", the following textual items appear in the form of bullet
points: "Planting in the Corn Belt and mid-South begins."; "Custom application
of fertilizer and chemicals occurs in the Corn Belt and mid-South."; and "Over
half of the year's sales occur." Under the quadrant labeled "Third Quarter", the
following textual items appear in the form of bullet points: "Fields inspected;
insecticides and late, post-emergent herbicides applied."; "Side dressing and
winter wheat fertilizer applied."; "Majority of turf and nursery sales occur.";
"Seed ordering begins in Midwest."; and "Planning/budgeting for next year take
place." Under the quadrant labeled "Fourth Quarter", the following textual items
appear in the form of bullet points: "Harvesting continues."; "Soil tested; crop
input plans developed with growers."; Fall fertilizer applied."; "Supplier
programs negotiated; sales strategies developed."; "Dealer program sign-ups
begin."; and "Seed sales begin nationwide."
<PAGE>
EXHIBIT B
MERGER AGREEMENT dated as of August 8, 1994 (the "Agreement"), among
TERRA INDUSTRIES INC., a Maryland corporation ("Parent"), AMCI ACQUISITION
CORPORATION, a Delaware corporation ("Parent Sub"), and a wholly owned
subsidiary of Parent, and AGRICULTURAL MINERALS AND CHEMICALS INC., a Delaware
corporation (the "Company").
WHEREAS, Parent Sub, upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware ("Delaware Law"), will merge with and into the Company (the
"Merger"); and
WHEREAS, the Board of Directors of the Company has determined that the
Merger is fair to, and in the best interests of, the Company and the holders of
Class A Common Stock, par value $.01 per share ("Class A Common Stock"), and
Class B Common Stock, par value $.01 per share ("Class B Common Stock"; such
Class A and Class B Common Stock is hereinafter referred to as "Company Common
Stock"), and has approved this Agreement and the transactions contemplated
hereby;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Delaware Law, at
the Effective Time (as hereinafter defined), Parent Sub shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence
of Parent Sub shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). The name of the
Surviving Corporation shall be Agricultural Minerals and Chemicals Inc.
SECTION 1.02. Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law (the date and time of
the filing of the Certificate of Merger or the time specified therein being the
"Effective Time").
SECTION 1.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided herein, all the
property, rights, privileges, powers and franchises of Parent Sub and the
Company shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Parent Sub and the Company shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws. At the Effective
Time, the Certificate of Incorporation of the Surviving Corporation shall be as
set forth in Exhibit 1.04 and the By-Laws of Parent Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation.
SECTION 1.05. Directors and Officers. The directors of Parent Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with
<PAGE>
the Certificate of Incorporation and By-Laws of the Surviving Corporation, and
the officers of Parent Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.06. Closing. (a) The closing (the "Closing") of the
Merger will take place at the offices of Kirkland & Ellis, New York, New York at
10:00 a.m., local time, on a date to be mutually agreed upon by Parent and the
Company, which date shall be no later than the fifth business day following the
date upon which the last to occur of the conditions set forth in Article VII is
fulfilled or duly waived.
(b) Subject to the satisfaction or waiver of each of the conditions
set forth in Article VII, at the Closing, (i) the closing certificates and other
documents required by Article VII shall be delivered, and (ii) the appropriate
officers of the Surviving Corporation shall execute and acknowledge the
Certificate of Merger.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Parent Sub,
the Company or the holders of any of the following securities:
(a) Subject to the other provisions of this Section 2.01, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding any shares described in Section 2.01(c) and any
Dissenting Shares (as hereinafter defined)) shall be converted into the
right to receive $21.2066 in cash, without interest (the "Per Share
Amount"). All such shares of Company Common Stock shall cease to be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each certificate previously evidencing any such shares shall
thereafter represent only the right to receive the Per Share Amount as
described below. The holders of certificates previously evidencing such
shares of Company Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares
of Company Common Stock, except as otherwise provided herein or by law.
Each such certificate previously evidencing shares of Company Common Stock
shall be exchanged for the Per Share Amount multiplied by the number of
shares previously evidenced by the canceled certificate upon the surrender
of such certificate in accordance with the provisions of Section 2.02,
without interest.
(b) Subject to the other provisions of this Section 2.01, each Option
(as hereinafter defined) outstanding immediately prior to the Effective
Time shall be converted into the right to receive $10.4765 in cash, without
interest (the "Per Option Amount"). All such Options shall cease to be
outstanding and shall automatically be canceled and shall cease to exist,
and each option agreement relating to any such Option shall thereafter
represent only the right to receive the Per Option Amount as described
below. The optionees party to option agreements previously evidencing such
Options outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Options and the shares of Company
Common Stock issuable upon the exercise thereof, except as otherwise
provided herein. Each such Option outstanding immediately prior to the
Effective Time shall be exchanged for the Per Option Amount multiplied by
the number of shares of Company Common Stock subject to such Option upon
the surrender of such option agreement in accordance with the provisions of
Section 2.02, without interest.
(c) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by any direct or
indirect subsidiary of the Company immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
2
<PAGE>
(d) Each share of Common Stock, par value $.01 per share, of Parent
Sub ("Parent Sub Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
SECTION 2.02. Payment. (a) Paying Agent. As of the Effective Time,
Parent shall deposit, or shall cause to be deposited, with a bank theretofore
designated by the Company and Parent (the "Paying Agent"), for the benefit of
the holders of shares of Company Common Stock and the holders of Options, for
payment in accordance with this Article II, through the Paying Agent, cash in an
amount equal to (i) the Per Share Amount multiplied by the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time, and
(ii) the Per Option Amount multiplied by the number of Options outstanding
immediately prior to the Effective Time (such cash being hereinafter referred to
as the "Payment Fund"). The Paying Agent shall, pursuant to irrevocable
instructions, deliver the cash contemplated to be paid pursuant to this Article
II out of the Payment Fund. The Payment Fund shall not be used for any other
purpose.
(b) Payment Procedures. Upon surrender of a certificate that,
immediately prior to the Effective Time, evidenced outstanding shares of Company
Common Stock (other than shares described in Section 2.01(c) and Dissenting
Shares) (a "Certificate") for cancellation to the Paying Agent, together with
such other customary documents as may be required by the Paying Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor the
cash that such holder is entitled to receive in accordance with Section 2.01
(the "Merger Stock Consideration") and the Certificate so surrendered shall
forthwith be canceled. Until surrendered as contemplated by this Section 2.02,
each Certificate shall be deemed at any time after the Effective Time to
evidence only the right to receive upon such surrender the Merger Stock
Consideration.
At the Effective Time, each holder of Options shall be entitled to
receive in exchange therefor the cash that such holder is entitled to receive in
accordance with Section 2.01 (the "Merger Option Consideration"). For purposes
of this Agreement, "Merger Consideration" means the Merger Stock Consideration
and the Merger Option Consideration. The payment of the Merger Option
Consideration to any holder of MEP Options shall be subject to any applicable
Federal, state or local tax withholding requirements.
(c) No Further Rights in Company Common Stock or Options. All cash
paid upon conversion of the shares of Company Common Stock and with respect to
the Options in accordance with the terms of this Article II, and all cash paid
pursuant to Section 2.05, shall be deemed to have been paid in full satisfaction
of all rights pertaining to such shares of Company Common Stock or Options, as
the case may be.
(d) Termination of Payment Fund. Any portion of the Payment Fund that
remains undistributed to the holders of Company Common Stock or Options for 30
days after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Company Common Stock or Options that have not theretofore complied
with this Article II shall thereafter look only to Parent for the Merger
Consideration to which they are entitled.
(e) No Liability. Neither Parent nor the Surviving Corporation shall
be liable to any holder of shares of Company Common Stock or of Options for any
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. On or after the Effective Time, any certificates for
shares of Company Common Stock presented to the Paying Agent, the Surviving
Corporation or Parent for any reason shall be converted into the Merger Stock
Consideration.
SECTION 2.04. Dissenting Shares. Notwithstanding any other
provisions of this Agreement to the contrary, shares of Company Common Stock
that are outstanding immediately prior to the Effective Time and that are held
by stockholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section
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262 of Delaware Law (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Stock Consideration.
Such stockholders shall be entitled to receive payment of the appraised value of
such shares of Company Common Stock held by them in accordance with the
provisions of such Section 262, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares of Company Common
Stock under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Stock Consideration, upon
surrender, in the manner provided in Section 2.02, of the certificate or
certificates that formerly evidenced such shares of Company Common Stock.
SECTION 2.05. Working Capital. (a) Estimate. Not later than one
business day after the date for the Closing is determined pursuant to Section
1.06, the Company shall deliver to Parent the Company's good faith estimate (the
"Estimate") of the Consolidated Working Capital (as hereinafter defined) of the
Company immediately prior to the Effective Time. In connection with the
preparation and review of the Estimate, employees of Parent and Deloitte &
Touche, its independent public accountants ("Parent's Accountants"), shall be
entitled to access to the Company and its work papers prepared in connection
with the Estimate and shall be entitled to discuss the Estimate with the Company
prior to the Effective Time. (i) In the event that the Estimate exceeds $86
million, the Company shall, at the Effective Time, pay to Sellers'
Representative (as hereinafter defined), in immediately available funds, an
amount equal to such excess (the "Excess"), and (ii) in the event that the
Estimate is less than $86 million, Sellers' Representative shall, at the
Effective Time, pay to the Company, in immediately available funds, an amount
equal to such deficit; provided, however, that in any event the amount paid by
the Company at the Effective Time pursuant to clause (i) above shall not result
in the aggregate amount of cash and cash equivalents of the Company and its
subsidiaries (other than AMCLP and AMLP) after such payment being less than $36
million. In the event that, as a result of the application of the foregoing
proviso, the entire Excess shall not have been paid to Sellers' Representative
at the Effective Time, the Company shall pay such unpaid portion of the Excess
to Sellers' Representative upon the earliest to occur of (i) the distribution to
AMC by AMCLP of amounts of cash equal to such unpaid portion of the Excess and
(ii) the date set forth in Section 2.05(d).
(b) Statement of Working Capital. As soon as practicable, but in any
event within 60 calendar days following the Effective Time, Sellers'
Representative shall deliver to Parent a statement of the Consolidated Working
Capital of the Company pursuant to this Agreement (the "Statement of Working
Capital"), as of the Effective Time, together with a report thereon of Ernst &
Young, independent accountants for Sellers' Representative ("Sellers'
Representative's Accountants"), stating that the Statement of Working Capital
fairly presents the Consolidated Working Capital of the Company, as of the
Effective Time, in accordance with generally accepted accounting principles as
applied by the Company ("Company Accounting Policies") on a basis consistent
with the preparation of the audited balance sheet of the Company as at December
31, 1993.
(c) Cooperation. During the preparation of the Statement of Working
Capital by Sellers' Representative and the period of any dispute referred to in
Section 2.05(e), (i) employees of Parent and Parent's Accountants shall be
entitled to access to Sellers' Representative's Accountants and their work
papers prepared in connection with the Statement of Working Capital and shall be
entitled to discuss the Statement of Working Capital with Sellers'
Representative's Accountants, in each case at mutually agreeable times as work
progresses during the preparation of the Statement of Working Capital, and (ii)
Parent shall provide Sellers' Representative's Accountants full access to the
books, records, facilities and employees of the Company and shall cooperate
fully with Sellers' Representative's Accountants, in each case to the extent
required by Sellers' Representative's Accountants in order to prepare the
Statement of Working Capital and to investigate the basis for any such dispute;
provided however, that (i) any such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operation of the Company and
(ii) Parent shall not be required to supply the Sellers' Representative with any
information which Parent is under a legal obligation not to supply.
