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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-11634
TRANS-RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2729497
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization) 10019
9 West 57th Street, New York, NY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 888-3044
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
State the aggregate market value of the voting stock held
by non-affiliates of registrant.
None held by non-affiliates
Indicate the number of shares outstanding of each of registrant's classes of
common stock, as of the latest practicable date.
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Class Outstanding at March 25, 1996
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Common Stock, par value $.01 per share 3,000 shares
(Owned by TPR Investment Associates, Inc.)
</TABLE>
Documents incorporated by reference.
None
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TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I
Item 1. Business............................................................... 1
Item 2. Properties............................................................. 10
Item 3. Legal Proceedings...................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................................. 12
Item 6. Selected Financial Data................................................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 14
Item 8. Financial Statements and Supplementary Data............................ 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................. 18
PART III
Item 10. Directors and Executive Officers of the Registrant.................... 18
Item 11. Executive Compensation................................................ 20
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 22
Item 13. Certain Relationships and Related Transactions........................ 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 22
Signatures .................................................................. 23
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PART I
ITEM 1. Business
Trans-Resources, Inc., a privately owned Delaware corporation ("the
Company"), is a multinational manufacturer of specialty plant nutrients, organic
chemicals, industrial chemicals and potash and distributes its products in over
80 countries. The Company is the world's largest producer of potassium nitrate,
which is marketed principally under the brand names K-Power domestically and
Multi-K internationally (collectively, referred to as K-ower). The Company is
also the world's largest producer of propanil, a leading rice herbicide. In
addition, the Company is the largest United States producer of potash. During
1995, specialty plant nutrients, organic chemicals, industrial chemicals and
potash contributed approximately 49%, 12%, 25% and 14%, respectively, of the
Company's total revenues. The following table sets forth the primary markets and
applications for each of the Company's principal products:
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Principal Products Primary Markets Applications
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SPECIALTY PLANT NUTRIENTS
K-Power - Fresh fruits and vegetables, - Fertigation and foliar sprays
flowers, cotton and tobacco (fully soluble, readily absorbed,
Polyfeed Horticulture no harmful residues)
Multi-MAP Horticulture
Multi-MKP Horticulture
Magnisal Vegetables, citrus, tropical fruits
and flowers
Multicote - Vegetables, turf, fruit trees and - Time release of nutrients (to
potted plants optimize plant feeding and
minimize labor requirements)
ORGANIC CHEMICALS
Propanil - Rice - Broad spectrum weed control
Dichloroaniline - Organic chemical manufacturers - Intermediate propanil product
Butoxone - Peanuts - Weed control
Diuron - Food crops, alfalfa and cotton - Broad use herbicide
Pluck - Cotton, fruit and vegetables - Plant growth regulator
Custom Manufacturing - Various industrial companies - Various organic synthesis
INDUSTRIAL CHEMICALS
Technical Grade Potassium - Glass, ceramics, food, explosives, - Oxidization and ion exchange
Nitrate metal, petrochemical and heat
treatment industries
Potassium Carbonate - Glass, detergents and horticulture - Oxidization and cleansing
Phosphoric Acid - Industrial production, food and - Metal treatment, industrial
fertilizer industries cleaning and fermentation
Sodium Tripolyphosphate - Soaps and detergents - Cleansing ingredient
Monoammonium Phosphate - Chemical manufacturers - Fire extinguishing powders
Diammonium Phosphate Chemical manufacturers and fire retardant formulations
Monopotassium Phosphate - Food processing companies - Fermentation process
Sodium Acid Pyrophosphate - Food processing companies - Baking powders and potato
processing
Chlorine - Chemical companies - Water purification, production
of paper pulp and PVC pipe
Nitrogen Tetroxide - United States Government - Aerospace fuel additive
POTASH
Agricultural Grade - Corn, wheat, rice, soybeans - Fertilizer
Industrial Grade - Various industrial companies - Intermediate production of
chemicals and lubricants
</TABLE>
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Of the Company's total revenues for the year ended December 31, 1995,
approximately 35% and 38% were derived from sales in the United States and
Europe, respectively, with the remainder derived from sales in many other
countries.
On February 7, 1994, the smaller of the two potassium nitrate
production units of the Company's Israeli subsidiary, Haifa Chemicals Limited
("HCL"), was damaged by a fire, causing a temporary reduction of the Company's
potassium nitrate production capacity. The impact of the loss of the production
unit, including the effect of business interruption, was substantially covered
by insurance. The insurance proceeds for the property damage is for replacement
value, which substantially exceeded the recorded carrying value of the damaged
assets. See Note D of Notes to Consolidated Financial Statements for additional
information. The Company completed the replacement of the damaged production
unit during 1995.
Management is not aware of any independent, authoritative source of
information about sizes, growth rates or shares for the Company's markets. The
market size, market growth rate and market share estimates contained herein have
been developed by the Company from internal sources and reflect the Company's
current estimates. However, no assurance can be given regarding the accuracy of
such estimates.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries which include HCL, and HCL's wholly-owned subsidiary,
Haifa Chemicals South, Ltd., an Israeli corporation ("HCS"); Cedar Chemical
Corporation, a Delaware corporation ("Cedar"), and Cedar's wholly-owned
subsidiaries, Vicksburg Chemical Company, a Delaware corporation ("Vicksburg"),
and New Mexico Potash Corporation, a New Mexico corporation ("NMPC"); Na-Churs
Plant Food Company ("Na-Churs"), a Delaware corporation (Na-Churs was acquired
in March, 1995); and Eddy Potash, Inc., a Delaware corporation ("Eddy"). The
Company was incorporated in Delaware in 1971 under the name Trans-Pacific
Resources, Inc.
SPECIALTY PLANT NUTRIENTS
The Company is a multinational manufacturer of a range of specialty
plant nutrients, which contributed approximately $189,000,000 to the Company's
revenues for the year ended December 31, 1995, of which K-Power contributed a
substantial portion.
Products and Markets. K-Power, Polyfeed (a fully soluble plant nutrient
containing nitrogen, phosphate and potassium), Magnisal (magnesium nitrate),
Multi-MAP (monoammonium phosphate) and Multi-MKP (monopotassium phosphate) are
suitable for intensive high value crops such as fresh fruit and vegetables,
flowers, cotton and tobacco, since they are fully soluble, easily absorbed and
leave no harmful residues such as chloride, sodium or sulfate. Because of their
solubility, these products can be used with modern drip irrigation systems,
which are increasingly being employed to conserve water. The Company produces
several grades of agricultural potassium nitrate, including standard and
prilled. The Company is the world's largest producer of potassium nitrate.
Worldwide demand for potassium nitrate has been growing steadily since
potassium nitrate was introduced in the 1960s. The market for K-Power has
enjoyed steady volume growth because it increases plant yields, improves crop
quality and shortens growing cycles. As a result, potassium nitrate commands a
price premium over other potassic plant nutrients such as potassium sulfate and
sulfate of potash magnesia, used in combination with ammonium nitrate.
After a multi-year research and development effort, the Company
developed a technology for the coating of potassium nitrate and other specialty
plant nutrients which promotes the controlled release of nutrients over time.
These products increase nutrient uptake by plants while minimizing fertilizer
runoff into the soil, thus satisfying growing environmental concerns, and
reducing labor requirements. The Company is marketing these controlled release
plant nutrients products under the Multicote brand name.
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Marketing and Sales. As part of the Company's market development and
sales efforts, resident agronomists are located in the United States, Italy,
France, the United Kingdom, Greece, Mexico, South Africa, China, Japan and the
Benelux countries. The steady growth in demand for the Company's specialty plant
nutrients has been supported by agronomic activities in many countries which
have demonstrated the benefits of using K-Power. Horticultural and agricultural
growers generally require substantial testing under their own specific climatic,
soil and growing conditions before they will adopt a new plant nutrient. The
Company has developed application expertise which has produced a growing number
of applications and users.
To market its specialty plant nutrients, the Company has established a
worldwide network of agents and distributors and uses storage facilities in
certain countries to provide prompt and responsive customer service. However,
depending on the conditions prevailing in the particular market, certain large
users are serviced directly and certain products are covered by product managers
who have worldwide responsibility for such products. In order to further improve
service to its customers in Western Europe, the Company has established
subsidiaries in the United Kingdom, Belgium, Spain and Italy. The Company also
has established a subsidiary in Mexico. A French subsidiary engaged in the
fertilizer business and having its own sales and distribution network also
markets the Company's specialty plant nutrients. For United States sales, the
Company utilizes its own sales force and also works in selected areas through
brokers.
In general, in the United States, the Company sells K-Power to blenders
who produce mixed fertilizers containing potassium nitrate, which is then sold
to growers. Internationally, the Company's distributors usually sell directly to
growers.
Manufacturing. The Company believes it accounts for approximately 65%
of the world's production of potassium nitrate and its current annual potassium
nitrate production capacity is approximately 510,000 metric tons. To meet the
anticipated continued growing demand of the market, in late 1994 the Company
expanded its production capacity by constructing a new facility (the "K3 Plant")
in Israel, with capacity to produce approximately 100,000 metric tons of
potassium nitrate annually. Capacity of the K3 Plant may be expanded in
subsequent years. See "Facilities and Suppliers" below.
Competition. The Company's only significant competitor in the
production and sale of potassium nitrate is Sociedad Quimica Y Minera De Chile,
S.A., a Chilean company. The principal methods of competition are product
quality, customer service, agronomic expertise and price.
ORGANIC CHEMICALS
The Company's organic chemicals business has grown by building upon its
capabilities in specialized areas of complex organic synthesis. Its sales were
approximately $44,000,000 in 1995, with sales of propanil representing
approximately 60% thereof.
Products and Markets. The Company's organic chemicals products include
propanil (a leading rice herbicide, which Cedar markets principally under the
Cedar label and the brand names "Wham! EZ" and "Super Wham!"), dichloroanaline
("DCA," the principal raw material for the production of propanil), Butoxone (a
peanut herbicide), Diuron (a broad use herbicide used on food crops, alfalfa and
cotton) and Pluck, a cotton, fruit and vegetable growth regulator. The Company
also produces and sells "Tham" (trishydroxyaminomethane), a proprietary
buffering agent used in industrial and pharmaceutical applications. The Company
estimates that it currently produces approximately 85% of the propanil sold in
the United States. The Company has also developed several new propanil
formulations which offer various advantages
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in terms of ease of application and improved environmental impact in an effort
to expand the propanil market. The Company is currently the only producer of DCA
in North America.
Although the United States is currently the largest propanil market,
representing approximately 35% of the world market, the United States contains
only a small proportion of the world's rice acreage. Accordingly, the Company
believes there is significant potential for propanil growth internationally. The
Company has established an international market development program to introduce
propanil to additional markets around the world. As the largest propanil
producer in the world and a low cost producer, the Company believes it is
positioned to benefit from growth in the international propanil market.
The Company also produces other organic chemicals as a contract
manufacturer for various chemical companies. Through this contract
manufacturing, the Company has developed certain techniques for the synthesis of
complex organic chemicals which has been beneficial to it in both its contract
manufacturing activities as well as its own developmental efforts for
proprietary products.
Marketing and Sales. The Company produces and sells propanil under its
own brand name and supplies propanil to other agrichemical companies under
long-term supply contracts. Sales by the Company of propanil and DCA under a
long-term supply contract with a major agrichemical company represented
approximately 25% of the Company's sales of organic chemicals in 1995.
The Company sells propanil and its other organic chemical products
through its own sales force, distributors, regional dealers, cooperatives and
international brokers.
Manufacturing. The Company is a low cost producer of propanil as a
result of its 1991 acquisition, relocation and upgrading of a DCA manufacturing
plant. The Company intends to continue to expand its organic chemicals business
by developing and/or distributing new products that draw upon its skills in
organic chemical synthesis and/or its sales organization.
Competition. In the United States market, the Company competes
primarily with two other propanil suppliers, while in international markets the
Company competes with several producers. Propanil competes with several other
rice herbicides, but is currently the most commonly used rice herbicide. Diuron
and Pluck compete with other products supplied by several multi-national
companies. In contract manufacturing, the Company competes with various other
producers and the basis of competition is generally the quality and range of
production capabilities, service and price.
INDUSTRIAL CHEMICALS
The Company's industrial chemical products include technical grade
potassium nitrate, technical and food grade sodium tripolyphosphate ("STPP"),
technical and food grade phosphoric acid, technical grade monoammonium phosphate
and diammonium phosphate ("MAP" and "DAP"), technical and food grade
monopotassium phosphate ("MKP"), potassium carbonate, food grade sodium acid
pyrophosphate ("SAPP"), chlorine, nitrogen tetroxide and food grade salts.
Industrial chemicals contributed approximately $98,000,000 to the Company's
revenues for the year ended December 31, 1995.
Products and Markets. Technical grade potassium nitrate is used in the
glass industry for making fine tableware glass, TV tubes and crystal glass; in
the metal industry for heat treatment; in the ceramics industry for the glazing
process; for making explosives and for the production of heat transfer salts in
the petrochemical industry; and for solar energy systems.
Phosphoric acid is used in metal treatment, industrial cleaning
solutions, fermentation processes and for carbonated drinks in the food
industry. STPP is used primarily in the manufacturing of detergents and
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specialty cleaning compounds and in the textile and ceramic clay industry; MAP
and DAP are used for fire extinguishing powders and fire retardant functions;
MKP is used for the fermentation process; and SAPP is an ingredient in baking
powders and is used for potato processing. Chlorine is used in the pulp and
paper industry and as a swimming pool disinfectant. Nitrogen tetroxide is an
aerospace fuel additive. Food grade salts are used in food processing. Potassium
carbonate is used primarily in the glass industry.
Marketing and Sales. The Company sells its industrial chemicals through
its own sales force and brokers in the United States and internationally through
a worldwide network of agents and distributors. Nitrogen tetroxide is primarily
sold under a long-term contract to the United States Government. The Company
utilizes storage facilities in certain countries.
Production. Many of these industrial products are co-products of the
Company's potassium nitrate manufacturing process. Given its production
flexibility, the Company can vary the relative proportion of the various
phosphate chemicals (STPP, MAP, MKP, DAP and SAPP) to optimize its product mix
in light of then prevailing market conditions.
Competition. Certain of the Company's industrial chemicals products,
such as STPP and phosphoric acid, compete in large industrial chemical markets
in which the Company has a small position. Others, such as technical grade
potassium nitrate, MAP, MKP and nitrogen tetroxide have relatively significant
competitive positions in their respective niche markets. The nature of
competition for the various industrial chemicals sold by the Company varies by
product. However, in general, the principal methods of competition are product
quality, customer service and price.
POTASH
The Company is the largest United States producer of potash, producing
approximately 750,000 short tons in 1995, primarily for agricultural use as
fertilizer. During 1995, the Company's share of total potash production in the
United States was approximately 31% and its share of total North American potash
production was approximately 5%. Potash provides potassium, an essential
nutrient for a wide range of crops, including wheat, soybeans and corn. The
Company, through Eddy and NMPC, mines, refines and distributes potash from two
mines and related refineries located in New Mexico. Potash sales in 1995,
excluding intercompany sales to Vicksburg, amounted to approximately
$54,000,000.
Products and Markets. During 1995, approximately 71% of the Company's
potash production was sold as fertilizer and the balance was sold for industrial
uses or used by Vicksburg as a raw material in the production of potassium
nitrate and potassium carbonate.
Marketing and Sales. In the United States, the Company's sales force
sells potash to blenders for fertilizer material and to industrial customers.
Agricultural export sales are handled by a sales subsidiary of Potash
Corporation of Saskatchewan. During 1995, the Company sold approximately 77% of
its potash production domestically and 23% internationally.
The level of average selling prices for potash in the United States are
in part the result of the United States Government's preliminary findings in a
Canadian potash antidumping investigation and the subsequent 1987 Canadian
potash antidumping agreement. If such agreement is terminated or violated by the
Canadian producers, then depending on the actions taken by the United States
Government, the production and pricing decisions of Canadian producers, and
other market factors, it is possible that the current price levels for potash
could decline substantially, which would adversely affect the Company's results
of operations. See Item 3 - "Legal Proceedings" below.
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Production. The Company's potash is mined from approximately 90,000
acres which are under long-term lease, principally from the United States
Government and the State of New Mexico. Such leases cover estimated ore
reserves, as of December 31, 1995, of approximately 137,000,000 short tons of
recoverable ore, at thicknesses ranging from four to eight feet. At average
recovery rates these ore reserves are estimated to be sufficient to yield
approximately 18,200,000 short tons of potash concentrate with an average grade
of 60% to 62% "K2O" (a common standard of measurement established by the
industry of defining a product's potassium content in terms of equivalent
percentages of potassium oxide). As of December 31, 1995 and based on current
rates of production in 1996 (aggregating approximately 870,000 short tons
annually) and depending on market conditions and production costs, these ore
reserves are estimated to be sufficient to support the mining operations of NMPC
and Eddy for approximately 25 years and 14 years, respectively.
Competition. Potash is available from various sources, both domestic
and foreign, including very large Canadian sources of supply. As a result, the
market is highly competitive. Since potash is a commodity product, the most
significant competitive factor affecting sales is price.
