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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
FOR QUARTERLY REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________________ TO _____________________.
COMMISSION FILE NUMBER 33-79532
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[LAROCHE INDUSTRIES INC. LOGO]
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3341472
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 JOHNSON FERRY ROAD N.E.
ATLANTA, GEORGIA 30342
(Address of principal executive offices)
(404) 851-0300
(Registrant's telephone number, including area code)
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes. X No. .
--- ---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
CLASS OUTSTANDING AS OF JUNE 30, 1997
----- -------------------------------
Common Stock, $.01 par value 439,434 Shares
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<PAGE> 2
LAROCHE INDUSTRIES INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at May 31, 1997 and February 28, 1997 1
Condensed Consolidated Statements of Income for the three months ended May 31, 1997
and May 31, 1996 3
Condensed Consolidated Statements of Cash Flows for the three months ended
May 31, 1997 and May 31, 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) (NOTE 1)
LaRoche Industries Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1997 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,367 $ 1,165
Receivables:
Trade, net of allowances of $687 and $776 as of May 31, 1997
and February 28, 1997, respectively 44,523 43,393
Other 11,763 13,808
Inventories (Note 3) 27,364 39,924
Other current assets 1,480 2,513
--------- ---------
Total current assets 89,497 100,803
Investments 17,847 17,886
Property, plant and equipment, at cost 279,211 271,504
Less accumulated depreciation (94,615) (90,417)
--------- ---------
Net property, plant and equipment 184,596 181,087
Other assets 12,339 12,589
--------- ---------
Total assets $ 304,279 $ 312,365
========= =========
</TABLE>
See accompanying notes.
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LaRoche Industries Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1997 1997
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility (Note 4) $ 27,680 $ 37,605
Accounts payable 33,102 35,992
Accrued compensation 7,488 8,595
Other accrued liabilities 12,405 8,944
Current portion of long-term debt (Note 4) 1,480 2,835
--------- ---------
Total current liabilities 82,155 93,971
Long-term debt (Note 4) 104,441 104,441
Deferred income taxes 22,335 22,335
Other noncurrent liabilities 37,367 36,535
Commitments and contingencies
Redeemable common stock 4,327 4,177
Stockholders' equity:
10% cumulative, voting preferred stock, $.01 par
value, 200,000 shares authorized, no shares outstanding -- --
Common stock, $.01 par value, 1,200,000 shares
authorized, 425,000 non-redeemable shares issued 4 4
Capital in excess of par value 630 630
Retained earnings 53,157 50,409
Minimum pension liability (137) (137)
--------- ---------
Total stockholders' equity 53,654 50,906
--------- ---------
$ 304,279 $ 312,365
========= =========
</TABLE>
See accompanying notes.
2
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LaRoche Industries Inc.
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MAY 31, MAY 31,
1997 1996
--------- ---------
<S> <C> <C>
Net sales $ 110,663 $ 114,221
Cost of sales 90,512 91,417
--------- ---------
Gross profit 20,151 22,804
Selling, general and administrative expenses 12,482 13,627
--------- ---------
Income from operations 7,669 9,177
Interest and amortization of debt expense (3,933) (4,019)
Income from equity investments 1,248 1,068
Other income (expense), net (39) 72
--------- ---------
Income before income taxes 4,945 6,298
Provision for income taxes (1,978) (2,524)
--------- ---------
Net income $ 2,967 $ 3,774
========= =========
</TABLE>
See accompanying notes.
3
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LaRoche Industries Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MAY 31, MAY 31,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,967 $ 3,774
Depreciation and amortization 5,919 5,038
Net change in operating assets and liabilities 13,861 9,524
Equity income, net of distributions 151 87
Gain on disposition of assets and other -- (613)
-------- --------
Net cash provided by operating activities 22,898 17,810
INVESTING ACTIVITIES
Capital expenditures (7,792) (5,146)
Investments in joint ventures (361) (44)
Plant turnarounds (194) (1,372)
Proceeds from sale of assets -- 3,816
-------- --------
Net cash used by investing activities (8,347) (2,746)
FINANCING ACTIVITIES
Net repayments under revolving credit facility (9,925) (4,755)
Sale of redeemable common stock 150 2,636
Purchase of common stock with redemption features -- (7,516)
Repayments of long-term debt (1,355) (3,055)
Dividends paid (219) (237)
-------- --------
Net cash used by financing activities (11,349) (12,927)
-------- --------
Net increase in cash 3,202 2,137
Cash at beginning of period 1,165 3,265
-------- --------
Cash at end of period $ 4,367 $ 5,402
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 7
LaRoche Industries Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
May 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany transactions and balances have been
eliminated in consolidation. Operating results for the quarter ending May 31,
1997 may not be indicative of the results that may be expected for the full
fiscal year. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended February 28, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, actual results inevitably will
differ from those estimates, and such differences may be material to the
financial statements.
EARNINGS PER SHARE
Earnings per share have not been presented since such data provides no useful
information as the shares of the Company are closely held.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
presentation. Consistent with the May 31, 1997 presentation, the Company has
reflected amortization of turnaround costs in depreciation and amortization in
the May 31, 1996 statement of cash flows.
2. NEW ACCOUNTING STANDARDS
Effective March 1, 1997, the Company adopted the American Institute of Certified
Public Accountants Statement of Position 96-1, Environmental Remediation
Liabilities ("SOP 96-1"). SOP 96-1 standardizes accounting with respect to the
recognition, measurement and disclosure of environmental remediation
liabilities. The adoption of this accounting standard did not have a material
effect on the Company's operating results or financial condition.
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LaRoche Industries Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)(continued)
3. INVENTORIES
Components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1997 1997
-------- ------------
<S> <C> <C>
Finished goods and in-progress $ 16,900 $ 21,019
Inventory purchased for resale 3,317 11,931
Raw materials 652 637
Supplies and catalysts 7,327 7,483
-------- --------
28,196 41,070
Less LIFO reserve (832) (1,146)
-------- --------
$ 27,364 $ 39,924
======== ========
</TABLE>
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs and are subject to
change based on the final year-end LIFO inventory valuation.
4. BORROWING ARRANGEMENTS
The Company's borrowings include the following (in thousands):
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1997 1997
--------- ------------
<S> <C> <C>
Revolving credit facility $ 27,680 $ 37,605
========= =========
Term debt:
13% senior subordinated notes $ 100,000 $ 100,000
Notes payable to USX Corporation 0 1,355
Note payable to former stockholder 5,921 5,921
--------- ---------
Total 105,921 107,276
Less current portion (1,480) (2,835)
--------- ---------
Long term debt $ 104,441 $ 104,441
========= =========
</TABLE>
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LaRoche Industries Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)(continued)
4. BORROWING ARRANGEMENTS (CONTINUED)
The Company's $100 million 13% senior subordinated notes are due in 2004 (the
"Notes"). Semi-annual, interest only payments are due on February 15 and August
15 of each year. The Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after August 15, 1999 at redemption prices set out
in the Notes' indenture. The Notes are unsecured obligations of the Company, and
the indenture contains limitations on stock redemptions, dividends, borrowings
and investments, and it restricts the Company from entering into certain
transactions, all as defined.
The Company made certain prepayments of the USX Notes during fiscal 1997 and
made its final payment of $1,355,000 plus accrued interest thereon on April 30,
1997. The USX Notes bore fixed interest rates of 10% and 12%, were senior to the
Notes, and were secured by the Company's Crystal City, Missouri plant.
The Company maintains a $40 million revolving credit facility ("Credit
Facility") that is senior to the Notes and secured by accounts receivable and
inventory. Borrowings are based on eligible accounts receivable and inventory,
as defined. Interest is based on either the prime rate or LIBOR, plus up to
1.25%. At May 31, 1997 and February 28, 1997, $27,680,000 and $37,605,000,
respectively, were outstanding under the revolving credit facility and at May
31, 1997, $10,470,000 was available. The weighted average borrowing rates were
7.37% and 7.63% at May 31, 1997 and February 28, 1997, respectively. Under terms
of the agreement, the Company pays commitment fees, on a quarterly basis ranging
from 0.125% to 0.25% per annum of average unused balances. The Company is
required, among other things, to maintain certain working capital, debt to
equity, and net worth levels under the agreement.
5. ENVIRONMENTAL AND LEGAL MATTERS
The Company is subject to numerous federal, state and local environmental laws
and regulations and is currently involved in the assessment, removal and/or
mitigation of chemical substances at various sites.
The Company is named as a defendant in a suit alleging the Company's contractor
struck and damaged a gasoline pipeline owned by the plaintiff while the
contractor was performing work on an adjacent Company-owned facility. The
pipeline later ruptured, resulting in the release of gasoline into the Blind
River and surrounding area near Gramercy, Louisiana. In addition, the Company
has been named in a class-action petition filed on behalf of persons allegedly
harmed by the rupture of the pipeline. The Company is continuing a diligent
investigation of the situation in order to evaluate the allegations and the
relative responsibility of the parties involved. The Company is also responding
to inquiries from regulatory authorities of the State of Louisiana related to
the gasoline release. Management believes the Company has meritorious defenses
to these claims and is vigorously defending itself against them. Because the
matter is in a preliminary stage, it is not yet possible to predict whether the
Company will incur any liability for the rupture and release or to reasonably
estimate the cost of any possible liability. Accordingly, the Company has not
recorded any losses related to such claims.
On May 30, 1997, the United States District Court for the Western District of
Pennsylvania approved a plea agreement between the Company and the U.S.
Department of Justice relating to a price fixing conspiracy among U.S. ammonium
nitrate producers during May 1992. (See "Item 1. -- Legal Proceedings.") The
fine of $1.5 million
7
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LaRoche Industries Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)(continued)
pursuant to the agreement was accrued in the Company's financial statements as
of February 28, 1997 and is payable in five annual installments, plus interest
from May 1997, with a final payment due May 31, 2001.
In addition to the matters discussed above, the Company is involved in certain
other legal actions and claims arising in the ordinary course of business. The
amounts asserted in these matters are material to the Company's financial
statements, and certain claimants have not yet asserted an amount. Although it
is inherently impossible to predict with any degree of certainty the outcome of
such legal actions and claims, in the opinion of management (based on advice of
the Company's corporate and other legal counsel) such litigation and claims are
likely to be resolved without material effect on the Company's financial
position and results of operations. It is possible, however, that the resolution
of certain matters could be material to the results of operations of any single
fiscal quarter.
6. SEASONALITY
A portion of the Company's nitrogen business serves the agricultural fertilizer
market. The business is seasonal with greater sales of such products occurring
in the spring and, to a lesser extent, the fall planting seasons.
7. RECENT DEVELOPMENTS
On June 3, 1997, the Company announced its intention to purchase a 50% interest
in a European chlorine/caustic soda business. The Company has reached a
tentative understanding to enter into a joint venture with Rhone-Poulenc Chimie
S.A. for the operation of chlorine, caustic soda and bleach manufacturing and
distribution facilities in France. As currently structured, the joint venture
agreement grants Rhone-Poulenc Chimie S.A. the right, but not the obligation, to
sell its 50% interest in the joint venture to the Company. In order for the
Company to fund its investment in the joint venture with Rhone-Poulenc Chimie
S.A. and for other general corporate purposes, including capital expenditures
and other working capital requirements, the Company plans to enter into a new
senior secured credit facility. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited consolidated financial statements and notes thereto included in this
Quarterly Report on Form 10-Q and with the Company's audited financial
statements and notes thereto for the fiscal year ended February 28, 1997.
Demand for the Company's fertilizer products is seasonal. The Company typically
realizes higher prices and margins for fertilizer during the spring and, to a
lesser extent, the fall planting seasons. Demand for the Company's fertilizer is
primarily dependent on U. S. agricultural conditions, which can be volatile as a
result of a number of factors, the most important of which are weather patterns
and conditions, current and projected grain stocks and prices, and the U. S.
government's agricultural policy. Due to fertilizer seasonality, interim results
of operations may not be indicative of the results expected for the full fiscal
year. In addition, the Company periodically performs extended major maintenance
on its manufacturing facilities (turnarounds) that results in periods of reduced
production at such facilities. Due to the timing of these activities and other
factors, interim results of operations may not be indicative of the results
expected for the full fiscal year.
SEGMENT INFORMATION
Following is a tabulation of business segment information for the quarters ended
May 31, 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
MAY 31, 1997 MAY 31, 1996
-------------------- --------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- -------- --------- --------
<S> <C> <C> <C> <C>
NET SALES:
Electrochemical products $ 21,568 19.5% $ 26,421 23.1%
Nitrogen products 80,092 72.4 75,840 66.4
Alumina chemicals 9,003 8.1 11,960 10.5
--------- ----- --------- -----
Total $ 110,663 100.0% $ 114,221 100.0%
========= ===== ========= =====
INCOME (LOSS) FROM OPERATIONS:
Electrochemical products $ 1,671 21.8% $ 2,943 32.1%
Nitrogen products 8,400 109.5 7,561 82.4
Alumina chemicals (1,088) (14.2) (161) (1.8)
Corporate (1,314) (17.1) (1,166) (12.7)
--------- ----- --------- -----
Total $ 7,669 100.0% $ 9,177 100.0%
========= ===== ========= =====
</TABLE>
RESULTS OF OPERATIONS
NET SALES. Net sales for the quarter ended May 31, 1997 decreased $3.6 million
to $110.7 million from $114.2 million for the quarter ended May 31, 1996.
The Electrochemical Products segment's net sales for the quarter ended May 31,
1997 decreased $4.8 million compared to the corresponding quarter in the
preceding year. The decrease reflects reductions in fluorocarbon net
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sales of $2.5 million for the quarter ended May 31, 1997 as compared to the
quarter ended May 31, 1996. This decrease was due primarily to decreased sales
volume of fluorocarbon refrigerant products of $3.9 million as compared to the
quarter ended May 31, 1996 due to the federally mandated withdrawal from
production of certain refrigerant products. This decrease was somewhat offset by
increased sales in R-141b of $1.3 million as compared to the quarter ended May
31, 1996. Management expects to sell its remaining levels of CFC R-11 and CFC
R-12 during fiscal year 1998 to its existing customer base. Caustic and chlorine
net sales for the quarter ended May 31, 1997 decreased $1.6 million compared to
the corresponding quarter in the preceding year. This decrease was due primarily
to a decline in caustic soda prices of $3.6 million as compared to the quarter
ended May 31, 1996 as a result of competitive market conditions, partially
offset by increased sales volume of caustic and chlorine due to increased
production, as a result of production problems experienced in the corresponding
quarter of the prior year.
The Nitrogen Products segment's net sales for the quarter ended May 31, 1997
increased $4.3 million compared to the corresponding quarter in the preceding
year. The increase in net sales during the quarter ended May 31, 1997 as
compared to the corresponding quarter in the preceding year was primarily due to
increased sales volume from the Company's warehousing facilities of $6.9 million
due to better regional weather and planting conditions as compared to the prior
year and increased sales volume (other than at the Crystal City plant, see
below)and prices in blasting grade ammonium nitrate of $3.6 million due to
stronger demand from coal production markets. Such increases were partially
offset by decreased sales volume of $2.3 million at Cherokee as a result of
production problems in late fiscal 1997 causing decreased inventory levels
coming into the spring selling season and at Crystal City due to the idling of
the blasting grade ammonium nitrate plant at the facility in the spring of 1996.
In addition, the Nitrogen Products segment experienced a decline in net sales of
$5.1 million primarily as a result of a decline in the market price of ammonia.
The Alumina Chemicals segment's net sales for the quarter ended May 31, 1997
decreased $3.0 million compared to the corresponding quarter in the preceding
year. The decline during the quarter was due to the sale of the calcined and
tabular alumina production facilities to C-E Baton Rouge, Inc. ("C-E") on April
1, 1996 which resulted in the reduction of approximately $1.6 million of net
sales from the segment's net sales as compared to the corresponding quarter in
the prior year and decreased sales volume of active aluminas, partially offset
by increases in sales prices of active aluminas, of $1.3 million.
