<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998
REGISTRATION NO. 333-39507
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
LAROCHE INDUSTRIES INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 5169 13-3341472
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
1100 JOHNSON FERRY ROAD, N.E.
ATLANTA, GEORGIA 30342
(404) 851-0300
(Address, including zip code, and telephone number,
including area code, of registrants' principal executive offices)
---------------------
HAROLD W. INGALLS
1100 JOHNSON FERRY ROAD
ATLANTA, GEORGIA 30342
(404) 851-0300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
B. LYNN WALSH, ESQ.
DANIEL O. KENNEDY, ESQ.
HUNTON & WILLIAMS
NATIONSBANK PLAZA
SUITE 4100
600 PEACHTREE ST., N.E.
ATLANTA, GA 30308-2216
(404) 888-4000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date under Section 8 of the
Securities Act of 1933. The Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE> 2
CROSS REFERENCE TABLE
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION OR PROSPECTUS CAPTION
-------------------------------- ------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Page of
Prospectus....................................... Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial
Information
4. Terms of Transaction............................... Prospectus Summary; The Exchange Offer;
Certain Federal Income Tax Consequences;
Description of the Exchange Notes
5. Pro Forma Financial Information.................... Not Applicable
6. Material Contracts with the Company Being
Acquired......................................... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of Named Experts and Counsel............. Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Management
10. Information with Respect to S-3 Registrants........ Not Applicable
11. Incorporation of Certain Information by
Reference........................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants........................... Business; Management; Financial Statements;
Selected Historical Consolidated Financial
Information; Management's Discussion and
Analysis of Financial Condition and Results
of Operation
15. Information with Respect to S-3 Companies.......... Not Applicable
16. Information with Respect to S-2 or S-3 Companies... Not Applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies............................. Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Not Applicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange Offer..... Prospectus Summary; Management; Security
Ownership of Certain Beneficial Owners and
Management; Certain Relationships and
Related Transactions
</TABLE>
<PAGE> 3
PROSPECTUS
MARCH 6, 1998 LAROCHE INDUSTRIES INC.
OFFER TO EXCHANGE 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL
6, 1998, UNLESS EXTENDED.
LaRoche Industries Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 9 1/2%
Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this prospectus is a part, for each $1,000
principal amount of its outstanding 9 1/2% Senior Subordinated Notes due 2007
(the "Old Notes"), of which $175 million principal amount is outstanding. The
form and terms of the Exchange Notes are the same as the form and terms of the
Old Notes except that (i) the Exchange Notes will bear a Series B designation,
(ii) the Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (iii)
holders of the Exchange Notes will not be entitled to certain rights of holders
of Old Notes under the Registration Rights Agreement (as defined herein). The
Old Notes and the Exchange Notes are referred to herein collectively as the
"Notes." The Exchange Notes will evidence the same debt as the Old Notes (which
they replace) and will be issued under and be entitled to the benefits of the
Indenture dated as of September 23, 1997 (the "Indenture") by and between the
Company and State Street Bank and Trust Company (the "Trustee"), as trustee,
governing the Notes. See "The Exchange Offer" and "Description of the Exchange
Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on April 6, 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
The Old Notes were sold by the Company on September 23, 1997 to Chase
Securities Inc. and Donaldson, Lufkin & Jenrette Securities Corporation (the
"Initial Purchasers") in a transaction not registered under the Securities Act
in reliance upon an exemption under the Securities Act (the "Initial Offering").
The Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act ("Rule
144A"). Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Exchange and
Registration Rights Agreement between the Company and the Initial Purchasers in
connection with the Initial Offering (the "Registration Rights Agreement"). See
"The Exchange Offer."
Interest on the Notes will accrue from their date of original issuance and
will be payable semi-annually in arrears on March 15 and September 15 of each
year, commencing March 15, 1998, at the rate of 9 1/2% per annum. The Notes will
be redeemable, in whole or in part, at the option of the Company on or after
September 15, 2002, at the redemption prices set forth herein plus accrued and
unpaid interest to the date of redemption. In addition, at any time and from
time to time prior to September 15, 2000, the Company may, at its option, redeem
up to 33 1/3% of the initial aggregate principal amount of Notes with the net
proceeds of one or more Public Equity Offerings (as defined herein) by the
Company, at a redemption price equal to 109.5% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of redemption; provided,
however, that after giving effect to any such redemption, at least 66 2/3% of
the aggregate principal amount of the Notes originally issued remains
outstanding. Upon a Change in Control (as defined herein), the Company will be
required to make an offer to repurchase the Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. In addition, the Company will be obligated to offer to
repurchase the Notes at 100% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase in the event of certain Asset Sales
(as defined herein). See "Description of the Exchange Notes."
The Notes will be general unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined herein) of the Company. The Notes will rank pari
passu in right of payment with any future Senior Subordinated Indebtedness (as
defined herein) of the Company and will rank senior in right of payment to all
Subordinated Indebtedness (as defined herein) of the Company. As of November 30,
1997, after giving effect to the Refinancing, including the issuance of the Old
Notes and the application of the net proceeds therefrom, the aggregate principal
amount of the Company's outstanding Senior Indebtedness would have been
approximately $40.4 million (excluding unused commitments) and the Company would
have had no Senior Subordinated Indebtedness outstanding other than the Notes
and approximately $900,000 of outstanding 13% Notes (as defined herein). See
"Description of the Exchange Notes -- Ranking."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
Based upon interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer -- Resale of the Exchange
Notes." Holders of Old Notes wishing to accept the Exchange Offer must represent
to the Company, as required by the Registration Rights Agreement, that such
conditions have been met. Each broker-dealer (a "Participating Broker-Dealer")
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within" the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented form time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 195 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer. Holders of Old Notes not
tendered and accepted in the Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and benefits and will be subject to the
limitations applicable thereto under the Indenture and with respect to transfer
under the Securities Act. See "The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL JUNE 4, 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "DESCRIPTION OF THE EXCHANGE NOTES -- BOOK-ENTRY;
DELIVERY AND FORM", THE COMPANY EXPECTS THAT THE EXCHANGE NOTES ISSUED PURSUANT
TO THE EXCHANGE OFFER WILL BE REPRESENTED BY A GLOBAL NOTE (AS DEFINED HEREIN),
WHICH WILL BE DEPOSITED WITH, OR ON
i
<PAGE> 5
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR IN
THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL NOTE
REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE
EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS. AFTER THE
INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL BE ISSUED
IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS SET FORTH IN
THE INDENTURE. SEE "DESCRIPTION OF THE EXCHANGE NOTES -- BOOK-ENTRY; DELIVERY
AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE
CONTENTS OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR
SHOULD CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. THE COMPANY DOES
NOT MAKE ANY REPRESENTATION TO ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES
REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE
LEGAL INVESTMENT OR SIMILAR LAWS.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY
RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY AND CONDUCTED BY THIRD
PARTIES AND FROM INDUSTRY OR GENERAL PUBLICATIONS. THE COMPANY HAS NOT
INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY THIRD PARTIES OR INDUSTRY OR
GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE
COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AS DESCRIBED IN
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL
OF THESE FORWARD LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE
BY MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE
INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH
ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES
OR STATEMENTS WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2)
INCREASED COSTS; (3) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4)
INCREASES IN THE COMPANY'S COST OF BORROWINGS OR INABILITY OR UNAVAILABILITY OF
ADDITIONAL DEBT OR EQUITY CAPITAL; (5) SIGNIFICANT INDEBTEDNESS OF THE COMPANY
FOLLOWING THE REFINANCING; (6) ADVERSE STATE OR FEDERAL LEGISLATION OR
REGULATION OR ADVERSE DETERMINATIONS BY REGULATORS; (7) CHANGES IN GENERAL
ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME,
COMPETE; (8) THE SUCCESSFUL INTEGRATION OF THE BUSINESS AND OPERATIONS OF THE
JOINT VENTURE COMPANY AND THE CHLOR-ALKALI JOINT VENTURE TRANSACTIONS INTO THE
COMPANY'S OPERATIONS AND (9) OTHER FACTORS REFERENCED IN THIS PROSPECTUS. MANY
OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT.
FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL
RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. The Company
has filed with the Commission a Registration Statement on Form S-4 (the
"Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes
ii
<PAGE> 6
and schedules thereto) pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder,
covering the Exchange Notes being offered hereby. This Prospectus does not
contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Company and the Exchange
Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, and periodic reports and
other information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
http://www.sec.com.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission all
quarterly and annual financial information that would be required to be filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provision thereto. In addition, for so long as any of the Notes
remain outstanding and prior to the occurrence of certain events, the Company
has agreed to make available to any record holder, in connection with any sale
thereof, the information required by Rule 144A(d)(4) under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON
REQUEST FROM PHILIP P. GURA, ESQ., EXECUTIVE DIRECTOR OF LEGAL AFFAIRS, LAROCHE
INDUSTRIES INC., 1100 JOHNSON FERRY ROAD, N.E., ATLANTA, GEORGIA 30342. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH
30, 1998 (FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended May 31, 1997, August 31, 1997 and November 30, 1997 (as
amended).
3. The Company's Current Report on Form 8-K dated October 17, 1997
(filed November 3, 1997) and amendment thereto on Form 8-K/A (filed
December 31, 1997).
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus
and prior to the Expiration Date shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of the filing of such reports and
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of his Prospectus to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Registration
Statement.
iii
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, the term "Company"
includes LaRoche Industries Inc. and all of its subsidiaries and their
respective predecessors and subsidiaries. Certain terms used herein are defined
in "Business Glossary."
THE COMPANY
LaRoche Industries Inc. is a major domestic diversified producer and
distributor of inorganic chemicals. The Company's products are divided into
three business segments: Nitrogen Products, Electrochemical Products and Alumna
Chemicals. The Company produces and distributes various Nitrogen Products,
including nitrogen-based fertilizers essential for crop growth and
nitrogen-based blasting agents for industrial explosives. In Electrochemical
Products, the Company is a merchant producer and marketer of chlor-alkali
chemicals, which are fundamental building blocks for products used in the
construction, pulp and paper, water treatment, detergent, pesticide and
pharmaceutical industries. The Company also produces Alumina Chemicals, which
are used in a variety of catalyst and adsorbent applications, including
environmental protection and abatement processes.
The Company was formed in a 1986 management buyout of the nitrogen, mixed
fertilizers and retail business operations of United States Steel Corporation
("USX") followed by a 1988 acquisition of certain chemical production operations
of Kaiser Aluminum & Chemical Corporation ("Kaiser"). The Company has assembled
and is continuing to develop a platform of three core businesses upon which it
believes it can realize long term growth and improved profitability. The Company
intends to achieve these objectives primarily through capital expenditures to
improve and expand existing facilities, new product development and strategic
acquisitions of attractively priced assets in the Company's core business
segments. Management believes the Company benefits from the sale of diversified
products with relatively independent business cycles and distinct markets. For
the fiscal year ended February 28, 1997, the Company had consolidated net sales
of $379.3 million and EBITDA (as defined herein) of $39.1 million.
NITROGEN PRODUCTS
The Company's Nitrogen Products consist of three product lines: (i)
ammonium nitrate and nitrogen solution fertilizers; (ii) blasting-grade ammonium
nitrate; and (iii) industrial anhydrous and aqua ammonia. The Company's two
primary nitrogen-based fertilizers are high density ammonium nitrate ("HDAN")
and urea-ammonium nitrate solution ("UAN solution"). The Company has total HDAN
production capacity of 280,000 tons per annum ("p.a.") at its Cherokee, Alabama
and Crystal City, Missouri facilities and UAN solution capacity of 250,000 tons
p.a. at its Cherokee facility. The Company believes it is the second largest
North American supplier of HDAN with approximately 11% of industry capacity. The
Company also manufactures blasting-grade low density ammonium nitrate ("LDAN")
and 83% ammonium nitrate solution ("83% Solution") used by the coal mining,
metal mining and quarry industries. The Company has total LDAN capacity of
440,000 tons p.a. at its Crystal City, Seneca, Illinois and Geneva, Utah
facilities. The Company believes it is the fourth largest North American
supplier of LDAN to the blasting products market, representing approximately 16%
of industry capacity. The Company also believes it is the largest merchant
distributor in the United States of premium grade anhydrous and aqua ammonia
used for water treatment and for the manufacture of other chemical products. For
fiscal year 1997, Nitrogen Products accounted for $242.4 million of net sales
(63.9% of Company total) and $26.4 million of EBITDA before unallocated
corporate expenses (59.0% of Company total).
The Company believes it has achieved its leading market positions through
the development of an extensive system of production and distribution facilities
which are located close to their target markets, often in areas where
competitors do not have local operations. Accordingly, due to the high costs
associated with the transportation of certain nitrogen products, the Company
believes it has located its facilities where it enjoys a
1
<PAGE> 8
freight advantage over many other competitors. The Company has also maintained
competitiveness through back-integration into ammonia, efficient management of
natural gas feedstock costs and capacity expansions.
ELECTROCHEMICAL PRODUCTS
The Company's Electrochemical Products consist primarily of chlorine and
caustic soda (collectively referred to as "chlor-alkali") that are produced as
co-products at its Gramercy, Louisiana facility. This facility has chlorine
production capacity of 200,000 tons p.a. and caustic soda production capacity of
224,000 tons p.a. Chlorine is sold for a variety of uses, including the
manufacture of polyvinyl chloride ("PVC"), household and industrial bleach and
titanium dioxide, water treatment and various other end-uses. Caustic soda is
sold to manufacturers of aluminum, organic and inorganic chemicals, detergents
and petrochemicals, pulp and paper processors and water treatment facilities.
For fiscal year 1997, Electrochemical Products accounted for $96.7 million of
net sales (25.5% of Company total) and $14.3 million of EBITDA before
unallocated corporate expenses (31.8% of Company total).
The Company primarily competes in the Gulf Coast chlor-alkali market.
Industry consultants estimate that approximately 70% of Gulf Coast chlorine
capacity is used by integrated producers for captive consumption in the
production of downstream products. As a result, despite accounting for only
approximately 2.0% of overall Gulf Coast chlorine capacity, the Company's
production capacity represents an approximate 7.5% share of the 2.7 million ton
p.a. Gulf Coast merchant chlorine market. The Company has achieved this position
by focusing on chlorine sales to downstream producers of PVC, rigid urethane
foam and titanium dioxide that prefer not to deal with chlorine suppliers that
also produce competing downstream products. The Company believes it has
developed strong customer relationships by capitalizing upon its secure brine
supply, low-cost on-site electric power and close customer proximity to
consistently deliver a competitively priced product. Over 50% of the Company's
chlorine and caustic soda sales are currently made to customers located within a
100-mile radius of the Gramercy facility.
The Company also operates a fluorocarbon business at its Gramercy facility.
Due to the federal government's mandated phaseout of chlorofluorocarbon ("CFC")
production by the end of 1995, the Company has replaced, over the last three
fiscal years, its CFC foam blowing agent product line with the next generation
hydrochlorofluorocarbon ("HCFC") foam blowing agent, HCFC-141b. The Company has
reduced its reliance on its CFC business, and on fluorocarbon products in
general, with new products and more intensive development of markets and
facilities for its existing product segments.
ALUMINA CHEMICALS
The Company's Alumina Chemicals business, located at its Baton Rouge,
Louisiana facility, includes specialty activated aluminas and Versal(R) gel
aluminas. These specialty products are used as desiccants, adsorbents, catalysts
and catalyst support systems. The Company believes it is the world's second
largest producer of activated aluminas, with an estimated annual production
capacity of 50 million pounds, and the world's second largest merchant producer
of gel aluminas, with an estimated annual production capacity of 20 million
pounds. The Company is also an equity investor in two joint ventures related to
its specialty aluminas business. For fiscal year 1997, Alumina Chemicals
accounted for $40.1 million of net sales (10.6% of Company total) and $4.1
million of EBITDA before unallocated corporate expenses (9.2% of Company total).
In specialty aluminas, product performance provides the basis for
competitive advantage and premium pricing. The Company believes it has developed
technically-advanced high-performance custom products in cooperation with its
customers, especially in its Versal(R) product line. The Company believes that
these activities have enabled it to develop strong customer relationships which
are expected to form the basis for continued product improvement and
development.
2
<PAGE> 9
BUSINESS STRATEGY
The Company's goals are to achieve long-term growth and improved
profitability while maintaining stringent criteria for safety, reliability,
advanced technology and product quality. The Company's strategies include:
Continue to Improve Existing Operations. Management believes that it
can lower its cost of production and achieve greater manufacturing
reliability through several identified capital expenditure projects. In
Nitrogen Products, the Company is evaluating the expansion of ammonia
production capacity at the Cherokee plant, which will provide further
vertical integration of its raw material supply. In Electrochemical
Products, in addition to the construction of improved electrical systems
currently underway, additional caustic soda evaporation capacity and
improved brine saturation capabilities projects are under consideration for
the Gramercy facility. In Alumina Chemicals, debottlenecking, capacity
expansions and cost reduction programs are being studied for the Baton
Rouge facility. The estimated total cost of these and other identified
capital expenditure projects under consideration is approximately $100.0
million over the next three to four years. Assuming that all of such
projects are approved and implemented, the Company believes that these
projects could, in the aggregate, contribute approximately $27.0 million to
annual EBITDA. The Company's estimate of the potential contribution to
EBITDA from these projects is based on various assumptions as to costs of
raw materials, demand and prices for the Company's products and other
matters, many of which are beyond the Company's control. There can be no
assurances that any or all of the capital expenditure projects under
consideration will be implemented or that the Company will achieve any or
all of the anticipated operating efficiencies, increase in EBITDA, or other
benefits from such expenditures.
Focus On Product Quality and Customer Service. The Company is seeking
to further improve the quality and performance of its products and the
ability of the Company to consistently satisfy customer requirements
through steps that include implementation of its internal quality
initiative and completion of ISO-9000 certification. These steps, coupled
with programs designed to improve product distribution, develop products
cooperatively with the Company's customers and increase manufacturing
flexibility, are intended to satisfy changing customer product demands and
delivery requirements.
Enhance Core Businesses through Strategic Acquisitions. The Company
continually evaluates acquisition opportunities that would complement and
expand its core businesses while increasing its market position and
distribution strengths. The Company believes it is well-positioned to
acquire low-cost commodity chemical assets in its core businesses from
other large chemical companies, many of which have made strategic decisions
to exit the commodity chemicals business and focus on downstream business
lines that often will continue to require commodity chemical feedstocks.
Management believes such assets often have been underutilized and offer
significant potential for value enhancement when operated, maintained and
developed by a focused commodity chemical producer, such as the Company.
Improve Stability of Cash Flow. Management believes that the diverse
array of the products offered, and distinct markets served by, the Company
mitigate the impact of the cyclicality of any one product or market on the
overall performance of the Company. In an effort to further increase its
cash flow stability, the Company is engaging in: (i) active commodity
hedging activities and vertical integration to help mitigate raw materials
price risk; (ii) product development to expand value-added, less cyclical
businesses such as Alumina Chemicals; and (iii) strategic acquisitions and
business development to acquire or expand businesses which either are less
cyclical, balance the seasonality of the Company's Nitrogen Products
segment, or provide access to new geographic markets.
CHLOR-ALKALI JOINT VENTURE
In October 1997, the Company purchased a 50% interest in the French
chlor-alkali business of Rhone-Poulenc Chimie, S.A. ("RPC"), a subsidiary of
Rhone-Poulenc, S.A. ("Rhone-Poulenc"), and entered into certain related
arrangements with RPC (collectively, the "Chlor-alkali Joint Venture"). The
Company, through its newly formed, wholly owned subsidiary, LII Europe S.A.R.L.
("LII Europe"), purchased a 50%
3
<PAGE> 10
stock interest (the "Initial Purchase") in ChlorAlp S.A.S., a subsidiary of RPC
(the "Joint Venture Company"). The Initial Purchase price represented 42.5% of
the agreed value of the Joint Venture Company, which is approximately 447
million French francs ("FRF") ($76.3 million), resulting in an initial
investment by the Company of FRF 190 million ($32.4 million) excluding
acquisition costs. The Company funded the Initial Purchase by drawing under the
Term Loan (as defined herein).
Prior to the closing date of the Initial Purchase (the "Closing Date"), RPC
contributed to the Joint Venture Company a 265,000 ton p.a. chlor-alkali
production facility located in Pont-de-Claix, France (the "PCL Facility"), as
well as certain other related assets and liabilities. The Company believes that
the Chlor-alkali Joint Venture will: (i) increase its international market share
in chlorine and caustic soda; (ii) provide a significant entry point to the
European chemical markets at an attractive initial investment cost; and (iii)
produce operating efficiencies which may be derived from the operating
similarities between the PCL Facility and the Company's Gramercy facility. In
connection with the Chlor-alkali Joint Venture, the Joint Venture Company
entered into market-priced long term contracts to sell to Rhone-Poulenc (or its
affiliates) chlorine and caustic soda, the amounts of which historically have
been approximately 65% of the PCL Facility's production output. Based on audited
financial information provided by Rhone-Poulenc, in 1996, the PCL Facility
generated net sales of approximately FRF 547.6 million, and based on unaudited
financial information, it generated EBITDA of approximately FRF 100.0 million in
1996.
Certain related agreements entered into in connection with Chlor-alkali
Joint Venture provide each of the Company and RPC with the option to sell to the
other its respective interest in the Joint Venture Company under certain
circumstances. See "Business -- Chlor-alkali Joint Venture" and "Risk
Factors -- Risks Relating to Chlor-alkali Joint Venture."
THE REFINANCING
In September 1997, the Company refinanced its outstanding indebtedness
under its then-outstanding $100 million aggregate principal amount of 13% Senior
Subordinated Notes due 2004 (the "13% Notes") by consummating the Initial
Offering and the Tender Offer and the related Consent Solicitation (each as
defined herein) pertaining to the 13% Notes, and using the net proceeds
therefrom to repurchase approximately 99% of the 13% Notes and repay certain
borrowings under the Revolving Credit Facility (as defined herein). In August
1997, the Company entered into a six year, $160.0 million senior secured credit
facility (the "Credit Facility"), consisting of a $100.0 million revolving
credit facility (the "Revolving Credit Facility") and a $60.0 million term loan,
which was reduced to $35.0 million upon the closing of the Initial Offering (the
"Term Loan"). The Revolving Credit Facility was amended in October 1997 to
increase the maximum availability to $125.0 million. The Company used a portion
of the Revolving Credit Facility to retire its previous credit facility, which
retirement, together with the Initial Offering, the Tender Offer and the Consent
Solicitation are collectively referred to herein as the "Refinancing." All of
the Term Loan was drawn in October 1997 for purposes of closing the Chlor-alkali
Joint Venture.
In the Tender Offer and Consent Solicitation, the Company made a tender
offer to purchase all of its 13% Notes for an amount in cash equal to $1,172.89
per $1,000 aggregate principal amount, plus accrued interest, which was based on
the yield to the earliest redemption date for the 13% Notes, using a specific
reference security, plus a fixed spread (the "Tender Offer"). The Company also
solicited consents from tendering holders to amend the indenture under which the
13% Notes were issued (the "13% Note Indenture") to eliminate substantially all
of the protective covenants contained therein (the "Consent Solicitation"), and
paid a separate consent fee to holders who tendered their 13% Notes and
delivered consents prior to the expiration of the Tender Offer. The Company
received tenders of and consents relating to approximately 99% of the
outstanding principal amount of the 13% Notes. All of the tendered 13% Notes
were retired and the 13% Note Indenture was amended accordingly in September
1997.
4
<PAGE> 11
RECENT DEVELOPMENTS
On December 31, 1997, the Company (through a newly-formed subsidiary)
purchased certain chlor-alkali and chlorinated methane manufacturing facilities
located near Frankfurt, Germany (the "German Facilities") for 45 million German
marks (approximately $25.5 million at applicable exchange rates) from Celanese
GmbH, Frankfurt, a subsidiary of Hoechst AG. The German Facilities produce
chlorine, caustic soda, sodium hypochloride, calcium chloride, methyl chloride,
methylene chloride/chloroform and hydrochloric acid. The Company funded the
purchase with funds drawn from its Revolving Credit Facility.
The principal executive offices of the Company are located at 1100 Johnson
Ferry Rd., N.E., Atlanta, Georgia 30342, and the Company's telephone number is
(404) 851-0300.
THE INITIAL OFFERING
Notes...................... The Old Notes were sold by the Company on September
23, 1997 to the Initial Purchasers pursuant to a
Purchase Agreement dated September 18, 1997 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
Registration Rights
Agreement................. Pursuant to the Purchase Agreement, the Company,
and the Initial Purchasers entered into an Exchange
and Registration Rights Agreement dated as of
September 18, 1997 which grants the holder of the
Old Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange and registration rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered......... $175,000,000 aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2007, Series B, of
the Company.
The Exchange Offer......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $175,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on interpretations by the staff of the
Commission set forth in certain no-action letters
issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection
5
<PAGE> 12
with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer as a result of
market-making activities or other trading
activities. The Company has agreed that, for a
period of 195 days after the Expiration Date, they
will make this Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in such no-action
letters and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which the
holder is not indemnified by the Company.
Expiration Date............ 5:00 p.m., New York City time, on April 6, 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Accrued Interest on the
Exchange Notes and the
Old Notes................ Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the
issuance date of the Exchange Notes. Such interest
will be paid with the first interest payment on the
Exchange Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of
the Exchange Notes.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof (or, in the case of a book-entry transfer,
transmit an Agent's Message (as defined herein) in
lieu thereof), in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile (or Agent's message), together with the
Old Notes and any other required documentation to
the Exchange Agent (as defined herein) at the
address set forth herein. By executing the Letter
of Transmittal (or transmitting an Agent's
Message), each holder will represent to the Company
that, among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or
not such person is
6
<PAGE> 13
the holder, that neither the holder nor any such
other person has any arrangement or understanding
with any person to participate in the distribution
of such Exchange Notes and that neither the holder
nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of
the Company. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer" and "-- Procedures
for Tendering."
Untendered Old Notes....... Following the consummation of the Exchange Offer
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange or registration rights and such
Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could be
adversely affected.
Consequences of Failure to
Exchange................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person pursuant to the requirements of
Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Shelf Registration
Statement................ If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company or a
Guarantor within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has satisfied certain
conditions relating to the provision of information
to the Company for use therein, the Company has
agreed to register the Old Notes on a shelf
registration statement (the "Shelf Registration
Statement") and to use their reasonable best
efforts to cause it to be declared effective by the
Commission as promptly as practical on or after the
consummation of the Exchange Offer. The Company has
agreed to maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Notes held by any such holders.
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Guaranteed Delivery
Procedures............... Holder of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes (or
comply with the procedures for book-entry
transfer), the
7
<PAGE> 14
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or transmit an Agent's Message in
lieu thereof) prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer."
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company.
THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes (which
they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting
the transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement,
including the provisions providing for an increase
in the interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer is consummated. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer."
The Exchange Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits
of the Indenture. See "Description of the Exchange
Notes." The Old Notes and the Exchange Notes are
referred to herein collectively as the "Notes."
Issuer..................... LaRoche Industries Inc., a Delaware corporation.
Notes Offered.............. $175,000,000 aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2007, Series B.
Maturity Date.............. September 15, 2007.
Interest Payment Dates..... March 15 and September 15 of each year, commencing
on March 15, 1998.
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after September 15, 2002 at the redemption prices
set forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, prior to September 15, 2000, the Company
may, at its option, redeem up to 33 1/3% of the
initial aggregate principal amount of Notes with
the net proceeds of one or more Public Equity
Offerings at a redemption price equal to 109.5% of
the principal amount thereof plus accrued and
unpaid interest, if any, to the redemption date;
provided that, after giving effect thereto, at
least 66 2/3% of the
8
<PAGE> 15
initial aggregate principal amount of Notes remains
outstanding. See "Description of the Exchange
Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
holder of Notes may require the Company to purchase
all or a portion of such holder's Notes at a
purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. The
Credit Facility prohibits the Company from
repurchasing any Notes pursuant to a Change of
Control Offer (as defined herein) prior to the
repayment in full of the Senior Indebtedness under
the Credit Facility. Therefore, if a Change of
Control were to occur, there can be no assurance
that the Company will have the financial resources
or be permitted under the terms of its indebtedness
to repurchase the Notes. If any Event of Default
(as defined herein) occurs as a result thereof, the
Trustee under the Indenture or holders of at least
25% in principal amount of the Notes then
outstanding may declare the principal of and the
accrued and unpaid interest on such Notes to be due
and payable immediately. However, such repayment
would be subject to certain subordination
provisions in the Indenture. See "Risk Factors --
Limitation on Change of Control," "Description of
the Exchange Notes -- Subordination," "-- Change of
Control" and "-- Events of Default and Remedies."
Ranking.................... The Notes will be unsecured senior subordinated
obligations of the Company and will be subordinated
in right of payment to all existing and future
Senior Indebtedness of the Company, including
Indebtedness of the Company under the Credit
Facility. The Notes will rank pari passu with all
Senior Subordinated Indebtedness of the Company and
will rank senior to all other Subordinated
Indebtedness of the Company. As of November 30,
1997, after giving effect to the Refinancing, the
Company had approximately $40.4 million of
outstanding Senior Indebtedness. See
"Capitalization" and "Description of the Exchange
Notes -- Subordination."
Certain Covenants.......... The Indenture relating to the Notes will contain
certain restrictive covenants, including, but not
limited to, covenants with respect to the following
matters: (i) limitation on indebtedness; (ii)
limitation on restricted payments; (iii) limitation
on transactions with affiliates; (iv) limitation on
liens; (v) limitation on sale of assets; (vi)
limitation on issuance and sale of equity interests
of subsidiaries; (vii) limitation on dividends and
other payment restrictions affecting subsidiaries;
and (viii) restrictions on consolidations, mergers
and the transfer of all or substantially all of the
assets of the Company to another person. See
"Description of the Exchange Notes -- Certain
Covenants" and "-- Consolidation, Merger and Sale
of Assets."
Use of Proceeds............ The Company used the net proceeds from the Initial
Offering to repurchase the 13% Notes, to repay
certain existing indebtedness and to prefund
certain capital expenditures. See "Use of
Proceeds."
RISK FACTORS
In addition to the other information contained in this Prospectus, the
factors described under "Risk Factors" should be considered before tendering the
Old Notes for the Exchange Notes. These risk factors are generally applicable to
the Old Notes as well as the Exchange Notes.
9
<PAGE> 16
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain selected historical financial
information of the Company. The historical financial information as of and for
each of the three fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997 was derived from the Company's audited consolidated financial
statements. The historical financial information as of and for each of the nine
months ended November 30, 1996 and November 30, 1997 was derived from the
Company's unaudited condensed consolidated financial statements.
The table should be read in conjunction with the audited and unaudited
consolidated financial statements of the Company and related notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------ ---------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, NOVEMBER 30, NOVEMBER 30,
1995 1996(A) 1997(B) 1996 1997
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................................... $420,723 $448,982 $379,285 $291,458 $279,721
Cost of sales................................... 329,383 350,066 313,871 237,524 230,042
-------- -------- -------- -------- --------
Gross profit.................................... 91,340 98,916 65,414 53,934 49,679
Selling, general and administrative expenses.... 54,135 54,631 54,777 41,816 36,738
-------- -------- -------- -------- --------
Income from operations.......................... 37,205 44,285 10,637 12,118 12,941
Interest and amortization of debt expense....... (13,083) (15,973) (14,881) (11,244) (12,225)
Income from equity investments.................. 2,540 2,647 4,909 3,636 2,216
Other income (loss), net........................ 1,581 1,163 411 19 (1,523)
(Provision) benefit for income taxes............ (12,297) (13,170) (417) (1,799) (564)
-------- -------- -------- -------- --------
Income before minority interests and
extraordinary charge................. $ 15,946 $ 18,952 $ 659 $ 2,730 $ 845
======== ======== ======== ======== ========
Net income (loss)...................... $ 13,023 $ 18,952 $ 659 $ 2,730 $(11,173)
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)....................................... $ 56,538 $ 67,430 $ 39,099 $ 32,495 $ 35,047
Depreciation and amortization(d)................ 16,067 18,580 22,634 16,052 16,705
Cash received from equity investments........... 2,933 1,332 5,701 3,840 3,355
Capital expenditures(e)......................... 17,651 16,894 35,784 20,799 23,227
Cash interest expense(f)........................ 12,790 15,557 15,314 11,326 12,506
Ratio of EBITDA to cash interest expense........ 4.4x 4.3x 2.6x 2.9x 2.8x
Ratio of EBITDA to pro forma cash interest
expense(g).................................... -- -- 2.1x -- 2.7x
Ratio of earnings to fixed charges(h)........... 2.4x 2.7x 1.1x 1.3x 1.1x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents....................... $ 5,900 $ 3,265 $ 1,165 $ 2,904 $ 2,826
Working capital................................. 58,307 29,269 6,832 18,716 52,632
Total assets.................................... 300,421 305,932 312,365 288,859 364,748
Total debt(i)................................... 130,500 125,089 145,901 124,369 215,501
Stockholders' equity............................ 34,478 51,296 50,906 53,336 38,966
</TABLE>
See Notes to Summary Historical Financial Information.
10
<PAGE> 17
NOTES TO SUMMARY HISTORICAL FINANCIAL INFORMATION
(a) In September 1995, the Company entered into the CRILAR (as defined herein)
joint venture. Since that time, sales related to the assets contributed to
such joint venture have been excluded from the Company's sales, and results
of the Company's interest in the CRILAR joint venture have been accounted
for as income from equity investments. Fiscal year 1996 also reflects the
results of operations of the Company's Seneca facility since December 1995,
the date the Company acquired substantially all of the assets of such
facility.
(b) In April 1996, the Company sold substantially all of the property, plant and
equipment and certain other assets used in its calcined and tabular alumina
chemicals businesses.
(c) EBITDA represents income from operations plus cash received from equity
investments plus depreciation, amortization and non-cash long-term asset
writedowns reflected in income from operations plus amounts received in
repayment or prepayment of the Company's loan to the Joint Venture Company.
The inclusion of amounts received on the Company's loan to the Joint Venture
Company in the calculation of EBITDA reflect the provisions of the 9.5%
Notes and the Revolving Credit Facility. EBITDA should not be considered as
an alternative measure of net income or cash flow provided by operating
activities (both as determined in accordance with generally accepted
accounting principles), but is presented to provide additional information
related to the Company's debt service capability. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity. The primary difference between EBITDA and cash
flows provided by operating activities relates to changes in working capital
requirements, and payments made for interest and income taxes.
(d) Depreciation and amortization excludes amortization of debt expense
(deferred debt issuance costs), which is included in interest and
amortization of debt expense.
(e) Capital expenditures exclude noncash additions through capital leases.
(f) Cash interest expense represents interest and amortization of debt expense
as derived from the Company's consolidated financial statements, minus
amortization of debt expense of $293,000, $416,000, $427,000, $306,000 and
$479,000, and plus capitalized interest of $0, $0, $860,000, $388,000 and
$760,000 for the fiscal years 1995, 1996, 1997 and for the nine months ended
November 30, 1996 and 1997, respectively.
(g) Pro forma cash interest expense for purposes of this calculation is equal to
pro forma interest and amortization of debt expense of $18.6 million and
$13.2 million, minus pro forma amortization of debt expense of $1.2 million
and $900,000; and plus capitalized interest of $860,000 and $760,000 for the
fiscal year ended February 28, 1997 and the nine months ended November 30,
1997, respectively. Pro forma interest and amortization of debt expense is
pro forma for the Refinancing.
(h) For purposes of calculating the historical ratio of earnings to fixed
charges, earnings consist of income before income taxes, minority interests
and extraordinary charges plus fixed charges, adjusted to exclude the
undistributed earnings from equity investments and the increase in
redemption value of certain stock of a subsidiary held by minority
stockholders included in such fixed charges but not deducted in the
determination of income before minority interests. Fixed charges consist of
interest expense, amortization of debt expense, such portion of rental
expense deemed to be representative of the interest factor and the pretax
earnings required to cover the increase in redemption value of certain stock
of a subsidiary held by minority stockholders.
(i) Total debt includes the current and non-current portions of term debt,
capital leases and revolving credit facilities.
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully by prospective investors in
evaluating whether to make an investment in the Notes.
LEVERAGE; RESTRICTIVE COVENANTS
The Company has significant debt service obligations. As of November 30,
1997, after giving effect to the Refinancing, the Company had outstanding
indebtedness of approximately $214.6 million and shareholders' equity of
approximately $39.0 million. For fiscal year 1997, after giving pro forma effect
to the Refinancing, the Company's interest and amortization of debt expense and
net loss before extraordinary charges would have been $18.6 million and $1.6
million, respectively. See "The Refinancing," "Use of Proceeds" and
"Capitalization."
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including: (i) the Company's ability
to obtain additional financing for working capital, capital expenditures or
acquisitions in the future may be limited; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its indebtedness, thereby reducing funds
available for future operations; (iii) certain of the Company's borrowings,
including borrowings under the Credit Facility, are and will continue to be at
variable rates of interest, which exposes the Company to the risk of increased
interest rates; and (iv) the Company may be more vulnerable to economic
downturns and be limited in its ability to withstand competitive pressures.
Certain of the Company's competitors may currently operate on a less leveraged
basis and therefore could have significantly greater operating and financing
flexibility than the Company. The Company's ability to make scheduled payments
of the principal of, or interest on, or to refinance, its indebtedness will
depend on its future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels, and financial,
competitive, business and other factors, many of which are beyond its control.
If the Company cannot generate sufficient cash flow from operations to meet
its debt service obligations, then the Company might be required to repay or
refinance its indebtedness and may be forced to adopt alternative strategies
that may include actions such as reducing or delaying capital expenditures,
selling assets, restructuring or refinancing its indebtedness, or seeking
additional equity capital. In such case, there is no assurance that repayments
or refinancings and/or the alternative strategies could be effected on
satisfactory terms. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Credit Facility and the Indenture contain numerous restrictive
covenants that limit the discretion of the Company's management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional indebtedness,
to create liens or other encumbrances, to pay dividends or make certain other
payments and investments, to make loans and guarantees, to sell or otherwise
dispose of assets and merge or consolidate with another entity. The Credit
Facility also contains a number of financial covenants that require the Company
to maintain certain ongoing financial ratios and financial condition tests. See
"The Refinancing -- Credit Facility," "Description of the Exchange
Notes -- Certain Covenants" and " -- Consolidation, Merger and Sale of Assets."
The Company's ability to meet these financial ratios and financial condition
tests can be affected by events beyond its control, and there can be no
assurance that the Company will meet such ratios or such tests. A failure to
comply with the obligations under the Credit Facility or the Indenture could
result in an event of default under the Credit Facility or an Event of Default
under the Indenture which, if not cured or waived, could permit acceleration of
the relevant indebtedness and acceleration of indebtedness under other
instruments that may contain cross-acceleration or cross-default provisions. In
the event of an event of default under the Credit Facility or an Event of
Default under the Indenture, the lenders thereunder could elect to declare all
amounts outstanding thereunder, together with accrued and unpaid interest, to be
immediately due and payable. If the indebtedness under the Credit Facility were
to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay in full that indebtedness and the other
indebtedness of the Company, including the Notes. Other indebtedness of the
Company and its subsidiaries that may be incurred in the future may contain
financial or other covenants more restrictive than those applicable to the
Notes.
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<PAGE> 19
SUBORDINATION
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness of the Company
(including, without limitation, indebtedness incurred under the Credit
Facility). In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding-up of the Company, the assets of the Company
will be available to pay obligations on the Notes only after all Senior
Indebtedness (including amounts incurred under the Credit Facility) has been so
paid in full; accordingly, there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. In addition, under
certain circumstances, the Company may not pay principal of, premium, if any, or
interest on, or pay other amounts owing in respect of the Notes, or purchase,
redeem or otherwise retire the Notes, in the event of certain defaults with
respect to certain classes of Senior Indebtedness, including Senior Indebtedness
incurred under the Credit Facility. As of November 30, 1997, after giving effect
to the Refinancing, there was approximately $40.4 million of Senior Indebtedness
outstanding (excluding unused commitments). Additional Senior Indebtedness may
be incurred by the Company from time to time, subject to certain restrictions.
See "The Refinancing -- The Credit Facility" and "Description of the Exchange
Notes -- Certain Covenants -- Limitation on Indebtedness."
The Notes will be general unsecured obligations of the Company and will be
effectively subordinated in right of payment to all existing and future secured
Indebtedness of the Company, including the Company's obligations under the
Credit Facility, to the extent of the value of the collateral therefor. The
Credit Facility is secured by substantially all of the domestic assets of the
Company and its direct and indirect Subsidiaries and, therefore, claims of
holders of the Notes will be structurally and contractually subordinated to the
Credit Facility. The Notes are also effectively subordinated to all obligations
of the Company's Subsidiaries. In the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding up of any of the Subsidiaries, the
creditors of the Company (including holders of the Notes) will have no right to
proceed against the assets of such Subsidiaries until all their creditors have
been paid in full.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to risks inherent in the chemical
industry, such as explosions, fires, chemical spills or releases, pollution and
other environmental risks. Any significant interruption of operations at the
Company's principal facilities could have a material adverse effect on the
Company. The Company maintains general liability insurance and property and
business interruption insurance with coverage limits it believes are adequate.
Because of the nature of industry hazards, it is possible that liabilities for
pollution and other damages arising from a major occurrence could exceed
insurance coverages or policy limits or that such insurance may not be available
at reasonable rates in the future. Any such liabilities, which could arise due
to injury and/or loss of life, severe damage to and destruction of property and
equipment, pollution and other environmental damage and suspension of
operations, could have a material adverse effect on the Company.
RISKS RELATED TO CHLOR-ALKALI JOINT VENTURE
Although RPC has the right to require the Company to purchase the remaining
50% ownership interest in the Joint Venture Company (the "RPC Put") at any time
with six months prior notice during the four-year period beginning six months
after the Closing Date, the Company cannot require RPC to sell its ownership
interest to the Company, except under very limited circumstances. See
"Business -- Chlor-alkali Joint Venture." To the extent, however, that the Joint
Venture Company performs below expectations, RPC may have an incentive to
require the Company to purchase the remaining ownership interest in the Joint
Venture Company by exercising the RPC Put. Also, the Company has no control over
the timing of, or exercise of, the RPC Put. RPC may exercise the RPC Put at a
time when the Company has undertaken significant capital expenditures for
projects unrelated to the Joint Venture Company or otherwise has insufficient
funds available to satisfy the RPC Put. Additional borrowings may be necessary
to purchase the remaining interest of the Joint Venture Company from RPC if the
RPC Put is exercised. It is possible that the Company may not have sufficient
financial resources in the future or be able to borrow sufficient funds to
purchase RPC's remaining 50% interest in the Joint Venture Company if the RPC
Put is exercised.
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<PAGE> 20
As a result of any such non-payment, subject to the terms and conditions of
the Shareholders Agreement (as defined herein), RPC would have the right to
require the Company to sell its 50% interest to RPC one year after notice of the
RPC Put for 85% of the amount paid by the Company for the Initial Purchase,
subject to certain adjustments. Consequently, there can be no assurance that the
Company will own 100% of the Joint Venture Company in the future, and the
Company may be required to sell its 50% interest.
There also can be no assurance that there will not be any labor action or
disturbance by any of the labor unions that represent certain RPC employees (the
"RPC Unions") after RPC's delivery of notice of exercise of the RPC Put or
otherwise. Any such action or disturbance could have a material adverse effect
on the financial condition or results of operations of the Joint Venture
Company, or cause a delay in the transfer of RPC's ownership interest in the
Joint Venture Company to the Company in the future. Prior to the closing of the
Chlor-alkali Joint Venture, an RPC Union filed a complaint against RPC in a
French court seeking to gain access to documentation pertaining to the
Chlor-alkali Joint Venture and to prevent its consummation (the "RPC Union
Matter"). After hearings on the RPC Union Matter, in September 1997 the French
court denied the relief requested by the RPC Union. See
"Business -- Chlor-alkali Joint Venture."
The Joint Venture Company is the Company's first significant investment in
Europe, and the Company has not had prior experience operating in the regulatory
and cultural environment of, or managing labor relations in, Europe. The Joint
Venture Company is subject to a number of special risks, including certain trade
barriers, currency exchange rate fluctuations and exchange controls that may be
imposed from time to time, national and regional labor strikes, political risks
and risks of increases in duties, taxes and governmental royalties, as well as
changes in laws and policies governing operations of foreign-owned companies. In
addition, the Joint Venture Company is subject to French regulations governing
the conduct of operations at the PCL Facility, the construction of any new
facilities, and the development of new products or the conduct of new
operations, including permitting requirements related to the PCL Facility, the
Hauterives Facility (as defined herein) and the Powerhouse Complex (as defined
herein). It is not possible to predict accurately the content of or the impact
that legislation and regulations might have on the financial condition or
results of operations of the Joint Venture Company.
The Chlor-alkali Joint Venture transactions are denominated in French
francs, and the Joint Venture Company's expenses and sales are primarily
denominated in French francs. Accordingly, the purchase price under the RPC Put
and the Joint Venture Company's distributions to the Company will be affected by
exchange rate fluctuations between the United States dollar and the French
franc. These fluctuations may have a material impact on the purchase price under
the RPC Put and the value of such distributions to the Company.