FACILITIES AND SUPPLIERS
Vicksburg owns the property, plant and equipment located at its
Vicksburg, Mississippi site and Cedar owns the property, plant and equipment
located at its West Helena, Arkansas site. The Vicksburg plant consists of two
adjacent manufacturing plants situated on 600 contiguous acres. Vicksburg
recently completed the construction of a third manufacturing plant on its
property, which is being used for the production of potassium carbonate. The
West Helena plant is located on a 60 acre site. The plants are encumbered by
first mortgages and security interests securing long-term bank indebtedness.
Cedar's corporate offices are located in leased premises in Memphis, Tennessee.
The major raw materials required by Vicksburg for production of
potassium nitrate are potash supplied primarily by NMPC and nitric acid which is
produced at the Vicksburg plant. Ammonia, the principal raw material required
for production of nitric acid, is supplied by a third party in close proximity
to the Vicksburg facility. The major raw material for the production of propanil
is DCA. The principal raw material for the production of DCA is provided to the
Company under a supply contract. Such raw material is available from multiple
sources.
NMPC owns the property, plant and equipment located at its 320 acre
site near Hobbs, New Mexico. The property, plant and equipment is encumbered by
a first mortgage and security interest securing long-term Cedar bank
indebtedness.
Eddy owns the property, plant and equipment located at its 680 acre
site in Eddy County, New Mexico. The property, plant and equipment is encumbered
by a first mortgage and security interest securing certain long-term
indebtedness.
HCL owns its machinery and equipment and leases its land and buildings
from Oil Refineries Ltd. ("ORL"), a corporation which is majority-owned by the
Israeli Government. The leases expire at various dates, principally in 20 years.
Substantially all of the assets of HCL are subject to security interests in
favor of the State of Israel or banks. HCL also has a contract with ORL for
steam and processed water which expires on June 30, 1997 and a lease from ORL of
a pipeline which transports ammonia from the port in Haifa to HCL's plant. HCS
leases its land from the Israeli Government under a 49 year lease which
commenced in 1994, with the payments for such lease paid in advance and included
in the K3 Plant construction costs.
HCL recently expanded its production capacity by constructing the K3
Plant, with the capacity to produce annually approximately 100,000 metric tons
of potassium nitrate and 15,000 metric tons of phosphoric
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acid. Capacity of the K3 Plant may be expanded in subsequent years. Provided it
complies with the conditions specified in the applicable certificate of
approval, HCL will receive, with respect to taxable income derived from the K3
Plant, certain benefits accorded under Israel's Investments Law.
HCL obtains its major raw materials, potash and phosphate rock, in
Israel. HCL purchases potash solely from Dead Sea Works, Ltd. ("DSW") in
accordance with a supply contract expiring December 31, 1999. The contract
provides for prices to be established quarterly, based on the weighted average
of the FOB Israeli port prices paid to DSW by its overseas customers during the
preceding quarter plus certain adjustments thereto. HCL purchases phosphate rock
solely from Rotem Deshanim ("Rotem") (formerly known as Negev Phosphates, Ltd.)
pursuant to a supply agreement expiring on June 30, 1996. Based on a letter of
intent between Rotem and HCL, a long-term contract is being negotiated. DSW and
Rotem are companies that are majority-owned by the Israeli Government and the
sole suppliers in Israel of potash and phosphate rock, respectively. While HCL
views its current relationships with both of its principal suppliers to be good,
the loss of supply from either of these sources would have an adverse effect on
the Company.
Ammonia, which is used to produce nitric acid (which in turn is used to
produce potassium nitrate), is manufactured in Israel as well as imported. The
ammonia used by HCL is currently imported from a producer under supply
agreements expiring on December 31, 1996. HCL owns ammonia terminal facilities
located on leased property in the port of Haifa which have the capacity to store
an amount of ammonia sufficient to meet HCL's requirements.
Management believes that its facilities are in good operating condition
and adequate for its current needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations Capital Expenditures".
RESEARCH AND DEVELOPMENT
The Company has developed and patented certain manufacturing processes
and has submitted other applications for patents for additional processes. As of
December 31, 1995, the Company employed 71 research and development scientists,
engineers and technicians, who are involved in the development and evaluation of
process technologies, efficiencies and quality control. For the years ended
December 31, 1993, 1994 and 1995, the Company spent approximately $3,206,000,
$3,978,000 and $3,158,000, respectively, on these efforts, which have been
charged to current operations.
PERSONNEL AND LABOR RELATIONS
As of December 31, 1995 the Company employed approximately 1,500
people. Approximately 280 employees have advanced technical and academic
qualifications.
Except for Eddy and HCL, none of the Company's employees are
represented by any collective bargaining unit. Eddy's hourly work force is
represented by three labor unions, with its collective bargaining agreements
expiring in August 1998. Eddy has enjoyed generally good relations with its
labor unions and has not had a significant work stoppage for many years, except
for a work stoppage of approximately three weeks during 1995 related to the
negotiations of the three year contract expiring in August 1998.
Technicians and engineers of HCL are members of the Union of
Technicians and Engineers, which operates throughout Israel, and substantial
terms of their employment (e.g. salaries and promotions) are governed by a
general collective agreement which HCL does not negotiate directly with such
employees. The other employees of HCL are members of the "Histadrut", the
dominant labor union in Israel, and their terms of employment are governed by a
Specific Collective Agreement ("SCA") negotiated by HCL with the Histadrut and
the representatives of the employees. In 1994, an agreement was signed with the
technicians
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and engineers for the three year period ending December 31, 1996. In 1995, an
SCA was signed with the Histadrut and the representatives of the employees for
the two year period ending December 31, 1996.
HCL's last major labor dispute took place in July 1991 and related to
negotiations of the SCA for 1990 and 1991. As a result of this dispute, HCL's
employees went on strike for approximately four weeks during the third quarter
of 1991. Prior to that, the last major labor dispute took place in 1983, which
resulted in a strike of approximately two weeks.
ENVIRONMENTAL MATTERS
Cedar and Vicksburg
Vicksburg's plant located in Vicksburg, Mississippi and Cedar's West
Helena, Arkansas plant discharge process waste water and storm water pursuant to
permits issued in accordance with the Federal Clean Water Act and related state
statutes. Air emissions at each plant are regulated by permits issued pursuant
to the Federal Clean Air Act and related state statutes. While the plants have
generated solid waste regulated by the Federal Resource Conservation and
Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of
1984 ("RCRA") and related state statutes, the Company believes that such waste
is currently handled and disposed of in a manner which does not require the
Company to have permits under RCRA or any related state statute.
The Environmental Protection Agency's (the "EPA") Regional Office in
Atlanta notified Cedar in 1989 that unspecified corrective action will be
required to protect against the release of contaminants allegedly present at the
Vicksburg plant as a result of previous pesticide manufacturing operations. As a
result of the notice, Cedar reached agreement with the EPA and the Department of
Justice on the terms of a Consent Decree which was filed in the United States
District Court at Jackson, Mississippi in January 1992. Pursuant to the Consent
Decree, Cedar submitted a report of current conditions. Upon agency approval of
this report and of the facility investigation work plan to be thereafter
submitted for the Vicksburg plant, Vicksburg will undertake a site investigation
and corrective measures study, followed by implementation of appropriate
corrective action. Compliance with the Consent Decree is expected to occur over
a five to six year period following approval of the facility investigation work
plan.
Cedar's West Helena plant utilizes a surface impoundment for biological
treatment of non-hazardous waste streams which was the subject of an enforcement
proceeding initiated by the Arkansas Department of Pollution Control and Ecology
(the "ADPCE") in 1986. The proceeding resulted in a Consent Administrative Order
which required Cedar to carry out various studies, ultimately leading to the
implementation of a groundwater monitoring system. Based in part on the results
of groundwater monitoring and in part on the discovery of a drum burial area on
the West Helena plant site, the ADPCE requested Cedar to initiate an expanded
plant-wide investigation pursuant to a Consent Administrative Order. The Order
was entered in the third quarter of 1991. Implementation is expected to occur
over a three year period following completion and approval of the facility
investigation.
Cedar removed the buried drums from the West Helena site in accordance
with a work plan incorporated in the Consent Administrative Order and, shortly
thereafter, filed a suit against a former operator of the plant site for
contribution for the costs incurred. In October 1994, Cedar reached a settlement
pursuant to which it recovered $1,580,000 of its previously incurred drum
removal and investigative costs. The settlement also provides for binding
arbitration among Cedar and two former operators at the plant site to apportion
future investigative and remedial costs required under the Order. Cedar
recovered an additional $286,000 of investigation costs in 1995.
The Company believes that the future costs required to complete the
site investigation and corrective measures studies at Vicksburg and the
plant-wide investigation at West Helena will be between $500,000 and
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$1,000,000 and will be expended over two to three years. Interim corrective
measures may also be implemented at one or both of these locations during this
same period. As of December 31, 1994 and 1995, the Company has accrued an
aggregate of $1,250,000 for these matters. Until these investigations are
completed, it is not possible to definitively determine the costs of any final
corrective actions which will be required. Any such corrective action costs will
be expended over a period of years. There can be no assurance that such costs
will not be material.
In November 1992, Cedar entered into an agreement with the ADPCE to
resolve alleged violations of Cedar's National Pollutant Discharge Elimination
System permit (issued to its West Helena Plant in accordance with the Federal
Clean Water Act and related state statutes) by agreeing to enter into an
additional Consent Administrative Order which will require implementation of
additional corrective measures intended to assure future compliance with the
requirements of the permit and which required the payment of a penalty of
$80,000. As of December 31, 1994, Cedar had substantially completed
implementation of all measures required under this Order.
In 1987, Cedar entered into a cost sharing agreement with 55 other
companies to fund costs associated with the clean-up of an abandoned waste
disposal site located near Bayou Sorrel, Louisiana. The sharing agreement was
the basis for a consent decree to which Cedar and the other companies are
parties, settling claims brought by the EPA pursuant to the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended. The
sharing agreement allocates approximately 4% of the clean-up costs to Cedar. The
remedy selected by the EPA for this site has been successfully implemented and
the participating parties' respective shares for cost of future monitoring and
maintenance activities on the site until the year 2022 was redetermined. Cedar's
share of such future costs has been paid in full.
Eddy and NMPC
The Company's potash operations are subject to various Federal, state
and local environmental laws. The Company does not believe significant
expenditures will be required for the potash operations in the near future or
that its ongoing environmental operating costs will be material.
HCL
As a result of the production of phosphoric acid, HCL generates acid
sludge and liquid acid effluent. HCL had previously disposed of its acid sludge
in designated approved sites. In accordance with a permit issued by the Israeli
Agency for Environmental Preservation of the Ministry of Interior (the "Agency")
pursuant to the Law for the Prevention of Sea Pollution (Disposing of Wastes) of
1983 and 1984, HCL is now disposing of the acid sludge in a designated site in
the Mediterranean Sea, situated 20 nautical miles from the Israeli coast. The
permit allows for the disposal of a quantity which is sufficient to satisfy
HCL's needs. The permit is valid until March 31, 1996. The Agency has expressed
objections to extending the permit in its present form for an additional period.
The Company is in the process of negotiations with the Agency to extend the term
of the existing permit for an additional period in order to find a mutually
acceptable permanent solution to the sludge disposal.
HCL currently disposes of its liquid acid effluents in a local river
(the "River"). On December 21, 1994, Man, Nature and Law, an Israeli fellowship
for the protection of the environment, together with six fishing companies,
filed a private criminal complaint in the Magistrate's Court of Haifa against
HCL and its directors, alleging violation of specified Israeli environmental
laws as a result of HCL's dumping of chemical waste into the River without
adequate permits. The evidence hearing began in December, 1995, and will
continue in May, 1996. HCL's defense is based on certain defenses granted under
the specified environmental laws. In addition, HCL is attempting to obtain
temporary permits for its continuing disposal of liquid acid effluents in the
River until an agreed-upon permanent solution is formulated between HCL and the
Agency for the disposal of the effluents. Furthermore, HCL has applied to the
Israeli Attorney General
9
<PAGE> 12
for a suspension of the proceedings in the complaint on the grounds that the
authorities have failed in the last several years to respond to HCL's proposed
solution (described below) for the disposal of the liquid acid effluents and
therefore, under such circumstances, the continuation of the private criminal
proceedings against it is inappropriate. The Attorney General has the right
under the Israeli law to suspend a private criminal complaint. No assurance can
be given that the defense in the complaint and/or the request for suspension or
other administrative action taken by HCL will prove successful.
The alternative solution proposed by HCL was to dispose of the liquid
acid waste two and one half kilometers into Haifa Bay utilizing a marine
pipeline. This proposal was submitted for approval by the Committee for permits
under the Law for the Prevention of Pollution of the Sea From Continental
Sources 1988 ("the Committee"). In 1991 the Committee gave HCL permission to
proceed with the initial design of the marine pipeline, subject to HCL
fulfilling a number of requirements, including studies of the marine environment
in the area of the proposed pipeline and of the effect of the acid waste on the
surrounding marine environment. The HCL study was completed and submitted to the
Committee on January 20, 1995, with the finding that the proposed marine
solution contemplated by HCL would have no damaging effect on the marine
environment. The Ministry for Environmental Protection (the "Ministry")
commissioned a study of its own which was completed in February, 1996 with
certain identified contradictory conclusions, which have been responded to and
resolved by the Company.
Nevertheless, the Ministry has recently declared that HCL should pursue
a search for a land solution (rather than a marine solution) to be based on
pre-treatment of HCL liquid acid effluents. Discussions will be held between HCL
and Ministry representatives to determine whether such solution is available and
practical and to agree upon the criteria required for its implementation.
The Company estimated that HCL would have been required to invest
approximately $8,000,000 over the next two years if the proposed marine solution
was adopted and annual operating costs, after completion of the project, would
have been approximately $800,000. The Company is now in the process of studying
certain possible land pre-treatment solutions and evaluating the related
investment and operating costs required in order to adopt such a solution.
Appropriate provisions have been made in the consolidated financial
statements with respect to the above matters. See Notes A and O of Notes to
Consolidated Financial Statements.
ITEM 2. Properties.
Reference is made to "Facilities and Suppliers" in Item 1 above,
"Business," for information concerning the Company's properties. See also Note D
of Notes to Consolidated Financial Statements for additional information.
ITEM 3. Legal Proceedings.
1. Beginning in April 1993 a number of class of action lawsuits were
filed in several United States District Courts against the major Canadian and
United States potash producers, including Eddy and NMPC. The purported class
actions were filed on behalf of all direct United States purchasers of potash
from any of the named defendants or their respective affiliates, at any time
during the period from April 1987 to the present, and allege that the defendants
conspired to fix, raise, maintain and stabilize the prices of potash in the
United States purchased by the plaintiffs and the other members of the class in
violation of the United States antitrust laws. The complaints seek unspecified
treble damages, attorneys' fees and injunctive relief against the defendants.
Pursuant to an order of the Judicial Panel for Multidistrict Litigation, all of
the Federal District Court actions have been consolidated for pretrial purposes
in the United States District Court for Minnesota and captioned In Re Potash
Antitrust Litigation. Several additional and/or amended
10
<PAGE> 13
complaints were filed in the Minnesota Federal District Courts making
substantially the same allegations as the earlier complaints. These complaints
have been superseded by or deemed included in the Third Amended and Consolidated
Class Action Complaint, to which NMPC and Eddy served and filed answers denying
all the material allegations thereof on or about July 22, 1994. On or about
January 12, 1995 this Court granted plaintiffs' motion to certify the plaintiff
class. On or about December 21, 1995, the defendants filed motions for summary
judgement. Oral arguments on the motions are scheduled for April 18, 1996. The
trial is now scheduled to commence in August, 1996.
On or about May 27, 1993 a purported class action captioned Angela
Coleman v. New Mexico Potash Corp., et al. was filed against the major Canadian
and United States potash producers, including Eddy and NMPC, and unnamed
co-conspirators in the Superior Court of the State of California for the County
of Los Angeles. The Coleman action was commenced by Angela Coleman on behalf of
a class consisting of all California indirect purchasers of potash, and alleges
that the defendants conspired to fix, raise, maintain and stabilize the prices
of potash indirectly purchased by the members of the class in violation of
specified California antitrust and unfair competition statutes. The complaint in
Coleman seeks unspecified treble damages, attorneys' fees and injunctive relief
against the defendants. In addition, on or about March 29, 1994, a purported
class action captioned Neve Bros. et al. v. Potash Corporation of Saskatchewan,
et. al., was commenced in the Superior Court of the State of California for the
City and County of San Francisco against the major Canadian and United States
potash producers and unnamed co-conspirators. Eddy, NMPC, NMPC's parent, Cedar,
and Cedar's parent, Nine West Corporation, and the Company are among the named
defendants in the Neve action. The Neve action, also brought on behalf of a
class of indirect purchasers of potash in California, makes substantially the
same allegations as made in the Coleman action and seeks substantially the same
legal and equitable remedies and relief. Nine West Corporation and the Company
have been dismissed from the Neve action, in each case for lack of personal
jurisdiction. Cedar, Eddy and NMPC have served and filed answers in the Neve
action, and Eddy and NMPC have served and filed answers in the Coleman action,
in each case denying all material allegations of the respective complaint. The
Coleman action has been consolidated with the Neve action in the Superior Court
of the State of California for the City and County of San Francisco.