(d) Certain Adjustments. Subject to the limitations set forth in
Section 2.05(e), within 10 calendar days after the date of receipt by Parent of
the Statement of Working Capital:
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(i) in the event that the Consolidated Working Capital of the
Company set forth on the Statement of Working Capital is less than the
Estimate, Sellers' Representative shall pay to Parent, in immediately
available funds, an amount equal to such deficiency; or
(ii) in the event that the Consolidated Working Capital of the
Company set forth on the Statement of Working Capital exceeds the
Estimate, Parent shall pay, or shall cause the Surviving Corporation
to pay, to Sellers' Representative, in immediately available funds, an
amount equal to such excess.
(e) Disputes.
(i) Subject to Section 2.05(e)(ii), the Statement of Working
Capital delivered by Sellers' Representative to Parent and Parent's
Accountants shall have the legal effect of an arbitral award and shall
be final, binding and conclusive on Sellers' Representative, holders
of Company Common Stock, holders of Options and Parent.
(ii) Parent may dispute any amounts reflected on the Statement of
Working Capital to the extent that the net effect of such disputed
amounts in the aggregate would be to reduce the Consolidated Working
Capital by more than the Designated Amount (as hereinafter defined),
but only on the basis that the Statement of Working Capital does not
present fairly the Consolidated Working Capital of the Company, as of
the Effective Time, in accordance with Company Accounting Policies;
provided, however, that Parent shall notify Sellers' Representative in
writing of each disputed item, specifying the amount thereof in
dispute and setting forth, in detail, the basis for such dispute,
within 30 calendar days after receipt from Sellers' Representative of
the Statement of Working Capital. In the event of such a dispute,
Parent and Sellers' Representative shall attempt to reconcile their
differences and any resolution by them as to any disputed amounts
shall be final, binding and conclusive on Parent, holders of Company
Common Stock, holders of Options and Sellers' Representative. If any
such resolution by Parent and Sellers' Representative leaves in
dispute amounts the net effect of which in the aggregate would not be
to reduce the Consolidated Working Capital reflected on the Statement
of Working Capital by at least the Designated Amount, all such amounts
remaining in dispute shall then be deemed to have been resolved in
favor of the Statement of Working Capital and such resolution shall be
final, binding and conclusive on Parent, holders of Company Common
Stock, holders of Options and Sellers' Representative. If Parent and
Sellers' Representative are unable to reach a resolution with such
effect within 14 calendar days of Parent's written notice of dispute
to Sellers' Representative, Parent and Sellers' Representative shall
submit the items remaining in dispute for resolution to an independent
accounting firm of national reputation mutually appointed by Parent
and Sellers' Representative (the "Independent Accounting Firm"), which
shall, within 30 calendar days of such submission, determine and
report to Parent and Sellers' Representative upon such remaining
disputed items and such report shall have the legal effect of an
arbitral award and shall be final, binding and conclusive on Parent,
holders of Company Common Stock, holders of Options and Sellers'
Representative. The fees and disbursements of the Independent
Accounting Firm shall be allocated between Parent and Sellers'
Representative in the same proportion that the aggregate amount of
such remaining disputed items so submitted to the Independent
Accounting Firm that is unsuccessfully disputed by each (as finally
determined by the Independent Accounting Firm) bears to the total
amount of such remaining disputed items so submitted.
(iii) No adjustment to any amount payable by Parent or Sellers'
Representative pursuant to Section 2.05(d) shall be made with respect
to amounts disputed by Parent pursuant to this Section 2.05(e), unless
the net effect of the amounts successfully disputed by Parent in the
aggregate is to reduce the Consolidated Working Capital reflected on
the Statement of Working Capital by at least the Designated Amount.
The amount payable as determined pursuant to this Section 2.05(e)
shall not be reduced by the Designated Amount.
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(iv) Any amount that is subject to dispute under this Section
2.05(e) shall be paid by Parent or Sellers' Representative, as the
case may be, in immediately available funds, within five calendar days
following the resolution of such dispute and in an amount in
accordance with such resolution.
(v) In acting under this Agreement, Sellers' Representative's
Accountants, Parent's Accountants and the Independent Accounting Firm
shall be entitled to the privileges and immunities of arbitrators.
(f) Interest. Any payment required to be made by Parent or Sellers'
Representative pursuant to this Section 2.05 shall bear interest from the
Effective Time through the date of payment at the Designated Rate (as
hereinafter defined), calculated from the Effective Time to the date of such
payment.
(g) Effect of Adjustments. All amounts paid by Sellers'
Representative, Parent or the Company pursuant to this Section 2.05 shall
constitute adjustments to the consideration paid in the Merger.
(h) Withholding. Payments pursuant to this Section 2.05 in respect of
MEP Options shall be subject to any applicable Federal, state or local tax
withholding requirements.
SECTION 2.06. Certain Definitions. For purposes of this Article II,
the following terms shall have the following meanings:
(a) "Consolidated Working Capital" means the excess of the
consolidated current assets of the Company over the consolidated current
liabilities of the Company, calculated in accordance with Company Accounting
Policies. For purposes of calculating Consolidated Working Capital, (i) all
fees and expenses of financial, accounting, legal and other advisors to the
Company relating to services in respect of the Merger billed or to be billed to
the Company and remaining unpaid at the Effective Time shall be deemed to be
consolidated current liabilities and (ii) all amounts expended by the Company
after the date hereof and prior to the Effective Time with respect to post-
closing directors' and officers' liability insurance shall be deemed to be a
current receivable from Parent.
(b) "Designated Amount" means $100,000.
(c) "Designated Rate" means LIBOR (as defined in the documentation for
the bank Financing (as hereinafter defined)) plus a margin of 1.50%.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the
Company to Parent concurrently with the execution of this Agreement (the
"Company Disclosure Schedule"), which shall identify exceptions by specific
section references, the Company hereby represents and warrants to Parent and
Parent Sub that:
SECTION 3.01. Organization and Qualification; Subsidiaries. (a) Each
of the Company and its corporate subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
be so duly organized, validly existing and in good standing, or to have such
power and authority, or to be duly qualified and in good standing, as the case
may be, would not have a Company Material Adverse Effect (as hereinafter
defined). The term "Company Material Adverse Effect" as used in this Agreement
means any change or effect (other than a change or effect relating to the
industry of the Company, the financial markets or the economy generally) that,
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individually or when taken together with all other such changes or effects,
would be materially adverse to the financial condition, business, operations,
earnings or prospects of the Company and its subsidiaries, taken as a whole.
(b) Section 3.01 of the Company Disclosure Schedule sets forth, as of
the date hereof, a complete and correct list of all the Company's directly or
indirectly owned subsidiaries, together with (i) the jurisdiction of
incorporation or formation of each subsidiary and the percentage of each
subsidiary's outstanding capital stock or other equity interests owned by each
holder of such stock or interests, to the extent such ownership by persons other
than the Company or its subsidiaries is known to the Company, and (ii)
indication of whether each such subsidiary is a "Significant Subsidiary" (as
hereinafter defined). The Company owns no subsidiaries that are not corporate
subsidiaries other than AMCLP, AMLP and Oklahoma CO\\2\\ Partnership (as
hereinafter defined).
(c) AMCLP has been duly formed and is validly existing as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (the
"Delaware Act"), with partnership power and authority to own or lease its
properties and conduct its business as it is now being conducted, and is duly
qualified or registered as a foreign limited partnership for the transaction of
business under the laws of each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification or registration necessary, except where the failure to be so duly
formed and validly existing, or to have such power and authority or to be so
qualified or registered would not have a Company Material Adverse Effect; AMLP
has been duly formed and is validly existing as a limited partnership under the
Delaware Act, with partnership power and authority to own or lease its
properties and conduct its business as it is now being conducted, and is duly
qualified or registered as a foreign limited partnership for the transaction of
business under the laws of each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification or registration necessary, except where the failure to be so duly
formed and validly existing, or to have such power and authority or to be so
qualified or registered, would not have a Company Material Adverse Effect.
SECTION 3.02. Certificates of Incorporation and By-Laws. The Company
has heretofore furnished to Parent complete and correct copies of the
Certificates of Incorporation and the By-Laws or the equivalent organizational
documents, in each case as amended or restated, of the Company, AMC, AMCLP,
AMLP, BMCH and BMC (as hereinafter defined).
SECTION 3.03. Capitalization. (a) The authorized capital stock of
the Company, as of immediately prior to the Effective Time, will consist of
50,000,000 shares of Company Common Stock of which: (i) 25,000,000 shares are
shares of Class A Common Stock and 25,000,000 shares are shares of Class B
Common Stock, (ii) 17,224,302 shares of Class A Common Stock and 207,000 shares
of Class B Common Stock are issued and outstanding, none of which is subject to
preemptive rights created by statute, the Company's Certificate of Incorporation
or By-Laws or any agreement to which the Company is a party or is bound; (iii)
6,698 shares of Company Common Stock are held in the treasury of the Company;
and (iv) (A) 163,450 shares of Class A Common Stock are reserved for issuance
in connection with the Option Agreement dated as of October 25, 1993, between
the Company and Transammonia, Inc., a Delaware corporation (the "Transammonia
Option Agreement"), and (B) 2,732,668 shares of Class A Common Stock are
reserved for issuance pursuant to outstanding employee stock options (the "MEP
Options") granted pursuant to the Company's Management Equity Plan, as amended
(the "MEP") (such Transammonia Option Agreement and the MEP Options are herein
collectively referred to as the "Options"); each of the outstanding shares of
capital stock of each of the Company and its corporate subsidiaries is duly
authorized and validly issued, and fully paid and nonassessable, and such shares
owned by the Company or another subsidiary of the Company are owned free and
clear of all liens, claims, encumbrances, security interests or other charges
("Encumbrances"), except for such Encumbrances that would not have a Company
Material Adverse Effect.
(b) AMC is the sole general partner of AMCLP, with a general partner
interest in AMCLP of approximately 1.0101%; such general partner interest is
duly authorized by the Agreement of Limited Partnership of AMCLP dated as of
December 4, 1991 (the "AMCLP Agreement"), by and among AMC, the Company and each
holder of Units (as hereinafter defined), and is validly issued to AMC and is
fully
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paid; AMC owns such general partner interest free and clear of all Encumbrances;
AMC is the sole general partner of AMLP, with a general partner interest in AMLP
of 1.0%; such general partner interest is duly authorized by the Agreement of
Limited Partnership of AMLP dated as of December 4, 1991 (the "AMLP Agreement"),
by and among AMC, the Company and AMCLP (the AMCLP Agreement and the AMLP
Agreement are herein collectively referred to as the "Partnership Agreements"),
and is validly issued to AMC and is fully paid; AMC owns such general partner
interest free and clear of all Encumbrances; 7,636,764 senior preference units
representing limited partner interests in AMCLP (the "Senior Preference Units")
have been issued; AMC is a limited partner of AMCLP with a limited partner
interest represented by 6,000,000 junior preference units representing limited
partner interests in AMCLP (the "Junior Preference Units"), and 5,172,414 common
units representing limited partner interests in AMCLP (the "Common Units"; the
Senior Preference Units, Junior Preference Units and Common Units are herein
collectively referred to as the "Units"); the Junior Preference Units and the
Common Units and the limited partner interests represented thereby are
authorized by the AMCLP Agreement, and are validly issued and fully paid and are
owned by AMC free and clear of all Encumbrances. AMCLP is the sole limited
partner of AMLP, with a limited partner interest of 99.0%; such limited partner
interest is authorized by the AMLP Agreement, has been validly issued and is
fully paid; and AMCLP owns, directly or indirectly, such limited partner
interest in AMLP free and clear of all Encumbrances.