INCOME FROM OPERATIONS. Income from operations for the quarter ended May 31,
1997 decreased $1.5 million to $7.7 million from $9.2 million for the quarter
ended May 31, 1996.
The Electrochemical Products segment's income from operations decreased by $1.3
million for the quarter ended May 31, 1997 as compared to the corresponding
quarter in the prior year. This decrease was primarily the result of the decline
in caustic soda prices offset somewhat by increased sales volume of caustic and
chlorine due to increased production, as a result of production problems
experienced in the corresponding quarter of the prior year, and lower
fluorocarbons sales volume of $2.1 million resulting primarily from the
federally mandated withdrawal from production of certain refrigerant products.
Such decreases in income from operations were partially offset by profits gained
as a result of the increased sales volume in caustic and chlorine products of
$0.8 million due to higher production (as discussed above), lower energy costs
of $1.0 million and decreased manufacturing costs of $2.4 million primarily as a
result of decreased repair and maintenance costs.
The Nitrogen Products segment's income from operations increased by $0.8 million
for the quarter ended May 31, 1997 as compared to the corresponding quarter in
the prior year. This increase was primarily due to increased sales volume and
prices in blasting products (as discussed above) of $2.5 million primarily due
to stronger demand from utility markets in the current year, decreased natural
gas costs of $1.5 million and decreased repair and maintenance costs of $2.1
million primarily resulting from decreased labor and environmental remediation
costs. Such increases were offset by decreased sales prices experienced in the
agricultural markets (as discussed above) resulting from a decline in the market
price of ammonia. The Nitrogen Products segment's income from operations
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during the quarter ended May 31, 1997 also includes approximately $900,000 as a
result of an insurance recovery related to previously disclosed production
problems during fiscal year 1997.
The Alumina Chemicals segment's loss from operations increased by $0.9 million
for the quarter ended May 31, 1997 as compared to the corresponding quarter in
the prior year. This increase is due to increased fixed spending of $1.4
million primarily due to increased repair and maintenance costs and increased
labor costs related to lack of a ratified labor contract. In May 1997, the
labor contract was approved by the International Union of Operating Engineers.
Such increase was offset partially by decreased costs of $0.3 million as a
result of the sale of the calcined and tabular production facilities to C-E.
Selling, general and administrative expenses at the Corporate level for the
quarter ended May 31, 1997 increased $0.1 million to $1.3 million from $1.2
million for the quarter ended May 31, 1996. For the quarter ended May 31, 1997
and 1996, as a percentage of net sales, these Corporate expenses were 1.2% and
1.0%, respectively.
The Company continues its policy of entering into fixed price forward purchase
contracts and option spread ("collar") arrangements in order to establish a
fixed price or a range of prices for its natural gas purchases in order to
manage its manufacturing costs.
INCOME FROM EQUITY INVESTMENTS. Income from equity investments for the quarter
ended May 31, 1997 totaled $1.2 million compared to $1.1 million for the quarter
ended May 31, 1996. Income from equity investments reflects equity income
attributable to several joint ventures primarily the Hydrate Partnership and
CRILAR.
OTHER INCOME (EXPENSE), NET. For the quarter ended May 31, 1997, other income
(expense), net was ($39,000) compared to other income (expense), net of $71,000
for the quarter ended May 31, 1996. The decrease is primarily attributable to a
decrease in interest income earned in the quarter ended May 31, 1997 as compared
to the corresponding quarter in the prior year.
INTEREST EXPENSE. For the quarter ended May 31, 1997, interest expense was $3.9
million compared to interest expense of $4.0 million for the quarter ended May
31, 1996. The decrease was primarily due to prepayments on the USX Notes with
lower rate borrowings under the Company's revolving credit facility.
PROVISION FOR INCOME TAXES. Provision for income taxes for the quarter ended May
31, 1997 was $2.0 million, a $0.5 million decrease from the quarter ended May
31, 1996. The decrease reflects the reduction in income before income taxes as
compared to the corresponding quarter in the prior year. The Company's effective
tax rate was 40.0% for the quarters ended May 31, 1997 and May 31, 1996.
NET INCOME. As a result of the factors described above, net income for the
quarter ended May 31, 1997 was $3.0 million. Net income decreased $0.8 million
from $3.8 million in the quarter ended May 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $22.9 million and $17.8 million
for the quarter ended May 31, 1997 and 1996, respectively. The increase was
primarily the result of more significant reductions in working capital of $4.3
million than the corresponding quarter in the prior year.
Cash used in investing activities was $8.3 million for the quarter ended May 31,
1997 compared to $2.7 million in the quarter ended May 31, 1996. The primary use
of cash for the quarter ended May 31, 1997 was capital expenditures of $8.0
million. Major capital expenditures included $1.4 million for the Cherokee
expansion, $1.3 million for the Gramercy powerhouse improvement projects, $0.4
million for health and safety upgrades in
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<PAGE> 14
Aluminas and $1.2 million for the Company's ongoing software implementation
project. For the quarter ended May 31, 1996, capital expenditures of $6.5
million were partially offset by proceeds of $3.8 million from the sale of
certain calcined and tabular alumina production equipment and assets to C-E
along with other assets accounted for the majority of net cash used by
investing activities. Major capital expenditures during the quarter ended May
31, 1996 included $1.8 million for the Cherokee expansion and storage and
handling projects and $0.5 million for the Gramercy powerhouse projects. The
Cherokee facility projects have been substantially completed and are expected
to improve ammonium nitrate prill production, reduce emissions and increase
capacity of the facility's nitric acid plants. The powerhouse project will
increase the capacity and efficiency at the Gramercy chlor-alkali facility and
is expected to be substantially completed during the current fiscal year. The
Company intends to use cash flows from operations and its revolving credit
facility as the source of funds for the projects mentioned above.
Net cash used by financing activities was $11.3 million and $12.9 million for
the quarter ended May 31, 1997 and 1996, respectively. Cash used by financing
activities of $11.3 million for the quarter ended May 31, 1997 included
repayments, net, of $9.9 million of outstanding indebtedness under the Company's
revolving credit facility, and repayments of $1.4 million of long-term debt
which constituted the Company's final payment on the USX Notes. During the
quarter ended May 31, 1997, the Company made its final payment on the USX Notes.
Cash used by financing activities of $12.9 million for the quarter ended May 31,
1996 included the $7.5 million repurchase of common stock with put rights (see
Note 4 to the Financial Statements), repayments, net, of $4.8 million of
outstanding indebtedness under the Company's revolving credit facility,
repayments of $3.1 million of long-term debt, partially offset by the receipt of
$2.6 million on the sale of redeemable common stock.
Management anticipates that the Company's existing capital resources and cash
flow generated from future operations or additional borrowings will enable it to
maintain its current operations, capital expenditures and debt service for the
foreseeable future.
RECENTLY ISSUED ACCOUNTING STANDARD
Effective March 1, 1997, the Company adopted the American Institute of Certified
Public Accountants Statement of Position 96-1, Environmental Remediation
Liabilities ("SOP 96-1"). SOP 96-1 provides guidance with respect to the
recognition, measurement and disclosure of environmental remediation
liabilities. The adoption of this accounting standard did not have a material
effect on the Company's operating results or financial condition.
RECENT DEVELOPMENTS
The Company historically has expanded its business through the acquisition of
other related businesses and investment in joint venture arrangements, and the
Company continues to seek and evaluate acquisition and joint venture
opportunities. Accordingly, on June 3, 1997, the Company announced its intention
to purchase a 50% interest in a European chlorine/caustic soda business. The
Company has reached a tentative understanding to enter into a joint venture with
Rhone-Poulenc Chimie S.A. for the operation of chlorine, caustic soda and bleach
manufacturing and distribution facilities in France. As currently structured,
the joint venture agreement grants Rhone-Poulenc Chimie S.A. the right, but not
the obligation, to sell its 50% interest in the joint venture to the Company.
The two companies would each hold a 50% interest in a new joint venture company
which would operate the chlorine and caustic soda portion of Rhone-Poulenc's
Pont de Claix plant. The Company anticipates that the joint venture will
commence during the second half of 1997, after the definitive agreements have
been signed and after certain pre-closing conditions have been satisfied.
In order for the Company to fund its investment in the joint venture with
Rhone-Poulenc Chimie S.A. and for other general corporate purposes, including
capital expenditures and other working capital requirements, the Company
12
<PAGE> 15
plans to enter into a new senior secured credit facility. The Notes contain
certain restrictive covenants principally relating to the incurrence of
additional indebtedness, the amount and nature of joint venture investments,
restricted payments and liens. The Company's ability to enter into the joint
venture referred to above, as currently structured, is limited by certain terms
of the indenture pursuant to which the Notes were issued. The Company is also
subject to certain restrictions under the Notes on additional borrowing.
On June 23, 1997, the Company's Board of Directors approved the payment of a
dividend of $0.50 per share to all shareholders of record as of June 15, 1997.
The Board of Directors may or may not declare additional dividends in the future
depending upon the financial condition of the Company and compliance with debt
covenants.
13
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, in May 1997, the Company reached a plea agreement with
the U.S. Department of Justice in which the Company agreed to plead guilty to
participating in an agreement in restraint of competition for the sale of
ammonium nitrate in May 1992. On May 30, 1997, the plea agreement was approved
by the United States District Court for the Western District of Pennsylvania.
Under the terms of the plea agreement, in which the government did not contend
that the Company implemented the price-fixing agreement, the Company was fined
$1.5 million payable in five annual installments, plus interest from May 1997,
with the final payment due May 30, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on June 23, 1997 at which time
certain matters were submitted to such stockholders for a vote. Below is a brief
description of each such matter as well as the number of shares represented at
the meeting and entitled to vote and voting for, against or abstaining as to
each matter.
1. The following directors were elected to continue to serve as directors
of the Company:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
------- ------- ---------
<S> <C> <C> <C>
W. Walter LaRoche, III 439,434 0 0
Victoria E. LaRoche 439,434 0 0
Grant O. Reed 439,434 0 0
Paul L. M. Beckwith, Ph.D. 439,434 0 0
John R. Hall 439,434 0 0
Johnnie Lou LaRoche 439,434 0 0
Louanne C. LaRoche 439,434 0 0
C. L. Wagner, Jr. 439,434 0 0
George R. Wislar 439,434 0 0
Robert L. Yohe 439,434 0 0
</TABLE>
2. The stockholders approved a resolution to appoint Ernst & Young LLP as
the Company's independent public accountants to examine the accounts
and statements of the Company and its subsidiaries for the fiscal year
1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
------- ------- ---------
<S> <C> <C>
439,434 0 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description of Exhibit
2.1 Asset Purchase Agreement by and between LaRoche Industries
Inc. and ETI Explosives Technologies International Inc. dated
November 15, 1995. (10)
14
<PAGE> 17
Exhibit No. Description of Exhibit
2.2 Asset Purchase Agreement by and between C-E Baton Rouge, Inc.
and LaRoche Industries Inc. dated February 28, 1996. (11)
2.3 Amendment to Asset Purchase Agreement and Operating Agreement
dated April 1, 1996. (11)
4.1 Indenture, dated as of August 17, 1994, between NationsBank of
Georgia, National Association, as Trustee and the Company. (5)
4.2 Form of Note (included in Exhibit 4.1). (5)
10.1* Employment Agreement, dated as of June 1993, between LHI and
Grant O. Reed. (1), (7)
10.2 Credit Agreement, dated as of August 17, 1994, among the
Company, Bank South, N.A. (now known as NationsBank, N.A.
South), as Agent, and the Lenders listed therein. (5)
10.3 First Amendment to Credit Agreement dated as of May 17, 1995
and effective as of March 1, 1995 among the Company, Bank
South, N.A. (now known as NationsBank, N.A. South), as Agent,
and the lenders listed therein. (13)
10.4 10% Secured Note from the Company to USX, dated as of April
30, 1990 and due May 1, 2000. (4)
10.5 12% Secured Noted from the Company to USX, dated as of April
30, 1990 and due May 1, 2000. (4)
10.6 Letter Agreement dated as of July 17, 1995 extending the
Credit Agreement dated as of August 17, 1994 among the
Company, Bank South (formerly known as Bank South, N.A.), as
Agent, and the lenders listed therein. (13)
10.7 Letter Agreement dated as of December 16, 1996 amending the
Credit Agreement dated as of August 17, 1994 among the
Company, NationsBank N.A., South (successor to Bank South), as
Agent, and the lenders listed therein. (12)
10.8* Salary Continuation Agreement dated as of June 16, 1992
between LHI and C. Max Henderson. (1), (7)
10.9* Salary Continuation Agreement dated as of June 16, 1992
between LHI and Felix J. Prinzo. (1), (7)
10.10* Salary Continuation Agreement, dated as of July 1988, as
amended with the approval of his widow on January 27, 1992 and
June 2, 1992, between the Company and William W. LaRoche, Jr.
(1), (7)
10.11* LaRoche Chemicals Inc. 1989 Key Management Stock Appreciation
Bonus Plan. (1), (7)
10.12 LaRoche Holdings Inc. Supplemental Employee Retirement Plan.
(1), (7)
10.13* LaRoche Executive Management Health Program. (1), (7)
10.14 Hydrate Partnership Agreement, dated as of January 1, 1993,
between Kaiser and LCI. (1)
15
<PAGE> 18
Exhibit No. Description of Exhibit
10.15 Hydrate Sales Agreement, dated as of January 1, 1993, between
Kaiser and the Hydrate Partnership. (1)
10.16 Powerhouse Operating Agreement, dated as of July 26, 1988,
between Kaiser and LCI, as amended January 8, 1994. (1)
10.17 Powerhouse Lease, dated as of July 26, 1988, between Kaiser
and LCI. (1)
10.18 Specialty Aluminas Sales Agreement, dated as of July 26, 1988,
between Kaiser and LCI. (1)
10.19 Amendment No. 1 to Specialty Aluminas Sales Agreement, dated
as of February 1, 1993, between Kaiser and LCI. (1)
10.20 Salt Agreement, dated as of May 3, 1957, between Texaco and
Kaiser, as amended May 15, 1968. (1)
10.21 Supply Agreement, dated as of April 1994, between AlliedSignal
Inc. and LCI (portions redacted pursuant to a confidentiality
request). (1)
10.22* Management Stock Purchase Plan and forms of related agreements
with executive officers. (4), (7)
10.23 Joint Venture Agreement, dated as of July 26, 1994, between
Cytec Ammonia, Inc. and LaRoche Fortier Inc. (3)
10.24* LaRoche Industries Inc. 1995 Board of Directors Stock Purchase
Plan and form of agreement. (8)
10.25 Second Amendment to Credit Agreement and Waiver dated March
14, 1997 among the Company, NationsBank, N.A. (South), as
Agent, and the lenders listed therein.
10.26 Amended and Restated Hydrate Sales Agreement, dated as of May
27, 1997 and effective as of August 1, 1995, between Kaiser
and the Hydrate Partnership.
27 Financial Data Schedule (for SEC use only).
- ---------------
* Denotes a management contract or compensatory plan required to be filed
pursuant to Item 601(b)(10)(iii) of Regulation S-K.
(1) Previously filed as an exhibit to Registration Statement No. 33-79532
filed May 31, 1994 and incorporated herein by reference.
(2) Previously filed as an exhibit to Amendment No. 2 to Registration
Statement No. 33-79532 filed July 19, 1994 and incorporated herein by
reference.
(3) Previously filed as an exhibit to Amendment No. 3 to Registration
Statement No. 33-79532 filed August 3, 1994 and incorporated herein by
reference.
(4) Previously filed as an exhibit to Amendment No. 4 to Registration
Statement No. 33-79532 filed August 9, 1994 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended August 31, 1994 and incorporated herein
by reference.
16
<PAGE> 19
(6) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended November 30, 1994 and incorporated
herein by reference.
(7) Management contract or other compensatory plan or arrangement and
incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended August 31, 1995 and incorporated herein
by reference.