On or about August 2, 1994, a purported class action on behalf of
indirect purchasers of potash outside of California, David B. Gaebler v. New
Mexico Potash Corporation, et al., was commenced against the major Canadian and
United States potash producers, including Eddy and NMPC, in the Circuit Court of
Cook County, Illinois, under the Illinois consumer fraud statute. The Gaebler
action makes substantially the same allegations made in the Neve and Coleman
actions and seeks unspecified compensatory and punitive damages and an award of
attorneys' fees and costs. On or about June 22, 1995, the Court dismissed the
Gaebler action and on or about July 14, 1995 the Court denied the Gaebler motion
to amend the complaint.
The Gaebler plaintiffs have appealed the dismissal.
Management has no knowledge of any conspiracy of the type alleged in
these complaints.
On or about November 26, 1993, Eddy and NMPC (and other major United
States potash producers) were served with subpoenas issued by the United States
District Court for the Northern District of Ohio to produce documents to a grand
jury authorized by the U.S. Department of Justice Antitrust Division ("DOJ") to
investigate possible violations of the antitrust laws in connection with the
allegations made in the civil actions described above. Personnel presently or
formerly employed by the sales group for Eddy and NMPC have been subpoenaed to
testify before the grand jury, some of whom have already testified. Eddy and
NMPC are cooperating with DOJ in connection with the subpoenas.
11
<PAGE> 14
2. On October 24, 1995, several suits were filed in both the State
Court in Bogalusa, Louisiana and in the United States District Court for the
Eastern District of Louisiana, each purporting to be class actions arising out
of an explosion of a tank car at a plant of a customer of Vicksburg located in
Bogalusa, Louisiana. The tank car contained nitrogen tetroxide which had been
produced and sold by Vicksburg. More than seventy such suits were subsequently
filed. Vicksburg and/or Cedar is named a defendant in over thirty of the suits,
together with numerous other defendants. The plaintiffs seek unspecified damages
arising out of their alleged exposure to toxic fumes which were released as a
result of the explosion. The suits have been tendered to Cedar's liability
insurance carriers for defense and indemnification. On March 20, 1996, Cedar
commenced an action in the United States District Court for the Eastern District
of Louisiana against their principal insurance carriers seeking a declaratory
judgement that Cedar and Vicksburg are entitled to defense costs and
indemnification with respect to these claims under their insurance policies.
There are several other legal proceedings pending against the Company
and certain of its subsidiaries arising in the ordinary course of its business
which management does not consider material.
Management of the Company believes, based upon its assessment of the
actions and claims outstanding against the Company and certain of its
subsidiaries, and after discussion with counsel, that the eventual disposition
of the matters described or referred to above should not have a material adverse
effect on the financial position, future operations or liquidity of the Company.
However, management of the Company cannot predict with certainty the outcome of
the potash and Louisiana matters described above.
For information relating to certain environmental proceedings affecting
the Company, see "Environmental Matters" in Item 1 above, "Business."
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1995.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
All of the Company's equity securities are owned by TPR Investment
Associates, Inc. ("TPR"). See Item 12 - "Security Ownership of Certain
Beneficial Owners and Management." In addition, see Note G of Notes to
Consolidated Financial Statements for information regarding certain restrictions
on the Company's payment of dividends. During 1993, 1994 and 1995 the Company
paid or declared dividends on its Common Stock in the amounts of $7,508,000,
$4,466,000 and $856,000, respectively.
12
<PAGE> 15
ITEM 6. Selected Financial Data.
The following table presents selected consolidated financial data of
the Company for the five year period ended December 31, 1995. This data has been
derived from the consolidated financial statements of the Company and should be
read in conjunction with the notes thereto.
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993 1994 1995
------ ------ ------ ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues....................................... $309,068 $345,356 $326,315 $334,107 $385,564
Operating costs and expenses:
Cost of goods sold......................... 238,489 266,770 255,563 265,795 323,126
General and administrative................. 33,262 36,270 38,375 37,780 43,193
--------- --------- --------- -------- --------
Operating income............................... 37,317 42,316 32,377 30,532 19,245
Interest expense............................... (31,210) (27,542) (27,405) (28,369) (34,498)
Interest and other income - net (1)............ 14,159 8,476 6,014 15,056 9,128
--------- --------- --------- -------- --------
Income (loss) before income taxes,
extraordinary item and change
in accounting principle...................... 20,266 23,250 10,986 17,219 (6,125)
Income tax provision........................... 2,582 11,231 7,920 14,669 733
-------- -------- -------- -------- --------
Income (loss) before extraordinary item
and change in accounting principle........... 17,684 12,019 3,066 2,550 (6,858)
Extraordinary item - net....................... 1,186 - (8,830) - (103)
Cumulative effect on prior years of
change in accounting for income taxes........ - 1,130 - - -
----------- -------- --------- ----------- --------
Net income (loss).............................. $ 18,870 $ 13,149 $ (5,764) $ 2,550 $ (6,961)
========= ========= ========= ========= =========
Dividends:
Preferred stock................................ $ 214 $ - $ - $ - $ 851
Common stock................................... 2,850 13,136 7,508 4,466 856
</TABLE>
- ------------------
(1) Includes (a) gains of $10,000,000, $18,100,000 and $1,700,000 in the years
ended December 31, 1991, 1994 and 1995, respectively, representing the
excess of insurance proceeds over the carrying value of certain HCL
property destroyed in a fire, (b) security gains (losses) of $2,865,000,
$2,261,000, ($1,178,000) and ($413,000) in the years ended December 31,
1992, 1993, 1994 and 1995, respectively, and (c) foreign currency gains
(losses) of $4,000,000, $850,000, ($3,800,000) and $5,400,000 in the years
ended December 31, 1992, 1993, 1994 and 1995, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note K of Notes to Consolidated Financial Statements.
13
<PAGE> 16
<TABLE>
<CAPTION>
December 31,
1991 1992 1993 1994 1995
-------- -------- -------- -------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Financial Position:
Cash and cash equivalents...................... $ 39,276 $ 54,745 $ 25,742 $ 15,571 $ 32,872
Working capital................................ 130,072 107,850 103,776 66,294 82,011
Total assets................................... 381,841 341,055 365,865 550,954 467,102
Short-term debt, including current
maturities of long-term debt................. 50,105 42,666 47,282 157,986(a) 46,848
Long-term debt, excluding current
maturities and subordinated debt............. 84,132 71,318 61,328 102,059 174,506
Senior subordinated debt - net ................ 110,716 103,689 140,133 140,385 114,074
Junior subordinated debt - net................. 14,735 15,089 15,495 7,981 -
Stockholder's equity .......................... 28,772 28,882 15,794 20,550 20,675
</TABLE>
(a) Was collateralized, in part, by $100,000,000 of certificates of deposit,
which were included in "other current assets" in the accompanying December 31,
1994 Consolidated Balance Sheet. See Note G of Notes to Consolidated Financial
Statements.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
The following table sets forth as a percentage of revenues and the
percentage change of those items as compared to the prior period, certain items
appearing in the Consolidated Financial Statements.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES YEAR-TO-YEAR CHANGES
1994 1995
YEAR ENDED DECEMBER 31, VS. VS.
1993 1994 1995 1993 1994
<S> <C> <C> <C> <C> <C>
Revenues............................................... 100.0% 100.0% 100.0% 2.4% 15.4%
----- ----- -----
Cost and expenses:
Cost of goods sold................................ 78.3 79.5 83.8 4.0 21.6
General and administrative........................ 11.8 11.3 11.2 (1.6) 14.3
----- ----- -----
Operating income....................................... 9.9 9.2 5.0 (5.7) (37.0)
Interest expense.................................. (8.4) (8.5) (8.9) 3.5 21.6
Interest and other income - net .................. 1.9 4.5 2.3 150.4 (39.4)
----- ----- -----
Income (loss) before income taxes and
extraordinary item ............................... 3.4 5.2 (1.6) 56.7 (135.6)
Income tax provision................................... 2.5 4.4 .2 85.2 (95.0)
----- ----- -----
Income (loss) before extraordinary item ............... .9 .8 (1.8) (16.8) (368.9)
Extraordinary item - net............................... (2.7) - - 100.0 -
----- ----- -----
Net income (loss)...................................... (1.8)% .8% (1.8)% 144.2% (373.0)%
===== ===== =====
</TABLE>
1995 Compared with 1994
Revenues increased by 15.4% to $385,564,000 in 1995 from $334,107,000 in
1994, an increase of $51,457,000, resulting from increased sales of specialty
plant nutrients and industrial chemicals ($49,300,000) (including $12,900,000
relating to the acquisition of Na-Churs) and organic chemicals ($5,900,000),
which were partially offset by lower potash sales ($3,700,000).
14
<PAGE> 17
Cost of goods sold as a percentage of revenues increased during the period
(83.8% in 1995 compared with 79.5% in 1994), primarily due to (i) certain raw
material and utility cost increases, which were partially offset by increases in
the selling prices of the Company's products, and, to a lesser extent, (ii) the
customary costs associated with the initial run-in periods of the Company's
newly-constructed manufacturing facilities and (iii) a 1994 refund of $1,800,000
received from a utility supplier related to prior years. In addition, effective
July 1, 1994 and January 1, 1995, the Company revised the estimate of
depreciable lives of its property, plant and equipment at HCL and Eddy,
respectively, to more closely approximate the economic lives of those assets.
The effect of these changes in estimate was to decrease depreciation expense
(and cost of sales) in 1994 and 1995 by approximately $1,800,000 and $2,800,000,
respectively. As a result of the foregoing, gross profit was $62,438,000 in 1995
compared with $68,312,000 in 1994 (16.2% of revenues in 1995 compared with 20.5%
of revenues in 1994), a decrease of $5,874,000. General and administrative
expense increased to $43,193,000 in 1995 (including approximately $2,800,000
relating to Na-Churs) from $37,780,000 in 1994, but declined slightly as a
percentage of revenues (11.2% of revenues in 1995 compared with 11.3% of
revenues in 1994). Pursuant to an agreement during 1995, the Company recorded a
$750,000 reimbursement of certain general and administrative expenses incurred
in prior years on behalf of an entity in which the Company has an investment,
which is accounted for by the equity method.
As a result of the matters described above, the Company's operating income
decreased by $11,287,000 to $19,245,000 in 1995 as compared with $30,532,000 in
1994.
Interest expense increased by $6,129,000 ($34,498,000 in 1995 compared with
$28,369,000 in 1994) primarily as a result of interest on the long-term debt
that financed the construction of the K3 Plant. Interest and other income - net
decreased in 1995 by $5,928,000, principally as the result of the 1994 period
including a gain of approximately $18,100,000 relating to the February 1994 fire
at HCL as compared to a $1,700,000 gain in the 1995 period relating to such
fire, with the remainder of the decrease in the 1995 period being partially
offset primarily by (i) the net adjustments relating to the marking-to-market of
forward exchange contracts which do not qualify as hedges and (ii) interest
income related to a prior year's tax refund.
As a result of the above factors, income before income taxes and
extraordinary item decreased by $23,344,000 in 1995. The Company's provisions
for income taxes are impacted by the mix between domestic and foreign earnings
and vary from the U.S. Federal statutory rate principally due to the impact of
foreign operations and certain losses for which there is no current tax benefit.
In addition, during the 1995 period HCL recorded a tax benefit for a $1,100,000
tax refund related to prior years. See Note J of Notes to Consolidated Financial
Statements for information regarding effective tax rates.
1994 Compared with 1993
Revenues increased by 2.4% to $334,107,000 in 1994 from $326,315,000 in
1993, an increase of $7,792,000, resulting from (i) increased sales of specialty
plant nutrients and industrial chemicals ($7,300,000), primarily relating to
potassium nitrate, which includes the unfavorable effect ($9,900,000) of certain
weakened European currencies in relation to the U.S. dollar (including those
covered by forward exchange contracts) in 1994 as compared to the prior year,
and (ii) increased sales of organic chemicals ($200,000) and potash ($300,000).
Cost of goods sold as a percentage of revenues increased to 79.5% in 1994
compared with 78.3% in 1993, primarily due to the adverse effects of (i) the
above-mentioned weakened European currencies, (ii) cancellation of the program
of exchange rate insurance by the Israeli Government in August 1993 (which
contributed $1,600,000 in revenues in 1993) and (iii) lower margins realized in
the potash business, with these items being partially offset by certain cost
reductions and the receipt of a $1,800,000 refund from a utility supplier. Gross
profit was $68,312,000 in 1994 compared with $70,752,000 in 1993, a decrease of
$2,440,000, with such decrease primarily being the net result of the increase in
revenues as well as the net effect of the items described in the previous
sentence. General and administrative expense decreased slightly to $37,780,000
in 1994 from $38,375,000 in 1993 (11.3% and 11.8% of revenues in 1994 and 1993,
respectively).
15
<PAGE> 18
As a result of the matters described above, the Company's operating income
decreased by $1,845,000 to $30,532,000 in 1994 as compared with $32,377,000 in
1993.
Interest expense increased by $964,000 ($28,369,000 in 1994 compared with
$27,405,000 in 1993), primarily as a result of (i) higher interest rates in 1994
and (ii) the June 30, 1994 Loan Agreement described below (see Note G of Notes
to Consolidated Financial Statements). Interest and other income - net increased
in 1994 by $9,042,000, principally as the result of a gain relating to the
February, 1994 fire at HCL ($18,100,000), partially offset by several factors
during the 1994 period including (i) lower investment income and security gains
($4,300,000) and (ii) a provision for loss on certain foreign currency
transactions ($3,800,000) - see Notes D and K of Notes to Consolidated Financial
Statements.
As a result of the above factors, income before income taxes and
extraordinary item increased by $6,233,000 in 1994. The Company's provisions for
income taxes are impacted by the mix between domestic and foreign earnings and
vary from the U.S. Federal statutory rate principally due to the impact of
foreign operations and certain losses for which there is no current tax benefit.
See Note J of Notes to Consolidated Financial Statements for information
regarding effective tax rates.
In the 1993 period the Company acquired $65,497,000 principal amount of its
13 1/2% Senior Subordinated Debentures and $21,500,000 principal amount of its
Senior Subordinated Reset Notes, which resulted in a loss of $8,830,000. Such
loss (which has no current tax benefit) is classified as an extraordinary item
in the accompanying Consolidated Statements of Operations. No such debt was
acquired in the 1994 period. See Note G of Notes to Consolidated Financial
Statements.
CAPITAL RESOURCES AND LIQUIDITY
The Company's consolidated working capital at December 31, 1995 and
1994 was $82,011,000 and $66,294,000, respectively.
Operations for the years ended December 31, 1995 and 1994, after
adding back non-cash items, provided cash of approximately $16,100,000 and
$26,900,000, respectively. During such periods other changes in working capital
provided (used) cash of approximately ($14,300,000) and $13,000,000,
respectively, resulting in net cash being provided from operating activities and
working capital management of approximately $1,800,000 and $39,900,000,
respectively.
Investment activities during the years ended December 31, 1995 and
1994 provided (used) cash of approximately $84,800,000 and ($201,000,000),
respectively, including additions to property in 1995 and 1994 of approximately
$35,700,000 and $93,300,000, respectively, net purchases of marketable
securities and short-term investments of approximately $4,400,000 and
$134,800,000, respectively, and sales of marketable securities and other
short-term investments of approximately $132,300,000 and $33,500,000,
respectively. The 1994 property additions principally relate to (i) the
construction of the K3 Plant, (ii) the replacement of the HCL production unit
damaged in the fire in February, 1994 and (iii) the construction of a new
potassium carbonate manufacturing facility (see "Capital Expenditures" below).
The 1994 purchases and the 1995 sales of marketable securities and short-term
investments relate principally to the purchase in 1994, and the liquidation in
1995, of the pledged certificates of deposit ("CD's") relating to the Loan
Agreement described below.
Financing activities during the years ended December 31, 1995 and 1994
provided (used) cash of approximately ($69,300,000) and $150,900,000,
respectively (principally relating to the increase of certain long-term debt in
1994 and the prepayment of such debt in 1995, which is described below). During
1994 the Company entered into the Loan Agreement which resulted in new bank
loans aggregating $140,000,000 and the repayment of bank loans of approximately
$19,000,000; during 1995 a significant portion of such debt was prepaid. During
1994, the Company dividended certain short-term investments to its parent. The
carrying value of these investments on the dividend date ($4,241,000)
approximated market value.
16
<PAGE> 19
On June 30, 1994, the Company entered into the Loan Agreement with a
bank and borrowed $40,000,000 (repayable quarterly over a four year period) and
utilized a portion of the proceeds to prepay approximately $19,000,000 then owed
to such bank. Pursuant to the Loan Agreement, the Company also borrowed an
additional $100,000,000, repayable in January, 1996. Under certain specified
circumstances prior to such date, the Company could have converted such loan
into a term loan maturing five years from the date of conversion. The Company
pledged CD's with a principal amount of $100,000,000 as collateral for such loan
(such CD's were included in "other current assets" in the accompanying December
31, 1994 Consolidated Balance Sheet). In addition, the Company pledged 79% of
the capital stock of HCL to secure its obligations under the Loan Agreement. On
January 5, 1995, the Company liquidated the pledged CD's and prepaid the
$100,000,000 loan. See Notes B, E and G of Notes to Consolidated Financial
Statements.