(c) Except as set forth in Section 3.03(a), immediately prior to the
Effective Time, there will be no options, warrants or other rights (including
registration rights), agreements, arrangements or commitments of any character
to which the Company or any of its subsidiaries is a party relating to the
issued or unissued capital stock of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to grant, issue or sell any
shares of the capital stock of the Company or any of its subsidiaries, by sale,
lease, license or otherwise. There are no obligations, contingent or otherwise,
of the Company or any of its subsidiaries to (i) repurchase, redeem or otherwise
reacquire any shares of Company Common Stock or the capital stock of, or other
equity interests in, any subsidiary of the Company; or (ii) (other than advances
to subsidiaries in the ordinary course of business) provide material funds to,
or make any material investment in (in the form of a loan, capital contribution
or otherwise), or provide any guarantee with respect to the obligations of, any
subsidiary of the Company or any other person. As of the date hereof, neither
the Company nor any of its subsidiaries directly or indirectly owns, or has
agreed to purchase or otherwise acquire, the capital stock of, or any interest
convertible into or exchangeable or exercisable for, the capital stock of any
corporation, partnership, joint venture or other business association or entity.
Except for any agreements, arrangements or commitments between the Company and
any of its subsidiaries or between such subsidiaries, there are no material
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to receive any
payment based on the revenues or earnings, or calculated in accordance
therewith, of the Company or any of its subsidiaries. There are no voting
trusts, proxies or other material agreements or understandings to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound with respect to the voting of any shares of capital
stock of the Company or any of its subsidiaries.
(d) The Company has made available to Parent complete and correct
copies of (i) the MEP and the forms of MEP Options issued pursuant to the MEP,
including all amendments thereto, and (ii) the Transammonia Option Agreement,
including all amendments thereto. All copies of documents furnished by the
Company to Parent in connection with the transactions contemplated hereby are
true and correct copies of such documents.
SECTION 3.04. Authority. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and the Minorco Voting
Agreement dated as of the date hereof among the Company, Parent and Minorco
(U.S.A.) Inc., a Colorado corporation ("Minorco"), in the form attached hereto
as Exhibit 3.04 (the "Minorco Voting Agreement"), (collectively, the "Basic
Agreements"), to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby to be consummated by
the Company. The execution and delivery of each Basic Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize any
Basic Agreement or to consummate the transactions contemplated hereby and
thereby. Each
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Basic Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of each Basic Agreement by the Company do not, and the
performance of each Basic Agreement by the Company will not (i) conflict with or
violate the Certificate of Incorporation or By-Laws, or the equivalent
organizational documents, in each case as amended or restated, of the Company or
any of its subsidiaries, (ii) conflict with or violate any federal, state,
foreign or local law, statute, ordinance, rule, regulation, permit, order,
judgment or decree (collectively, "Laws") in effect as of the date hereof and
applicable to the Company or any of its subsidiaries or by which any of their
respective properties is bound, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or require payment under, or result in the
creation of any Encumbrance on any of the properties or assets of the Company or
any of its subsidiaries pursuant to, or trigger any right of first refusal
under, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties is bound, except for any such
conflicts or violations described in clause (ii) or breaches, defaults, events,
rights of termination, amendment, acceleration or cancellation, payment
requirements, Encumbrances or rights of first refusal described in clause (iii)
that would not have a Company Material Adverse Effect. The Board of Directors
of the Company has taken all actions necessary under Delaware Law, including
approving the transactions contemplated by each Basic Agreement, to ensure that
Section 203 of Delaware Law does not, or will not, apply to the transactions
contemplated by the Basic Agreements.
(b) The execution and delivery of each Basic Agreement by the Company
do not, and the performance of each Basic Agreement by the Company will not,
require the Company to obtain any consent, approval, authorization or permit of,
or to make any filing with or notification to, any governmental or regulatory
authority, domestic or foreign ("Governmental Entities") based on laws, rules,
regulations and other requirements of any Governmental Entities, except (i) the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
the filing and recordation of the Certificate of Merger as required by Delaware
Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
either individually or in the aggregate, prevent the Company from performing its
obligations under any Basic Agreement and would not have a Company Material
Adverse Effect or have been resolved.
SECTION 3.06. Permits; Compliance. As of the date hereof, each of
the Company and its subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action, proceeding or
investigation pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits, except where the
failure to possess, or the suspension or cancellation of, such Company Permits
would not have a Company Material Adverse Effect. As of the date hereof,
neither the Company nor any of its subsidiaries is in conflict with, or in
default or violation of (a) any Law applicable to the Company or any of its
subsidiaries or by which any of their respective properties is bound or (b) any
of the Company Permits, except for any such conflicts, defaults or violations
that would not have a Company Material Adverse Effect. As of the date hereof,
neither the Company nor any of its subsidiaries has received from any
Governmental Entity any written notification with respect to possible conflicts,
defaults or violations of material Laws, except for written notices relating to
possible conflicts, defaults or violations, which conflicts, defaults or
violations would not have a Company Material Adverse Effect or have been
resolved.
SECTION 3.07. Reports; Financial Statements. (a) Since March 31,
1992, (i) the Company and AMCLP have filed all forms, reports, statements and
other documents required to be filed with (A) the Securities and Exchange
Commission (the "SEC"), including, without limitation, (I) all Annual Reports on
Form 10-K, (II) all Quarterly Reports on Form 10-Q, (III) all Current Reports on
Form 8-K, (IV) all other reports or registration statements, and (V) all
amendments and supplements to all such reports and registration
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statements (collectively referred to as the "Company SEC Reports") and (B) any
other applicable state securities authorities and (ii) the Company and AMCLP and
their respective subsidiaries have filed all forms, reports, statements and
other documents required to be filed with any other applicable federal or state
regulatory authorities, except where the failure to file any such forms,
reports, statements or other documents would not have a Company Material Adverse
Effect (all such forms, reports, statements and other documents in clauses (i)
and (ii) of this Section 3.07(a) being referred to herein, collectively, as the
"Company Reports"). The Company Reports, including all Company Reports filed
after the date hereof and prior to the Effective Time, (i) were or will be
prepared in all material respects in accordance with the requirements of
applicable Law (including, with respect to the Company SEC Reports, the
Securities Act of 1933, as amended (the "Securities Act"), the Exchange Act, and
the rules and regulations of the SEC thereunder applicable to such Company SEC
Reports), and (ii) did not at the time they were filed, or will not at the time
they are filed, 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 the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports filed
prior to or after the date hereof (i) have been or will be prepared in
accordance with the published rules and regulations of the SEC and generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except (A) to the extent required by changes in generally
accepted accounting principles and (B) with respect to Company SEC Reports filed
prior to the date hereof, as may be indicated in the notes thereto) and (ii)
fairly present or will fairly present the consolidated financial position of the
Company and its subsidiaries, as the case may be, as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated, except that (x) any unaudited interim financial statements
were or will be subject to normal and recurring year-end adjustments and (y) any
pro forma financial information contained in such consolidated financial
statements is not necessarily indicative of the consolidated financial position
of the Company and its subsidiaries, as the case may be, as of the respective
dates thereof and the consolidated results of operations and cash flows for the
periods indicated.
SECTION 3.08. Absence of Undisclosed Liabilities. As of the date
hereof, neither the Company nor any of its subsidiaries has, to the knowledge of
the Company, any material liability (whether accrued, absolute, contingent or
otherwise) that is required to be reflected on the financial statements (or the
notes thereto) of the Company in accordance with generally accepted accounting
principles, other than liabilities (a) reflected or reserved against (to the
extent of the reserves therefor) in the consolidated balance sheets included in
the Company's Form 10-Q for the quarter ended June 30, 1994, and Form l0-K for
the year ended December 31, 1993 (the "Balance Sheets") (or in the notes
thereto), (b) with respect to matters disclosed in the Company Disclosure
Schedule or excluded from the coverage of any of the representations, warranties
or covenants herein, (c) that are covered by enforceable insurance,
indemnification, contribution or comparable arrangements, (d) under the Laws of
any jurisdiction, except for violation of any such Laws that would have a
Company Material Adverse Effect, (e) under any contract or instrument, other
than liabilities arising out of breaches of such contracts or instruments that
would have a Company Material Adverse Effect, (f) under this Agreement or any
agreement entered into in connection herewith, (g) that constitute consolidated
current liabilities for purposes of Section 2.06, (h) with respect to matters
addressed in Sections 3.11 and 3.16 (which shall be governed solely by the terms
of such Sections), and (i) liabilities incurred or arising in the ordinary
course of business of the Company or such subsidiary since June 30, 1994.
SECTION 3.09. Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Reports filed prior to the date hereof or as
contemplated by this Agreement, during the period commencing January 1, 1994,
and ending on the date hereof, the Company and its subsidiaries have conducted
their respective businesses only in the ordinary course and in a manner
consistent with past practice and there has not been: (a) any material damage,
destruction or loss (not covered by insurance) with respect to any material
assets of the Company or any of its subsidiaries that has resulted in a Company
Material Adverse Effect; (b) any material change by the Company or its
subsidiaries in their accounting methods, principles or practices; (c) except
for dividends by a subsidiary of the Company to the Company or another
subsidiary of the Company or repurchases of shares of Company Common Stock from
terminated employees pursuant to the MEP, any declaration, setting aside or
payment of any dividends or distributions in respect of shares of Company Common
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Stock or the shares of stock of, or other equity interests in, any subsidiary of
the Company or any redemption, repurchase or other reacquisition of any of the
Company's equity securities or any of the equity securities of any subsidiary of
the Company; (d) any material increase in the benefits under, or the
establishment or amendment of, any material bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any material increase in the
compensation payable or to become payable to directors, officers or employees of
the Company or its subsidiaries, except for (i) increases in salaries or wages
payable or to become payable in the ordinary course of business and consistent
with past practice, (ii) the establishment of the employee plans set forth in
Section 3.09 of the Company Disclosure Schedule or (iii) the granting of MEP
Options to employees of the Company or its subsidiaries pursuant to the terms of
the MEP, as in effect on the date hereof; or (e) a Company Material Adverse
Effect.