(9) Previously filed as an exhibit to the Current Report on Form 8-K filed
July 20, 1995 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Current Report on Form 8-K/A
filed February 26, 1996 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Current Report on Form 8-K filed
April 15, 1996 and incorporated herein by reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended November 30, 1996 and incorporated
herein by reference.
(13) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the period ended February 28, 1997 and incorporated herein by
reference.
(b) REPORTS ON FORM 8-K
None.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAROCHE INDUSTRIES INC.
(Registrant)
Date: July 11, 1997 By: /s/ Grant O. Reed
---------------- ----------------------------------------
Grant O. Reed
President, Chief Executive Officer
(Principal Executive Officer)
Date: July 11, 1997 By: /s/ Harold W. Ingalls
---------------- ----------------------------------------
Harold W. Ingalls
Vice President, Chief Financial Officer
(Principal Accounting Officer)
18
<PAGE> 1
SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER
THIS AMENDMENT is made as of this 14th day of March, 1997, by
and between LAROCHE INDUSTRIES INC., a Delaware corporation ("Borrower"),
NATIONSBANK, N.A. (SOUTH), DEPOSIT GUARANTY NATIONAL BANK and HIBERNIA NATIONAL
BANK (collectively, "Lenders") and NATIONSBANK, N.A. (SOUTH), in its capacity
as the Agent for the Lenders ("Agent").
STATEMENT OF FACTS
Agent, Lenders and Borrower are parties to that certain
Credit Agreement, dated as of August 17, 1994, as amended through the date
hereof (the "Credit Agreement"), pursuant to which Lenders have agreed to make
one or more loans from time to time to the Borrower in accordance with the
terms and conditions thereof. Agent, Lenders and Borrower desire to modify the
Credit Agreement in certain respects in accordance with the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower, Agent and Lenders do hereby agree that all capitalized terms used
herein shall have the meanings ascribed thereto in the Credit Agreement (except
as otherwise expressly defined or limited herein) and do hereby further agree
as follows:
STATEMENT OF TERMS
1. AMENDMENTS OF CREDIT AGREEMENT. Subject to the
fulfillment of the conditions precedent to the effectiveness of this Amendment
which are set forth below, the Credit Agreement shall be amended from and after
this date as follows:
(a) Section 1.01 of the Credit Agreement shall be
amended by adding thereto the following new definitions:
"Additional Loans" shall mean, collectively, the
advances made by the Lenders to the Borrower pursuant to
Section 2.04 hereof.
"Additional Loan Commitment" shall mean, at any time
and for any Lender, the amount of its Additional Loan
Commitment in effect at such time as shown on Annex I
attached hereto (as such Annex may be amended from time to
time) and as such commitment may be reduced pursuant to
Section 2.03 hereof or pursuant to Annex I hereto.
<PAGE> 2
"Additional Loan Commitment Expiration Date" shall
mean May 31, 1997, as such date may be extended, accelerated
or amended from time to time pursuant to the terms of this
Agreement.
"Additional Loan Notes" shall mean the Additional
Loan Notes issued by the Borrower and payable to the order of
the Lenders as evidence of the Additional Loans, each in the
form of Exhibit A-1 attached hereto, and any extensions,
renewals, modifications or replacements thereof or therefor.
"Additional Loan Period" shall mean the period of
time which runs from the date of the Second Amendment until
the Additional Loan Commitment Expiration Date.
"Second Amendment" shall mean the Second Amendment
of Credit Agreement and Waiver, dated as of March 14, 1997,
among the Agent, the Lenders and the Borrower.
"Total Additional Loan Commitments" shall mean, at
any time, the sum of all of the Lenders' Additional Loan
Commitments as then in effect.
"Total Loan Commitments" shall mean, at any time,
the sum of all of the Lender's Revolving Loan Commitments and
Additional Loan Commitments as then in effect.
(b) Section 1.01 of the Credit Agreement shall be
further amended by deleting the definitions of the terms "Commitment Fees",
"Current Liabilities", "Loans", "Notes", "Pro Rata Share" and "Required
Lenders" and by substituting in lieu thereof the following new definitions of
such terms:
"Commitment Fees" shall mean the fees required to be
paid by the Borrower to the Lenders pursuant to Section
4.04(b) and Section 4.04(e) hereof.
"Current Liabilities" shall mean, as of any date,
the amount at which all of the current liabilities of a
Person should be shown on a balance sheet of such Person in
accordance with GAAP, all as determined on a consolidated
basis; provided however, that the term "Current Liabilities"
shall specifically exclude Obligations owing by Borrower
under the Notes.
"Loans" shall mean, collectively, the Revolving Loans
and the Additional Loans.
-2-
<PAGE> 3
"Notes" shall mean, collectively, the Revolving Loan
Notes and the Additional Loan Notes.
"Pro Rata Share" shall mean, when used with
reference to any Lender and any described aggregate or total
amount, an amount equal to the result obtained by multiplying
such described aggregate or total amount by a fraction, the
numerator of which shall be the amount of such Lender's
Revolving Loan Commitment or Additional Loan Commitment (as
the case may be) on such date and the denominator of which
shall be the sum of the Total Revolving Loan Commitments or
Total Additional Loan Commitments (as the case may be) of all
of the Lenders on such date, and if any of such loan
commitments have been terminated such term shall mean an
amount equal to the result obtained by multiplying such
described aggregate or total amount by a fraction, the
numerator of which shall be the aggregate unpaid principal
balance of all of such Loans owing to such Lender as of such
date and the denominator of which shall be the aggregate
unpaid principal balance of all of such Loans owing to all of
the Lenders as of such date.
"Required Lenders" shall mean, at any time, Lenders
holding, in the aggregate, not less than sixty-six and
two-thirds percent (66-2/3%) of the aggregate dollar amount
of the Total Loan Commitments then in effect, and if each of
the Revolving Loan Commitments and the Additional Loan
Commitments have expired or have been terminated, such term
shall mean Lenders holding, in the aggregate, not less than
sixty-six and two-thirds percent (66-2/3%) of the then
aggregate unpaid principal balance of the Obligations then
outstanding.
(c) Section 1.01 of the Credit Agreement shall be
further amended by deleting the phrase "Total Revolving Loan Commitments" in
the definition of the term "Borrowing Base" in and by substituting in lieu
thereof the phrase "Total Loan Commitments".
(d) Section 1.01 of the Credit Agreement shall be
further amended by adding to the end of the definition of the term "Interest
Period" the following new sentence:
In addition, Borrower shall not be entitled to select any
Interest Periods for Additional Loans which extend beyond the
Additional Loan Commitment Expiration Date.
(e) Section 2.01(a) of the Credit Agreement shall be
deleted in its entirety and the following new Section 2.01(a) shall be
substituted in lieu thereof:
-3-
<PAGE> 4
(a) Subject to the terms and conditions set
forth in this Agreement, each Lender severally agrees, upon
the Borrower's request, to advance to the Borrower, from time
to time during the Revolving Loan Period, Revolving Loans in
an aggregate principal amount outstanding at any one time not
to exceed such Lender's Revolving Loan Commitment as in
effect at such time; provided, however, that the Lenders
shall not be obligated hereunder to make Revolving Loans at
any time if the sum of the aggregate principal balance of the
Revolving Loans then outstanding plus the aggregate principal
balance of the Additional Loans then outstanding plus the
aggregate Stated Amount of all Letters of Credit then
outstanding plus the aggregate principal balance of all
Reimbursement Obligations then outstanding exceeds, or would
exceed with the making of any such Revolving Loan, the
Borrowing Base then in effect and provided, further however,
that no Lender shall be obligated hereunder to make Revolving
Loans in excess of such Lender's Revolving Loan Commitment.
The Borrower shall be entitled to borrow, prepay and reborrow
the Revolving Loans from time to time during the Revolving
Loan Period in accordance with the provisions of this
Agreement.
(f) Section 2.03 of the Credit Agreement shall be deleted
in its entirety and the following new Section 2.03 shall be substituted in lieu
thereof:
SECTION 2.03. TOTAL LOAN COMMITMENTS; REDUCTIONS
IN REVOLVING LOAN COMMITMENTS AND ADDITIONAL LOAN
COMMITMENTS.
(a) If at any time the sum of the aggregate
outstanding principal amount of all of the Revolving Loans
plus the aggregate principal amount of all of the Additional
Loans plus the aggregate Stated Amount of all outstanding
Letters of Credit plus the aggregate outstanding principal
amount of all the Reimbursement Obligations shall exceed the
Borrowing Base then in effect, Borrower shall immediately
upon receipt of notice from the Agent, or immediately upon
the Borrower's otherwise acquiring notice thereof, prepay the
Revolving Loans, prepay the Additional Loans, pay the
Reimbursement Obligations or cause the reduction or
cancellation of such of the Letters of Credit to the extent
necessary to eliminate such excess or, if such payment or
prepayment, reduction or cancellation does not eliminate such
excess, cause to be deposited with the Agent Cash Collateral
in an amount equal to such excess and in which the Agent is
granted a first-priority Lien for the benefit of the Lenders,
-4-
<PAGE> 5
to secure the Obligations pursuant to documentation in form
and substance satisfactory to the Agent. If at any time the
sum of the aggregate outstanding principal balance of the
Revolving Loans plus the aggregate outstanding principal
balance of the Additional Loans plus the aggregate Stated
Amount of all of the outstanding Letters of Credit plus the
sum of the aggregate outstanding principal balance of the
Reimbursement Obligations should exceed the Borrowing Base
then in effect, such excess nevertheless shall constitute
Obligations that are evidenced by the Credit Documents,
secured by the Collateral and otherwise entitled to all
benefits and security of this Agreement and the other Credit
Documents.
(b) Upon at least thirty (30) days prior to
written notice to the Agent and each Lender, Borrower may, at
its option at any time during the term of this Agreement,
terminate the Revolving Loan Commitments, the Additional Loan
Commitments, or both, in full or reduce all of the Revolving
Loan Commitments, Additional Loan Commitments, or both, in
increments of $100,000 each; provided, however, that (i) the
amount of any such partial reduction shall be applied to all
of the Lenders' Revolving Loan Commitments based on each
Lender's Pro Rata Share of the Total Revolving Loan
Commitments, in the case of any partial reduction of the
Total Revolving Loan Commitments, or to all of the Lenders'
Additional Loan Commitments based on each Lender's Pro Rata
Share of the Total Additional Loan Commitments, in the case
of any such partial reduction of the Total Additional Loan
Commitments, (ii) the sum of the aggregate outstanding
principal balance of all of the Revolving Loans, the
Additional Loans and the Reimbursement Obligations plus the
aggregate Stated Amount of all outstanding Letters of Credit
shall not exceed the reduced total amount of the Total Loan
Commitments after giving effect to any such reduction or
termination (and Borrower shall immediately prepay any
Revolving Loans, prepay any Additional Loans, pay any
Reimbursement Obligations, cause the reduction or
cancellation of any outstanding Letters of Credit or deposit
Cash Collateral with the Agent to the extent necessary to
eliminate such excess), (iii) if any such termination or
reduction would require that any LIBOR Advance be prepaid
prior to the end of its then-current Interest Period,
Borrower shall pay any additional amount due under Section
4.05(e)(ii) hereof, and (iv) any such termination or
reduction shall be irrevocable. In the event any such
termination or reduction is made by Borrower in accordance
with this Section, the Agent will issue to Borrower and each
Lender a revised Annex I to this Agreement reflecting such
termination or reduction, which revised Annex I shall
supersede and
-5-
<PAGE> 6
replace the prior version thereof and shall be substituted by
each party in lieu thereof.
(g) The following new Section 2.04 and Section 2.05 shall
be added to the Credit Agreement:
SECTION 2.04. ADDITIONAL LOAN COMMITMENTS.
(a) Subject to and upon the terms and
conditions set forth in this Agreement (including the terms
and conditions of Section 5.05 hereof), each Lender severally
agrees, upon the Borrower's request, to advance to the
Borrower, from time to time during the Additional Loan
Period, Additional Loans in an aggregate principal amount
outstanding at any one time not to exceed such Lender's
Additional Loan Commitment as in effect at such time;
provided, however, that the Lenders shall not be obligated
hereunder to make Additional Loans at any time if the sum of
the aggregate principal balance of the Additional Loans then
outstanding plus the aggregate principal balance of the
Revolving Loans outstanding plus the aggregate Stated Amount
of all Letters of Credit then outstanding plus the aggregate
principal balance of all Reimbursement Obligations then
outstanding exceeds, or would exceed with the making of any
such Additional Loan, the Borrowing Base then in effect and
provided, further however that no Lender shall be obligated
hereunder to make Additional Loans in excess of such Lender's
Additional Loan Commitment. The Borrower shall be entitled to
borrow, prepay and reborrow Additional Loans from time to
time during the Additional Loan Period in accordance with the
provisions of this Agreement.
(b) The proceeds of the Additional Loans shall
be used solely to finance the working capital and general
corporate needs of the Borrower and its Subsidiaries.
(c) Each Lender's and the Agent's respective
obligations to make Additional Loans hereunder shall expire
on the Additional Loan Commitment Expiration Date. The
Additional Loan Commitment Expiration Date may be extended
with the express prior written consent of the Lenders holding
100% of the Total Additional Loan Commitments but in no event
shall the Additional Loan Commitment Expiration Date be
extended beyond the Revolving Loan Commitment Expiration
Date.
-6-
<PAGE> 7
SECTION 2.05. ADDITIONAL LOAN NOTES; REPAYMENT OF
PRINCIPAL AND INTEREST.
(a) The Borrower's obligation to pay to each
Lender the principal of and interest on the Additional Loans
made by such Lender shall be evidenced by the records of the
Agent and such Lender and by the Additional Loan Note payable
to such Lender.
(b) Accrued interest on the portion of each
Lender's Additional Loans consisting of Prime Rate Advances
or Monthly Rate Advances shall be payable to such Lender in
arrears on the first (1st) day of each calendar month,
commencing with the month following the month in which such
Lender's initial Additional Loan is made, and continuing to
be due on the first (1st) day of each month thereafter, and
accrued interest on the portion of each Lender's Additional
Loans consisting of LIBOR Advances shall be payable to such
Lender in arrears on the last day of each Interest Period
applicable thereto (and, in the case of any LIBOR Advance
having an Interest Period in excess of three months, on each
day which occurs every three months after the initial date of
such Interest Period), and in all cases accrued interest on
each Lender's Additional Loans also shall be payable to such
Lender on the Additional Loan Commitment Expiration Date.
(c) In addition to any principal reduction
which may be required at any time under Section 2.03(a)
hereof, and subject to any acceleration of maturity pursuant
to Section 9.02 hereof, the aggregate principal balance of
each Lender's Additional Loans shall be due and payable in
full on the Additional Loan Commitment Expiration Date.
(h) Section 3.01(a) of the Credit Agreement shall be
amended by deleting clause (iv) thereof and by substituting in lieu thereof the
following new clause (iv):
(iv) No Letter of Credit shall be issued if,
after giving effect to such issuance, (i) the sum of the
aggregate Stated Amount of all Letters of Credit then
outstanding plus the aggregate principal amount of all
Revolving Loans, Additional Loans and Reimbursement
Obligations then outstanding would exceed the Borrowing Base
in effect at such time or (ii) the sum of the aggregate
Stated Amount of all Letters of Credit then outstanding plus
the aggregate principal amount of all Revolving Loans and
Reimbursement Obligations then outstanding would exceed the
-7-
<PAGE> 8
lesser of the Total Revolving Loan Commitments or the
Borrowing Base in effect at such time. All Letters of Credit
shall count against Borrower's availability under the
Revolving Loan facility. In no event shall any Letter of
Credit be issued under the Additional Loan facility.
(i) Section 4.01 of the Credit Agreement shall be
amended by adding to the end thereof the following new sentence:
In addition, each Notice of Borrowing shall specify whether
the requested Loan is a Revolving Loan or an Additional Loan.
(j) Section 4.02(b) of the Credit Agreement shall be
amended by deleting the phrase "Revolving Loan Commitment" and by substituting
in lieu thereof the phrase "Revolving Loan Commitment or Additional Loan
Commitment".