As of December 31, 1995, the Company had outstanding long-term debt
(excluding current maturities) of $288,580,000. The Company's primary source of
liquidity is cash flow generated from operations and the unused credit lines
described in Note E of Notes to Consolidated Financial Statements.
During 1995, TPR assumed the Company's obligation for the remaining
outstanding 9.5% junior subordinated debentures and the Company's liability
thereon was extinguished. The Company recorded such assumed obligation as an
$8,177,000 capital contribution by TPR, the amount equivalent to the then net
carrying value of the 9.5% debentures. See Note G of Notes to Consolidated
Financial Statements.
Approximately 90% of HCL's sales are made outside of Israel in various
currencies, of which approximately 38% are in U.S. dollars, with the remainder
principally in Western European currencies. In order to mitigate the impact of
currency fluctuations against the U.S. dollar, the Company has a policy of
hedging a significant portion of its foreign sales denominated in Western
European currencies by entering into forward exchange contracts. A portion of
these contracts qualify as hedges pursuant to Statement of Financial Accounting
Standards No. 52 and accordingly, unrealized gains and losses arising therefrom
are deferred and accounted for in the subsequent year as part of sales.
Unrealized gains and losses for the remainder of the forward exchange contracts
are recognized in income currently. If the Company had not followed such a
policy of entering into forward exchange contracts in order to hedge its foreign
sales, and instead recognized income based on the then prevailing foreign
currency rates, the Company's income before income taxes for the years ended
December 31, 1995 and 1994 would have increased by approximately $11,200,000 in
each year.
The principal purpose of the Company's hedging program (which is for
other than trading purposes) is to mitigate the impact of fluctuations against
the U.S. dollar, as well as to protect against significant adverse changes in
exchange rates. Accordingly, the gains and losses recognized relating to the
hedging program in any particular period and the impact on revenues had the
Company not had such a program are not necessarily indicative of its
effectiveness.
CAPITAL EXPENDITURES
During 1995 (excluding the K3 Plant described below and the reconstruction
of the production unit damaged by fire in February 1994) the Company invested
approximately $19,900,000 in capital expenditures. During 1993 the Company
commenced construction of the K3 Plant. The Company has completed the
construction of the K3 Plant and the reconstruction of the damaged HCL
production unit. See Note D of Notes to Consolidated Financial Statements.
The Company currently anticipates that capital expenditures for the year
ending December 31, 1996 will aggregate approximately $20,000,000. The Company's
capital expenditures will be used primarily for increasing certain production
capacity and efficiency, product diversification and for ecological matters. The
Company expects to be able to finance its capital expenditures from internally
generated funds, borrowings from traditional lending sources and, where
applicable, Israeli Government grants and entitlements.
17
<PAGE> 20
INFLATION
Inasmuch as only approximately $45,000,000 of HCL's annual operating costs
are denominated in New Israeli Shekels ("NIS"), HCL is exposed to inflation in
Israel to a limited extent. The combination of price increases coupled with
devaluation of the NIS have in the past generally enabled HCL to avoid a
material adverse impact from inflation in Israel. However, HCL's earnings could
increase or decrease to the extent that the rate of future NIS devaluation
differs from the rate of Israeli inflation. For the years ended December 31,
1995 and 1994, the inflation rate of the NIS as compared to the U.S. Dollar
exceeded the devaluation rate in Israel by 4.2% and 13.4%, respectively.
ENVIRONMENTAL MATTERS
See Item 1 - "Business - Environmental Matters" above and Note O of Notes
to Consolidated Financial Statements for information regarding environmental
matters relating to the Company's various facilities.
ITEM 8. Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements and Schedules on page F-1.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Arie Genger................... 50 Chairman of the Board and Chief Executive Officer
Thomas G. Hardy............... 50 President and Chief Operating Officer; Director
Martin A. Coleman............. 65 Director
Sash A. Spencer............... 64 Director
Lester W. Youner.............. 50 Vice President, Treasurer and Chief Financial Officer
</TABLE>
FINANCIAL ADVISORY COMMITTEE
Lawrence M. Small
Thomas G. Hardy
Sash A. Spencer
18
<PAGE> 21
The By-laws of the Company provide for at least one director. Directors
hold office until the next annual meeting of stockholders or until their
successors are elected and qualified. There are no arrangements or
understandings between any director or executive officer of the Company and any
other person pursuant to which such person was elected as a director or
executive officer. The executive officers serve at the discretion of the Board
of Directors.
There are no family relationships among any directors or executive
officers of the Company.
The following are descriptions of the directors and executive officers
of the Company and the members of the Financial Advisory Committee. The
Financial Advisory Committee advises the Board of Directors regarding financial
matters and, when the Committee deems appropriate, make recommendations to the
Board of Directors.
Arie Genger has been a director and Chairman of the Board of Directors
and Chief Executive Officer of the Company since 1986, the sole member of the
Executive Committee since June 1988, and was President of the Company from 1986
to December 1993.
Thomas G. Hardy has been President and Chief Operating Officer of the
Company since December 1993, was Executive Vice President of the Company from
June 1987 to December 1993 and has been a director and member of the Financial
Advisory Committee since October 1992. He has been a director of Laser
Industries Limited (a manufacturer and distributor of surgical lasers and other
medical technology in which the Company has an ownership interest) since January
1990.
Martin A. Coleman has been a director since March 1993. Since January
1991 he has been a private investor. Prior to that he was a member of the law
firm of Rubin Baum Levin Constant & Friedman, general counsel to the Company,
for more than five years.
Sash A. Spencer has been a director since October 1992 and a member of
the Financial Advisory Committee since March 1993. He has been a private
investor and Chairman of Holding Capital Management Corp., a private investment
firm, for more than five years. He has been a director of Empire Energy Corp., a
corporation engaged in the propane gas business, since 1983.
Lester W. Youner has been Vice President, Treasurer and Chief Financial
Officer of the Company since October 1987. From June 1979 until October 1987 he
was a Partner of Deloitte & Touche, a public accounting firm.
Lawrence M. Small, 54, has been Chairman of the Financial Advisory
Committee of the Board of Directors since October 1992. Mr. Small is President
and Chief Operating Officer of Fannie Mae (Federal National Mortgage Association
- - the country's largest investor in home mortgages and issuer of mortgage-
backed securities) headquartered in Washington, DC, which he joined in September
1991. Prior to that, he was Vice Chairman and Chairman of the Executive
Committee of the Boards of Directors of Citicorp and Citibank, N.A., where he
was employed for 27 years. He serves as a director of Fannie Mae, The Chubb
Corporation (an insurance company) and Marriott International, Inc. (a lodging
and food service management company).
19
<PAGE> 22
ITEM 11. Executive Compensation
The following table sets forth the aggregate compensation paid or
accrued by the Company for the past three fiscal years to its Chief Executive
Officer and to other executive officers whose annual compensation exceeded
$100,000 for the year ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation (1) Compen-
Name and Principal Position Year Salary (2) Bonus sation (3)
- --------------------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Arie Genger...................................... 1995 $675,000 $ - $ 510,000
Chairman of the Board 1994 750,000 - 509,000
and Chief Executive Officer 1993 750,000 92,000 519,000
Thomas G. Hardy.................................. 1995 360,000 130,000 5,000
President and Chief Operating Officer 1994 400,000 - 1,406,000
and Director 1993 350,000 50,000 8,000
Lester W. Youner................................. 1995 241,000 65,000 5,000
Vice President, Treasurer and 1994 241,000 55,000 6,000
Chief Financial Officer 1993 226,000 70,000 8,000
</TABLE>
(1) During the period covered by the table, the Company did not make any
restricted stock awards and did not have in effect any stock option or
stock appreciation rights plan. See "Compensation Agreements" for Mr.
Hardy's bonus arrangement.
(2) Amounts shown for 1993 do not include in the case of Messrs. Genger, Hardy
and Youner $500,000, $275,000 and $20,000, respectively, of 1994 salary
which was prepaid in 1993. Amounts shown for 1994 include such
prepayments.
(3) For 1995, consists of: (i) in the case of Mr. Genger, $250,000 for an
annual premium on ordinary life insurance, $250,000 for related income tax
gross-up, $4,000 for the Company's matching contribution to a profit
sharing thrift plan, and $6,000 for the premium on term life insurance;
(ii) in the case of Messrs. Hardy and Youner, $4,000 each for the
Company's matching contribution to a profit sharing thrift plan; and (iii)
$1,000 each for Messrs. Hardy and Youner for the premium on term life
insurance.
For 1994, consists of: (i) in the case of Mr. Genger, $250,000 for an
annual premium on ordinary life insurance, $250,000 for related income tax
gross-up, $4,000 for the Company's matching contribution to a profit
sharing thrift plan, and $5,000 for the premium on term life insurance;
(ii) in the case of Messrs. Hardy and Youner, $4,000 each for the
Company's matching contribution to a profit sharing thrift plan; and (iii)
$2,000 each for Messrs. Hardy and Youner for the premium on term life
insurance. In the case of Mr. Hardy, also includes $1,400,000 deposited in
trust for Mr. Hardy. See "Compensation Agreements".
For 1993, consists of: (i) in the case of Mr. Genger, $250,000 for an
annual premium on ordinary life insurance, $258,000 for related income tax
gross-up, $6,000 for the Company's matching contribution to a profit
sharing thrift plan, and $5,000 for the premium on term life insurance;
(ii) in the case of Messrs. Hardy and Youner, $6,000 each for the
Company's matching contribution to a profit sharing thrift plan; and (iii)
$2,000 each for Messrs. Hardy and Youner for the premium on term life
insurance.
20
<PAGE> 23
COMPENSATION AGREEMENTS
Pursuant to an Agreement entered into in March 1994 (the "New Agreement"),
which modified and superseded a 1988 bonus arrangement under which no payments
had been made, the Company is required to irrevocably deposit in trust for the
benefit of Mr. Hardy an aggregate of $2,800,000, of which $1,400,000 was
deposited upon execution of the New Agreement, and the remaining $1,400,000 was
deposited in March, 1996. The deposited funds are held under a Trust Agreement
(the "Trust Agreement"), which provides that the assets held thereunder are
subject to the claims of the Company's general creditors in the event of
insolvency of the Company. The Trust Agreement provides that the assets are
payable in a lump sum to Mr. Hardy or his beneficiaries upon the earlier of
December 1, 2001 or the termination of his employment with the Company.
An employment agreement between the Company and Mr. Hardy, effective as of
June 1, 1993, having a primary term of seven years, renewable for 10 additional
years unless either party gives at least 12 months' prior written notice of
termination, provides for an annual salary of $400,000, subject to negotiated
annual increases commencing in the year 2000. With certain restrictions, Mr.
Hardy will be entitled to receive a bonus (the "Bonus") based on a percentage of
the fair market value (the "Value") of the Company's equity at December 31st of
the year Mr. Hardy's employment terminates, he turns 65 or certain acceleration
events, including a change of control of the Company, occur. If the Company and
Mr. Hardy cannot agree on the Value, each may propose an amount. If only one
makes a proposal, that would constitute the Value. If each makes a proposal, an
investment banker would choose between them. The Bonus, generally payable in
installments, would be equal to the excess over $2,800,000 (the aggregate amount
Mr. Hardy is to receive under the New Agreement) of specified percentages of
different ranges of Value. Mr. Hardy is not entitled to the Bonus if he
voluntarily terminates his employment during the primary term (other than by
death or disability) or if Mr. Hardy's employment is terminated for cause (as
defined).
Pursuant to a salary continuation agreement between the Company and Lester
W. Youner, the Company is obligated to pay Mr. Youner a retirement allowance
("Allowance") of $100,000 per year for life commencing at age 65. In the event
of Mr. Youner's death after the commencement of the payment of the Allowance,
Mr. Youner's designated beneficiary is to receive the Allowance until 10 annual
payments shall have been made to Mr. Youner and his beneficiary. Mr. Youner will
be 25% vested in the Allowance on December 31, 1996 and shall continue to vest
at the rate of 5% per year thereafter provided that he remains in the employ of
the Company. Notwithstanding the foregoing, the Allowance will become 100%
vested on the earlier of Mr. Youner's 65th birthday or the occurrence of an
acceleration event, including a change of control of the Company. Mr. Youner
forfeits the Allowance if his employment is terminated for cause (as defined)
or, if within two years after the voluntary termination of his employment, Mr.
Youner engages directly or indirectly in any activity competitive with the
Company or any of its subsidiaries. The agreement further provides that in the
event of Mr. Youner's death prior to his 65th birthday while in the active
employ of the Company, his designated beneficiary is to receive an annual death
benefit of $100,000 for 10 years. Mr. Youner's death benefit is currently 50%
vested and will become 100% vested on the earlier of December 31, 1996 or the
occurrence of an acceleration event.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not have a Compensation Committee. Executive
officer compensation matters were determined by the Board of Directors, whose
four members currently include Mr. Genger, Chairman of the Board and Chief
Executive Officer of the Company, and Mr. Hardy, President and Chief Operating
Officer of the Company. No director has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
COMPENSATION OF DIRECTORS
Officers of the Company who serve as directors do not receive any
compensation for serving as directors. Martin A. Coleman and Sash A. Spencer
each receive $15,000 annually for serving as directors.
21
<PAGE> 24
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 25, 1996, as
to the beneficial ownership of the Common Stock of the Company, which is the
only outstanding class of voting security of the Company:
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED CLASS
<S> <C> <C>
Common Stock, $.01 par value (1):
TPR (2)
9 West 57th Street
New York, NY 10019.......................... 3,000 100%
All executive officers and directors as a group
(five persons)(2)........................... 3,000 100%
</TABLE>
- ---------------------
(1) All of the shares of the Common Stock of the Company are pledged to
secure an outstanding TPR note of $7,000,000 issued to a former
indirect stockholder and director of the Company.
(2) Mr. Genger and members of his family own all of the capital stock of
TPR.
ITEM 13. Certain Relationships and Related Transactions.
The Company is, for Federal income tax purposes, a member of a
consolidated tax group of which TPR is the common parent. The Company, TPR,
Eddy, Cedar and certain other subsidiaries are parties to a tax sharing
agreement, dated as of December 30, 1991, under which, among other things, the
Company and such other parties have each agreed to pay TPR amounts equal to the
amounts of Federal income taxes that each such party would be required to pay if
it filed a Federal income tax return on a separate return basis (or in the case
of Cedar, a consolidated Federal income tax return for itself and its eligible
subsidiaries), computed without regard to net operating loss carrybacks and
carryforwards. However, TPR may, at its discretion, allow tax benefits for such
losses. See Note A of Notes to Consolidated Financial Statements.
See Notes G and L of Notes to Consolidated Financial Statements for a
description of a 1994 transaction pursuant to which TPR acquired the Company's
$9,000,000, 9 1/2% junior subordinated debentures due 2005 (the "9.5%
Debentures") and became the obligor on an outstanding 8 3/4%, $4,000,000 note
due 2005 payable to the Company. Upon TPR's acquisition of the 9.5% Debentures,
TPR exchanged the 9.5% Debentures for a new preferred stock of the Company
described in said Note L. In addition, as described in Note G, during 1995 TPR
assumed the Company's obligation for $9,000,000 principal amount of outstanding
9.5% Debentures due in 1998 and Company's liability thereon was extinguished.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1)-(2) See Index to Consolidated Financial Statements and
Schedules on Page F-1.
(3) See Index to Exhibits on Page E-1.
(b) No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1995.
22
<PAGE> 25
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Trans-Resources, Inc.
(Registrant)
By Lester W. Youner
Lester W. Youner
Vice President, Treasurer
and Chief Financial Officer
Dated: March 25, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:
PRINCIPAL EXECUTIVE OFFICER:
ARIE GENGER
Chairman of the Board and Chief Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
LESTER W. YOUNER
Vice President, Treasurer and Chief Financial Officer
By Lester W. Youner
Lester W. Youner
For Himself and As Attorney-In-Fact
Directors:
Arie Genger Dated: March 25, 1996
Thomas G. Hardy
Martin A. Coleman
Sash A. Spencer
POWERS OF ATTORNEY AUTHORIZING LESTER W. YOUNER TO SIGN THIS REPORT AND ANY
AMENDMENTS HERETO ON BEHALF OF THE PRINCIPAL EXECUTIVE OFFICER AND THE DIRECTORS
ARE BEING FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITH THIS REPORT.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT:
No annual report or proxy materials have been sent to the Company's
security holders. This Annual Report on Form 10-K will be furnished to the
holders of the Company's 11 7/8% Notes and Reset Notes.