SECTION 3.10. Absence of Litigation. As of the date hereof, except
as disclosed in the Company SEC Reports filed prior to the date hereof, there is
no claim, action, suit, litigation, proceeding, arbitration or, to the knowledge
of the Company, investigation of any kind, at law or in equity (including
actions or proceedings seeking injunctive relief), pending or, to the knowledge
of the Company, threatened in writing against the Company or any of its
subsidiaries or any properties or rights of the Company or any of its
subsidiaries (except for claims, actions, suits, litigations, proceedings,
arbitrations or investigations which, individually or in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect), and
neither the Company nor any of its subsidiaries is subject to any continuing
order of, consent decree, settlement agreement or other similar written
agreement with, or, to the knowledge of the Company, continuing investigation
by, any Governmental Entity, or any judgment, order, writ, injunction, decree or
award of any Governmental Entity or arbitrator, including, without limitation,
cease-and-desist or other orders, except as disclosed in the Company SEC Reports
filed prior to the date hereof and except for matters which, individually or in
the aggregate, would not reasonably be expected to have a Company Material
Adverse Effect.
SECTION 3.11. Employee Benefit Plans; Labor Matters. (a) Section
3.11 of the Company Disclosure Schedule sets forth a complete and accurate list
of each employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
employment agreements, personnel policies or fringe benefit plans, policies,
programs and arrangements, stock bonus, deferred compensation, pension,
severance, bonus, vacation, travel, incentive, and health, disability and other
welfare plans), maintained or contributed to by the Company or any of its
subsidiaries, or with respect to which the Company or any of its subsidiaries
could incur liability under Section 4069, 4212(c) or 4204 of ERISA (the "Company
Benefit Plans").
(b) Neither the Company nor any of its subsidiaries contributes to,
has any material obligation to contribute to or otherwise has any material
liability or potential material liability with respect to (i) any "multiemployer
plan" (as such term is defined in Section 3(37) of ERISA), (ii) any plan of the
type described in Section 4063 and 4064 of ERISA or (iii) any plan which
provides health, life insurance, accident or other "welfare-type" benefits to
current or future retirees or current or future former employees, their spouses
or dependents, other than in accordance with Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code"), or applicable state continuation
law. Neither the Company nor any of its subsidiaries has any liability or
potential liability with respect to any employee benefit plan subject to Title
IV of ERISA or Section 412 of the Code that is currently or formerly maintained
by any other current or former member of the controlled group of corporations,
trades or businesses (within the meaning of Sections 414(b), (c), (m) and (o) of
the Code) of which the Company or any of its subsidiaries is or was a member
which would have a Company Material Adverse Effect.
(c) None of the Company Benefit Plans obligates the Company or any of
its subsidiaries to pay material separation, severance, termination or similar-
type benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of a "change in control," as such term is
contemplated by Section 280G of the Code (and the regulations promulgated
thereunder).
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(d) Each Company Benefit Plan has been maintained, funded and
administered in compliance in all material respects with applicable law,
including, without limitation, ERISA and the Code. Neither the Company nor any
of its subsidiaries has engaged in any prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any
Company Benefit Plan. No Company Benefit Plan that is subject to the funding
requirements of Section 412 of the Code or Section 302 of ERISA has incurred any
"accumulated funding deficiency" as such term is defined in such sections of
ERISA and the Code, whether or not waived. No liability to the Pension Benefit
Guaranty Corporation ("PBGC") (except for payment of premiums in the ordinary
course) has been or is reasonably expected to be incurred with respect to any
Company Benefit Plan that is subject to Title IV of ERISA; no reportable event
(as such term is defined in Section 4043 of ERISA) has occurred with respect to
any such Company Benefit Plan; and the PBGC has not commenced or threatened the
termination of any such Company Benefit Plan. None of the assets of the Company
or any of its subsidiaries is the subject of any lien arising under Section
302(f) of ERISA or Section 412(n) of the Code; neither the Company nor any of
its subsidiaries has been required to post any security pursuant to Section 307
of ERISA or Section 401(a)(29) of the Code; and neither the Company nor any of
its subsidiaries has knowledge of any facts which could reasonably be expected
to give rise to such lien or such posting of security.
(e) Each Company Benefit Plan that is intended to be qualified under
Section 401(a) of the Code, and each trust (if any) forming a part thereof, has
received a favorable determination letter from the Internal Revenue Service as
to the qualification under the Code of such Company Benefit Plan and the tax-
exempt status of such related trust, and nothing has occurred since the date of
such determination letter that could reasonably be expected to adversely affect
the qualification of such Company Benefit Plan or the tax-exempt status of such
related trust.
(f) As of the date hereof, the fair market value of the assets of
each Company Benefit Plan that is a defined benefit pension plan equals or
exceeds the present value of all vested and nonvested liabilities thereunder
determined on an "accumulated benefit obligation" ("ABO") basis (as defined in
Financial Accounting Standards Board Statement 87), using the actuarial methods,
assumptions and factors set forth in such Company Benefit Plan's actuarial
valuation of ABO by Hewitt Associates for the most recent plan year ending
immediately prior to the date hereof. With respect to each Company Benefit Plan
that is subject to the funding requirements of Section 412 of the Code and
Section 302 of ERISA, all material required contributions for all periods ending
prior to or as of the Effective Time (including periods from the first day of
the then-current plan year to the Effective Time) shall have been made or
properly accrued.
(g) With respect to each Company Benefit Plan, the Company has
provided Parent with true, complete and correct copies, to the extent
applicable, of (i) all documents pursuant to which such Company Benefit Plan is
maintained, funded and administered, (ii) the two most recent annual reports
(Form 5500 series) filed with the Internal Revenue Service (with attachments),
(iii) the two most recent actuarial reports, (iv) the two most recent financial
statements and (v) all governmental rulings, determinations, and opinions (and
pending requests for governmental rulings, determinations, and opinions).
(h) The Company and each of its subsidiaries is in compliance with
all applicable laws relating to the employment of personnel and labor, except
where a failure to be in compliance would not have a Company Material Adverse
Effect.
(i) Neither the Company nor any of its subsidiaries is a party to any
collective bargaining or other labor union contract applicable to persons
employed by the Company or its subsidiaries nor to the knowledge of the Company
is any unionization drive or election being conducted as to any of its employees
or those of any of its subsidiaries, and no collective bargaining agreement is
being negotiated by the Company or any of its subsidiaries. As of the date
hereof, there is no labor dispute, strike or work stoppage against the Company
or any of its subsidiaries pending or threatened in writing which may interfere
with the respective business activities of the Company or its subsidiaries,
except where such dispute, strike or work stoppage would not have a Company
Material Adverse Effect. As of the date hereof, to the knowledge of the
Company, none of the Company or any of its subsidiaries, or their respective
representatives or employees, has committed any unfair labor practices in
connection with the operation of the respective businesses of the Company or its
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subsidiaries, and there is no charge or complaint against the Company or its
subsidiaries by the National Labor Relations Board or any comparable state
agency pending or threatened in writing, except where such unfair labor
practice, charge or complaint would not have a Company Material Adverse Effect.
(j) The Company has made available to Parent a list of each employee
of the Company and its subsidiaries with each such employee's date(s) of hire,
title, position, description of job duties, and compensation (including base
salary, commissions, bonuses and other material incentive compensation), which
list shall also indicate whether such employee is hourly or salaried. With
respect to the list described in the preceding sentence, at the Effective Time,
the Company shall provide Parent with such list accurately updated as of the
Effective Time.
SECTION 3.12. Taxes. Except for such matters that would not have a
Company Material Adverse Effect, (a) the Company and its subsidiaries have
timely filed or will timely file all returns and reports required to be filed by
them with any taxing authority with respect to Taxes (as hereinafter defined)
for any period ending on or before the Effective Time, taking into account any
extension of time to file granted to or obtained on behalf of the Company and
its subsidiaries, (b) all Taxes shown to be payable on such returns or reports
that are due prior to the Effective Time have been paid or will be paid, (c) the
Company believes that all Taxes otherwise due prior to the Effective Time have
been paid or will be paid, (d) as of the date hereof, no deficiency for any
material amount of Tax has been asserted or assessed by a taxing authority
against the Company or its subsidiaries, and (e) no consent under Section 341(f)
of the Code has been filed with respect to the Company or any of its
subsidiaries.
SECTION 3.13. Material Contracts. Section 3.13 of the Company
Disclosure Schedule sets forth a list, as of the date hereof, of all (a) written
employment, severance, termination, consulting (to the extent any thereof
involve annual payments of at least $25,000 or are not terminable on less than
366 days' notice without material penalty) and retirement agreements to which
the Company or any of its subsidiaries is a party, (b) written collective
bargaining agreements to which the Company or any of its subsidiaries is a
party, (c) written agreements (excluding through-put agreements), including
leases, that require aggregate future payments by or to the Company or any of
its subsidiaries of more than $250,000 that are not terminable by the Company or
any of its subsidiaries on less than 366 days' notice without material penalty
(other than purchase orders entered into in the ordinary course of business),
(d) written agreements containing covenants limiting the freedom of the Company
or any of its subsidiaries to compete with any person in any line of business or
in any area or territory, (e) license agreements involving annual payments in
excess of $25,000, (f) indentures, mortgages and notes or other debt instruments
evidencing indebtedness in excess of $100,000, (g) material written agreements
of the Company or any of its subsidiaries with any security holder or affiliate
of the Company, (h) written agreements of the Company involving payments in
excess of $100,000 containing any provisions with respect to a "change in
control" of the Company, and (i) agreements under which the Company or any of
its subsidiaries has advanced or loaned any amount in excess of $25,000 to any
of its directors, officers or employees (collectively, the "Material
Contracts"). Except as would not have a Company Material Adverse Effect, (a)
the Company and its subsidiaries are not in default under any of the Material
Contracts, and (b) to the Company's knowledge, the other parties thereto are not
in default and the Material Contracts are valid and binding obligations of the
other parties thereto. The Company and its subsidiaries have no commitments to
make charitable contributions in excess of $10,000 per year, except for any
contributions made to match employee contributions consistent with past
practice.
SECTION 3.14. Properties. Each of the Company and its subsidiaries
has good, valid and, in the case of real property, marketable fee simple, title
to all the material assets and properties which it owns and which are reflected
on the Balance Sheets (except for assets and properties sold, consumed or
otherwise disposed of by them since the dates thereof), and such assets and
properties are owned free and clear of all Encumbrances, except for (a) liens
for taxes and assessments not yet due and payable or for taxes the validity of
which is being contested in good faith, (b) Encumbrances to secure indebtedness
reflected on the Balance Sheets or indebtedness incurred in the ordinary course
of business and consistent with past practice after the date thereof, (c)
mechanic's, materialmen's and other Encumbrances that have arisen in the
ordinary course of business and (d) imperfections of title and Encumbrances the
existence of which do not have a Company Material Adverse Effect. All the
material buildings, equipment and other tangible assets of the Company and its
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subsidiaries (whether owned or leased) are in normal operating condition (normal
wear and tear excepted) and are fit for use in the ordinary course of business.
SECTION 3.15. Insurance. All material insurance policies (the
"Insurance Policies") with respect to the property, assets, operations and
business of the Company and its subsidiaries are in full force and effect in all
material respects. There are no pending material claims against the Insurance
Policies by the Company or any of its subsidiaries as to which the insurers have
denied liability.
SECTION 3.16. Environmental and Safety Matters. (a) As of the date
hereof, to their knowledge, the Company and its subsidiaries have complied and
are in compliance with all applicable Environmental and Safety Requirements (as
hereinafter defined), except where such noncompliance would not have a Company
Material Adverse Effect. "Environmental and Safety Requirements" means all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, chemical process
safety, and pollution or protection of the environment, including, without
limitation, all those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or cleanup
of any hazardous materials, substances or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation.