(k) Section 4.02(d) of the Credit Agreement shall be
deleted in its entirety and the following new subsection (d) shall be
substituting in lieu thereof:
(d) All Advances of Revolving Loans under this
Agreement shall be made by the Lenders on the basis of their
Pro Rata Shares of the Total Revolving Loan Commitments and
all advances of Additional Loans under this Agreement shall
be made by the Lenders on the basis of their Pro Rata Shares
of the Total Additional Loan Commitments.
(l) Section 4.03(d) of the Credit Agreement shall be
deleted in its entirety and the following new subsection 4.03(d) shall be
substituted in lieu thereof:
(d) Each Lender's Pro Rata Share of any Loan
outstanding at any one time shall bear interest at the same
rate or rates as then in effect with respect to all other
Lenders' Pro Rata Shares of such Loans.
(m) Section 4.04 of the Credit Agreement shall be
amended by adding the following new subsection (e) thereto:
(e) In consideration of the Lenders making
their Additional Loan Commitments hereunder available to the
Borrower, the Borrower agrees to pay to the Agent (for the
account of and distribution to the Lenders in accordance with
their respective Pro Rata Shares) a non-refundable Commitment
Fee from the date of the Second Amendment until the date all
of the Additional Loan Commitments are terminated in full
pursuant to this Agreement,
-8-
<PAGE> 9
computed on the daily average unused portion of the
Additional Loan Commitments in effect during the period for
which such payment is made (and as such Additional Loan
Commitments may be reduced pursuant to this Agreement), at
the rate per annum of one-eighth of one percent (0.125%).
Such Commitment Fees shall be payable by the Borrower to the
Agent (as aforesaid) quarterly in arrears commencing on April
1, 1997 and continuing to be due on the first (1st) day of
each calendar quarter thereafter so long as any of the
Additional Loan Commitments are in effect as well as on the
date on which all of the Additional Loan Commitments are
terminated in full pursuant to this Agreement.
(n) Section 4.14 of the Credit Agreement shall be
amended by deleting the phrase "Revolving Loan Commitments" and substituting in
lieu thereof the phrase "Revolving Loan Commitments, Additional Loan
Commitments".
(o) Article V of the Credit Agreement shall be amended
by adding the following new Section 5.05 thereto:
SECTION 5.05. ADDITIONAL CONDITIONS PRECEDENT TO THE
MAKING OF ADDITIONAL LOANS. At the time of (and after giving
effect to) the making of any Additional Loan hereunder, the
following conditions shall have been satisfied and shall
exist:
(a) the making of such Additional Loan shall be
permitted by the terms of the Subordinated Note Indenture;
and
(b) the chief financial officer of the Borrower
shall have delivered to the Agent a certificate in the form
of Exhibit J attached hereto, certifying, among other things,
that the requested Additional Loan shall be permitted under
the terms of the Subordinated Note Indenture and shall
constitute "Senior Indebtedness" thereunder.
(p) Article VI of the Credit Agreement shall be amended
by adding thereto the following new Section 6.22:
SECTION 6.22. Borrower represents and warrants to
Lenders that (i) all Indebtedness evidenced by the Revolving
Loans shall be deemed to be "Permitted Indebtedness" under
Section 1008(b)(i) of the Subordinated Note Indenture, (ii)
all Additional Loans shall be permitted by Section 1008(a) of
the Subordinated Note Indenture or Section 1008(b)(ix) of the
Subordinated Note Indenture, and (iii) all Loans shall
constitute "Senior Indebtedness" under the Subordinated Note
Indenture.
-9-
<PAGE> 10
(q) Section 8.08 of the Credit Agreement shall be
deleted in its entirety and the following Section 8.08 shall be substituted in
lieu thereof:
SECTION 8.08. USE OF PROCEEDS. Borrower shall not
use (or permit to be used) the proceeds of any of the
Revolving Loans, the Additional Loans or the Letters of
Credit for any purpose other than as and to the extent
permitted by Section 2.01(b), Section 2.04 or Section
3.01(a)(iii) hereof, respectively.
(r) Article VIII of the Credit Agreement shall be
amended by adding thereto the following new Section 8.11.
SECTION 8.11. INDEBTEDNESS. Borrower will not, and
will not permit any Subsidiary to, create, incur, assume or
suffer to exist any Indebtedness, except (i) Indebtedness
evidenced by or arising under the Credit Agreement or any of
the other Credit Documents, (ii) Indebtedness in existence on
the date hereof, (iii) Capitalized Lease Obligations, (iv)
Indebtedness of the Borrower or any Subsidiary as an account
party for any letter of credit issued by any financial
institution if such letter of credit is issued solely as
security for performance or payment by the Borrower or such
Subsidiary under any contract which is not otherwise
prohibited by this Agreement and which has been entered into
in the ordinary course of business of the Borrower or such
Subsidiary, and (v) renewals and extensions of any of the
Indebtedness described in clauses (i) through (iv) above
provided that the original principal amount thereof is not
increased.
(s) Section 11.05(b)(ii) of the Credit Agreement shall
be amended by deleting the phrase "Revolving Loan Commitments" and by
substituting in lieu thereof the phrase "Revolving Loan Commitments or
Additional Loan Commitments, as the case may be,".
(t) Section 11.05(e), (f) and (g) of the Credit
Agreement shall be amended by (i) deleting the phrase "Revolving Loan
Commitment" and by substituting in lieu thereof the phrase "Revolving Loan
Commitment or Additional Loan Commitment" and (ii) deleting the phrase
"Revolving Loan Commitment Expiration Date" and by substituting in lieu thereof
the phrase "Revolving Loan Commitment Expiration Date or Additional Loan
Commitment Expiration Date".
(u) Section 11.08(a) of the Credit Agreement shall be
amended by (i) deleting the phrase "Revolving Loan Commitment" and by
substituting in lieu thereof the phrase "Revolving Loan Commitment or
Additional Loan Commitment", (ii) deleting the phrase "Revolving Loan
Commitment Expiration Date" and by substituting in lieu thereof the phrase
-10-
<PAGE> 11
"Revolving Loan Commitment Expiration Date or Additional Loan Commitment
Expiration Date and (iii) adding to the end thereof the following new sentence:
In addition, notwithstanding anything herein to the contrary,
Lenders holding 100% of the Total Additional Loan Commitments
may (i) waive any of the conditions specified in Section 5.05
hereof, (ii) decrease any of the Additional Loan Commitments,
(iii) reduce the principal of, or interest on, any of the
Additional Loans or Additional Loan Commitments, (iv) extend
the Additional Loan Commitment Expiration Date but in no
event shall the Additional Loan Commitment Expiration Date be
extended beyond the Revolving Loan Commitment Expiration
Date, (v) postpone any date fixed for the payment of any
principal, interest or fees due under or with respect to the
Additional Loans or the Additional Loan Commitments or (vi)
change the percentage of any of the Additional Loan
Commitments or the aggregate unpaid principal amount of the
Additional Loans; provided, however that all such amendments,
waivers or consents shall not be effective unless in writing
and signed by the Agent and the Lenders holding 100% of the
Total Additional Loan Commitments.
(v) The Credit Agreement shall be amended by deleting
Annex I, Exhibit F and Exhibit H thereto and by substituting in lieu thereof
the new Annex I, Exhibit F and Exhibit H attached hereto and which is herein
incorporated by this reference.
(w) The Credit Agreement shall be amended by adding
thereto Exhibit A-1 and Exhibit J attached hereto.
2. WAIVER. Borrower has requested that Lenders waive the
restrictions and prohibitions set forth in Section 8.03 of the Credit Agreement
so as to permit LaRoche Air Systems, Inc., a wholly-owned subsidiary of
Borrower ("LASI"), to convey all or substantially all of its assets and/or
rights therein (the "Conveyance") to a joint venture, in the form of a newly
formed Delaware corporation, of which LASI shall be a 50% holder of the Voting
Stock. Subject to the terms and conditions set forth in the immediately
succeeding sentence, the Agent and the Lenders hereby waive the restrictions
and prohibitions set forth in Section 8.03 of the Credit Agreement with respect
to the Conveyance so as to permit LASI to consummate the same without causing
Borrower to be in violation of such Section 8.03. The Agent's and the Lenders'
consent to the Conveyance is subject to the following: (i) on the date that the
Conveyance is consummated, and after giving effect thereto, all representations
and warranties of the Borrower in the Credit Agreement and the other Credit
Documents shall be true, correct and complete in all material respects and (ii)
after giving effect to the waiver to be effected hereby, no Default or Event of
Default shall be caused by the consummation of the Conveyance.
-11-
<PAGE> 12
3. NO OTHER AMENDMENTS OR WAIVER. Except for the
amendments and waiver expressly set forth and referred to in Section 1 and
Section 2 above, the Credit Agreement shall remain unchanged and in full force
and effect. Nothing in this Amendment is intended, or shall be construed, to
constitute a novation or an accord and satisfaction of any of the Borrower's
indebtedness or other indebtedness to the Lender under or in connection with
the Credit Agreement (collectively, the "Obligations") or to modify, affect or
impair the perfection or continuity of Lender's security interests in, security
titles to or other liens on any collateral for the Obligations.
4. REPRESENTATIONS AND WARRANTIES. To induce Lender to
enter into this Amendment, the Borrower does hereby warrant, represent and
covenant to Lender that: (a) each representation or warranty of the Borrower
set forth in the Credit Agreement is hereby restated and reaffirmed as true and
correct on and as of the date hereof as if such representation or warranty were
made on and as of the date hereof (except to the extent that any such
representation or warranty expressly relates to a prior specific date or period
and except as otherwise disclosed on Schedule 1 attached hereto), and no
Default or Event of Default has occurred and is continuing as of this date
under the Credit Agreement as amended by this Amendment; and (b) Borrower has
the power and is duly authorized to enter into, deliver and perform this
Amendment and this Amendment is the legal, valid and binding obligation of
Borrower enforceable against it in accordance with its terms.
5. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS
AMENDMENT. The effectiveness of this Amendment and the amendments and waiver
provided in Section 1 and Section 2 above are subject to (a) the truth and
accuracy in all material respects of the representations and warranties of the
Borrower contained in Section 4 above and (b) the Agent's receipt of the
following documents in form and substance satisfactory to the Agent: (i) one or
more counterparts of this Amendment duly executed and delivered by the Borrower
and the Lenders; (ii) an Additional Loan Note payable to the order of each of
NationsBank, N.A. (South) and Hibernia National Bank in the amount of its
Additional Loan Commitment as shown on the revised Annex I attached hereto and
duly executed and delivered by Borrower; (iii) an Additional Loan Request
Certificate of the Borrower in the form of Exhibit J attached hereto duly
executed and completed by Borrower and (iv) a Certificate of the Borrower
substantially in the form and substance satisfactory to Lenders.
6. AGENT EXPENSES. Without limiting its obligations
under the Credit Agreement, the Borrower agrees to pay on demand all of the
Agent's reasonable attorneys' fees and expenses and all other reasonable
out-of-pocket costs incurred by the Agent in connection with its evaluation,
negotiation, documentation or consummation of this Amendment and the
transactions contemplated hereby or thereby.
7. COUNTERPARTS. This Amendment may be executed in
multiple counterparts, each of which shall be deemed to be an original and all
of which when taken together shall constitute one and the same instrument.
-12-
<PAGE> 13
8. GOVERNING LAW. This Amendment shall be governed by,
and construed in accordance with, the internal laws of the State of Georgia
applicable to contracts made and performed in such state.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and year specified at
the beginning hereof.
LAROCHE INDUSTRIES INC.
By:/s/ Harold W. Ingalls
---------------------------------
Title: CFO & VP
------------------------------
NATIONSBANK, N.A. (SOUTH), as
Agent and as a Lender
By:/s/ Mark D. Halmrast
---------------------------------
Title: Vice President
------------------------------
DEPOSIT GUARANTY NATIONAL
BANK, as a Lender
By:/s/ David L. Castilaw S&P
---------------------------------
Title: Senior Vice President
------------------------------
HIBERNIA NATIONAL BANK, as a
Lender
By:/s/ Trudy W. Nelson
---------------------------------
Title: Vice President
------------------------------
-13-
<PAGE> 14
ANNEX I
Lender Information
1. Name of Lender: NATIONSBANK, N.A.(SOUTH)
Address for Notices: 600 Peachtree Street, N.E.
21st Floor
Atlanta, Georgia 30308-2213
Attn: Catherine S. Rhodes
Telecopy No.: (404) 607-6484
Revolving Loan Commitment*: $20,000,000
Additional Loan Commitments*: $ 4,000,000
Pro Rata Share of the Total
Revolving Loan Commitments*: 50%
Pro Rata Share of the Total
Additional Loan Commitments*: 80%
2. Name of Lender: DEPOSIT GUARANTY NATIONAL BANK
Address for Notices: One Deposit Guaranty Plaza
Jackson, Mississippi 39205
Attn: Gregory Moore, Vice President
Telecopy No.: (601) 354-8412
Revolving Loan Commitment*: $12,000,000
Additional Loan Commitment*: $0
Pro Rata Share of the Total
Revolving Loan Commitments*: 30%
Pro Rata Share of the Total
Additional Loan Commitments*: 0%
3. Name of Lender: HIBERNIA NATIONAL BANK
Address for Notices: 313 Carondelet Street
New Orleans, Louisiana 70130
Attn: Colleen Smith
Telecopy No.: (504) 533-5344
Revolving Loan Commitment*: $8,000,000
Additional Loan Commitment*: $1,000,000
Pro Rata Share of the Total
Revolving Loan Commitments*: 20%
Pro Rata Share of the Total
Additional Loan Commitments*: 20%
* Subject to change in accordance with the terms of the within and foregoing
Credit Agreement.
ANNEX I
<PAGE> 15
EXHIBIT A-1
ADDITIONAL LOAN NOTE
U.S. $_______ March _, 1997
FOR VALUE RECEIVED, the undersigned LAROCHE INDUSTRIES INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of __________
(herein, together with any subsequent holder hereof, called the "Lender"), the
lesser of _____________ MILLION U.S. DOLLARS (U.S.$__________ ) or the aggregate
outstanding principal amount of the Additional Loans made to the Borrower by
Lender pursuant to the terms of the Credit Agreement referred to below, which
principal sum shall be payable (i) on the due date and in the amount set forth
in the Credit Agreement or (ii) on any earlier date on which all amounts
outstanding under this Additional Loan Note (this "Note") have become due and
payable pursuant to the provisions of Article IX of the Credit Agreement. The
Borrower likewise promises to pay interest on the outstanding principal balance
of each Additional Loan made by the Lender to the Borrower, at such interest
rates, payable at such times, and computed in such manner, as are specified in
the Credit Agreement in strict accordance with the terms thereof.
This Note is issued pursuant to, and is one of the Additional Loan
Notes referred to in, the Credit Agreement dated as of August 17, 1994, among
the Borrower, NationsBank, N.A. (South), as Agent, the Lender, and the other
Lenders which are or may become signatories to such Credit Agreement (as the
same may be amended from time to time, the "Credit Agreement"), and the Lender
is and shall be entitled to all benefits thereof and of all the Credit Documents
executed and delivered to the Agent or the Lenders in connection therewith.
Terms defined in the Credit Agreement are used herein with the same meaning. The
Credit Agreement, among other things, contains provisions for acceleration of
the maturity hereof upon the happening of certain Events of Default, provisions
relating to prepayments on account of principal hereof prior to the maturity
hereof, and provisions for post-default interest rates.
The Borrower agrees to make payments of principal and interest hereon
on the dates and in the amounts specified in the Credit Agreement in strict
accordance with the terms thereof.
In case an Event of Default shall occur and be continuing, the
principal and all accrued interest of this Note may automatically become, or may
be declared, immediately due and payable in the manner and with the effect
provided in the Credit Agreement. The Borrower agrees to pay, and save the
Lender harmless against any liability for the payment of, all reasonable costs
and expenses, including reasonable attorneys' fees, actually incurred by Lender
in connection with the enforcement by the Lender of any of its rights or
remedies under this Note or the Credit Agreement.