23
<PAGE> 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS Page
<S> <C>
Independent Auditors' Report............................................... F-2
Report of Independent Accountants.......................................... F-3
Consolidated Balance Sheets, December 31, 1994 and 1995.................... F-4
Consolidated Statements of Operations,
for the Years Ended December 31, 1993, 1994 and 1995................... F-5
Consolidated Statements of Stockholder's Equity,
for the Years Ended December 31, 1993, 1994 and 1995................... F-6
Consolidated Statements of Cash Flows,
for the Years Ended December 31, 1993, 1994 and 1995................... F-7
Notes to Consolidated Financial Statements................................. F-8
SCHEDULE
Schedule I - Condensed Financial Information of Registrant,
for the Years Ended December 31, 1993, 1994 and 1995................... S-1
</TABLE>
F - 1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of Trans-Resources, Inc.
New York, New York
We have audited the accompanying consolidated financial statements and financial
statement schedule of TransResources, Inc. (a wholly-owned subsidiary of TPR
Investment Associates, Inc.) and Subsidiaries listed in the foregoing Index.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We did not audit the consolidated financial statements of Cedar
Chemical Corporation, a wholly-owned subsidiary, which statements reflect total
assets constituting 26 percent and 21 percent of consolidated total assets as of
December 31, 1995 and 1994, respectively, and total revenues constituting 34
percent, 38 percent and 35 percent of consolidated total revenues for the years
ended December 31, 1995, 1994 and 1993, respectively. Such financial statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Cedar Chemical
Corporation, is based solely on the report of such other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Trans-Resources, Inc. and Subsidiaries as of December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, based on our
audits and the report of other auditors, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
New York, N.Y.
March 19, 1996
F - 2
<PAGE> 28
Report of Independent Accountants
To the Board of Directors and Shareholder
of Cedar Chemical Corporation:
In our opinion, the consolidated balance sheets and the related consolidated
statements of income and retained earnings and of cash flows (not presented
separately herein) present fairly, in all material respects, the financial
position of Cedar Chemical Corporation (a wholly-owned subsidiary of
Trans-Resources, Inc.) and its subsidiaries ("Cedar") at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Cedar's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Memphis, Tennessee
February 9, 1996
F - 3
<PAGE> 29
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
---- ----
(IN THOUSANDS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 15,571 $ 32,872
Accounts receivable .................................................... 66,106 75,630
Inventories ............................................................ 51,313 66,474
Other current assets ................................................... 168,200 19,364
Prepaid expenses ....................................................... 18,852 19,316
--------- ---------
Total Current Assets ............................................... 320,042 213,656
PROPERTY, PLANT AND EQUIPMENT - net ......................................... 202,085 220,191
OTHER ASSETS ................................................................ 28,827 33,255
--------- ---------
Total ......................................................... $ 550,954 $ 467,102
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................... $ 124,465 $ 40,703
Short-term debt ........................................................ 33,521 6,145
Accounts payable ....................................................... 57,077 51,383
Accrued expenses and other current liabilities ......................... 38,685 33,414
--------- ---------
Total Current Liabilities .......................................... 253,748 131,645
--------- ---------
LONG-TERM DEBT - net:
Senior indebtedness, notes payable and other obligations ............... 102,059 174,506
Senior subordinated debt - net ......................................... 140,385 114,074
Junior subordinated debt - net ......................................... 7,981 --
--------- ---------
Long-Term Debt - net ............................................... 250,425 288,580
--------- ---------
OTHER LIABILITIES ........................................................... 26,231 26,202
--------- ---------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding ................................. 7,960 7,960
Common stock, $.01 par value, 3,000 shares authorized,
issued and outstanding ............................................. -- --
Additional paid-in capital ............................................. 505 8,682
Retained earnings ...................................................... 13,432 4,764
Cumulative translation adjustment ...................................... (360) (594
Unrealized losses on marketable securities ............................. (987) (137
--------- ---------
Total Stockholder's Equity ......................................... 20,550 20,675
--------- ---------
Total ......................................................... $ 550,954 $ 467,102
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 30
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES .............................. $ 326,315 $ 334,107 $ 385,564
OPERATING COSTS AND EXPENSES:
Cost of goods sold ................ 255,563 265,795 323,126
General and administrative ........ 38,375 37,780 43,193
--------- --------- ---------
OPERATING INCOME ...................... 32,377 30,532 19,245
Interest expense .................. (27,405) (28,369) (34,498)
Interest and other income - net ... 6,014 15,056 9,128
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ................ 10,986 17,219 (6,125)
INCOME TAX PROVISION .................. 7,920 14,669 733
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 3,066 2,550 (6,858)
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) ....... (8,830) -- (103)
--------- --------- ---------
NET INCOME (LOSS) ..................... $ (5,764) $ 2,550 $ (6,961)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE> 31
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE UNREALIZED
PREFERRED COMMON PAID-IN RETAINED TRANSLATION (LOSSES) ON
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT SECURITIES TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 ................. $ -- $ -- $ 500 $ 28,620 $(238) $-- $28,882
Net loss ............................. (5,764) (5,764)
Dividends - common stock ............. (7,508) (7,508)
Net change during year ............... 184 184
------- ------- ------- -------- ----- ---- -------
BALANCE, DECEMBER 31, 1993 ............... -- -- 500 15,348 (54) -- 15,794
Net income ........................... 2,550 2,550
Dividends - common stock, including
non-cash dividend of $4,241,000 .. (4,466) (4,466)
Issuance of preferred stock upon
conversion of 9 1/2% junior
subordinated debentures .......... 7,960 7,960
Net change during year ............... 5 (306) (987) (1,288)
------- ------- ------- -------- ----- ---- -------
BALANCE, DECEMBER 31, 1994 ............... 7,960 -- 505 13,432 (360) (987) 20,550
Net loss ............................. (6,961) (6,961)
Dividends:
Common stock ..................... (856) (856)
Preferred stock .................. (851) (851)
Capital contribution by parent company
upon assumption of 9 1/2% junior
subordinated debentures .......... 8,177 8,177
Net change during year ............... (234) 850 616
------- ------- ------- -------- ----- ---- -------
BALANCE, DECEMBER 31, 1995 ............... $ 7,960 $ -- $ 8,682 $ 4,764 $(594) $(137) $ 20,675
======= ======= ======= ======== ===== ==== =======
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE> 32
TRANS-RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net income (loss) .............................. $ (5,764) $ 2,550 $ (6,961)
Items not requiring cash:
Depreciation and amortization ............. 24,490 20,859 22,409
Increase (decrease) in other liabilities .. 725 509 (37)
Deferred taxes and other - net ............ (2,494) 2,986 688
--------- --------- ---------
Total ................................. 16,957 26,904 16,099
Working capital management:
Accounts receivable and other current assets ... (9,222) (26,105) 15,585
Inventories .................................... (9,872) 9,616 (11,274)
Prepaid expenses ............................... (2,187) (1,367) (443)
Accounts payable ............................... 9,842 22,153 (7,753)
Accrued expenses and other current liabilities . 1,323 8,658 (10,381)
--------- --------- ---------
Cash provided by operations and
working capital management ................ 6,841 39,859 1,833
--------- --------- ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment ......... (29,056) (93,314) (35,661)
Sales of marketable securities and short-term
investments, including in 1995 liquidation
of CD's securing a bank loan (see Note G) ...... 15,825 33,543 132,260
Purchases of marketable securities and short-
term investments, including in 1994 purchase
of CD's securing a bank loan (see Note G) ...... (34,118) (134,790) (4,371)
Other - net ........................................ (6,087) (6,403) (7,441)
--------- --------- ---------
Cash provided by (used in) investment activities (53,436) (200,964) 84,787
--------- --------- ---------
FINANCING ACTIVITIES:
Increase in long-term debt ......................... 124,660 183,330 101,616
Repurchases, payments and current maturities of
long-term debt ................................. (109,286) (43,211) (141,452)
Increase (decrease) in short-term debt ............. 9,726 11,040 (27,776)
Dividends to stockholders .......................... (7,508) (225) (1,707)
--------- --------- ---------
Cash provided by (used in) financing activities 17,592 150,934 (69,319)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................... (29,003) (10,171) 17,301
CASH AND CASH EQUIVALENTS:
Beginning of year .................................. 54,745 25,742 15,571
--------- --------- ---------
End of year ........................................ $ 25,742 $ 15,571 $ 32,872
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F - 7
<PAGE> 33
TRANS-RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of Trans-Resources, Inc. ("TRI"
or the "Company"), include the Company and its subsidiaries, after elimination
of intercompany accounts and transactions. The Company's principal subsidiaries
are Cedar Chemical Corporation ("Cedar"), and Cedar's two wholly-owned
subsidiaries - New Mexico Potash Corporation ("NMPC") and Vicksburg Chemical
Company ("Vicksburg"); Eddy Potash, Inc. ("Eddy"); Na-Churs Plant Food Company
("Na-Churs"); and Haifa Chemicals Ltd. ("HCL") and HCL's wholly-owned
subsidiary, Haifa Chemicals South, Ltd. ("HCS"). The Company is a wholly-owned
subsidiary of TPR Investment Associates, Inc. ("TPR").
Effective March 31, 1995 the Company acquired the assets of Na-Churs, a
company headquartered in Ohio and engaged in the specialty plant nutrient
business. The acquisition was accounted for as a purchase. Such acquisition did
not have a significant effect on the Company's results of operations.
Substantially all of the companies' revenues, operating profits and
identifiable assets are related to the chemical industry. The Company is a
multinational manufacturer of specialty plant nutrients, organic chemicals,
industrial chemicals and potash and distributes its products internationally.
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 reported amounts of certain assets and liabilities
and disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Management believes that the
estimates used are reasonable.
Operating Data
The Company's revenues by region for the years ended December 31,
1993, 1994 and 1995 are set forth below:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Western Hemisphere:
United States .................... $121 $122 $136
Other ............................ 30 23 22
Europe ............................... 119 117 146
Asia and Australia ................... 30 41 40
Israel ............................... 17 18 21
Africa and other ..................... 9 13 21
---- ---- ----
Total ............................ $326 $334 $386
==== ==== ====
</TABLE>
As of December 31, 1994 and 1995, the Company's assets were located in
the United States (44% and 40%, respectively) and abroad (principally Israel)
(56% and 60%, respectively). The Company has no single customer accounting for
more than 10% of its revenues.
F - 8
<PAGE> 34
HCL leases land and buildings from Oil Refineries Ltd. ("ORL"), a
corporation which is majority-owned by the Israeli Government. The leases expire
at various dates, principally in 20 years. HCL also has a contract with ORL for
steam and processed water which expires on June 30, 1997 and a lease from ORL of
a pipeline which transports ammonia from the port in Haifa to HCL's plant. HCS
leases its land from the Israeli government under a 49 year lease which
commenced in 1994.
HCL obtains its major raw materials, potash and phosphate rock, in
Israel. Potash is purchased solely from Dead Sea Works, Ltd. ("DSW") in
accordance with a supply contract expiring December 31, 1999. Phosphate rock is
purchased solely from Rotem Deshanim ("Rotem") pursuant to a supply agreement
expiring on June 30, 1996. DSW and Rotem are companies that are majority-owned
by the Israeli Government and are the sole suppliers in Israel of potash and
phosphate rock, respectively. While management believes its current
relationships with both of its principal suppliers to be good, the loss of
supply from either of these sources would have an adverse effect on the Company.
Contracts and Revenue Recognition
Under the terms of a long-term contract with the U.S. Government for
the manufacture of an industrial chemical, revenues are recognized ratably for
the duration of the contract and billings are rendered as product is shipped.
Current deferred revenue of $2,541,000 at December 31, 1994 represents billings
in excess of revenues recognized under the contract. Such amount is classified
within "accrued expenses and other current liabilities" in the accompanying
Consolidated Balance Sheet.
Functional Currency and Transaction Gains and Losses
Approximately 90% of HCL's sales are made outside of Israel in various
currencies, of which approximately 38% are in U.S. dollars, with the remainder
principally in Western European currencies. In order to mitigate the impact of
currency fluctuations against the U.S. dollar, the Company has a policy of
hedging a significant portion of its foreign sales denominated in Western
European currencies by entering into forward exchange contracts. A portion of
these contracts qualify as hedges pursuant to Statement of Financial Accounting
Standards No. 52 and, accordingly, unrealized gains and losses arising therefrom
are deferred and accounted for in the subsequent year as part of sales.
Unrealized gains and losses for the remainder of the forward exchange contracts
are recognized in operations currently. At December 31, 1994 and 1995, there
were outstanding contracts to purchase $117 million and $148 million,
respectively, in various European currencies, principally Deutsche Marks and
Japanese Yen. In addition, at December 31, 1995 there were outstanding contracts
to purchase 95 million Deutsche Marks, and to sell a corresponding amount of
Italian Lira and Spanish Pesetas. Gains (losses) of approximately ($2,300,000)
and $900,000 were deferred at December 31, 1994 and 1995, respectively, for
forward exchange contracts which qualify as hedges.
If the Company had not followed such a policy of entering into forward
exchange contracts in order to hedge its foreign sales, and instead recognized
income based on the then prevailing foreign currency rates, the Company's
operating income for the years ended December 31, 1993, 1994 and 1995 would have
increased (decreased) by ($5,250,000), $7,400,000 and $16,600,000, respectively,
and income before taxes would have increased (decreased) by approximately
($6,100,000), $11,200,000, and $11,200,000, respectively.
The principal purpose of the Company's hedging program (which is for
other than trading purposes) is to mitigate the impact of fluctuations against
the U.S. dollar, as well as to protect against significant adverse changes in
exchange rates. Accordingly, the gains and losses recognized relating to the
hedging program in any particular period and the impact on revenues had the
Company not had such a program are not necessarily indicative of its
effectiveness.
Raw materials purchased in Israel are mainly quoted at prices linked to
the U.S. dollar. The U.S. dollar is the functional currency and accordingly the
financial statements of HCL are prepared, and the books and records of HCL
(except for a subsidiary described below) are maintained, in U.S. dollars.
F - 9
<PAGE> 35
The assets, liabilities and operations of one of HCL's foreign
subsidiaries are measured using the currency of the primary economic environment
in which the subsidiary operates. Assets and liabilities are translated at the
exchange rate as of the balance sheet date. Revenues, expenses, gains and losses
are translated at the weighted average exchange rate for the period. Translation
adjustments, resulting from the process of translating such subsidiary's
financial statements from its currency into U.S. dollars, are recorded directly
as a separate component of stockholder's equity.
Exchange Rate Insurance
In 1981, HCL joined a program of exchange rate insurance of the Israeli
Government designed to protect participating Israeli exporters from losses
resulting from the widening of the gap between the inflation rate in Israel and
the rate of devaluation of the New Israeli Shekel against a weighted basket of
currencies of Israel's major trading partners. The net benefits received by HCL
for the year ended December 31, 1993 were $1,616,000, which benefits have been
included in revenues. As part of various economic measures adopted in Israel
subsequent to December 31, 1988, the Israeli Government gradually reduced the
insurance proceeds granted under its program of exchange rate insurance, with
the program having been fully eliminated on August 31, 1993.
Inventories
Inventories are carried at the lower of cost or market. Cost is
determined on the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is
recorded under the straight-line method at generally the following annual rates:
<TABLE>
<S> <C>
Buildings................................... 5-8%
Machinery, plant and equipment.............. 7-25%
Office furniture and equipment.............. 6-20%
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred. Investment grants from the Israeli Government are initially recorded
as a reduction of the capitalized asset and are recognized in income over the
estimated useful life of the respective asset. HCL recorded investment grants
for the years ended December 31, 1993, 1994 and 1995 amounting to $10,952,000,
$22,708,000 and $995,000, respectively.
Effective July 1, 1994 and January 1, 1995, the Company revised the
estimate of depreciable lives of its property, plant and equipment at HCL and
Eddy, respectively, to more closely approximate the economic lives of those
assets. The effect of these changes in estimate was to decrease depreciation
expense in 1994 and 1995 by approximately $1,800,000 and $2,800,000,
respectively.
Investments In Marketable Securities and Other Short-Term Investments
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). The adoption of this Statement,
which was not required until 1994, required the Company to classify its equity
and fixed maturity securities as available-for-sale and reported at fair value,
with unrealized gains and losses included as a separate component of
stockholder's equity. Effective January 1, 1994, the Company adopted SFAS No.
115. The initial adoption of SFAS No. 115 did not have a material effect on the
Company's consolidated financial position or results of operations.
F - 10
<PAGE> 36
Income Taxes
The Company is included in the consolidated Federal income tax return
of TPR. Under the tax allocation agreement with TPR, the annual current Federal
income tax liability for the Company and each of its domestic subsidiaries
reporting profits is determined as if such entity had filed a separate Federal
income tax return; no tax benefits are given for companies reporting losses.
However, TPR may, at its discretion, allow tax benefits for such losses.
For purposes of the consolidated financial statements, taxes on income
have been computed as if the Company and its domestic subsidiaries filed its own
consolidated Federal income tax return without regard to the tax allocation
agreement. Payments to TPR, if any, representing the excess of amounts
determined under the tax allocation agreement over amounts determined for the
purposes of consolidated financial statements are charged to retained earnings.
During the three years in the period ended December 31, 1995, TPR did not
require payment of amounts different from that which was computed as if the
Company and its consolidated subsidiaries filed its own consolidated income tax
returns.