RISKS ASSOCIATED WITH ACQUISITIONS
In undertaking the Chlor-alkali Joint Venture, several of the Company's
executive management personnel have been and will continue to devote significant
amounts of time and managerial resources in France establishing and maintaining
such business operations. Further, in the future the Company may acquire
additional complementary businesses. Following consummation of the Chlor-alkali
Joint Venture and any other future acquisitions such as the Celanese
Transaction, it will be necessary for the Company to integrate the business
operations of the Joint Venture Company, the German Subsidiary and any other
acquired business with the Company's business operations. Although the Company
believes that its management and other resources are sufficient to manage the
Chlor-alkali Joint Venture, the Celanese Transaction, and any additional
acquisition opportunities and successfully integrate such acquired businesses
into its existing operations, there can be no assurances that it will be able to
do so effectively. If the Company fails to successfully integrate the Joint
Venture Company, the German Subsidiary or any other acquired businesses into its
existing operations, the Company's results of operations could be adversely
effected. The Company's continued success will largely depend on the efforts and
abilities of its executive officers and certain other key employees. The
Company's operations could be adversely affected if, for any reason, such
officers or key employees did not remain with the Company. See "Management."
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<PAGE> 21
CONTROL BY PRINCIPAL STOCKHOLDERS
Approximately 97% of the Company's outstanding voting Common Stock is owned
by members of the LaRoche family. Such control enables such stockholders,
through the Board of Directors of the Company (the "Board"), to control the
affairs of the Company, and to prevent mergers, acquisitions, tender offers,
proxy contests or assumptions of control and changes of incumbent management.
LIMITATIONS ON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer for cash to repurchase the Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of repurchase. If a Change of Control were to occur, there can be no
assurance that the Company would have sufficient funds to pay the purchase price
for all of the Notes that the Company might be required to purchase. Certain
events involving a Change of Control may result in an event of default under the
Credit Facility or other indebtedness of the Company that may be incurred in the
future. In the event a Change of Control occurs at a time when the Company is
prohibited from purchasing the Notes, the Company could seek the consent of its
lenders to purchase the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such consent or repay
such borrowings, the Company would remain prohibited from purchasing the Notes.
In such case, the Company's failure to purchase tendered Notes would constitute
an Event of Default under the Indenture which could have adverse consequences
for the Company and the holders of the Notes. If, as a result thereof, a default
occurs with respect to any Senior Indebtedness, payment in full of the Credit
Facility would be required before repurchase of the Notes. The definition of
"Change of Control" in the Indenture includes a sale, lease, conveyance or other
disposition of "all or substantially all" of the assets of the Company and its
Subsidiaries taken as a whole to a person or group of persons. There is little
case law interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of a holder of the Notes to require the Company to repurchase such
Notes as a result of a sale, lease, conveyance or transfer of all or
substantially all of the Company's assets to a person or group of persons may be
uncertain. Further, in such circumstances, the Company may not have sufficient
funds available to satisfy such repayment and/or repurchase requirements. Also,
in the event of a change of control of the Company, RPC would be able to
exercise its rights under the RPC Put. See "Description of the Exchange
Notes -- Subordination" and "-- Change of Control" and "Business -- Chlor-alkali
Joint Venture."
PHASE-OUT OF FLUOROCARBONS
The Company historically produced the CFC products, R-11 and R-12, but
ceased production on January 1, 1996 pursuant to the Montreal Protocol
Agreements (international environmental treaties) (the "Montreal Protocols") and
the 1990 amendments to the federal Clean Air Act (the "Clean Air Act
Amendments"). In advance of such phase-out, the Company developed commercial
production capabilities for the manufacture of HCFC-141b, a replacement
fluorocarbon used principally in foam-blowing applications. The Clean Air Act
Amendments have further mandated the phase-out of HCFC-141b by January 1, 2003.
In fiscal years 1994, 1995, 1996 and 1997, fluorocarbons accounted for $26.9
million, $11.7 million, $9.8 million and $4.0 million, respectively, of the
Company's income from operations. While the Company continues to research and
develop next generation fluorocarbons and has diversified its sources of income
from operations into other business segments, given the scheduled phase out of
HCFC-141b, there can be no assurance that the Company's results from operations
for fiscal year 1998 and beyond will not be materially affected. It is possible
that additional excise taxes and other regulations may be imposed upon other
fluorocarbon products. Such taxes might decrease the use of these products and
could have a material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Electrochemical Products -- Fluorocarbons" and
"Business -- Governmental Regulation."
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CYCLICALITY, SEASONALITY AND VOLATILITY
Certain of the Company's products, particularly in the Electrochemical
Products segment, are supplied primarily to customers involved in industries
that are sensitive to fluctuations in the general business cycles of the United
States and world economies. Consequently, deteriorating economic conditions may
cause a reduction in sales of such products. See "Business -- Electrochemical
Products."
Moreover, demand for the Company's fertilizer products is seasonal. Such
seasonality of demand requires the Company to build its inventory in
anticipation of periods of peak demand and may adversely affect the Company's
cash flow. The Company typically sells larger volumes and realizes higher prices
and margins for fertilizer during the spring and, to a lesser extent, the fall
planting seasons. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality."
In addition, demand for the Company's fertilizer is primarily dependent on
United States agricultural conditions, which can be volatile as a result of a
number of factors, the most important of which are weather patterns and
conditions (particularly during periods of high fertilizer consumption), current
and projected grain stocks and prices and the United States government's
agricultural policy. Among the governmental policies that influence the markets
for fertilizer are those directly or indirectly influencing the number of acres
planted, the level of grain stocks, the mix of the crops planted and crop
prices. The United States government influences the number of acres of certain
crops planted by removing acres from cultivation through subsidies to farmers
based upon current grain stocks and expected yields. However, under the federal
Agriculture Improvement and Reform Act of 1996 (the "Freedom to Farm Act"), such
subsidy program is being phased out over the next several years. Grain stocks
are, in turn, directly influenced by highly unpredictable weather conditions and
worldwide production and consumption. Weather patterns and conditions in
fertilizer consuming regions during key periods may also affect directly the
type of, and amount of demand for, fertilizer as well as the application rate.
In addition to United States demand factors, fertilizer prices are affected by
world supply, demand and exchange rates. See "Business."
Consequently, the Company's results of operations have been and will
continue to be somewhat volatile as a result of cyclical, seasonal and other
factors not within the Company's control. Such influences and factors could
cause a material adverse change in the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ENVIRONMENTAL COMPLIANCE
The Company is subject to various environmental laws and regulations in the
United States that regulate certain of the Company's activities, operations and
materials used in the Company's products, or which may impose liability for the
cleanup of environmental contamination. The Company employs three environmental
compliance managers, who, together with the Company's Executive Director of
Legal Affairs, are responsible for monitoring the Company's environmental
compliance efforts. The Company has incurred and will continue to incur
substantial capital expenditures and operating costs as a result of these laws
and regulations. The Company cannot, however, predict the impact of new or
amended laws or regulations, nor can it predict how existing laws and
regulations will be enforced or interpreted. See "Business -- Governmental
Regulation."
The nature of the Company's business requires that it handle certain
hazardous substances. Spills or other unintended releases of such substances
could result in contamination which may require the Company to undertake or fund
potentially costly cleanup activities. The historical use or handling of
hazardous substances and/or fertilizer nutrients has resulted in contamination
at facilities currently or formerly owned or operated by the Company, or by the
Company's predecessors, and continued use or handling of such materials could
result in additional contamination. As of February 28, 1997, the Company had
recorded accruals of $4.5 million to reflect estimated future costs associated
with known environmental matters. The Company may be required to record
additional accruals for future costs related to these and other matters. The
Company cannot predict what level of expenditures, if any, may be required in
the future to remediate contamination from past unknown or future spills or
releases of hazardous substances and/or fertilizer nutrients at its facilities.
See "Business -- Environmental Proceedings."
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The Company from time to time has been, and presently is, the subject of,
or a party to, administrative proceedings and litigation regarding environmental
and related matters. There can be no assurance that the Company will not become
involved in future litigation or other proceedings or that, if the Company were
found to be responsible in any current or future litigation or proceeding,
liabilities resulting therefrom would not be material to the Company. See
"Business -- Environmental Proceedings."
Current environmental regulations limit certain chlorine uses, such as pulp
and paper bleaching, and from time to time environmental special interest groups
have proposed more stringent controls on chlorine use and production. In 1994,
the Clinton Administration recommended amendments to the Clean Water Act which,
among other things, seek funding of a proposed 2 1/2 year study of the impacts
of chlorine and chlorinated compounds. In addition, a bill was introduced in the
United States Congress in 1993 which proposed to eliminate discharges of
chlorine compounds into navigable waters and requires zero discharge limits for
certain toxic substances, including certain chlorinated compounds. Although
neither of these measures were enacted, another bill has been introduced in the
Congress that would prohibit the pulp and paper industry from discharging
chlorine compounds into waters of the United States and would require the EPA to
commission a study to evaluate the feasibility of chlorine-free technology for
the pulp and paper industry. It is impossible to predict whether this
legislation or other initiatives, if any, will be adopted regarding chlorine and
what effect, if any, such action may have on the Company. Any tightening in the
regulations of chlorine production or consumption could have a material adverse
effect on the Company's results of operations.
The Company transports chlorine and ammonia over long distances, which
poses certain dangers if there were an accident or spill. any such incident
could result in litigation or significant environmental clean-up expenses, which
may have a materially adverse impact on the Company. The Company maintains
general liability, property and business interruption insurance with coverage
limits it believes are adequate. See "-- Operating Hazards and Uninsured Risks."
As in the United States, the operations of the Joint Venture Company will
be subject to extensive environmental regulations that govern certain of the
Joint Venture Company's activities, operations, products and materials. Although
RPC generally will indemnify the Company and the Joint Venture Company under the
Stock Purchase Agreement for liabilities arising prior to the transfer of the
PCL Facility and related assets and liabilities to the Joint Venture Company,
subject to agreed limits and deductible amounts, the Joint Venture Company may
be subject to additional environmental liabilities associated with the condition
or operation of the PCL Facility and may incur substantial capital costs to
comply with existing or new environmental regulations or permit conditions in
the future. The operation of the Joint Venture Company, including the
transportation of chlorine over considerable distances, is subject to
significant environmental and health and safety risks. Any spill of hazardous
substances, particularly chlorine, and related contamination could have a
material adverse effect on the financial condition and results of operations of
the joint venture company.
COMPETITION
All of the markets in which the Company operates are highly competitive.
Certain of the Company's principal competitors are substantially larger, have
greater financial and operating resources and are less leveraged than the
Company. In certain of the Company's business segments, the Company's principal
competitors have a lower cost structure than the Company. Competition takes
place largely on the basis of price, product quality, deliverability of product
and provision of technical services. Additionally, the relative cost and
availability of transportation for raw materials and finished products to
manufacturing facilities and markets are important competitive factors.
COST AND ACCESS TO RAW MATERIALS
The Company is dependent upon certain raw materials in the manufacture of
its products. Ammonia and natural gas are the feedstocks for all of the
Company's nitrogen-based fertilizers and blasting grade ammonium nitrate
products. The Company purchases ammonia directly from suppliers to meet a
significant portion of its feedstock requirements and manufactures the
remainder. In the manufacture of ammonia,
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natural gas is the primary raw material. Natural gas is also necessary for the
generation of power, the largest cost component in the production of the
Company's chlor-alkali products. Brine is the primary raw material for chlorine
and caustic soda production.
Aluminum trihydrate ("hydrate") is the primary material used in the
production of alumina chemicals. The Company obtains almost all of its hydrate
feedstock requirements from Kaiser. Because Kaiser's Gramercy facility is the
closest hydrate supplier to the Company's Baton Rouge facility, the Company
likely would incur significant additional freight costs if it were to become
necessary to purchase hydrate from another source. See "Business -- Alumina
Chemicals -- Raw Materials."
Consequently, the costs of natural gas, ammonia, brine and hydrate
significantly affect the Company's cost of sales and, accordingly, its profit
margins. The availability and prices of these materials are subject to many
factors beyond the Company's control. A significant increase in the cost of any
of these materials, without a corresponding increase in the Company's product
prices, could have a material adverse effect on the Company's results of
operations. Also, although the Company hedges a portion of its natural gas
requirements, there can be no assurances that the Company will maintain such
arrangements or that the Company will not incur losses on such arrangements.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in this Exchange Offer. The market for
Old Notes not tendered for exchange in the Exchange Offer is likely to be more
limited than the existing market for such notes. The holders of Old Notes (other
than any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who are not eligible to participate in the
Exchange Offer are entitled to certain registration rights, and the Company is
required to file a Shelf Registration Statement with respect to such Old Notes.
The Exchange Notes will constitute a new issue of securities with no established
trading market. The Company does not intent to list the Exchange Notes on any
national securities exchange or seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Initial Purchasers have advised the Company that they currently intend to make a
market in the Exchange Notes, but they are not obligated to do so may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of the trading market for the Exchange Notes. If a trading market does
not develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at all.
If a market for the Exchange Notes develops, any such market may be discontinued
at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal (or
Agent Message) and all other required documents. Therefore, holders of the Old
Notes desiring to tender such Old Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with
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respect to the tenders of Old Notes for exchange. Old Notes that are not
tendered or are tendered but not accepted will, following the consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange offer, certain
registration rights under the Registration Rights Agreement will terminate. In
addition, any holder of Old Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities, and if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See "The Exchange Offer."
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including those regarding the
Company's financial position, business strategy, projected costs, and plans and
objectives of management for future operations, are forward-looking statements.
These statements by their nature are subject to certain risks, uncertainties and
assumptions and will be influenced by various factors. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, there can be no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed herein under "Risk Factors", on page ii hereof ("Forward Looking
Statements") and elsewhere in this Prospectus including, without limitation, in
conjunction with the forward-looking statements included in this Prospectus. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount, the form and terms of which are identical to the forms and
terms of the Exchange Notes (which replace the Old Notes), except as otherwise
described herein. The Old Notes surrendered in exchange for Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
pro forma statements or capitalization tables.
The net proceeds to the Company from the sale of the Old Notes in the
Initial Offering (after deducting discounts and estimated fees and expenses)
were utilized by the Company to consummate the transactions involved in the
Refinancing. See "The Refinancing."
19
<PAGE> 26
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
the Company on an actual basis at November 30, 1997 including (i) issuance of
the Old Notes and application of the net proceeds therefrom, and (ii) repurchase
of $99.1 million aggregate principal amount of the 13% Notes. This table should
be read in conjunction with the Company's unaudited condensed consolidated
financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
NOVEMBER 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash........................................................ $ 2,826
========
Debt, including current portion:
Revolving Credit Facility................................. $ --
Note to former stockholder................................ 4,441
13% Senior Subordinated Notes due 2004.................... 915
9 1/2% Senior Subordinated Notes due 2007 (net of discount
of $771)............................................... 174,229
Term loan................................................. 35,000
Capital leases............................................ 916
--------
Total debt........................................ 215,501
Redeemable common stock..................................... 3,603
Stockholders' equity(a)................................... 38,966
--------
Total capitalization.............................. $258,070
========
</TABLE>
- ---------------
(a) Gives effect to the reduction in equity resulting from the premium paid to
holders of 13% Notes in the Tender Offer of approximately $17.1 million,
fees and expenses related to the Tender Offer and Consent Solicitation of
approximately $200,000, and the write-off of unamortized issuance costs of
approximately $2.7 million for the 13% Notes, net of related income tax
effects (at an assumed rate of 40%).
20
<PAGE> 27
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain selected historical financial
information of the Company. The selected historical consolidated financial
information for each of the five fiscal years in the period ended February 28,
1997 are derived from the consolidated financial statements, which have been
audited by Ernst & Young LLP, independent auditors, except for the financial
statements of LaRoche Chemicals Inc., a consolidated subsidiary, for the two
fiscal years ended February 28, 1994, which were audited by other independent
auditors. The unaudited selected historical consolidated financial information
for each of the nine-month periods ended November 30, 1996 and November 30, 1997
are derived from unaudited condensed consolidated financial statements of the
Company. The following selected historical consolidated financial information
should be read in conjunction with the consolidated financial statements and
notes thereto for each of the three fiscal years in the period ended February
28, 1997, and the unaudited condensed consolidated financial statements for the
nine months ended November 30, 1996 and November 30, 1997 which are included
elsewhere herein. Also see "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In the opinion of management, all
adjustments (consisting of normally recurring accruals) considered necessary for
a fair presentation have been reflected therein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1993(A) 1994 1995 1996(B) 1997(C)
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................... $368,058 $375,511 $420,723 $448,982 $379,285
Cost of sales................ 292,156 302,075 329,383 350,066 313,871
-------- -------- -------- -------- --------
Gross profit................. 75,902 73,436 91,340 98,916 65,414
Selling, general and
administrative expenses.... 49,356 50,048 54,135 54,631 54,777
-------- -------- -------- -------- --------
Income from operations....... 26,546 23,388 37,205 44,285 10,637
Interest and amortization of
debt expense(d)............ (7,158) (7,118) (13,083) (15,973) (14,881)
Income from equity
investments................ 416 3,257 2,540 2,647 4,909
Other income (loss), net..... 659 128 1,581 1,163 411
(Provision) benefit for
income taxes............... (8,353) (8,499) (12,297) (13,170) (417)
-------- -------- -------- -------- --------
Income before minority
interests and
extraordinary
charges............. $ 12,110 $ 11,156 $ 15,946 $ 18,952 $ 659
======== ======== ======== ======== ========
Net income (loss)(e)... $ 11,728 $ 6,853 $ 13,023 $ 18,952 $ 659
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(f).................... $ 40,543 $ 42,525 $ 56,538 $ 67,430 $ 39,099
Depreciation and
amortization(g)............ 13,997 16,682 16,067 18,580 22,634
Cash received from equity
investments................ -- 2,455 2,933 1,332 5,701
Capital expenditures(h)...... 19,596 27,897 17,651 16,894 35,784
Cash interest expense(i)..... 7,162 7,095 12,790 15,557 15,314
Ratio of EBITDA to cash
interest expense........... 5.7x 6.0x 4.4x 4.3x 2.6x
Ratio of EBITDA to pro forma
cash interest expense(j)... -- -- -- -- 2.1x
Ratio of earnings to fixed
charges(k)................. 3.0x 1.9x 2.4x 2.7x 1.1x
Cash dividends............... $ -- $ -- $ -- $ 233 $ 912
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.... $ 2,437 $ 4,096 $ 5,900 $ 3,265 $ 1,165
Working capital.............. 20,400 5,521 58,307 29,269 6,832
Total assets................. 225,328 241,721 300,421 305,932 312,365
Total long-term debt(l)...... 46,838 50,639 120,686 113,691 105,036
Total debt(m)................ 60,658 79,067 130,500 125,089 145,901
Common stock with redemption
features................... 16,107 16,538 15,392 12,246 4,177
Stockholders' equity......... 16,982 23,404 34,478 51,296 50,906
<CAPTION>
NINE MONTHS ENDED
---------------------------
NOVEMBER 30, NOVEMBER 30,
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................... $291,458 $279,721
Cost of sales................ 237,524 230,042
-------- --------
Gross profit................. 53,934 49,679
Selling, general and
administrative expenses.... 41,816 36,738
-------- --------
Income from operations....... 12,118 12,941
Interest and amortization of
debt expense(d)............ (11,244) (12,225)
Income from equity
investments................ 3,636 2,216
Other income (loss), net..... 19 (1,523)
(Provision) benefit for
income taxes............... (1,799) (564)
-------- --------
Income before minority
interests and
extraordinary
charges............. $ 2,730 $ 845
======== ========
Net income (loss)(e)... $ 2,730 $(11,173)
======== ========
OTHER FINANCIAL DATA:
EBITDA(f).................... $ 32,495 $ 35,047
Depreciation and
amortization(g)............ 16,052 16,705
Cash received from equity
investments................ 3,840 3,355
Capital expenditures(h)...... 20,799 23,227
Cash interest expense(i)..... 11,326 12,506
Ratio of EBITDA to cash
interest expense........... 2.9x 2.8x
Ratio of EBITDA to pro forma
cash interest expense(j)... -- 2.7x
Ratio of earnings to fixed
charges(k)................. 1.3x 1.1x
Cash dividends............... $ 690 $ 767
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.... $ 2,904 $ 2,826
Working capital.............. 18,716 52,632
Total assets................. 288,859 364,748
Total long-term debt(l)...... 104,882 210,484
Total debt(m)................ 124,369 215,501
Common stock with redemption
features................... 7,866 3,603
Stockholders' equity......... 53,336 38,966
</TABLE>
See Notes to Selected Historical Consolidated Financial Information.
21
<PAGE> 28
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(a) In January 1993, the Company entered into the Hydrate Partnership (as
defined herein). Since that time, hydrate sales have been excluded from the
Company's sales and results of the Company's interest in the Hydrate
Partnership have been accounted for as income from equity investments.
(b) In September 1995, the Company entered into the CRILAR joint venture. Since
that time, sales related to the assets contributed to such joint venture
have been excluded from the Company's sales, and results of the Company's
interest in the CRILAR joint venture have been accounted for as income from
equity investments. Fiscal year 1996 also reflects the results of
operations of the Company's Seneca facility since December 1995, the date
the Company acquired substantially all of the assets of such facility.
(c) In April 1996, the Company sold substantially all of the property, plant
and equipment and certain other assets used in its calcined and tabular
alumina chemical businesses.
(d) After giving pro forma effect to the Refinancing, for the year ended
February 28, 1997 and for the nine months ended November 30, 1997, interest
and amortization of debt expense would have been $18.6 million and $13.2
million, respectively.
(e) After giving pro forma effect to the Refinancing, for the year ended
February 28, 1997 and for the nine months ended November 30, 1997, net loss
before extraordinary charges would have been $1.6 million and $1.8 million,
respectively.
(f) EBITDA represents income from operations plus cash received from equity
investments plus depreciation, amortization and non-cash long-term asset
writedowns reflected in income from operations plus amounts received in
repayment or prepayment of the Company's loan to the Joint Venture Company.
The inclusion of amounts received on the Company's loan to the Joint
Venture Company in the calculation of EBITDA reflect the provisions of the
9.5% Notes and the Revolving Credit Facility. EBITDA should not be
considered as an alternative measure of net income or cash flow provided by
operating activities (both as determined in accordance with generally
accepted accounting principles), but is presented to provide additional
information related to the Company's debt service capability. EBITDA should
not be considered in isolation or as a substitute for other measures of
financial performance or liquidity. The primary difference between EBITDA
and cash flows provided by operating activities relates primarily to
changes in working capital requirements, and payments made for interest and
income taxes.
(g) Depreciation and amortization excludes amortization of debt expense
(deferred debt issuance costs), which is included in interest and
amortization of debt expense.
(h) Capital expenditures exclude noncash additions through capital leases.
(i) Cash interest expense represents interest and amortization of debt expense
as derived from the Company's consolidated financial statements, minus
amortization of debt expense of $132,000, $112,000, $293,000, $416,000,
$427,000, $306,000 and $479,000, plus capitalized interest of $136,000,
$89,000, $0, $0, $860,000, $388,000 and $760,000 for the fiscal years 1993,
1994, 1995, 1996, 1997 and for the nine months ended November 30, 1996 and
1997, respectively.
(j) Pro forma cash interest expense for purposes of this calculation is equal
to pro forma interest and amortization of debt expense of $18.6 million and
$13.2 million, minus pro forma amortization of debt expense of $1.2 million
and $900,000, and plus capitalized interest of $860,000 and $760,000 for
the fiscal year ended February 28, 1997 and the nine months ended November
30, 1997, respectively. Pro forma interest and amortization of debt expense
is pro forma for the Refinancing.
(k) For purposes of calculating the historical ratio of earnings to fixed
charges, earnings consist of income before income taxes, minority interests
and extraordinary charges plus fixed charges, adjusted to exclude the
undistributed earnings from equity investments and the increase in
redemption value of certain stock of a subsidiary held by minority
stockholders included in such fixed charges but not deducted in the
determination of income before minority interests. Fixed charges consist of
interest expense, amortization of debt expense, such portion of rental
expense deemed to be representative of the interest factor and the pretax
earnings required to cover the increase in redemption value of certain
stock of a subsidiary held by minority stockholders. After giving pro forma
effect to the Refinancing, for the year ended February 28, 1997 and the
nine months ended November 30, 1997, pro forma earnings are inadequate to
cover fixed charges by approximately $2.8 million and $2.6 million,
respectively.
(l) Total long-term debt includes term debt and capital leases, excluding any
current portion.
(m) Total debt includes the current and non-current portions of term debt,
capital leases, revolving credit facilities, and the premium on LCI's
convertible debt.
22
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated audited and unaudited financial statements and notes
thereto included in this Prospectus.
SIGNIFICANT DEVELOPMENTS
The Company historically has expanded its business through acquisitions of
other related businesses and investments in joint venture arrangements, and the
Company continues to evaluate acquisition and joint venture opportunities.
Accordingly, in October 1997, the Company purchased a 50% interest in the Joint
Venture Company in connection with the Chlor-alkali Joint Venture, as discussed
elsewhere herein. The Company's Initial Purchase of its interest in the Joint
Venture Company cost approximately $37.7 million excluding acquisition costs. In
connection with the Chlor-alkali Joint Venture acquisition, the Company entered
into a cross-currency interest rate swap agreement to hedge the Company's
investment. The Company includes in income the gains and losses related to the
portion of this agreement which is not designated as an accounting hedge based
upon the market values of the instrument. Gains and losses related to the
portion of this agreement designated as an accounting hedge of the Company's
equity investment are accounted for as an offset to the translation adjustment.
See "Business -- Chlor-alkali Joint Venture."
During January 1998, the Company experienced a fire at its Crystal City
facility. Management believes that the matter is insured and there will be no
significant adverse impact on the Company's operations as a result of the fire.
Management expects the facility will be fully operational within the current
month.
On December 31, 1997, the Company (through a newly-formed subsidiary)
purchased certain chlor-alkali and chlorinated methane manufacturing facilities
located near Frankfurt, Germany for 45 million German marks (approximately $25.5
million at applicable exchange rates) from Celanese GmbH, Frankfurt, a
subsidiary of Hoechst AG. The German Facilities produce chlorine, caustic soda,
sodium hypochloride, calcium chloride, methyl chloride, methylene
chloride/chloroform and hydrochloric acid. The Company funded the purchase with
funds drawn from its Revolving Credit Facility. See "Business -- German
Acquisition."
In September 1997, the Company refinanced its outstanding indebtedness
under its then-outstanding $100 million aggregate principal amount of 13% Notes
by consummating the Initial Offering and the Tender Offer and the related
Consent Solicitation pertaining to the 13% Notes, and using the net proceeds
therefrom to repurchase approximately 99% of the 13% Notes and repay certain
borrowings under the Revolving Credit Facility. The Notes are unsecured
obligations of the Company and the Indenture contains, among other things,
limitations on stock redemptions, dividends, borrowings and investments, and
restricts the Company from entering into certain transactions, all as set forth
therein. Debt issuance costs associated with the refinancing are being amortized
over the life of the Notes. In connection with issuing the Notes and redeeming
the 13% Notes, the Company paid call and prepayment premiums and incurred other
costs, the total loss recognized as a result of this early extinguishment of
debt amounted to $12.0 million (net of income tax benefit of $8.0 million) and
is reflected in the Company's consolidated statement of income as an
extraordinary charge. In August 1997, the Company entered into a six year,
$160.0 million senior secured credit facility, consisting of a $100.0 million
revolving credit facility and a $60.0 million term loan, which was reduced to
$35.0 million upon the closing of the Initial Offering. The Revolving Credit
Facility was amended in September 1997 to increase the maximum availability to
$125.0 million. The Company used a portion of the Revolving Credit Facility to
retire its previous credit facility. All of the Term Loan was drawn in October
1997 for purposes of closing the Chlor-alkali Joint Venture.
Fiscal year 1997 was a year of significant changes in the operations of the
Company, resulting in decreased financial performance. The Company experienced a
decline in sales volume and income from operations in fluorocarbons resulting
from the government-mandated phase-out of production of CFCs R-11 and R-12. CFCs
contributed $12.4 million, $8.1 million and $2.5 million of total Company income
from operations in fiscal years 1995, 1996 and 1997, respectively. The Company
will continue to sell its remaining bulk CFCs until its inventory is depleted.
23
<PAGE> 30
In its ongoing operations during fiscal year 1997, the Company experienced
decreased income from operations in both its Nitrogen Products business and the
chlor-alkali operations of its Electrochemical Products business as a result of
increased natural gas costs of approximately $10.3 million and other increased
raw materials costs. In Electrochemical Products, the Company experienced lower
average prices per electrochemical unit ("ECU"), the combined price of one ton
of chlorine and 1.12 tons of caustic soda, and production problems at its
Gramercy facility that resulted in decreased income from operations of $12.5
million for fiscal year 1997. The Company also experienced a decline in net
sales of $21.6 million and in income from operations of $3.5 million in its
Alumina Chemicals business during fiscal year 1997. These declines resulted
primarily from the sale of certain Versal(R) production equipment to CRILAR
Alumina Company LLC ("CRILAR"), a joint venture between the Company and
Criterion Catalyst Company L.P. ("Criterion"), in September 1995 and from
production problems experienced at its Baton Rouge facility.
In order to address the difficulties experienced in fiscal year 1997,
management has implemented several improvements designed to lower costs, improve
reliability and ensure adequate supplies and greater price stability of raw
materials for operations in the foreseeable future. The production difficulties
at the Company's Gramercy facility were due primarily to a rectifier failure in
the electrical distribution system. In response, the Company has repaired the
rectifier and has installed a backup rectifier assembly for the cell rooms in
the chlor-alkali production facility. In an effort to ensure reliable and cost
effective electrical power generation in the future, the Company is in the
process of upgrading the generator turbine units and control systems at the
powerhouse complex, which is expected to be substantially completed by the end
of fiscal year 1998. Also, management is considering construction of a
higher-capacity new brine pipeline to supply the Gramercy facility, in an effort
to ensure an adequate supply of brine.
The Company has implemented a natural gas hedging program to reduce the
Company's exposure to natural gas price volatility. Natural gas is the primary
raw material used for the production of ammonia in the Nitrogen Products segment
and electricity in the Electrochemical Products segment. The Company purchases
its natural gas pursuant to market based contracts with natural gas producers.
To protect against the risk of increasing prices, the Company, at its option,
periodically fixes its cost under these contracts in accordance with the pricing
mechanisms included in the contracts. Fixed price purchase commitments pursuant
to the contracts aggregated $10.7 million as of January 31, 1998. The Company
also at times utilizes option spread agreements ("collars") to establish a range
of cost on a portion of its natural gas requirements. No such contracts were in
place as of November 30, 1997. Approximately 40% of April 1998 requirements, 30%
of May 1998 through October 1998 requirements; and 10% of November 1998 through
March 1999 requirements are subject to collar arrangements.
Consistent with its long-term strategy to increase its market share in
certain of its business segments and decrease operating costs, the Company
intends to undertake various maintenance and discretionary expansion projects
through fiscal year 2000. Discretionary projects now under consideration
include: (i) the expansion of ammonia production capacity at the Cherokee plant
through further vertical integration of its raw material supply; (ii) the HDAN
prill fattening project at its Crystal City facility; (iii) additional caustic
soda evaporation capacity, improved brine saturation capabilities and the
replacement of the brine pipeline at Gramercy; and (iv) debottlenecking,
capacity expansions and cost reduction programs at its active alumina and
Versal(R) production facilities in Baton Rouge. Together, the costs of these and
other identified projects are estimated to aggregate approximately $100.0
million over the next three to four fiscal years. The commencement of these
projects will be evaluated under a number of criteria including projected
contributions to earnings and cash flow and market conditions, and will be
subject to the availability of funding from operations, and borrowings under the
Revolving Credit Facility, as well as compliance with the Indenture. There can
be no assurance that the Company will elect to undertake any of such capital
projects or have sufficient funds available to undertake some or all of these
projects.
24
<PAGE> 31
SEGMENT INFORMATION
The following table presents business segment information for the three
months and nine months ended November 30, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------- -----------------------------------------
NOVEMBER 30, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1997 NOVEMBER 30, 1996
------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES:
Nitrogen products.................... $52,250 61.2% $56,901 63.4% $183,977 65.7% $184,606 63.3%
Electrochemical products............. 22,988 26.9 24,068 26.8 67,002 24.0 75,513 25.9
Alumina chemicals.................... 10,145 11.9 8,827 9.8 28,742 10.3 31,339 10.8
------- ----- ------- ----- -------- ----- -------- -----
Total........................ $85,383 100.0% $89,796 100.0% $279,721 100.0% $291,458 100.0%
======= ===== ======= ===== ======== ===== ======== =====
INCOME (LOSS) FROM OPERATIONS:
Nitrogen products.................... $3,371 70.6% $4,403 60.5% $ 12,778 98.7% $ 7,779 64.2%
Electrochemical products............. 1,032 21.6 5,063 69.6 3,270 25.3 8,868 73.2
Alumina chemicals.................... 923 19.3 (1,024) (14.1) 455 3.5 (543) (4.5)
Corporate............................ (549) (11.5) (1,165) (16.0) (3,562) (27.5) (3,986) (32.9)
------- ----- ------- ----- -------- ----- -------- -----
Total........................ $4,777 100.0% $7,277 100.0% $ 12,941 100.0% $ 12,118 100.0%
======= ===== ======= ===== ======== ===== ======== =====
</TABLE>
RESULTS OF OPERATIONS
Comparison of Three Months Ended November 30, 1997 and November 30, 1996
Net Sales. Net sales for the quarter ended November 30, 1997 decreased
$4.4 million (4.9%) to $85.4 million from $89.8 million for the quarter ended
November 30, 1996.
The Nitrogen Products segment's net sales for the quarter ended November
30, 1997 decreased $4.7 million (8.2%) compared to the corresponding quarter in
the preceding year. The decrease in net sales was primarily due to decreased
sales prices of $5.7 million due to increased ammonia production capacity in
agricultural markets and decreased sales volume of $1.6 million experienced in
blasting grade ammonium nitrate as a result of unexpected outages at the Geneva
and Seneca facilities. Such decreases were partially offset by increased sales
volume from the Company's warehousing facilities of $1.7 million due to better
regional market opportunities and improved prices of $0.9 million in blasting
grade ammonium nitrate due to stronger market conditions.
The Electrochemical Products segment's net sales for the quarter ended
November 30, 1997 decreased $1.1 million (4.5%) compared to the corresponding
quarter in the preceding year. The decrease reflects reductions of caustic soda
and chlorine net sales of $0.6 million and fluorocarbon net sales of $0.5
million. Caustic soda and chlorine net sales decreased $0.6 million primarily as
a result of a decrease in ECU prices of $0.8 million due to competitive market
conditions. Fluorocarbons net sales decreased $0.5 million primarily due to
decreased sales volume of $0.7 million as a result of poor market conditions.
The Alumina Chemicals segment's net sales for the quarter ended November
30, 1997 increased $1.3 million (14.9%) compared to the corresponding quarter in
the preceding year. The increase in the quarter was primarily due to increased
sales volume of $1.7 million in active and Versal(R) alumina products due to
increased production.
Income (Loss) from Operations. Income (loss) from operations for the
quarter ended November 30, 1997 decreased $2.5 million (34.4%) to $4.8 million
from $7.3 million for the quarter ended November 30, 1996.
The Nitrogen Products segment's income from operations decreased by $1.0
million (23.4%) for the quarter ended November 30, 1997 as compared to the
corresponding quarter in the prior year. This decrease was primarily due to (i)
decreased margins of $1.4 million in agricultural markets and industrial ammonia
driven by decreased ammonia prices due to increased ammonia supply, (ii) reduced
volumes of $0.9 million in the agricultural plants as a result of a reduction in
production requirements, (iii) decreased volume of
25
<PAGE> 32
$0.6 million in blasting primarily as a result of unexpected outages at the
Geneva and Seneca facilities and (iv) increased cost of $0.5 million on natural
gas. Such decrease was partially offset by decreased labor, maintenance and
other costs of $1.8 million.
The Electrochemical Products segment's income from operations decreased by
$4.0 million (79.6%) for the quarter ended November 30, 1997 as compared to the
in the prior year. This decline was a result of decreased income from operations
in chlorine and caustic soda of $1.1 million and fluorocarbons of $2.9 million.
The decrease in chlorine and caustic soda income from operations was primarily
the result of the decline in ECU prices of $0.8 million due to competitive
market conditions and higher costs, primarily energy, of $1.4 million. The
offsetting increase in income from operations in chlorine and caustic soda of
$0.3 million resulted primarily from decreased maintenance and other costs as
compared to the corresponding quarter in the prior year when production problems
adversely impacted sales volume and profitability. The decrease in income from
operations in fluorocarbons was primarily the result of higher raw material
costs and research and development of $1.2 million and decreased margins
resulting primarily from the federally-mandated withdrawal from production of
certain fluorocarbon products.
The Alumina Chemicals segment's income from operations increased by $1.9
million (190.1%) for the quarter ended November 30, 1997 as compared to the
corresponding quarter in the prior year. This increase was primarily due to
increased income from operations of Versal(R) alumina products of $1.2 million
primarily due to sales increases and 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 a decreased loss of approximately $0.8 million in income from
operations. The offsetting increase in income from operation is the result of
decreased sales of active alumina products of $0.5 million due to inventory
fluctuations and increased hydrate pricing.
Corporate Expenses. Corporate expenses for the quarter ended November 30,
1997 decreased $0.6 million (52.9%) for the quarter ended November 30, 1996. For
the quarters ended November 30, 1997 and 1996, as a percentage of net sales,
these corporate expenses were 0.6% and 1.3%, respectively. The decrease in
corporate expenses for the quarter reflects a reduction in certain corporate
accruals, primarily a reduction in the reserve for the Company's employee profit
sharing program and for certain environmental matters.
Income From Equity Investments. Income from equity investments for the
quarter ended November 30, 1997 totaled $0.1 million compared to $1.4 million
for the quarter ended November 30, 1996. Income from equity investments reflects
equity income attributable to several joint ventures. The decrease in equity
income was primarily due to a decline in income earned from the Kaiser LaRoche
Hydrate Partnership as a result of increased costs incurred by the partnership
and a net loss incurred from the Chlor-alkali Joint Venture which primarily
resulted from certain start up costs as a result of the Company's investment in
October 1997.
Other Expense, Net. For the quarter ended November 30, 1997, other
expense, net was ($1.6 million) compared to other expense, net of ($8,000) for
the quarter ended November 30, 1996. This decrease was primarily due to the loss
on the foreign currency transaction discussed above.
Interest and Amortization of Debt Expense. For the quarter ended November
30, 1997, interest and amortization of debt expense was $4.5 million compared to
interest and amortization of debt expense of $3.7 million for the quarter ended
November 30, 1996. The increase was primarily due to the Company's refinancing
of its senior indebtedness discussed above.
(Provision) Benefit for Income Taxes. Benefit for income taxes for the
quarter ended November 30, 1997 was $0.5 million compared to a provision for
income taxes of $2.1 million for the quarter ended November 30, 1996. The
benefit reflects the decrease in income before income taxes as compared to the
corresponding quarter in the prior year. The Company's effective tax rate was
40.0% and 41.0% for the quarters ended November 30, 1997 and November 30, 1996,
respectively.
Extraordinary Charge. In the quarter ended November 30, 1997, net loss
included an extraordinary loss of $12.0 million (net of income tax benefit of
$8.0 million) resulting from the refinancing of the Company's senior
indebtedness. The early debt redemptions required the payment of premiums and
the recognition of unamortized deferred costs. This refinancing was undertaken
in part to reduce the interest rate on the
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<PAGE> 33
Company's senior indebtedness. The Company believes that this refinancing will
add operating and financial flexibility necessary to implement its business
strategy most effectively.
Net Income (Loss). As a result of the factors described above, net income
(loss) for the quarter ended November 30, 1997 was ($12.7 million) as compared
to $3.0 million in the quarter ended November 30, 1996.
Comparison of Nine Months Ended November 30, 1997 and November 30, 1996
Net Sales. Net sales for the nine months ended November 30, 1997 decreased
$11.7 million (4.0%) to $279.7 million from $291.5 million for the nine months
ended November 30, 1996.
The Nitrogen Products segment's net sales for the nine months ended
November 30, 1997 decreased $0.6 million (0.3%) compared to the corresponding
nine months in the preceding year. The decrease in net sales was primarily due
to decreased sales prices of $7.6 million in agricultural markets due to
increased ammonia supply and decreased sales volume of $6.5 million due to (i)
the idling of the blasting grade ammonium nitrate plant at the Crystal City
facility in the spring of 1996 and (ii) a delay in start up of the Phase II
expansion at the Cherokee facility. The project was completed in February 1997
and has increased the ammonium nitrate production capacity of the facility. Such
decreases were partially offset by (i) increased selling prices (other than at
the Crystal City facility, see above) of $5.7 million in blasting grade ammonium
nitrate due to better market conditions, (ii) increased sales volume of $7.1
million from the Company's warehousing facilities due to regional marketing
conditions and (iii) increased sales volume of industrial ammonia of $0.8
million.
The Electrochemical Products segment's net sales for the nine months ended
November 30, 1997 decreased $8.5 million (11.3%) compared to the corresponding
nine months in the preceding year. The decrease reflects reductions of caustic
soda and chlorine net sales of $5.9 million and fluorocarbon net sales of $2.6
million. Caustic soda and chlorine net sales decreased primarily as a result of
a decrease in ECU prices due to competitive market conditions which resulted in
a decrease in net sales of $7.3 million. The impact of the decrease in ECU
prices was partially offset by increased sales volumes in caustic and chlorine
products of $1.0 million due to increased market demand and the correction of
production problems experienced in the prior year. The fluorocarbon net sales
decrease was due primarily to decreased net sales of CFCs R-11 and R-12 of $4.3
million resulting from the federally-mandated withdrawal from production of
certain fluorocarbon products as of January 1, 1996 and decreased selling prices
in R-141b of $1.4 million due to competitive market conditions. The impact of
these decreases was partially offset by increased sales volume in R-141b of $2.4
million due to higher sales tonnages to key customers and increased sales volume
at LaRoche Air Systems Inc. of $0.8 million due to broader marketing of their
products.
The Alumina Chemicals segment's net sales for the nine months ended
November 30, 1997 decreased $2.6 million (8.3%) compared to the corresponding
nine months in the preceding year. The decline during the nine months was
primarily due to reduced net sales of calcined and tabular alumina products of
$2.9 million as a result of the sale of those production facilities to C-E on
April 1, 1996 and decreased sales volume of $1.7 million of active alumina
products. These decreases were partially offset by increased sales volume of
$1.0 million of Versal(R) alumina products and increased selling prices of $1.0
million in both active and Versal(R) alumina products.
Income from Operations. Income from operations for the nine months ended
November 30, 1997 increased $0.8 million (6.8%) to $12.9 million from $12.1
million for the nine months ended November 30, 1996.
The Nitrogen Products segment's income from operations increased by $5.0
million (64.3%) for the nine months ended November 30, 1997 as compared to the
corresponding nine months in the prior year. This increase was partially due to
(i) decreased labor, maintenance and other costs, including environmental
remediation and legal charges, of $7.2 million and (ii) improved margins of $1.2
million in industrial ammonia. In addition, the Nitrogen Products segment
experienced increased income from operations as a result of increased margins of
$0.6 million of blasting grade ammonium nitrate as compared to the prior year
primarily as a result of better market conditions and increased agricultural
products sold of $0.7 million at the
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<PAGE> 34
Company's warehousing facilities as a result of better regional conditions. Such
increases were partially offset by reduced volume of $3.1 million at the plants
primarily due to idling of the blasting grade ammonium nitrate plant at the
Crystal City facility in the spring of 1996 and due to a delay in start up of
the Phase II expansion at the Cherokee facility (as discussed above) and
increased cost of $1.1 million on natural gas. The Nitrogen Products segment's
income from operations for the nine months ended November 30, 1997 also includes
approximately $900,000 as a result of an insurance recovery related to
previously disclosed production problems during fiscal year 1997 and a loss on
the disposal of certain assets of $1.7 million.
The Electrochemical Products segment's income from operations decreased by
$5.6 million (63.1%) for the nine months ended November 30, 1997 as compared to
the corresponding nine months in the prior year. This decline was a result of
decreased income from operations in chlorine and caustic soda of $3.0 million
and fluorocarbons of $2.6 million. Income from operations in chlorine and
caustic soda includes a decrease of $7.3 million as compared to the prior year
which resulted from a decline in ECU prices due to competitive market
conditions. The offsetting increase in income from operations in chlorine and
caustic soda of $4.3 million resulted primarily from decreased maintenance and
other costs (as discussed above). The income from operations in fluorocarbons
includes (i) decreased net sales of CFCs R-11 and R-12 of $2.7 million and (ii)
decreased selling prices of $0.9 million of R-141b due to competitive market
conditions partially offset by increased profits from volumes due to higher
sales to key customers. The offsetting increase in income from operation in
fluorocarbons of $1.0 million was also attributable to decreased maintenance and
other costs incurred as compared to the prior year.