This Note has been delivered in Atlanta, Georgia, and the rights and
obligations of the Lender and the Borrower hereunder shall be construed in
accordance with and governed by the laws of the State of Georgia (without giving
effect to its conflicts of law rules).
A-1-1
<PAGE> 16
The Borrower expressly waives any presentment, demand, protest or
notice in connection with this Note, whether now or hereafter required by
applicable law. This Note is intended to be an instrument under seal.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed,
sealed and delivered by its duly authorized officers as of the date first above
written.
LAROCHE INDUSTRIES INC.
(CORPORATE SEAL)
Attest
By:
------------------------
- --------------------------------- Title:
Title: ------------------
---------------------------
A-1-2
<PAGE> 17
EXHIBIT F
ASSIGNMENT AND ACCEPTANCE AGREEMENT
THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT is made as of
_________________________, 19___, between _________________________________, a
____________________________ (the "Assignor") and _________________________, a
____________________________ (the "Assignee"), which parties, for good and
valuable consideration, do hereby agree as follows with reference to the Credit
Agreement described below:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
(i) all of the Assignor's rights and obligations under the Assignor's [Revolving
Loan Note/Additional Loan Note/Notes], and all of Assignor's rights and
obligations under the Credit Agreement and the Credit Documents relating
thereto, (ii) the Assignor's [Revolving Loan Commitments/Additional Loan
Commitments/Revolving Loan Commitments and Additional Loan Commitments], [and]
(iii) the Assignor's [Revolving Loans/Additional Loans/Loans], [and (iv) the
Assignor's Letter of Credit Interest], all as of the Effective Date (as defined
below), constituting as of such Effective Date an interest equal to [___ % of
the Assignor's Revolving Loan Commitments, Letter of Credit Interest and
Revolving Loans outstanding on the Effective Date [and] ____ % of the
Assignor's Additional Loan Commitments and Additional Loans outstanding on the
Effective Date].
2. The Assignor: (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is, to the best of the Assignor's knowledge, free and clear of any
adverse claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Credit Document
or with respect to the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any of the other
Credit Documents; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of its obligations under the Credit
Agreement or the other Credit Documents.
3. The Assignee: (i) has received a copy of the Credit Agreement, the
Assignor's [Revolving Loan Note/Additional Loan Note] and the Security
Documents, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance Agreement;
(ii) agrees that it will, independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement or the other Credit
Documents; (iii) appoints and authorizes the Agent to take such action as agent
on its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with such powers as are
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations which
F-1
<PAGE> 18
by the terms of the Credit Agreement are required to be performed by it as a
Lender; and (v) specifies as its address and telecopier number for notices the
address and telecopier number set forth beneath its name on the signature pages
hereof.
4. The effective date for this Assignment and Acceptance Agreement
shall be _____, 19___ (the "Effective Date"), which date is no less than five
(5) Business Days after the date hereof. Following the execution of this
Assignment and Acceptance Agreement, it will be delivered to the Borrower
and to the Agent for acceptance by the Borrower and the Agent pursuant to
Section 11.05 of the Credit Agreement.
5. As of the Effective Date, and upon acceptance by the Assignee, to
the extent provided in this Assignment and Acceptance Agreement and to the
extent of the rights assigned hereunder, (i) the Assignee shall be a party to
the Credit Agreement and have the rights and obligations of a Lender thereunder
for the benefit of the Borrower, the other Lenders and the Agent; (ii) the
Assignee shall enjoy the benefits of the Credit Documents; and (iii) the
Assignor shall, to the extent provided in this Assignment and Acceptance
Agreement, relinquish its rights and be released from its obligations under the
Credit Agreement.
6. Upon such acceptance and from and after the Effective Date, the
Agent shall make all payments under the Credit Agreement and the [Revolving Loan
Note/Additional Loan Note] in respect (and to the extent) of the interest
assigned hereby (including, and without limitation, all payments of principal,
interest and fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the [Revolving Loan Note/Additional Loan Note] for periods prior
to the Effective Date directly between themselves.
7. All terms used in this Assignment and Acceptance Agreement and not
otherwise defined herein shall have the meanings given those terms in the Credit
Agreement (the "Credit Agreement"), dated as of August 17, 1994, among LaRoche
Industries Inc., NationsBank, N.A. (South), acting in its capacity as Agent, and
the banks and other lending institutions which are or may become Lenders as
provided in such Credit Agreement, as said agreement may be amended,
supplemented or restated from time to time.
8. This Assignment and Acceptance Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia (without giving
effect to its conflicts of law rules).
F-2
<PAGE> 19
IN WITNESS WHEREOF, the Assignor and Assignee have caused their
respective duly authorized officers to execute this Assignment and Acceptance
Agreement on their behalf as of the day and year first above set forth.
[ASSIGNOR)
By:
----------------------------
Title:
----------------------
[ASSIGNEE]
By:
----------------------------
Title:
----------------------
Address and Telecopier Number:
-------------------------------
-------------------------------
Attn:
--------------------------
Telecopier: ( ) -
--- ----- --------
Accepted this ____ day of _________,
19____:
LAROCHE INDUSTRIES INC.
By:
----------------------------
Title:
----------------------
NATIONSBANK, N.A. (SOUTH), as Agent
By:
----------------------------
Title:
----------------------
F-3
<PAGE> 20
EXHIBITS H
BORROWING BASE REPORT FOR LAROCHE INDUSTRIES INC. (the "Borrower")
AS OF_______, 199__ *
<TABLE>
<CAPTION>
($000's)
ACCOUNTS:
<S> <C> <C> <C> <C>
Current $
----------
31-60 Days Past Due $
----------
61-90 Days Past Due $
----------
91 + Days Past Due $
----------
Total Accounts Per Aging $
----------
Ineligibles:
Over 60 Days Past Due $
----------
Cross Aging $
----------
Governmental $
----------
Current Doubtful $
----------
Other (Non-Trade) $
----------
A/P Contras $
----------
Total Ineligible Accounts $
----------
Eligible Accounts $
----------
AVAILABLE ACCOUNTS BORROWING $
BASE COMPONENT @85% ----------
INVENTORY:
Total Materials Inventory $
----------
Inventory Reserves $
----------
Inventory at Average Cost $
----------
IPG Equipment $
----------
Inventory Accruals $
----------
Total Gross Inventory $
Ineligibles: ----------
Drop Ship $
----------
Containers & Supplies $
----------
Slow Moving $
----------
Waivers $
----------
Outside Processors $
----------
Total Ineligible Inventory $
----------
Eligible Inventory $
AVAILABLE ACCOUNTS BORROWING ----------
BASE COMPONENT @ 50%
(not to exceed $15,000,000) $
AVAILABLE ACCOUNTS BORROWING ----------
BASE (not to exceed $45,000,000 in total) $
==========
</TABLE>
CERTIFICATION
Pursuant to the terms of the Credit Agreement, dated as of August 17,
1994, among Borrower, NationsBank, N.A. (South), as Agent, and the lenders
signatory thereto, as now in effect (the "Credit Agreement"), the undersigned
hereby provides the Lenders and the Agent with this Borrowing Base Report of the
Borrower. The undersigned Borrower representative certifies that the information
contained herein is accurate and complete to the best of his/her knowledge and
belief. Each of the Lenders and the Agent may rely on any telecopied version of
this report which it believes in good faith to have been telecopied to it by or
on behalf of the Borrower and it shall not be necessary for such Lender or the
Agent to receive or retain the executed original of this report.
LaROCHE INDUSTRIES INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
* All capitalized terms used herein shall have the meanings given such terms
in the Credit Agreement as defined herein).
<PAGE> 21
EXHIBIT J
ADDITIONAL LOAN REQUEST CERTIFICATE
The undersigned chief financial officer of LAROCHE INDUSTRIES INC. (the
"Corporation"), a Delaware corporation, hereby certifies and covenants in his
representative capacity on behalf of the Corporation as follows:
1. All capitalized terms used herein and not otherwise defined herein
shall have the meanings given such terms in the Credit Agreement dated as of
August 17, 1994 among the Corporation, the Lenders signatory thereto (the
"Lenders") and NationsBank, N.A. (South) as agent for the Lenders (the "Agent"),
as amended from time to time (the "Credit Agreement").
2. The undersigned is the duly elected and qualified chief financial
officer of the Corporation and, as such, is familiar with the facts herein
certified.
3. The Corporation has requested on this date an Additional Loan and is
delivering this certificate to the Agent pursuant to Section 5.05 of the Credit
Agreement.
4. No Default or Event of Default (as such terms are defined in the
Credit Agreement) has occurred and is continuing as of this date.
[5. For purposes of this paragraph 5, all capitalized terms used in
this paragraph 5 unless otherwise defined herein shall have the meanings given
such terms in the Indenture dated as of August 17, 1994 between the Corporation
and NationsBank, N.A. (South) as Trustee (hereinafter called the "Indenture").
After giving effect to the incurrence of the indebtedness evidenced by the
Additional Loan requested to be made by the Corporation on this date (the "New
Indebtedness"), the Consolidated Fixed Charge Coverage Ratio for the Corporation
for the four full fiscal quarters immediately preceding the incurrence of the
New Indebtedness taken as one period and after giving pro forma effect to (i)
the incurrence of the New Indebtedness and (if applicable) the application of
the net proceeds therefrom, including to refinance other Indebtedness, as if the
New Indebtedness was incurred, and the application of such proceeds occurred, at
the beginning of such four-quarter period; (ii) the incurrence, repayment or
retirement of any other Indebtedness by the Corporation and its Subsidiaries
since the first day of such four-quarter period as if the Indebtedness was
incurred, repaid or retired at the beginning of such four-quarter period (except
that, in making such computation, the amount of Indebtedness under any revolving
credit facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period); (iii) in the case of Acquired
Indebtedness, the related acquisition, as if such acquisition occurred at the
beginning of such four-period; and (iv) any acquisition or disposition by the
Corporation and its Subsidiaries of any company or business or any assets out of
the ordinary course of business, whether by merger, stock purchase or sale or
asset purchase or sale or any related payment of Indebtedness, in each case
since the first day of such four-quarter period, assuming such acquisition or
disposition had been consummated on the first day of such four-quarter period)
is at least equal to 2.50:1.0.
J-1
<PAGE> 22
Accordingly, the New Indebtedness shall be Senior Indebtedness and Schedule A
attached hereto sets forth the calculations demonstrating in reasonable detail
that the New Indebtedness is "Permitted Indebtedness" under Section 1008(a) of
the Subordinated Note Indenture].
[5. For purposes of this paragraph 5, all capitalized terms used in
this paragraph 5 unless otherwise defined herein shall have the meanings given
such terms in the Indenture dated as of August 17, 1994 between the Corporation
and NationsBank, (South) as Trustee (hereinafter called the "Indenture"). After
giving effect to the incurrence of the indebtedness evidenced by the Additional
Loan requested to be made by the Corporation on this date (the "New
Indebtedness"), the aggregate principal amount of all Indebtedness of the
Corporation in addition to that described in clauses (i) through (viii) of
Section 1008(b) of the Indenture, and any renewals, extensions, substitutions,
refinancings or replacements of such Indebtedness, does not exceed $10,000,000.
Accordingly, the New Indebtedness shall be Senior Indebtedness and Schedule A
attached hereto sets forth the calculations demonstrating in reasonable detail
that the New Indebtedness is "Permitted Indebtedness" under Section 1008(b)(ix)
of the Subordinated Note Indenture.]
6. The aggregate outstanding principal amount of the USX Notes (as
defined in the Indenture) as of the date hereof is less than $16,000,000.
7. After giving effect to the Corporation's incurrence of the
Indebtedness evidenced by the Additional Loan requested by the Corporation on
this date, on a pro forma basis, (A) the Corporation shall have maintained, for
the twelve-month period ending immediately prior to the date that the
Indebtedness was incurred, a ratio of (x) Cash Flow for such period minus
Capital Expenditures for such period to (y) Debt Service for such period of at
least 1.25 to 1.0 and (B) the amount of the Indebtedness does not exceed,
singularly or together with all Permitted Dividends previously made pursuant to
the USX Notes, 80% of the Corporation's net income for its previous fiscal year.
For purposes of this paragraph 7, all capitalized terms used in this paragraph 7
unless otherwise defined herein shall have the meanings given such terms in the
LaRoche Industries Inc. Amended and Restated 10% Secured Note due May 1, 2000.
Schedule B attached hereto sets forth the calculations demonstrating in
reasonable detail compliance with this paragraph 7.
IN WITNESS WHEREOF, the undersigned have hereunto set their
signatures and the seal of the Corporation as of this_______day of_______,
________ .
__________________________
Name: _______________, Chief
Financial Officer
J-2
<PAGE> 23
Schedule 1
1. With respect to Section 6.13, as previously reported to Lenders:
As previously disclosed, on June 27, 1996, Marathon Pipe Line Company
and Marathon Oil Company (collectively, "Marathon") filed a complaint
against the Borrower and one other company in the United States
District Court for the Eastern District of Louisiana alleging that the
Borrower or its agents damaged a gasoline pipeline belonging to
Marathon causing it to rupture and release gasoline into the Blind
River and surrounding area near Gramercy, Louisiana. In connection with
the gasoline release, a class action petition was filed on May 28, 1996
by Pernell Ramagos and certain other named petitioners ("Petitioners")
on behalf of persons and entities allegedly sustaining direct and/or
consequential damage as a result of the gasoline release in the 23rd
Judicial District Court for the Parish of St. James, Louisiana against
Marathon. On September 19, 1996, the Petitioners amended their original
petition to add the Borrower as a defendant to the class action
lawsuit. The Borrower is continuing a diligent investigation of the
situation in order to evaluate the allegations and the relative
responsibility of the parties involved. The Borrower is also responding
to inquiries from regulatory authorities of the State of Louisiana
related to the gasoline release. If appropriate, the Borrower will
vigorously defend itself against all claims. Because the investigation
is in a preliminary stage, it is not possible to predict whether the
company will incur any liability for the rupture and release or
reasonably to estimate the cost of any possible liability.
2. With respect to Section 6.16:
The Labor Agreement between LaRoche and the Federated Aluminum Counsel
Inc. for represented employees at the Baton Rouge plant expired on
October 1, 1996 after negotiations for a new agreement were
unsuccessful. No work stoppage has occurred and operations continued.
On November 6, 1996, the company implemented its final negotiating
offer. The bargaining unit has continued to function under the terms of
the final implemented offer. The union has not requested any further
meetings with the company.
<PAGE> 1
AMENDED AND RESTATED
HYDRATE SALES AGREEMENT
This Amended and Restated Hydrate Sales Agreement
("Agreement") is dated as of May 27, 1997 but effective as of August
1, 1995 ("Effective Date"), by and between Kaiser Aluminum & Chemical
Corporation, a Delaware corporation ("KACC"), and Kaiser LaRoche Hydrate
Partners, a Delaware general partnership ("Buyer") and replaces and supercedes
the Hydrate Sales Agreement, dated as of January 1, 1993, between KACC and
Buyer.