The Company accounts for income taxes under the asset and liability
method. Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
Environmental Costs
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations (including fines levied under environmental
laws, reclamation costs and litigation costs), and which do not contribute to
current or future revenue generation ("environmental clean-up costs"), are
expensed. Such environmental clean-up costs do not encompass ongoing operating
costs relating to compliance with environmental laws, including disposal of
waste. Liabilities are recorded when environmental assessments and/or remedial
efforts are probable, the cost can be reasonably estimated and the Company's
responsibility is established. Generally, the timing of these accruals coincides
with the earlier of completion of a feasibility study or the Company's
commitment to a formal plan of action. Accruals relating to costs to be
incurred, if any, at the end of the useful life of equipment, facilities or
other assets are made over the useful life of the respective assets.
During 1993, 1994 and 1995 the Company incurred environmental clean-up
costs of approximately $900,000, $600,000 and $300,000, respectively. In
addition, at both December 31, 1994 and 1995, the Company has accrued
approximately $1,600,000 related to the estimated costs to be incurred for
various environmental liabilities.
Research and Development Costs
Research and development costs are charged to expense as incurred and
amounted to $3,206,000, $3,978,000 and $3,158,000 for the years ended December
31, 1993, 1994 and 1995, respectively.
Risk Management Derivatives
Amounts receivable or payable under interest rate swap agreements are
recognized as interest expense.
Statements of Cash Flows
Investments with original maturities of three months or less are
classified as cash equivalents by the Company.
F - 11
<PAGE> 37
Concentration of Credit Risk
The Company believes no significant concentration of credit risk exists
with respect to investments and accounts receivable.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
manner of presentation in the current year.
B. OTHER CURRENT ASSETS
Other current assets consist of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Marketable securities (carried at market)...................... $ 22,923 $ 2,393
Miscellaneous receivables, other securities,
deferred income taxes, etc................................ 45,237 16,971
Certificates of deposit pledged as collateral (see Note G)..... 100,040 -
-------- ------
Total .................................................. $168,200 $19,364
======== =======
</TABLE>
The Company classifies all of its marketable securities (including U.S.
Government obligations) as available-for-sale securities. The following
is a summary of available-for-sale securities as of December 31, 1994
and 1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. Government obligations................. $ 1,989 $ 2 $ - $ 1,991
Foreign Government obligations.............. 989 34 - 1,023
------- -------- --------- -------
Total debt securities.................. 2,978 36 - 3,014
------- -------- --------- -------
Common stocks and mutual funds
investing primarily therein............... 10,418 31 637 9,812
Mutual funds investing in U.S.
government bonds and investment
grade corporate bonds .................... 9,970 - 318 9,652
Preferred stocks............................ 544 - 99 445
-------- --------- -------- --------
Total equity securities................ 20,932 31 1,054 19,909
------- -------- ------- -------
Total ............................... $23,910 $ 67 $ 1,054 $22,923
======= ======== ======= =======
</TABLE>
F - 12
<PAGE> 38
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995:
Foreign Government obligations $ 877 $ 21 $-- $ 898
Other debt securities ........ 393 9 -- 402
Total debt securities ... 1,270 30 -- 1,300
------ ---- ------ ------
Common stocks and mutual funds
investing primarily therein 872 25 129 768
Preferred stocks ............. 388 -- 63 325
------ ---- ------ ------
Total equity securities . 1,260 25 192 1,093
------ ---- ------ ------
Total ................... $2,530 $ 55 $ 192 $2,393
====== ==== ====== ======
</TABLE>
The cost and estimated fair value of debt securities at December 31,
1995, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less .............. $ 277 $ 283
Due after one year through three years 382 390
Due after three years ................ 611 627
------ ------
Total ............................ $1,270 $1,300
====== ======
</TABLE>
During 1994, the gross realized gains on sales of securities totaled
approximately $66,000 and the gross realized losses totaled approximately
$1,244,000; during 1995 such gross realized gains totaled approximately $555,000
and gross realized losses totaled approximately $968,000 (see Note K).
C. INVENTORIES
Inventories consist of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials .......................... $17,566 $20,444
Finished goods ......................... 33,747 46,030
------- -------
Total .............................. $51,313 $66,474
======= =======
</TABLE>
F - 13
<PAGE> 39
D. PROPERTY, PLANT AND EQUIPMENT - NET
Property, plant and equipment at December 31, 1994 and 1995 consists of
the following:
<TABLE>
<CAPTION>
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land ................................................. $ 2,116 $ 4,328
Buildings ............................................ 21,753 28,413
Machinery, plant and equipment ....................... 181,364 304,228
Office furniture, equipment and water rights ......... 10,750 10,955
Construction-in-progress ............................. 102,494 8,823
-------- --------
Total, at cost ................................... 318,477 356,747
Less accumulated depreciation and amortization ....... 116,392 136,556
-------- --------
Property, plant and equipment - net .............. $202,085 $220,191
======== ========
</TABLE>
During 1993 the Company commenced construction of the K3 Plant, a new
facility in Israel, with initial capacity to produce approximately 100,000
metric tons of potassium nitrate annually. The Company substantially completed
the construction of the K3 Plant in the fourth quarter of 1994. During 1993,
1994 and 1995 capital expenditures in connection with the K3 Plant (net of
aggregate Israeli Government grants of approximately $35,000,000) amounted to
approximately $19,000,000, $43,000,000 and $4,000,000, respectively. Product
sales from the K3 Plant commenced in 1995. The capacity of the new plant may be
expanded in subsequent years.
The Company capitalized interest costs aggregating $352,000, $3,360,000
and $953,000 during the years ended December 31, 1993, 1994 and 1995,
respectively, with respect to several construction projects. Certain property,
plant and equipment has been pledged as collateral for long-term debt - see Note
G.
On February 7, 1994, the smaller of HCL's two potassium nitrate
production units was damaged by a fire, causing a temporary reduction of the
Company's potassium nitrate production capacity. The Company completed the
replacement of the damaged unit during 1995. The impact of the loss of the
facility, including the effect of business interruption, was substantially
covered by insurance. The insurance proceeds relating to the property damage was
for replacement value, which was greater than the recorded carrying value of the
damaged assets. Accordingly, during the years ended December 31, 1994 and 1995,
HCL has recorded pre-tax gains of approximately $18,100,000 and $1,700,000,
respectively. Such pre-tax gains are included in the caption "interest and other
income-net" in the accompanying Consolidated Statements of Operations - see Note
K.
E. SHORT-TERM DEBT AND UNUSED CREDIT LINES
The weighted average interest rates for short-term debt outstanding at
December 31, 1994 and 1995 were 8.8% and 6.5%, respectively.
As of December 31, 1995, the Company and its subsidiaries have unused
revolving loan commitments and other credit lines from banks aggregating
approximately $87,000,000.
F - 14
<PAGE> 40
F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the
following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
(in thousands)
<S> <C> <C>
Compensation and payroll taxes ................. $ 9,625 $10,159
Interest ....................................... 11,437 11,020
Income taxes ................................... 3,127 1,518
Other .......................................... 14,496 10,717
------- -------
Total ...................................... $38,685 $33,414
</TABLE>
======= =======
G. LONG-TERM DEBT - NET
Long-term debt consists of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
Payable
Description Interest Rate* Through 1994 1995
(in thousands)
<S> <C> <C> <C> <C>
TRI:
Bank loans (1)................................ Various 1998 $137,500 $ 27,500
Senior subordinated reset notes, net of
unamortized debt discount of $349,000 and
$150,000 (effective interest rate of 15.4%)(2).... 14.5% 1996 26,401 23,350
11.875% Senior subordinated notes, net of
unamortized debt discount of $1,016,000 and
$926,000 (effective interest rate of 12.1%)(3).... 11.875% 2002 113,984 114,074
9.5% Junior subordinated debentures, net of
unamortized debt discount of $1,019,000 at
December 31, 1994 (effective interest rate of
14.1%)(4)......................................... 9.5% 1998 7,981 --
Subsidiaries:
Bank loans and other financing..................... Various 2020 89,024 164,359
-------- --------
Total.......................................... 374,890 329,283
Less current portion........................... 124,465 40,703
-------- --------
Long-term debt-net............................. $250,425 $288,580
======== ========
</TABLE>
- -----------
* As prevailing on respective balance sheet dates. Such rates (other than the
subordinated debt) generally "float" according to changes in the Prime or LIBOR
rates. At December 31, 1995 such rates were approximately 8.5% and 6.0%,
respectively.
1. On June 30, 1994, the Company entered into a Loan Agreement with a bank and
borrowed $40,000,000 (repayable quarterly over a four year period) and utilized
a portion of the proceeds to prepay approximately $19,000,000 then owed to such
bank. Pursuant to the Loan Agreement, the Company also borrowed an additional
$100,000,000, repayable in January, 1996. Under certain specified circumstances
prior to such date, the Company could have converted such loan into a term loan
maturing five years from the date of conversion. At December 31, 1994 the
Company pledged certificates of deposit ("CD's") with a principal amount of
$100,000,000 as collateral for such loan (such CD's are included in "other
current assets" in the
F - 15
<PAGE> 41
accompanying December 31, 1994 Consolidated Balance Sheet). The Company pledged
79% of the capital stock of HCL to secure its obligations under the Loan
Agreement. On January 5, 1995, the Company liquidated the pledged CD's and
prepaid, in full, the $100,000,000 loan. Such loan is included in current
maturities of long-term debt at December 31, 1994.
2. The Senior Subordinated Reset Notes (the "Reset Notes") bear interest at
14.5% and mature on September 1, 1996. The Reset Notes are not subject to any
mandatory sinking fund requirement. During 1995, the Company acquired $3,250,000
principal amount of the Reset Notes. In connection with such acquisition of the
Reset Notes, the Company has recorded an extraordinary loss of $103,000. Such
loss had no current tax benefit.
3. On March 30, 1993, the Company privately placed $115,000,000 principal amount
of the 11 7/8% Notes due 2002, Series A (the "11 7/8% Notes") at 99% of
principal amount (the "Offering"). The net proceeds to the Company from the
Offering were approximately $109,700,000. Approximately $24,200,000 of such
proceeds were used to acquire $21,500,000 principal amount of the Company's
Reset Notes. In addition, approximately $63,900,000 of the proceeds were used in
May, 1993 to acquire all of the Company's $60,997,000 then outstanding principal
amount of 13.5% Senior Subordinated Debentures (the "Debentures") through
utilization of the applicable sinking fund and optional redemption provisions of
the Debentures. As a result of the redemptions and purchases described above, as
well as the Company's acquisition of $4,500,000 principal amount of the
Debentures in January 1993, the Company has recorded an extraordinary loss of
$8,830,000 during 1993, including the write-off of applicable deferred debt
issuance costs. Such loss had no current tax benefit.
On May 6, 1993, to satisfy its obligations with respect to the registration of
the 11 7/8% Notes, the Company commenced an offer (the "Exchange Offer") to
exchange up to $115,000,000 principal amount of its registered 11 7/8% Senior
Subordinated Notes due 2002, Series B (the "New 11 7/8% Notes") for a like
principal amount of the 11 7/8% Notes. The terms of the 11 7/8% Notes and the
New 11 7/8% Notes were identical in all material respects. Pursuant to the
Exchange Offer, which expired on June 9, 1993, all outstanding 11 7/8% Notes
were tendered and exchanged for the New 11 7/8% Notes.
The New 11 7/8% Notes mature on July 1, 2002 and are redeemable at the option of
the Company at any time after July 1, 1998 at stipulated redemption prices.
There are no mandatory sinking fund requirements.
4. On November 28, 1986, the Company issued junior subordinated debentures (the
"9.5% Debentures") in the aggregate principal amount of $9,000,000, with
interest payable quarterly. The 9.5% Debentures were initially recorded at
$6,700,000, the estimated value on the date of issue, and were scheduled to
mature in 1998.
During 1991, the Company's then outstanding redeemable preferred stock was
converted into another $9,000,000 principal amount of the Company's 9.5%
Debentures. Subsequently, during 1991, the then holder of this $9,000,000
principal amount of 9.5% Debentures agreed to extend the maturity date of such
principal amount by seven years to the year 2005. The carrying value of the 9.5%
Debentures issued upon conversion of the redeemable preferred stock was
equivalent to the previous carrying value of the preferred stock. During 1994,
as a result of the settlement of certain litigation with a former indirect
stockholder and director of the Company, TPR acquired the 9.5% Debentures then
held by the wife of such stockholder. Upon TPR's acquisition of such 9.5%
Debentures, TPR exchanged these 9.5% Debentures for a new Company preferred
stock - see Note L. Also as part of the settlement of such litigation, TPR
assumed a $4,000,000 obligation that was previously owed to the Company by the
wife of the former indirect stockholder and director. Such obligation, which is
included in "other assets" in the accompanying Consolidated Balance Sheets,
bears interest at the rate of 8.75% per year and is due in the year 2005.
During 1995, TPR assumed the Company's obligation for the remaining outstanding
9.5% Debentures and the Company's liability thereon was extinguished. The
Company recorded such assumed obligation as an
F - 16
<PAGE> 42
$8,177,000 capital contribution by TPR, the amount equivalent to the then net
carrying value of the 9.5% Debentures.
The Reset Notes are pari passu with the New 11 7/8% Notes and are
subordinated in right of payment to all Senior Indebtedness (as defined) of the
Company.
Certain of the Company's and its subsidiaries' loan agreements and
Indentures require the Company and/or the respective subsidiary to, among other
things, maintain various financial ratios including minimum net worth, ratios of
debt to net worth, interest and fixed charge coverage tests and current ratios.
In addition, there are certain limitations on the Company's ability make certain
Restricted Payments and Restricted Investments (each as defined), etc. The
Company is also required to offer to purchase a portion of the New 11 7/8% Notes
and the Reset Notes if it fails to maintain minimum amounts of Junior
Subordinated Capital (as defined). In the event of a Change in Control (as
defined), the Company is required to offer to purchase all the New 11 7/8% Notes
and Reset Notes as well as to repay certain bank loans. Certain of the
respective instruments also limit the payment of dividends, capital expenditures
and the incurring of additional debt and liens.
As of December 31, 1995, the Company and its subsidiaries are in
compliance with the covenants of each of the respective loan agreements and
Indentures.
The aggregate maturities of long-term debt are set forth below, which
data is shown after giving effect to the Company's refinancing of certain bank
debt as of January 2, 1996.
<TABLE>
<CAPTION>
Years Ending
December 31, (in thousands)
<S> <C>
1996........................................ $ 40,703
1997........................................ 15,851
1998........................................ 17,607
1999........................................ 14,448
2000........................................ 11,600
Thereafter.................................. 229,074
--------
Total.................................... $329,283
========
</TABLE>
Substantially all of the assets of HCL and HCS are subject to security
interests in favor of the State of Israel and/or banks. In addition,
substantially all of the assets of the Company's United States subsidiaries are
subject to security interests in favor of banks pursuant to loan agreements. The
capital stock of HCL and the Company's other subsidiaries (except for Eddy) have
also been pledged to the banks pursuant to these agreements. The Company's
common stock is pledged to secure the repayment obligations of TPR under a note
issued by it to a former indirect shareholder of the Company.
Interest paid, net of capitalized interest, totaled $21,852,000,
$24,089,000 and $33,445,000 for the years ended December 31, 1993, 1994 and
1995, respectively.
H. OTHER LIABILITIES
Under Israeli law and labor agreements, HCL is required to make
severance and pension payments to dismissed employees and to employees leaving
employment in certain other circumstances. These liabilities are covered by
regular deposits to various severance pay funds and by payment of premiums to an
insurance company for officers and non-factory personnel under approved plans.
"Other liabilities" in the Consolidated Balance Sheets as of December 31, 1994
and 1995 include accruals of $2,596,000 and $2,528,000, respectively, for the
estimated unfunded liability of complete severance of all HCL employees. Costs
incurred were approximately $1,974,000, $2,648,000 and $2,060,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
F - 17
<PAGE> 43
No information is available regarding actuarial present value of HCL's
pension plans and the plans' net assets available for benefits, as these plans
are multi-employer, external and independent of HCL.
Cedar has a defined benefit pension plan which covers all of the
full-time employees of Cedar and Vicksburg. Funding of the plan is made through
payment to various funds managed by a third party and is in accordance with the
funding requirements of the Employee Retirement Income Security Act of 1974
("ERISA").
Cedar's net pension cost for the years ended December 31, 1993, 1994
and 1995 included the following benefit and cost components:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ -----
(in thousands)
<S> <C> <C> <C>
Service cost......................................................... $552 $657 $603
Interest cost........................................................ 659 756 844
Amortization of unrecognized prior service cost...................... 120 109 109
Actual return on plan assets......................................... (592) (751) (793)
Amortization of unrecognized net transition obligation............... 58 58 59
----- ----- -----
Net pension cost................................................ $797 $829 $822
==== ==== ====
</TABLE>
The funded status and the amounts recognized in the Company's December
31, 1994 and 1995 Consolidated Balance Sheets for Cedar's benefit plan is as
follows:
<TABLE>
<CAPTION>
1994 1995
(in thousands)
<S> <C> <C>
Plan assets at market value.................................. $ 8,604 $10,059
Actuarial present value of projected benefit obligation...... 10,210 12,910
------- -------
Funding status............................................... (1,606) (2,851)
Unrecognized net transition obligation....................... 410 351
Unrecognized prior service cost.............................. 1,061 952
Unrecognized net loss........................................ 475 1,065
------- -------
Prepaid (accrued) pension cost............................... $ 340 $ (483)
======= =======
</TABLE>
At December 31, 1994 and 1995 the actuarial present value of Cedar's
vested benefit obligation was $7,512,000 and $9,493,000 and the accumulated
benefit obligation was $7,922,000 and $9,949,000, respectively.