The Alumina Chemicals segment's income from operations increased by $1.0
million (183.8%) for the nine months ended November 30, 1997 as compared to the
corresponding nine months in the prior year. This increase is (i) due to the
sale of the calcined and tabular alumina production facilities to C-E on April
1, 1996 which resulted in a decreased loss of approximately $1.6 million in
income from operations, (ii) increased income from operations of $1.1 million on
Versal(R) alumina products primarily due to sales increases and increased CRILAR
purchased volume and (iii) increased selling prices of $1.0 million on active
and Versal(R) alumina products. Such increase was offset partially by increased
repair and maintenance and other costs of $1.8 million and decreased income from
operations of $1.0 million on active alumina products primarily due to sales
decreases and increased hydrate pricing.
Corporate Expenses. Corporate expenses for the nine months ended November
30, 1997 decreased $0.4 million (10.6%) to $3.6 million from $4.0 million for
the nine months ended November 30, 1996. For the nine months ended November 30,
1997 and 1996, as a percentage of net sales, these corporate expenses were 1.3%
and 1.4%, respectively.
Income from Equity Investments. Income from equity investments for the
nine months ended November 30, 1997 totaled $2.2 million compared to $3.6
million for the nine months ended November 30, 1996. Income from equity
investments reflects equity income attributable to several joint ventures. The
decrease in equity income was primarily due to a decline in income earned from
the Kaiser LaRoche Hydrate Partnership as a result of increased costs incurred
by the partnership and a net loss incurred from the Chlor-alkali Joint Venture
which primarily resulted from certain start up costs as a result of the
Company's investment in October 1997.
Other Income (Expense), Net. For the nine months ended November 30, 1997,
other income (expense), net was ($1.5 million) compared to other income
(expense), net of $19,000 for the nine months ended November 30, 1996. This
decrease was primarily due to the loss on the foreign currency transaction
discussed above.
Interest and Amortization of Debt Expense. For the nine months ended
November 30, 1997, interest and amortization of debt expense was $12.2 million
compared to interest and amortization of debt expense of $11.2 million for the
nine months ended November 30, 1996. The increase was primarily due to the
Company's refinancing of its senior indebtedness discussed above.
Provision for Income Taxes. Provision for income taxes for the nine months
ended November 30, 1997 was $0.6 million, a $1.2 million decrease from the nine
months ended November 30, 1996. The decrease
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<PAGE> 35
reflects the decrease in income before income taxes as compared to the
corresponding nine months in the prior year. The Company's effective tax rate
was 40.0% and 39.7% for the nine months ended November 30, 1997 and November 30,
1996, respectively.
Extraordinary charge. In the quarter ended November 30, 1997, net loss
included an extraordinary loss of $12.0 million (net of income tax benefit of
$8.0 million) as a result of the refinancing of the Company's senior
indebtedness as discussed above.
Net Income (Loss). As a result of the factors described above, net income
(loss) for the nine months ended November 30, 1997 was ($11.2 million) as
compared to $2.7 million in the nine months ended November 30, 1996.
The following table presents business segment information for the fiscal
years ended February 28, 1995, February 29, 1996 and February 28, 1997,
respectively:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 29, 1996 FEBRUARY 28, 1997
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NET SALES:
Nitrogen Products.................................. $234,909 55.8% $248,438 55.3% $242,408 63.9%
Electrochemical Products........................... 126,509 30.1 138,775 30.9 96,738 25.5
Alumina Chemicals.................................. 59,305 14.1 61,769 13.8 40,139 10.6
-------- ----- -------- ----- -------- -----
Total..................................... $420,723 100.0% $448,982 100.0% $379,285 100.0%
======== ===== ======== ===== ======== =====
INCOME (LOSS) FROM OPERATIONS:
Nitrogen Products.................................. $ 13,833 37.2% $ 20,468 46.2% $ 11,710 110.1%
Electrochemical Products........................... 24,818 66.7 29,624 66.9 8,562 80.4
Alumina Chemicals.................................. 2,196 5.9 (448) (1.0) (3,897) (36.6)
Corporate.......................................... (3,642) (9.8) (5,359) (12.1) (5,738) (53.9)
-------- ----- -------- ----- -------- -----
Total..................................... $ 37,205 100.0% $ 44,285 100.0% $ 10,637 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Comparison of Years Ended February 28, 1997 and February 29, 1996
Net Sales. Net sales for the fiscal years 1997 decreased to $379.3 million
$449.0 million in fiscal year 1996, a decrease of $69.7 million (15.5%).
The Nitrogen Products segment's net sales decreased $6.0 million (2.4%) due
primarily to increased internal consumption of ammonia produced by Avondale
Ammonia ("Avondale Ammonia"), an equally-held joint venture between the Company
and Cytec Industries Inc. ("Cytec"), as well as production problems experienced
at the Avondale Ammonia facility, resulting in reduced net sales of $14.4
million. In connection with the formation of Avondale Ammonia in July 1994, the
Company agreed to fulfill certain market-based sales commitments expiring within
approximately one year of the formation of Avondale Ammonia. Approximately
one-half of the sales commitments were renewed on an annual basis. Accordingly,
the Company's ammonia sales declined during 1997 as such sales commitments
expired and the ammonia became available for internal consumption. In addition,
the Company experienced decreased sales volumes at its nitrogen warehouses and
industrial ammonia locations of $13.1 million primarily as a result of poor
regional weather and planting conditions. Such decreases were partially offset
by increased net sales of $26.2 million resulting from the purchase of the
Seneca blasting grade ammonium nitrate facility during December 1995.
The Electrochemical Products segment's net sales decreased $42.0 million
(30.3%) primarily due to a $33.1 million decrease in sales volume of
fluorocarbon products as a result of the federally-mandated withdrawal from
production of CFCs R-ll and R-12 and the Company's exit from packaged
refrigerant products. Also contributing to the decline in net sales were
decreased ECU prices of $6.1 million experienced during fiscal year 1997.
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<PAGE> 36
The Alumina Chemicals segment's net sales decreased $21.6 million (35.0%)
which consisted primarily of: (i) $11.9 million from the formation of CRILAR and
the resulting exclusion of certain sales from net sales and production problems
experienced at the remaining Versal(R) facility and (ii) $14.5 million from the
sale of the calcined and tabular alumina production facilities to C-E on April
1, 1996. Such decreases were partially offset by increased activated alumina net
sales of $4.9 million.
Income from Operations. Income from operations for fiscal year 1997
decreased to $10.6 million from $44.3 million in fiscal year 1996, a decrease of
$33.6 million (76.0%).
The Nitrogen Products segment's income from operations decreased by $8.8
million (42.8%) during fiscal year 1997 as compared to the preceding year. This
decrease was primarily due to increased natural gas costs of $5.8 million (as
discussed above) and increased environmental remediation costs of $1.1 million
as compared to fiscal 1996. The Nitrogen Products segment's income from
operations for fiscal year 1997 also includes a $1.5 million charge to selling,
general and administrative expense as a result of a plea agreement with the
United States Department of Justice. See "Business -- Legal Proceedings."
The Electrochemical Products segment's income from operations decreased by
$21.1 million (71.1%) during fiscal year 1997 as compared to the preceding year.
This decrease consisted primarily of lower income from operations in chlorine
and caustic soda of $14.5 million and fluorocarbons of $5.5 million. The decline
in chlorine and caustic soda profitability resulted from (i) reduced income from
operations of $12.5 million because of lower ECU prices and production problems
and (ii) the $4.5 million effect of increased natural gas prices, which were
partially offset by $2.6 million of lower maintenance and other costs. A $6.3
million decrease in fluorocarbons income from operations, resulting from the
federally-mandated withdrawal from production of certain fluorocarbons and
refrigerant products was partially offset by reduced cost of $800,000 in the
Company's HCFC R-141b operations.
The Alumina Chemicals segment's loss from operations increased by $3.4
million during fiscal year 1997 as compared to the preceding year. The increase
was primarily the result of the formation of CRILAR and the resulting exclusion
of certain gross profits from the segment's income from operations. Income from
operations for the Alumina Chemicals segment was also negatively affected by the
operating agreement entered into with C-E upon the disposition of the calcined
and tabular businesses as the Company incurred costs associated with the
transition of operations to C-E during fiscal year 1997.
Corporate Expenses. Corporate expenses for fiscal year 1997 increased
$379,000 to $5.7 million from $5.3 million for fiscal year 1996. For fiscal
years ended 1997 and 1996, as a percentage of net sales, these corporate
expenses were 1.5% and 1.2%, respectively.
Interest and Amortization of Debt Expense. Interest expense for fiscal
year 1997 decreased to $14.9 million from $16.0 million in fiscal year 1996, a
decrease of $1.1 million (6.8%). The decrease resulted from repayments on higher
rate debt obligations of $11.7 million and interest capitalized on major capital
projects of $860,000. The Company capitalized no interest on major capital
projects in fiscal year 1996.
Income from Equity Investments. Income from equity investments increased
to $4.9 million in fiscal year 1997 from $2.6 million in fiscal year 1996, an
increase of $2.3 million (85.5%). Equity income attributable to CRILAR and
increases in income from the Kaiser LaRoche Hydrate Partnership, a partnership
with Kaiser in which the Company acquired a 45% interest (the "Hydrate
Partnership"), due primarily to increased sales by the partnership, accounted
for the increase.
Other Income, Net. Other income, net, for fiscal year 1997 decreased to
$411,000 from $1.2 million for fiscal year 1996, a decrease of $752,000 (64.7%).
The decrease is primarily attributable to the decrease in interest income earned
in fiscal year 1997.
Provision For Income Taxes. Provision for income taxes for fiscal year
1997 decreased to $417,000 from $13.2 million for fiscal year 1996, a decrease
of $12.8 million (96.8%). The effective tax rates were 38.8% and 41.0% for
fiscal years 1997 and 1996, respectively. The Company's effective tax rate in
fiscal year 1997 was adversely affected by the non-deductible charge relating to
the United States Department of Justice fine,
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<PAGE> 37
which was offset by certain one-time benefits from the resolution of federal tax
audits and amendments to prior tax returns.
Net Income. As a result of the factors described above, net income for
fiscal year 1997 was $659,000. Net income decreased $18.3 million from the
preceding year.
Comparison of Years Ended February 29, 1996 and February 28, 1995
Net Sales. Net sales for fiscal year 1996 increased to $449.0 million from
$420.7 million in fiscal year 1995, an increase of $28.3 million (6.7%).
The Nitrogen Products segment's net sales increased $13.5 million (5.8%)
due to additional sales volume primarily as a result of the purchase of the
Seneca facility and higher sales price of ammonia.
The Electrochemical Products segment's net sales increased $12.3 million
(9.7%) due primarily to increases in chlorine and caustic soda sales of $13.6
million coupled with steady sales of fluorocarbons as compared to the prior
year. A chlorine and caustic plant outage at the Gramercy facility over an
extended period during fiscal year 1995 resulted in increased sales volume
during fiscal year 1996 compared to fiscal year 1995. Also contributing to
greater net sales were higher caustic soda prices during fiscal year 1996. An
increase in HCFC R-141b net sales of $9.4 million partially offset reduced net
sales of $11.0 million which resulted from the decreased sales volume of other
fluorocarbon products and lower CFC R-11 and R-12 sales prices. As of January 1,
1996, the Company completed the phase-out of the production of CFCs R-11 and
R-12.
The Alumina Chemicals segment's net sales increased $2.5 million (4.2%) due
primarily to a change in sales product mix to higher priced alumina chemical
products.
Income From Operations. Income from operations for fiscal year 1996
increased to $44.3 million from $37.2 million in fiscal year 1995, an increase
of $7.1 million (19.0%).
The Nitrogen Products segment's income from operations increased by $6.6
million (48.0%) during fiscal year 1996 as compared to the preceding year. This
increase was primarily due to higher ammonia prices experienced during the year.
The Electrochemical Products segment's income from operations increased by
$4.8 million (19.4%) during fiscal year 1996 as compared to the preceding year.
This increase was primarily due to higher caustic soda prices and increased
sales volumes (as discussed above). The Company's income before income taxes
during fiscal year 1995 was impacted adversely by $1.6 million due to the
temporary outage of the chlor-alkali plant.
The Alumina Chemicals segment's income from operations decreased by $2.6
million (120.4%) during fiscal year 1996 as compared to the preceding year. This
decrease was primarily due to costs associated with the calcined and tabular
businesses disposition coupled with a change in sales product mix to higher cost
alumina chemical products. In fiscal year 1996 and 1995, the calcined and
tabular businesses recognized losses from operations of $4.7 million and $3.0
million, respectively.
Corporate Expenses. Corporate expenses for fiscal year 1996 increased $1.7
million to $5.4 million from $3.6 million for fiscal year 1995. For fiscal years
ended 1996 and 1995, as a percentage of net sales, these corporate expenses were
1.2% and 0.9%, respectively.
Interest and Amortization of Debt Expense. Interest expense for fiscal
year 1996 increased to $16.0 million from $13.1 million in fiscal year 1995, an
increase of $2.9 million (22.1%). The increase was attributable to the
additional interest incurred on the Existing Notes which were outstanding
throughout fiscal year 1996, but only outstanding for a portion of fiscal year
1995.
Income From Equity Investments. Income from equity investments increased
to $2.6 million in fiscal year 1996 from $2.5 million in fiscal year 1995, an
increase of $107,000 (4.2%). Equity income attributable to CRILAR, offset by a
$1.1 million decrease in income attributed to the Hydrate Partnership due to
higher raw material costs, accounted for the increase.
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<PAGE> 38
Other Income, Net. Other income, net, for fiscal year 1996 decreased to
$1.2 million from $1.6 million for fiscal year 1995, a decrease of $418,000
(26.4%).
Provision For Income Taxes. Provision for income taxes for fiscal year
1996 increased to $13.2 million from $12.3 million for fiscal year 1995, an
increase of $873,000 (7.1%). The effective tax rates were 41.0% and 43.5% for
fiscal year 1996 and 199S, respectively, a 5.7% decrease.
Minority Interests. Minority interests for fiscal year 1996 decreased to
$0 from $2.1 million in fiscal year 1995 due to the purchase of minority shares
of LaRoche Chemicals Inc. in August 1994 concurrent with the completion of the
sale of the Existing Notes.
Net Income. As a result of the factors described above, net income for
fiscal year 1996 was $19.0 million. Net income increased $5.9 million from the
preceding year.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash provided by operating activities was $24.8
million and $26.9 million for the nine months ended November 30, 1997 and 1996,
respectively. The decrease was primarily the result of decreased net income
before depreciation and amortization and other non-cash charges and less
significant reductions in working capital than in the corresponding nine months
in the prior year offset partially by the extraordinary charge related to the
refinancing. Net cash provided by operating activities for fiscal years 1997,
1996 and 1995 was $25.3 million, $60.8 million and $5.5 million, respectively.
The decrease in net income and changes in working capital requirements
contributed primarily to the decrease in net cash provided by operating
activities in fiscal year 1997. The Company experienced a less significant
increase in working capital requirements during fiscal year 1997 compared to a
substantial decline in working capital requirements experienced in fiscal year
1996. Such decreases experienced in fiscal year 1996 resulted primarily from
significant decreases in inventories from fiscal year 1995 due to a reduction in
fluorocarbon inventories resulting from the government-mandated phase-out of
production of CFCs R-11 and R-12 and a decrease in nitrogen products purchased
for resale. Management does not expect the Company to experience these
significant fluctuations in the future.
Investing and Financing Activities. Net cash used in investing activities
was $62.6 million for the nine months ended November 30, 1997 compared to $21.8
million in the nine months ended November 30, 1996. The primary uses of cash for
the nine months ended November 30, 1997 were (i) capital expenditures of $23.2
million, (ii) plant turnarounds of $2.2 million and (iii) the investment in the
Chlor-alkali Joint Venture of $36.3 million. Major capital expenditures included
$1.8 million for the Phase II Cherokee expansion which was completed in February
1997 (as discussed above), $3.7 million for projects to improve the electrical
systems at the Gramercy powerhouse and $4.6 million for the Company's ongoing
software implementation project. For the nine months ended November 30, 1996,
capital expenditures of $20.8 million and plant turnarounds of $3.8 million,
partially offset by proceeds of $4.1 million from the sale to C-E of certain
calcined and tabular alumina production equipment and other assets, accounted
for the majority of net cash used by investing activities. Major capital
expenditures during the nine months ended November 30, 1996 included $4.6
million for the Cherokee facility expansion projects and $1.8 million for the
Gramercy powerhouse improvement projects. Phases I and II of the Cherokee
facility projects have been completed and are expected to improve ammonium
nitrate prill production and reduce emissions. The powerhouse projects are
expected to increase the reliability and efficiency of the powerhouse operations
at the Gramercy chlorine and caustic soda facility and are expected to be
substantially completed during fiscal year 1998. The software implementation
project will be designed as Year 2000 compliant. Currently, the Company is
addressing the issue as it relates to its operations and its outside business
partners and has not determined the effect on the Company. The Company intends
to use cash flows from operations, the proceeds from the Notes and borrowings
under the Credit Facility as the source of funds for the projects mentioned
above.
Net cash provided (used) by financing activities was $39.4 million and
($5.4 million) for the nine months ended November 30, 1997 and 1996,
respectively. Cash provided by financing activities of $39.4 million for the
nine months ended November 30, 1997 included additions of $209.2 million to
long-term debt, partially offset by (i) repayments of $101.9 million to
long-term debt, (ii) net repayments of $37.6 million of
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<PAGE> 39
outstanding indebtedness under the Company's Revolving Credit Facility, (iii)
premium payments of $17.3 million on the early extinguishment of debt and (iv)
costs of refinancing of $11.6 million, due to the refinancing and the draw on
the Term Loan for investment purposes. During the nine months ended November 30,
1997, the Company made its final payment on the USX Notes. Cash used by
financing activities of $5.4 million for the nine months ended November 30, 1996
included the $7.5 million repurchase of common stock with put rights, net
borrowings of $7.4 million of outstanding indebtedness under the Company's
revolving credit facility, repayments of $7.8 million of long-term debt,
partially offset by the receipt of $3.1 million on the sale of redeemable common
stock.
Net cash used in investing activities for fiscal years 1997, 1996 and 1995
were $39.7 million, $52.0 million and $32.0 million, respectively. The primary
use of cash for investing activities during fiscal year 1997 was for capital
expenditure projects. Significant fiscal year 1997 capital expenditures related
to the Company's strategic growth plan. Major projects which were in process
during fiscal year 1997 included Phases I and II of the Cherokee facility
expansion and the Gramercy powerhouse improvement projects. The Company also
incurred costs of approximately $1.5 million for its ongoing software
implementation project. The project will replace the Company's existing software
for all software applications, including the financial and manufacturing
systems. The Company expects to complete the implementation of the software
project during fiscal year 1999. Net cash used in investing activities for
fiscal year 1996 included $37.5 million for the purchase of the Seneca facility
in December 1995. Net cash used in investing activities for fiscal year 1995
included capital expenditures of $17.7 million and investments of $13.4 million.
Such spending included the acquisition of the Company's interest in Avondale
Ammonia, construction of an active aluminas plant, the completion of the
construction of the HCFC R-141b fluorocarbon plant, and the purchase of a new
fertilizer warehouse.
During fiscal year 1997, proceeds of $3.1 million from the sale of the
Company's calcined and tabular operations and $600,000 from the sale of other
properties contributed cash of $3.7 million. In addition, proceeds from the sale
to CRILAR of the 50% interest in the Versal II plant and $1.0 million from the
sale of other properties contributed to cash of $6.5 million in fiscal year
1996.
Net cash (used)/provided by financing activities for fiscal years 1997,
1996 and 1995 was $12.3 million, ($11.3) million and $28.3 million,
respectively. Cash provided in 1997 was primarily due to borrowings of $32.9
million under the then-existing credit facility. Such amounts were primarily
used to fund the Company's capital expenditures during 1997, as discussed above.
In addition, the Company repaid $11.7 million of long-term debt, including
pre-payments of $5.2 million and scheduled payments of $5.0 million on the USX
Notes. Fiscal year 1997 activity also included payments of $7.5 million to
repurchase common stock of the Company pursuant to rights of a former officer.
Cash used by financing activities in 1996 was primarily due to the repayment of
debt, specifically a pre-payment of $7.4 million and scheduled payments of $4.0
million on the USX Notes. Cash provided by financing activities in 1995 was
primarily the result of the issuance of $100 million of 13% Notes. Proceeds from
the 13% Notes were used for the retirement of debt, the repurchase of
outstanding LCI minority shares and the repurchase of certain shares of stock
from a retiring executive officer. In addition, a portion of the proceeds was
used to retire the bridge financing associated with the acquisition of the
Company's interest in Avondale Ammonia.
Dividend payments of an aggregate of $912,000 and $767,000 were paid during
fiscal year 1997 and the nine months ended November 30, 1997, respectively. On
January 13, 1998, the Company's Board approved dividend payments of $328,000 to
all shareholders of record as of January 15, 1998. The Board may or may not
declare additional dividends in the future depending upon the financial
condition of the Company and restrictions pursuant to the Company's debt
instruments.
Management anticipates that the Company's existing capital resources, cash
flow generated from future operations and drawings under the Revolving Credit
Facility will enable it to maintain its planned operations, capital
expenditures, acquisitions and debt service for the foreseeable future.
ENVIRONMENTAL AND LEGAL MATTERS
Due to the nature of the Company's business, it must continually monitor
compliance with all applicable environmental laws and regulations. As of
February 28, 1997, the Company had recorded $1.9 million of
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current liabilities and $2.6 million of non-current liabilities to reflect the
estimated future costs associated with environmental matters. A significant
portion of the recorded liabilities is attributable to a soil and groundwater
contamination incident at the Company's Gramercy facility in fiscal year 1990.
Remediation at such facility is being conducted in accordance with a work plan
approved by the Louisiana Department of Environmental Quality. Future
expenditures for the Gramercy facility are anticipated to be approximately $1.9
million and are anticipated to be paid over the next few years. In addition, the
Company has recorded liabilities attributable to the Greensboro, North Carolina
fertilizer plant contamination for remedial costs, including the cost of soil
redemption and off-site disposal of waste material and building debris. See
"Business -- Legal Proceedings."
Under the asset purchase agreements with USX and Kaiser, both USX and
Kaiser retained liability under certain circumstances for environmental matters
that existed prior to the dates of the respective transactions. In connection
with the Company's sale of certain of the businesses it originally bought from
USX in 1986, the Company retains some degree of liability for environmental
matters that existed prior to the date of sale. See "Business -- Environmental
Proceedings."
Capital expenditures made to address environmental matters were $1.2
million, $1.5 million and $7.8 million in fiscal years 1995, 1996 and 1997,
respectively. Included in fiscal 1997 expenditures is approximately $5.9 million
related to certain emissions abatement equipment at the Cherokee facility that
allows the Company to operate a nitric acid plant at a substantially higher
capacity than in recent years without exceeding limitations on certain
emissions.
On June 27, 1996, Marathon Oil Company and Marathon Pipe Line Company
(together, "Marathon") initiated litigation against the Company and another
defendant in connection with a 1996 petroleum release near the Company's
Gramercy facility, and in connection therewith a class action lawsuit and one
other lawsuit were filed against the Company and Marathon. 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. In December 1997, the Company was named as a
defendant in three civil antitrust actions, brought predominantly by various
mining concerns, alleging that the Company is guilty of violations of federal
antitrust laws, various state antitrust and unfair trade practice statutes, and
common law fraud in connection with the Company's blasting grade ammonium
nitrate business as conducted in the mid to late 1980's and early 1990's. The
Company previously disclosed a plea agreement with the United States Department
of Justice in which the Company agreed to plead guilty to a one-count
information charging the Company with participating in a conspiracy to restrain
competition in the pricing of ammonium nitrate during May 1992. In that
agreement, the Company did not admit, and the Department of Justice did not
contend, that the Company ever implemented any such conspiracy. The matter is in
a preliminary stage and it is not yet possible to predict whether the Company
will incur any liability for the antitrust actions or to reasonably estimate the
cost of any possible liability. See "Business -- Legal Proceedings."
The Company is a participant in certain other legal actions, claims and
remedial activities. Management of the Company believes that, based upon the
information currently available, such other legal actions, claims and remedial
activities are likely to be resolved without a material adverse effect upon the
Company's financial condition and results of operations. However, the aggregate
cost of such legal actions, claims and remedial activities are inherently
impossible to predict and there can therefore be no assurance that this will be
the case. See "Business -- Legal Proceedings."
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective March 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("SFAS No. 121"). SFAS No. 121
requires that long-lived assets to be held and used by an entity, certain
identifiable intangibles and goodwill be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. 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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In October 1996, the American Institute of Certified Public Accountants
issued 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 Company adopted SOP
96-1 effective March 1997. Adoption of SOP 96-1 did not have a material effect
on the Company's operating results or financial condition.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 131, Disclosures about Segments of an Enterprise and
Related Information ("SFAS No. 131"). SFAS No. 131 establishes standards for
disclosures of segment information about products and services, geographic
areas, major customers and certain interim disclosures of segment information
which are not required by accounting standards currently applied by the Company.
The Company will adopt SFAS No. 131 in the first quarter of fiscal 1999.
Currently, the Company is evaluating this standard and is uncertain as to the
impact it will have on the Company's consolidated financial statements.
SEASONALITY
Demand for the Company's fertilizer products is seasonal. Such seasonality
of demand requires the Company to build its inventory in anticipation of periods
of peak demand and may adversely affect the Company's cash flow. 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 United States 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 United States 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
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.
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BUSINESS
THE COMPANY
LaRoche Industries Inc. is a major domestic diversified producer and
distributor of inorganic chemicals. The Company's products are divided into
three business segments: Nitrogen Products, Electrochemical Products and Alumina
Chemicals. The Company produces and distributes various Nitrogen Products,
including nitrogen-based fertilizers essential for crop growth and
nitrogen-based blasting agents for industrial explosives. In its Electrochemical
Products, the Company is a merchant producer and marketer of chlor-alkali
chemicals, which are fundamental building blocks for products used in the
construction, pulp and paper, water treatment, detergent, pesticide and
pharmaceutical industries. The Company also produces Alumina Chemicals, which
are used in a variety of catalyst and adsorbent applications, including
environmental protection and abatement processes.
The Company was formed in a 1986 management buyout of the nitrogen, mixed
fertilizers and retail business operations of USX followed by a 1988 acquisition
of certain chemical production operations of Kaiser. The Company has assembled
and is continuing to develop a platform of three core businesses upon which it
believes it can realize long term growth and improved profitability. The Company
intends to achieve these objectives primarily through capital expenditures to
improve and expand existing facilities, new product development and strategic
acquisitions of attractively priced assets in the Company's core business
segments. Management believes the Company benefits from the sale of diversified
products with relatively independent business cycles and distinct markets. For
the fiscal year ended February 28, 1997, the Company had consolidated net sales
of $379.3 million and EBITDA of $39.1 million.
INDUSTRY OVERVIEW
NITROGEN PRODUCTS
Ammonia is produced from natural gas and is used primarily as a direct
application fertilizer, as an ingredient in a number of industrial chemicals and
as the basic building block to produce a variety of nitrogen-based products.
Ammonia is upgraded into a number of products including urea, ammonium nitrate,
UAN solution and nitric acid. These upgraded products are used in a variety of
applications including fertilizers and as a key ingredient in industrial
explosives.
In the production of ammonium nitrate, ammonia gas and air are burned in
the presence of a catalyst to form nitric acid. Additional ammonia is then used
to neutralize the nitric acid, forming ammonium nitrate liquor. This liquor is
either solidified and converted into granular pellets (or prilled) to produce
HDAN, a solid fertilizer, or LDAN, a blasting grade ammonium nitrate, or
combined with urea liquor to produce UAN solution, a liquid fertilizer product.
Approximately 60% of total United States ammonium nitrate production is
used in agricultural fertilizers, with the remaining 40% used as the main
component of most industrial explosives and blasting agents. The industry has
historically been relatively stable except for a depressed period between 1985
and 1987 when poor market conditions for both fertilizers and explosives
coincided. Since the early 1990's, the industry has been operating at or near
capacity due to strong demand for fertilizers stemming from tight global and
United States grain supplies and the recent deregulation of United States
farming due to the Freedom to Farm Act. Since ammonia is the critical raw
material in the ammonium nitrate production process, leading producers generally
derive significant profitability and supply reliability benefits from vertical
integration.
The United States accounts for approximately 14% of total world ammonium
nitrate capacity and is largely self-sufficient. Total capacity of 4.3 million
tons p.a. in the United States is forecast by industry consultants to increase
by about 3% p.a. through 2000. The market for ammonium nitrate in the United
States is characterized as mature with industry experts forecasting relatively
minimal but steady demand growth of 1% p.a. through 2000, driven by increasing
demand for ammonium nitrate for the fertilizer markets and stable demand for
ammonium nitrate from the coal mining industry. Management believes the
increased demand for
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ammonium nitrate, driven by the factors discussed below, will keep pace with
expected capacity increases, which may help to keep ammonium nitrate prices
relatively stable.
Fertilizer
Fertilizer products supply and enhance the natural fertility of soil by
replacing the essential nutrients that have been taken from the soil by previous
crops. The three primary nutrients in fertilizer that are essential to plant
growth are nitrogen, phosphate and potash. Typically, farmers add various
proportions of all three to the soil as fertilizer. Nitrogen, to a significantly
greater extent than phosphate or potash, must be reapplied each year in areas of
intense agricultural usage, and consequently year-to-year demand for nitrogen
fertilizer tends to be more consistent on a per acre planted basis than the
demand for other fertilizers.
Nitrogen fertilizer demand in the United States depends on a number of
factors, including total planted acreage of corn and wheat, the primary crops
which utilize nitrogen fertilizer, crop mix and fertilizer application rates.
Planted acreage and fertilizer application rates are determined primarily by the
planting decisions of farmers who are influenced by, among other things, the
profit that they expect to make on the investment to plant, grow and harvest
their crops. These profit expectations are in turn influenced by current and
projected grain stocks and prices, United States government agricultural
policies (including subsidy and acreage set-aside programs) and weather. World
grain stocks are currently at or near recent historical lows, which is leading
to an increase in the number of acres planted in the United States, and
subsequently to an increase in demand for nitrogen fertilizers. Nitrogen
fertilizer application rates are also affected by the type of crops planted and
local soil conditions. In recent years, nitrogen application rates have been
relatively stable.
Domestic nitrogen fertilizer producers also compete with foreign importers,
some of whom are able to offset high transportation costs by the direct receipt
of foreign government subsidies or low local natural gas prices. Imports from
Canada, Norway and the former Soviet Union have risen to approximately 500,000
tons p.a. to meet United States demand.
Total North American production capacity for nitrogen-based,
fertilizer-grade ammonium nitrate was approximately 2.55 million tons p.a. at
the end of 1996, as estimated by industry consultants. According to an industry
consultant, Mississippi Chemical Corporation is the leading North American
producer of HDAN with a 28% share of installed capacity followed by the Company
(11%), Unocal Corporation (9%), and El Dorado Chemical Company (9%). Because the
main competitive factor affecting price is cost of transportation, the
geographic area which a production facility can competitively supply tends to be
restricted.
Solid ammonium nitrate and ammonium nitrate solutions, including UAN
solutions, collectively account for approximately 21% of the total United States
nitrogen fertilizer market. Solid ammonium nitrate has historically served as
the primary nitrogen fertilizer for pastures and no-till row crops because it is
less prone to evaporation losses than other fertilizers. Demand for solid
ammonium nitrate has experienced a recent marginal decline due to competition
from ammonia and urea in the solid fertilizer markets. UAN solution, which is
applied as a liquid fertilizer product, has become increasingly popular because
it provides farmers with the flexibility to apply fertilizer to crops at various
stages of the planting cycle. This increase in popularity has led to increased
demand for UAN solution, which has compensated for the marginal decline in
demand for solid ammonium nitrate.
Blasting Grade Ammonium Nitrate
Total North American production capacity for blasting grade ammonium
nitrate was approximately 2.74 million tons p.a. at the end of 1996 as estimated
by industry consultants. Approximately 70% of ammonium nitrate-based blasting
agents and explosive tonnage are used in the mining of coal, the volume of which
is largely determined by electric power demand. Metals mining, quarry and road
construction activity also affect demand for these blasting products. According
to an industry consultant, ICI Explosives USA Inc. is the leading North American
producer of LDAN with a 21% share of industry capacity followed by Potash
Corporation of Saskatchewan Inc. (17%), Dyno Nobel Inc. (16%), and the Company
(16%). Overall demand tends to be cyclical reflecting the economic sensitivity
of industries consuming explosives.
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Freight charges typically account for a significant percentage of the
selling price of blasting grade ammonium nitrate, which limits the geography to
which manufacturers can deliver on a competitive basis. Competition is generally
divided between the eastern and western regions of the United States and is
based on price and product quality.
Producers of blasting grade ammonium nitrate historically sold excess
product as a nitrogen fertilizer. However, the industry has adopted policies
severely restricting sales of blasting-grade ammonium nitrate to the fertilizer
markets following the 1995 Oklahoma City bombing.
Industrial Ammonia
Anhydrous and aqua ammonia have a variety of industrial applications,
including the removal of nitrogen oxide pollutant gases from boiler and
incinerator emissions, refrigeration, fermentation, chemical processing, water
treatment, heat treating and waste acid neutralization. In response to the Clean
Air Act Amendments, which severely restrict the discharge of certain pollutants
into the environment, domestic demand for ammonia used in the treatment of
sulfur and nitrogen oxide gases has grown rapidly. These provisions call for
additional restrictions in the next several years. Measures currently being
discussed by the United States Environmental Protection Agency ("EPA") and
endorsed by the Clinton Administration would further tighten emission limits.
Although approximately 80% of ammonia is used for fertilizer applications,
industrial ammonia holds a growing share of the overall market.
ELECTROCHEMICAL PRODUCTS
Chlor-alkali
Chlorine and caustic soda, most commonly produced as co-products of salt
brine electrolysis in a fixed weight ratio of 1 to 1.12, are the sixth and
seventh most commonly produced chemicals, respectively, in the United States
based on volume. In salt brine electrolysis, an electric current is passed
through a salt crystal dissolved in water between immersed conductors, causing
the brine solution to break down into chlorine, caustic soda and hydrogen
by-product.
Chlorine is a critical intermediate used in the production of several
thousand derivative commercial chemicals, including PVC, polyurethane foams,
titanium dioxide and pesticides. These segments are the largest consumers with
the greatest growth potential for the future. The primary direct-application
uses of chlorine are in municipal water treatment, in the manufacture of
household and industrial bleach, and in the pulp and paper industry. Chlorine is
vital to public well-being given that greater than 85% of all pharmaceuticals,
more than 96% of all crop protection chemicals, and nearly all of North
America's municipal water systems are dependent on chlorine. Caustic soda is a
basic commodity chemical with even more diverse end-market applications than
chlorine. It is sold to manufacturers of aluminum, alumina chemicals, soaps,
detergents and petrochemicals, processors of pulp and paper, and for water
treatment. Caustic soda is most frequently valued for its neutralizing power as
a strong base and as an absorbent, rather than as a source of sodium.
Industry experts expect total United States chlorine demand to grow at an
average annual growth rate ("AAGR") of 2.5% through 2001, driven primarily by
4.5% average annual growth in demand from the PVC industry, which is the largest
end-market for chlorine and which accounts for approximately 29% of United
States consumption. PVC is a versatile thermoplastic used widely by the
construction industry in piping, films, wire and cable insulation, and floor
coverings. Overall chlorine demand growth is being tempered by the decline in
demand from: (i) the pulp and paper industry, as producers complete the
conversion to reduced-chlorine, elemental chlorine-free, or totally
chlorine-free products for bleaching purposes; and (ii) the CFC end-markets due
to those products' phase-out in accordance with the Montreal Protocols. Industry
experts expect the demand for caustic soda to grow at a slightly higher 2.6%
AAGR through 2001, driven by the pulp and paper industry for processing
purposes, as well as stable demand in various other chemical processing
applications.
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US CHLORINE - DEMAND BY END-USE 1996
[PIE CHART SHOWING U.S. CHLORINE USE IN 1996, BROKEN DOWN INTO EIGHT CATEGORIES
OF USE WITH RESPECTIVE PERCENTAGES FOR EACH CATEGORY.]
Source: CMAI, May 1997
US CAUSTIC SODA - DEMAND BY END-USE 1996
[PIE CHART SHOWING U.S. CAUSTIC SODA USE IN 1996, BROKEN DOWN INTO NINE
CATEGORIES OF USE WITH RESPECTIVE PERCENTAGES FOR EACH CATEGORY.]
Source: CMAI, August 1997
Historically, chlorine production in the United States has fluctuated over
the economic cycles, but has experienced a long-term average growth rate of
approximately 1.2% per annum during the period from 1973 to 1997. Chlorine is
difficult and dangerous to store in its elemental form, whereas caustic soda is
comparatively safe and stable and readily capable of being stored in large
quantities. As a result, demand for chlorine, generally dictated by the
construction industry, is the key driver for overall production volume of
chlorine and caustic soda. Generally, when demand for chlorine is high,
production levels and prices increase. This tends to be offset by over-supply of
caustic soda and weak caustic soda pricing. On the contrary, when chlorine
demand is weak, production levels and pricing decrease, causing caustic soda to
be in a tight supply position with attendant rising prices. The volatility in
the caustic soda market tends to be exacerbated by end-users building
inventories ahead of forecast shortages and price increases, and running down
inventories ahead of forecast over-supply and price weakness. As a result, an
inverse, although not perfectly correlated price relationship exists between
chlorine and caustic soda. The price of one ton of chlorine plus the price of
the accompanying 1.12 tons of caustic soda, known as an ECU, therefore tends to
be somewhat less volatile than the price of either commodity individually.
HISTORICAL CHLOR-ALKALI PRICES
[TABLE SHOWING THE HISTORICAL PRICE PER TON FOR CHLORINE, CAUSTIC SODA AND FOR
AN ECU, FROM FIRST QUARTER 1986 THROUGH FIRST QUARTER 1997.]
Source: -- CMAI, August 1997
Chlor-alkali pricing decreased from a level of approximately $400 per ECU
ton in 1988 to below $200 per ECU ton by mid-1993 due to general declines in the
economy. The divergent behavior of chlorine and caustic soda prices was
particularly evident in 1991 when caustic soda prices reached a pre-recession
peak of $275 per ton during the second quarter, while chlorine prices dropped
below $50 per ton due to oversupply. The comparatively lower volatility of ECU
price levels during this time period demonstrated the industry's ability to
sustain normalized levels of profitability even with wide price variances for
the individual products. As the economy rebounded from the recession, both
chlorine and caustic soda prices recovered, with pricing eventually topping $400
per ECU at the peak of the commodity chemical cycle in 1995. Caustic soda prices
eased from the second half of 1995 through all of 1996 due to the accumulating
inventory levels caused by strong chlorine demand and reduced caustic soda
demand due to lower pulp and paper operating rates. As a result, prices fell off
to approximately $335-345 per ECU by the end of 1996 even as chlorine prices
remained strong due to the steady demand growth emanating from the PVC industry.
For the third quarter of 1997,
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contract chlorine and caustic soda prices have settled at $205-$225 per ton and
$95-$105 per ton respectively, resulting in prices ranging from $310-$345 per
ECU.
The chlor-alkali industry has consistently achieved operating rates in
excess of 90% since 1991, having recovered from a major period of
rationalization during the early 1980's when operating rates bottomed out at
just over 60%. The industry benefited from significant capacity reductions as
well as major capacity expansions by producers of chlorine derivatives during
that period. Despite recent announcements by a number of chlor-alkali producers,
including integrated producers Dow Chemical Co., Olin Corporation, Formosa
Plastics Corporation, and Shintech, Inc. to expand capacity, annual operating
rates within the chlor-alkali industry are expected by industry experts to
average over 95% through 2001 to meet anticipated demand growth.
UNITED STATES CHLORINE CAPACITY/PRODUCTION
[Table showing historical and estimated U.S. chlorine production, capacity and
operating rate, from 1973 through 1995 (estimated for 1997).]
Source: CMAI, August 1997
Nearly one-third of the world's chlor-alkali production capacity is located
in North America, with approximately 70% situated along the United States Gulf
Coast. Chlor-alkali producers along the United States Gulf Coast are among the
lowest-cost industry producers, due to excellent feedstock logistics and close
proximity to downstream producers of products that consume chlorine and caustic
soda. According to industry consultants, the three largest chlor-alkali
producers in North America are Dow Chemical Co., Occidental Chemical Corporation
and PPG Industries Inc. with capacity shares of approximately 25%, 21%, and 13%
respectively. Most of the major United States Gulf Coast producers are fully
downstream integrated into products which involve the processing of chlorine. As
a result, there are relatively few merchant producers of chlorine.
Technology used in the manufacture of chlorine and caustic soda is based on
either diaphragm, membrane or mercury cells. Of these, the diaphragm cell
process is predominant in the United States with approximately 66% of total
capacity. Each of the mercury cell and membrane cell processes is used to
manufacture approximately 17% of chlorine in the United States.
The profitability of the industry as a whole and relative profitability
between producers is significantly affected by energy efficiency and the cost of
energy, since energy represents by far the largest cost component in the
production of chlorine and caustic soda (according to industry consultants,
energy accounts for an average of 37% of manufacturing costs for a diaphragm
cell based producer). Historically, market fluctuations in natural gas prices
have had a significant impact on industry profitability. Other key components in
relative profitability between producers are brine costs and logistics and
transport costs, largely driven by proximity to customers.
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Fluorocarbons
Fluorocarbons are produced through the reaction of a chlorinated organic
compound with HF in the presence of a catalyst. Fluorocarbons are used as
refrigerants, blowing agents, raw materials for fluoropolymers, elastomers, and
aerosol propellants in a wide variety of end-use applications. In 1987, the
United States signed the Montreal Protocols which, for environmental reasons
related to ozone depletion, mandated the total phase-out of CFCs, their
temporary replacement by HCFCs, and their ultimate replacement by
hydrofluorocarbons ("HFCs"), or other products. Fluorocarbon producers
voluntarily accelerated the termination of CFC production and have since ceased
nearly all residual sales of CFC products. In anticipation of the CFC phase out,
producers developed production processes for, and began manufacture of,
replacement fluorocarbon products, such as HCFC-141b, the replacement
fluorocarbon for use as a foam blowing agent in rigid polyurethane foams. Rigid
polyurethane foams serve primarily as insulation in appliances, piping,
buildings, and refrigerated transport containers.
HCFC-141b production is mandated to be phased out in 2003. As a result,
producers are developing proprietary technologies for the production of next
generation fluorocarbons, including HFC-245fa, which industry participants have
targeted as a potential replacement foam blowing agent for HCFC-141b.
ALUMINA CHEMICALS
Industry consultants forecast demand growth of specialty alumina products
of 5%-6% per annum over the next five years. Activated and Versal(R) aluminas
have diverse end-use applications and customer groups. Much of the increased
demand for specialty alumina products is driven by environmental regulation and
the declining quality of crude petroleum feedstocks.
Major specialty aluminas producers include the Company, the Aluminum
Company of America, Societe Francaise de Produits par Catalyse S.A., a 50%-50%
French joint venture between Rhone-Poulenc and Institute de Services Industriels
et Scientifiques, Condea Chemie, GmbH., a large German chemical company, and the
Aluminum Company of Canada.
Activated Alumina Chemicals
The term active or activated alumina refers to several synthetic,
high-surface area alumina products formulated in proprietary activation
processes. Activation is a process or series of processes in which optimum
chemical or surface reactivity is developed in a solid material by using
rehydration and heat to change the physical structure and characteristics of the
material. These activated aluminas are available in various forms and
modifications such as powders, granules or spheres.
Activated alumina is produced by carefully controlled, partial calcination
of hydrate, followed by forming, aging and activation. The conditions of
calcination, aging and activation are all highly proprietary. Uses of activated
alumina include utilization as a specialty adsorbent in a wide variety of
processes within the petroleum and petrochemical industries. Applications
include dehydration of various gases and liquids, hydrofluoric acid alkylation,
catalyst support, chloride removal, Claus catalysts, and as adsorbent materials
used in the manufacture of polyethylene, hydrogen peroxide, petrochemicals and
gasoline additives.
Versal(R)
The name, Versal(R), refers to a family of high performance gel aluminas.
Versal(R) fills a market niche as a raw material in the production of catalyst
supports. The Versal(R) product line provides the breadth required to satisfy a
wide range of properties required by a catalyst manufacturer, such as pore
volume, pore volume distribution, dispersibility and density. Versal(R) products
are used as catalyst supports for a number of applications, including fluid
cracking, desulfurization (removal of sulfurs and metals from sour crude oil),
petrochemical reactions, production of additives used in reformulated gasoline
products and treatment of automotive emissions. The passage of the Clean Air Act
Amendments has resulted in increased demand for Versal(R) products especially
those used as support for desulfurization and oxygenate catalysts.