RECITALS
A. KACC and LaRoche Chemicals, Inc., a Delaware corporation
("LCI"), have entered into that certain Partnership Agreement, dated as of
January 1, 1993 (the "Partnership Agreement"), pursuant to which KACC and LCI
created Buyer (LCI was subsequently merged with and into LaRoche Industries
Inc., a Delaware corporation ("LII"), with LII as the surviving company and
succeeding to all of LCI's rights and obligations hereunder);
B. The purpose of Buyer is to serve as the vehicle of KACC
and LCI for the development, operation and management of a marketing operation
for the sale of alumina trihydrate ("Hydrate") and wet alumina trihydrate filter
cake ("Wetcake");
C. Hydrate and Wetcake shall be referred to herein together
as the "Products";
D. This Agreement, as originally entered into by KACC and
Buyer effective January 1, 1993, provided that the parties would meet and
negotiate good faith amendments to this Agreement with respect to the quantity,
quality and pricing of Wetcake at such time as KACC was capable of producing
Wetcake at its Gramercy, Louisiana production facility (the "Facility");
E. KACC now has the capability of producing Wetcake at the
Facility;
F. Buyer desires to purchase its requirements of Hydrate
and Wetcake from KACC and KACC desires to sell such Hydrate and Wetcake to
Buyer, all upon the terms and conditions set forth herein;
G. Buyer has assembled and owns certain oxygen operating
equipment (the "Oxygen Facility") located at or near the Facility and desires
that KACC operate such Oxygen Facility in connection with KACC's production of
Products, and KACC is willing to do so on the terms and conditions set forth
herein; and
<PAGE> 2
H. The parties hereto wish to amend and restate this
Agreement to provide the terms and conditions upon which Buyer will purchase
Wetcake as well as Hydrate from KACC and upon which KACC will operate the Oxygen
Facility in connection with its production of Products.
NOW, THEREFORE, in consideration of the terms and conditions
set out in this Agreement, the parties agree as follows:
1. QUANTITIES OF PRODUCTS.
(a) During the term of this Agreement and subject to the
limitations contained in this Agreement, KACC shall sell and deliver to Buyer,
and Buyer shall purchase and take delivery of, all of Buyer's requirements for
Hydrate and Wetcake. As used herein, the term "Physical Capability" shall mean
the maximum capacity of the Facility to produce Products after deducting the
amount of Products sold by KACC to LII for LII's internal use at Baton Rouge.
Buyer shall purchase from KACC, and KACC shall sell to Buyer, (i) all of Buyer's
requirements for Wetcake during the term hereof; and (ii) a minimum total amount
per calendar year of no less than 125,000 metric tons of Products; provided,
however, that Buyer shall not be liable for damages in the event it fails to
purchase such minimum amount of Hydrate as a direct result of market conditions
beyond Buyer's control, and provided, further, that Buyer shall not be required
to sell Hydrate at a loss in order to purchase the minimum total amount per
calendar year referenced above. In the event of capital improvements which
increase the Physical Capability of KACC's Gramercy, Louisiana facility, as
contemplated in the Partnership Agreement, the minimum total amount per calendar
year of Hydrate which Buyer is required to purchase hereunder shall be increased
pursuant to the negotiations required under the Partnership Agreement.
(b) Notwithstanding Buyer's obligation to purchase all
of its requirements from KACC as set forth in subsection (a) above, Buyer shall
have the right to purchase its immediate requirements of Products from
alternative suppliers in the event the Products delivered to Buyer by KACC fails
to meet the quality specifications required under this Agreement.
Notwithstanding KACC's obligation to sell and deliver to Buyer all of Buyer's
requirements for Products, KACC shall not be obligated to supply in any Year
hereunder an aggregate amount of Products in excess of the lesser of (i) the
Physical Capability or (ii) the
2
<PAGE> 3
amounts set forth below for each such Year (the "Cap Amount"):
<TABLE>
<CAPTION>
Year Cap Amount (Short Dry Tons)
---- ---------------------------
<S> <C>
1996 320,000
1997 370,000
1998 405,000
1999 435,000
2000 470,000
</TABLE>
The parties hereto shall meet to negotiate a mutually-acceptable Cap Amount for
the Year 2001 and for the succeeding Years hereunder, commencing no later than
April 1, 2000. In the event the parties are unable to agree on a Cap Amount for
the Year 2001 on or prior to December 31, 2000, the Cap Amount for such Year
shall be an amount equal to the amount of Products actually sold by KACC to
Buyer hereunder during the Year 2000 plus ten percent (10%). In the event the
parties hereto do not thereafter reach agreement on Cap Amounts for each
succeeding Year, the Cap Amount shall increase by two percent (2%) per Year over
and above the Cap Amount for Year 2001.
(c) In the event Buyer requests an amount of Products in
excess of the Cap Amounts, KACC shall reasonably cooperate with Buyer to provide
such Products requested by Buyer but shall have no obligation beyond that stated
in this subparagraph (c) to supply such excess Products. The price provisions
set forth in Article 4 hereof shall not apply to Products supplied by KACC
pursuant to this Section 1(c) from any source other than the Facility.
(d) At KACC's election, KACC may supply Products from
another source but any additional costs incurred by KACC in doing so (including
any applicable sales or use tax on such Hydrate) shall be at KACC's sole
expense.
2. SCHEDULING OF PURCHASES AND DELIVERIES.
(a) Buyer shall notify KACC in writing, by no later than
September 30 of each calendar year ("Year"), with respect to its estimated
requirements for Products during the following Year and its forecast of
requirements for Products during the following five (5) Years ("First Notice").
By no later than October 31 of each Year, Buyer shall notify KACC in writing
with respect to its final determination of its Products requirements for the
following Year under its best case sales plan ("Second Notice"). The quantity of
Products specified in the Second Notice shall constitute the quantity of
Products which KACC shall be obligated to make available and sell to Buyer
during the following Year, subject to the minimum amount set forth in Section
1(a) hereof and a maximum amount equal to the lesser of (i) the Physical
Capacity of the Facility or (ii) the
3
<PAGE> 4
Cap Amount set forth in Section 1(b) hereof. In the event Buyer fails to provide
KACC with the Second Notice within the respective time periods set forth above,
KACC shall be obligated to make available and sell to Buyer during the following
Year the same quantity of Products which KACC is obligated to make available and
sell to Buyer during the current Year, plus five percent (5%) of such quantity,
provided that in no event shall such increased quantity exceed the lesser of (i)
the Physical Capability of the Facility or (ii) the Cap Amount for any Year.
(b) Buyer will provide KACC with reasonable advance
notice of its future requirements with respect to the delivery of Hydrate and
Wetcake, and KACC will endeavor to reasonably meet such delivery requirements
and to provide Buyer with reasonable advance notice in the event it is unable to
do so. Buyer and KACC will use their best efforts to accommodate any changes
which either may request with respect to quantities of Hydrate and Wetcake and
schedules of delivery during the term of this Agreement. In estimating and
scheduling purchases and deliveries of Products, but always subject to the
requirements of Buyer's business, Buyer shall use all reasonable efforts, taking
into consideration the seasonal requirements of Buyer, to schedule approximately
equal quantities during each quarter, month, week and day during the term of
this Agreement.
(c) In the event KACC's interest in the Partnership is
reduced such that it no longer has at least fifty percent (50%) of the voting
power on the Executive Committee (as defined in the Partnership Agreement), the
maximum quantity of Products KACC will be obligated to deliver during subsequent
calendar years under Section 2(a) will be limited to the quantity sold in the
calendar year in which KACC's voting power is reduced (but in no event shall
such quantity exceed the Physical Capability of the Facility), and the parties
shall discuss appropriate revisions to the provisions on scheduling and
deliveries.
3. SPECIFICATIONS.
(a) Products delivered by KACC to Buyer shall meet the
specifications set forth in Exhibit A. KACC acknowledges that its accuracy in
meeting the specifications provided herein is essential to Buyer's business.
(b) Notwithstanding the foregoing, in the event Products
delivered pursuant to this Agreement fails to meet the specifications set forth
in Exhibit A, such failure shall not be regarded by the parties as a cause for
rejection of the shipment of such Products unless such differences in
specifications render such shipment or a substantial portion thereof unfit for
its intended use. Buyer acknowledges that in the course of selling Products to
third party customers, certain customers' specifications for Products will be
more stringent than the present process capabilities of KACC's facilities would
permit. Consequently, Buyer agrees to use its best efforts to (i) segregate
Products delivered hereunder according to its particular qualities and (ii)
utilize
4
<PAGE> 5
any non-conforming Products by supplying such Products to other customers with
less stringent specification requirements.
(c) Subject to the foregoing, on notice from Buyer, KACC
shall promptly replace all Products failing to meet the required specifications
at no additional cost to Buyer; provided, that if KACC shall not promptly
replace Products failing to meet specifications, then Buyer may procure
replacements, and all costs and expenses incurred in connection with such
replacements (including any net costs incurred in disposal of Products failing
to meet specifications) shall be for the account of KACC.
(d) Notwithstanding any of the foregoing which may be to
the contrary, KACC hereby agrees to use its best efforts to achieve 85% minimum
reflectance for Products as set forth above; provided however, that the Buyer
hereby acknowledges that due to the untried nature of the process, such minimum
reflectance level may not be immediately attainable. In the event that KACC is
unable, by no later than December 31, 1996 (the "Determination Date"), to
produce Products with 85% minimum reflectance, the parties shall promptly meet
to determine, in good faith, a reasonable, achievable minimum reflectance
specification. In such event KACC shall, on the Determination Date, deliver to
Buyer in writing a program designed by KACC to attempt to render the process
capable of producing Products meeting the 85% minimum reflectance specification.
At such time as KACC and Buyer mutually determine that KACC is capable of
producing Products with 85% minimum reflectance on a consistent basis, the 85%
minimum reflectance specification, or such higher reflectance specification as
to which the parties may agree, shall become mandatory on KACC. Buyer hereby
acknowledges and agrees that KACC's best efforts obligations under this Section
3(d) shall not require KACC to make or incur any capital expenditures.
(e) The specifications for Wetcake set forth on Exhibit
A, other than as otherwise provided in subparagraph (d) above for reflectance,
shall be reviewed by the parties on December 31, 1997 to determine whether any
adjustments should be made. The specifications as currently set forth on Exhibit
A for Wetcake shall continue to govern unless amended by the mutual agreement of
the parties in writing.
4. PRICE.
(a) The price per metric ton of Products produced at the
Facility shall be determined quarterly on the basis of the following formulae:
Hydrate Price = (RP x .65385) - (Eh + Oh) + D + DM
Wetcake Price = (RP x .65385) - (Ew + Ow) + D + DM
5
<PAGE> 6
DM = The cost of Dadmac additive used for control of color
of Products. Such cost of such Dadmac additive shall
be borne solely by KACC at all times prior to August
1, 1997 and shall be borne solely by Buyer after
August 1, 1997.
RP = RGO Base Price, which shall be determined quarterly
and calculated as follows: (i) for the period from
the date hereof through July 31, 1997, the RGO Base
Price shall be the weighted average selling price on
an F.O.B. producing plant basis of one metric ton of
C-70 reduction grade alumina ("RGO") (x) sold by KACC
from its alumina plants to third party buyers, and
(y) purchased by KACC from third party sellers, in
both cases during the calendar quarter immediately
preceding the quarter for which the RGO Base Price is
being determined, (ii) for the period from August 1,
1997 through the remainder of the term hereof, the
RGO Base Price shall mean KACC's weighted average
selling price on an F.O.B. Gramercy, Louisiana basis
of one metric ton of RGO produced at KACC's facility
in Gramercy, Louisiana, to unrelated third parties
during the calendar quarter immediately preceding the
quarter for which the RGO Base Price is being
determined. The latter formula for determining the
RGO Base Price for calendar quarters following August
1, 1997, shall only be applicable if KACC's Gramercy
facility sells to unrelated third parties a minimum
of 125,000 metric tons of RGO during the calendar
quarter upon which the price calculation is based. If
such latter formula is not applicable because the
foregoing condition is not met, the former formula
shall be applicable until such condition is met.
Eh = The energy credit for the difference between the
energy used to calcine a pound of alumina (2050
BTU/pound) and the heat energy used to produce a
pound of Hydrate (232 BTU/pound). The energy factor
will be $5.79 for the fourth quarter of 1995, based
upon an example price of $2/MM BTU. The amount will
be adjusted on January 1 of each calendar year during
the term hereof in accordance with the unadjusted
percentage change in the PPI-FG until such time as
the balance in the Energy Credit Pool (as that term
is hereinafter defined) reaches zero (0), at which
time, the energy factor shall thereafter be adjusted
each quarter according to the average daily NYMEX
closing price for the prior quarter plus delivery
costs and taxes applicable to natural gas usage.
6
<PAGE> 7
The following example is based upon $2/MM BTU natural
gas 4% tax rate and .09 per million BTU delivery
cost:
Gas Charge x PPI-FG93 to 95 basis = 2.04
---------- --------------
$2/MM BTU x 126.1/123.09
4% tax = .08
------
2.04 x .04%
Delivery Charge/MM BTU = .09
Total Gas/MM BTU = $2.21
Energy Credit $ = (2050 BTU - 232) x 2000 Lb. X
-------- --------
Lb. Calc. Short Ton
102 x $2.21
--- -----
156 1 million BTU
= $5.25/Short Ton
= $5.79/Dry Metric Ton
The "Energy Credit Pool" shall mean an amount,
calculated quarterly, equal to, from time to time,
the aggregate difference between the energy cost
factor as originally calculated under this Agreement
commencing on January 1, 1993 as adjusted in
accordance with the unadjusted percentage change in
the PPI-FG and an amount equal to such energy cost
factor had it been adjusted in accordance with the
average daily NYMEX closing prices for each quarter
plus delivery costs and applicable taxes during such
period calculated from and after January 1, 1993.
Oh = The operating cost factor per metric ton of Hydrate.
The operating cost factor consists of credits for the
avoided maintenance and operating costs associated
with calcining ($1.98/DMT) and shipping alumina to
terminal ($2.12/DMT). The operating costs will be
adjusted on a calendar year basis in accordance with
the unadjusted percentage change in the PPI-FG.
7
<PAGE> 8
Ew = The energy credit for the difference between the
energy used to calcine a pound of alumina (2050
BTU/pound) and the heat energy used to produce a
pound of Wetcake (0 BTU/pound). The energy factor
will be $5.91 per dry metric ton of Wetcake for the
fourth quarter of 1995, based upon an example price
of $2/MM BTU. The amount will be adjusted on January
1 of each calendar year during the term hereof in
accordance with the unadjusted percentage change in
the PPI-FG until such time as the balance in the
Energy Credit Pool reaches zero (0), at which time,
the energy factor shall thereafter be adjusted each
quarter according to the average daily NYMEX closing
price for the prior quarter plus delivery costs.
The following example is based upon $2/MM BTU natural
gas:
Energy Credit $ = ( 2050 BTU - 0) X 2000 Lb X
-------- -------
Lb. Calc. Short Ton
102 x $2
--- --
156 1 million BTU
= $5.36/Short Ton
= $5.91/Dry Metric Ton
Ow = The operating cost factor per metric ton of Wetcake.
The operating cost factor consists of credits for the
avoided maintenance and operating costs associated
with calcining ($1.98/DMT) and shipping alumina to
terminal ($2.12/DMT), and the avoided costs of
loading dry hydrate ($0.73/DMT). The operating cost
factor adds costs for operating the Wetcake loadout
facility ($1/DMT). Actual maintenance costs will be
billed to Buyer each month.
Ow = 1.98 + 2.12 + 0.73 - 1.00
Ow = 3.83/DMT
Costs for operating the Wetcake loadout facility
($1/DMT) will be reviewed in December, 1996 for
adjustments. Having no prior history of Wetcake
production, cost basis will be reviewed yearly
8
<PAGE> 9
until such time as KACC and Buyer are satisfied that
the cost basis is correct.
All avoided costs for Products will be reviewed every
five (5) years during the term hereof by the parties
hereto to determine the continued propriety thereof.