Actuarial assumptions used at December 31, 1994 and 1995 were as
follows:
<TABLE>
<CAPTION>
1994 1995
------ -----
<S> <C> <C>
Discount rate - projected benefit obligation................. 8.2% 7.5%
Rate of increase in compensation levels...................... 5.0% 5.0%
Expected long-term rate of return on assets.................. 9.0% 9.0%
</TABLE>
The unrecognized net transition obligation is being amortized on a
straight-line basis over fifteen years beginning January 1, 1987.
The Company's United States subsidiaries have profit sharing thrift
plans designed to conform to Internal Revenue Code Section 401(k) and to the
requirements of ERISA. The plans, which cover all full-time employees (and one
of which includes Company headquarters employees), allow participants to
contribute as much as 15% of their annual compensation, up to a maximum
permitted by law, through salary reductions. The companies' contributions to the
plans are based on a percentage of the participant's contributions, and the
companies may make additional contributions to the plans at the discretion of
their
F - 18
<PAGE> 44
respective Boards of Directors. The contribution expense relating to the profit
sharing thrift plans totaled $595,000, $538,000 and $559,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
I. COMMITMENTS
Operating Leases
The Company and its subsidiaries are obligated under non-cancelable
operating leases covering principally land, office facilities and equipment. At
December 31, 1995, minimum annual rental commitments under these leases are:
<TABLE>
<CAPTION>
Years Ending
December 31,
(in thousands)
<S> <C>
1996................................................................ $ 4,084
1997................................................................ 3,782
1998................................................................ 3,709
1999................................................................ 3,018
2000................................................................ 2,198
Thereafter.......................................................... 10,440
-------
Total........................................................... $27,231
=======
</TABLE>
Rent expense for 1993, 1994 and 1995 was $3,835,000, $3,485,000 and
$5,308,000, respectively, covering land, office facilities and equipment.
Purchase Commitment
HCL has an agreement for the purchase of potash which expires in 1999. The
terms of the agreement require HCL to purchase a minimum quantity at the
weighted average of the FOB Israeli port prices received by the seller for the
immediately preceding quarter plus certain adjustments thereto. Based upon
current prices and at current capacity, the annual commitment is approximately
$26,000,000. There are currently no purchase commitments in excess of market
prices.
J. INCOME TAXES
The Company's income tax provision for the years ended December 31, 1993,
1994 and 1995 consist of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Currently payable (refundable):
Federal................................................ $ - $ 2,193 $ -
Foreign................................................ 7,939 4,872 (364)
State.................................................. 301 432 392
------ -------- ----
Total current .................................... 8,240 7,497 28
------ ------- ----
Deferred (benefit):
Foreign................................................ (472) 7,135 507
State.................................................. 152 37 198
------- -------- ----
Total deferred.................................... (320) 7,172 705
------- -------- ----
Total............................................. $7,920 $14,669 $733
====== ======= ====
</TABLE>
F - 19
<PAGE> 45
The provision for income taxes for the years ended December 31, 1993,
1994 and 1995 amounted to $7,920,000, $14,669,000 and $733,000, respectively,
representing effective income tax rates of 72.1%, 85.2% and 12.0%, respectively.
These amounts differ from the amounts of $3,845,000, $6,027,000 and
($2,144,000), respectively, computed by applying the statutory Federal income
tax rates to income (loss) before income taxes. The reasons for such variances
from statutory rates were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Federal rates ................................ 35.0% 35.0% (35.0)%
Increase (decrease) in income tax rate resulting from:
Israeli operations - net impact of Israeli statutory
rate, effects of "inflation allowances",
withholding taxes, etc ........................ (10.1) (6.1) (53.5)
Net losses without current tax benefit,
Alternative Minimum Tax ("AMT") and other ..... 47.4 56.1 96.1
Additional depletion expense ....................... (2.9) (1.6) (1.9)
State and local income taxes - net ................. 2.7 1.8 6.3
---- ---- ----
Effective income tax rates ............................. 72.1% 85.2% 12.0%
==== ==== ====
</TABLE>
At December 31, 1994 and 1995, deferred taxes (liabilities) consisted
of the following:
<TABLE>
<CAPTION>
1994 1995
(in thousands)
<S> <C> <C>
Depreciation and property and equipment basis differences........... $(19,841) $(23,360)
Contract revenue recognition method................................. 965 -
Nondeductible reserves.............................................. 3,976 4,429
Net operating loss carryforwards.................................... - 10,665
Capital loss and capital loss carryforwards......................... 3,762 4,112
Foreign tax credit carryovers....................................... 2,517 2,507
AMT credit carryovers............................................... 3,886 6,313
Investment tax credit carryovers.................................... 200 200
Other............................................................... 140 879
-------- --------
Deferred taxes - net, exclusive of valuation allowance.............. (4,395) 5,745
Valuation allowance................................................. (13,968) (25,506)
-------- --------
Deferred taxes - net................................................ $(18,363) $(19,761)
======== ========
</TABLE>
At December 31, 1994, deferred tax assets of $1,050,000 are classified
as "other current assets" and deferred tax liabilities of $19,413,000 are
classified as "other liabilities". At December 31, 1995, deferred tax assets of
$1,227,000 are classified as "other current assets" and deferred tax liabilities
of $20,988,000 are classified as "other liabilities".
F - 20
<PAGE> 46
At December 31, 1995, the Company had various tax loss and credit
carryovers which expire as follows:
<TABLE>
<CAPTION>
U.S. Federal
--------------------------------------------------------------
Investment Net Alternative State Net Foreign Net
Capital Foreign Tax Operating Minimum Operating Operating
Expiration Loss Tax Credit Credit Loss Tax Credit Loss Loss
- ---------- ------- ---------- ---------- --------- ------------ --------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1997 ......... $9,867
1998 ......... $2,466
1999 .........
2000 ......... 41
2001 ......... $200
2010 ......... $20,000 $14,400
Unlimited .... $6,313 $10,253
------ ------- ---- ------- ------- ------- -------
Total ........ $9,867 $2,507 $200 $20,115 $6,313 $14,400 $10,253
====== ====== ==== ======= ====== ======= =======
</TABLE>
Income taxes paid totalled approximately $11,600,000, $7,300,000 and
$3,700,000, respectively, during the years ended December 31, 1993, 1994 and
1995. These amounts are exclusive of a prior year tax refund received by HCL in
1995 of approximately $4,000,000.
K. INTEREST AND OTHER INCOME - NET
Interest and other income - net for the years ended December 31, 1993,
1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Interest and dividend income................................ $3,258 $ 2,442 $2,459
Security gains (losses) - net............................... 2,261 (1,178) (413)
Gain on involuntary conversion (see Note D)................. - 18,100 1,700
Other, including gains (losses) of $850,000, $(3,800,000)
and $5,400,000 in 1993, 1994 and 1995, respectively,
relating to foreign currencies (see Note A)............. 495 (4,308) 5,382
------ ------- ------
Total................................................... $6,014 $15,056 $9,128
====== ======= ======
</TABLE>
L. PREFERRED STOCK
As discussed in Note G, preferred stock was issued to TPR in December,
1994. The dividend on the preferred stock is cumulative at the rate of $8.50 per
share per annum. The preferred shares are non-voting and were recorded at
$7,960,000, TRI's carrying value of the 9.5% Debentures held by TPR on the date
of conversion. The preferred shares are redeemable, at the option of the
Company, at any time, at a redemption price of $79.60 per share, plus an amount
equal to cumulative dividends, accrued and unpaid thereon up to the date of
redemption.
M. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In connection with a credit agreement, Cedar has entered into several
three-year interest rate swap agreements with a bank to effectively convert a
portion of its floating rate debt to fixed, thereby managing its credit risk. An
interest rate swap generally involves the exchange of fixed for floating rate
interest payment streams on specified notional principal amounts for an
agreed-upon period of time, without the exchange of the underlying principal
amounts. Notional amounts often are used to express the volume of
F - 21
<PAGE> 47
these transactions, but the amounts potentially subject to credit risk are much
smaller. Cedar's credit risk involves the possible default of the counterparty
(the bank). No collateral requirements are imposed.
During 1995, Cedar entered into the following interest rate swap
agreements which are used to manage its interest-rate risk. Cedar receives
variable rate payments and pays fixed rate payments. The following is a summary
of the contracts outstanding (in thousands of dollars) at December 31, 1995, all
of which mature in October, 1998:
<TABLE>
<CAPTION>
Nominal Fixed Rate Variable Rate
Amount Paid Received
------- ---------- -------------
<S> <C> <C>
$10,000 6.17% 5.94%
10,000 6.04% 5.94%
7,500 5.99% 5.94%
</TABLE>
The variable rate received is tied to the three-month LIBOR
rate. The quarterly repricing dates for each of these agreements are as of
month-end, beginning January, 1996.
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the requirements of Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments." The estimated fair value amounts have been determined by
the Company, using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Marketable securities (included within
"other current assets") ............ $ 22,923 $ 22,923 $ 2,393 $ 2,393
Investments in certain securities
(included within "other assets" and
accounted for by the equity method) 3,335 5,855 3,607 12,355
Liabilities:
Long-term debt .......................... 374,890 366,731 329,283 320,832
Off-balance sheet financial instruments:
Foreign currency contracts .............. (3,800) (6,100) 1,600 2,500
Risk management derivative .............. -- -- -- (109)
</TABLE>
Cash and Cash Equivalents, Accounts Receivable, Short-Term Debt and
Accounts Payable - The carrying amounts of these items are a reasonable estimate
of their fair value.
F - 22
<PAGE> 48
Investments in Securities - The fair value of these securities is
estimated based on quoted market prices.
Long-Term Debt - Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities are
used on a discounted cash flow basis to estimate fair value for debt issues for
which no market quotes are available.
Foreign Currency Contracts - The fair value of foreign currency
purchase contracts is estimated by obtaining quotes from brokers. The
contractual amount of these contracts totals approximately $117,000,000 and
$214,000,000 as of December 31, 1994 and 1995, respectively.
Risk Management Derivatives - The fair value generally reflects the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1994 and 1995. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
O. CONTINGENT LIABILITIES AND OTHER MATTERS
For a description of certain pending legal proceedings, see Item 3 -
"Legal Proceedings", which is an integral part of these financial statements.
The Company is vigorously defending against the allegations described therein.
Management of the Company believes, based upon its assessment of the
actions and claims outstanding against the Company and certain of its
subsidiaries, and after discussion with counsel, that the eventual disposition
of the matters referred to above should not have a material adverse effect on
the financial position, future operations or liquidity of the Company. However,
management of the Company cannot predict with certainty the outcome of the
potash and Louisiana matters described in Item 3.
The production of fertilizers and chemicals involves the use, handling
and processing of materials that may be considered hazardous within the meaning
of applicable environmental or health and safety laws. Accordingly, the
Company's operations are subject to extensive Federal, state and local
regulatory requirements in the United States and regulatory requirements in
Israel relating to environmental matters. Operating permits are required for the
operation of the Company's facilities, and these permits are subject to
revocation, modification and renewal. Government authorities have the power to
enforce compliance with these regulations and permits, and violators are subject
to civil and criminal penalties, including civil fines, injunctions or both. The
Company has entered into consent decrees and administrative orders with certain
governmental authorities which are expected to result in unspecified corrective
actions - see "Environmental Matters" in Item 1 - "Business". There can be no
assurance that the costs of such corrective actions will not be material.
The Company has accrued for the estimated costs of facility
investigations, corrective measures studies and known remedial measures relating
to environmental clean-up costs. However, the Company has been unable to
ascertain the range of reasonably possible costs that may be incurred for
environmental clean-up costs pending completion of investigations and studies.
Based on currently available information, Management believes that the
Company's expenditures for environmental capital investment and remediation
necessary to comply with present regulations governing environmental protection
and other expenditures for the resolution of environmental actions will not have
a material adverse effect on the Company's liquidity and capital resources,
competitive position or financial statements. However, Management cannot assess
the possible effect of compliance with future requirements.
F - 23
<PAGE> 49
Except for Eddy and HCL, none of the Company's employees are
represented by any collective bargaining unit. Eddy's hourly work force is
represented by three labor unions, with its collective bargaining agreements
expiring in August, 1998. Eddy has enjoyed generally good relations with its
labor unions and has not had a significant work stoppage for many years, except
for a work stoppage of approximately three weeks during 1995 related to the
negotiations of the three year contract expiring in August, 1998.
Technicians and engineers of HCL are members of the Union of
Technicians and Engineers, which operates throughout Israel, and substantial
terms of their employment (e.g. salaries and promotions) are governed by a
general collective agreement which HCL does not negotiate directly with such
employees. The other employees of HCL are members of the "Histadrut", the
dominant labor union in Israel, and their terms of employment are governed by a
Specific Collective Agreement ("SCA") negotiated by HCL with the Histadrut and
the representatives of the employees. In 1994, an agreement was signed with the
technicians and engineers for the three year period ending December 31, 1996. In
1995, an SCA was signed with the Histadrut and the representatives of the
employees for the two year period ending December 31, 1996.
HCL's last major labor dispute took place in July 1991 and related to
negotiations of the SCA for 1990 and 1991. As a result of this dispute, HCL's
employees went on strike for approximately four weeks during the third quarter
of 1991. Prior to that, the last major labor dispute took place in 1983, which
resulted in a strike of approximately two weeks.
F - 24
<PAGE> 50
CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
TRANS-RESOURCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1994 1995
(in thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 9,570 $ 17,760
Receivables and other current assets ................................. 133,492 1,012
Prepaid expenses ..................................................... 40 291
--------- ---------
Total Current Assets ........................................ 143,102 19,063
INVESTMENTS IN SUBSIDIARIES ............................................... 143,324 152,731
DUE FROM SUBSIDIARIES - net ............................................... 17,324 6,359
OTHER ASSETS .............................................................. 16,221 18,614
--------- ---------
Total ............................................... $ 319,971 $ 196,767
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................. $ 110,000 $ 23,350
Accrued expenses and other current liabilities ....................... 10,583 9,565
--------- ---------
Total Current Liabilities ................................... 120,583 32,915
--------- ---------
LONG-TERM DEBT - net:
Senior indebtedness, notes payable and other obligations ............. 27,500 27,500
Senior subordinated debt - net ....................................... 140,385 114,074
Junior subordinated debt - net ....................................... 7,981 --
--------- ---------
Long-Term Debt - net (Note) ................................. 175,866 141,574
--------- ---------
OTHER LIABILITIES ......................................................... 2,972 1,603
--------- ---------
STOCKHOLDER'S EQUITY:
Preferred stock, $1.00 par value, 100,000 shares
authorized, issued and outstanding .......................... 7,960 7,960
Common stock, $.01 par value, 3,000 shares authorized,
issued and outstanding ...................................... -- --
Additional paid-in capital ........................................... 505 8,682
Retained earnings .................................................... 13,432 4,764
Cumulative translation adjustment .................................... (360) (594)
Unrealized losses on marketable securities ........................... (987) (137)
--------- ---------
Total Stockholder's Equity .................................. 20,550 20,675
--------- ---------
Total ............................................... $ 319,971 $ 196,767
========= =========
</TABLE>
- -----------------
Note - The aggregate maturities of long-term debt during the next five years
is approximately as follows (after giving effect to the Company's
refinancing of certain bank debt as of January 2, 1996): 1996 -
$23,350,000; 1997 - $0; 1998 - $0; 1999 - $0 and 2000 - $0. Also, see
Note G of Notes to Consolidated Financial Statements.