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Hydrate
Hydrate, the key raw material in the production of specialty alumina, is a
constituent of bauxite and is produced in the Bayer process, the nearly
universal process for producing aluminas from bauxite. The three largest markets
for hydrate are flame retardants, alum and detergent zeolites. Hydrate is a
widely used chemical that retards flame and suppresses smoke. Hydrate, along
with sulfuric acid, is used in the production of alum, which is primarily used
in water treatment systems. Hydrate is also used as a coagulant and softener in
water and sanitation systems. Management projects overall growth in demand for
hydrate to be modest, averaging 1.5% to 2.0% annually over the next several
years.
Producers of hydrate include Kaiser, the Aluminum Company of America, the
Aluminum Company of Canada, Reynolds Metals Co. and Ormet Corporation, a
subsidiary of Oralco, Inc.
BUSINESS STRATEGY
The Company's goals are to achieve long-term growth and improve
profitability while maintaining stringent criteria for safety, reliability,
advanced technology and product quality. The Company's strategies include:
Continue to Improve Existing Operations. Management believes that it
can lower its cost of production and achieve greater manufacturing
reliability through several identified capital expenditure projects. In
Nitrogen Products, the Company is evaluating the expansion of ammonia
production capacity at the Cherokee plant, which will provide further
vertical integration of its raw material supply. In Electrochemical
Products, in addition to the construction of improved electrical systems
currently underway, additional caustic soda evaporation capacity and
improved brine saturation capabilities are projects under consideration for
the Gramercy facility. In Alumina Chemicals, debottlenecking, capacity
expansions and cost reduction programs are being studied for the Baton
Rouge facility. The estimated total cost of these and other identified
capital expenditure projects under consideration is approximately $100.0
million over the next three to four years. Assuming that all of such
projects are approved and implemented, the Company believes that these
projects could in the aggregate contribute approximately $27.0 million to
annual EBITDA. The Company's estimate of the potential contribution to
EBITDA from these projects is based on various assumptions as to costs of
raw materials, demand and prices for the Company's products and other
matters, many of which are beyond the Company's control. There can be no
assurances that any or all of the capital expenditure projects under
consideration will be implemented or that the Company will achieve any or
all of the anticipated operating efficiencies, increase in EBITDA, or other
benefits from such expenditures.
Focus On Product Quality and Customer Service. The Company is seeking
to further improve the quality and performance of its products and the
ability of the Company to consistently satisfy customer requirements
through steps that include implementation of its internal quality
initiative and completion of ISO-9000 certification. These steps, coupled
with programs to improve product distribution, develop products with its
customers and increase manufacturing flexibility are intended to satisfy
changing customer product demands and delivery requirements.
Enhance Core Businesses through Strategic Acquisitions. The Company
continually evaluates acquisition opportunities that would complement and
expand its core businesses while increasing its market position and
distribution strengths. The Company believes it is well-positioned to
acquire low-cost commodity chemical assets in its core businesses from
other large chemical companies, many of which have made strategic decisions
to exit the commodity chemicals business and focus on downstream business
lines that often will continue to require commodity chemical feedstocks.
Management believes such assets often have been underutilized and offer
significant potential for value enhancement when operated, maintained and
developed by a focused commodity chemical producer, such as the Company.
Improve Stability of Cash Flow. Management believes that the diverse
array of the products offered, and distinct markets served by, the Company
mitigate the impact of the cyclicality of any one product or market on the
overall performance of the Company. In an effort to further increase its
cash
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<PAGE> 49
flow stability, the Company is engaging in: (i) active commodity hedging
activities and vertical integration to help mitigate raw materials price
risk; (ii) product development to expand value-added, less cyclical
businesses such as Alumina Chemicals; and (iii) strategic acquisitions and
business development to acquire or expand businesses which either are less
cyclical, balance the seasonality of the Company's Nitrogen Product
segment, or provide access to new geographic markets.
BUSINESS PRODUCT SEGMENTS
NITROGEN PRODUCTS
The Company's Nitrogen Products consist of three product lines: (i)
ammonium nitrate and nitrogen solution fertilizers; (ii) blasting-grade ammonium
nitrate; and (iii) industrial anhydrous and aqua ammonia. The Company's two
primary nitrogen-based fertilizers are HDAN and UAN solution. The Company has
total HDAN production capacity of 280,000 tons p.a. at its Cherokee and Crystal
City facilities, and UAN solution capacity of 250,000 tons p.a. at its Cherokee
facility. The Company believes it is the second largest North American supplier
of HDAN with approximately 11% of industry capacity. The Company manufactures
blasting-grade LDAN and 83% Solution used by the coal mining, metal mining and
quarry industries. The Company has total LDAN capacity of 440,000 tons p.a. at
its Crystal City, Seneca and Geneva facilities. The Company believes it is the
fourth largest North American supplier of LDAN to the blasting products market,
representing approximately 16% of industry capacity. The Company also believes
it is currently the largest merchant distributor in the United States of premium
grade anhydrous and aqua ammonia used for water treatment and for the
manufacture of other chemical products. For fiscal year 1997, Nitrogen Products
accounted for $242.4 million of net sales (63.9% of Company total) and $26.4
million of EBITDA before unallocated corporate expenses (59.0% of Company
total).
<TABLE>
<CAPTION>
Nameplate Capacity (tons p.a.)
--------------------------------------------------
TYPICAL CRYSTAL
COMPANY PRODUCT APPLICATIONS CHEROKEE CITY SENECA GENEVA FORTIER
- --------------- ------------ -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FERTILIZER
HDAN.............................. Fertilizers 140,000 140,000 -- -- --
UAN solution...................... Fertilizers 250,000 -- -- -- --
EXPLOSIVES
LDAN.............................. Explosives -- 110,000(1) 230,000 100,000 --
83% Solution...................... Explosives 80,000 -- -- -- --
AMMONIA
Anhydrous & Aqua Ammonia.......... Fertilizer, 175,000 -- -- -- 440,000(2)
Feedstock &
Water
Treatment..
</TABLE>
- ---------------
(1) The Company's production of LDAN at Crystal City has been suspended since
March 1996.
(2) The Fortier, Louisiana facility is owned by Avondale Ammonia. The Company is
obligated to purchase at least 220,000 tons p.a. produced at such facility,
and may be required to purchase any excess production not purchased by
Cytec.
The Company has achieved its leading market positions through the
development of an extensive system of production and distribution facilities
which are located close to their target markets, often in areas where
competitors do not have local operations. Accordingly, due to the high costs
associated with the transportation of certain nitrogen products, the Company
believes it has located its facilities where it enjoys a freight advantage over
many other competitors. The Company has maintained competitiveness through back-
integration into ammonia, efficient management of natural gas feedstock costs
and capacity expansions.
Fertilizer Grade Ammonium Nitrate. The Company primarily markets
fertilizer grade HDAN and UAN solution to distributors, dealers, national farm
retail chains, regional farm cooperatives and other fertilizer producers located
near its plants or distribution warehouses for ultimate sale and delivery to
farmers.
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<PAGE> 50
The Company believes its fertilizer customers are concentrated mainly in
the midsouth and midwest regions of the United States, where their location
allows the Company to supply its customers with lower freight costs and more
reliable delivery rates than certain of its competitors. The Company
historically has sold more fertilizer grade ammonium nitrate and UAN solution
than it had the capacity to produce, thus allowing it to operate its fertilizer
plants at or near capacity year-round. Due to the high fixed costs associated
with fertilizer production, the Company believes this strategy provides it with
a delivered cost advantage over certain competitors. The Company sells its UAN
solution in markets that can be advantageously supplied by its Cherokee
facility.
Blasting Grade Ammonium Nitrate. As in its fertilizer business, the
Company is committed to selling a greater volume of blasting grade LDAN than it
produces. Unlike other ammonium nitrate producers that tend to de-emphasize the
blasting market during periods of high fertilizer demand, the Company seeks to
maintain product quality and availability irrespective of conditions in the
fertilizer market.
On December 13, 1995, the Company acquired the Seneca facility, a 230,000
tons p.a. blasting grade LDAN manufacturing facility and related assets for an
aggregate purchase price of approximately $39.5 million. The facility
manufactures and sells LDAN only in the blasting market. Blasting grade LDAN is
also manufactured at the Company's 110,000 ton p.a. Geneva facility. The Company
also purchases blasting grade LDAN on a contract basis from third parties. Sales
to manufacturers, distributors and end users are made through contracts and open
market sales.
In May 1995, as a result of the Oklahoma City bombing and the Company's
commitment to the community as a Responsible Care(R) company, the Company
adopted a new policy severely limiting the sale of blasting grade LDAN to any
entity outside the explosives industry. In accordance with such policy, the
Company announced in May 1996 that it had suspended production of LDAN at the
Crystal City facility due to the lack of demand for explosives from the
surrounding coal mining industry. The Company is investigating options to return
this facility to production, including feasibility studies relating to
production of additional fertilizer grade HDAN at such facility.
Freight charges typically account for a significant percentage of the
selling price of blasting grade LDAN, which somewhat limits the geographic areas
in which manufacturers can compete. Competition generally is divided between the
eastern and western regions of the United States and is based on price and
product quality. Because of the location of its three plants and two
distribution centers, the Company is able to compete in both regions. The
Company believes that no competitor maintains a significant technological or
quality advantage over the others.
Industrial Ammonia. The Company supplies the merchant market for anhydrous
and aqua ammonia through 22 customer service centers located throughout the
country and sells products and services nationally. Approximately 50% of the
Company's industrial ammonia sales are for chemical processing applications and
environmental processes, for which demand has been increasing. The Company is
experiencing an increasing demand for aqua ammonia as a result of new
environmental regulations that restrict sulfur and nitrogen oxide emissions. The
Company converts anhydrous ammonia into aqua ammonia at ten distribution
centers.
The Company's competitors include both ammonia manufacturers and merchant
distributors. The ammonia manufacturers serve primarily the large bulk commodity
users, and the merchant distributors serve the smaller volume specialty users of
anhydrous and aqua ammonia, who are the focus of the Company's marketing
efforts. The Company has only one major competitor, Tanner Industries, who
distributes industrial ammonia products nationally. Other competitors in the
industrial ammonia merchant market distribute only in local market areas.
The Company has its own fleet of trucks and trailers for delivering these
products to customers' locations. Sales are made in cylinders, less than truck
load quantities, full truck load and railcar loads. The Company also sells
equipment, replacement parts, safety seminars and videos, ammonia clean-out
services and other services and equipment rentals, that support the primary sale
of anhydrous and aqua ammonia.
Raw Materials. At the Cherokee facility, anhydrous ammonia is produced and
then upgraded into ammonium nitrate and UAN solutions. The Company purchases
anhydrous ammonia to produce ammonium
44
<PAGE> 51
nitrate at the Seneca, Crystal City and Geneva facilities. The Company's
investment in Avondale Ammonia reflects the Company's strategy to vertically
integrate. The Company obtains approximately 220,000 tons p.a. of ammonia
feedstock from Avondale Ammonia, either directly or through swapping
arrangements, for its various Nitrogen Products facilities. Ammonia produced by
Avondale Ammonia is transferred at cost to the joint venture partners relative
to their respective ownership interests. In the aggregate, the Company purchases
approximately one-third of its ammonia feedstock requirements from external
ammonia manufacturers. Substantially all of its purchased ammonia requirements
are supplied pursuant to contracts at prices that permit the Company to produce
Nitrogen Products at a competitive cost. The primary material purchased by the
Company in connection with the production of ammonia at its Cherokee and
Avondale Ammonia facilities is natural gas. Natural gas is supplied throughout
the United States by large pipeline companies and local distributors.
ELECTROCHEMICAL PRODUCTS
The Company's Electrochemical Products consist primarily of chlorine and
caustic soda (chlor-alkali) that are produced as co-products at its Gramercy
facility. This facility has chlorine production capacity of 200,000 tons p.a.
and caustic soda production capacity of 224,000 tons p.a. Chlorine is sold for a
variety of uses, including the manufacture of PVC, household and industrial
bleach, water treatment, titanium dioxide, and various other end-uses. Caustic
soda is sold to manufacturers of aluminum, organic and inorganic chemicals,
detergents and petrochemicals, and to pulp and paper processors, and water
treatment facilities. For fiscal year 1997, Electrochemical Products accounted
for $96.7 million of net sales (25.5% of Company total) and $14.3 million of
EBITDA before unallocated corporate expenses (31.8% of Company total).
<TABLE>
<CAPTION>
COMPANY PRODUCT TYPICAL APPLICATIONS NAMEPLATE CAPACITY
- --------------- ---------------------------------------------- ------------------
<S> <C> <C>
Chlorine..................... PVC, fluorocarbons, titanium dioxide, water 200,000 tons p.a.
treatment, rigid urethane foam, pulp and paper
bleaching and the production of a wide variety
of other chemicals and plastics
Caustic Soda................. Soaps, detergents, petrochemicals, pulp and 224,000 tons p.a.
paper processing, aluminum and alumina
chemicals production, water treatment and the
production of a wide variety of other
chemicals
</TABLE>
The Company primarily competes in the Gulf Coast chlor-alkali market.
Industry consultants estimate approximately 70% of Gulf Coast chlorine capacity
is used by integrated producers for captive consumption in the production of
downstream products. As a result, despite accounting for only approximately 2.0%
of overall Gulf Coast chlorine capacity, the Company has developed a niche
position in the Gulf Coast merchant chlorine market. The Company's production
capacity represents an approximate 7.5% share of the 2.7 million ton p.a.
market. The Company has achieved this position by focusing on chlorine sales to
downstream producers of PVC, rigid urethane foam and titanium dioxide that
prefer not to deal with chlorine suppliers that also produce competing
downstream products. The Company believes it has developed strong customer
relationships by capitalizing upon its secure brine supply, low-cost on-site
electric power and close customer proximity to consistently deliver a
competitively priced product. Over 50% of the Company's chlorine and caustic
soda sales are currently made to customers located within a 100-mile radius of
the Gramercy facility.
The Company employs the diaphragm cell technology. The manufacturing
process consists of the electrolysis of sodium chloride brine (salt water),
which produces free hydrogen, chlorine and caustic soda solution. The Company
burns its hydrogen by-product for power, and separates and concentrates the
chlorine and caustic soda. For safety reasons, only small quantities of chlorine
are stored, and production tends to be limited to the amount of chlorine the
plant can sell in a relatively short period of time. Although salt is the basic
raw material used in the production of chlorine and caustic soda, electricity is
the largest production cost component. The Gramercy facility is adjacent to a
Kaiser bauxite processing facility and the two companies share a powerhouse
complex and have certain operating agreements relating to this and other jointly
operated or administered assets. See "-- Kaiser Relationship." During fiscal
year 1996, the Company approved and
45
<PAGE> 52
began implementing certain capital improvements designed to reduce the
electrical costs at its chlorine and caustic soda plant at Gramercy. These
improvements, which included the installation of a new back-up rectifier
assembly, refurbishment of generator turbine units and upgrading of the control
systems, are expected to be substantially complete during fiscal 1998.
The Company also operates a fluorocarbon business at its Gramercy facility.
Due to the federal government's mandated phaseout of CFC production by 1996, the
Company has replaced its CFC foam blowing agent product line with the next
generation foam blowing agent, HCFC-141b, over the last three fiscal years. The
Company has reduced its reliance on its CFC business and on fluorocarbon
products in general, with expanded offerings and more intensive development of
markets and facilities for the production of chlorine and caustic soda as well
as products in its Nitrogen Products and Alumina Chemicals segments. As a
result, CFCs contributed $33.4 million, $12.4 million, $8.1 million and $2.5
million, respectively, to the Company's income from operations for fiscal years
1994, 1995, 1996 and 1997.
Raw Materials. The primary raw material used in the production of chlorine
and caustic soda is salt. The Company has a long-term contract with Texaco Inc.
("Texaco"), which gives the Company the right to extract salt from a salt dome
located 15 miles from the Gramercy facility. The contract expires on May 3,
2007, subject to the Company's option to renew the contract until May 3, 2032.
The Company is currently negotiating a new agreement with Texaco that would give
Texaco the right to open additional wells in exchange for a contract extension
and certain other amendments. The Company operates a pipeline through which the
brine is transported from the Texaco salt dome to the Gramercy facility.
Natural gas is the primary cost component in generating electricity for
chlorine and caustic soda production and is sold in the United States on the
spot market, as well as under long-term contracts. The Company makes spot
purchases and has contracts for up to one year; however, the Company also buys
natural gas contracts for future delivery and enters into natural gas hedging
arrangements with financial counterparties to hedge its natural gas price
exposure. Fluctuations in natural gas prices may affect the operating results of
the Electrochemical Products business.
HF and chlorinated organic products are the primary raw materials needed
for the production of fluorocarbons. HF and the required chlorinated organic
products are considered by management to be readily available for purchase
domestically.
ALUMINA CHEMICALS
The Company's Alumina Chemicals business, located at its Baton Rouge
facility, includes specialty activated aluminas and Versal(R) gel aluminas.
These specialty products are used as desiccants, adsorbents, catalysts and
catalyst support systems. The Company believes it is the world's second largest
producer of activated aluminas, with an estimated annual production capacity of
50 million pounds, and the world's second largest merchant producer of gel
aluminas, with an estimated annual production capacity of 20 million pounds. The
Company is also an equity investor in two joint ventures, (CRILAR and the
Hydrate Partnership), related to its specialty aluminas business. For fiscal
year 1997, Alumina Chemicals accounted for $40.1 million of net sales (10.6% of
Company total) and $4.1 million of EBITDA before unallocated corporate expenses
(9.2% of Company total).
<TABLE>
<CAPTION>
INTERMEDIATE TYPICAL
COMPANY PRODUCT PRODUCTS APPLICATIONS NAMEPLATE CAPACITY
- --------------- -------------- -------------------------- -----------------------
<S> <C> <C> <C>
Activated alumina chemicals... Adsorbent Polyethylene, hydrogen 50 million lbs. p.a.
materials, peroxide, petrochemicals,
catalysts, and gasoline additives and air
desiccants conditioning
Versal(R) alumina chemicals... Catalysts Oil refining, gasoline 20 million lbs. p.a.(1)
additives and automobile
emission control
</TABLE>
46
<PAGE> 53
<TABLE>
<CAPTION>
INTERMEDIATE TYPICAL
COMPANY PRODUCT PRODUCTS APPLICATIONS NAMEPLATE CAPACITY
- --------------- -------------- -------------------------- -----------------------
<S> <C> <C> <C>
Hydrate....................... None Detergents, plastics, NA(2)
flame retardant materials,
and specialty aluminas
</TABLE>
- ---------------
(1) The Company also owns, through CRILAR, an interest in a second Versal(R)
facility with annual production capacity of 20 million lbs. p.a.
(2) Hydrate marketed by the Hydrate Partnership is produced at Kaiser's Gramercy
facility. The Company has no direct hydrate capacity.
In specialty aluminas, product performance is the basis for commanding a
pricing premium. The Company believes it has successfully developed superior and
technically advanced custom products for its customers, especially in its
Versal(R) product line. The Company has developed strong relationships due to
the customer-specific nature of its products.
Activated Alumina Chemicals. The Company manufactures activated alumina
chemicals, which are used as catalysts for a variety of industrial applications,
and are all available in different size fractions. Activated alumina chemicals
are marketed to several different industry segments. The Company's major
customers include major polyethylene manufacturers, hydrogen peroxide producers,
petrochemical manufacturers, natural gas processors and gasoline additive
manufacturers.
Versal(R) Alumina Chemicals. The Versal(R) line of alumina chemicals
includes several types of products made using the Company's proprietary
Versal(R) process. The Company's Versal(R) products are produced by the Company
at its owned facility at Baton Rouge and at the CRILAR facility (as described
below).
Versal(R) products are supplied to a wide variety of catalyst producers,
including oil refineries and automobile catalyst manufacturers. As evolving
environmental regulations alter the catalyst requirements of automobile
manufacturers, crude oil refiners and other catalyst users, the Company believes
that the key to increasing market share will be the ability to meet unique
customer demands for product characteristics. The Company believes that the
Versal(R) process allows it to produce a full line of Versal(R) powders to
satisfy the changing needs of its customers. Most of the Company's competitors
produce only one type of alumina powder.
CRILAR. In September 1995, the Company and Criterion formed CRILAR for the
production of Versal(R) aluminas. The Company sold a 50% interest in certain
Versal(R) alumina production equipment for $5.5 million as part of the joint
venture arrangement. CRILAR obtained title to the Company's Versal(R) II plant.
The Company continues to operate the facility under an operating agreement.
Hydrate. Historically, the Company was a significant distributor of
hydrate, which it purchased from Kaiser. In January 1993, the Company ceased its
distribution of hydrate and entered into the Hydrate Partnership for the
development, operation and management of a marketing operation for the sale of
hydrate. See "-- Kaiser Relationship."
Raw Materials. Hydrate, which is the primary raw material in the
production of alumina chemicals, is generally supplied by aluminum
manufacturers. The Company purchases all of its hydrate raw material
requirements from Kaiser under a long-term contract and, on occasion, from other
third party suppliers. Collectively, the Company and the Hydrate Partnership
purchase a significant portion of Kaiser's hydrate production from its Gramercy
facility. However, the Company does not directly purchase any hydrate from the
Hydrate Partnership, with the exception of certain hydrate purchased by the
CRILAR joint venture. See "-- Kaiser Relationship."
Industrial Alumina Chemicals. The Company sold substantially all plant and
equipment and certain other assets used exclusively in its calcined and tabular
alumina production businesses to C-E on April 1, 1996. In return for operating
fees as specified in the contract, the Company operated the plant and equipment
47
<PAGE> 54
on behalf of C-E from the effective date of the sale through July 1997 at which
point C-E terminated production of all calcined and tabular products at such
facility.
KAISER RELATIONSHIP
The Company markets hydrate through the Hydrate Partnership. This
partnership was formed in January 1993 for the development, operation and
management of a marketing operation for the sale of hydrate. The Company jointly
manages and has a 45% ownership interest in the partnership. The Hydrate
Partnership purchases hydrate from Kaiser at competitive prices pursuant to a 20
year contract. All of the hydrate purchased by the Hydrate Partnership is sold
to third parties, except for certain sales to CRILAR. In addition, the Company
typically purchases all of its hydrate requirements from Kaiser under a
long-term contract.
Kaiser and the Company share the powerhouse complex at the Gramercy
facility, from which the Company obtains electricity and steam for use in
Electrochemical Products, pursuant to certain lease and operating agreements
that remain in effect (if the Company exercises renewal options) until 2008.
Kaiser owns and operates the powerhouse complex which is located on Kaiser
property. The costs of operating the powerhouse and the utilization of
electricity and steam generated therefrom are shared in accordance with these
agreements. At the Gramercy facility, Kaiser operates its alumina plants
adjacent to the Company's facility that produces Electrochemical Products. The
Company currently is engaged in upgrading the powerhouse facility to increase
its reliability and efficiency which the Company expects will lower power costs.
These lower costs will benefit the Company as it shares in the facility's
output.
Kaiser and the Company also have agreements relating to jointly operated or
administered environmental compliance matters at their Gramercy and Baton Rouge
facilities, other services, such as water, sewage, dock and rail, chemical,
telephone and emergency response services and other matters.
CHLOR-ALKALI JOINT VENTURE
In October 1997, the Company purchased a 50% interest in the French
chlor-alkali business of RPC, a subsidiary of Rhone-Poulenc, and entered into
certain related arrangements with RPC. The Company purchased, through LII
Europe, its newly formed, wholly owned subsidiary, a 50% stock interest in the
Joint Venture Company. The Initial Purchase price is 42.5% of the agreed value
of the Joint Venture Company, which Company is approximately FRF 447 million
($76.3 million), resulting in an initial investment by the Company of FRF 190
million ($32.4 million) excluding acquisition costs. The Company funded the
Initial Purchase by drawing under the Term Loan. Four members of the Company's
executive management serve on the Board of Directors of the Joint Venture
Company.
Prior to the Closing, RPC contributed to the Joint Venture Company the PCL
Facility, a 265,000 ton p.a. chlor-alkali production facility, as well as
certain other related assets and liabilities. The Company believes that the
Chlor-alkali Joint Venture will: (i) increase its international market share in
chlorine and caustic soda; (ii) provide a significant entry point to the
European chemical markets at an attractive initial investment cost; and (iii)
produce operating efficiencies which may be derived from the operating
similarities between the PCL Facility and the Company's Gramercy facility. In
connection with the Chlor-alkali Joint Venture, the Joint Venture Company
entered into market-priced long term contracts to sell to Rhone-Poulenc (or its
affiliates) chlorine and caustic soda, the amounts of which historically have
been approximately 65% of the PCL Facility's production output. Based on audited
financial information provided by Rhone-Poulenc, in 1996, the PCL Facility
generated net sales of approximately FRF 547.6 million, and based on unaudited
financial information, it generated EBITDA of approximately FRF 100 million.
According to this financial information, for the year ended December 31, 1996,
chlorine and caustic soda represented approximately 32% and 55%, respectively,
while bleach and salt accounted for approximately 4% and 9%, respectively, of
net sales from the business to be contributed to the Joint Venture Company.
Pursuant to the RPC Put, the Company has also agreed to allow RPC to sell
to the Company, through LII Europe, at RPC's option, the remaining 50% of the
stock of the Joint Venture Company for 57.5% of the stipulated total value of
the Joint Venture Company. The RPC Put may be exercised at any time with six
48
<PAGE> 55
months prior notice during the four-year period beginning six months after the
Closing Date, upon the terms and conditions set forth in a put and call
agreement among RPC, the Joint Venture Company, LII Europe and the Company which
is to become effective upon the closing of the transactions contemplated by the
Stock Purchase Agreement (the "Put and Call Agreement"). If RPC does not
exercise the RPC Put during such four-year period, the Company may "put" its
ownership interest back to RPC (the "Company Put") at a price of FRF 208.8
million, including repayment of certain debt incurred by the Joint Venture
Company and subject to other adjustments, during the following eighteen months.
RPC has the right to exercise the RPC Put within a six-month period following
notice of the Company's exercise of the Company Put. If RPC then chooses to
exercise the RPC Put, it takes precedence over the Company Put, with the effect
that the Company would be required to purchase RPC's interest at a price of FRF
256.8 million, including repayment of certain debt incurred by the Joint Venture
Company and subject to other adjustments.
As a condition precedent to RPC's obligations under the Stock Purchase
Agreement, the Company has agreed to reimburse, on a "stand-by" basis, RPC for
the Company's proportionate share of any amounts that RPC is ultimately required
to pay under its pre-existing guarantee of the obligations of CEVCO, the
provider of electric energy to the Joint Venture Company, in respect of steam
turbines leased by CEVCO under a certain operating lease (the "Turbine Lease").
The Company's proportionate share under such arrangement is limited to a maximum
of FRF 172 million. The remaining term of the Turbine Lease is six years. The
Company's proportionate share of such lease payments, based on current and
expected ownership percentages, will not exceed $2.0 million per year prior to
the exercise of the RPC Put, and will not exceed $4.0 million per year after
exercise of the RPC Put, each based on current currency exchange rates.
If the Company cannot or does not purchase RPC's stock pursuant to the RPC
Put, subject to the terms and conditions of the Put and Call Agreement, RPC
would have the right to require the Company to sell its 50% interest to RPC one
year after notice of the RPC Put for 85% of the amount paid by the Company for
the Initial Purchase, subject to certain adjustments. Consequently, there can be
no assurance that the Company will own 100% of the Joint Venture Company in the
future, and the Company may be required to sell its 50% interest. The Put and
Call Agreement also contains restrictions upon the ability of the shareholders
of the Joint Venture Company to compete with the Joint Venture Company during
the term of the Shareholders' Agreement and, with respect to an exiting
shareholder, for three years thereafter. The Company and RPC have also entered
into a shareholders agreement (the "Shareholder's Agreement") effective as of
the same date as the Put and Call Agreement, which provides for, among other
things, governance of the Joint Venture Company. Neither the Company nor LII
Europe will have the unilateral right to require RPC to "put" its remaining 50%
equity interest in the Joint Venture Company to the Company except under very
limited circumstances, such as a change in control of RPC. Also, in the event of
a change of control of the Company, RPC would be able to invoke the RPC Put.
As part of the Chlor-alkali Joint Venture, the Joint Venture Company
entered into agreements with RPC and its affiliates and other third parties: (i)
to own and operate jointly a powerhouse complex (the "Powerhouse Complex")
located at the PCL Facility for the generation of electricity, steam and
demineralized water for the PCL Facility's operations; (ii) to own a brine mine,
and the extraction rights thereto, at Hauterives, France (the "Hauterives
Facility"), and to operate a brine pipeline to transport sodium chloride from
the Hauterives Facility to the PCL Facility; (iii) for the supply of certain
products and services by RPC to the Joint Venture Company; and (iv) to sell to
Rhone-Poulenc (or its affiliates) chlorine and caustic soda, the amounts of
which historically have been approximately 65% of the PCL Facility's production
output. In addition, the Joint Venture Company entered into long-term
arrangements with Elf Atochem S.A., France's second largest chemical company and
a wholly owned subsidiary of Elf Acquitaine S.A., which operated the Saint Fons
bleach facility that was transferred to the Joint Venture Company.
Pursuant to the Chlor-alkali Joint Venture, the Joint Venture Company
intends to distribute by dividend to its shareholders, 100% of its net income
annually. Under the terms of the Shareholders Agreement, capital expenditures
will be funded from excess cash provided by operating income of the Joint
Venture Company. There will be no obligation on the Company or RPC to fund any
capital expenditures. It is anticipated that any debt facilities required by the
Joint Venture Company will be borrowed locally by the Joint Venture Company
without support from either RPC or the Company.
49
<PAGE> 56
Prior to closing of the Chlor-alkali Joint Venture, the RPC Union filed a
complaint against RPC in a French civil court seeking to gain access to
documentation pertaining to the Chlor-alkai Joint Venture and to prevent its
consummation. After hearings on the RPC Union Matter, in September 1997 the
French court denied the relief requested by the RPC Union.
GERMAN ACQUISITION
On December 31, 1997, the Company (through a newly-formed subsidiary)
purchased certain chlor-alkali and chlorinated methane manufacturing facilities
located near Frankfurt, Germany for 45 million German marks (approximately $25.5
million at applicable exchange rates) from Celanese GmbH, Frankfurt, a
subsidiary of Hoechst AG. The German Facilities produce chlorine, caustic soda,
sodium hypochloride, calcium chloride, methyl chloride, methylene
chloride/chloroform and hydrochloric acid. The Company funded the purchase with
funds drawn from its Revolving Credit Facility.
RESEARCH AND DEVELOPMENT
The Company has operated a research and development center at its Baton
Rouge facility since 1989 to develop and test new products and production
methods. The Company had research and development expenditures of approximately
$3.8 million, $3.4 million and $3.1 million in fiscal years 1997, 1996 and 1995,
respectively. The research and development center focuses on both process and
product development. Many of the Company's innovations involve improvements to
processes that allow existing products to be used in new applications. The
research and development center also provides technical support for the
Company's various product lines and is involved in the Company's plant upgrade
projects. Through its research and development center, the Company also conducts
research on a contract basis for third parties, including customers. Particular
areas of emphasis for the research and development effort have been CFC and HCFC
replacement processes and products and the development of new alumina chemical
products to meet the needs of the Company's customers.
PATENTS
The Company owns or has applied for approximately 30 patents and is
licensed under other patents covering certain of its products and processes. The
Company generally applies for patents whenever it develops new products or
processes considered to be commercially viable and, in appropriate
circumstances, seeks licenses when such products or processes are developed by
others. Although in the aggregate the rights under such patents are important to
the Company's operations, no significant segment of the Company's business or
its business as a whole is dependent on any particular patent or license.
SEASONALITY
A portion of the Company's nitrogen business serves the agricultural
fertilizer market, which is seasonal with greater sales of such products
occurring in the spring and, to a lesser extent, in the fall planting seasons.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local environmental
laws and regulations governing the use, discharge, storage, and disposal of
hazardous materials because the Company uses hazardous substances and generates
hazardous waste in the ordinary course of its manufacturing processes.
Environmental laws and regulations have evolved rapidly over the last three
decades typically becoming more restrictive of activities that may impact the
environment, such as emissions of pollutants to air and water, generation and
disposal of wastes and use and handling of chemical substances. The Company
cannot at this time assess with certainty the degree of impact of future
emissions standards and enforcement practices upon its operations or capital
expenditure requirements.
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The Company is subject to the Clean Air Act, as amended by the Clean Air
Act Amendments, and comparable state statutes regulating air emissions. The
Clean Air Act Amendments contain provisions that may result in the imposition of
certain pollution control requirements with respect to air emissions from the
Company's operations. Depending upon requirements that may be imposed by state
and local regulatory authorities in the implementation of those provisions and
related regulations, the Company may be required to incur capital expenditures
for air pollution control equipment in connection with maintaining or obtaining
operating permits and approvals. Until such time as the new Clean Air Act
Amendment requirements are fully implemented, the Company is unable to estimate
the effect on earnings or operations or the amount and timing of such required
capital expenditures. At present, the Company does not believe that such
regulations will have a material effect on its financial condition or results of
operations.
The Clean Air Act Amendments provided for the phase-out of the production
of CFCs (R-11 and R-12) as of January 1, 1996, followed by the phase-out of the
production of the HCFC-141b by January 1, 2003. The Clean Air Act also regulates
sulfur and nitrogen oxide removal from emissions and provides certain incentives
for the production of reformulated gasolines. These regulations may increase the
demand for certain of the Company's alumina chemicals and ammonia products.
Chlorine use has been affected and may be affected further by certain
environmental regulations, both final and pending, particularly those relating
to the discharge of dioxins by pulp and paper producers. When chlorine is used
in the pulp bleaching process, dioxins are a by-product. From time to time
legislation is introduced proposing the elimination of discharges of chlorine
compounds into navigable waters and requiring zero discharge limits for certain
toxic substances, including certain chlorinated compounds.
The Company's operations also are governed by extensive federal, state and
local regulatory requirements relating to environmental issues, such as waste
management and chemical handling. Consequently, the Company is required to
obtain various permits for the operation of its plants and related facilities,
and these permits are subject to revocation, modification and renewal.
Governmental authorities enforce compliance with these regulations and permits,
impose excise taxes on certain of the Company's products and implement
environmental plans. Violators of these regulations are subject to civil and
criminal penalties, including civil fines, injunctions or both. Accordingly,
certain governmental regulation compliance costs and potential liabilities are
inherent in the Company's operations and products. The Company's operations also
are governed by laws and regulations relating to workplace safety and worker
health, principally the Occupational Safety and Health Act and regulations
thereunder which, among other things, regulate the use of hazardous chemicals in
the workplace. The Company uses asbestos in the manufacture of its
electrochemical products, and some of its operating facilities contain
structural asbestos that the Company believes is properly contained.
The Company voluntarily adheres to the Guiding Principles of the
Responsible Care(R) initiative of the Chemical Manufacturers Association and its
six Codes of Management Practices. The Company believes that these codes
typically are more stringent than the legal requirements in the areas of process
safety, employee safety, pollution prevention and chemical distribution.
LEGAL PROCEEDINGS
General. The Company and its subsidiaries have been named as defendants in
a number of legal actions arising from normal business activities. Although
management believes, based upon the information currently available, that such
other legal actions are likely to be resolved without a material adverse effect
upon the financial condition and results of operations of the Company,
resolution of certain matters could be material to the results of operations of
any single fiscal quarter. However, the aggregate cost of such legal actions are
inherently impossible to predict and there can therefore be no assurance that
this will be the case. Additionally, the Company is involved, to the extent and
with the Company's assessment of the effect noted, in the proceedings set forth
below and in the Environmental Proceedings section which follows.
Recent Developments. In December 1997, the Company was named as a
defendant in three civil antitrust actions, brought predominantly by various
mining concerns, alleging that the Company is guilty of violations of federal
antitrust laws, various state antitrust and unfair trade practice statutes, and
common law fraud in connection with the Company's blasting grade ammonium
nitrate business as conducted in the mid to
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late 1980's and early 1990's. The Company believes that the plaintiffs in these
cases have targeted the Company because of the Company's previously disclosed
plea agreement with the United States Department of Justice in which the Company
agreed to plead guilty to a one-count information charging the Company with
participating in a conspiracy to restrain competition in the pricing of ammonium
nitrate during May 1992. In that agreement, the Company did not admit, and the
Department of Justice did not contend, that the Company ever implemented any
such conspiracy. Accordingly, the Company has filed answers denying liability in
such civil actions and intends vigorously to defend them.
ENVIRONMENTAL PROCEEDINGS
Gramercy, Louisiana. On July 28, 1989, a 28,000 gallon mixture primarily
consisting of chloroform and carbon tetrachloride was spilled at the Company's
Gramercy plant during the off-loading of a barge. Although immediate corrective
action was initiated, the spill impacted the shallow soils and groundwater.
Expenditures for corrective action and to determine the extent of contamination
through February 28, 1997, have been approximately $3.5 million. The Company
estimates that the remaining cost to complete remediation could be up to an
additional $2.2 million over the next few years.
On June 27, 1996, Marathon filed a complaint against the Company and one
other company in the United States District Court for the Eastern District of
Louisiana alleging that the Company or its agents damaged a gasoline pipeline
causing it to rupture and release gasoline into the Blind River and surrounding
area near Gramercy. Marathon's preliminary claim statement for damages incurred
totals $8.5 million. In connection with the gasoline release, a class action
petition was filed in the 23rd Judicial District Court for the Parish of St.
James, Louisiana against Marathon and the Company on behalf of persons and
entities allegedly sustaining direct and/or consequential damage as a result of
the gasoline release. On May 30, 1997, two additional plaintiffs filed suit
against Marathon, the Company and certain unnamed defendants alleging damages
suffered as a result of the gasoline spill and clean-up operations. The Company
is continuing a diligent investigation of the situation in order to evaluate the
allegations and the relative responsibility of the parties involved. Management
believes the Company has meritorious defenses to these claims and is vigorously
defending itself against all claims. 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.
Greensboro, North Carolina. The Company acquired a Greensboro, North
Carolina fertilizer plant and warehouse that was formerly used by Armour to
produce sulfuric acid as part of the 1986 purchase from USX. After a fire
destroyed the plant and most of the warehouse in 1989, the Company began an
effort to assess the effects of historical contamination at the site. The
original assessment addressed several areas, including a former wastewater
holding pond. USX has retained substantial liability with respect to assessment
and remediation of this site. The Company believes that its portion of the
remedial costs, including the cost of soil remediation and off-site disposal of
waste material and building debris, are adequately accrued.
Pursuant to the Asset Purchase Agreement dated April 30, 1986 between USX
and the Company, USX generally retains all environmental liabilities relating to
the acquired assets resulting from events occurring prior to the closing date.
The costs of any environmental liabilities arising due to both parties'
ownership or use of the purchased assets will be allocated in accordance with
each parties' contribution to the events or circumstances which gave rise to the
liabilities.
Other. In addition to the matters described above, the Company is also
involved, to varying degrees, in litigation, as well as remedial activities at
other facilities. Although management believes, based upon information currently
available, that such other litigation and activities are likely to be resolved
without a material adverse effect upon the financial condition and results of
operations of the Company, the aggregate cost of such litigation and remedial
activities cannot be precisely predicted, and there can be no assurance that
this will be the case.
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EMPLOYEES
As of November 30, 1997, the Company had approximately 800 full-time
employees, approximately 390 of whom were represented by labor unions under 12
collective bargaining agreements. The collective bargaining agreements for the
Gramercy and Baton Rouge facilities expire in 2001 and 2000, respectively. Since
1986, the Company has had three labor disputes, none of which caused any
material production delays. The Company considers its relations with its
existing union and non-union employees to be satisfactory.
PROPERTIES
The Company has seven facilities where its products are manufactured, 22
customer service centers from which it distributes anhydrous and aqua ammonia
and four warehouses that it uses for delivery and storage of fertilizer. The
Company's manufacturing facilities include the two facilities located in Baton
Rouge and Gramercy which manufacture alumina chemicals and electrochemical
products, the four facilities located in Cherokee, Crystal City, Geneva and
Seneca, which manufacture nitrogen products and the Westwego facility, which
manufactures ammonia.
The Company believes that its primary facilities are in suitable condition
and adequate for its current operations. The following table presents certain
information relating to the principal facilities owned by the Company.
<TABLE>
<CAPTION>
LOCATION DESCRIPTION AND BUSINESS LINE STATUS
- -------- ----------------------------- ------
<S> <C> <C>
Gramercy................... Electrochemical products: hydrochlorofluorocarbons, Caustic Owned
soda and chlorine facility.
Baton Rouge................ Alumina chemicals: activated and Versal(R) alumina chemicals Owned
facility.
Cherokee................... Nitrogen Products: fertilizer and blasting grade ammonium Owned
nitrate facility and distribution center.
Crystal City............... Nitrogen Products: fertilizer and blasting grade ammonium Owned
nitrate facility.
Geneva..................... Nitrogen Products: blasting grade ammonium nitrate facility. Owned
Seneca..................... Nitrogen Products: blasting grade ammonium nitrate facility. Owned
</TABLE>
The Crystal City facility was subject to a mortgage securing a loan from
USX. The Company made certain prepayments of the USX Notes during fiscal year
1996 and 1997 and made its final payment of $1.4 million, plus accrued interest
thereon, on April 30, 1997. The Westwego facility is owned by Avondale Ammonia
and is situated on land leased from Cytec. The Credit Facility is secured by a
security interest in substantially all of the Company's domestic properties and
assets granted to the lenders thereunder.
In addition, the Company owns or leases 22 customer service centers in 18
states, where it stores and distributes anhydrous ammonia. It produces and
distributes aqua ammonia products at nine of these centers. The Company also
sells related storage systems and equipment and provides certain customer
services at those centers. The Company owns the four agricultural warehouses
located in Missouri, Illinois and Indiana, where the Company stores and
distributes phosphate fertilizer (DAP and TSP), solid urea, potash, nitrate, UAN
solutions and ammonium sulfate. The Company also owns several sites that were
once used in the production or distribution of Company products, which currently
are surplus to its needs.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position with the Company
of each person who is an executive officer or a director on the Board of
Directors (a "Director") of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
W. Walter LaRoche, III....................... 46 Chairman of the Board
Victoria E. LaRoche.......................... 39 Vice Chairman of the Board
Grant O. Reed................................ 50 President, Chief Executive Officer and Director
Harold W. Ingalls............................ 50 Vice President and Chief Financial Officer
Vincent R. Gurzo............................. 48 Vice President
William G. Osborne, Ph.D..................... 57 Vice President
Richard H. Watts............................. 51 Vice President and Secretary
Paul L. M. Beckwith, Ph.D.................... 40 Director
John R. Hall................................. 65 Director
Johnnie Lou LaRoche.......................... 69 Director
Louanne C. LaRoche........................... 42 Director
C. L. Wagner, Jr............................. 53 Director
George R. Wislar............................. 65 Director
Robert L. Yohe............................... 61 Director
</TABLE>
W. Walter LaRoche, III. Chairman of the Board. Mr. LaRoche joined the
Tennessee Valley Authority in 1976 as an attorney and served in that capacity
until 1988. In August 1988 he joined LaRoche Holdings Inc. ("LHI") as Vice
President of Planning and Business Development. He was appointed Executive Vice
President and Chief Operating Officer of the Company in January 1989 and
President and Chief Operating Officer of the Company and Vice President of
LaRoche Chemicals Inc. ("LCI") in March 1991. Mr. LaRoche was appointed Vice
Chairman of LHI, LCI and the Company in May 1993. He served as a member of the
Board of Directors of LHI, LCI and the Company from July 1988 until the
consolidation of LHI and LCI into the Company (the "Consolidation") and he has
continued to serve as a Director of the Company since the Consolidation. In
October 1994, Mr. LaRoche was appointed Chairman of the Board of the Company.
Mr. LaRoche's mother, Johnnie Lou LaRoche, and his sisters, Victoria E. LaRoche
and Louanne C. LaRoche also serve as directors of the Company.
Victoria E. LaRoche. Vice Chairman of the Board. Ms. LaRoche was elected
as a Director of LHI in August 1993 and has been a Director of the Company since
the Consolidation and Vice Chairman of the Board since October 1994. Ms. LaRoche
began working for the Company in 1987 and held many positions within the Company
in the Accounting, Environmental, Financial Analysis and Market Research
departments until March 1996.
Grant O. Reed. President, Chief Executive Officer and Director. Mr. Reed
joined Monsanto Company in 1969 as a Chemical Engineer and later performed in
various sales, product management and planning positions. He joined Ashland
Chemical Company in 1980 and became Vice President and General Manager of the
Carbon Black Division in 1984. In 1988 the Carbon Black Division of Ashland was
sold to Degussa A.G. of Germany, and Mr. Reed became President of the Degussa
Carbon Black Corporation. In 1990 he was appointed Executive Vice President of
the Pigment Group of Degussa Corporation. Mr. Reed was appointed President and
Chief Operating Officer of LHI and the Company in July 1993 and of LCI in August
1993. He became Chief Executive Officer of LHI, LCI and the Company in April
1994. Mr. Reed remained in those positions and has continued to serve as
President, Chief Executive Officer and Director of the Company since the
Consolidation.