D = the cost of dilution incurred in manufacturing
Products, which shall be calculated as follows:
(i) for the period from January 1, 1995 through December
31, 1996, D shall equal (a) 0, with respect to each
metric ton of Products sold hereunder up to a sum
equal to the difference between 220,445 metric tons
of Products and the number of metric tons of Products
sold to LII in a calendar year pursuant to that
certain Specialty Aluminas Sales Agreement dated as
of July 26, 1988, as amended, and (b) $6.00 for the
fourth quarter of 1995, with respect to each metric
ton of Products sold hereunder in addition to the sum
referenced in the immediately preceding clause (a),
as adjusted on January 1 of each year during each
such period in accordance with the unadjusted
percentage change in the PPI-FG;
(ii) for the period from January 1, 1997 through July 31,
1997, D shall equal (a) 0, with respect to each
metric ton of Products sold hereunder up to a sum
equal to the difference between 128,593 metric tons
of Hydrate and the number of metric tons of Products
sold to LCI during such period pursuant to that
certain Specialty Aluminas Sales Agreement dated as
of July 26, 1988, as amended, and (b) $6.00 (1995
basis), with respect to each metric ton of Products
sold hereunder in addition to the sum referenced in
the immediately preceding clause (a), as adjusted on
January 1, 1997 in accordance with the unadjusted
percentage change in the PPI-FG; and,
(iii) for the period from August 1, 1997 through the
remainder of the term hereof, the cost of dilution
incurred in manufacturing Products, which shall be
applicable to each metric ton of Products sold
hereunder during such period, shall be such amount as
the parties shall agree upon in negotiations to occur
during the first quarter of 1997, which shall
establish (a) a wash water dilution penalty on the
filters for quality control equal to the difference
9
<PAGE> 10
between the average pounds of water per pound of
Products for Products production and the average
pounds of water per pound of Products for RGO
production, (b) a dilution penalty for oxalate
control based on water directly added to the
dissolver system, (c) a dilution penalty for oxalate
control based on direct steam heating, which shall be
calculated based on additional wash water usage and
the cost of the steam used, and (d) the cost of the
use of any special chemicals used to reduce the
dilution penalty (i.e. drainage aid). The total cost
of dilution to the process shall be calculated by
using KACC's computer program commonly known as the
Gramercy Process Model. The cost of dilution incurred
in manufacturing Products agreed upon by the parties
pursuant to this subsection shall be adjusted on
January 1 of each subsequent year in accordance with
the unadjusted percentage change in the PPI-FG.
PPI-FG = the Producer Price Index for Finished Goods published
by the U.S. Bureau of Labor Statistics in the monthly
publication Producer Price Indexes for November of
the immediately preceding calendar year compared to a
base of November 1994. If the U.S. Bureau of Labor
Statistics ceases to publish Producer Price Indexes,
the parties shall mutually select a reasonable
substitute index which is intended to reflect changes
in producer prices for finished goods in the United
States.
(b) In the event of Expansion Improvements, as that term is
defined in the Partnership Agreement, approved by the Executive Committee of the
Partnership, the price of Products hereunder shall be adjusted in accordance
with this Section 4(b). In the event KACC elects to retain ownership of the
Expansion Improvements, the price of Products in effect upon the completion of
such Expansion Improvements shall be increased by an amount equal to the
Reimbursement Amount, as defined below, which shall be amortized over five (5)
years at the Reimbursement Interest Rate, as defined below. Such increase in
price shall be recovered by KACC in equal amounts on a monthly basis by
adjusting the purchase price on the first 10,000 tons of Products sold each
month in each of the five years following the completion date of such Expansion
Improvements. "Reimbursement Amount" shall mean all of KACC's costs associated
with Expansion Improvements, plus interest equal to the published interest rate
on five (5) year Treasury Bonds in effect on the date construction commences
plus four percent (4%) ("Reimbursement Interest Rate"), such costs being
increased by the Reimbursement Interest Rate to the date of the completion of
the construction of the Expansion Improvements. The amount of reimbursements to
KACC under this Section 4(b) shall be reduced, in an amount to be agreed upon by
KACC and Buyer (with the consent of LCI), in order to take into account sales of
Products from KACC to LCI for internal use at LCI's Baton Rouge facility.
10
<PAGE> 11
(c) In the event the parties determine after review of
estimated costs that the values of "Eh", "Oh", "Ew", "Ow", or "D" following
completion of the Expansion Improvements are different from such values
determined in accordance with Section 4(a) above, that the price of the
increased tonnage or new or improved product permitted by such Expansion
Improvements shall be priced accordingly. The revised values of "Eh", "Oh",
"Ew", "Ow", or "D" determined in accordance with this Section 4(c) shall
thereafter be adjusted on January 1 of each calendar year in accordance with the
unadjusted percentage change in the PPI-FG.
d) Within fifteen (15) days after the beginning of each
calendar quarter, KACC shall provide to Buyer a written statement certified by
the appropriate officer of KACC to be true and correct, which shall set forth
the RGO Base Price and the price for Products for such quarter and state that
such prices were accurately calculated. Buyer shall have the right to audit the
financial records of KACC to verify the accuracy of the determination of the
price of the Products. Such audit shall be conducted at KACC's office located at
its Gramercy, Louisiana plant by a firm of independent certified public
accountants designated by Buyer. Such audit shall not unreasonably interfere
with the operations of KACC. If, as a result of any such audits, it is
determined that Buyer is entitled to recover in excess of $50,000.00 from KACC
for any calendar year due to any inaccuracies in the invoices or any reports
theretofore provided by KACC for such year, then in addition to any such
recovery, Buyer shall also be entitled to recover the costs incurred in
conducting such audits plus interest on all amounts recovered at the
Reimbursement Interest Rate or the maximum permitted rate, whichever is less.
(e) In the event in any quarter the market prices of RGO
increase to the level that the margin between the price of Products to Buyer
hereunder and the prevailing prices at which Buyer is selling Products to its
customers is eliminated or substantially narrowed, then the parties will meet to
confer regarding a temporary reduction in the price at which Products is sold
under this Agreement. The amount of the Products price reduction and the
duration of the period during which it shall remain in effect, and the amount of
a subsequent Products price increase and the period during which it shall remain
in effect, shall be determined under the principle that the average price of
Products under this Agreement during the period in which the price is adjusted
(either reduced or increased) shall be substantially the same as if the price
had not been so adjusted.
5. OXYGEN PROCESSING FEES; OPERATING FEE; ECONOMIC BENEFIT.
(a) The Buyer shall reimburse KACC for all costs related to
the operation and maintenance of the oxygen injection facility and the
implementation of the program designed by KACC which is referenced in Section
3(d) above. These costs will include purchases of oxygen and additional sulfide
required, rent, administrative costs, insurance, property taxes, ISO costs and
environmental costs. The Buyer will be responsible for the costs of any
additional
11
<PAGE> 12
chemicals or materials needed to achieve the reflectance levels required by the
Buyer other than as otherwise provided herein with respect to Dadmac. Additional
sulfide will be charged at the rate of .727 tons of sulfide per ton of oxygen.
Additional power over normal Bayer plant operations will
be required to operate the oxygen injection and Wetcake loadout facilities. The
Buyer shall be recharged the actual cost of that power. The charge will be
calculated as follows:
[(13090 kwh/month + (4.94 kwh x TPM Wetcake)] x Incremental KACC power
rate] + (0.299 x TPM Wetcake x (gas price per Henry Hub +
delivery/mmbtu)) + $1728/month
Where TPM is the tons per month of Wetcake on a short
dry ton basis and the Incremental KACC power rate is the rate as defined by
Amendment No. 2 to the Powerhouse Operating Agreement, dated as of November 1,
1996, by and between KACC and LII.
In the event that KACC does not purchase incremental
power from LII, then the monthly power charge shall be calculated as follows:
[13090 kwh/month + (4.94 kwh x TPM Wetcake)] x [.0125 x (gas price per
Henry Hub + delivery/mmbtu)] + [0.299 x TPM Wetcake x (gas price per
Henry Hub + delivery/mmbtu)] + $1728
If a liquor purge or liquor sale must be made for
sulfate control, the Buyer shall share in the cost (or gain) for the sulfate
reduction.
(b) In addition, in consideration of KACC's operation of
the oxygen injection facility under that certain Lease, dated as of March 26,
1996, by and between Buyer and KACC (the "Oxygen Operating Lease"), Buyer shall
pay to KACC an oxygen operating fee (the "Operating Fee"), payable in such
amounts and at such times as the "Basic Rent" or Renewal Rent, as applicable,
as those terms are defined in the Oxygen Operating Lease, are payable under
the Oxygen Operating Lease.
(c) In addition, in consideration of KACC's operation of
the wetcake facility under that certain Lease, by and between Buyer and KACC
(the "Wetcake Operating Lease"), Buyer shall pay to KACC a wetcake operating
fee (the "Operating Fee"), payable in such amounts and at such times as the
"Basic Rent" or Renewal Rent, as applicable, as those terms are defined in the
Wetcake Operating Lease, are payable under the Wetcake Operating Lease.
(d) The parties hereby acknowledge that KACC may derive
significant
12
<PAGE> 13
economic benefits from the addition of the Oxygen Facility and the Sulfate
Removal System to the Bayer process at the Facility. The parties further
acknowledge that KACC may incur significant costs as a result of KACC's ongoing
pursuit of alternatives to the installation of the Sulfate Removal System and
that one or more of such alternatives may result in significant cost savings to
KACC in producing the Products hereunder. In light of the foregoing, the parties
hereby agree as follows:
(i) KACC shall have a period of twenty-four (24) months from
and after September 1, 1995 to determine, in good faith
based upon the state of operations at the end of such
time period, whether it will derive a significant net
economic benefit from the addition of the Oxygen
Facility and the Sulfate Removal System to the operation
of the Bayer process at the Facility. Upon the
expiration of such period of time, KACC shall deliver
written notice to Buyer of its determination whether or
not such economic benefit will be obtained by KACC,
which notice shall describe the facts and circumstances
supporting such determination in sufficient detail. Said
determination by KACC shall be conclusive absent
manifest error or bad faith on the part of KACC. Buyer
and its representatives shall have the right, in
connection with its review of KACC's determination, to
ask questions of KACC personnel familiar with the
determination and to inspect and copy any and all
records of KACC pertinent to KACC's determination.
(ii) In the event KACC determines that it has enjoyed a
significant economic benefit, the dollar amount of such
benefit shall be applied, dollar for dollar as provided
hereinbelow, to offset Buyer's obligations hereunder to
reimburse KACC for its costs in operating the Oxygen
Facility and the Sulfate Removal System. The dollar
amount of such economic benefit, if any, shall be
annualized and a formula established for a period of
five (5) years from and after the date of any such
determination. Upon the expiration of such five (5) year
period, the parties shall meet to determine what
adjustments, if any, are necessary to the economic
amounts allocable to Buyer. In the event that the amount
of the economic benefit exceeds the aggregate amount of
all said costs paid or payable to KACC hereunder, the
amount of such excess shall be paid by KACC to Buyer;
provided, however, that the amount of any such
excess payable to Buyer shall in no event exceed the
lesser of: (A) $500,000 per year and (B) an amount
equal to fifty percent (50%) of such excess.
13
<PAGE> 14
(iii) In the event that all of KACC's reimbursable costs
hereunder would be offset by the amount of the
above-described economic benefit derived by KACC, KACC
shall have the option, at any time following its
determination that an economic benefit in such amount
exists, to purchase the Oxygen Facility and the Sulfate
Removal System from Buyer for an amount equal to Buyer's
original cash cost of the Oxygen Facility and the
Sulfate Removal System plus an amount equal to accrued
interest on such amount calculated from the date of
LII's initial funding of capital for the Oxygen Facility
or the Sulfate Removal System, as the case may be, at an
interest rate equal to the Reimbursement Interest Rate
(the "Exercise Price"). Upon KACC's exercise of the
foregoing option and payment by KACC of the Exercise
Price, KACC shall retain all future economic benefits of
the Oxygen Facility and the Sulfate Removal System, KACC
shall have no obligation to make payments under Section
5(c)(ii) effective as of the date of KACC's exercise of
the option, and Buyer shall be relieved of all of its
obligations hereunder to reimburse KACC for its costs in
operating the Oxygen Facility and the Sulfate Removal
System.
(iv) Buyer shall reimburse KACC for such costs related to its
efforts to find a suitable alternative to the Sulfate
Removal System as KACC and Buyer may agree. In the event
a suitable alternative is found the operation of which
results in significant cost savings over the operation
of the Sulfate Removal System, Buyer's obligation to
reimburse KACC for operation and maintenance of the
Sulfate Removal System shall be accordingly reduced. For
purposes of this provision, the parties acknowledge that
KACC may incur such costs at the Facility or at its
bauxite affiliate located in Jamaica.
6. SULFATE REMOVAL.
The Buyer shall reimburse KACC for all costs related to the
operation and maintenance of the sulfate removal system to be installed at the
Facility in connection with the Oxygen Facility (the "Sulfate Removal System").
These costs will include purchases of caustic, energy, rent, administrative
costs, insurance, property taxes and environmental costs. The Buyer will be
responsible for the costs of any additional chemicals or materials needed to
facilitate the removal of sulfate from the plant liquor stream. Any and all
profits or losses realized from the disposal of sulfate shall be for the account
of Buyer.
The Buyer will receive an energy charge monthly from KACC to
operate the Sulfate
14
<PAGE> 15
Removal System. The charge will be calculated as follows:
(225KW x hours per month operated) x 12,500 btu/kwh x (gas price per nymex +
delivery/mmbtu)
Where hours per month operated includes all time that the
pumps are energized to remove sulfate or clean the unit.
7. DELIVERY OF PRODUCTS.
All Hydrate delivered by KACC to Buyer shall be delivered at
Buyer's option to either trucks or Buyer's rail cars, F.O.B. KACC's loadout
spout and all Wetcake delivered by KACC to Buyer shall be delivered to trucks
F.O.B. KACC Wetcake loadout spout at its Gramercy, Louisiana plant, unless
otherwise agreed between the parties; provided, however, that KACC's obligation
to deliver Products to trucks shall be subject to the capabilities of KACC's
equipment at the time of such delivery.
8. MEASUREMENT.
Rail cars and trucks shall be check weighed at the expense of
KACC to verify amounts delivered. Quantities shipped by rail car shall be
measured by railroad scales approved by the appropriate state authority.
Quantities of Products shipped by truck shall be measured on truck scales
approved by the appropriate state authority. Additional weighing at any
destination location shall be at the expense of Buyer. To the extent that
quantities of Products are hereafter shipped by barge, the parties hereto shall
agree upon a commercially feasible and acceptable method of measurement.
9. TAXES.
All sales, use, or other taxes (excluding ad valorem taxes,
franchise taxes, and taxes based upon the income of the parties) levied,
assessed or imposed with respect to the sale or use or consumption of any
product purchased hereunder shall be for the account of Buyer and shall be added
to the then current price payable hereunder unless Buyer shall provide
information reasonably satisfactory to KACC that no such taxes are payable. If
Buyer wishes to contest the amount or validity of any such tax by appropriate
administrative or legal proceedings, KACC shall cooperate with Buyer in such
undertaking, provided that all costs and expenses of any such contest and/or any
penalties, interest or other charges that shall accrue thereon by reason of any
such contest will be borne by Buyer. All rebates or refunds with respect to such
tax or the contest thereof shall be the property of Buyer.
15
<PAGE> 16
10. DEMURRAGE.
Buyer shall be obligated to pay for any rail car demurrage
incurred in connection with Products.
11. PAYMENT TERMS.
Payment for the Products delivered hereunder during any
calendar month shall be due on the fifteenth (15th) day of the following
calendar month or, if that day falls on a holiday, on the next banking business
day.
12. INVOICES AND OTHER DOCUMENTATION.
All invoices for Products delivered hereunder during any
calendar month shall be sent to Buyer within three (3) business days after the
end of such calendar month. All invoices shall refer to this Agreement and shall
show the precise quantity of Products covered thereby. Oxygen processing fees,
wetcake processing fees, and sulfate removal fees shall be invoiced to the Buyer
on a monthly basis and shall be paid by the Buyer within fifteen (15) days of
receipt of invoice. If KACC is required to estimate any component used in the
calculation of the cost of any Product, it may do so and the price shall be
adjusted when the estimated cost component is determined. KACC shall promptly
invoice any additional amount payable on normal payment terms or refund any
overcharge. No interest shall be payable thereon. KACC shall provide Buyer
hereunder with the original or copies of bills of lading on shipments made by it
pursuant to this Agreement. Buyer may use standard forms for the placing of
orders, deliveries, etc. Any such forms are for administrative purposes only and
shall not alter or amend this Agreement in any way.