(b) Without limiting the generality of the foregoing, to their knowledge,
except as would not have a Company Material Adverse Effect, as of the date
hereof, the Company and its subsidiaries have obtained and complied with, and
are in compliance with, all permits, licenses and other authorizations that may
be required pursuant to Environmental and Safety Requirements for the occupation
of their facilities and the operation of their business. A list of all such
permits, licenses and other authorizations is set forth in Section 3.16(b) of
the Company Disclosure Schedule.
(c) As of the date hereof, the Company and its subsidiaries have not
received any material written or oral notice, report or, to their knowledge,
other information regarding any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to the Company or
its subsidiaries or their facilities and reasonably likely to arise under
Environmental and Safety Requirements.
(d) To their knowledge, none of the following exists, as of the date
hereof, at any property or facility owned or operated by the Company or its
subsidiaries:
1. underground storage tanks or surface impoundments;
2. material amounts of asbestos-containing material in any form
or condition; or
3. materials or equipment containing material amounts of
polychlorinated biphenyls.
(e) To its knowledge, as of the date hereof, neither the Company nor
its subsidiaries has disposed of waste from Company facilities during the period
of the Company's control of such facilities, including, without limitation, any
hazardous substance, or owned or operated any facility or property of the
Company and its subsidiaries so as to give rise to liabilities for response
cost, natural resource damages, or attorneys' fees pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, or similar
state environmental and safety requirement.
(f) To the knowledge of the Company and its subsidiaries, neither this
Agreement nor the consummation of the transaction that is the subject of this
Agreement will result in any material obligations for site investigation or
cleanup, or notification to or consent of government agencies or third parties,
pursuant to
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any of the so-called "transaction-triggered" or "responsible property transfer"
Environmental and Safety Requirements.
(g) To their knowledge, as of the date hereof, neither the Company nor
its subsidiaries have, either expressly or by operation of law, assumed or
undertaken any material liability, including, without limitation, any material
obligation for corrective or remedial action, of any other person relating to
Environmental and Safety Requirements.
(h) To the knowledge of the Company and its subsidiaries, as of the
date hereof, no property or facility now owned or operated by the Company or its
subsidiaries is presently operated in a manner which requires permitting as a
hazardous waste treatment, storage or disposal facility for purposes of the
Resource Conservation and Recovery Act or any analogous state law.
(i) To the knowledge of the Company and its subsidiaries, there have
been no material environmental investigations, studies, audits, tests, reviews
or other analyses of any property or facility now or previously owned or
operated by the Company or any subsidiary which have not been provided or made
available to Parent.
(j) To the knowledge of the Company and its subsidiaries, as of the
date hereof, no material facts, events or conditions relating to past or present
facilities, properties or operations of the Company or its subsidiaries will
prevent continued compliance with Environmental and Safety Requirements in all
material respects or give rise to any material investigatory, remedial or
corrective obligations pursuant to Environmental and Safety Requirements, or
give rise to any other material liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental and Safety
Requirements.
(k) To the knowledge of the Company and its subsidiaries, as of the
date hereof, each of the Company and its subsidiaries has conducted its business
and owned, operated or used its facilities and properties in such a manner as to
preserve and maintain in all material respects any material rights relating to
Environmental and Safety Requirements held by any of them pursuant to any
agreement, as amended, by which such Company or subsidiary acquired such
business, facilities or properties, except for such rights which have expired by
virtue of the mere passage of time and could not have been perfected by timely
notice or other action, and none of the Company or its subsidiary has acted or
failed to act in such a manner as to materially impair any such material right
to indemnification.
SECTION 3.17. Certain Information. To the Company's knowledge, the
information set forth in the schedule referred to in Section 3.17 of the Company
Disclosure Schedule, taken as a whole, was correct as of the date on which it
was furnished to Parent in all material respects.
SECTION 3.18. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by any Basic Agreement based upon
arrangements made by or on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB
Except as set forth in the disclosure schedule delivered by Parent and
Parent Sub to the Company prior to the execution of this Agreement (the "Parent
Disclosure Schedule"), which shall identify exceptions by specific section
references, Parent and Parent Sub hereby jointly and severally represent and
warrant to the Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of
Parent and Parent Sub is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and operate
its properties
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and to carry on its business as it is now being conducted. The term "Parent
Material Adverse Effect" as used in this Agreement means any change or effect
(other than a change or effect relating to the industry of the Parent, the
financial markets or the economy generally) that, individually or when taken
together with all such other changes or effects, would be materially adverse to
the financial condition, business, operations, earnings or prospects of Parent
and its subsidiaries, taken as a whole.
SECTION 4.02. Certificate of Incorporation and By-Laws. Parent has
heretofore furnished to the Company a complete and correct copy of the Articles
or Certificate of Incorporation and the By-Laws, as amended or restated, of each
of Parent and Parent Sub.
SECTION 4.03. Authority. (a) Parent has all requisite corporate
power and authority to execute and deliver each Basic Agreement, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby to be consummated by Parent (other than approval
of the issuance of Parent Common Shares (as hereinafter defined) pursuant to the
MNO Stock Put Agreement (as hereinafter defined) pursuant to Section 312.03(b)
of the New York Stock Exchange Inc. Listed Company Manual (the "NYSE Manual") by
the holders of a majority of the outstanding Common Shares, without par value,
of Parent ("Parent Common Shares")). The execution and delivery of each Basic
Agreement and the consummation by Parent of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action and no
other corporate proceedings on the part of Parent are necessary to authorize any
Basic Agreement or to consummate the transactions contemplated hereby and
thereby (other than, with respect to the approval of the issuance of Parent
Common Shares pursuant to the MNO Stock Put Agreement, by the holders of a
majority of the outstanding Parent Common Shares). Each Basic Agreement has
been duly executed and delivered by Parent and constitutes the legal, valid and
binding obligation of Parent.
(b) Parent Sub has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby to be consummated by Parent Sub.
The execution and delivery of this Agreement by Parent Sub and the consummation
by Parent Sub of the transactions contemplated hereby have been duly authorized
by all necessary corporate action and no other corporate proceedings on the part
of Parent Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent Sub and constitutes a legal, valid and binding obligation of
Parent Sub. Parent, as the sole stockholder of Parent Sub, has duly approved
and adopted this Agreement in accordance with Delaware Law.
SECTION 4.04. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Parent Sub and of each
other Basic Agreement by Parent do not, and the performance of this Agreement by
Parent and Parent Sub and of each other Basic Agreement by Parent will not (i)
conflict with or violate the Certificate of Incorporation or By-Laws, or the
equivalent organizational documents, in each case as amended or restated, of
Parent, Parent Sub or any of Parent's subsidiaries, (ii) conflict with or
violate any Laws in effect as of the date hereof applicable to Parent, Parent
Sub or any of Parent's subsidiaries or by which any of their respective
properties is bound, or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of a lien
or encumbrance on, any of the properties or assets of Parent, Parent Sub or any
of Parent's subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent, Parent Sub or any of Parent's subsidiaries is a
party or by which Parent, Parent Sub or any of Parent's subsidiaries or any of
their respective properties is bound, except for any such conflicts or
violations described in clause (ii) or breaches, defaults, events, rights of
termination, amendment, acceleration or cancellation, payment requirements or
liens or encumbrances described in clause (iii) that would not have a Parent
Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Parent
Sub and of each other Basic Agreement by Parent do not, and the performance of
this Agreement by Parent and Parent Sub and of each other Basic Agreement by
Parent will not, require Parent or Parent Sub to obtain any consent, approval,
authorization or permit of, or to make any filing with or notification to, any
Governmental Entities based on
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laws, regulations or other requirements of any Governmental Entities, except (i)
for applicable requirements, if any, of the Exchange Act and the HSR Act and the
filing and recordation of the Certificate of Merger as required by Delaware Law
and (ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not, either
individually or in the aggregate, prevent Parent or Parent Sub from performing
its obligations under this Agreement or Parent from performing its obligations
under any other Basic Agreement and, in any such case, would not have a Parent
Material Adverse Effect.
SECTION 4.05. Reports; Financial Statements. Since March 31, 1992,
Parent and its subsidiaries have filed (i) all forms, reports, statements and
other documents required to be filed with (A) the SEC, including, without
limitation (I) all Annual Reports on Form 10-K, (II) all Quarterly Reports on
Form 10-Q, (III) all proxy statements relating to meetings of stockholders
(whether annual or special), (IV) all Current Reports on Form 8-K, (V) all other
reports or registration statements and (VI) all amendments and supplements to
all such reports and registration statements (collectively, the "Parent SEC
Reports") and (B) any other applicable state securities authorities and (ii) all
forms, reports, statements and other documents required to be filed with any
other applicable federal or state regulatory authorities, except where the
failure to file any such forms, reports, statements or other documents would not
have a Parent Material Adverse Effect (all such forms, reports, statements and
other documents in clauses (i) and (ii) of this Section 4.05(a) being referred
to herein, collectively, as the "Parent Reports"). The Parent Reports,
including all Parent Reports filed after the date hereof and prior to the
Effective Time (a) were or will be prepared in all material respects in
accordance with the requirements of applicable Law (including, with respect to
the Parent SEC Reports, the Securities Act and the Exchange Act, and the rules
and regulations of the SEC thereunder applicable to such Parent SEC Reports) and
(b) did not at the time they were filed, or will not at the time they are filed,
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 the light of the circumstances under which they were made, not
misleading.
SECTION 4.06. Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Reports filed prior to the date hereof or as
contemplated by this Agreement, during the period commencing January 1, 1994,
and ending on the date hereof, there has not been (a) a Parent Material Adverse
Effect or (b) any change by Parent or its subsidiaries in their accounting
methods, principles or practices.
SECTION 4.07. Ownership of Parent Sub; No Prior Activities. Parent
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement. As of the date hereof and the Effective Time,
except for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by this
Agreement and the financing thereof and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement or related to the
financing of the transactions contemplated hereby, Parent Sub has not and will
not have incurred, directly or indirectly, through any subsidiary or affiliate,
any obligations or liabilities or engaged in any business activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
person.
SECTION 4.08. Vote Required. The affirmative vote of the holders of
a majority of the outstanding Parent Common Shares to approve the issuance of
Parent Common Shares pursuant to the MNO Stock Put Agreement pursuant to Section
312.03(b) of the NYSE Manual is the only vote of the holders of any class or
series of Parent capital stock necessary to approve any of the transactions
contemplated hereby. The affirmative vote of the holders of a majority of the
Parent Sub Common Stock is the only vote of the holders of any class or series
of Parent Sub capital stock necessary to approve the Merger.