Harold W. Ingalls. Vice President and Chief Financial Officer. Mr. Ingalls
joined the Company as Vice President and Chief Financial Officer in July 1996.
Prior to joining the Company, Mr. Ingalls served for approximately a year as the
Vice President and Chief Financial Officer of OHM Corporation Atlanta, an
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<PAGE> 61
affiliate of WMX Technologies, Inc., an environmental remediation company
("WMX"). Prior to 1995, Mr. Ingalls served as the Chief Financial Officer,
Treasurer and Vice President of two subsidiaries of WMX and served other
subsidiaries of WMX for over thirteen years in various strategic and managerial
capacities.
Vincent R. Gurzo. Vice President. Mr. Gurzo joined the Company as Vice
President of Specialty Chemicals in August 1996. Prior to joining the Company,
Mr. Gurzo worked for a year with The Mercer Hoyt Group, a group specializing in
training and sales development in the chemical industry and in publishing in the
health care industry. From 1989 to 1995, Mr. Gurzo served as Vice
President -- Business Unit General Manager Industrial Business and in other
sales and marketing positions for International Specialty Products (GAF).
William G. Osborne, Ph.D. Vice President. Dr. Osborne has been responsible
for the Company's merger and acquisition activity since May 1996. Prior to that,
Dr. Osborne was responsible for the Company's purchasing and distribution
functions from March 1994 until May 1996. Dr. Osborne was Vice President of
Corporate Operations and Vice President and General Manager, Performance
Materials for LCI from April 1992 through March 1994, and was Vice President and
General Manager -- Specialty Alumina Chemicals for LCI from July 1988 through
April 1992. He also held a number of positions with Kaiser from 1969 through
LCI's acquisition of Kaiser in 1988. From 1966 to 1969, Dr. Osborne was a
Research Engineer with E.I. du Pont de Nemours and Co.
Richard H. Watts. Vice President. Mr. Watts has been responsible for
Nitrogen Products since April 1995. Prior to that time Mr. Watts was the Vice
President and General Manager of Alumina Chemicals from April 1992 until April
1995. Mr. Watts was Vice President and General Manager -- Gramercy Products for
LCI from 1989 through April 1992. Between 1968 and 1988 Mr. Watts held a number
of supervisory and management positions with Kaiser.
Paul L. M. Beckwith, Ph.D. Director. Dr. Beckwith was elected as a
Director of LCI in 1988 and has been a Director of the Company since the
Consolidation. Dr. Beckwith became a Managing Director of Chase Securities Inc.
in May 1997, where he is the Group Executive of the Global Chemicals Group.
Prior to May 1997, Dr. Beckwith was a Managing Director of The Chase Manhattan
Bank, where he had been employed since 1982.
John R. Hall. Director. Mr. Hall was elected to the Board of Directors of
the Company in September, 1996. Most recently, Mr. Hall was employed by Ashland,
Inc. as Chairman of the Board and Chief Executive Officer. Mr. Hall served as
Ashland Inc.'s Chairman of the Board and Chief Executive Officer since 1981. Mr.
Hall stepped down from his position as Chief Executive Officer of Ashland, Inc.
in October 1996 and retired as Chairman in February 1997. He is a member of the
Board of Directors of Banc One Corporation, the Canada Life Assurance Company,
CSX Corporation, Humana Inc., Reynolds Metals Company and UCAR International
Inc. He is a member of the American Petroleum Institute Board of Directors and
Public Policy Committee and the National Petroleum Counsel. Mr. Hall is past
Chairman of the National Petroleum Refiners Association.
Johnnie Lou LaRoche. Director. Mrs. LaRoche was elected as a Director of
LHI in August 1993 and of LCI in August 1989. She has been a Director of the
Company since the Consolidation. Mrs. LaRoche is the widow of the deceased
founder (and principal) of the Company, William W. LaRoche, Jr. W. Walter
LaRoche, III, Victoria E. LaRoche and Louanne C. LaRoche are siblings and are
the children of Johnnie Lou LaRoche and William W. LaRoche, Jr.
Louanne C. LaRoche. Director. Ms. LaRoche was elected as a Director of LHI
in August 1993 and has been a Director of the Company since the Consolidation.
As well as being an artist, she was owner and director of the Red Piano Art
Gallery in Hilton Head, South Carolina from 1979 to 1995.
C. L. Wagner, Jr. Director. Mr. Wagner was elected as a Director of LCI in
1988 and has been a Director of the Company since the Consolidation. Mr. Wagner
has been a partner in the law firm of Hunton & Williams since 1988. Prior to
that time, Mr. Wagner was a partner with the law firm of Hansell & Post in
Atlanta, Georgia. Hunton & Williams has regularly acted as counsel to LHI, LCI
and the Company.
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Mr. Wagner is also a member of the Board of Directors of Lummus Corporation, a
textile equipment manufacturer, and Alimenta (United States), Inc., an
international food processor and distributor.
George R. Wislar. Director. Mr. Wislar has been a Director of the Company
since the Consolidation. Mr. Wislar is the founder, and retired Chairman of the
Board of Directors and Chief Executive Officer of Fountainhead Water Company,
Inc., Marietta, Georgia. Mr. Wislar's previous experience includes investment
banking at Alex Brown & Sons, Inc., The Robinson-Humphrey Company and Kidder,
Peabody & Co. Incorporated.
Robert L. Yohe. Director. Mr. Yohe has been a Director of the Company
since November 1996. Mr. Yohe retired as Vice Chairman of Olin Corporation in
1994, after 11 years of service. He served in many leadership capacities at Olin
Corporation including President of the Chemicals Group from 1985 to 1993 and
Vice President of Mergers and Acquisitions from 1983 to 1985. Prior to joining
Olin Corporation, Mr. Yohe worked in executive management for Uniroyal, and
Occidental Petroleum's Hooker Chemical Division. Mr. Yohe is a member of the
Board of Directors of Airgas, Inc., Betz Laboratories, Inc., and Calgon Carbon
Corporation. He is also a Trustee of Lafayette College.
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended February 28, 1997,
February 29, 1996 and February 28, 1995, respectively, the compensation paid to
or earned by the Company's Chief Executive Officer and its four other most
highly compensated executive officers who were serving at the end of fiscal year
1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)(3)(4)
- --------------------------- ---- -------- -------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Grant O. Reed.................. 1997 $331,683 $241,704(5) $101,550 $ --
President and Chief 1996 267,963 708,504(6) 372,721 --
Executive Officer 1995 227,087 525,913(7) 262,971 --
W. Walter LaRoche, III......... 1997 244,270 59,968 -- 1,055
Chairman of the Board 1996 200,572 278,736 43,055 45,634
1995 188,792 203,821 23,451 18,958
Harold W. Ingalls.............. 1997 126,089 376,456(9) 274,104 --
Vice President and Chief
Financial Officer(8)
Neil A. Stephansson............ 1997 150,966 11,219 -- 746
Vice President 1996 129,940 118,449 16,403 711
1995 110,376 237,020(10) 178,133 561
Richard H. Watts............... 1997 150,725 11,219 -- 720
Vice President 1996 132,688 196,224(11) 69,109 727
1995 118,508 84,710 -- 14,277
</TABLE>
- ---------------
(1) Amounts shown reflect (i) the tax gross-up amounts paid by the Company in
connection with the bonuses awarded to Mr. Reed, Mr. Ingalls, Mr.
Stephansson and Mr. Watts pursuant to the Company's Management Stock
Purchase Plan, (ii) the tax gross-up amount paid by the Company in
connection with the life insurance policy for Mr. LaRoche and (iii) the tax
gross-up amount paid by the Company in connection with a club membership
fee for Mr. LaRoche. See footnotes 3, 5, 6, 7, 9, 10 and 11 below, and
" -- Management Stock Purchase Plan."
(2) Amounts shown for fiscal year 1997 reflect matching 401(k) contributions
made by the Company to the Company's savings plan of $1,055, $746 and $720
on behalf of Mr. LaRoche, Mr. Stephansson and Mr. Watts.
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<PAGE> 63
(3) Amounts shown for fiscal year 1996 reflect (i) matching 401(k)
contributions made by the Company to the Company's savings plan of $602,
$711 and $727 on behalf of Mr. LaRoche, Mr. Stephansson and Mr. Watts,
respectively, (ii) a life insurance premium of $18,392 paid on behalf of
Mr. LaRoche, for the life insurance policy on his mother, Johnnie Lou
LaRoche, and (iii) a one-time club membership fee of $26,640 paid on behalf
of Mr. LaRoche. The club is utilized for business meetings as well as for
personal use.
(4) Amounts shown for fiscal year 1995 reflect (i) matching 401(k)
contributions made by the Company to the Company's savings plan of $566,
$561 and $700 on behalf of Mr. LaRoche, Mr. Stephansson and Mr. Watts,
respectively, (ii) a life insurance premium of $18,392 paid on behalf of
Mr. LaRoche for the life insurance policy on his mother, Johnnie Lou
LaRoche, and (iii) a resettlement allowance of $13,577 paid to Mr. Watts
resulting from his move to Atlanta, Georgia.
(5) Amount shown reflects (i) a profit sharing bonus of $59,968 and (ii) a
$181,736 bonus granted by the Company in fiscal year 1997 in accordance
with the Company's Management Stock Purchase Plan (as defined).
(6) Amount shown reflects (i) a profit sharing bonus of $307,238, (ii) a
$301,266 bonus granted by the Compensation Committee pursuant to the
Management Stock Purchase Plan as a result of the Company achieving a fixed
ratio coverage exceeding certain annual performance goals in fiscal year
1996, and (iii) a $100,000 bonus constituting matching funds for the
purchase of the Company's common stock.
(7) Amount shown reflects (i) a profit sharing bonus of $224,612, (ii) a
$151,301 bonus at the time of Consolidation in accordance with the
Company's Management Stock Purchase Plan which was immediately applied to
the purchase of the Company's common stock, and (iii) a $150,000 bonus
granted by the Company in fiscal year 1995 in accordance with the Company's
Management Stock Purchase Plan.
(8) Amount shown reflects compensation for the approximately seven months of
Mr. Ingalls employment in fiscal year 1997.
(9) Amount shown reflects (i) a profit sharing bonus of $75,000 and (ii) a
$301,456 signing bonus to purchase shares in accordance with the Company's
Management Stock Purchase Plan.
(10) Amount shown reflects (i) a profit sharing bonus of $84,710 and (ii) a
$152,310 one-time bonus to purchase the Bonus Shares (as defined herein) at
the time of Consolidation in accordance with the Company's Management Stock
Purchase Plan. Mr. Stephansson resigned from the Company in August 1997. In
connection with Mr. Stephansson's resignation from the Company, the Company
repurchased all of his shares of the Company's common stock for a total
purchase price of $750,000.
(11) Amount shown reflects (i) a profit sharing bonus of $118,449 and (ii) a
$77,775 bonus to purchase shares in accordance with the Company's
Management Stock Purchase Plan.
PENSION PLANS
The Company maintains seven 401(k) savings plans ("401(k) plans"), one of
which is for salaried employees not subject to a collective bargaining agreement
and six of which are for employees subject to collective bargaining agreements.
Under each 401(k) plan, participating employees can make pre-tax deferrals.
Where the 401(k) plan has a matching feature, the Company may make a
discretionary contribution from its own funds to match some or all of a
participating employee's pre-tax contributions. Where the 401(k) plan has no
matching feature, the Company does not contribute any of its own funds to the
plan. Under certain of the 401(k) plans, participating employees are able to
make after-tax contributions. All of the 401(k) plans are designed to be
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and exempt from tax under Code Section 501(a).
The Company also maintains a qualified defined benefit Employee Pension
Benefits Plan (the "Pension Plan"). Under the Pension Plan normal retirement age
is 65, though Participants may retire as early as age 55 with 10 years of
continuous service and receive a reduced benefit. The benefit is reduced five
percent for each year or fraction thereof that retirement precedes age 65. In
addition, a non-qualified defined benefit Supplemental Employee Retirement Plan
is provided to recognize compensation in excess of the IRS limits under the
qualified plan. The Final Earnings benefit Formula and the Career Earnings
Benefit Formula (each
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defined therein). The Final Earnings Benefit Formula is the average of the best
five consecutive of the last 10 years of base monthly salary multiplied by a
factor obtained by multiplying the first 30 years of service by 1.1% and the
years of service over 30 by 1.2%. The monthly Career Earnings Benefit Formula is
1% of the total career compensation, including bonus, multiplied by 130% and
divided by 12. In addition, in lieu of receiving the first three months of the
Final Earnings Benefit, a lump sum special retirement payment equal to nine
weeks of the participant's weekly vacation rate is paid during the first month
of retirement.
The estimated annual benefits payable upon retirement at normal retirement
age for each of the Named Executive Officers is as follows: Mr.
LaRoche -- $306,468; Mr. Reed -- $262,128; Mr. Ingalls -- $129,216; and Mr.
Watts -- $132,024.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the Company receive no
additional compensation for serving on the Board of Directors. The Company pays
an annual fee to all non-employee Directors of $50,000, plus $1,000 for each
board and committee meeting attended. The Company pays an additional annual fee
to all outside Directors who serve as the Chairman of the Board ($50,000),
Vice-Chairman of the Board ($25,000) and Committee Chairman ($5,000).
Effective June 26, 1995, the Board of Directors approved the 1995 Board of
Directors Stock Purchase Plan (the "Directors Plan"). The Company has authorized
and reserved for issuance under the Directors Plan an aggregate of 5,000 shares
of the Company's common stock. The Directors Plan provides that outside
directors of the Company will be eligible to purchase shares of the Company's
common stock at fair market value (as determined by appraisal). In connection
with the Directors Plan, the Company may agree to guarantee loans used to
finance the purchase of such stock. Upon termination of directorship, the shares
must be sold to the Company at fair market value (based upon an appraisal). All
redemption provisions of the Company's shares expire upon a public offering of
the Company's common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1997, the Company's compensation committee consisted of
C. L. Wagner, Jr. (Chairman), Paul L.M. Beckwith, Ph.D., George R. Wislar,
Robert L. Yohe and John R. Hall. During fiscal year 1997, Hunton & Williams, of
which C. L. Wagner is partner, provided various types of legal services to the
Company for which the Company was billed approximately $648,500. Mr. Beckwith is
the Managing Director of Chase Securities Inc. See "Plan of Distribution."
EMPLOYMENT CONTRACTS, TERMINATIONS OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In June 1993, LHI entered into an employment and non-competition agreement
(the "Employment Agreement") with Mr. Reed who, at that time, was the President
and Chief Operating Officer of LHI. Although the term of the Employment
Agreement expired on July 18, 1996, Mr. Reed's employment continued on
substantially the same terms and is expected to continue on substantially such
terms unless the Employment Agreement is renegotiated. The Employment Agreement
provided that the term of the agreement may be extended only by the prior
written agreement of the Company and Mr. Reed. The Employment Agreement provided
that Mr. Reed was eligible to participate in certain variable and other
compensation programs. The Employment Agreement provided that Mr. Reed would
receive 25% of his variable compensation plan and stock appreciation plan
earnings in the form of LHI equity. However, pursuant to the terms of the
Employment Agreement, Mr. Reed's equity ownership in the Company may not exceed
five percent of the shares of Company common stock outstanding from time to
time. At the time of the Consolidation, the Employment Agreement was assumed by
the Company. Concurrent with bonuses paid to Mr. Reed over the past three fiscal
years, Mr. Reed has purchased a total of 3,344 shares of the Company's common
stock valued at approximately $1,000,212.
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<PAGE> 65
MANAGEMENT STOCK PURCHASE PLAN
In August 1994, the Company adopted a Management Stock Purchase Plan (the
"1994 Purchase Plan"), pursuant to which certain executive officers and
management employees of the Company (the "Eligible Employees") are, at the
discretion of the Board, eligible to purchase shares of the Company's common
stock at the then current fair market value of such shares as determined by
appraisal. Such Eligible Employees are also eligible to receive bonuses in the
form of cash, a portion of which must be applied to the purchase of shares of
the Company's common stock (the "Purchased Shares"). Certain bonuses were
granted to certain of the Eligible Employees, including Mr. Stephansson, at the
time of the Consolidation to purchase additional shares (the "Bonus Shares").
See "Security Ownership of Certain Beneficial Owners and Management" for
information concerning the aggregate share ownership of the Company's Named
Executive Officers and directors. At the time of the Consolidation certain of
the Eligible Employees acquired shares of the Company's common stock with the
proceeds from the repurchase by LCI of their shares of LCI capital stock. See
"Executive Compensation -- Summary Compensation Table."
The terms of the 1994 Purchase Plan give Mr. Reed the opportunity to
purchase, through bonuses and/or the use of his own funds, up to five percent of
the outstanding shares of the Company's common stock. The Company awarded Mr.
Reed a cash bonus of $150,000 at the time of the Consolidation that was applied
to the purchase of shares. The Company has paid and intends to continue to pay
an annual cash bonus of $150,000 to Mr. Reed for each of the four years
following the Consolidation, contingent upon the Company's achieving a certain
fixed charge coverage ratio for each of such years. Each such bonus will include
an additional amount which represents Mr. Reed's income tax liability for such
bonus. Each such bonus was and shall be applied to the repayment of the loan
used to finance the purchase of his shares of the Company's common stock. See
"Executive Compensation -- Summary Compensation Table."
In August 1995, the Board adopted the 1995 Amended and Restated Stock
Purchase Plan (the "1995 Purchase Plan," and together with the 1994 Purchase
Plan, the "Management Stock Purchase Plan"). The 1995 Purchase Plan eliminated
the distinction between Bonus Shares, Purchased Shares and Conversion Shares and
provides that the repurchase value of all such shares will be the fair market
value. Participants are required to sell and the Company is required to purchase
the shares upon termination of employment. The 1995 Purchase Plan provides that
in the event that an Eligible Employee finances his purchase of shares with a
bank loan, the Company may guarantee the repayment of such loan, such guarantee
to be secured by the shares acquired by the Eligible Employee. The 1995 Purchase
Plan is administered by the Company's Board.
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<PAGE> 66
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the Company's common stock
as of January 31, 1998 by directors, Named Executive Officers, persons known by
the Company to own more than 5% of the common stock and all executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
- ------------------------ ------------------ ----------
<S> <C> <C>
Johnnie Lou LaRoche(1)...................................... 297,500 68.0%
W. Walter LaRoche, III(1)................................... 42,500 9.7
Victoria E. LaRoche(1)...................................... 42,500 9.7
Louanne C. LaRoche(1)....................................... 42,500 9.7
Grant O. Reed............................................... 3,344 *
Richard H. Watts............................................ 2,500 *
William G. Osborne, Ph.D.................................... 2,500 *
Harold W. Ingalls........................................... 1,506 *
Paul L. M. Beckwith, Ph.D................................... 800 *
George R. Wislar............................................ 550 *
Vincent R. Gurzo............................................ 419 *
C. L. Wagner, Jr............................................ 400 *
Robert L. Yohe.............................................. 300 *
John R. Hall................................................ 200 *
------- ----
Directors and executive officers as a group (14) Persons.... 437,519 100%
</TABLE>
- ---------------
* Indicates that the percentage beneficially owned was less than 1.0%.
(1) The LaRoche Family may be deemed to be a "group" for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), although there is no agreement among them with respect to the
acquisition, retention, disposition or voting of the Company's common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a Salary Continuation Agreement entered into by the Company and
her late husband beginning in 1989, Johnnie Lou LaRoche received death benefit
payments of $438,612 per year through June 1997. A portion of these payments was
funded by the proceeds of an insurance policy on the life of Mr. LaRoche of
which the Company was a beneficiary.
On June 30, 1997, the Company entered into a Consulting Agreement with
Johnnie Lou LaRoche, a Director of the Company, pursuant to which Mrs. LaRoche
will provide various consulting services to the Company in exchange for a
consultant fee of $438,612 per year. The Consulting Agreement has an initial
term of one year expiring June 30, 1998, and is automatically renewed for
successive one year periods, until terminated by either party upon 30 days
notice after May 31, 1998.
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THE REFINANCING
In the Refinancing, the Company refinanced its outstanding indebtedness
under its prior credit facility with borrowings under the Credit Facility, and
refinanced substantially all of its outstanding indebtedness under the 13% Notes
by consummating the Tender Offer, the Consent Solicitation and the Initial
Offering. The Company believes that the Refinancing will provide the Company
with the additional operating and financial flexibility necessary to implement
its business strategy most effectively.
TENDER OFFER AND CONSENT SOLICITATION
Pursuant to an Offer to Purchase and Consent Solicitation Statement (and
related documentation) (the "Tender Documents") dated August 12, 1997, as
amended August 29, 1997, the Company made a tender offer to repurchase all, but
not less than a majority, of its outstanding 13% Notes at a price equal to (i)
the present value on the payment date of $1,065.00 per $1,000 principal amount
of each Existing Note (the amount payable on August 15, 1999, which is the first
date on which the 13% Notes are redeemable) plus interest payable through August
15, 1999, based on a discount factor equal to the sum of (x) 5.97% (the yield on
the 6% United States Treasury Note due August 15, 1999 as of 2:00 p.m., New York
City Time, on August 25, 1997), plus (y) 50 basis points, minus (ii) $10 per
$1,000 principal per Existing Note. Each tendering Holder also received accrued
and unpaid interest up to, but not including, the expiration date of the Tender
Offer. In connection with the Tender Offer, the Company also solicited consents
("Consents") from the tendering holders of 13% Notes to certain proposed
amendments to the 13% Notes Indenture (the "Indenture Amendments") which
amendments eliminated substantially all of the restrictive covenants contained
in the 13% Notes Indenture. Consenting noteholders also received payment equal
to $10 per $1,000 principal amount of the 13% Notes tendered to the Company by
such holder. The Company received tenders of, and consents relating to
approximately 99% of principal amount of the outstanding 13% Notes. The Company
and the trustee under the 13% Note Indenture executed a supplemental indenture
containing the Indenture Amendments. The Company may repurchase some or all of
the outstanding 13% Notes in the future in open market transactions, privately
negotiated purchases or otherwise.
CREDIT FACILITY
As part of the Refinancing, the Company entered into the Credit Facility
with The Chase Manhattan Bank as administrative agent (the "Agent") and certain
other lenders. The Credit Facility provides for aggregate borrowings of up to
$160.0 million on a senior secured basis, consisting of a $60.0 million Term
Loan (which was be reduced to $35.0 million upon the closing of the Initial
Offering) and a $100.0 million Revolving Credit Facility, both maturing six
years after the effective date. The Revolving Credit Facility was amended in
October 1997 to increase the maximum available amount to $125 million.
The initial closing under the Credit Facility occurred on August 27, 1997,
at which time the Company borrowed $36.0 million under the Revolving Credit
Facility, which was used in part to pay off the outstanding principal balance
of, plus all accrued and unpaid interest through the date of payment on, the
Company's then-existing $40.0 million credit facility. The availability of the
Term Loan and the balance of the Revolving Credit Facility are subject to the
terms and conditions set forth below and the other conditions set forth in the
Credit Facility, including, among others, the absence of any material adverse
change in the financial condition and results of operations of the Company.
Standby or documentary letters of credit ("Letters of Credit") are
available under the Revolving Credit Facility in an aggregate amount not to
exceed the lesser of (1) $30.0 million or (2) an amount equal to the total
commitments under the Revolving Credit Facility minus the outstanding aggregate
principal amount of all revolving credit loans. Borrowings under the Term Loan
and Revolving Credit Facility in French francs will be available to the extent
of the equivalent of $75 million. The interest rates applicable to the loans
will, at the Company's option, be the prime commercial lending rate of The Chase
Manhattan Bank (or the federal funds effective rate) plus a margin of up to
0.75%, or LIBOR (adjusted to reflect any required reserves) plus a margin of 1%
to 2%, the applicable margins being determined based on the Company's ratio of
consolidated total debt to Borrower Consolidated EBITDA (as defined in the
Credit Agreement). The Company will also
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<PAGE> 68
pay a commitment fee on the unused portion of the Revolving Credit Facility at
an annual rate of between 0.25% and 0.50%, and fees on the undrawn amounts plus
the amount of outstanding reimbursement obligations, of standby Letters of
Credit at an annual rate of between 0.75% and 1.75%, again depending on the
Company's ratio of consolidated total debt to Borrower Consolidated EBITDA (as
defined in the Credit Agreement). All loans under the Credit Facility will
mature no later than August 26, 2003.
To secure the obligations of the Company under the Credit Facility, The
Chase Manhattan Bank, as agent for itself and the co-lenders, was granted
security interests in substantially all of the domestic assets of the Company
and each of its domestic subsidiaries including, without limitation, accounts,
chattel paper, instruments, general intangibles, inventory, equipment, real
property, and products and proceeds thereof.
The Company and its Subsidiaries are subject to customary secured lending
covenants including those restricting additional liens, incurrence of additional
indebtedness, the sale of assets, the payment of dividends, transactions with
affiliates, the making of certain investments and certain other fundamental
changes and the making of capital expenditures and acquisitions in excess of
specified levels. The Company is also required to maintain certain continuing
financial covenants, on a consolidated basis, at specified levels, including
minimum net worth, minimum interest coverage and maximum leverage. In addition
to the covenants contained in the Credit Facility, the Company's ability to draw
on the Credit Facility will be subject to its compliance with the Indenture.
CURRENCY HEDGING TRANSACTIONS
The Company has committed to enter into a currency swap arrangement with
The Chase Manhattan Bank whereby the Company will swap the notional United
States dollar amount borrowed under the Term Loan under the Credit Facility for
the Initial Purchase in the Chlor-alkali Joint Venture and related fees and
expenses into French francs and the associated interest rate into the
corresponding French franc interest rate.
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes offered hereby will be issued as a separate series under
the Indenture among the Company and the Trustee. The form and terms of the
Exchange Notes are the same as the form and terms of the Old Notes (which they
replace) except that (i) the Exchange Notes bear a Series B designation, (ii)
the Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for an increase in the
interest rate on the Old Notes in certain circumstances relating to the timing
of the Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The Old Notes issued in the Initial Offering and the Exchange Notes
offered hereby are referred to collectively as the "Notes."
The Exchange Notes will be issued under the Indenture, dated as of
September 23, 1997, between the Company and State Street Bank and Trust Company,
as trustee, a copy of which is available upon request to the Company. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions."
The Notes will be issued only in registered form without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company will
appoint the Trustee to serve as registrar and paying agent under the Indenture
at its offices at 61 Broadway, New York, NY 10006. No service charge will be
made for any registration of transfer or exchange of the Notes, except for any
tax or other governmental charge that may be imposed in connection therewith. As
of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. Under certain circumstances, however, the Company will
be able to designate current and future Subsidiaries as Unrestricted
Subsidiaries which will not be subject to many of the restrictive covenants set
forth in the Indenture.
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<PAGE> 69
The following summary of certain provision of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The definitions of certain capitalized terms used in the following summary are
set forth below under "Certain Definitions." References in this "Description of
the Exchange Notes" section to the "Company" mean only LaRoche Industries Inc.
and not any of its Subsidiaries.
RANKING
The Notes will rank junior to, and be subordinated in right of payment to,
all existing and future Senior Indebtedness of the Company, pari passu in right
of payment with all Senior Subordinated Indebtedness of the Company and senior
in right of payment to all Subordinated Indebtedness of the Company. At November
30, 1997, after giving effect to the Refinancing, including the issuance of the
Notes and the application of the net proceeds therefrom, the Company would have
had approximately $40.4 million of Senior Indebtedness outstanding (exclusive of
unused commitments). All debt incurred under the Credit Facility will be Senior
Indebtedness of the Company and will be secured by substantially all of the
domestic assets of the Company.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited to $175.0 million aggregate principal amount and
will mature on September 15, 2007. Interest on the Notes will accrue at a rate
of 9 1/2% per annum and will be payable semiannually in arrears on each March 15
and September 15, commencing March 15, 1998, to the holders of record of Notes
at the close of business on March 1 and September 1, respectively, immediately
preceding such interest payment date. Interest will accrue from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from September 23, 1997. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Except as otherwise described below, the Notes will not be redeemable at
the Company's option prior to September 15, 2002. Thereafter, the Notes will be
redeemable at the option of the Company, in whole or in part, at the redemption
prices (expressed as a percentage of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the redemption date, if redeemed
during the 12-month period beginning on September 15 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002........................................................ 104.750%
2003........................................................ 103.167%
2004........................................................ 101.583%
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to September 15,
2000, the Company may redeem in the aggregate up to 33 1/3% of the originally
issued aggregate principal amount of the Notes with the net cash proceeds of one
or more Public Equity Offerings by the Company at a redemption price equal to
109.5% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided, however, that at least
66 2/3% of the originally issued aggregate principal amount of the Notes must
remain outstanding immediately after giving effect to each such redemption
(excluding any Notes held by the Company or any of its Affiliates). Notice of
any such redemption must be given within 60 days after the date of the closing
or the relevant Public Equity Offering of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the
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<PAGE> 70
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not then listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided, however, that no Notes of a principal
amount of $1,000 or less shall be redeemed in part. Notice of redemption shall
be mailed by first-class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption as long
as the Company has deposited with the paying agent for the Notes funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION OF THE NOTES
The payment of principal of, premium, if any, and interest on, the Notes
and any other payment obligations of the Company in respect of the Notes
(including any obligation to repurchase the Notes) will be subordinated in
certain circumstances in right of payment, as set forth in the Indenture, to the
prior payment in full in cash of all Senior Indebtedness, whether outstanding on
the date of the Indenture or thereafter incurred.
Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash or Cash
Equivalents or otherwise in a form satisfactory to such holders of all
Obligations due in respect of such Senior Indebtedness (including interest
after, or which would accrue but for, the commencement of any such proceeding at
the rate specified in the applicable Senior Indebtedness, whether or not a claim
for such interest would be allowed in a proceeding) before the Holders of the
Notes will be entitled to receive any payment or distribution of any kind or
character with respect to the Notes, and until all Obligations with respect to
Senior Indebtedness are paid in full in cash, any payment or distribution to
which the Holders of the Notes would be entitled shall be made to the holders of
Senior Indebtedness (except that Holders of the Notes may receive payments made
from the trust described under "-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment or distribution of any kind or
character (whether by redemption, purchase, retirement, defeasance or otherwise)
upon or in respect of the Notes (except from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of all or
any portion of the Obligations with respect to any Designated Senior
Indebtedness occurs or (ii) any other default occurs and is continuing with
respect to Designated Senior Indebtedness that permits, or with the giving of
notice or passage of time or both (unless cured or waived) will permit, holders
of the Designated Senior Indebtedness as to which such other default relates to
accelerate its maturity and the Trustee receives a notice of such other default
(a "Payment Blockage Notice") from the Company or the holders of any Designated
Senior Indebtedness. Cash payments on the Notes shall be resumed (a) in the case
of a payment default, upon the date on which such default is cured or waived and
(b) in the case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Indebtedness has been accelerated or a default of the type
described in clause (h) under the caption "Events of Default" has occurred and
is continuing. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the date of commencement of the payment
blockage period resulting from the immediately prior Payment Blockage Notice. No
nonpayment default in respect of Designated Senior Indebtedness that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice, unless such default has been cured or waived for a period of not less
than 90 consecutive days.
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<PAGE> 71
The Indenture will further require that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of the Notes may recover
less ratably than creditors of the Company who are holders of Senior
Indebtedness. The Indenture will limit, subject to certain financial tests, the
amount of additional Indebtedness, including Senior Indebtedness, that the
Company and its Subsidiaries can incur. See "-- Certain Covenants -- Incurrence
of Indebtedness."
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount of the Notes plus accrued and
unpaid interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offer to repurchase the Notes pursuant to
the procedures required by the Indenture and described in such notice. The
Change of Control Payment shall be made on a business day not less than 30 days
nor more than 60 days after such notice is mailed (the "Change of Control
Payment Date"). The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all the Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the relevant Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of such Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
the Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture will not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction. The Company will not be
required to make a Change of Control Offer if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
The Credit Facility will prohibit the Company from repurchasing any Notes
pursuant to a Change of Control Offer prior to the repayment in full of the
Senior Indebtedness under the Credit Facility. Moreover, the occurrence of
certain change of control events identified in the Credit Facility will
constitute a default under the Credit Facility. Any future credit agreements or
agreements relating to the Senior Indebtedness to which the Company becomes a
party may contain similar restrictions and provisions. If a Change of Control
were to occur, the Company may not have sufficient available funds to pay the
Change of Control Payment for all Notes that might be delivered by Holders of
the Notes seeking to accept the Change of Control Offer after first satisfying
its obligations under the Credit Facility or other agreements relating to Senior
Indebtedness, if accelerated. The failure of the Company to make or consummate
the Change of Control Offer or pay the Change of Control Payment when due will
constitute a Default under the Indenture and will otherwise give the Trustee and
the Holders of the Notes the rights described under "-- Events of Default."
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<PAGE> 72
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of the Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
CERTAIN COVENANTS
Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness), except for Permitted
Indebtedness; provided, however, that the Company and any Guarantor may Incur
Indebtedness (including Acquired Indebtedness) if, at the time of and
immediately after giving pro forma effect to such incurrence of Indebtedness and
the application of the proceeds therefrom, the Consolidated Fixed Charge
Coverage Ratio for the Company for the four full fiscal quarters immediately
preceding the Incurrence of such Indebtedness taken as one period would be
greater than 2.0 to 1.0.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"):
(a) Indebtedness of the Company under the Credit Facility in a maximum
principal amount at any one time outstanding not to exceed (i) $35.0
million under the term loan facility provided therein and (ii) an amount
equal to the Calculated Amount under the revolving credit facility provided
therein;
(b) Indebtedness of the Company pursuant to the Notes;
(c) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture;
(d) Indebtedness of the Company owing to a Restricted Subsidiary,
provided that any Indebtedness of the Company owing to a Restricted
Subsidiary is made pursuant to an intercompany note (the outstanding
principal balance of which may be evidenced by the Company's accounting
records) and is subordinated in right of payment from and after such time
as the Notes shall become due and payable (whether at Stated Maturity,
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Notes and any Senior Indebtedness; provided further,
that any disposition, pledge or transfer of any such Indebtedness to a
Person (other than a pledge made in accordance with the provisions of the
Indenture described below under the caption "-- Limitation on Liens" or a
disposition, pledge or transfer to a Wholly Owned Restricted Subsidiary)
shall be deemed to be an incurrence of such Indebtedness by the obligor not
permitted by this clause (d);
(e) Indebtedness of a Wholly Owned Restricted Subsidiary owing to the
Company or to another Wholly Owned Restricted Subsidiary and Indebtedness
of a Restricted Subsidiary owing to the Company or to a Wholly Owned
Restricted Subsidiary, in each case that is a Permitted Investment;
provided that any such Indebtedness is made pursuant to an intercompany
note; provided, further, that (i) any disposition, pledge or transfer of
any such Indebtedness to a Person (other than a pledge made in accordance
with the provisions of the Indenture described below under the caption
"-- Limitation on Liens" or a disposition, pledge or transfer to the
Company or a Wholly Owned Restricted Subsidiary) shall be deemed to be an
incurrence of such Indebtedness by the obligor not permitted by this clause
(e), and (ii) any transaction pursuant to which any Wholly Owned Restricted
Subsidiary, which has Indebtedness owing to the Company or any other Wholly
Owned Restricted Subsidiary, ceases to be a Wholly Owned Restricted
Subsidiary shall be deemed to be the incurrence of Indebtedness by such
formerly Wholly Owned Restricted Subsidiary that is not permitted by this
clause (e) (except to the extent such Person remains a Restricted
Subsidiary and such Indebtedness constitutes a Permitted Investment);
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(f) guarantees of any Restricted Subsidiary so long as the Company
complies with the provisions of the Indenture described below under the
caption "Future Guarantors";
(g) obligations of the Company or any Wholly Owned Restricted
Subsidiary in respect of Hedging Obligations, provided that in the case of
Interest Rate Agreements, the notional amount thereof is less than or
approximately equal to an amount of Indebtedness outstanding or reasonably
expected by the Company to be outstanding during the term of such Interest
Rate Agreement and as to other Hedging Obligations, the underlying risk
arises in the ordinary course of business of the Company or such Restricted
Subsidiary and such hedging contract bears a reasonable relationship to the
Company's or such Restricted Subsidiary's obligations (or requirements);
(h) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of outstanding Indebtedness
Incurred in compliance with the Consolidated Fixed Charge Coverage Ratio of
the first paragraph of this covenant or any Indebtedness described in
clauses (b), (c) (i) and (j) of this definition of "Permitted
Indebtedness," including any successive refinancings so long as the
aggregate principal amount of Indebtedness represented thereby is not
increased by such refinancing plus the lesser of (i) the stated amount of
any premium or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced or
(ii) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of
the Company incurred in connection with such refinancing and, in the case
of Senior Subordinated Indebtedness or Subordinated Indebtedness, such
refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Indebtedness;
(i) Indebtedness (including Acquired Indebtedness) Incurred to pay,
and in a principal amount not in excess of, the Phase Two Purchase Price
(which Indebtedness may be Incurred under the Credit Facility, in addition
to the Indebtedness permitted by clause (a), or may be Incurred otherwise);
(j) Indebtedness of the Company or a Restricted Subsidiary under its
agreement, as in effect on the date of its original execution, to reimburse
Rhone-Poulenc Chimie S.A. for the Company's proportionate share of amounts
paid by Rhone-Poulenc Chimie S.A. to UFB Locabail under a guarantee of
equipment lease obligations of CEVCO, the provider of electric energy to
ChlorAlp S.A.S., in respect of three steam turbines leased by CEVCO, and
Capital Lease Obligations of the Company or any of its Restricted
Subsidiaries Incurred in connection with such equipment lease obligations
of CEVCO;
(k) Indebtedness Incurred by Foreign Restricted Subsidiaries that in
the aggregate does not exceed $30.0 million at any time outstanding;
provided, however, that at the time of and immediately after giving pro
forma effect to such Incurrence of Indebtedness and the application of the
proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio for the
Company for the four full fiscal quarters immediately preceding the
Incurrence of such Indebtedness taken as one period would be greater than
2.0 to 1.0; and
(l) Indebtedness of the Company in addition to that described in
clauses (a) through (k) above, and any renewals, extensions, substitutions,
refinancings or replacements of such Indebtedness, so long as the aggregate
principal amount of all such additional Indebtedness at any time
outstanding shall not exceed $15.0 million (which Indebtedness may be
Incurred under the Credit Facility or otherwise).
Limitation on Layering. The Company shall not, directly or indirectly,
Incur any Indebtedness that by its terms would expressly rank senior in right of
payment to the Notes and subordinate in right of payment to any other
Indebtedness of the Company.
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any other payment or distribution
on account of any Equity Interests of the Company or any Restricted Subsidiary
to holders of such Equity Interests in their capacity as such (other than (A)
dividends, distributions and payments to the Company or any Restricted
Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned restricted
Subsidiary, to its other stockholders on a
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pro rata basis) and (B) dividends or distributions payable solely in Qualified
Equity Interests of the Company or in options, warrants or other rights to
purchase Qualified Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any Equity Interests of the Company or any Restricted Subsidiary
(other than such Equity Interests owned by the Company or a Wholly Owned
Restricted Subsidiary);
(iii) make any principal payment on, or purchase, redeem, defease, retire
or otherwise acquire for value, prior to any scheduled principal payment,
scheduled sinking fund payment or final maturity, any Subordinated Indebtedness;
or
(iv) make any Investment in any Person (other than Permitted Investments)
(any such payment or any other action (other than any exception thereto)
described in (i) through (iv) each, a "Restricted Payment"), unless at the time
of and after giving effect to the proposed Restricted Payment
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the provisions
described under the caption " -- Limitation on Indebtedness" above; and
(c) the aggregate amount of all Restricted Payments declared or made
on or after the date of the Indenture does not exceed an amount equal to
the sum of (1) 50% of Consolidated Net Income of the Company for the period
(taken as one accounting period) beginning on the first fiscal quarter
commencing after the date of the Indenture and ending on the last day of
the most recent fiscal quarter immediately preceding the date of such
Restricted Payment for which internal financial statements are available at
the time of such Restricted Payment (or if such cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss), plus (2) the aggregate
net cash proceeds received by the Company after the date of the Indenture
either (x) as capital contributions to the Company or (y) from the issue
and sale (other than to any of its Restricted Subsidiaries) of its
Qualified Equity Interests (excluding the net proceeds from any issuance
and sale of Qualified Equity Interests financed, directly or indirectly,
using funds borrowed from or guaranteed by the Company or any Restricted
Subsidiary until and to the extent such borrowing is repaid), plus (3) the
principal amount (or accreted amount (determined in accordance with GAAP),
if less) of any Indebtedness of the Company or any Restricted Subsidiary
which has been converted into or exchanged for Qualified Equity Interests
of the Company after the date of the issuance of the Notes, plus (4) in the
case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the date of the Indenture, an amount equal to
the lesser of the initial amount of such Investment and the amount received
by the Company or any Restricted Subsidiary upon such disposition or
repayment, plus (5) with respect to any Unrestricted Subsidiary which has
been redesignated a Restricted Subsidiary after the date of the Indenture,
the amount (measured as of the date of redesignation) equal to the lesser
of (x) the amount of the Company's Investment in such Restricted Subsidiary
or (y) the Fair Market Value of such Restricted Subsidiary, on the date of
redesignation, plus (6) $5.0 million and minus (7) the Designation Amount
(measured as of the date of Designation) with respect to any Subsidiary of
the Company which has been designated an Unrestricted Subsidiary after the
date of the Indenture in accordance with "-- Designation of Unrestricted
Subsidiaries" below.
The foregoing provisions shall not prohibit: (i) the payment of any
dividend or distribution on Equity Interests within 60 days after the date of
declaration of such dividend or distribution if at the date of such declaration
such payment would comply with the provisions of the Indenture; provided,
however, that such dividends shall be included in subsequent calculations of the
amount of Restricted Payments; (ii) the purchase, redemption, retirement or
other acquisition of any Equity Interests of the Company in exchange for, or out
of the net cash proceeds of the substantially concurrent issue and sale (other
than to a Subsidiary) of, Qualified Equity Interests of the Company or a
substantially concurrent capital contribution to the Company; provided, however,
that (A) such purchase, redemption, retirement or other acquisition shall be
excluded in
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subsequent calculations of the amount of Restricted Payments and (B) the net
cash proceeds from such sale or capital contribution shall be excluded in
subsequent calculations under clauses (c)(2) of the preceding paragraph; (iii)
the purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness made in exchange for, or out of the net cash proceeds
of, (x) a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of Qualified Equity Interests of the Company; provided, however,
that such purchase, redemption, retirement, defeasance or other acquisition
shall be excluded from subsequent calculations of the amount of Restricted
Payments and the net cash proceeds or value from such transaction shall be
excluded from clauses (c)(2) of the preceding paragraph or (y) Subordinated
Indebtedness; permitted to be Incurred pursuant to clause (h) of the definition
of Permitted Indebtedness provided, however, that such purchase, redemption,
retirement, defeasance or other acquisition shall be excluded in subsequent
calculations of clauses (c)(2) of the preceding paragraph; (iv) the purchase,
redemption, or other acquisition or retirement of any shares of Equity Interests
of the Company from employees of the Company and its Subsidiaries, their heirs,
executors, and administrators, pursuant to any management equity subscription
agreement, stock option agreement or shareholders agreement upon the retirement
or termination of employment with the Company of such employees; provided,
however, that the aggregate amount of such purchases, redemptions, acquisitions
and retirements made after the date of the Indenture shall not exceed $4.0
million and provided, further, that such purchase, redemption, acquisition or
retirement shall be included in subsequent calculations of the amount of
Restricted Payments; (v) the repurchase, redemption, defeasance, retirement,
refinancing or acquisition for value or payment of principal of Subordinated
Indebtedness at a purchase price not greater than 101% of the principal amount
of such Subordinated Indebtedness in the event of a Change of Control pursuant
to a provision similar to the "Offer to Purchase upon Change of Control"
repurchase, the Company has made a Change of Control Offer as provided in "Offer
to Purchase upon Change of Control" above with respect to the Notes and has
repurchased all Notes validly tendered for payment in connection with such
Change of Control Offer; provided, further, that any such repurchase,
redemption, defeasance, retirement, refinancing or acquisition shall be excluded
in subsequent calculations of the amount of Restricted Payments; (vi) the
purchase, redemption, retirement or other acquisition of any Disqualified Equity
Interests of the Company in exchange for, or out of the net cash proceeds of a
substantially concurrent issue and sale (other than to a Subsidiary) of
Disqualified Equity Interests of the Company with substantially similar terms
(or terms more favorable to the Company); provided, however, that (A) such
purchase, redemption, retirement or other acquisition shall be excluded in
subsequent calculations of the amount of Restricted Payments and (B) the net
cash proceeds from such sale or capital contribution shall be excluded in
subsequent calculations under clauses (c)(2) of the preceding paragraph; (vii)
the use of life insurance proceeds by the Company to purchase the Equity
Interests of Johnnie Lou LaRoche upon her death; provided, however, that such
purchase shall be excluded in subsequent calculations of the amount of
Restricted Payments to the extent of the life insurance proceeds used for such
purpose; and (viii) in any given year, Restricted Payments by the Company that
in the aggregate do not exceed $2.0 million; provided, however, that such
Restricted Payments will be included in subsequent calculations of the amount of
Restricted Payments; provided, however, that in the case of each of clauses (ii)
through (viii) no Default or Event of Default shall have occurred and be
continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, the amount of any non-cash Restricted Payment shall be deemed to be
equal to the Fair Market Value thereof at the date of making such Restricted
Payment.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly create or otherwise cause or
suffer to exist or become effective (other than by application of law) any
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions to the Company or any other
Restricted Subsidiary on its Equity Interests or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (b) make
loans or advances to, or guarantee any Indebtedness or other obligations of, or
make any Investment in, the Company or any other Restricted Subsidiary or (c)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) the Credit Facility, or any other agreement of the Company or
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the Restricted Subsidiaries outstanding on the date of the Indenture, in each
case as in effect on the date of the Indenture, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided, however,
that any such amendment, abatement, renewal, replacement or refinancing is no
more restrictive in the aggregate with respect to such encumbrances or
restrictions than those contained in the agreement being amended, restated,
reviewed, replaced or refinanced; (ii) applicable law; (iii) any instrument
governing Indebtedness or Equity Interests of an Acquired Person acquired by the
Company or any Restricted Subsidiary as in effect at the time of such
acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was Incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); provided, however, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary other than the Acquired Person and, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred; (iv) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices; (v) Purchase
Money Indebtedness for property acquired in the ordinary course of business that
only imposes encumbrances and restrictions on the property so acquired; (vi) any
agreement for the sale or disposition of the Equity Interests or assets of any
Restricted Subsidiary; provided, however that such encumbrances and restrictions
described in this clause (vi) are only applicable to such Restricted Subsidiary
or assets, as applicable, and any such sale or disposition is made in compliance
with "Disposition of Proceeds of Asset Sales" below to the extent applicable
thereto; (vii) refinancing Indebtedness permitted under clause (h) of the second
paragraph of "Limitation on Indebtedness" above; provided, however, that such
encumbrances and restrictions contained in the agreements governing such
Indebtedness are no more restrictive in the aggregate than those contained in
the agreements governing the Indebtedness being refinanced immediately prior to
such refinancing; or (viii) the Indenture and the Notes.