13. FORCE MAJEURE.
(a) Provided that prompt notice of delay or failure
to deliver or receive Products hereunder is given by the party so affected to
the other, followed by written confirmation as promptly as possible, any such
delay or failure by either party in performance hereunder shall be excused to
the extent such delay or failure is caused by the following events of force
majeure ("Force Majeure"): demands, requests, decrees or restraints of
Government, acts of God, strikes, lockouts or other labor disturbances (neither
party shall be required to settle any labor matter against its own judgment),
war, sabotage, fire, explosion, accident, breakdown of machinery or
16
<PAGE> 17
equipment, shortage or inability to obtain fuel, power, natural gas, raw
materials, or equipment without litigation and at ordinary prices from usual
sources, or any other cause or causes, beyond such party's reasonable control,
whether similar or dissimilar to those already specified, which affect the
production, transportation, delivery, use or consumption of any Products to be
delivered hereunder or any material used in, or in connection with, their
production, use or consumption.
(b) Performance under this Agreement shall be
excused without liability during the continuance of the inability of the party
to perform caused by Force Majeure, and the quantities specified in this
Agreement shall be reduced to the extent of deliveries omitted. In no event
shall KACC be obligated to deliver any product from any plant or facility other
than its Gramercy, Louisiana plant, to replace the quantities not delivered due
to events of Force Majeure.
(c) If such an event of Force Majeure occurs and
Buyer enters into any other Agreements which are reasonably necessary to secure
for Buyer alternative sources of supply, the quantities of product obtained
under such alternative Agreements shall be applied to reduce the quantity
required to be purchased under Section 1 of this Agreement during the term of
such alternative Agreements.
14. LIABILITIES AND RESPONSIBILITIES.
Full liability and responsibility for compliance with Federal,
State, Municipal and local laws, ordinances, and regulations governing
discharge, storage and handling of the Products, whether or not meeting
specifications in accordance with this Agreement, shall be the responsibility
of:
(a) KACC, who shall hold Buyer harmless against any
claim, demand or causes of action for personal injury (including death) or
property damage arising from or attributable to such Products through completion
of delivery thereof at the F.O.B. point; and
(b) Buyer, who shall hold KACC harmless against any
claim, demand or cause of action for personal injury (including death) or
property damage arising from or attributable to the discharge, storage and
handling of such product after delivery has been completed at the F.O.B. point.
15. WARRANTY; LIMITATION.
(a) KACC warrants that the Products sold by it
hereunder will be of good quality and workmanship, will meet and comply with all
relevant specifications, and that title thereto will be transferred to Buyer
free from any liens and encumbrances and that Buyer will
17
<PAGE> 18
acquire full title thereto.
(b) EXCEPT AS SO PROVIDED, KACC MAKES NO
REPRESENTATION OR WARRANTY AS TO THE MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OF ANY PRODUCTS SOLD BY IT PURSUANT TO THIS AGREEMENT.
(c) All Products shall be analyzed by KACC to
determine whether such Products comply with the required specifications as set
forth in Section 3. KACC shall inspect trucks and rail cars prior to being
loaded with Products. Such inspections shall be conducted pursuant to inspection
specifications to be determined by the parties hereto within a reasonable time
after the execution of this Agreement. Subject to subsection (d) below, KACC
shall only be responsible to replace Products which are contaminated or lost as
a result of KACC's failure to reasonably inspect trucks and rail cars pursuant
to the inspection specifications agreed upon by the parties. KACC shall, upon
the request of Buyer, provide Buyer with samples of any particular delivery of
Products to Buyer to permit Buyer to inspect such Products within a reasonable
time thereafter. If on such inspection any such Products are found to be
defective, Buyer shall promptly notify KACC so that such Products can be
replaced as provided in Section 3. Failure to so notify KACC within a reasonable
time after Buyer has delivered Products to its customers shall be deemed a
waiver of Buyer's right to reject such Products. The parties acknowledge that
Buyer may elect not to inspect Products being sold by Buyer to its merchant
customers. Notwithstanding the foregoing language regarding inspection rights,
the parties agree that Buyer shall have the right to permit its merchant
customers of Products to inspect such Products on Buyer's behalf within a
reasonable time after delivery of such Products to such customers. If on such
inspection by one of Buyer's customers, any Products are found to have
significantly different properties than those reported to Buyer in connection
with the analysis performed by KACC, Buyer shall promptly notify KACC so that
such Products can be replaced as provided in Section 3.
(d) KACC shall not be liable for special, punitive,
incidental or consequential damages resulting from breach of warranty, delay of
performance or other default hereunder. Except as provided in Section 3, KACC's
liability and Buyer's remedy for action arising out of this Agreement is hereby
limited to replacement of the non-conforming Products or payment in an amount
not to exceed the agreed upon price of the Products for which damages are
claimed, at Buyer's option.
16. TERM.
The term of this Agreement shall be for a period beginning on
the Effective Date and ending on December 31, 2012, unless earlier terminated
pursuant to the terms hereof or by
18
<PAGE> 19
mutual agreement of the parties. Notwithstanding the foregoing, KACC may elect
to terminate this Agreement, without liability to KACC, upon such date as KACC
determines in its sole discretion that continuation of the operations of the
Facility is no longer economically viable; provided, however, that Exhibit A to
that certain Specialty Aluminas Sales Agreement between KACC and LCI, dated July
26, 1988, is hereby deemed to be fully applicable to the parties through
September 30, 1994, it being the intent of the parties to aggregate the quantity
of Products sold to Buyer hereunder with the quantity of Products sold to LCI
under said Specialty Aluminas Sales Agreement in order to determine the
applicability of said Exhibit A. In the event KACC does not elect to terminate
this Agreement following a shutdown of the Facility, KACC may provide Products
of substantially equivalent quantity and quality from another source in which it
has an equity interest; provided, however, that the provisions of Article 4
shall continue to govern the pricing of such Products (with the dilution factor
being the same as the dilution factor applicable to Products produced at the
Facility subject to any adjustment thereto agreed upon by the parties in 1997)
and KACC shall be responsible for any incremental freight and delivery charges
incurred as a result of changing the source of Products hereunder.
17. WAIVERS.
Failure of either party to insist, in any one or more
instances, upon a strict performance of any of the terms of this Agreement, or
the waiver by either party of any term or right or any default of the other
party hereunder, will not be deemed or construed as a waiver of or a
relinquishment for the future of any such term, right or default.
18. AMENDMENTS.
This Agreement shall not be amended or modified except in
writing signed by both parties hereto.
19. NOTICES.
Any notices or other communications required or permitted
hereunder shall be sufficient if given or sent by registered or certified mail,
postage prepaid, to the following addresses or such other addresses as shall be
furnished in writing by either party to the other party. Any such notice or
communication shall be deemed given as of the date upon which such notice or
communication is first sent by telex, telecopier or other means of instantaneous
19
<PAGE> 20
communication, and simultaneously confirmed by mail in the manner specified
above.
To KACC: Kaiser Aluminum & Chemical Corporation
P. O. Box 3370
Gramercy, LA 70052
Attn: Director, Sales and Customer Relations, Alumina Business
Unit
with a copy to:
Kaiser Aluminum & Chemical Corporation
P. O. Box 3370
Gramercy, LA 70052
Attn: Legal Counsel, Alumina Business Unit
To Buyer: Kaiser LaRoche Hydrate Partners
1111 Airline Highway 61
Gramercy, LA 70052
Attn: General Manager
with a copy to:
LaRoche Industries Inc.
1100 Johnson Ferry Road, N.E.
Atlanta, GA 30342
Attn: President
with an additional copy to:
LaRoche Industries Inc.
1100 Johnson Ferry Rd., N.E.
Atlanta, GA 30342
Attn: Corporate Counsel
20. GOVERNMENT REGULATIONS.
KACC certifies that the Products delivered under this Agreement will
be produced in compliance with all applicable requirements of Sections 6, 7 and
12 of the Fair Labor Standards Act of 1938, as amended, and of the regulations
and orders of the Department of Labor issued under Section 14 thereof. The Equal
Employment Opportunity Clause in Section 202, Paragraphs 1 through 7 of
Executive Order 11246, as amended, relative to equal employment opportunity and
the implementing rules and regulations of the office of Federal Agreement
Compliance and each
20
<PAGE> 21
party's Certificate of Compliance as related to Government Agreements are
incorporated herein by specific reference.
21. SUCCESSORS.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their permitted successors and assigns. KACC may, but
shall not be obligated to, assign (including, without limitation, grant a
security interest in) this Agreement to or for the benefit of one or more of
its lenders, in which case this Agreement may be reassigned by such assignee or
collateral agent to third parties. No such assignment by KACC to or for the
benefit of one or more of its lenders or reassignment by such assignee or
collateral agent shall relieve KACC of any of its obligations hereunder. Buyer
may assign this Agreement in connection with a termination of the Partnership
Agreement to any person (including LCI or KACC), who acquires, by purchase or
otherwise, all or substantially all of the assets of Buyer provided that such
acquiring person shall not further assign this Agreement without KACC's
consent, and KACC may assign this Agreement to any successor-in-interest to the
Facility; provided that each such assignee agrees to become a party to this
Agreement. Except for the foregoing permitted assignments, this Agreement shall
not be assignable by either party without the prior written consent of the
other, which consent shall not be unreasonably withheld. Any assignment in
violation of this Agreement shall be void. In the event of any permitted
assignment (other than an assignment by KACC to or for the benefit of one or
more of it lenders or a reassignment by such assignee or collateral agent), the
assigning party shall be relieved of all future obligations of performance
hereunder, except to the extent such future performance relates to the period
prior to the assignment.
22. PATENT INDEMNITY.
KACC shall defend any suit or proceeding brought against Buyer based
on a claim that manufacture, use or sale of the Products sold by KACC
constitutes infringement of any United States Letters Patent, if notified
promptly in writing and given authority and such information and assistance as
KACC shall reasonably request (at KACC's expense) for the defense of same, and
KACC shall pay all damages and costs awarded against Buyer in such suit or
proceeding.
23. ATTORNEYS' FEES AND EXPENSES.
If any litigation or arbitration shall be instituted in respect to
this Agreement, the prevailing party shall be entitled to recover attorneys'
fees and other costs and expenses of
21
<PAGE> 22
litigation or arbitration.
24. ENTIRE AGREEMENT.
This Agreement constitutes the entire understanding of the parties
with respect to the subject matter hereof, and there are no other
understandings, representations or warranties of any kind except as expressly
set forth herein.
25. GOVERNING LAW.
All questions relating to the validity, interpretation, or performance
of this Agreement shall be determined in accordance with the laws of the State
of Louisiana.
26. HEADINGS.
Italicized headings used herein are for convenience only and have no
legal effect.
27. TERMINATION UPON DEFAULT.
Subject to Article 16 hereof, this Agreement may be terminated by (a)
KACC, if Buyer has failed to make payments required hereunder within ten (10)
days following written notice from KACC with respect to such failure to pay, and
(b) either party hereto, if a material default shall be made by the other party
and the defaulting party fails to cure such material default within thirty (30)
days following written notice from the non-defaulting party, or within such
longer period following such notice as is reasonably necessary to cure such
default using diligent and good faith efforts, but in no event for a period in
excess of ninety (90) days. Notwithstanding the foregoing, no termination shall
occur under any circumstance with respect to matters disputed in good faith
until completion of the arbitration process described in Article 28 hereof.
28. ARBITRATION.
In the event of a good faith dispute between the parties hereto as to
whether or not a party is in default in the due observance or performance of any
covenant, condition or obligation of such party hereunder, such dispute shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and judgment may be entered in any court
having jurisdiction thereof. Unless otherwise mutually agreed by the parties,
22
<PAGE> 23
any such arbitration shall be conducted in New Orleans, Louisiana.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
KAISER ALUMINUM & CHEMICAL
CORPORATION,
a Delaware corporation
Dated: May 27th, 1997 By/s/ Jeffrey W. Smith
----------------------------------
Name:
Its: Vice President
KAISER LAROCHE HYDRATE PARTNERS,
a Delaware general partnership,
by its general partners:
KAISER ALUMINUM & CHEMICAL
CORPORATION, a Delaware corporation
Dated: , 1997 By/s/ E. P. Miller
------ ----------------------------------
Name:
Its: KLHP Chairman
LaROCHE INDUSTRIES INC.,
a Delaware corporation
Dated: , 1997 By /s/ Vincent R. Gurzo
------ -----------------------
Name: Vincent R. Gurzo
Its: Vice President
23
<PAGE> 24
EXHIBIT A TO
AMENDED AND RESTATED HYDRATE SALES AGREEMENT
<TABLE>
<CAPTION>
HYDRATE SPECIFICATIONS
----------------------
CHEMICAL PROPERTIES (WEIGHT % ON DRY BASIS) %TYPICAL* MAXIMUM
- ------------------- --------- -------
<S> <C> <C>
SiO2 0.009 0.014
Fe2O3 0.006 0.010
Na2O 0.28 0.40
Free Moisture 0.10 0.20
Acid Insols 0.03 0.10
Caustic Sed 0.11 0.30
Leachable Soda 0.007 0.010
</TABLE>
<TABLE>
<CAPTION>
PHYSICAL PROPERTIES % MINIMUM %TYPICAL* % MAXIMUM
- ------------------- --------- --------- ---------
Screens
<S> <C> <C>
+325 mesh 92.0 94-97 ---
+100 mesh ---- 6.0 15.0
Reflectance 70.0** 74** ---
</TABLE>
* The parties acknowledge that although the typical percentages set forth
above are more stringent than the maximum percentages allowed in
Hydrate, such typical percentages are typically the amounts of the
designated properties which have historically been present in Hydrate
over an extended period of time. It is the intent of the parties that
such typical percentages should continue to be reflected in Hydrate
over an extended period of time, while the maximum percentages apply on
a shipment-by-shipment basis.
** Subject to adjustment pursuant to Section 3(d) hereof.
A-1
<PAGE> 25
<TABLE>
<CAPTION>
WETCAKE SPECIFICATIONS
----------------------
CHEMICAL PROPERTIES (WEIGHT % ON DRY BASIS) % TYPICAL* MAXIMUM
- ------------------- --------- -------
<S> <C> <C>
SiO2 0.009 0.014
Fe2O3 0.006 0.010
Na2O 0.28 0.40
Free Moisture 8.0 12.0
Acid Insols 0.03 0.10
Caustic Sed 0.11 0.30
Leachable Soda 0.007 0.010
</TABLE>
<TABLE>
<CAPTION>
PHYSICAL PROPERTIES % MINIMUM %TYPICAL* % MAXIMUM
- ------------------- --------- --------- ---------
<S> <C> <C>
Screens
+325 mesh 92.0 94-97 ---
+100 mesh ---- 10.0 20.0
Reflectance 70.0** 74** ---
</TABLE>
* It is the intent of the parties that such typical percentages should
continue to be reflected in Wetcake over an extended period of time,
while the maximum percentages apply on a shipment-by-shipment basis.
** Subject to adjustment pursuant to Section 3(d) hereof.
A-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED,
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND CASH FLOWS AS OF MAY
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q 1ST
QUARTER FISCAL YEAR 1998 LAROCHE INDUSTRIES, INC.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 4,367
<SECURITIES> 0
<RECEIVABLES> 45,210
<ALLOWANCES> 687
<INVENTORY> 27,364
<CURRENT-ASSETS> 89,497
<PP&E> 279,211
<DEPRECIATION> 94,615
<TOTAL-ASSETS> 304,279
<CURRENT-LIABILITIES> 82,167
<BONDS> 104,441
4,327
0
<COMMON> 4
<OTHER-SE> 53,638
<TOTAL-LIABILITY-AND-EQUITY> 304,279
<SALES> 110,663
<TOTAL-REVENUES> 110,663
<CGS> 90,512
<TOTAL-COSTS> 90,512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 89
<INTEREST-EXPENSE> 3,933
<INCOME-PRETAX> 4,945
<INCOME-TAX> 1,978
<INCOME-CONTINUING> 2,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,967
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