SECTION 4.09. Financing. (a) Parent or Parent Sub has received and
furnished copies to the Company of (i) a commitment letter (the "Commitment
Letter") from Citibank, N.A. dated August 5, 1994, pursuant to which Citibank,
N.A. has committed, subject to the terms and conditions thereof, to provide to
Parent (or to Parent Sub or another subsidiary of Parent) $597,000,000 in bank
financing (the "Bank Financing"), and (ii) a Put Option Agreement dated as of
August 8, 1994 (the "MNO Stock Put Agreement"), pursuant to which Minorco has
agreed, subject to the terms and conditions stated therein, to purchase, at the
option of Parent, 13,333,333 Parent Common Shares for $100,000,000 in cash in
connection with the Merger. The commitment and agreement referred to in clauses
(i) and (ii) above are referred to herein as the "Financing
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Commitments", and the financing to be provided thereunder is referred to herein
as the "Financing". The aggregate proceeds of the Financing (along with (i)
cash held by the Company and its subsidiaries and available to it for such
purpose and (ii) cash held by Parent and its subsidiaries) will be in an amount
sufficient to consummate the Merger (and make all the payments contemplated by
Article II), pay all related fees and expenses and provide adequate working
capital for the operation of the Company as of the Effective Time.
(b) Parent acknowledges that the financing structure to be employed
by Parent and Parent Sub in connection with the Financing for the transactions
contemplated hereby has been and will continue to be devised by Parent and that
the Company makes no representation or warranty with respect to such financing
structure. As of the date hereof, (i) Parent knows of no facts or circumstances
that are reasonably likely to result in any of the conditions set forth in the
Financing Commitments (or reasonably likely to be set forth in the definitive
documentation therefor) not being satisfied and (ii) the financing structure
currently contemplated to be employed in connection with the Financing for the
transactions contemplated hereby will permit all the payments contemplated by
Article II and the Methanol Hedging Agreement (as hereinafter defined) to be
paid in accordance with the terms of Article II and such Methanol Hedging
Agreement.
SECTION 4.10. Brokers. Other than S.G. Warburg, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by any Basic
Agreement based upon arrangements made by or on behalf of Parent or Parent Sub.
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Company. The Company
hereby covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by any Basic Agreement or consented to in writing by
Parent, the Company will and will cause its subsidiaries to (a) operate its
business in the usual and ordinary course consistent with past practices; (b)
use its reasonable efforts to preserve substantially intact its business
organizations, maintain its rights and franchises, retain the services of its
respective principal officers and key employees and maintain its relationships
with its respective principal customers and suppliers; (c) use its reasonable
efforts to maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain
inventories in quantities consistent with its customary business practice; and
(d) use its reasonable efforts to keep in full force and effect insurance and
bonds comparable in amount and scope of coverage to that currently maintained;
provided, however, that in the event the Company deems it necessary to take
certain actions that would otherwise be proscribed by clauses (a) - (d) of this
Section 5.01, the Company shall consult with Parent and Parent shall consider
in good faith the Company's request to take such action and not unreasonably
withhold its consent for such action.
SECTION 5.02. Negative Covenants of the Company. Except as expressly
contemplated by any Basic Agreement and except as set forth in Section 5.02 of
the Company Disclosure Schedule, or otherwise consented to in writing by Parent,
from the date hereof until the Effective Time, the Company will not do, and will
not permit any of its subsidiaries to do, any of the following:
(a) (i) increase the periodic compensation payable to or to become
payable to any director or executive officer of the Company or any of its
subsidiaries, except for increases in salary or wages payable or to become
payable in the ordinary course of business and consistent with past practice;
(ii) grant any severance or termination pay (other than pursuant to existing
severance arrangements or policies as in effect on the date hereof) to, or enter
into any employment or severance agreement with, any director, officer or
employee of the Company or any of its subsidiaries (other than employment,
severance or similar agreements entered into with the consent of Parent, which
consent shall not be unreasonably withheld); or (iii) adopt any employee benefit
plan or arrangement, except as may be required by applicable Law;
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(b) make any distribution on or in respect of the Senior Preference
Units, except out of Available Cash (as defined in the AMCLP Agreement);
(c) (i) except as are described in Section 3.03(b) of the Company
Disclosure Schedule, redeem, repurchase or otherwise reacquire any shares of its
or any of its subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of its or its subsidiaries'
capital stock (other than any such acquisition directly from any wholly owned
subsidiary of the Company in exchange for capital contributions or loans to such
subsidiary or from terminated employees pursuant to the MEP), or any options,
warrants or conversion or other rights to acquire any shares of its or its
subsidiaries' capital stock or any such securities or obligations (except in
connection with the exercise of outstanding Options referred to in Section
3.03(a) in accordance with their terms); (ii) effect any reorganization or
recapitalization of the Company; or (iii) split, combine or reclassify any of
the Company's 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;
(d) (i) except as are described in Section 3.03(b) of the Company
Disclosure Schedule, issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
Encumbrances) of, any shares of any class of its or its subsidiaries' capital
stock (including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire, any such shares (except for the issuance of shares upon the
exercise of outstanding Options and except for the issuance of options to
employees with the consent of Parent, which consent shall not be unreasonably
withheld); or (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division (other than a wholly owned subsidiary)
thereof, or otherwise acquire or agree to acquire any assets of any other person
(other than the purchase of assets in the ordinary course of business and
consistent with past practice) in the case of asset purchases which are
material, individually or in the aggregate, to the Company and its subsidiaries,
taken as a whole, or make or commit to make any capital expenditures other than
capital expenditures in the ordinary course of business consistent with past
practice;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any of its material assets or any material assets of any
of its subsidiaries or make any charitable contributions or commitments therefor
except for dispositions or contributions in the ordinary course of business and
consistent with past practice;
(g) propose or adopt any amendments to its Certificate of
Incorporation or, as to its By-Laws, any amendments that would have an adverse
impact on the consummation of the transactions contemplated by this Agreement or
would be adverse to Parent's interests;
(h) (A) change any of its methods of accounting in effect at March 31,
1994, or (B) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes (except where
the amount of such settlements or controversies, individually or in the
aggregate, does not exceed $1,000,000), or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the taxable
year ending December 31, 1992, except, in the case of clause (A) or clause (B),
as may be required by Law or generally accepted accounting principles;
(i) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, except in the ordinary course of business under existing loan
agreements or capitalized leases, or prepay, before the scheduled maturity
thereof, any of its long-term debt;
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(k) agree in writing or otherwise to do any of the foregoing; or
(l) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction (as hereinafter defined), or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or employees
of the Company or any of its subsidiaries or any representative retained by the
Company or any of the Company's subsidiaries to take any such action, and the
Company shall promptly notify Parent of all relevant terms of any such inquiries
and proposals received by the Company or any of its subsidiaries, or by any such
officer, director or representative, relating to any of such matters and if such
inquiry or proposal is in writing, the Company shall deliver or cause to be
delivered to Parent a copy of such inquiry or proposal. For purposes of this
Agreement, "Competing Transaction" shall mean any of the following involving the
Company or any of its subsidiaries: (a) any merger, consolidation, share
exchange, business combination, or other similar transaction (other than the
transactions contemplated by this Agreement); (b) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 25% or more of the assets of
the Company and its subsidiaries, taken as a whole, in a single transaction or
series of transactions; (c) any tender offer or exchange offer for 25% or more
of the outstanding shares of capital stock of the Company; (d) any person shall
have acquired, after the date hereof, beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) shall have been formed that beneficially owns or has the right to
acquire beneficial ownership of, 25% or more of the then outstanding shares of
capital stock of the Company; or (e) any public announcement of a proposal, plan
or intention to do any of the foregoing.
SECTION 5.03. Certain Covenants of Parent. (a) Except as expressly
contemplated by any Basic Agreement or otherwise consented to in writing by the
Company, from the date hereof until the Effective Time, Parent will not, and
will not permit any of its subsidiaries to acquire or agree to acquire, by
merging or consolidating with, by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division (other than
a wholly owned subsidiary) thereof, or otherwise acquire or agree to acquire any
assets of any other person, which, in each case, would materially delay or
prevent the consummation of the transactions contemplated by this Agreement.
(b) In connection with the Financing for the transactions contemplated
hereby, Parent will not, and will not permit Parent Sub or any of Parent's other
subsidiaries (including, after the Effective Time, the Surviving Corporation) to
enter into any agreement that will prohibit or otherwise interfere with the
making of the payments contemplated by Article II and the Methanol Hedging
Agreement in accordance with the terms of Article II and such Methanol Hedging
Agreement.
(c) Parent agrees to exercise in full the option provided for in the
MNO Stock Put Agreement not later than the last date on which it is permitted to
do so thereunder. Parent agrees to give the Company prompt written notice of
any proposed amendment to the MNO Stock Put Agreement. Parent agrees not to
amend the MNO Stock Put Agreement in any manner that would adversely affect the
ability of Parent to close on the put option set forth therein or on the Merger,
without the prior written consent of the Company.
SECTION 5.04. Access and Information. Subject to confidentiality
agreements to which the Company or any of its subsidiaries is a party, the
Company shall, and shall cause its subsidiaries to (i) afford to Parent and its
officers, directors, employees, accountants, consultants, legal counsel, agents,
lenders (including representatives of any lenders) and other representatives
(collectively, the "Parent Representatives") reasonable access at reasonable
times upon reasonable prior notice to the officers, employees, agents,
properties, offices and other facilities of the Company and its subsidiaries and
to the books and records thereof and (ii) furnish promptly to Parent and the
Parent Representatives such information concerning the business, properties,
contracts, records and personnel of the Company and its subsidiaries (including,
without limitation, financial, operating and other data and information) as may
be reasonably requested, from time to time, by Parent. The parties hereto
acknowledge and agree that, anything herein to the contrary notwithstanding,
neither Parent nor
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any Parent Representative shall be permitted to conduct any environmental
investigation or diligence on the properties or facilities of the Company
without the prior written consent of the Company; provided however, that (i)
Parent's lenders (including representatives of lenders) shall be permitted to
perform a reasonable "Phase I" analysis (which shall not include any
environmental testing) of the type customarily performed by lenders for
financings such as the Financing at reasonable times upon reasonable prior
notice and (ii) employees of Parent with ongoing responsibilities for
environmental matters shall be permitted to perform additional environmental
diligence with respect to the Company (which shall not include any environmental
testing) at reasonable times upon reasonable prior notice.
SECTION 5.05. Confidentiality. The parties will comply with all
their respective obligations under the Confidentiality Agreement dated May 19,
1994, between the Company and Parent (the "Confidentiality Agreement"). The
Company agrees to not use, and to keep confidential, any information provided to
it by Parent or its subsidiaries (and cause its employees, lenders and advisors
to do the same) to the same extent and under the same covenants as provided in
the Confidentiality Agreement with respect to Parent's treatment of the
Company's confidential information.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholder Approval. Parent shall, promptly after the
date hereof, take all action necessary in accordance with Maryland Law and its
Certificate of Incorporation and By-Laws to convene a meeting of Parent's
stockholders (the "Parent Stockholders' Meeting"), to approve the issuance of
Parent Common Shares pursuant to the MNO Stock Put Agreement. Parent shall use
its reasonable best efforts to solicit from stockholders of Parent proxies in
favor of the approval of the issuance of Parent Common Shares pursuant to the
MNO Stock Put Agreement and to secure the vote or consent of stockholders
required to approve the issuance of Parent Common Shares pursuant to the MNO
Stock Put Agreement.