Designation of Unrestricted Subsidiaries. The Company may designate after
the date of the Indenture any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Fixed Charge Coverage Ratio in the
first paragraph of "Limitation on Indebtedness" above;
(iii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the amount of the Company's Investment in such Subsidiary
on such date; and
(iv) such Subsidiary does not own any Equity Interest or Indebtedness
of, or hold a Lien on any of the property of, the Company or any other
Subsidiary of the Company.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Any Unrestricted Subsidiary shall immediately be deemed to be a Restricted
Subsidiary (and the related Liens and Indebtedness thereof shall thereupon be
deemed to be Incurred) if the Company or any Restricted
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Subsidiary shall at any time (x) provide credit support for, subject any of its
property or assets (other than the Equity Interests of any Unrestricted
Subsidiary) to the satisfaction of, or guarantee, any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness), (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary, except for any non-recourse guarantee given solely to support the
pledge by the Company or any Restricted Subsidiary of the capital stock of any
Unrestricted Subsidiary. For purposes of the foregoing, the Designation of a
Subsidiary of the Company as an Unrestricted Subsidiary shall be deemed to
include the Designation of all of the Subsidiaries of such Subsidiary.
Limitation on Liens. The Company shall not and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made to secure the Notes and all other amounts due under
the Indenture and any other class of Senior Subordinated Indebtedness equally
and ratably with such Indebtedness (or, in the event that such Indebtedness is
subordinated in right of payment to the Notes prior to such Indebtedness) with a
Lien on the same properties and assets securing such Indebtedness for so long as
such Indebtedness is secured by such Lien, except for (i) Liens securing Senior
Indebtedness (including, without limitation, Indebtedness incurred under the
Credit Facility) which is permitted to be incurred under the covenant described
above under the caption "-- Limitation on Indebtedness" (provided that
Indebtedness under the Credit Facility shall be deemed not to have been incurred
in violation of such covenant for purposes of this clause (i) if the holders of
such Indebtedness or their agent or representative shall have received a
representation from the Company to the effect that such Indebtedness does not
violate such covenant) and (ii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(ii) at least 75% of such consideration consists of cash or Cash Equivalents.
The amount of any Indebtedness (other than any Subordinated Indebtedness) of the
Company or any Restricted Subsidiary that is actually assumed by the transferee
in such Asset Sale and from which the Company and the Restricted Subsidiaries
are fully and unconditionally released shall be deemed to be cash for purposes
of determining the percentage of cash consideration received by the Company or
the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 360 days of receipt thereof
to repay Senior Indebtedness and permanently reduce any related commitment, or
(ii) make an Investment in properties and capital assets that will be used in
the business of the Company and its Restricted Subsidiaries existing on the date
of the Indenture or in businesses reasonably related thereto (as determined in
good faith by the Company's Board of Directors). The Company shall be deemed to
have made an Investment under clause (ii) within 360 days so long as (A) it has
signed a written commitment within 360 days of any Asset Sale to undertake such
an Investment and (B) the Company makes such Investment within two years after
the Asset Sale.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied within 360 days of such Asset Sale as described in clause (i) or
(ii) of the immediately preceding paragraph (such Net Cash Proceeds not so
applied, the "Excess Proceeds"), the Company shall, within 45 days after such
360th day, make an Asset Sale Offer for all outstanding Notes and other Senior
Subordinated Indebtedness, pro rata up to a maximum principal amount (express as
a multiple of $1,000) of Notes and other Senior Subordinated Indebtedness equal
to such Excess Proceeds, at a purchase price in cash equal to 100% of the
principal amount thereof (or the accreted value of such other Senior
Subordinated Indebtedness, if such other Senior Subordinated Indebtedness is
issued at a discount), plus accrued and unpaid interest thereon, if any, to the
Purchase Date; provided, however, that the Asset Sale Offer may be deferred
until there are aggregate Excess
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Proceeds equal to or in excess of $10.0 million, at which time the entire amount
of such Excess Proceeds, and not just the amount in excess of $10.0 million,
shall be applied as required pursuant to this paragraph. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
With respect to any Asset Sale Offer effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes and other
Senior Subordinated Indebtedness tendered pursuant to such Asset Sale Offer
exceeds the Excess Proceeds to be applied to the repurchase thereof, such Notes
and other Senior Subordinated Indebtedness shall be purchased pro rata based on
the aggregate principal amount of such Notes and other Senior Subordinated
Indebtedness tendered (or the accreted value of such other Senior Subordinated
Indebtedness, if such other Senior Subordinated Indebtedness is issued at a
discount) by each holder of Notes and such other Senior Subordinated
Indebtedness. To the extent the Excess Proceeds exceed the aggregate amount of
Notes and other Senior Subordinated Indebtedness tendered pursuant to such Asset
Sale Offer, the Company may retain and utilize any portion of the Excess
Proceeds not applied to repurchase the Notes and other Senior Subordinated
Indebtedness for any purpose consistent with the other terms of the Indenture.
In the event that the Company makes an Asset Sale Offer for the Notes and
other Senior Subordinated Indebtedness, the Company shall comply with any
applicable securities laws and regulations, and any violation of the provisions
of the Indenture relating to such Asset Sale Offer occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Asset Sale Offer, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders and holders of other Senior Subordinated Indebtedness as described
above.
The Credit Facility will prohibit the Company from purchasing any Notes
from the Net Cash Proceeds of Asset Sales. Any future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may contain similar restrictions and provisions. In the event an Asset Sale
Offer occurs at a time when the Company is prohibited from purchasing the Notes,
the Company could seek the consent of its lenders to the purchase or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such Senior Indebtedness, the
Company may remain prohibited from purchasing the Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default under the Indenture which would, in turn, constitute a default under the
Credit Facility. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of the Notes.
Merger, Sale of Assets, etc. The Company shall not consolidate with or
merge with or into (whether or not the Company is the Surviving Person) any
other entity and the Company shall not and shall not cause or permit any
Restricted Subsidiary to, sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Company's and the Restricted
Subsidiaries' properties and assets (determined on a consolidated basis for the
Company and the Restricted Subsidiaries) to any entity in a single transaction
or series of related transactions, unless: (i) either (x) the Company shall be
the Surviving Person or (y) the Surviving Person (if other than the Company)
shall be a corporation organized and validly existing under the laws of the
United States of America or any State thereof or the District of Columbia and
shall expressly assume by a supplemental indenture, the due and punctual payment
of the principal of, premium, if any, and interest on all the Notes and the
performance and observance of every covenant of the Indenture and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (ii) immediately before and after giving effect to the transaction or
series of transactions, no Default or Event of Default shall have occurred and
be continuing; and (iii) immediately after giving effect to any such transaction
or series of transactions involving the incurrence by the Company or any
Restricted Subsidiary, directly or indirectly, of additional Indebtedness (and
treating any Indebtedness not previously an obligation of the Company or any
Restricted Subsidiary in connection with or as a result of such transaction as
having been incurred at the time of such transaction), the Surviving Person (A)
shall have a Consolidated Net Worth equal to or greater than
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the Consolidated Net Worth of the Company immediately prior to such transaction
and (B) could incur, on a pro forma basis after giving effect to such
transaction as if it had occurred at the beginning of the four quarter period
immediately preceding such transaction for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Consolidated Fixed
Charge Coverage Ratio of the first paragraph of "-- Limitation on Indebtedness"
above. Notwithstanding the foregoing clause (iii) of the immediately preceding
sentence, any Restricted Subsidiary may consolidate with, merge into or transfer
all or part of its property and assets to the Company and any Wholly Owned
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its property and assets to another Wholly Owned Restricted Subsidiary. For
purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company is not the Surviving Person and the Surviving Person is to
assume all the Obligations of the Company under the Notes the Indenture and the
Registration Rights Agreement, pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company and the Company shall be discharged from
its Obligations under the Indenture and the Notes.
Transactions with Affiliates. The Company shall not, and shall not cause
or permit any Subsidiary to, directly or indirectly, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of any of its Affiliates or any officer, director or employee of the
Company or any Subsidiary (each an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms which are no less favorable to the Company or
such Subsidiary, as the case may be, than would be available in a comparable
transaction with an unaffiliated third party and (ii) (A) if such Affiliate
Transaction (or series of related Affiliate Transactions) involves aggregate
payments or the transfer of other consideration between the Company and an
Affiliate of the Company having a Fair Market Value in excess of $1.0 million,
other than sales or purchases of goods and services in the ordinary course of
business at prices and on terms at least as favorable to the Company as then
prevailing in the market, such Affiliate Transaction is in writing and the
Company delivers an officer's certificate to the trustee certifying that such
Affiliate Transaction (or series of Affiliate Transactions) complies with the
foregoing provisions or (B) if such Affiliate Transaction (or series of related
Affiliate Transactions) involves aggregate payments or the transfer of other
consideration between the Company and an Affiliate of the Company having a Fair
Market Value in excess of $3.0 million, other than sales or purchases of goods
and services in the ordinary course of business at prices and on terms at least
as favorable to the Company as then prevailing in the market, such Affiliate
Transaction is in writing and a majority of the disinterested members of the
Board of Directors of the Company shall have approved such Affiliate Transaction
and determined that such Affiliate Transaction complies with the foregoing
provisions. In addition, any Affiliate Transaction involving aggregate payments
or the transfer of other consideration between the Company and an Affiliate of
the Company having a Fair Market Value in excess of $10.0 million, other than
sales or purchases of goods and services in the ordinary course of business at
prices and on terms at least as favorable to the Company as then prevailing in
the market, will also require a written opinion from an Independent Financial
Advisor (filed with the Trustee) stating that the terms of such Affiliate
Transaction are fair from a financial point of view, to the Company or the
Restricted Subsidiary involved in such Affiliate Transaction, as the case may
be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Wholly
Owned Restricted Subsidiary or between or among Wholly Owned Restricted
Subsidiaries; (ii) any transaction with an officer, director of the Company
entered into in the ordinary course of business and consistent with past
practice (including compensation or employee benefit arrangements with any
officer, director or employee of the Company); (iii) transactions pursuant to
agreements in existence on the date of the Indenture, as described in the
Prospectus and renewals
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and replacements thereof on substantially similar terms (or on terms more
favorable to the Company); (iv) indemnification payments made to officers,
directors and employees of the Company or any Subsidiary pursuant to charter,
bylaw, statutory or contractual provisions; or (v) transactions otherwise
permitted by the Indenture.
Limitation on the Sale or Issuance of Equity Interests of Restricted
Subsidiaries. The Company shall not sell any Equity Interest of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary, directly or
indirectly, to issue or sell any Equity Interests, except: (i) to the Company or
a Wholly Owned Restricted Subsidiary; or (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would continue to be
a Restricted Subsidiary. Notwithstanding the foregoing, the Company is permitted
to sell all the Equity Interest of a Restricted Subsidiary as long as the
Company is in compliance with the terms described above in "Certain
Covenants -- Disposition of Proceeds of Asset Sales" and, if applicable,
"Certain Covenants -- Merger, Sale of Assets, etc." above.
Future Guarantors. After the original issue date of the Notes, the Company
will cause each Domestic Restricted Subsidiary which Incurs Indebtedness
(including guarantees of Indebtedness Incurred pursuant to "Certain
Covenants -- Limitation on Indebtedness" above) to execute and deliver to the
Trustee a Guarantee pursuant to which such Domestic Restricted Subsidiary will
guarantee payment of the Notes on a senior subordinated basis. Each Guarantee
will be limited to an amount not to exceed the maximum amount that can be
guaranteed, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
Business Activities. The Company and its Restricted Subsidiaries may not
engage, to any material extent, in any businesses which are not the same,
similar, related or ancillary to the businesses in which the Company and its
Restricted Subsidiaries are engaged on the date of the Indenture.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so subject, such documents to be filed with the SEC on or prior
to the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the SEC) (i) transmit (or
cause to be transmitted) by mail to all Holders, as their names and addresses
appear in the Note register, without cost to such Holders upon their request and
(ii) file with the Trustee copies of the annual reports, quarterly reports and
proxy statements which the Company is required to file with the SEC pursuant to
the preceding sentence, or, if such filing is not so permitted, information and
data of a similar nature, and (b) if, notwithstanding the preceding sentence,
filing such documents by the Company with the SEC is not permitted by SEC
practice or applicable law or regulations, promptly upon written request supply
copies of such documents to any Holder. In addition, for so long as any Notes
remain outstanding and prior to the later of the consummation of the Exchange
Offer and the filing of an initial shelf registration statement, if required,
the Company will furnish to the Holders, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the Indenture: (a) failure to pay principal of (or premium, if
any, on) any Note when due (whether or not prohibited by the provisions of the
Indenture described under "Subordination of the Notes" above); (b) failure to
pay any interest on any Note when due, continued for 30 days or more (whether or
not prohibited by the provisions of the Indenture described under "Subordination
of the Notes" above); (c) default in the payment of principal of or interest on
any Note required to be purchased pursuant to any Asset Sale Offer required by
the Indenture when due and payable or failure to pay on the Purchase Date the
Offer Amount for any Note validly tendered pursuant to any Asset Sale Offer
required by the Indenture (whether or not prohibited by the provisions of the
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Indenture described under "Subordination of the Notes" above); (d) failure to
perform or comply with any of the provisions described under "Certain
Covenants -- Merger, Sale of Assets, etc." above; (e) failure to perform any
other covenant, warranty or agreement of the Company under the Indenture or in
the Notes or of any future Guarantor under the Indenture or in any future
Guarantee continued for 30 days or more after written notice to the Company by
the Trustee or Holders of at least 25% in aggregate principal amount of the
outstanding Notes; (f) default or defaults under the terms of one or more
instruments evidencing or securing Indebtedness of the Company or any of its
Restricted Subsidiaries having an outstanding principal amount of $5.0 million
or more individually or in the aggregate that has resulted in the acceleration
of the payment of such Indebtedness or failure by the Company or any of its
Restricted Subsidiaries to pay principal, premium, if any, or interest when due
at the stated maturity of any such Indebtedness and such default or defaults
shall have continued after any applicable grace period; (g) the rendering of a
final judgment or judgments (not subject to appeal) against the Company or any
of its Restricted Subsidiaries in an amount of $5.0 million or more (net of any
amounts covered by reputable and creditworthy insurance companies) which remains
undischarged or unstayed for a period of 60 days after the date on which the
right to appeal has expired; or (h) certain events of bankruptcy, insolvency or
reorganization affecting the Company or any of its Restricted Subsidiaries.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (h) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes, by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary, will become immediately
due and payable (i) so long as there shall be any outstanding Indebtedness under
the Credit Facility, upon the first to occur of an acceleration of such
Indebtedness under the Credit Facility or five business days after receipt by
the Company and the administrative agent under the Credit Facility of such
notice, or (ii) if no Indebtedness is outstanding under the Credit Facility,
upon receipt by the Company of such notice. If an Event or Default specified in
clause (h) of the preceding paragraph with respect to the Company occurs under
the Indenture, the Notes will ipso facto become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder of
the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants -- Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the
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Trustee to institute such proceeding as the Trustee, and the Trustee shall not
have received from the Holders of a majority in aggregate principal amount of
such outstanding Notes a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days. However, such limitations do
not apply to a suit instituted by a Holder of such a Note for enforcement of
payment of the principal of and premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by it of certain of its obligations under the Indenture
and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE: DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of such outstanding Notes to
receive payments in respect of the principal of, premium, if any, interest on
such Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to such Notes concerning issuing temporary
Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes
and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and the Company's obligations in connection therewith and (iv)
the Legal Defeasance provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit: (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or
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constitute a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an officer's certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of the Notes over the other
creditors of the Company, or with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws to the extent that the application of the law
of another jurisdiction would be required thereby.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for the Notes); provided,
however, that no such modification or amendment to the Indenture may, without
the consent of the Holder of each Note affected thereby, (a) change the maturity
of the principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
(which are described above under "-- Optional Redemption," "-- Offer to Purchase
Upon Change of Control" and "-- Disposition of Proceeds of Asset Sales") in a
manner adverse to the Holders of the Notes; (b) reduce the principal amount of
(or the premium) of any such Note; (c) reduce the rate of or extend the time for
payment of interest on any such Note; (d) change the currency of payment of
principal of (or premium) or interest on any such Note; (e) modify any
provisions of the Indenture relating to the waiver of past defaults or the right
of the Holders of Notes to receive payments of principal of, or premium, if any,
or interest on the Notes or to institute suit for the enforcement of any payment
on or with respect to any such Note or the modification and amendment provisions
of the Indenture and the Notes (other than to add sections of the Indenture or
the Notes which may not be amended, supplemented or waived without the consent
of each Holder therein affected); (f) reduce the percentage of the principal
amount of outstanding Notes necessary for amendment to or waiver of compliance
with any provision of the Indenture or the Notes or for waiver of any Default in
respect thereof; (g) waive a default in the payment of principal of, interest
on, or redemption payment with respect to, the Notes (except a rescission of
acceleration of the Notes by the Holders thereof as provided in the Indenture
and a waiver of the payment default that resulted from such acceleration); (h)
modify the ranking or priority of any Note amend or modify the subordination
provisions of the Indenture in any manner adverse to the Holders of the Notes or
(i) make any change in the foregoing amendment and waiver provisions.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. Subject to certain rights
of the Trustee, as provided in the Indenture, the Holders of a majority in
aggregate principal amount of the Notes, on behalf of all Holders, may waive any
past default under the Indenture (including any such waiver obtained in
connection with a tender offer or exchange offer for the Notes), except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any Notes tendered pursuant to an Asset Sale Offer, or
a default in respect of a provision that under the Indenture cannot be modified
or amended without the consent of the Holder of each Note that is affected.
Notwithstanding the foregoing, without the consent of any Holder of the
Notes the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in the case of a merger or consolidation, to
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make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any other obligor upon the Notes, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claim as security or otherwise. The Trustee is
permitted to engage in other transactions with the Company or an Affiliate of
the Company; provided, however, that if it acquires any conflicting interest (as
defined in the Indenture or in the Trust Indenture Act), it must eliminate such
conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will be issued in the form of one or
more fully registered Global Notes (each, a "Global Note"). Each Global Note
will be deposited on the date of the closing of the sale of the Notes offered
hereby (the "Closing Date") with, or on behalf of, The Depository Trust Company,
New York, New York (the "Depositary" or "DTC") and registered in the name of
Cede & Co., as nominee of the Depositary, or will remain in the custody of the
Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the
Trustee.
On the date of the issuance of the Notes, interests in the Global Note will
be available for purchase only by "qualified institutional buyers" as defined in
Rule 144A under the Securities Act ("QIBS"). Secondary sales to "institutional
accredited investors," as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act (an "Institutional Accredited Investor"), who are not QIBs will
be reflected in a separate Global Note.
Notes that were issued as described under "Certificated Securities," will
be issued in registered definitive form without coupons (the "Certificated
Securities"). Upon the transfer to a QIB or Institutional Accredited Investor of
Certificated Securities, such Certificated Securities may, unless the Global
Note has previously been exchanged for Certificated Securities, be exchanged for
an interest in the relevant Global Note representing the principal amount of
Notes being transferred. For a description of the restrictions on the transfer
of Certificated Securities, see "Transfer Restrictions."
The Depositary has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depositary was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depositary's Participants include securities
brokers and dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. QIBs and Institutional Accredited Investors may elect to
hold Notes purchased by them through the Depositary. QIBs who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through Participants or Indirect Participants. Institutional
Accredited Investors may beneficially own securities held by or on behalf of the
Depositary only through Participants or Indirect Participants.
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So long as the Depositary or its nominee is the registered owner of the
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by the Global Note
for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each QIB and Institutional Accredited Investor owning a
beneficial interest in a Global Note must rely on the procedures of the
Depositary and, if such QIB or Institutional Accredited Investor is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such QIB or Institutional Accredited Investor owns its interest,
to exercise any rights of a Holder under the Indenture or such Global Note. The
Company understands that under existing industry practice, in the event the
Company requests any action of holders or a QIB or Institutional Accredited
Investor that is an owner of a beneficial interest in a Global Note desires to
take any action that the Depositary, as the Holder of such Global Note, is
entitled to take, the Depositary would authorize the Participants to take such
action and the Participant would authorize QIBs and Institutional Accredited
Investors owning through such Participants to take such action or would
otherwise act upon the instruction of such QIBs and Institutional Accredited
Investors. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Notes represented by a Global Note registered in the name of the Depositary
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depositary or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in the principal amount of the beneficial interest in the Global Note
as shown on the records of the Depositary. Payments by the Participants and the
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with an interest
in the Global Note and (ii) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as collateral
will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Transfer Restrictions."
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, or (iii) upon the occurrence of certain
other events, then, upon surrender by the Depositary of its Global Notes,
Certificated Securities will be issued to each person that the Depositary
identifies as the
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beneficial owner of the Notes represented by the Global Note. In addition,
subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for Certificated Securities. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of such person or persons (or
the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. So
long as the Notes are represented by a permanent Global Note or Notes, all
payments of principal, premium, if any, and interest will be made by the Company
in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. So long as the Notes are
represented by a permanent Global Note or Notes registered in the name of the
Depositary or its nominee, the Notes will trade in the Depositary's Same-Day
Funds Settlement System, and secondary market trading activity in the Notes will
therefore be required by the Depositary to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on the trading activity in the Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms which are used in the Indenture.
Although certain of such defined terms are similar to defined terms used
elsewhere in this Prospectus, the following definitions pertain only to this
Description of the Exchange Notes. Reference is made to the Indenture for a full
definition of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person is merged with or into such Person or becomes a Subsidiary of
such Person or (ii) assumed in connection with the acquisition of assets from
such Person, in each case, other than Indebtedness incurred in connection with
or in contemplation of, such Person becoming a Subsidiary or such acquisition. A
reasonable allocation of existing Indebtedness by the corporate parent (direct,
intermediate or ultimate) of such Person or by such Person, at or around the
time such Person becomes a Subsidiary or such assets are acquired, to the Person
becoming a Subsidiary or to the acquired assets, shall not be deemed to be an
incurrence of Indebtedness in connection with or in contemplation of such
transaction. Acquired Indebtedness shall be deemed to be incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that for purposes of the
"Transactions with Affiliates" covenant, the term "Affiliate" shall not include
Chase Securities Inc. or its affiliates or Hunton & Williams. For purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale/leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Subsidiary (other than
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directors' qualifying shares, to the extent mandated by applicable law) or (ii)
any assets of the Company or any Restricted Subsidiary (excluding cash and Cash
Equivalents and inventory disposed of in the ordinary course of business). For
the purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "Certain Covenants -- Merger, Sale of
Assets, etc." above and the creation of any Lien not prohibited by "Certain
Covenants -- Limitation on Liens" above; (b) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be; (c) any transfers of properties and assets between Wholly Owned
Restricted Subsidiaries; and (d) assets of the Company held for sale on the date
of the Indenture with an aggregate sale price not in excess of $5.0 million. In
addition, solely for purposes of "Certain Covenants -- Disposition of Proceeds
of Asset Sales" above, (x) any transaction consummated in compliance with
"Certain Covenants -- Limitation on Restricted Payments" above and (y) any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $3.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Calculated Amount" means, as of the date of determination, 85% of the net
book value of accounts receivable (as determined in accordance with GAAP) of the
Company and its Restricted Subsidiaries plus 50% of the net book value of
inventories (as determined in accordance with GAAP and adjusted to include LIFO
reserves) of the Company and its Restricted Subsidiaries, each as set forth on
the most recently available consolidated balance sheet of the Company and its
Restricted Subsidiaries.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be properly capitalized on the balance sheet in accordance with
GAAP.
"Cash Equivalents" means: (a) securities issued or directly and fully
guaranteed or insured by the U.S. government or any agency or instrumentality
thereof having maturities of not more than one year from the date of
acquisition; (b) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (c) repurchase obligations with a term of not
more than 30 days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the
qualifications specified in clause (c) above; (d) commercial paper rated P-1,
A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group, respectively, and in each case maturing within 270 days
after the date of acquisition; and (e) corporate securities having a rating
equal to or higher than BBB- and Baa3, or the equivalents thereof, by both
Standard & Poor's Ratings Group and Moody's Investor Service, Inc.,
respectively, if both such entities rate the securities, or having such rating
from one of such entities if only one such entity is rating such Securities.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly of more than 35% of the total voting power of the
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then outstanding Voting Equity Interests of the Company; (ii) the Company
consolidates with, or merges with or into, another Person (other than the
Company or a Wholly Owned Restricted Subsidiary) or the Company or any of its
Subsidiaries sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of the assets of the Company and its Subsidiaries
(determined on a consolidated basis) to any Person (other than the Company or
any Wholly Owned Restricted Subsidiary), other than any such transaction where
immediately after such transaction the Person or Persons that "beneficially
owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) immediately prior to such
transaction, directly or indirectly, a majority of the total voting power of the
then outstanding Voting Equity Interests of the Company "beneficially own" (as
so determined), directly or indirectly, a majority of the total voting power of
the then outstanding Voting Equity Interests of the surviving or transferee
Person; (iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation
or dissolution other than in a transaction which complies with the provisions
described under "-- Merger, Sale of Assets, etc."
"Change of Control Offer" has the meaning set forth under "Offer to
Purchase upon Change of Control."
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of (a) the sum of Consolidated Net Income (Loss), plus Consolidated Interest
Expense, Consolidated Income Tax Expense and Consolidated Non-Cash Charges
deducted in computing Consolidated Net Income (Loss), in each case for such
period, of the Company and its Subsidiaries on a consolidated basis, all
determined in accordance with GAAP, plus amounts received during such period in
repayment or prepayment of principal of the RP Loan, to (b) the sum of
Consolidated Interest Expense for such period and cash and non-cash dividends
paid on any Preferred Equity Interest of the Company during such period;
provided that such computation shall be after giving pro forma effect to (i) the
incurrence of the Indebtedness with respect to which the computation is being
made and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred,
and the application of such proceeds occurred, at the beginning of the
applicable period; (ii) the incurrence, repayment or retirement of any other
Indebtedness by the Company and its Subsidiaries since the first day of the
applicable period as if such Indebtedness was incurred, repaid or retired at the
beginning of the applicable period; (iii) in the case of Acquired Indebtedness,
the related acquisition, as if such acquisition occurred at the beginning of the
applicable period; and (iv) any acquisition or disposition by the Company and
its Subsidiaries of any company or any 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 repayment of Indebtedness, in each case since
the first day of the applicable period, assuming such acquisition or disposition
had been consummated on the first day of the applicable period and after giving
pro forma effect to net cost savings that the Company reasonably believes in
good faith could have been achieved during the applicable period as a result of
such acquisition or disposition and which cost savings could then be reflected
in pro forma financial statements under GAAP (provided that both (A) such cost
savings were identified and quantified in an officer's certificate delivered to
the Trustee at the time of the consummation of the acquisition or disposition
and (B) with respect to each acquisition or disposition completed prior to the
90th day preceding such date of determination, actions were commenced or
initiated by the Company within 90 days of such acquisition or disposition to
effect such cost savings identified in such officer's certificate) and provided
further that (x) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
(A) bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period
and (B) which was not outstanding during the period for which the computation is
being made but which bears, at the option of the Company, a fixed or floating
rate of interest shall be computed by applying, at the option of the Company,
either the fixed or floating rate, and (y) in making such computation, the
Consolidated Interest Expense of the Company attributable to interest on any
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Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the pro forma average daily balance of such
Indebtedness during the applicable period.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of (a) the interest expense of such Person and its
Subsidiaries for such period, on a consolidated basis, including, without
limitation, (i) amortization of debt discount (but excluding amortization or
write-off of financing costs), (ii) the net cost (benefit) under Interest Rate
Agreements (including amortization of discounts), (iii) the interest portion of
any deferred payment obligation (other than interest on deferred payment
obligations relating to pension and post retirement benefits as required by SFAS
87 and SFAS 106) and (iv) accrued interest, plus (b)(i) the interest component
of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person during such period and (ii) all capitalized interest of
such Person and its Subsidiaries on a consolidated basis, in each case as
determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such person is not a Restricted Subsidiary,
except (A) to the extent of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution and (B) the Company's equity in a net loss of any such Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (ii) any net income (loss) of any
person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (but not loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company to the extent of such
restrictions; (iv) any gain or loss realized upon the sale or other disposition
of any asset of the Company or the Restricted Subsidiaries (including pursuant
to any sale/leaseback transaction) outside of the ordinary course of business;
(v) any extraordinary gain or loss and (vi) the cumulative effect of a change in
accounting principles.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Equity
Interests of such Person.
"Consolidated Non-Cash Charges" means, with respect to any Person, for any
period the sum of (i) depreciation, (ii) amortization (including, without
limitation, amortization of financing costs) and (iii) other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net Income
of such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding, for purposes of clause
(iii) only, such charges which require an accrual of or a reserve for cash
charges for any future period).
"Credit Facility" means the Credit Agreement dated as of August 26, 1997
between the Company, the lenders party thereto from time to time, and The Chase
Manhattan Bank, as agent, as such agreement may be amended, increased, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancing, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Credit Facility and (b) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $30.0 million, if
the
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instrument governing such Senior Indebtedness expressly states that such
Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture
and a Board Resolution setting forth such designation by the Company has been
filed with the Trustee.
"Designation" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof
(except, in each case, upon the occurrence of a Change of Control), in whole or
in part, or exchangeable into Indebtedness on or prior to the date which is 91
days prior to the maturity date of the Notes. Equity Interests issued to
employees or directors of the Company shall not be deemed Disqualified Equity
Interests merely because such Equity Interests are subject to a shareholders
agreement or plan providing for the repurchase thereof by the Company upon the
termination of employment of such person.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary of the
Company organized under the laws of the United States or any political
subdivisions thereof or the operations of which are located substantially within
the United States.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary of the
Company not organized under the laws of the United States or any political
subdivision thereof and the operations of which are located substantially
outside of the United States.
"GAAP" means generally accepted accounting principles in effect in the
United States as in effect on the date of the Indenture.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt;
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provided, that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Security or the specific payment of principal of or interest on the Government
Security evidenced by such depository receipt.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means any guarantee which may from time to time be executed by
a Restricted Subsidiary of the Company pursuant to the provisions of the
covenant described under "Certain Covenants -- Future Guarantors." Each such
Guarantee will have subordination provisions equivalent to those contained in
the Indenture.
"Guarantor" means any Restricted Subsidiary that is required to provide a
Guarantee pursuant to "Certain Covenants -- Future Guarantors" above.
"Hedging Agreement" means, with respect to any Person, all Interest Rate
Agreements or foreign currency or commodity hedge, exchange or similar
agreements of such Person.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under Hedging Agreements.
"Holders" means the registered holders of the Notes.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, in respect of such Indebtedness or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such
Indebtedness or other obligation on the balance sheet of such Person (and
"Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the
foregoing). Indebtedness of any Acquired Person or any of its Subsidiaries
existing at the time such Acquired Person becomes a Restricted Subsidiary (or is
merged into or consolidated with the Company or any Restricted Subsidiary),
whether or not such Indebtedness was Incurred in connection with, as a result
of, or in contemplation of, such Acquired Person becoming a Restricted
Subsidiary (or being merged into or consolidated with the Company or any
Restricted Subsidiary), shall be deemed Incurred at the time any such Acquired
Person becomes a Restricted Subsidiary or merges into or consolidates with the
Company or any Restricted Subsidiary.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Equity Interests, now or hereafter outstanding, (ii) all obligations of
such Person evidenced by bonds, notes, debentures or other similar instruments,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person (even
if the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv)
Hedging Obligations of such Person, (v) all Capital Lease Obligations of such
Person, (vi) all Indebtedness referred to in clauses (i) through (v) above of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien, upon or with respect to
property (including, without limitation, accounts and contract rights) owned by
such Person, even though
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such Person has not assumed or become liable for the payment of such
Indebtedness, (vii) all guaranteed debt of such Person, (viii) all Disqualified
Equity Interests valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends, and (ix) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing of any liability of the types referred to in clauses (i) through
(viii) above. For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Equity Interest which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Disqualified Equity Interest
as if such Disqualified Equity Interest were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the Fair Market Value of such
Disqualified Equity Interest, such Fair Market Value to be determined in good
faith by the board of directors of the issuer of such Disqualified Equity
Interest. Indebtedness of a Person does not include performance by such Person
of its obligations, including payment obligations, under leases, licenses or
permits in the ordinary course of its business or any guarantee of such
obligations and does not include regulatory guarantees incurred by the Company
in order to secure permits from governmental authorities or agencies that are
necessary for the operation of the Company's business.
"Independent Financial Advisor" means a nationally recognized, accounting,
appraisal, investment banking firm or consultant which, in the judgment of the
Board of Directors of the Company, is independent and qualified to perform the
task for which it is to be engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest (as defined under "Registration Rights" below) on
the Notes.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. For
purposes of the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment; reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided, however, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income.
"Lien" means any lien, pledge, mortgage, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest in and
any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction) whether or not
filed, recorded or otherwise perfected under applicable law.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred
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as a result thereof; (b) taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; and (d) amounts deemed, in good faith, appropriate by the Board
of Directors of the Company to be provided as a reserve, in accordance with
GAAP, against any liabilities associated with such assets which are the subject
of such Asset Sale.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Holder" means one or more of the following: (i) Johnnie Lou
LaRoche, W. Walter LaRoche, III, Victoria E. LaRoche, Louanne C. LaRoche and
Grant O. Reed, (ii) spouses or lineal descendants of the Persons described in
clause (i), (iii) in the event of incompetence or death of any of the Persons
described in clauses (i) or (ii), such Person's estate, executor, administrator,
committee or other personal representative or beneficiaries and (iv) any trusts
created for the benefit of the Persons described in clause (i), (ii) or (iii).
"Permitted Indebtedness" has the meaning set forth in the second paragraph
of "Certain Covenants -- Limitation on Indebtedness" above.
"Permitted Investments" means (i) Investments in any Wholly Owned
Restricted Subsidiary or any Person which, as a result of such Investment,
becomes a Wholly Owned Restricted Subsidiary; (ii) Indebtedness of the Company
or a Restricted Subsidiary described under clause (d) of the definition of
"Permitted Indebtedness"; (iii) Cash Equivalents; (iv) Investments acquired by
the Company or any Restricted Subsidiary in connection with an Asset Sale
permitted by the covenant described in "Certain Covenants -- Disposition of
Proceeds of Asset Sales" to the extent such Investments are non-cash proceeds as
permitted under such covenant; (v) Investments in such amounts and in such
Persons outstanding on the date of the Indenture (as increased from time to time
by the Company's share of undistributed earnings or profits); (vi) loans or
guarantees up to an aggregate of $1.0 million outstanding at any time to
employees of the Company and its Restricted Subsidiaries in the ordinary course
of business; (vii) any guarantees which are otherwise permitted to be Incurred
by the Company pursuant to the covenant "Limitation on Indebtedness"; (viii) any
guarantee by the Company of loans made by other Persons to employees of the
Company and its Restricted Subsidiaries in connection with such employees'
purchase of Equity Interests of the Company, provided that such Equity Interests
are pledged to the Company as security for such guarantee; (ix) without limiting
any other provision of this Indenture, Investments pursuant to the RP Joint
Venture Agreements in an aggregate amount outstanding at any time up to the
Phase One Purchase Price; (x) Hedging Agreements; (xi) in addition to the
foregoing, Investments in joint ventures, corporations or partnerships engaged
in businesses substantially similar to or related to the businesses of the
Company and its Restricted Subsidiaries, provided that the aggregate amount of
such Investments made after the date of the Indenture shall not exceed $5.0
million at any time outstanding; and (xii) further in addition to the foregoing,
Investments made after the date of the Indenture that do not exceed $5.0 million
at any time outstanding.
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business which secure
payment of obligations not more than 60 days past due or which are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the date of the Indenture; (d) Liens securing only the Notes; (e) Liens in favor
of the Company or any Restricted Subsidiary (including any such Liens securing
Indebtedness, to the extent and for so long as such Indebtedness is pledged to
secure Senior Indebtedness); (f) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded; provided, however, that any reserve or
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other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (g) easements, reservation of rights of way,
restrictions and other similar easements, licenses, restrictions on the use of
properties, or minor imperfections of title that in the aggregate do not in any
case materially detract from the properties subject thereto or interfere with
the ordinary conduct of the business of the Company and the Restricted
Subsidiaries; (h) Liens resulting from the deposit of cash or notes in
connection with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation when required
by law and public and statutory obligations or obligations under franchise
arrangements entered into in the ordinary course of business; (i) Liens securing
Indebtedness consisting of Capital Lease Obligations, Purchase Money
Indebtedness, mortgage financings, industrial revenue bonds or other monetary
obligations, in each case incurred solely for the purpose of financing all or
any part of the purchase price or cost of construction or installation of assets
used in the business of the Company or the Restricted Subsidiaries, or repairs,
additions or improvements to such assets, provided, however, that (I) such liens
secure Indebtedness in an amount not in excess of the original purchase price or
the original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in correction with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the incurrence of such Indebtedness is permitted by "Certain
Covenants -- Limitation on Indebtedness" above and (IV) such Liens attach within
90 days of such purchase, construction, installation, repair, addition or
improvement; (j) Liens granted to secure any Permitted Indebtedness; and (k)
Liens to secure any refinancings, renewals, extensions, modifications or
replacements (collectively, "refinancing") (or successive refinancings), in
whole or in part, of any Indebtedness secured by Liens referred to in the
clauses above so long as such Lien does not extend to any other property (other
than improvements thereto).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Phase One Purchase Price" means an amount equal to FRF 196.2 million
(subject to adjustment as provided in the Stock Purchase Agreement), which is
the sum of (i) FRF 129.9 million (subject to adjustment as provided in the Stock
Purchase Agreement) attributable to the acquisition by LII Europe S.A.R.L., a
Wholly Owned Subsidiary, of 50% of the equity of ChlorAlp S.A.S., and (ii) FRF
66.3 million (subject to adjustment as provided in the Stock Purchase Agreement)
attributable to the refinancing by the Company or a consolidated Subsidiary of
the Company of certain Indebtedness owing by ChlorAlp S.A.S. to Rhone-Poulenc
Chimie S.A., which Indebtedness may be further refinanced by ChlorAlp S.A.S.,
plus up to $5 million attributable to costs and expenses incurred after the date
of the Indenture related to the RP Joint Venture incurred by the Company and its
Subsidiaries prior to the payment of the Phase One Purchase Price (including
related hedging costs).
"Phase Two Purchase Price" means an amount equal to FRF 290.0 million
attributable to the acquisition by LII Europe S.A.R.L., a Wholly Owned
Subsidiary and, at the time of payment of the Phase Two Purchase Price, the
owner of 50% of the equity of ChlorAlp S.A.S., of the remaining 50% of the
equity of ChlorAlp S.A.S., including reasonable costs and expenses related
thereto and the value of inventory then on hand.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after, or which
would accrue but for, the commencement of any Insolvency or Liquidation
Proceeding against such Person in accordance with and at the contract rate
(including, without limitation, any rate applicable upon default) specified in
the agreement or instrument creating, evidencing or governing such Indebtedness,
whether or not, pursuant to applicable law or otherwise, the claim for such
interest is allowed as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest", in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
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"Public Equity Offering" means, with respect to the Company, an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to an effective registration statement filed under the Securities Act
(excluding registration statements filed on Form S-8).
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price, or the cost of construction or improvement, of any property;
provided, however, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"RP Joint Venture" means the transactions contemplated by the RP Joint
Venture Agreements.
"RP Joint Venture Agreements" means the Stock Purchase Agreement dated as
of August 1, 1997 by and among Rhone-Poulenc Chimie S.A., LII Europe S.A.R.L.,
ChlorAlp S.A.S. and the Company and the Shareholders Agreement dated as of
August 1, 1997 by and among Rhone-Poulenc Chimie S.A., ChlorAlp S.A.S. and the
Company, together with the other contracts and agreements contemplated by said
Stock Purchase Agreement and Shareholders Agreement.
"RP Loan" means the loan made by the Company or a consolidated Subsidiary
of the Company to ChlorAlp S.A.S. as a part of the Phase One Purchase Price,
which loan shall not exceed FRF 66.3 million in original principal amount, shall
be repayable as to principal in approximately equal periodic installments over a
four-year period beginning on the date of payment of the Phase One Purchase
Price, shall be repayable at intervals not longer than three months, and shall
bear interest at a rate not higher than the greater of the prevailing rate of
interest for loans of the same type and tenor in France on the date the Phase
One Purchase Price is paid and the rate payable by the Company from time to time
on Indebtedness outstanding under the long-term facility included in the Credit
Facility.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Credit Facility; (b) all Hedging Obligations of the Company;
(c) all Obligations of the Company under stand-by letters of credit; and (d) all
other Indebtedness of the Company for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness, unless the instrument under which such Indebtedness of the Company
for money borrowed is Incurred expressly provides that such Indebtedness for
money borrowed is not senior or superior in right of payment to the Notes, and
all renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the
extent that it may constitute Indebtedness, any Obligation for Federal, state,
local or other taxes; (b) any Indebtedness among or between the Company and any
Subsidiary of the Company or any Affiliate of the Company or any of such
Affiliate's Subsidiaries; unless and for so long as such Indebtedness has been
pledged to secure obligations under or in respect of Senior Indebtedness; (c) to
the extent that it may constitute Indebtedness, any Obligation in respect of any
trade payable Incurred for the purchase of goods or materials, or for services
obtained, in the ordinary course of business; (d) that portion of any
Indebtedness that is Incurred in violation of the Indenture (provided that
Indebtedness under the Credit Facility shall be deemed not to have been incurred
in violation of the Indenture for purposes of this clause (d) if the holders of
such Indebtedness or their agent or representative shall have received a
representation from the Company to the effect that such Indebtedness does not
violate the Indenture); (e) Indebtedness evidenced by the Notes; (f)
Indebtedness of the Company that is expressly subordinate or junior in right of
payment to any other
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Indebtedness of the Company; (g) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; (h) any obligation that by operation of
law is subordinate to any general unsecured obligations of the Company; (i)
Indebtedness represented by the 13% Notes; and (j) Indebtedness of the Company
to the extent such Indebtedness is owed to and held by any Federal, state, local
or other governmental authority, other than Indebtedness relating to the plea
agreement entered into by the Company with the U.S. Department of Justice on May
9, 1997.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu in right of payment with the Notes and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable.
"Subordinated Indebtedness" means, with respect to the Company, any
Indebtedness of the Company which is expressly subordinated in right of payment
to the Notes.
"Subsidiary" means, with respect to any Person, unless such Person would
otherwise not be permitted to be consolidated with the Company in accordance
with GAAP, (a) any corporation of which the outstanding Voting Equity Interests
having at least a majority of the votes entitled to be cast in the election of
directors shall at the time be owned, directly or indirectly, through one or
more Persons by such Person, or (b) any other Person of which at least a
majority of Voting Equity Interests are at the time, directly or indirectly,
owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants -- Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all
(or, in the case of a Foreign Restricted Subsidiary, the maximum amount
permitted by law) of the outstanding capital stock of which is at the time
owned, directly or indirectly, by the Company and/or one or more other Wholly
Owned Restricted Subsidiaries.
"Wholly Owned Subsidiary" means any Subsidiary all (or, in the case of a
Foreign Restricted Subsidiary, the maximum amount permitted by law) of the
outstanding capital stock of which is at the time owned, directly or indirectly,
by the Company and/or one or more other Wholly Owned Subsidiaries.
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EXCHANGE OFFER AND REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchasers entered into the Registration Rights
Agreement concurrently with the issuance of the Old Notes. Pursuant to the
Registration Rights Agreement, the Company agreed to (i) file with the
Commission on or prior to 45 days after the date of issuance of the Old Notes
(the "Issue Date") a Registration Statement relating to a registered exchange
offer for the Old Notes under the Securities Act and (ii) use its reasonable
best efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 165 days after the Issue Date. As soon
as practicable after the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of the Old Notes who are not
prohibited by any law or policy of the Commission from participating in the
Exchange Offer the opportunity to exchange their Old Notes for an issue of a
second series of notes (the Exchange Notes), identical in all material respects
to the Old Notes (except that the Exchange Notes will not contain terms with
respect to transfer restrictions) that were registered under the Securities Act.
The Company will keep the Exchange Offer open for not less than 30 days (or
longer, if required by law) after the date notice of the Exchange Offer is
mailed to the holders of the Old Notes. If (i) applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer
as contemplated thereby or (ii) for any other reason the Exchange Offer is not
consummated within 195 days after the Issue Date or (iii) any holder either (A)
is not eligible to participate in the Exchange Offer or (B) participates in the
Exchange Offer and does not receive freely transferable Exchange Notes in
exchange for tendered Old Notes, the Company will file with the Commission a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of Transfer Restricted Securities (as defined below) by such holders who
satisfy certain conditions relating to, among other things, the provision of
information in connection with the Shelf Registration Statement. For purposes of
the foregoing, "Transfer Restricted Securities" means each Old Note until (i)
the date on which such Old Note has been exchanged for a freely transferable
Exchange Note in the Exchange Offer, (ii) the date on which such Old Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) the date on which such
Old Note is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
The Company will use its reasonable best efforts to have the Exchange Offer
Registration Statement and, if applicable, the Shelf Registration Statement
(each a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the Exchange Offer
would not be permitted by a policy of the Commission or interpretations by its
staff, the Company will commence the Exchange Offer and will use its reasonable
best efforts to consummate the Exchange Offer as promptly as practicable, but in
any event prior to 195 days after the Issue Date. If applicable, the Company
will use its reasonable best efforts to keep the Shelf Registration Statement
effective for a period of two years after the Issue Date, subject to certain
exceptions, including suspending the effectiveness thereof for certain valid
business reasons. If (i) the applicable Registration Statement is not filed with
the Commission on or prior to 45 days after the Issue Date, (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is not declared effective within 165 days after the Issue Date (or in
the case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of the Commission's staff, if
later, within 45 days after publication of the change in law or interpretation),
(iii) the Exchange Offer is not consummated on or prior to 195 days after the
Issue Date or (iv) the Shelf Registration Statement is filed and declared
effective within 165 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission's staff, if later, within 45
days after publication of the change in law or interpretation), but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the Company
will generally be obligated to pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of such Registration Default in an
amount equal to $0.192 per week per $1,000 principal amount of the Old Notes
constituting Transfer Restricted Securities held by such holder until the
applicable Registration Statement is filed or declared effective, the Exchange
Offer is consummated or the Shelf Registration Statement again becomes
effective, as the case may be; provided, however, no
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liquidated damages shall be payable for a Registration Default under clause
(iii) above if a Shelf Registration Statement covering resales of the Transfer
Restricted Securities for which the Exchange Offer was intended shall have been
declared effective. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Notes on semi-annual payment dates
which correspond to interest payment dates for the Old Notes. Following the cure
of all Registration Defaults, the accrual of liquidated damages will cease.
The Registration Rights Agreement also provides that the Company (i) shall
make available for a period of 195 days after the consummation of the Exchange
Offer a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any such Exchange Notes
and (ii) shall pay all expenses incident to the Exchange Offer (including the
expenses of one counsel to the holders of the Old Notes) and will indemnify
certain holders of the Old Notes (including any broker-dealer) against certain
liabilities, including liabilities under the Securities Act. A broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act, and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
Each holder of Old Notes that wishes to exchange such Old Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii) it
has no arrangement with any person to participate in the distribution of the
Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
If a holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If a holder is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
Holders of the Old Notes will be required to make certain representations
to the Company (as described above) in order to participate in the Exchange
Offer and will be required to deliver information to be used in connection with
the Shelf Registration Statement in order to have their Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A holder who sells Old
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Old Notes are outstanding, the Company will continue to
provide to holders of the Old Notes and to prospective purchasers of the Old
Notes the information required by paragraph (d)(4) of Rule 144A. The Company
will provide a copy of the Registration Rights Agreement to prospective
purchasers of Old Notes identified to the Company by the Initial Purchasers upon
request.
The foregoing description of the Registration Rights Agreement is a summary
only, does not purport to be complete and is qualified in its entirety by
reference to all provisions of the Registration Rights Agreement.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on September 23, 1997 to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act. As a condition to the
Purchase
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Agreement, the Company and the Initial Purchasers entered into the Registration
Rights Agreement on the same date. Certain terms of the Registration Rights
Agreement are summarized as follows:
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have
been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for liquidated damages in certain
circumstances relating to the timing of the Exchange Offer, all of which rights
will terminate when the Exchange Offer is terminated. The Exchange Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $175 million aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
March 4, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
April 6, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or
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termination to the Exchange Agent or (ii) to amend the terms of the Exchange
offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on March 15, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each March 15
and September 15, commencing on March 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to validly tender Old Notes pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-entry
transfer) an Agent's Message in lieu of the Letter of Transmittal, and any other
required documents must be received by the Exchange Agent at the address set
forth under "Exchange Agent" prior to 5:00 p.m., New York time, on the
Expiration Date. In addition, prior to 5:00 p.m., New York City time, on the
Expiration Date, either (a) certificates for tendered Old Notes must be received
by the Exchange Agent at such address or (b) such Old Notes must be transferred
pursuant to the procedures for book-entry transfer described below (and a
confirmation of such tender received by the Exchange Agent, including an Agent's
Message if the tendering holder has not delivered a Letter of Transmittal). The
term "Agent's Message" means a message, transmitted by the book-entry transfer
facility, the Depository Trust Company (the "Book-Entry Transfer Facility"), to
and received by the Exchange Agent and forming a party of a book-entry
confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the tendering participant that such participant has
received and agrees to be bound by the Letter of Transmittal and that the
Company may enforce such Letter of Transmittal against such participant.
By executing the Letter of Transmittal (or transmitting an Agent's Message
in lieu thereof), each holder will make to the Company the representations set
forth above in the third paragraph under the heading "-- Purpose and Effect of
the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a recognized participant in the Securities
Transfer Agent of Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program (each a "Medallion
Signature Guarantor"), unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of a member firm of a registered national securities exchange, a member
of the NASD or a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by a Medallion Signature Guarantor.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or other acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company to their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, and appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu
thereof) and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agents that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
95
<PAGE> 102
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of book-entry transfer, an Agent's Message) or any
other required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer (including delivery of an Agent's Message),
prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agent's
Message), as well as the certificate(s) representing all tendered Old Notes
in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date. Upon request to the Exchange Agent,
a Notice of Guaranteed Delivery will be sent to holders who wish to tender
their Old Notes according to the guaranteed delivery procedures set forth
above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
96
<PAGE> 103
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have been withdrawn.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail or Hand By Facsimile for By Mail or Hand in New York
State Street Bank Eligible Institutions State Street Bank
and Trust Company (617) 664-5739 and Trust Company, N.A.
Corporate Trust Department 61 Broadway
Two International Place Corporate Trust Window
4th Floor Concourse Level
Boston, MA 02110 New York, NY 10006
</TABLE>
For Information Telephone:
(617) 664-5314
Attention: Sandra Szczsponik
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
97
<PAGE> 104
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying values as the Old
Notes, which is face value, less the original issue discount (net of
amortization) as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. Certain expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letter or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
As contemplated by such no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or
98
<PAGE> 105
understanding with any person to participate in the distribution of the Exchange
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the Exchange
Notes it must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale of the Exchange Notes and
cannot rely on such no-action letters. As indicated above, each Participating
Broker-Dealer that receives an Exchange Note for its own account in exchange for
Old Notes must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. For a description of the procedures for such
resales by Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. The Company recommends that each holder consult such holder's own tax
advisor as to the particular tax consequences of exchanging such holder's Old
Notes for Exchange Notes, including the applicability and effect of any state,
local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Old Notes. Rather, the Exchange Notes
received by a holder will be treated as a continuation of the Old Notes in the
hands of such holder. As a result, there should be no federal income tax
consequences to holders exchanging Old Notes for Exchange Notes pursuant to the
Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 195 days after the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
June 4, 1998 (90 days after the commencement of the Exchange Offer), all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes
99
<PAGE> 106
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that is an
"underwriter" within the meaning of the Securities Act.
For a period of 195 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Hunton & Williams, Atlanta, Georgia. C.L. Wagner, Jr., a Director
of the Company, is a partner at Hunton & Williams.
EXPERTS
The consolidated financial statements of LaRoche Industries Inc. included
herein and appearing in the LaRoche Industries Inc. Annual Report (Form 10-K) as
of February 28, 1997 and February 29, 1996 and for each of the three years in
the period ended February 28, 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included herein and
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The combined statements of assets and liabilities and direct revenues and
direct expenses of the Chlor-Alkali Business and Gas-Fired Co-Generation
operations for the year ended December 31, 1996 incorporated by reference in the
Current Report on Form 8-K dated October 17, 1997 (filed November 3, 1997) and
amendment thereto on Form 8-K/A (filed December 31, 1997) have been audited by
Coopers & Lybrand, independent auditors, as set forth in their reports thereon
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
100
<PAGE> 107
BUSINESS GLOSSARY
83% ammonium nitrate liquor -- Ammonia reacted with nitric acid forms
ammonium nitrate liquor (83% solution), which is used to make blasting products.
activated alumina chemical -- A type of specialty alumina chemical that
removes certain substances from a chemical mixture or serves to catalyze certain
reactions due to its physical and chemical characteristics. For example, Claus
catalyst is used in refineries to convert hydrogen sulfide from petrochemical
streams into sulfur which is a commercial product.
adsorbent -- A process (adsorption) by which an extremely thin layer of
molecules (for example, gases) adhere to the surface of a substance such as an
alumina chemical.
ammonia clean-out service -- Tanks and systems containing or using ammonia
become contaminated with oil or a build up of water. This clean out service
restores these systems or makes the system ready for removal.
anhydrous ammonia -- Anhydrous means without water. Ammonia in its pure
form readily absorbs water. Commercial and premium grade ammonia contain varying
minute quantities of water.
anhydrous hydrofluoric acid -- A raw material used in the manufacture of
141b and other fluorocarbons. Its elemental components are hydrogen and
fluorine.
aqua ammonia -- Ammonium hydroxide -- a mixture of anhydrous ammonia
(usually 30%) and water.
catalyst -- A chemical substance, whose physical or chemical
characteristics speed up a chemical reaction without the catalyst becoming part
of the reaction.
catalyst support -- A high strength substance on which a catalyst such as
platinum is deposited.
CFC -- See fluorocarbons.
caustic soda -- Sodium hydroxide -- a strong chemical base whose formula is
NaOH.
Claus catalyst -- An activated alumina chemical that is used to remove
sulfur from petrochemical streams.
ECU -- Electrochemical unit -- a way of measuring the production of
chlorine and caustic soda from the electrolytic conversion of common salt. One
ECU is the equivalent of a proportional amount of chlorine and caustic soda (1
to 1.12). One ECU ton equals one ton of chlorine and 1.12 tons of caustic soda.
feedstock -- A chemical substance used in the manufacture of another.
Natural gas is the feedstock of ammonia. Salt (or brine) is the feedstock for
caustic soda and chlorine. Hydrate is the feedstock for alumina chemicals.
fluid cracking (fluid catalytic cracking) -- A refinery process that
produces various hydrocarbon chemicals from petrochemical feedstocks. For
instance, it is a primary step in producing gasoline.
fluorocarbons -- Hydrocarbon chemicals that have certain properties making
them suitable for uses such as foam blowing, air conditioning and refrigeration.
Fluorocarbons include chlorofluorocarbons (CFCs), hydrochlorofluorocarbons
(HCFCs) and hydrofluorocarbons (HFCs).
HCFC -- See fluorocarbons.
HFC -- See fluorocarbons.
HDAN (high density ammonium nitrate) -- A solid, dense form of ammonium
nitrate that contains about 34% nitrogen by weight and is used primarily for
agricultural purposes.
hydrate -- Alumina trihydrate -- A form of industrial alumina chemicals
that contain water and is used in flame retardants and as a feedstock for other
industrial and specialty alumina chemicals.
101
<PAGE> 108
industrial alumina chemicals -- Alumina chemicals for basic industrial
uses, such as calcined and tabular alumina chemicals, which are used as raw
materials in refractories and ceramics.
leaching -- The process of percolating water or other liquids to dissolve
out chemical substances from solids such as soils.
LDAN (low density ammonium nitrate) -- Chemically the same as high density
ammonium nitrate. A solid pelletized (prilled) form of ammonium nitrate capable
of absorbing fuels in the manufacture of blasting agents. It also is often
referred to as blasting grade ammonium nitrate.
petrochemicals -- Hydrocarbon chemicals (organic chemical compounds) made
from refinery gases, natural gas liquids or other organic sources.
polyurethane -- A hydrocarbon substance, often in plastic form, used
typically for insulation.
PVC -- Poly vinyl chloride -- A chlorine-containing petrochemical feedstock
for certain plastics.
rigid urethane foam -- A type of insulating polyurethane foam which uses a
propellant gas such as R-11 or R-141b to form insulating pockets within the
hardened foam.
tabular alumina chemical -- An alumina chemical made from ground calcined
alumina that is heated to very high temperatures and sintered to make heat
resistant ceramics.
titanium dioxide -- A compound of oxygen and titanium metal for uses such
as paint and the production of hydrogen peroxide.
UAN solution -- A liquid urea ammonium nitrate mixture in water, typically
containing 28-32% nitrogen by weight for fertilizer uses.
Urea -- A chemically combined form of ammonia and carbon dioxide which
contains 46% nitrogen by weight. Urea liquor is the liquid form of the substance
which solidifies at room temperature.
Versal(R) alumina chemicals -- A Company trade name for a type of specialty
alumina chemical made under special conditions to provide certain physical and
chemical characteristics.
102
<PAGE> 109
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LAROCHE INDUSTRIES INC.
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of February 28, 1997 and
February 29, 1996......................................... F-3
Consolidated Statements of Income for the fiscal years ended
February 28, 1997, February 29, 1996 and February 28,
1995...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
fiscal years ended February 28, 1997, February 29, 1996
and February 28, 1995..................................... F-5
Consolidated Statements of Cash Flows for the fiscal years
ended February 28, 1997, February 29, 1996 and February
28, 1995.................................................. F-6
Notes to Consolidated Financial Statements for the fiscal
years ended February 28, 1997, February 29, 1996 and
February 28, 1995......................................... F-7
Condensed Consolidated Balance Sheets as of November 30,
1997 and February 28, 1997 (unaudited).................... F-22
Condensed Consolidated Statements of Income for the three
months and nine months ended November 30, 1997 and
November 30, 1996 (unaudited)............................. F-23
Condensed Consolidated Statements of Cash Flows for the nine
months ended November 30, 1997 and November 30, 1996
(unaudited)............................................... F-24
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-25
</TABLE>
F-1
<PAGE> 110
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
LaRoche Industries Inc.
We have audited the accompanying consolidated balance sheets of LaRoche
Industries Inc. as of February 28, 1997 and February 29, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended February 28, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LaRoche
Industries Inc. at February 28, 1997 and February 29, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended February 28, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Atlanta, Georgia
April 30, 1997
F-2
<PAGE> 111
LAROCHE INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,165 $ 3,265
Receivables (Note 6):
Trade, net of allowances of $776 and $849 in 1997 and
1996, respectively.................................... 43,393 57,153
Refundable income taxes................................ 6,649 1,453
Other.................................................. 7,159 3,395
Inventories (Notes 4 and 6)............................... 39,924 46,004
Other current assets...................................... 2,513 4,878
-------- --------
Total current assets.............................. 100,803 116,148
Investments (Note 5)........................................ 17,886 17,165
Property, plant and equipment, at cost (Note 6):
Land and land improvements................................ 12,234 12,039
Buildings................................................. 19,547 12,388
Machinery and equipment................................... 220,613 195,872
Capital leases............................................ 4,902 5,226
Construction in progress.................................. 14,208 20,195
-------- --------
271,504 245,720
Less accumulated depreciation............................. (90,417) (81,108)
-------- --------
Net property, plant and equipment........................... 181,087 164,612
Other assets................................................ 12,589 8,007
-------- --------
Total assets...................................... $312,365 $305,932
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility (Note 6)........................ $ 37,605 $ 4,755
Accounts payable.......................................... 35,992 37,770
Accrued compensation...................................... 8,595 14,408
Other accrued liabilities................................. 8,944 16,481
Common stock with put rights (Note 11).................... -- 7,475
Current portion of long-term debt (Note 6)................ 2,835 5,990
-------- --------
Total current liabilities......................... 93,971 86,879
Long-term debt (Note 6)..................................... 104,441 112,940
Deferred income taxes (Note 9).............................. 22,335 15,668
Other noncurrent liabilities (Notes 7 and 8)................ 36,535 34,378
Commitments and contingencies (Note 8)
Redeemable common stock (Note 11)........................... 4,177 4,771
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......................................... 50,409 50,662
Minimum pension liability................................. (137) --
-------- --------
Total stockholders' equity........................ 50,906 51,296
-------- --------
$312,365 $305,932
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 112
LAROCHE INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................... $379,285 $448,982 $420,723
Cost of sales............................................... 313,871 350,066 329,383
-------- -------- --------
Gross profit................................................ 65,414 98,916 91,340
Selling, general and administrative expenses................ 54,777 54,631 54,135
-------- -------- --------
Income from operations...................................... 10,637 44,285 37,205
Interest and amortization of debt expense................... (14,881) (15,973) (13,083)
Income from equity investments (Note 5)..................... 4,909 2,647 2,540
Other income, net........................................... 411 1,163 1,581
-------- -------- --------
Income before income taxes, minority interests and
extraordinary charge...................................... 1,076 32,122 28,243
Provision for income taxes (Note 9)......................... (417) (13,170) (12,297)
-------- -------- --------
Income before minority interests and extraordinary
charges................................................... 659 18,952 15,946
Minority interests (Note 10)................................ -- -- (2,063)
-------- -------- --------
Income before extraordinary charges......................... 659 18,952 13,883
Extraordinary charge from debt extinguishment............... -- -- (860)
-------- -------- --------
Net income.................................................. 659 18,952 13,023
Adjustment to estimated fair value of common stock with put
rights (Note 11).......................................... -- (1,901) (1,949)
-------- -------- --------
Income attributable to non-redeemable common stockholders... $ 659 $ 17,051 $ 11,074
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 113
LAROCHE INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN
EXCESS OF MINIMUM
COMMON PAR RETAINED PENSION
STOCK VALUE EARNINGS LIABILITY TOTAL
------ ---------- -------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1994..................... $4 $630 $22,770 $ -- $23,404
Net income..................................... -- -- 13,023 -- 13,023
Adjustment to estimated fair value of common
stock with put rights....................... -- -- (1,949) -- (1,949)
-- ---- ------- ----- -------
Balance at February 28, 1995..................... 4 630 33,844 -- 34,478
Net income..................................... -- -- 18,952 -- 18,952
Dividends paid, $.50 per share................. -- -- (233) -- (233)
Adjustment to estimated fair value of common
stock with put rights....................... -- -- (1,901) -- (1,901)
-- ---- ------- ----- -------
Balance at February 29, 1996..................... 4 630 50,662 -- 51,296
Net income..................................... -- -- 659 -- 659
Dividends paid, $2.00 per share................ -- -- (912) -- (912)
Pension adjustments............................ -- -- -- (137) (137)
-- ---- ------- ----- -------
Balance at February 28, 1997..................... $4 $630 $50,409 $(137) $50,906
== ==== ======= ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 114
LAROCHE INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 659 $ 18,952 $ 13,023
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 23,061 18,996 16,360
Deferred income taxes................................. 6,667 (495) 1,358
Equity income, net of distributions................... 792 (1,315) 28
Minority interests.................................... -- -- 1,870
Net (gain) loss on disposal of assets................. (349) 3,021 112
Extraordinary charges................................. -- -- 860
Changes in operating assets and liabilities (excluding
acquisition):
Receivables........................................ 4,800 4,749 (20,429)
Inventories........................................ 5,946 17,129 (22,662)
Other assets....................................... (2,880) 1,874 2,036
Accounts payable and accrued liabilities........... (15,198) (2,288) 9,136
Noncurrent liabilities and other................... 1,834 128 3,803
-------- -------- --------
Net cash provided by operating activities............... 25,332 60,751 5,495
INVESTING ACTIVITIES
Capital expenditures.................................... (35,784) (16,894) (17,651)
Acquisition of a business............................... -- (37,504) --
Investments in joint ventures........................... (2,631) (1,451) (13,357)
Plant turnarounds....................................... (5,038) (2,672) (2,589)
Proceeds from sale of facilities........................ 3,708 6,484 1,628
-------- -------- --------
Net cash used by investing activities................... (39,745) (52,037) (31,969)
FINANCING ACTIVITIES
Net borrowings (repayments) under revolving credit
facility.............................................. 32,850 (1,350) (10,306)
Additions to long-term debt............................. -- -- 100,000
Repayments of long-term debt............................ (11,654) (11,352) (38,156)
Costs of refinancing.................................... -- -- (4,408)
Repurchase of minority interest in LaRoche Chemicals
Inc................................................... -- -- (14,490)
Sales of common stock with redemption features.......... 3,187 1,918 1,214
Purchases of common stock with redemption features...... (11,158) (332) (5,576)
Dividends paid.......................................... (912) (233) --
-------- -------- --------
Net cash provided (used) by financing activities........ 12,313 (11,349) 28,278
-------- -------- --------
Net (decrease) increase in cash......................... (2,100) (2,635) 1,804
Cash at beginning of year............................... 3,265 5,900 4,096
-------- -------- --------
Cash at end of year..................................... $ 1,165 $ 3,265 $ 5,900
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 115
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(FEBRUARY 28, 1997)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
LaRoche Industries Inc. ("LII") is engaged in the manufacture,
distribution, and sale of agricultural and industrial nitrogen products and bulk
fertilizer materials, certain specialty aluminas, and electrochemical products.
These consolidated financial statements include the accounts of LaRoche
Industries Inc. and all majority-owned subsidiaries. Investments in 50%-or-less
owned entities are accounted for by the equity method. All significant
intercompany transactions and balances have been eliminated in consolidation.
On August 17, 1994, LaRoche Holdings Inc. ("LHI") and LaRoche Chemicals
Inc. ("LCI") were merged into LaRoche Industries Inc. (collectively, the
"Company"). Prior to this date, LII was a wholly-owned subsidiary of LHI, and
LCI was a majority-owned subsidiary of LHI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. 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.
REVENUE RECOGNITION AND TRADE RECEIVABLES
The Company generally recognizes revenue upon shipment to customers. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Terms on trade receivables
are granted in accordance with industry practice. The Company serves a variety
of customers, and therefore, the Company believes that it has limited exposure
to credit loss. The carrying amount of accounts receivable approximates fair
value due to the short settlement period of these instruments.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of
approximately 20% and 37% of total inventories was determined using the last in,
first out (LIFO) method at February 28, 1997 and February 29, 1996,
respectively. Cost for all other inventories are determined on a first-in,
first-out (FIFO) or average cost basis.
TURNAROUND COSTS
Costs related to the periodic, scheduled major maintenance of continuous
process production facilities ("turnaround costs") are capitalized when incurred
and are amortized on a straight-line basis over the period until the next
scheduled related turnaround, generally ranging from one to five years.
Expenditures for routine repair and maintenance are charged to current
operating expenses.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment, including amounts under capital leases
(Note 8), are depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes. Depreciation expense aggregated approximately $16,076,000,
$14,421,000 and $13,610,000 for fiscal years ended February 28, 1997, February
29, 1996 and February 28, 1995, respectively. Costs of construction of certain
long-term assets include capitalized interest which is amortized over the
F-7
<PAGE> 116
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated useful life of the related asset. The Company capitalized interest
costs of $860,000 on eligible projects during fiscal 1997. No amounts of
interest were capitalized in fiscal years 1996 or 1995.
OTHER ASSETS
The Company amortizes its deferred debt issuance costs, goodwill,
non-compete agreements and other assets using the straight-line method over
lives ranging from two to twenty years. Accumulated amortization of other assets
aggregated $4,276,000 and $1,037,000 at February 28, 1997 and February 29, 1996,
respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with the liability
method of accounting. Accordingly, deferred tax liabilities and assets are
established based on the difference between the financial statement and income
tax bases of assets and liabilities using enacted tax rates. Deferred tax assets
are recognized to the extent that realization of the benefits therefrom are more
likely than not.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with research and development of new
technologies are charged to expense as incurred. Included in the accompanying
consolidated statements of income are approximately $3,762,000, $3,388,000 and
$3,148,000 of such costs for the years ending February 28, 1997, February 29,
1996 and February 28, 1995, respectively.
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 1997 presentation, the Company has
reflected the 1996 and 1995 amortization of turnaround costs in depreciation and
amortization on the accompanying consolidated statements of cash flows.
NEW ACCOUNTING STANDARDS
Effective March 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). The
statement standardizes the accounting for impairment of long-lived assets,
certain identifiable intangibles and goodwill. The adoption of this accounting
standard did not have a material effect on the Company's operating results or
financial condition.
In October 1996, the AICPA issued SOP 96-1, Environmental Remediation
Liabilities. The SOP provides guidance with respect to the recognition,
measurement and disclosure of environmental remediation liabilities. The Company
will adopt SOP 96-1 in the first quarter of fiscal 1998. Based on current
information, the Company believes that the adoption of this accounting standard
will not have a material impact on its operating results or financial condition.
F-8
<PAGE> 117
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
The Company considers all liquid investments with initial maturities of
three months or less to be cash equivalents. Additional cash flow and non-cash
investing and financing information follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
(in thousands):
Cash paid (received) during the year for:
Interest, net of amounts capitalized........... $15,192 $16,469 $12,607
Income taxes, net of refunds................... (809) 18,155 3,706
Non-cash investing and financing activities (in
thousands):
Capital leases for new equipment.................. 90 545 644
Contribution of assets to a joint venture at
cost........................................... -- 1,243 600
Note issued to purchase Company stock (Note 11)... -- 7,401 --
</TABLE>
3. DISPOSITIONS, ACQUISITION AND OTHER MATTERS
During fiscal 1996, the Company re-evaluated portions of its alumina
chemicals segment. In connection with the re-evaluation of its alumina chemicals
business, effective April 1, 1996, the Company sold substantially all property,
plant and equipment and certain other assets used exclusively in its calcined
and tabular alumina production businesses to C-E Baton Rouge, Inc., an
unaffiliated entity. The sale price of the assets was $3 million, plus $300,000
for raw material inventory. The Company operates the plant and equipment on
behalf of the purchaser for an annual operating fee of $500,000, subject to
reduction based on the volume of production and the production of nonconforming
product. Net sales and operating (losses) of the calcined and tabular alumina
business aggregated $3,659,000 and ($389,000) in fiscal 1997, $18,801,000 and
($4,670,000) in fiscal 1996, $20,708,000 and ($3,024,000) in fiscal 1995,
respectively. In fiscal 1996, the Company recorded equipment writedowns of
approximately $3.8 million in connection with the determination to sell or
otherwise dispose of its calcined and tabular aluminas business. In addition,
during fiscal 1996 the Company recorded inventory selling costs of $0.4 million
pursuant to an inventory consignment arrangement.
Effective September 1, 1995, the Company sold a 50% interest in certain
Versal alumina production equipment to CRILAR Alumina Company ("CRILAR") for
$5.5 million, consisting of $2.2 million in cash and $3.3 million in a note
which has been collected. The remaining 50% interest in such equipment (with a
net carrying value of approximately $1,243,000) was contributed by the Company
to CRILAR. CRILAR is equally owned by the Company and by Criterion Catalyst
Company LP, an unaffiliated entity. In connection with the sale of the 50%
interest to CRILAR, the Company recognized a gain of approximately $3.4 million.
The Company operates the facility under an agreement with CRILAR and the owners
of CRILAR purchase substantially all of the production of the facility. The
Company's net sales and operating profits prior to the transaction from the
assets associated with the CRILAR transaction were not material to the Company's
consolidated net sales or operating profits.
On December 13, 1995, the Company acquired an ammonium nitrate
manufacturing facility located near Seneca, Illinois and related assets for an
initial purchase price of approximately $37.5 million (the "Seneca
Acquisition"). The transaction was accounted for under the purchase method of
accounting; accordingly, the consolidated statements of income include the
results of operations of the Seneca plant since the acquisition date. The
Company used available cash to fund the acquisition. During fiscal 1997, the
Company recorded an
F-9
<PAGE> 118
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjustment of approximately $2,055,000 to the purchase price of the business as
a result of certain additional consideration. The total purchase price was
allocated as follows (in thousands):
<TABLE>
<S> <C>
Property, plant and equipment............................... $31,014
Inventory................................................... 2,259
Non-compete agreement, goodwill and other................... 6,286
-------
$39,559
=======
</TABLE>
Unaudited pro forma results of operations as if the Seneca Acquisition had
been consummated as of March 1, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29,
1996
---------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Net sales................................................... $473,774
Income before extraordinary charges......................... 16,827
Net income.................................................. 16,827
</TABLE>
Certain of the Company's fluorocarbon products (CFC R-11 and R-12)
previously manufactured by the electrochemical products segment (Note 12) are
subject to federal regulations which provided for the phase out of production by
January 1, 1996. These products accounted for 1%, 4% and 6% of net sales and
23%, 18% and 33% of income from operations for the fiscal years ended February
28, 1997, February 29, 1996 and February 28, 1995, respectively.
As a result of the mandated phase-out of CFC R-11 and R-12 and the
inability to remain profitable in HCFC R-22 and other packaged refrigerant
products, in fiscal 1996 the Company elected to exit the packaged fluorocarbon
business and consequently, the Company closed its packaging facility.
Accordingly, the Company recorded a writedown of the related property, plant and
equipment of approximately $1,255,000.
In July 1994 the Company purchased a 50% interest in an ammonia production
facility for $13.3 million from Cytec Industries Inc. ("Cytec"). The Company and
Cytec each contributed their 50% interest to a new partnership, Avondale
Ammonia. The ammonia production facility is operated by Cytec pursuant to a
services agreement with the partnership. Ammonia produced is transferred at
production cost to the partners relative to their respective ownership
interests. The Company is required to purchase from Cytec, at market related
prices, that amount of Cytec's 50% share of production in excess of Cytec's
internal ammonia needs up to a maximum amount.
4. INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods and in-progress.............................. $21,019 $28,339
Inventory purchased for resale.............................. 11,931 13,215
Raw materials............................................... 637 873
Supplies and catalysts...................................... 7,483 7,989
------- -------
41,070 50,416
Less LIFO reserve........................................... (1,146) (4,412)
------- -------
$39,924 $46,004
======= =======
</TABLE>
F-10
<PAGE> 119
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1997, certain inventory quantities were reduced resulting in
the liquidation of inventory quantities valued under the LIFO method. The effect
of this liquidation was to increase income from operations during the year ended
February 28, 1997 by approximately $1,086,000.
5. EQUITY INVESTMENTS
The Company participates in several investment arrangements which it
accounts for under the equity method of accounting. The primary investees
include CRILAR (50% owned), Kaiser LaRoche Hydrate Partnership ("KLHP", 45%
owned), and Avondale Ammonia (50% owned). KLHP is a partnership with Kaiser
Aluminum and Chemical Corporation ("Kaiser") to jointly distribute hydrate, a
product manufactured by Kaiser.
All income generated by the equity investees, except Avondale Ammonia, is
distributed to the partners relative to their respective partnership interests.
Avondale Ammonia does not generate income or loss because all production is
transferred to the partners at production cost.
Summarized financial information for unconsolidated entities (excluding
Avondale Ammonia) is as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Summary of operations:
Net sales......................................... $52,136 $35,674 $27,984
Gross profit...................................... 11,353 5,799 7,420
Net income........................................ 10,280 4,871 6,385
Company's equity in earnings...................... 4,909 2,647 2,540
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Summary of financial position:
Current assets.................................................. $13,854 $ 9,228
Noncurrent assets............................................... 16,532 15,891
------- -------
Total................................................... $30,386 $25,119
======= =======
Current liabilities............................................... $ 8,948 $ 5,073
======= =======
</TABLE>
Purchases from Avondale Ammonia aggregated approximately $8.8 million, $6.9
million, and $6.7 million for the years ended February 28, 1997, February 29,
1996, and February 28, 1995, respectively. Purchases from CRILAR aggregated
approximately $2.3 million and $2.8 million for the years ended February 28,
1997 and February 29, 1996, respectively. Amounts due from CRILAR amounted to
approximately $4,338,000 and $1,374,000 at February 28, 1997 and February 29,
1996, respectively.
F-11
<PAGE> 120
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. BORROWING ARRANGEMENTS
The Company's borrowings include the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility................................... $ 37,605 $ 4,755
======== ========
Term debt:
13% senior subordinated notes............................. $100,000 $100,000
Notes payable to USX Corporation.......................... 1,355 11,529
Note to former stockholder................................ 5,921 7,401
-------- --------
Total............................................. 107,276 118,930
Less current portion........................................ (2,835) (5,990)
-------- --------
Long-term debt.............................................. $104,441 $112,940
======== ========
</TABLE>
The Company's $100 million 13% senior subordinated notes are due in 2004
(the "Notes"). Semi-annual, interest only payments are due 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. At February 28, 1997, the
Company is in compliance with such covenants; however, based upon currently
available information, it is possible that in fiscal 1998 the Company will not
achieve a minimum required fixed charge coverage ratio. If the minimum ratio is
not achieved the payment of dividends, stock redemptions, the incurrence of
certain indebtedness and certain investments in less than wholly-owned
subsidiaries would be precluded.
Concurrent with the sale of the Notes, the Company prepaid all existing
term notes (except the USX Notes), plus accrued interest thereon outstanding as
of August 17, 1994, and incurred a loss on the early extinguishment of debt
amounting to $860,000 (net of income tax benefit of $561,000). Such loss is
reflected in the accompanying 1995 consolidated statement of income as an
extraordinary charge.
The USX notes bear fixed interest rates of 10% and 12% and are senior to
the Notes and are secured by the Company's Crystal City, Missouri plant. These
agreements contain restrictions relating to changes in control, entering into
certain transactions, paying dividends and have cross-default provisions with
other debt. The Company made certain prepayments of the USX Notes during fiscal
1996 and 1997 and made its final payment of $1,355,000 plus accrued interest
thereon on April 30, 1997.
In July 1995, the Company executed an unsecured promissory note in favor of
a stockholder (the former chairman and chief executive officer of the Company)
in the principal amount of $7,401,250, bearing interest equal to the prime rate,
plus 1% per annum for the purchase of common stock owned by the stockholder. The
promissory note provides for the payment of the principal balance in five equal
annual installments beginning June 30, 1996, and the payment of quarterly
installments of interest, over a five year period, beginning September 30, 1995.
At February 28, 1997, approximately $11 million of the Company's retained
earnings was available for payment of dividends or distribution under the most
restrictive provisions of the above agreements.
Annual maturities of long-term debt are as follows: $2,835,000 in 1998;
$1,480,000 in 1999; $1,480,000 in 2000; $1,480,000 in 2001; none in 2002 and
$100,000,000 thereafter.
The Company maintains a $40 million revolving 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
F-12
<PAGE> 121
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
defined. Interest is based on either the prime rate or LIBOR, plus up to 1.25%.
At February 28, 1997 and February 29, 1996, $37,605,000 and $4,755,000,
respectively, were outstanding under the revolving credit facility and at
February 28, 1997, $594,000 was available. Amounts available are net of
approximately $1,800,000 committed for letters of credit outstanding at February
28, 1997. The weighted average borrowing rates were 7.63% and 6.73% at February
28, 1997 and February 29, 1996, respectively. The agreement terminates on August
1, 1998. Under terms of the agreement, the Company pays commitments 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.
The carrying amount of the Company's variable rate debt approximates its
fair value. At February 28, 1997 and February 29, 1996, the fair values of the
Notes and the USX Notes is $113,354,000 and $121,418,000, respectively, based
primarily on market prices.
7. EMPLOYEE BENEFITS
The Company has a defined benefit pension plan covering substantially all
of its employees. Salaried participant benefits are based on years of service
and the average of the highest five years of compensation earned during a ten
year consecutive period of employment. Hourly participant benefits are based on
years of service. Pension costs are funded in amounts determined by management,
but not less than the minimum funding required by the Employee Retirement Income
Security Act of 1974 (ERISA). Salaried employees are required to contribute 1%
of their annual salaries to the plan. The assets of the plan primarily consist
of investments in insurance company general investment accounts and pooled
separate accounts invested in marketable equity securities and government and
corporate debt securities.
The following table sets forth the funded status of the plan and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of projected benefit obligation:
Accumulated benefit obligation:
Vested................................................. $25,326 $21,687
Nonvested.............................................. 1,807 2,155
------- -------
27,133 23,842
Additional amounts related to projected compensation
levels.................................................... 6,861 6,429
------- -------
Total projected benefit obligation.......................... 33,994 30,271
Plan assets at fair value................................... 24,188 19,195
------- -------
Projected benefit obligation in excess of plan assets....... 9,806 11,076
Unrecognized net loss....................................... 2,723 3,626
Unrecognized prior service cost............................. 851 787
------- -------
Pension liability recognized in balance sheets.............. $ 6,232 $ 6,663
======= =======
</TABLE>
F-13
<PAGE> 122
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension costs for the plan include the following components:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................................... $ 2,229 $ 1,814 $2,063
Interest on projected benefit obligation........ 2,240 1,987 1,783
Actual return on plan assets.................... (2,575) (2,921) (110)
Net amortization and deferral................... 1,007 1,713 (794)
------- ------- ------
Net periodic pension cost....................... $ 2,901 $ 2,593 $2,942
======= ======= ======
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% as of February 28, 1997 and February 29,
1996. The expected increase in compensation levels used in determining the
actuarial present value of the projected benefit obligation was 5.5% as of
February 28, 1997 and February 29, 1996. The expected long-term rate of return
on assets was 8.5% for each of the three years in the period ended February 28,
1997.
The Company also provides unfunded supplemental retirement benefits to
certain executives which provides for incremental pension payments so that total
pension payments equal amounts that would have been payable from the Company's
principal pension plan if it were not for limitations imposed by federal tax
regulations. The accrued liability for this plan totals $1,338,000 and
$1,265,000 at February 28, 1997 and February 29, 1996, respectively. The accrued
liability at February 28, 1997 includes an additional minimum liability of
$303,000 of which $137,000 has been charged to a separate component of
stockholders' equity. Pension expense related to the arrangement was $178,000 in
1997, $187,000 in 1996 and $175,000 in 1995, respectively.
In addition, the Company maintains defined contribution savings plans in
which substantially all salaried and hourly employees are eligible to
participate. Employee contributions to the plans are on a voluntary basis and
may range from 1/2% to 16% of the employee's compensation, as defined in the
plans. Under the plan for salaried employees, the Company matches 10% of the
employees' qualified contributions up to a defined amount, and at the discretion
of the Board of Directors, contributions may be made to the account of employees
who are employed on the last valuation date in each year in an amount which
cannot exceed 15% of the annual salaries of the employees who are eligible to
receive contributions. The Company made contributions to these plans of
approximately $79,000, $68,000 and $63,000 during fiscal 1997, 1996 and 1995,
respectively.
The Company has a salary continuation agreement with a former executive
which provides for the continuation of all of the executive's salary payable to
the executive's spouse. The Company charges to expense the expected amounts to
be paid when such payments become probable. As of February 28, 1997 and February
29, 1996, $146,000 and $585,000, respectively, was accrued in connection with
this agreement.
The Company funds healthcare and life insurance benefits for retired
employees on a pay-as-you-go basis with the retiree paying a portion of the
costs, except that individuals who were not employed by the prior owners of
certain acquired businesses pay 100% of their allocated premium. The Company's
plans cover substantially all employees of the Company and provide for life and
health coverage upon retirement.
F-14
<PAGE> 123
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary information on the Company's post retirement health and life
insurance plans follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees.................................................. $ 7,728 $ 8,130
Fully eligible active plan participants................... 5,657 6,457
Other active plan participants............................ 7,466 8,925
------- -------
Total accumulated postretirement benefit obligation......... 20,851 23,512
Unrecognized net actuarial gain............................. 6,121 2,166
Unrecognized prior service cost asset....................... 406 608
------- -------
Accrued postretirement benefit cost......................... $27,378 $26,286
======= =======
</TABLE>
The components of net periodic postretirement benefit costs follow:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................................... $ 426 $ 426 $ 529
Interest on accumulated postretirement benefit
obligation.................................... 1,707 1,758 1,677
Net amortization and deferral................... (241) (221) (69)
------ ------ ------
Net periodic postretirement benefit cost........ $1,892 $1,963 $2,137
====== ====== ======
</TABLE>
The discount rate used in determining the APBO was 7.5% as of February 28,
1997 and February 29, 1996. At February 28, 1997, the assumed healthcare cost
trend rates range from 7.60% to 8.00 in fiscal 1998, declining gradually to 6%
after 13 years and remaining at that level thereafter. At February 29, 1996, the
assumed healthcare cost trend rates range from 7.68% to 10.00% in fiscal 1997,
declining gradually to 6% after 14 years and remaining at that level thereafter.
The Company amortizes significant actuarial gains and losses over the estimated
average remaining service periods.
If the healthcare cost trend rate assumptions were increased by 1%, the
APBO at February 28, 1997 would be increased by approximately $2,554,000. The
effect of this change on the aggregate of the service and interest components of
net periodic postretirement benefit cost for fiscal 1997 would be an increase of
approximately $283,000.
8. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL AND LEGAL MATTERS
The Company is subject to numerous federal, state and local environmental
laws and regulations. The Company is currently involved in the assessment,
removal and/or mitigation of chemical substances at various sites. Environmental
expenditures which relate to an existing condition caused by past operations and
which have no significant future economic benefit to the Company are expensed.
Future environmental related expenditures cannot be reliably determined in many
circumstances due to the early stages of investigations, the uncertainty of
specific remediation methods, changing environmental laws and interpretations
and other matters. Such environmental costs are accrued at the time the
expenditure becomes probable and the costs can be reasonably estimated. Costs
are accrued based upon estimates determined by management and in some cases with
the assistance of external consultants. At sites where a range of costs to be
incurred is determined and no amount within the range is more likely than
another, the lower amount of the range is recorded. As assessments and cleanups
proceed, these accruals are reviewed periodically and adjusted, if necessary, as
F-15
<PAGE> 124
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional information becomes available. These accruals can change
substantially due to such factors as additional information on the nature or
extent of contamination, methods of remediation required, and other actions by
governmental agencies or private parties.
The Company owns a variety of sites which may or will likely require
remediation. Under the provisions of the acquisition agreements for the
businesses of LII and LCI, the former owners retained the obligations for any
potential liabilities arising from conditions or events occurring or
attributable to periods prior to the acquisition of properties acquired by the
Company pursuant to those agreements. At LCI, such items must be identified by
July 26, 1998 for the former owner to remain obligated. Management believes that
it is probable the former owners will fulfill their obligations under the
agreements.
In connection with all sites, the Company charged to expense approximately
$1.1 million and $1.4 million during fiscal year 1997 and 1995, and an
immaterial amount was charged to expense in 1996 in connection with remediation
and related activities. Other accrued liabilities includes $1.9 million and $2.3
million for the current portion of estimated clean-up expenditures and related
accruals at February 28, 1997 and February 29, 1996. The balance of spending
identifiable to future years is included in other non-current liabilities at
February 28, 1997 and February 29, 1996 and amounts to $2.6 million for each
year then ended.