SECTION 6.02. Proxy Statement. (a) As promptly as practicable after
the execution of this Agreement, Parent shall prepare and file with the SEC a
proxy statement in connection with the matters to be considered at the Parent
Stockholders' Meeting (the "Parent Proxy Statement"). Parent shall use all
reasonable best efforts to cause the Parent Proxy Statement to be "cleared" by
the SEC for mailing to the stockholders of Parent as promptly as practicable and
shall mail the Parent Proxy Statement to its stockholders as promptly as
practicable thereafter. The Company shall furnish all information concerning it
and the holders of its capital stock as Parent may reasonably request in
connection with such actions.
(b) The information supplied by the Company for inclusion in the
Parent Proxy Statement shall not, at the date the Parent Proxy Statement (or any
supplement thereto) is first mailed to stockholders, at the time of the Parent
Stockholders' Meeting or 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 the light of the
circumstances under which they are made, not misleading. If at any time prior
to the Effective Time any event or circumstance relating to the Company or any
of its affiliates, or its or their respective officers or directors, should be
discovered by the Company that should be set forth in a supplement to the Parent
Proxy Statement, the Company shall promptly inform Parent.
(c) The information supplied by Parent for inclusion in the Parent
Proxy Statement shall not, at the date the Parent Proxy Statement (or any
supplement thereto) is first mailed to stockholders, at the time of the Parent
Stockholders' Meeting or 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 the light of the
circumstances under which they are made, not misleading. If at any time prior
to the Effective Time any event or circumstance relating to Parent or any of its
affiliates, or to its or their respective officers or directors, should be
discovered by Parent that should be set forth in a supplement to the Parent
Proxy Statement, Parent shall promptly inform the Company. All documents that
Parent is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form and
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substance in all material respects with the applicable requirements of the
Exchange Act and the rules and regulations thereunder.
SECTION 6.03. Appropriate Action; Consents; Filings. (a) The
Company and Parent shall each use their reasonable best efforts to (i) take, or
cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise
(including, in the case of Parent, consummating the Financing) to consummate and
make effective the transactions contemplated by this Agreement, (ii) obtain any
consents or approvals with respect to the Merger the absence of which would
result in a Company Material Adverse Effect (it being understood that obtaining
(i) any thereof that are listed on Exhibit 7.02(c) shall be a condition to
Parent's obligation to consummate the Merger, and (ii) any thereof that are not
listed on Exhibit 7.02(c) shall not be a condition to Parent's obligation to
consummate the Merger), (iii) make all necessary filings, and thereafter make
any other required submissions, with respect to this Agreement and the Merger
required under (A) the Exchange Act and the rules and regulations thereunder,
and any other applicable federal or state securities laws, (B) the HSR Act, and
(C) any other applicable Law; provided that Parent and the Company shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents (except those filed in
connection with the HSR Act) to the nonfiling party and its advisors prior to
filing and, if requested, to accept all reasonable additions, deletions or
changes suggested in connection therewith. The Company and Parent shall furnish
all information required for any application or other filing to be made pursuant
to the rules and regulations of any applicable Law (including all information
required to be included in the Parent Proxy Statement) in connection with the
transactions contemplated by this Agreement.
(b) Each of the Company and Parent agree to cooperate and use their
reasonable best efforts to contest and resist any action, including legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) (an "Order") that is in effect and that restricts,
prevents or prohibits the consummation of the Merger or any other transactions
contemplated by this Agreement, including, without limitation, by pursuing any
necessary administrative or judicial appeal or legislative action.
SECTION 6.04. Certifications. The Company shall use its reasonable
best efforts to obtain the certifications described in Section 7.02(f).
SECTION 6.05. Public Announcements. Unless otherwise required by
applicable Law or stock exchange requirements, Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation.
SECTION 6.06. Indemnification. (a) The Certificate of Incorporation
and By-Laws of the Surviving Corporation shall contain the provisions with
respect to indemnification set forth in the Certificate of Incorporation and By-
Laws of the Company on the date of this Agreement, which provisions shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of persons who at any time prior to the Effective Time were identified as
prospective indemnitees under the Certificate of Incorporation or By-laws of the
Company in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement), unless such modification is required by Law.
Parent will not permit the provisions with respect to indemnification
set forth in the Certificate of Incorporation and By-laws of each of AMC, BMCH
and BMC on the date of this Agreement to be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of persons who at any time prior to
the Effective Time were identified as prospective indemnitees under any such
Certificate of Incorporation or By-laws in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), unless such modification is
required by Law. Parent will not permit the provisions of Sections 6.07 and
6.08 of each Partnership Agreement to be amended, repealed or otherwise modified
for a period of six years after the Effective Time in any manner that would
adversely affect the rights
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thereunder of persons who at any time prior to the Effective Time were
prospective indemnitees under either such Partnership Agreement in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required by Law.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless the present and former officers, directors
and employees of the Company (collectively, the "Indemnified Parties") against
all losses, expenses, claims, damages, liabilities or amounts that are paid in
settlement of, with the approval of Parent and the Surviving Corporation (which
approval shall not be unreasonably withheld), or otherwise in connection with
any claim, action, suit, proceeding or investigation (a "Claim"), based in whole
or in part on the fact that such person is or was such a director, officer or
employee and arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement), in each case to the fullest extent permitted under Delaware Law
(and shall pay expenses in advance of the final disposition of any such action
or proceeding to each Indemnified Party to the fullest extent permitted under
Delaware Law, upon receipt from the Indemnified Party to whom expenses are
advanced of the undertaking to repay such advances contemplated by Section
145(e) of Delaware Law). Parent hereby guarantees the Surviving Corporation's
obligations pursuant to this Section 6.06(b).
(c) Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the Effective
Time) after the Effective Time (i) the Indemnified Parties may retain the
Company's regularly engaged independent legal counsel as of the date hereof, or
other independent legal counsel satisfactory to them provided that such other
counsel shall be reasonably acceptable to Parent and the Surviving Corporation,
(ii) the Surviving Corporation shall pay all reasonable fees and expenses of
such counsel for the Indemnified Parties promptly as statements therefor are
received and (iii) the Surviving Corporation will use its reasonable best
efforts to assist in the vigorous defense of any such matter, provided that the
Surviving Corporation shall not be liable for any settlement of any Claim
effected without its written consent, which consent shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 6.06, upon learning of any such Claim, shall notify the Surviving
Corporation (although the failure so to notify the Surviving Corporation shall
not relieve the Surviving Corporation from any liability which the Surviving
Corporation may have under this Section 6.06, except to the extent such failure
prejudices the Surviving Corporation), and shall deliver to the Surviving
Corporation the undertaking contemplated by Section 145(e) of Delaware Law. The
Indemnified Parties as a group may retain one law firm (in addition to local
counsel) to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct (as determined by counsel to
such Indemnified Parties), a conflict on any significant issue between the
positions of any two or more of such Indemnified Parties, in which event, an
additional counsel as may be required may be retained by such Indemnified
Parties.
(d) This Section 6.06 is intended to be for the benefit of, and shall
be enforceable by, the indemnified parties referred to herein, their heirs and
personal representatives and shall be binding on Parent and Parent Sub and the
Surviving Corporation and their respective successors and assigns.
SECTION 6.07. Obligations of Parent Sub. Parent shall take all
action necessary to cause Parent Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 6.08. Investigation. Parent acknowledges and agrees that it
will not assert any
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claim against any of the Company's officers, directors, employees, agents,
stockholders, affiliates, advisors or other representatives, or hold any of such
persons liable, for any inaccuracies, misstatements or omissions with respect to
information furnished by the Company or such persons concerning the Company.
Parent acknowledges and agrees that none of the Company's stockholders,
officers, directors, employees, agents, affiliates, advisors or other
representatives have made, or are making, any representations or warranties with
respect to the Company, this Agreement, or any of the transactions contemplated
hereby, other than as expressly set forth in the MSLEF II Certificate (as
hereinafter defined).
SECTION 6.09. Certain Notifications. (a) The Company will provide
Parent with prompt notice of all litigation initiated against the Company or any
of its subsidiaries after the date hereof.
(b) The Company will promptly notify Parent of the occurrence, after
the date hereof, of any material event that could reasonably be expected to
result in any of the conditions set forth in 7.01(b), 7.02(g) or 7.02(h) failing
to be satisfied at the Effective Time.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions, any or all of which may be waived, in whole or in part, to
the extent permitted by applicable Law:
(a) Antitrust. (i) The applicable waiting period under the HSR Act
shall have expired or been terminated.
(ii) After the date hereof, no antitrust action or proceeding by or
before any governmental authority of competent jurisdiction shall have been
instituted and be pending against any of the parties hereto to restrain,
prohibit or invalidate the Merger that could reasonably be expected, if
adversely determined, to materially adversely affect the ability of the Company
or Parent to own or operate any of the three principal facilities of the Company
or the three principal facilities of Parent after the Closing.
(b) Litigation, etc. No Governmental Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger. Since the date hereof, there shall not have been
instituted and be pending against the Company or any of its subsidiaries any
lawsuits or other litigation or proceedings that, individually or in the
aggregate, could reasonably be expected, if adversely determined, to have a
Company Material Adverse Effect.
(c) Section 280(G). Any payment that would otherwise constitute "an
excess parachute payment" (within the meaning of Section 280G of the Code) that
will be made to any "disqualified individual" (within the meaning of Section
280G(c) of the Code) as a result of this Agreement and the transactions
contemplated hereby shall have been approved by a vote of the stockholders of
the Company satisfying the requirements of Section 280G(b)(5) of the Code. The
right of any such disqualified individual to receive any such payments shall be
subject to the approval of the Company's stockholders described in the preceding
sentence.
(d) Methanol Hedging Agreement. BMC and the counterparty named
therein shall have executed and delivered a Methanol Hedging Agreement (the
"Methanol Hedging Agreement") dated as of the Effective Time, in the form
attached hereto as Exhibit 7.01(d).
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SECTION 7.02. Additional Conditions to Obligation of Parent. The
obligation of Parent to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company contained in this Agreement (i) in the case of any
thereof that are expressly qualified by any materiality qualification, shall be
true and correct, subject to such materiality qualification, and (ii) in the
case of all other representations and warranties, shall be true and correct in
all material respects, in each case as of the Effective Time as though made on
and as of the Effective Time, and except that those representations and
warranties that address matters only as of a particular date shall remain true
and correct, subject to such materiality qualifications or in all material
respects, as the case may be, as of such date. Parent shall have received a
certificate of the Chief Financial Officer of the Company to such effect.
(b) Agreements and Covenants. The Company shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, except where
the failure to so comply would not have a Company Material Adverse Effect.
Parent shall have received a certificate of the Chief Financial Officer of the
Company to that effect.
(c) Consents and Approvals. All consents, approvals and
authorizations that are described on Exhibit 7.02(c) shall have been obtained.
(d) Dissenting Shares. Not more than 5% of the outstanding shares of
Company Common Stock shall be Dissenting Shares.
(e) Options and Related Matters. Parent shall have received
satisfactory evidence that all necessary actions shall have been taken so as to
conform the rights of option holders with their rights under this Agreement.
(f) Certain Certifications. Each holder of Company Common Stock or
Options as of immediately prior to the Effective Time shall have delivered to
Parent a certification pursuant to Treasury Regulation Section 1.1445-2 (b) (2)
that such holder is not a "foreign person".