While the Company believes that the recorded amounts represent the
Company's best estimate of the costs of such matters, it is reasonably possible
that additional costs may be incurred. Based on currently available information
and analysis, the Company believes that it is reasonably possible that costs
associated with these sites may exceed current accruals by amounts that may
prove insignificant or that could range, in the aggregate, up to approximately
$1.7 million. This estimate of the range of reasonably possible additional costs
is less certain than the estimates upon which accruals are based, and in order
to establish the upper limit of such range, assumptions least favorable to the
Company among the range of reasonably possible outcomes were used. In estimating
both its current accruals for environmental remediation and the possible range
of additional costs, the Company has not assumed it will bear the entire cost of
remediation of every site to the exclusion of the former owners of such sites.
The ability of the former owners to participate has been taken into account,
based generally on their financial condition and probable contribution on a per
site basis. No amounts have been recorded for potential recoveries from
insurance carriers.
In May 1997, the Company reached a plea agreement with the U.S. Department
of Justice in connection with a government investigation relating to a price
fixing conspiracy among U.S. ammonium nitrate producers during May 1992. On May
9, 1997, the Company and the federal government reached a plea agreement
pursuant to which the Company agreed to pay a fine to settle the matter for $1.5
million, plus interest from May 1997, to be paid during the succeeding four year
period. Such amount has been accrued in the Company's financial statements as of
February 28, 1997. The plea agreement is subject to final approval by a federal
court. Management believes that it is remote that the terms of the existing
agreement would change.
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. Should the Company be found to have
any liability, the amounts could be material.
F-16
<PAGE> 125
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, 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 will 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.
LEASES AND OTHER
The Company leases facilities and equipment consisting primarily of its
corporate office, electric power co-generation systems, transportation and
computer equipment. Some of the leases provide that the Company pay taxes,
maintenance, insurance and other occupancy expenses applicable to the leased
premises and certain leases provide for periodic renewals at the Company's
option.
Minimum future obligations on leases that have initial or remaining
non-cancelable lease terms in excess of one year as of February 28, 1997 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fiscal years ending February,
1998...................................................... $ 480 $ 7,769
1999...................................................... 358 6,115
2000...................................................... 212 5,601
2001...................................................... 63 4,959
2002...................................................... 3 4,562
Thereafter................................................ -- 18,588
------ -------
Total minimum lease payments................................ 1,116 $47,594
=======
Less estimated executory costs and imputed interest costs... 96
------
Present value of minimum lease payments..................... $1,020
======
</TABLE>
Total rental expense under operating leases aggregated approximately
$7,504,000, $7,519,000 and $5,893,000 during fiscal years 1997, 1996 and 1995,
respectively.
The Company enters into fixed price forward purchase contracts to establish
fixed prices for certain natural gas purchases. At February 28, 1997, the
Company has commitments outstanding under these arrangements to purchase
approximately $15,638,000 of natural gas during the subsequent year. In
addition, the Company buys call options and sells put options to effectively
establish a range of natural gas prices to hedge anticipated natural gas
purchases against rising prices. The contracts are entered into with a financial
counter-party. The Company is exposed to loss in the event of nonperformance by
the counter-party to the contracts. However, the Company does not anticipate
nonperformance by the counter party.
The following sets forth the open option positions and the fair value of
such positions as of February 28, 1997:
<TABLE>
<CAPTION>
QUANTITY FAIR VALUE CARRYING VALUE
----------- ---------- --------------
(IN MMBTUS)
<S> <C> <C> <C>
Purchased Call Options.......................... 4,575,000 $ 366,000 $ --
Written Put Options............................. 4,575,000 (154,000) --
</TABLE>
The fair values are based on quoted market prices. There were no material
open option positions as of February 29, 1996.
F-17
<PAGE> 126
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's Gramercy facility is integrated with both an alumina
production facility and a calcined coke operation, neither of which are owned by
the Company. In addition, the production equipment of some of the Company's
joint ventures are integrated with other operations of the other partners to the
ventures. As a result, the companies involved share certain common facilities
and services, including power generation. Further, the Company maintains certain
long-term supply contracts with Kaiser.
The Company's joint venture partner, Kaiser, maintains control of the
operating assets of KLHP, and another joint venture partner, Cytec, maintains
control of the operating assets of Avondale Ammonia.
9. INCOME TAXES
The provision for income taxes includes income taxes currently payable and
those deferred because of temporary differences between the financial statement
and tax bases of assets and liabilities.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................. $32,819 $30,445
Other..................................................... 8,846 4,377
------- -------
Total deferred tax liabilities.................... 41,665 34,822
Deferred tax assets:
Employee benefit obligations.............................. 15,005 14,506
AMT credit carryforward................................... 875 --
Other..................................................... 4,050 4,971
------- -------
Total deferred tax assets......................... 19,930 19,477
------- -------
Valuation allowance for deferred tax assets................. (600) (323)
------- -------
Net deferred tax liabilities................................ $22,335 $15,668
======= =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current........................................... $(5,456) $11,317 $ 9,126
Deferred.......................................... 5,432 (317) 1,133
------- ------- -------
(24) 11,000 10,259
State:
Current........................................... (794) 2,348 1,813
Deferred.......................................... 1,235 (178) 225
------- ------- -------
441 2,170 2,038
------- ------- -------
Provision for income taxes before extraordinary
charges........................................... 417 13,170 12,297
Tax benefit for extraordinary charges............... -- -- (561)
------- ------- -------
Total provision for income taxes.......... $ 417 $13,170 $11,736
======= ======= =======
</TABLE>
F-18
<PAGE> 127
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between income taxes provided and the amount computed by
applying the federal income tax rate (35%) to income before income taxes
follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed amount based on federal statutory rate...... $ 377 $11,243 $ 9,885
State income taxes, net of federal income tax
benefit............................................ 45 1,357 1,237
Increase in valuation allowance...................... 277 -- 969
Percentage depletion................................. (886) -- --
Other, principally non-deductible items.............. 604 570 206
----- ------- -------
$ 417 $13,170 $12,297
===== ======= =======
</TABLE>
10. MINORITY INTERESTS
In connection with the merger discussed in Note 1, during fiscal 1995 the
minority interests in LCI were repurchased by the Company or exchanged for
shares of the Company's stock. The Company agreed to repurchase the shares held
by former LCI institutional shareholders (the "LCI Formula Shares") for
$14,337,000 contingent upon the sale of the Notes. Such amount was $1,898,000
less than the carrying value of such shares. This excess (after consideration of
deferred taxes) was applied to reduce the carrying value of LCI property, plant
and equipment.
The following table outlines the activity in the minority interests:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
1995
---------------
(IN THOUSANDS)
<S> <C>
Balance at beginning of year................................ $ 15,432
Adjustment in value of LCI Formula Shares................... 2,063
Adjustment in value of LCI management shares................ 81
Repurchase of LCI Formula Shares............................ (14,337)
Excess of carrying value over purchase price of formula
shares.................................................... (1,898)
Repurchase of LCI shares held by LCI management............. (152)
Interest on prepayment...................................... (275)
Conversion of certain LCI shares to Company shares (Note
11)....................................................... (914)
--------
Balance at end of year...................................... $ --
========
</TABLE>
11. REDEEMABLE COMMON STOCK AND COMMON STOCK WITH PUT RIGHTS
The Company allows certain of its executive officers, management employees
and directors to own common stock. At February 28, 1997 and February 29, 1996,
13,934 and 15,433 shares were outstanding pursuant to its 1995 Stock Purchase
Plan (the "1995 Plan," successor to the 1994 Stock Purchase Plan) and the Board
of Directors Stock Purchase Plan (the "Directors Plan"). Shares were originally
issued under the 1995 Plan, among other ways, by providing bonuses to purchase
such stock and by conversion of certain previously issued LCI common stock (Note
10). Generally participants in the 1995 Plan must use 25% of any annual bonuses
to purchase stock. The 1995 Plan and the Directors Plan provide that certain
executive officers, management employees and directors of the Company will be,
at the discretion of the Board of Directors, eligible to purchase shares of the
Company's common stock at fair value (as determined by independent appraisal).
In connection with the 1995 Plan and the Directors Plan, the Company may agree
to guarantee loans used to finance the purchase of such stock. Upon termination
of employment or directorship, the shares must be sold to the Company. The
purchase price is fair value (based upon an independent
F-19
<PAGE> 128
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
appraisal). All redemption provisions of the Company's shares expire upon a
public offering of the Company's common stock. The Company has guaranteed
indebtedness of certain executive officers, management employees and directors
pursuant to the 1995 Plan and the Directors Plan aggregating $455,000 and
$1,567,000 as of February 28, 1997 and February 29, 1996, respectively.
The Company has estimated the value of such stock outstanding under the
1995 Plan and the Directors Plan and reflected the estimated full redemption
value as redeemable common stock in the accompanying consolidated balance
sheets. The final settlement prices for any shares may differ from the estimated
amounts.
The Company originally had shareholder agreements with two of the Company's
founding stockholders who were executive officers. Such holders originally held
15% (75,000 shares) of the Company's outstanding common stock. As of February
28, 1997, none (25,000 at February 29, 1996) of these shares were outstanding.
Such agreements provided the holders the option to sell their stock at any time
to the Company for at least fair market value as determined by independent
appraisal and required the Company to repurchase such stock upon the occurrence
of certain conditions, such as death or termination of employment. The Company
estimated the value of such stock and reflected the estimated full redemption
value as common stock with put rights in the accompanying 1996 consolidated
balance sheet. Changes in the value of these shares were charged directly to
retained earnings as "Adjustment to estimated fair value of common stock with
put rights." During fiscal 1995, the Company's former chairman put 25,000 of his
shares to the Company for $5,512,500. During fiscal 1996, the Company and its
former chairman mutually agreed to a repurchase of his remaining 25,000 shares
in exchange for a $7,401,250 promissory note (see Note 6). Finally, during
fiscal 1997, the holder of the remaining 25,000 shares put his shares to the
Company for $7,475,000 in cash.
The following table summarizes activity in the Company shares that have
redemption features:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------
FEBRUARY 28, 1997 FEBRUARY 29, 1996 FEBRUARY 29, 1995
----------------------- ----------------------- -----------------------
REDEEMABLE COMMON REDEEMABLE COMMON REDEEMABLE COMMON
COMMON STOCK WITH COMMON STOCK WITH COMMON STOCK WITH
STOCK PUT RIGHTS STOCK PUT RIGHTS STOCK PUT RIGHTS
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year........................ $ 4,771 $ 7,475 $2,417 $12,975 $ -- $16,538
Adjustment in value........... (98) -- 768 1,901 354 1,949
Shares issued in conversion of
LCI common stock............ -- -- -- -- 914 --
Other shares issued........... 3,187 -- 1,918 -- 1,213 --
Repurchases................... (3,683) (7,475) (332) (7,401) (64) (5,512)
------- ------- ------ ------- ------ -------
Balance at end of year........ $ 4,177 $ -- $4,771 $ 7,475 $2,417 $12,975
======= ======= ====== ======= ====== =======
</TABLE>
12. SEGMENT INFORMATION
The Company operates principally in three business segments. The
electrochemical products segment consists of caustic soda, chlorine and
fluorocarbons. (See Note 3). The nitrogen products segment consists of
facilities which manufacture and distribute agricultural and industrial nitrogen
products and distribute non-nitrogenous agricultural fertilizers. The alumina
chemicals segment consists of specialty aluminas and related products.
Intersegment sales are not material.
Operating profit includes all costs and expenses directly related to the
segment involved. The corporate portion of operating profit includes corporate
general and administrative expenses.
Assets are assigned to segments based on use. Corporate assets primarily
consist of cash and other assets.
F-20
<PAGE> 129
LAROCHE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a tabulation of business segment information for each of the
past three fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 29,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Electrochemical products.......................... $ 96,738 $138,775 $126,509
Nitrogen products................................. 242,408 248,438 234,909
Alumina chemicals................................. 40,139 61,769 59,305
-------- -------- --------
Total..................................... $379,285 $448,982 $420,723
======== ======== ========
Income (loss) from operations:
Electrochemical products.......................... $ 8,562 $ 29,624 $ 24,818
Nitrogen products................................. 11,710 20,468 13,833
Alumina chemicals................................. (3,897) (448) 2,196
Corporate expense................................. (5,738) (5,359) (3,642)
-------- -------- --------
Income from operations.............................. 10,637 44,285 37,205
Interest expense.................................... (14,881) (15,973) (13,083)
Income from equity investments...................... 4,909 2,647 2,540
Other income, net................................... 411 1,163 1,581
-------- -------- --------
Income before income taxes and other items.......... $ 1,076 $ 32,122 $ 28,243
======== ======== ========
Identifiable assets:
Electrochemical products.......................... $ 68,956 $ 79,794 $ 99,823
Nitrogen products................................. 178,179 160,346 130,130
Alumina chemicals................................. 47,627 52,291 59,003
Corporate......................................... 17,603 13,501 11,465
-------- -------- --------
Total..................................... $312,365 $305,932 $300,421
======== ======== ========
Depreciation and amortization:
Electrochemical products.......................... $ 5,665 $ 4,493 $ 4,641
Nitrogen products................................. 14,693 10,425 7,965
Alumina chemicals................................. 2,276 3,662 3,461
Corporate......................................... 427 416 293
-------- -------- --------
Total..................................... $ 23,061 $ 18,996 $ 16,360
======== ======== ========
Capital expenditures (including acquisitions and
plant turnarounds):
Electrochemical products.......................... $ 10,773 $ 6,062 $ 5,598
Nitrogen products................................. 26,922 40,866 8,871
Alumina chemicals................................. 3,127 3,652 5,771
-------- -------- --------
Total..................................... $ 40,822 $ 50,580 $ 20,240
======== ======== ========
</TABLE>
F-21
<PAGE> 130
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1997 1997
------------ ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,826 $ 1,165
Receivables:
Trade, net of allowances of $478 and $776 as of
November 30, 1997 and February 28, 1997,
respectively.......................................... 46,839 43,393
Other.................................................. 15,616 13,808
Inventories (Note 4)...................................... 32,622 39,924
Other current assets...................................... 3,223 2,513
--------- --------
Total current assets.............................. 101,126 100,803
Investments and advances to affiliates...................... 54,906 17,886
Property, plant and equipment, at cost...................... 291,314 271,504
Less accumulated depreciation............................. (101,006) (90,417)
--------- --------
Net property, plant and equipment........................... 190,308 181,087
Other assets................................................ 18,408 12,589
--------- --------
Total assets...................................... $ 364,748 $312,365
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility (Note 5)........................ $ -- $ 37,605
Accounts payable.......................................... 30,138 35,992
Accrued compensation...................................... 7,234 8,595
Other accrued liabilities................................. 6,726 8,944
Current portion of long-term debt (Note 5)................ 4,396 2,835
--------- --------
Total current liabilities......................... 48,494 93,971
Long-term debt (Note 5)..................................... 210,189 104,441
Deferred income taxes....................................... 22,717 22,335
Other noncurrent liabilities................................ 40,779 36,535
Commitments and contingencies
Redeemable common stock..................................... 3,603 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......................................... 38,469 50,409
Minimum pension liability................................. (137) (137)
--------- --------
Total stockholders' equity........................ 38,966 50,906
--------- --------
$ 364,748 $312,365
========= ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 131
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales..................................... $ 85,383 $89,796 $279,721 $291,458
Cost of sales................................. 69,781 69,091 230,042 237,524
-------- ------- -------- --------
Gross profit.................................. 15,602 20,705 49,679 53,934
Selling, general and administrative
expenses.................................... 10,825 13,428 36,738 41,816
-------- ------- -------- --------
Income from operations........................ 4,777 7,277 12,941 12,118
Interest and amortization of debt expense..... (4,489) (3,659) (12,225) (11,244)
Income from equity investments................ 112 1,408 2,216 3,636
Other income (expense), net................... (1,572) (8) (1,523) 19
-------- ------- -------- --------
Income (loss) before income taxes............. (1,172) 5,018 1,409 4,529
Benefit (provision) for income taxes.......... 469 (2,057) (564) (1,799)
-------- ------- -------- --------
Income (loss) before extraordinary charges.... (703) 2,961 845 2,730
Extraordinary charges from debt refinancing... (12,018) -- (12,018) --
-------- ------- -------- --------
Net income (loss)............................. $(12,721) $ 2,961 $(11,173) $ 2,730
======== ======= ======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 132
LAROCHE INDUSTRIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $(11,173) $ 2,730
Depreciation and amortization............................... 17,184 16,358
Net change in operating assets and liabilities.............. 4,156 7,948
Extraordinary charge........................................ 12,018 --
Equity income, net of distributions......................... 596 212
Deferred income taxes....................................... 382 --
Loss (gain) on disposition of assets and other.............. 1,679 (397)
-------- --------
Net cash provided by operating activities................... 24,842 26,851
INVESTING ACTIVITIES
Capital expenditures........................................ (23,227) (20,799)
Investments and advances in joint ventures.................. (37,097) (1,242)
Plant turnarounds........................................... (2,247) (3,816)
Proceeds from sale of assets................................ -- 4,068
-------- --------
Net cash used by investing activities....................... (62,571) (21,789)
FINANCING ACTIVITIES
Net repayments under revolving credit facility.............. (37,605) 7,440
Sale of redeemable common stock............................. 176 3,136
Purchase of redeemable common stock......................... (750) (7,516)
Additions to long-term debt................................. 209,215 --
Repayments of long-term debt................................ (101,919) (7,793)
Premium payments on the early extinguishment of debt........ (17,331) --
Costs of refinancing........................................ (11,629) --
Dividends paid.............................................. (767) (690)
-------- --------
Net cash provided (used) by financing activities............ 39,390 (5,423)
-------- --------
Net increase (decrease) in cash............................. 1,661 (361)
Cash at beginning of period................................. 1,165 3,265
-------- --------
Cash at end of period....................................... $ 2,826 $ 2,904
======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE> 133
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER 30, 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 considered
necessary for a fair presentation have been included. All significant
intercompany transactions and balances have been eliminated in consolidation.
Operating results for the three months and nine months ended November 30, 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.
ACCOUNTING POLICIES
Derivatives. The Company enters into financial instruments to reduce its
exposure to foreign currency risk from its net investment in its subsidiary in
France. The Company includes in income the gains and losses related to the
portion of these agreements which are not designated as accounting hedges based
upon the market values of the instrument. Gains and losses related to the
portion of these agreements designated as accounting hedges of the Company's
equity investment are accounted for as an offset to the translation adjustment.
2. NEW ACCOUNTING STANDARDS
In October 1996, the American Institute of Certified Public Accountants
issued 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 Company adopted SOP
96-1 effective March 1, 1997. The adoption of SOP 96-1 did not have a material
effect on the Company's operating results or financial condition.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 establishes
standards for disclosures of segment information about products and services,
geographic areas, major customers and certain interim disclosures of segment
information which are not required by accounting standards currently applied by
the Company. The Company will be required to adopt SFAS No. 131 in the first
quarter of fiscal 1999. Currently, the Company is evaluating this standard and
the
F-25
<PAGE> 134
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
timing of adoption and is uncertain as to the impact it will have on the
Company's consolidated financial statements.
3. ACQUISITIONS
On October 17, 1997, the Company, through a subsidiary, acquired a 50%
interest in ChlorAlp S.A.S. ("ChlorAlp"), a joint venture company with
Rhone-Poulenc Chimie S.A. ("RPC"), a subsidiary of Rhone-Poulenc, S.A., for
approximately $37.7 million. ChlorAlp is a joint venture that owns and operates,
among other things, a chlorine, caustic soda and bleach manufacturing and
distribution facility in Pont-de-Claix, France. In connection with such
transactions, the Company, through a subsidiary, and RPC entered into a Put and
Call agreement providing for certain rights of each party to require the other
to buy or sell its respective interest in ChlorAlp under certain circumstances.
The acquisition was accounted for as a purchase; accordingly, the third quarter
consolidated statement of income includes the Company's share of the results of
operations of the joint venture since the acquisition date using the equity
method of accounting. The Company funded the purchase with funds drawn from the
Term Loan (as defined) portion of its Credit Facility (as defined). In
connection with the ChlorAlp acquisition, the Company entered into a
cross-currency interest rate swap agreement to hedge the Company's investment
for a notional amount of 372 million French francs. The agreement provides for
quarterly interest settlements based on current market rates and matures October
2002. See Note 1 regarding accounting policies and Note 9 regarding pro forma
information.
4. INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1997 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods and in-progress.............................. $19,514 $21,019
Inventory purchased for resale.............................. 5,477 11,931
Raw materials............................................... 911 637
Supplies and catalysts...................................... 7,480 7,483
------- -------
33,382 41,070
Less LIFO reserve........................................... (760) (1,146)
------- -------
$32,622 $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.
F-26
<PAGE> 135
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. BORROWING ARRANGEMENTS
The Company's borrowings include the following:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1997 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facilities................................. $ -- $ 37,605
======== ========
Term debt:
9 1/2% senior subordinated notes.......................... $174,229 $ --
13% senior subordinated notes............................. 915 100,000
Term loan................................................. 35,000 --
Other notes payable....................................... 4,441 7,276
-------- --------
Total............................................. 214,585 107,276
Less current portion........................................ (4,396) (2,835)
-------- --------
Long term debt.............................................. $210,189 $104,441
======== ========
</TABLE>
The Company's 13% Senior Subordinated Notes due 2004 (the "13% Notes") are
unsecured obligations of the Company. In September 1997, the Company completed a
tender offer and repurchased $99.1 million of its 13% Notes. The Company
repurchased the 13% Notes out of the proceeds of the issuance of $175.0 million
principal amount of 9 1/2% Senior Subordinated Notes due 2007 (the "Notes")
issued on September 23, 1997. Semi-annual interest only payments on the Notes
are due March 15 and September 15 each year. The Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after September
15, 2002 at redemption prices set out in the Indenture governing the Notes (the
"Indenture"). The Notes are unsecured obligations of the Company and the
Indenture contains, among other things, limitations on stock redemptions,
dividends, borrowings and investments, and restricts the Company from entering
into certain transactions, all as set forth therein. Debt issuance costs are
being amortized over the life of the Notes. A portion of the remaining proceeds
of the Notes were used to repay the outstanding borrowings under the Credit
Facility (as defined) and to pay fees and expenses in connection with the Notes,
tender offer and consent solicitation. In connection with issuing the Notes and
redeeming the 13% Notes, the Company paid call and prepayment premiums and
incurred other costs of $17.3 million and expensed unamortized issuance costs
associated with the 13% Notes of $2.7 million. The total loss recognized as a
result of this early extinguishment of debt amounted to $12.0 million (net of
income tax benefit of $8.0 million) and is reflected in the Company's
consolidated statement of income as an extraordinary charge.
On August 26, 1997, the Company entered into a six year, $160.0 million
senior secured credit facility ("Credit Facility"), which provides for a $100.0
million revolving credit facility ("Revolving Credit Facility") (the commitments
under the Revolving Credit Facility were subsequently increased to $125.0
million in September 1997) and $60.0 million term loan ("Term Loan") (the
commitments under the Term Loan were subsequently reduced to $35.0 million upon
issuance of the Notes in September 1997). The Credit Facility is secured by
security interests in substantially all of the domestic assets of the Company
and each of its domestic subsidiaries. Interest is based on either the prime
rate or LIBOR, plus up to 2.00%. Availability under the Credit Facility is
subject to limitations as outlined in the agreement. At November 30, 1997, no
amounts were outstanding under the Revolving Credit Facility. On October 17,
1997, the Company borrowed $35.0 million under the Term Loan to fund the
ChlorAlp acquisition. Principal and interest payments are due quarterly in
varying amounts until October 17, 2002, as defined in the agreement. The
weighted average borrowing rate was approximately 5.70% at November 30, 1997,
including the effect of the cross-currency interest rate swap entered into in
connection with the ChlorAlp acquisition as discussed in Note 3. Under terms of
the Credit Agreement, the Company pays commitment fees, on a quarterly basis
ranging from 0.25%
F-27
<PAGE> 136
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
to 0.50% 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. At February 28, 1997, $37,605,000 was outstanding
under the previously existing $40.0 million credit facility and the weighted
average borrowing rate was 7.63% at February 28, 1997.
6. 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. In addition, the Company has been
named in a class-action petition and in one other individual suit 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.
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 adverse 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.
7. 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.
8. SUBSEQUENT EVENTS
On December 31, 1997, the Company, through a subsidiary, purchased
chlor-alkali and chlorinated methane compound manufacturing facilities (the
"Facilities") located in Hochst near Frankfurt, Germany from Celanese GmbH,
Frankfurt, a wholly-owned subsidiary of Hoechst AG. The Facilities produce
chlorine, caustic soda and chlorinated methane compounds. The Company intends to
continue to use the Facilities to manufacture such chemical products. The
Company funded the purchase with funds drawn from the Revolving Credit Facility.
F-28
<PAGE> 137
LAROCHE INDUSTRIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
9. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
acquisition of ChlorAlp (Note 3) and the issuance of the Notes (Note 5) as if
each had occurred at the beginning of the periods presented below. The unaudited
pro forma financial information is provided for informational purposes only. It
is based on historical information and does not necessarily reflect the actual
results of operations that would have occurred had such transactions actually
occurred at the beginning of such periods nor is it necessarily indicative of
future results of operations of the combined company:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
NOVEMBER 30, FEBRUARY 28,
1997 1997
------------ ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $279,721 $379,285
Income (loss) before extraordinary charge................... (4,020) (1,674)
Net income (loss)........................................... (16,038) (13,692)
</TABLE>
F-29
<PAGE> 138
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................ 1
Risk Factors....................... 12
Use of Proceeds.................... 19
Capitalization..................... 20
Selected Historical Consolidated
Financial Information............ 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 23
Business........................... 36
Management......................... 54
Security Ownership of Certain
Beneficial Owners and
Management....................... 60
Certain Relationships and Related
Transactions..................... 60
The Refinancing.................... 61
Description of the Exchange
Notes............................ 62
Exchange Offer and Registration
Rights Agreement................. 91
The Exchange Offer................. 92
Certain Federal Income Tax
Consequences..................... 99
Plan of Distribution............... 99
Legal Matters...................... 100
Experts............................ 100
Business Glossary.................. 101
Index to Financial Statements...... F-1
</TABLE>
PROSPECTUS
$175,000,000
LAROCHE INDUSTRIES INC.
OFFER TO EXCHANGE ITS 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B, FOR
ANY AND ALL OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
[LAROCHE INDUSTRIES INC. LOGO]
MARCH 6, 1998
<PAGE> 139
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the General Corporation Law of Delaware ("Delaware
Law") enables a corporation in its original certificate of incorporation or an
amendment thereto to eliminate or limit the personal liability of a director to
a corporation or its stockholders for monetary damages for violations of the
director's fiduciary duty, except (i) for any breach of a director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware Law (providing for liability
of directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction which a director derived an improper
personal benefit. The Certificate of Incorporation, as amended, of the Company,
provides for the elimination of the liability of directors to the fullest extent
permitted by Delaware Law, as the same may be amended.
Section 145 of the Delaware Law provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudications of liability but in view of all the circumstances of the case,
they are fairly and reasonably entitled to indemnity for such expenses which the
court deem proper. Any such indemnification may be made by the corporation only
as authorized in each specific case upon a determination by the stockholders or
disinterested directors that indemnification is proper because the indemnitee
has met the applicable standard of conduct. The Company's Certificate of
Incorporation, as amended, entitles directors and officers of the Company to
indemnification to the fullest extent permitted by Delaware Law.
Reference is made to the Certificate of Incorporation, as amended, of the
Company, filed as Exhibit 3.1 hereto, and the Bylaws of the Company, filed as
Exhibit 3.2 hereto.
ITEM 21. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <C> <S>
3.1 -- Certificate of Incorporation of the Company, together with
amendments thereto(1).
3.2 -- Bylaws of the Company(1).
4.1 -- Indenture, dated as of August 17, 1994, between NationsBank
of Georgia, National Association, as Trustee, and the
Company(4).
4.2 -- Form of Note (included in Exhibit 4.1)(4).
4.3 -- Indenture, dated as of September 23, 1997, by and between
the Company and State Street Bank and Trust Company, as
Trustee.
4.4 -- Form of Note (included in Exhibit 4.3).
5.1 -- Form of Opinion of Hunton & Williams.
10.1 -- Stock Purchase Agreement (and amendments thereto), dated
August 1, 1997, by and among the Company, LII Europe
S.A.R.L., Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.
10.2 -- Exchange and Registration Rights Agreement, dated September
23, 1997, by and among the Company, Chase Securities Inc.
and Donaldson, Lufkin & Jenrette.
</TABLE>
II-1
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <C> <S>
10.3 -- Purchase Agreement, dated September 18, 1997, by and among
the Company and Chase Securities Inc. and Donaldson, Lufkin
& Jenrette.
10.4 -- Shareholders Agreement (and amendment thereto), dated August
1, 1997, by and among the Company, LII Europe S.A.R.L.,
Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.
10.5 -- Put and Call Agreement (and amendment thereto), dated August
1, 1997, by and among the Company, LII Europe S.A.R.L.,
Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.
10.6++ -- Agreement for Purchase and Supply of Electricity, Steam and
Other Products, dated October 17, 1997, by and among
ChlorAlp S.A.S., CEVCO G. I.E., and Rhone-Poulenc Chimie
S.A.
10.7++ -- Supply and Purchase Agreement (Chlorine), dated October 17,
1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.8 -- Chlorine Side Letter, dated October 17, 1997, by and among
ChlorAlp S.A.S., Rhone-Poulenc Chimie and the Company.
10.9++ -- Supply and Purchase Agreement (Caustic Soda), dated October
17, 1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.10++ -- Supply and Purchase Agreement (Hydrochloric Acid), dated
October 17, 1997, by and between Rhone-Poulenc Chimie and
ChlorAlp S.A.S.
10.11++ -- Supply and Purchase Agreement (Hydrogene), dated October 17,
1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.12++ -- Supply and Purchase Agreement (Sulfuric Acid), dated October
17, 1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.13++ -- Supply and Purchase Agreement (Sodium Hypochlorite), dated
October 17, 1997, by and between Rhone-Poulenc Agro Chimie
and ChlorAlp S.A.S.
10.14++ -- Supply and Purchase Agreement (Gazeous Chlorine-Caustic
Soda), dated October 17, 1997, by and between Rhone-Poulenc
Agro Chimie and ChlorAlp S.A.S.
10.15+ -- Employment Agreement, dated as of June 1993, between LHI and
Grant O. Reed(1).
10.16 -- 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(4).
10.17 -- 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(7).
10.18 -- 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(7).
10.19 -- 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(6).
10.20 -- 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(8).
10.21 -- Credit Agreement, dated as of August 26, 1997, among the
Company, the Lenders party hereto and the Chase Manhattan
Bank, as Administrative Agent(9).
10.22 -- First Amendment to Credit Agreement, dated as of August 26,
1997, among the Company, the Lenders party hereto and the
Chase Manhattan Bank, as Administrative Agent.
10.23+ -- Consulting Agreement, dated as of June 30, 1997, between the
Company and Johnnie Lou LaRoche(9).
10.24+ -- LaRoche Chemicals Inc. 1989 Key Management Stock
Appreciation Bonus Plan(1).
10.25+ -- LaRoche Holdings Inc. Supplemental Employee Retirement
Plan(1).
</TABLE>
II-2
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <C> <S>
10.26+ -- LaRoche Executive Management Health Program(1).
10.27+ -- Management Stock Purchase Plan and forms of related
agreements with executive officers(3).
10.28+ -- LaRoche Industries Inc. 1995 Board of Directors Stock
Purchase Plan and form of agreement(5).
10.29 -- Hydrate Partnership Agreement, dated as of January 1, 1993,
between Kaiser and LCI(1).
10.30 -- 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(8).
10.31 -- Powerhouse Operating Agreement, dated as of July 26, 1988,
between Kaiser and LCI, as amended January 8, 1994(1).
10.32 -- Powerhouse Lease, dated as of July 26, 1988, between Kaiser
and LCI(1).
10.33 -- Specialty Aluminas Sales Agreement, dated as of July 26,
1988, between Kaiser and LCI(1).
10.34 -- Amendment No. 1 to Specialty Aluminas Sales Agreement, dated
as of February 1, 1993, between Kaiser and LCI(1).
10.35 -- Salt Agreement, dated as of May 3, 1957, between Texaco and
Kaiser, as amended May 15, 1968(1).
10.36 -- Supply Agreement, dated as of April 1994, between
AlliedSignal Inc. and LCI (portions redacted pursuant to a
confidentiality request)(1).
10.37 -- Joint Venture Agreement, dated as of July 26, 1994, between
Cytec Ammonia, Inc. and LaRoche Fortier Inc.(2).
12* -- Statement regarding Computation of Ratios of Earnings to
Fixed Charges.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Hunton & Williams (included in opinion at Exhibit
5.1).
23.2* -- Consent of Ernst & Young LLP.
23.3* -- Consent of Coopers & Lybrand.
24 -- Powers of Attorney of Directors and Officers of the Company
(contained in signature page).
25 -- Form T-1: Statement of Eligibility of State Street Bank and
Trust Company, as Trustee of the Exchange Notes.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Instructions to Registered Holders.
</TABLE>
- ---------------
+ Denotes a management contract or compensatory plan required to be filed
pursuant to Item 601(b)(10)(iii) of Regulation S-K.
* Filed herewith.
++ Portions of these documents have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended.
(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. 3 to Registration Statement
No. 33-79532 filed August 3, 1994 and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
No. 33-79532 filed August 9, 1994 and incorporated herein by reference.
(4) 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.
(5) 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.
II-3
<PAGE> 142
(6) 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.
(7) 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.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended May 31, 1997 and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended August 31, 1997 and incorporated herein by
reference.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to director, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction that was not
the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Atlanta, State of Georgia on March 5, 1998.
LAROCHE INDUSTRIES INC.
By: /s/ HAROLD W. INGALLS
------------------------------------
Harold W. Ingalls
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities indicated on March 5, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------------- ----------------------------------------------
<C> <S>
/s/ GRANT O. REED President, Chief Executive Officer and
- ----------------------------------------------------- Director (principal executive officer)
Grant O. Reed
/s/ HAROLD W. INGALLS Vice President and Chief Financial Officer
- ----------------------------------------------------- (principal financial and accounting officer)
Harold W. Ingalls
*/s/ W. WALTER LAROCHE, III Chairman of the Board
- -----------------------------------------------------
W. Walter LaRoche, III
*/s/ VICTORIA E. LAROCHE Vice Chairman of the Board
- -----------------------------------------------------
Victoria E. LaRoche
*/s/ JOHNNIE LOU LAROCHE Director
- -----------------------------------------------------
Johnnie Lou LaRoche
* /s/ LOUANNE C. LAROCHE Director
- -----------------------------------------------------
Louanne C. LaRoche
* /s/ GEORGE R. WISLAR Director
- -----------------------------------------------------
George R. Wislar
* /s/ ROBERT L. YOHE Director
- -----------------------------------------------------
Robert L. Yohe
* /s/ C.L. WAGNER, JR. Director
- -----------------------------------------------------
C.L. Wagner, Jr.
* /s/ PAUL L. M. BECKWITH Director
- -----------------------------------------------------
Paul L. M. Beckwith, Ph.D.
* /s/ JOHN R. HALL Director
- -----------------------------------------------------
John R. Hall
*By /s/ HAROLD W. INGALLS
------------------------------------------------
Harold W. Ingalls
as attorney-in-fact
</TABLE>
II-5
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <C> <S>
3.1 -- Certificate of Incorporation of the Company, together with
amendments thereto(1).
3.2 -- Bylaws of the Company(1).
4.1 -- Indenture, dated as of August 17, 1994, between NationsBank
of Georgia, National Association, as Trustee, and the
Company(4).
4.2 -- Form of Note (included in Exhibit 4.1)(4).
4.3 -- Indenture, dated as of September 23, 1997, by and between
the Company and State Street Bank and Trust Company, as
Trustee.
4.4 -- Form of Note (included in Exhibit 4.3).
5.1 -- Form of Opinion of Hunton & Williams.
10.1 -- Stock Purchase Agreement (and amendments thereto), dated
August 1, 1997, by and among the Company, LII Europe
S.A.R.L., Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.
10.2 -- Exchange and Registration Rights Agreement, dated September
23, 1997, by and among the Company, Chase Securities Inc.
and Donaldson, Lufkin & Jenrette.
10.3 -- Purchase Agreement, dated September 18, 1997, by and among
the Company and Chase Securities Inc. and Donaldson, Lufkin
& Jenrette.
10.4 -- Shareholders Agreement (and amendment thereto), dated August
1, 1997, by and among the Company, LII Europe S.A.R.L.,
Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.
10.5 -- Put and Call Agreement (and amendment thereto), dated August
1, 1997, by and among the Company, LII Europe S.A.R.L.,
Rhone-Poulenc Chimie S.A. and Rhone L S.A.S.
10.6++ -- Agreement for Purchase and Supply of Electricity, Steam and
Other Products, dated October 17, 1997, by and among
ChlorAlp S.A.S., CEVCO G. I.E., and Rhone-Poulenc Chimie
S.A.
10.7++ -- Supply and Purchase Agreement (Chlorine), dated October 17,
1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.8 -- Chlorine Side Letter, dated October 17, 1997, by and among
ChlorAlp S.A.S., Rhone-Poulenc Chimie and the Company.
10.9++ -- Supply and Purchase Agreement (Caustic Soda), dated October
17, 1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.10++ -- Supply and Purchase Agreement (Hydrochloric Acid), dated
October 17, 1997, by and between Rhone-Poulenc Chimie and
ChlorAlp S.A.S.
10.11++ -- Supply and Purchase Agreement (Hydrogene), dated October 17,
1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.12++ -- Supply and Purchase Agreement (Sulfuric Acid), dated October
17, 1997, by and between Rhone-Poulenc Chimie and ChlorAlp
S.A.S.
10.13++ -- Supply and Purchase Agreement (Sodium Hypochlorite), dated
October 17, 1997, by and between Rhone-Poulenc Agro Chimie
and ChlorAlp S.A.S.
10.14++ -- Supply and Purchase Agreement (Gazeous Chlorine-Caustic
Soda), dated October 17, 1997, by and between Rhone-Poulenc
Agro Chimie and ChlorAlp S.A.S.
10.15+ -- Employment Agreement, dated as of June 1993, between LHI and
Grant O. Reed(1).
10.16 -- 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(4).
10.17 -- 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(7).
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <C> <S>
10.18 -- 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(7).
10.19 -- 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(6).
10.20 -- 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(8).
10.21 -- Credit Agreement, dated as of August 26, 1997, among the
Company, the Lenders party hereto and the Chase Manhattan
Bank, as Administrative Agent(9).
10.22 -- First Amendment to Credit Agreement, dated as of August 26,
1997, among the Company, the Lenders party hereto and the
Chase Manhattan Bank, as Administrative Agent.
10.23+ -- Consulting Agreement, dated as of June 30, 1997, between the
Company and Johnnie Lou LaRoche(9).
10.24+ -- LaRoche Chemicals Inc. 1989 Key Management Stock
Appreciation Bonus Plan(1).
10.25+ -- LaRoche Holdings Inc. Supplemental Employee Retirement
Plan(1).
10.26+ -- LaRoche Executive Management Health Program(1).
10.27+ -- Management Stock Purchase Plan and forms of related
agreements with executive officers(3).
10.28+ -- LaRoche Industries Inc. 1995 Board of Directors Stock
Purchase Plan and form of agreement(5).
10.29 -- Hydrate Partnership Agreement, dated as of January 1, 1993,
between Kaiser and LCI(1).
10.30 -- 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(8).
10.31 -- Powerhouse Operating Agreement, dated as of July 26, 1988,
between Kaiser and LCI, as amended January 8, 1994(1).
10.32 -- Powerhouse Lease, dated as of July 26, 1988, between Kaiser
and LCI(1).
10.33 -- Specialty Aluminas Sales Agreement, dated as of July 26,
1988, between Kaiser and LCI(1).
10.34 -- Amendment No. 1 to Specialty Aluminas Sales Agreement, dated
as of February 1, 1993, between Kaiser and LCI(1).
10.35 -- Salt Agreement, dated as of May 3, 1957, between Texaco and
Kaiser, as amended May 15, 1968(1).
10.36 -- Supply Agreement, dated as of April 1994, between
AlliedSignal Inc. and LCI (portions redacted pursuant to a
confidentiality request)(1).
10.37 -- Joint Venture Agreement, dated as of July 26, 1994, between
Cytec Ammonia, Inc. and LaRoche Fortier Inc.(2).
12* -- Statement regarding Computation of Ratios of Earnings to
Fixed Charges.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Hunton & Williams (included in opinion at Exhibit
5.1).
23.2* -- Consent of Ernst & Young LLP.
23.3* -- Consent of Coopers & Lybrand.
24 -- Powers of Attorney of Directors and Officers of the Company
(contained in signature page).
25 -- Form T-1: Statement of Eligibility of State Street Bank and
Trust Company, as Trustee of the Exchange Notes.
99.1 -- Form of Letter of Transmittal.
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <C> <S>
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Instructions to Registered Holders.
</TABLE>
- ---------------
+ Denotes a management contract or compensatory plan required to be filed
pursuant to Item 601(b)(10)(iii) of Regulation S-K.
* Filed herewith.
++ Portions of these documents have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended.
(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. 3 to Registration Statement
No. 33-79532 filed August 3, 1994 and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 4 to Registration Statement
No. 33-79532 filed August 9, 1994 and incorporated herein by reference.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended May 31, 1997 and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended August 31, 1997 and incorporated herein by
reference.
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
------------------------------------------------------------------------ --------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, NOVEMBER 30, NOVEMBER 30,
1993 1994 1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes,
minority interests and
extraordinary charges...... $28,463 $19,655 $28,243 $32,122 $ 1,076 $ 4,529 $ 1,409
Less income from equity
investments................ (416) (3,257) (2,905) (2,647) (4,909) (3,636) (2,216)
Distributions from equity
investments................ -- 2,455 2,933 1,332 5,701 3,840 3,355
Fixed charges................ 9,337 14,021 17,751 17,853 17,992 13,409 14,985
Less accretion related to LCI
stock...................... (828) (5,729) (3,654) -- -- -- --
Less capitalized interest.... (136) (89) -- -- (860) (388) (760)
------- ------- ------- ------- ------- ------- -------
Earnings............ $28,420 $27,056 $42,368 $48,660 $19,000 $17,754 $16,773
======= ======= ======= ======= ======= ======= =======
Interest expense and other... $ 7,158 $ 7,118 $13,083 $15,973 $14,881 $11,224 $12,225
Capitalized interest......... 136 89 -- -- 860 388 760
Interest portion of rental
expense.................... 1,215 1,085 1,014 1,880 2,251 1,797 2,000
Accretion related to LCI
stock...................... 828 5,729 3,654 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Fixed charges................ $ 9,337 $14,021 $17,751 $17,853 $17,992 $13,409 $14,985
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges.................... 3.04 1.93 2.39 2.73 1.06 1.32 1.12
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 2
PROFORMA STATEMENT REGARDING COMPUTATION
OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
FEBRUARY 28, 1997 NOVEMBER 30, 1997
----------------- -----------------
<S> <C> <C>
Income before income taxes, minority interests and
extraordinary charges................................... $(2,684) $(3,023)
Less income from equity investments....................... (4,909) (2,216)
Distributions from equity investments..................... 5,701 3,355
Fixed charges............................................. 21,752 15,935
Less accretion related to LCI stock....................... -- --
Less capitalized interest................................. (860) (760)
------- -------
Earnings.......................................... $19,000 $13,291
======= =======
Interest expense and other................................ $18,641 $13,175
Capitalized interest...................................... 860 760
Interest portion of rental expense........................ 2,251 2,000
Accretion related to LCI stock............................ -- --
------- -------
Fixed charges............................................. $21,752 $15,935
======= =======
Ratio of Proforma earnings to Proforma fixed charges...... 0.87 0.83
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.2
We consent to the reference to our firm under the captions "Selected
Historical Consolidated Financial Information" and "Experts" in the Registration
Statement (Form S-4) and related Prospectus of LaRoche Industries Inc. for the
registration of $175 million of 9 1/2% Senior Subordinated Notes due 2007,
Series B, and to the inclusion herein of our report dated April 30, 1997, with
respect to the consolidated financial statements of LaRoche Industries Inc. and
to the incorporation by reference herein of our report dated April 30, 1997,
with respect to the consolidated financial statements and the financial
statement schedule of LaRoche Industries Inc. included in its Annual Report
(Form 10-K) for the year ended February 28, 1997, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 3, 1998
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement
(Form S-4) of LaRoche Industries Inc. for the registration of an exchange offer
relating to its $175 million of 9 1/2% Senior Subordinated Notes due 2007,
Series B, of our Report dated October 14, 1997 with respect to the combined
statements of assets and liabilities and direct revenues and direct expenses of
the Chlor-Alkali Business and Gas-Fired Co-Generation operations for the year
ended December 31, 1996 (exhibit 99.3) and prepared under principles described
in note 2 to the report.
Paris, France
March 3, 1998
/s/ Coopers & Lybrand
---------------------
Coopers & Lybrand