(g) Damage. Since the date hereof, there shall not have occurred any
physical damage (including damage or erasure to or of software), destruction or
catastrophic loss to any of the physical assets (including software) used or
owned by the Company or any of its subsidiaries that could, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(h) Environmental. Since the date hereof (i) there shall not have
been any emissions, discharges, spills or releases, or any use, treatment,
storage, disposal, handling, manufacture, transportation or shipment, of any
substance by the Company or any of its subsidiaries which could reasonably be
expected to give rise to liabilities, claims or costs pursuant to Environmental
and Safety Requirements that, individually or in the aggregate, could reasonably
be expected to have a Company Material Adverse Effect and (ii) neither the
Company nor any of its subsidiaries shall have received any written notice from
any federal, state or local environmental regulatory agency asserting any claim
or requiring any investigatory, remedial or corrective action under applicable
Environmental and Safety Requirements that, individually or in the aggregate,
could reasonably be expected to have a Company Material Adverse Effect.
(i) Certain Agreements. Robert B. Gwyn and Harvey E. O'Neill shall
have executed and delivered Agreements dated as of the Effective Time, in the
form attached hereto as Exhibit 7.02(i).
(j) MSLEF II Certificate. The Morgan Stanley Leveraged Equity Fund
II, L.P. shall have executed and delivered a certificate (the "MSLEF II
Certificate") dated as of the Effective Time, in the form attached hereto as
Exhibit 7.02(j).
(k) Stockholder Approval. The issuance of Parent Common Shares
pursuant to the MNO Stock Put Agreement shall have been approved by the
requisite vote of the stockholders of Parent.
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(l) Minimum Cash. The aggregate amount of cash and cash equivalents
of the Company and its subsidiaries (other than AMCLP and AMLP) shall be at
least $36 million).
SECTION 7.03. Additional Conditions to Obligation of the Company.
The obligation of the Company to effect the Merger is also subject to the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Parent Sub contained in this Agreement (i) in the case
of any thereof that are expressly qualified by any materiality qualification,
shall be true and correct, subject to such materiality qualification, and (ii)
in the case of all other representations and warranties, shall be true and
correct in all material respects, in each case as of the Effective Time as
though made on and as of the Effective Time, and except that those
representations and warranties that address matters only as of a particular date
shall remain true and correct, subject to such materiality qualifications or in
all material respects, as the case may be, as of such date. The Company shall
have received a certificate of the Chief Financial Officer of Parent to such
effect.
(b) Agreements and Covenants. Parent shall have performed or complied
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, except where the failure
to comply would not have a Parent Material Adverse Effect. The Company shall
have received a certificate of the Chief Financial Officer of Parent to that
effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a material breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have
become untrue in any material respect, in either case such that the
conditions set forth in Section 7.02(a) or Section 7.02(b) would not be
satisfied (a "Terminating Company Breach"), provided that, if such
Terminating Company Breach is curable by the Company through the exercise
of its reasonable best efforts and for so long as the Company continues to
exercise such reasonable best efforts, Parent may not terminate this
Agreement under this Section 8.01(b);
(c) by the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have become
untrue in any material respect, in either case such that the conditions set
forth in Section 7.03(a) or Section 7.03(b) would not be satisfied (a
"Terminating Parent Breach"), provided that, if such Terminating Parent
Breach is curable by Parent through the exercise of its reasonable best
efforts and for so long as Parent continues to exercise such reasonable
best efforts, the Company may not terminate this Agreement under this
Section 8.01(c);
(d) by either Parent or the Company, if there shall be any Order that
is final and nonappealable preventing the consummation of the Merger or
requiring the divestiture of any of the three principal facilities of the
Company, except if the party relying on such Order has not complied with
its obligations under Section 6.03(b);
(e) by either Parent or the Company, if the Merger shall not have been
consummated before March 31, 1995, except if the party seeking to terminate
the Agreement shall be in breach hereof; and
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<PAGE>
(f) by the Company, if the issuance of Parent Common Shares pursuant
to the MNO Stock Put Agreement shall fail to receive the requisite vote for
approval by the stockholders of Parent at the Parent Stockholders' Meeting.
The right of any party hereto to terminate this Agreement pursuant to
this Section 8.01 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 8.02. Effect of Termination. Except as provided in Section
8.05 or Section 9.01, in the event of the termination of this Agreement pursuant
to Section 8.01, this Agreement shall forthwith become void, there shall be no
liability on the part of Parent, Parent Sub or the Company or any of their
respective officers or directors to the other and all rights and obligations of
any party hereto shall cease, except that nothing herein shall relieve any party
for any breach of this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 8.05. Expenses. All expenses incurred by the parties hereto
shall be borne solely by the party that has incurred such expenses.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and
Agreements. (a) Except as set forth in Section 9.01(b), the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement.
(b) The representations, warranties and agreements in this Agreement
(and in any certificate (other than the MSLEF II Certificate) delivered in
connection with the Closing) shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Article VIII, except that the
agreements set forth in Articles I and II and Sections 6.06 and 6.08 shall
survive the Effective Time and those set forth in Sections 5.05, 6.08, 8.02,
8.05 and Article IX hereof shall survive termination.
SECTION 9.02. Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
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<PAGE>
(a) If to Parent or Parent Sub:
Terra Centre
600 Fourth Street
Sioux City, Iowa 51101
Attention: Chief Executive Officer
Telecopier: (712) 277-5429
(b) If to the Company:
5100 E. Skelly Drive
Suite 800
Meridian Building
Tulsa, Oklahoma 74135
Attention: Chief Executive Officer
Telecopier: (918) 660-6294
SECTION 9.03. Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "AMC" means Agricultural Minerals Corporation, a Delaware
corporation;
(c) "AMCLP" means Agricultural Minerals Company, L.P., a Delaware
limited partnership;
(d) "AMLP" means Agricultural Minerals, Limited Partnership, a
Delaware limited partnership;
(e) "BMC" means Beaumont Methanol Corporation, a Delaware
corporation;
(f) "BMCH" means BMC Holdings Inc., a Delaware corporation;
(g) "business day" means any day other than a day on which banks in
the State of New York are authorized or obligated to be closed;
(h) "control" (including the terms "controlled", "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise;
(i) "knowledge" or "known" shall mean, with respect to any matter in
question, if an executive officer of the Company or Parent, as the case may be,
has actual knowledge of such matter;
(j) "Oklahoma CO\\2\\ Partnership" means Oklahoma CO\\2\\ Partnership,
an Oklahoma general partnership.
(k) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(l) "Sellers' Representative" means The Morgan Stanley Leveraged
Equity Fund II, L.P., acting as agent for the holders of Company Common Stock
and holders of Options pursuant to an agency agreement to be dated as of the
Effective Time.
28
<PAGE>
(m) "Significant Subsidiary" or "Significant Subsidiaries" means any
subsidiary of the Company or Parent, as the case may be, that would constitute a
Significant Subsidiary of such party within the meaning of Rule 1-02 of
Regulation S-X of the SEC and, in the case of the Company, includes, without
limitation, AMC, AMCLP, AMLP, BMCH and BMC;
(n) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person, means any corporation, partnership,
joint venture or other legal entity of which the Company, Parent, the Surviving
Corporation or such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, 50% or more
of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity; and
(o) "Tax" or "Taxes" shall mean any and all taxes, charges, fees,
levies, payable to any federal, state, local or foreign taxing authority or
agency, including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, ad valorem, value added,
sales, use, service, real or personal property, capital stock, license, payroll,
withholding, disability, employment, social security, workers compensation,
unemployment compensation, utility, severance, excise, stamp, windfall profits,
transfer and gains taxes, highway transportation taxes, (ii) customs duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto.
SECTION 9.04. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.06. Entire Agreement. This Agreement (together with the
Exhibits hereto), and the Confidentiality Agreement constitute the entire
agreement of the parties and supersede all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
SECTION 9.07. Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.08. 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 (other than the provisions of Sections 6.06 and
6.08), is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.09. Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 9.10. Governing Law; Submission to Jurisdiction. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law, and each party hereto hereby submits
to
29
<PAGE>
the exclusive jurisdiction of the Delaware courts sitting in chancery for the
resolution of all disputes under the Basic Agreements.
SECTION 9.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
30
<PAGE>
IN WITNESS WHEREOF, Parent, Parent Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
TERRA INDUSTRIES INC.
By: /s/ Burton M. Joyce
-------------------------------
Name: Burton M. Joyce
Title: President and Chief
Executive Officer
AMCI ACQUISITION
CORPORATION
By: /s/ Burton M. Joyce
--------------------------------
Name: Burton M. Joyce
Title: President
AGRICULTURAL MINERALS
AND CHEMICALS INC.
By: /s/ Robert B. Gwyn
--------------------------------
Name: Robert B. Gwyn
Title: Chief Executive Officer
31
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 33-52493 of Terra Industries Inc. on Form S-3 of our
reports dated February 1, 1994, appearing in and incorporated by reference in
the Annual Report on Form 10-K of Terra Industries Inc. for the year ended
December 31, 1993, and to the use of our report dated February 1, 1994,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Omaha, Nebraska
September 21, 1994
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 2 to the Registration Statement on Form
S-3 of our report dated February 13, 1992 appearing on page S-3 of Terra
Industries, Inc. Annual Report on Form 10-K for the year ended December 31,
1993. We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
New York, New York
September 22, 1994
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 11, 1994, in Amendment No. 2 to the
Registration Statement (Form S-3 No. 33-52493) and the related Prospectus of
Terra Industries Inc. for the registration of 10,350,000 shares of its common
stock.
/s/ Ernst & Young LLP
________________________
Ernst & Young LLP
Tulsa, Oklahoma
September 22, 1994
<PAGE>
POWER OF ATTORNEY
WHEREAS, the Board of Directors of Terra Industries Inc. (the "Company")
has approved the issuance and sale of shares of the Company's Common Stock in a
public offering (the "Offering");
WHEREAS, the Company, in connection with the Offering, has filed a
Registration Statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933 (the "Act") with the Securities and Exchange Commission
(the "Commission"); and
NOW, THEREFORE:
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George H. Valentine, Francis G. Meyer and Burton
M. Joyce and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign the Registration Statement
and any or all amendments thereto (including post-effective amendments thereto)
or supplements thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
This power of attorney has been signed on September 19, 1994 by the
following persons:
Signature Title
--------- -----
/s/ REUBEN F. RICHARDS Chairman of the Board
________________________
Reuben F. Richards
/s/ BURTON M. JOYCE Chief Executive Officer, President and
_______________________ Director (Principal Executive Officer)
Burton M. Joyce
<PAGE>
Signature Title
--------- -----
/s/ FRANCIS G. MEYER Vice President, Chief Financial Officer
________________________ (Principal Financial Officer and Principal
Francis G. Meyer Accounting Officer)
/s/ EDWARD G. BEIMFOHR Director
________________________
Edward G. Beimfohr
/s/ CAROL L. BROOKINS Director
________________________
Carol L. Brookins
/s/ EDWARD M. CARSON Director
________________________
Edward M. Carson
/s/ DAVID E. FISHER Director
________________________
David E. Fisher
/s /BASIL T. A. HONE Director
________________________
Basil T. A. Hone
/s/ ANTONY W. LEA Director
________________________
Antony W. Lea
/s/ JOHN R. NORTON III Director
________________________
John R. Norton III
/s/ HENRY R. SLACK Director
________________________
Henry R. Slack