S-1
<PAGE> 51
CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
(continued)
TRANS-RESOURCES, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
(in thousands)
<S> <C> <C> <C>
REVENUES - EQUITY IN NET
EARNINGS OF SUBSIDIARIES:
Dividends received from subsidiaries ....................... $ 34,932 $ 17,005 $ 8,609
Undistributed earnings of subsidiaries ..................... (12,474) 11,764 7,021
-------- -------- --------
Total ...................................................... 22,458 28,769 15,630
COSTS AND EXPENSES ............................................. (4,111) (3,674) (4,148)
INTEREST EXPENSE ............................................... (22,121) (23,243) (22,250)
INTEREST AND OTHER INCOME - net ................................ 5,797 1,392 1,868
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ......................................... 2,023 3,244 (8,900)
INCOME TAX BENEFIT (PROVISION) ................................. 1,043 (694) 2,042
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................... 3,066 2,550 (6,858)
EXTRAORDINARY ITEM - Loss on repurchase
of debt (no income tax benefit) ............................ (8,830) -- (103)
-------- -------- --------
NET INCOME (LOSS) .............................................. $ (5,764) $ 2,550 $ (6,961)
======== ======== ========
</TABLE>
S - 2
<PAGE> 52
CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I
(concluded)
TRANS-RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES AND WORKING CAPITAL
MANAGEMENT:
Operations:
Net income (loss) .................................. $ (5,764) $ 2,550 $ (6,961)
Items not requiring cash:
Unremitted earnings of subsidiaries ............ 12,474 (11,764) (7,021)
Depreciation and amortization .................. 3,985 1,226 1,147
Increase in other liabilities .................. 744 29 31
Deferred taxes and other - net ................. (1,048) 242 (1,064)
--------- --------- ---------
Total ............................................... 10,391 (7,717) (13,868)
Working capital management:
Receivables and other current assets ................ 4,926 (3,064) 6,115
Prepaid expenses .................................... (155) 851 (251)
Accrued expenses and other current liabilities ...... 3,816 2,778 (4,118)
--------- --------- ---------
Cash provided by (used in) operations and
working capital management .......................... 18,978 (7,152) (12,122)
--------- --------- ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment .............. (75) (70) (3)
Sales of marketable securities and
short-term investments, including in 1995 liquidation
of CD's securing a bank loan (see Note G) ........... 12,435 33,543 132,436
Purchases of marketable securities and
short-term investments, including in 1994 purchase
of CD's securing a bank loan (see Note G) ........... (34,118) (133,396) (4,371)
Other - net ............................................. (4,539) (3,464) 7,207
--------- --------- ---------
Cash provided by (used in) investment activities ........ (26,297) (103,387) 135,269
--------- --------- ---------
FINANCING ACTIVITIES:
Increase in long-term debt .............................. 109,166 139,574 --
Payments and current maturities of long-term debt ....... (90,457) (29,040) (113,250)
Dividends to stockholders ............................... (7,508) (225) (1,707)
--------- --------- ---------
Cash provided by (used in) financing activities ......... 11,201 110,309 (114,957)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................................ 3,882 (230) 8,190
CASH AND CASH EQUIVALENTS:
Beginning of year ....................................... 5,918 9,800 9,570
--------- --------- ---------
End of year ............................................. $ 9,800 $ 9,570 $ 17,760
========= ========= =========
---------
Interest paid ............................................... $ 16,557 $ 19,913 $ 23,289
========= ========= =========
Income taxes paid ........................................... $ 2,100 $ 1,113 $ 3,255
========= ========= =========
</TABLE>
S - 3
<PAGE> 53
TRANS-RESOURCES, INC.
INDEX TO EXHIBITS
Exhibit Description Page No.
- ------- -----------
3.1 Certificate of Incorporation of the Company, as amended (in
restated form), filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 (the
"1994 Form 10-K"), which is incorporated herein by reference. *
3.2 By-laws of the Company, filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991 (the "1991 Form 10-K"), which is incorporated herein by
reference. *
4.1 Indenture, dated as of March 1, 1989, between the Company and
First Alabama Bank, as Trustee, relating to the Senior
Subordinated Reset Notes due 1996, filed as Exhibit 4.3 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1988, which is incorporated herein by reference. *
4.2 Indenture, dated as of March 30, 1993 between the Company and
First Alabama Bank, as Trustee, relating to the 11 7/8%
Senior Subordinated Notes due 2002, filed as Exhibit 4.1 to
the Registration Statement of the Company on Form S-1, filed
on April 16, 1993, as amended, Registration No. 33-61158,
which is incorporated herein by reference. *
10.1 Potash Sales Agreement between Haifa Chemicals Ltd. and Dead
Sea Works Limited, dated January 1, 1980 (termination date
extended to December 31, 1999), concerning the supply of
potash, filed as Exhibit 10.2 to the Registration Statement
of the Company on Form S-1, filed on January 30, 1987, as
amended, Registration No. 33-11634 (the "1987 Form S-1"),
which is incorporated herein by reference. *
10.2 Manufacturing Processes Agreement between Haifa Chemicals
Ltd. and Oil Refineries Ltd., dated December 28, 1981,
concerning the supply of steam and water, filed as Exhibit
10.6 to the 1987 Form S-1, which is incorporated herein by
reference. *
10.3 Agreement of Use of Ammonia Pipeline between Haifa Chemicals
Ltd. and Oil Refineries Ltd., dated August 7, 1977, as
amended, concerning the use of an ammonia pipeline, filed as
Exhibit 10.8 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.4 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated December 20, 1968, concerning real property, filed as
Exhibit 10.9 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.5 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated March 31, 1974, concerning real property, filed as
Exhibit 10.10 to the 1987 Form S-1, which is incorporated
herein by reference. *
E - 1
<PAGE> 54
Exhibit Description Page No.
- ------- -----------
10.6 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated April 5, 1978, concerning real property, filed as
Exhibit 10.11 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.7 Lease between Haifa Chemical Ltd. and Oil Refineries Ltd.,
dated June 25, 1978, concerning real property, filed as
Exhibit 10.12 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.8 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd.,
dated September 25, 1986, concerning real property, filed as
Exhibit 10.13 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.9 Agreement between Haifa Chemicals Ltd. and The Port
Authorities, dated January 31, 1980 (termination date
extended to June 1996), concerning real property, filed as
Exhibit 10.15 to the 1987 Form S-1, which is incorporated
herein by reference. *
10.10 Agreement between the Company and Thomas G. Hardy, dated
March 22, 1994, concerning incentive bonus compensation,
including, as Exhibit A thereto, the related Trust Agreement,
filed as Exhibit 10.10 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993, which is
incorporated herein by reference. (1) *
10.11 Employment Agreement between the Company and Thomas G. Hardy,
dated as of June 1, 1993, filed as Exhibit 10.11 to the 1994
Form 10-K, which is incorporated herein by reference. (1) *
10.12 Salary Continuation Agreement between the Company and Lester
W. Youner, dated as of August 24, 1994, filed as Exhibit
10.12 to the 1994 Form 10-K, which is incorporated herein by
reference. (1) *
10.13 Credit Agreement, dated as of November 3, 1995, among Cedar
Chemical Corporation, the Lenders listed on the signature
pages thereof and The Chase Manhattan Bank (National
Association), as Administrative Agent (exhibits and schedules
omitted), filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 1995, which is incorporated herein by reference. *
10.14 Loan Agreement, dated as of December 29, 1995, between the
Company and Bank Hapoalim (certain exhibits and schedules
omitted). E - 4
10.15 Tax Sharing Agreement, dated as of December 30, 1991, among
TPR Investment Associates, Inc., the Company, Eddy Potash,
Inc., Nine West Corporation, TR Media Corporation and Cedar
Chemical Corporation, filed as Exhibit 10.23 to the 1991 Form
10-K, which is incorporated herein by reference. *
E - 2
<PAGE> 55
Exhibit Description Page No.
- ------- -----------
10.16 Split Dollar Insurance Agreement, entered into as of August
26, 1988, between the Company and Arie Genger, filed as
Exhibit 10.27 to the Registration Statement of the Company on
Form S-1, filed on October 20, 1992, as amended, Registration
No. 33-53486, which is incorporated herein by reference. (1) *
21 Subsidiaries of the Company. E - 5
24 Power of Attorney authorizing Lester W. Youner to sign this
report and any amendments hereto on behalf of the principal
executive officer and the directors. E - 6
27 Financial Data Schedule. E - 7
* Incorporated by reference
(1) Management contract or compensatory plan or arrangement E - 3
E-3
<PAGE> 1
EXHIBIT 10.14
LOAN AGREEMENT
AGREEMENT, dated as of December 29, 1995, between
TRANS-RESOURCES, INC., a Delaware corporation (the "Company"), and BANK
HAPOALIM B.M., an Israeli banking corporation acting through its New York
Branches (the "Bank").
In consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
1. DEFINITIONS.
1.1 Certain General Definitions. For all purposes of this
Agreement and the other Loan Documents, unless the context otherwise requires:
"Accelerated Principal" shall have the meaning
provided therefor in Section 2.4 hereof.
"Adjusted Net Worth" of the Company means the sum of
(i) the total amount of preferred stockholders' equity and common stockholders'
equity that would appear on an unconsolidated balance sheet of the Company, as
at such date prepared in accordance with generally accepted accounting
principles, plus (ii) the aggregate outstanding principal amount at that date
of the Senior Subordinated Notes, the Senior Reset Notes and all other
Subordinated Debt.
"Advance" shall have the meaning provided therefor in
Section 2.1 hereof.
"Agreement" means this Agreement, including all
Exhibits hereto, as the same may be amended or otherwise modified from time to
time, and the terms "herein," "hereof," "hereunder" and like terms shall be
taken as referring to this Agreement in its entirety and shall not be limited
to any particular section or provision thereof.
"Approved Change" means any change in Control of the
Company or TPR which has been approved in writing by the Bank, which approval
shall not unreasonably be withheld if the Bank has determined that after review
of such financial and other information concerning the Person that would become
in Control of the Company or TPR and receipt of such additional guarantees or
security, if any, as the Bank may reasonably request, there will be no material
adverse change in the creditworthiness of the Company or the likelihood of the
Advances being repaid in accordance with their terms.
"Business Day" means a day on which both (i) banks
are regularly open for business in both London and New York City and (ii) the
Bank's New York Branches shall be open for ordinary business. In the Bank's
discretion, the New York
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<PAGE> 2
Branches may be closed on any Saturday, Sunday, legal holiday or other day on
which it is lawfully permitted to close.
"Commitment Expiration Date" means the third
anniversary of the date of this Agreement.
"Company Pledge Agreement" means collectively the
1990 Pledge Agreement, as amended by 1990 Pledge Agreement Amendment No. 1,
1990 Pledge Agreement Amendment No. 2 and 1990 Pledge Agreement Amendment No. 3
and as further amended by 1990 Pledge Agreement Amendment No. 4, under which
the Company grants to the Bank a valid perfected first priority lien, charge
and security interest in approximately 93.02% of the outstanding HCL Stock and
the proceeds thereof under Israeli law.
"Consolidated Indebtedness" of any Person means, as
of any date, the aggregate Indebtedness that would appear on a consolidated
balance sheet of that Person and its consolidated Subsidiaries, as at such
date, prepared in accordance with generally accepted accounting principles.
"Consolidated Net Income" of HCL, for any period,
means the aggregate of the Net Income of HCL and its Subsidiaries for such
period on a consolidated basis; provided that (i) the Net Income of any Person
(other than a Subsidiary) in which HCL or any Subsidiary of HCL has a joint
interest with a third party shall be included only to the extent of the amount
of dividends or distributions paid to HCL or such Subsidiary, (ii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded from Net Income,
and (iii) all charges incurred and credits realized which are unusual in nature
and infrequently occurring shall be excluded from Net Income.
"Consolidated Tangible Net Worth" of any Person
means, as of any date, the total amount of non-redeemable preferred stock and
common stockholders' equity that would appear on a consolidated balance sheet
of that Person and its consolidated Subsidiaries, as at such date prepared in
accordance with generally accepted accounting principles, except that there
shall be deducted therefrom all intangible assets (determined in accordance
with generally accepted accounting principles) including, without limitation,
organization costs, patents, trademarks, copyrights, franchises, research and
development expenses, and any amount reflected as treasury stock; provided,
however, that costs in excess of fair value of net assets of businesses
acquired shall not be deducted.
"Control" means the power to direct or cause the
direction of the management and policies of a Person, either alone or in
conjunction with others and whether through the ownership of voting securities,
by contract or otherwise.
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<PAGE> 3
"Current Assets" of any Person means, as of the date
of any determination thereof, the aggregate amount carried as current assets on
the books of such Person, determined in accordance with generally accepted
accounting principles.
"Current Liabilities" of any Person means, as of the
date of any determination thereof, the aggregate amount carried as current
liabilities on the books of such Person, determined in accordance with
generally accepted accounting principles; provided, however, that, in the case
of the Company, Current Liabilities shall not include the Senior Reset Notes.
"Current Ratio" of any Person means the ratio of such
Person's Current Assets to such Person's Current Liabilities.
"Date of Determination" means, with respect to each
Interest Period, two Business Days prior to the commencement of that Interest
Period.
"Default" means any condition, event or act which,
with notice or lapse of time, or both, would constitute an Event of Default.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, including the rules and regulations
promulgated thereunder.
"Event of Default" shall have the meaning provided
therefor in Section 12.1 hereof.
"Facility Fees" means the fees payable by the Company
to the Bank pursuant to Section 5.5 hereof.
"Financial Statements" shall have the meaning
provided therefor in Section 7.6 hereof.
"Governmental Person" means any United States,
Israeli, or other national, state or local government, political subdivision,
or governmental, quasi-governmental, judicial, public or statutory
instrumentality, agency, authority, body or entity including the Federal
Deposit Insurance Corporation, any central bank or any comparable authority.
"Governmental Rule" means any law, rule, regulation,
ordinance, order, code, interpretation, judgment, decree, directive, guideline,
policy or similar form of decision of any Governmental Person.
"HCL" means Haifa Chemicals Ltd., an Israeli
corporation.
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<PAGE> 4
"HCL Stock" means the ordinary shares, par value NIS
1 per share, issued by HCL.
"Indebtedness" of any Person means indebtedness
incurred by that Person in respect of (i) money borrowed, (ii) any note, loan,
debenture or similar instrument, (iii) deferred payments for assets or services
acquired (except for payments deferred by unaffiliated persons on terms
consistent with industry standards), (iv) capitalized rentals under any
capitalized lease (whether in respect of land, machinery, equipment or
otherwise), but excluding rentals under any operating lease, (v) guarantees,
bonds, stand-by letters of credit or other instruments issued in support of
Indebtedness of any other Person, and (vi) guarantees or other assurances
equivalent to guarantees against financial loss in respect of Indebtedness as
defined under any of clauses (i) to (v) above.
"Interest Period" means, in the case of each Advance,
(i) the period commencing on the date on which that Advance is made and ending
on the next following Payment Date (the "Initial Interest Period"), and (ii)
each consecutive three-month period following such Initial Interest Period
commencing at the end of the immediately preceding Interest Period and ending
on the next following Payment Date. The last Interest Period for each Advance
shall end on the Maturity Date. If any Interest Period would otherwise come to
an end on a day which is not a Business Day, the termination thereof shall be
postponed to the next day which is a Business Day unless it would thereby
terminate in the next calendar month. In such case, such Interest Period shall
terminate on the immediately preceding Business Day.
"Israeli Resident" means an individual who, under the
laws of the State of Israel, is a citizen or resident of the State of Israel or
any other Person of which 25% or more of any class of equity securities are
owned, directly or indirectly, by one or more Israeli Residents. The term
"Israeli Resident" shall not include any "exempted person" under the laws of
the State of Israel.
"Junior Indenture" means any indenture or agreement
pursuant to which any Junior Subordinated Debt has been or will be issued or
incurred by the Company.
"Junior Subordinated Capital" of any Person means, as
of any date, the total of the Consolidated Tangible Net Worth of such Person
and the outstanding aggregate principal amount of Junior Subordinated Debt and
the outstanding aggregate liquidation value of any outstanding shares of
redeemable preferred stock having no mandatory redemption requirements earlier
than the later of (x) the Maturity Date, or (y) the payment in full of the
principal of and interest on the Note.
"Junior Subordinated Debt" means obligations of the
Company as reflected on the Company's books which are subordinated in right of
payment to the Senior Subordinated Notes and Senior Reset Notes (to at least
the same extent as the Senior Subordinated Notes and Senior Reset Notes are
subordinated to Senior Indebtedness,
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<PAGE> 5
including without limitation any class of equity securities convertible into
obligations so subordinated) and shall include an agreement by holders of such
obligations and any transferees not to receive any payments during the
continuation of any default with respect to the Senior Subordinated Notes or
Senior Reset Notes or (without the prior written consent of the holders of the
Senior Subordinated Notes and the Senior Reset Notes) enforce any remedies with
respect to such obligations during the continuation of a default with respect
to such obligations as long as the Senior Subordinated Notes and Senior Reset
Notes are outstanding.
"LIBOR" means, with respect to any Interest Period,
the rate or rates established by the New York Branches of the Bank on the Date
of Determination for that Interest Period by applying the London Eurodollar
Deposit Rates quoted on the display designated as page "RMEY" to subscribers of
the Reuters Monitor Money Rates Service. The rates so quoted reflect the
selling rates selected by such Service as rates offered at 11:00 A.M. London
Standard Time for bank to bank United States Dollar deposits in such amounts
and for such periods of time (Interest Periods) as may apply; provided, that,
in the case of the initial Interest Period and last Interest Period for each
Advance, if that Interest Period is not a one, two or three-month period, LIBOR
shall be determined by interpolation by the Bank using the rates so quoted for
the relevant one, two or three-month periods, as the case may be. If the RMEY
page shall be replaced by another page on the Reuters Money Market Rates
Service for quoting London Eurodollar Deposit Rates, then rates quoted on such
replacement page shall be applied. If the Bank determines that London
Eurodollar Deposit Rates are no longer being quoted (temporarily or
permanently) on the Reuters Monitor Money Rates Service or that such Service is
no longer functioning (temporarily or permanently) in substantially the same
manner as on the date hereof, then the Company and the Bank shall negotiate in
good faith towards the aim of agreeing upon a substitute, publicly available
reference for the determination of LIBOR.
"LIBOR-Based Rate" shall have the meaning assigned
thereto in Section 5.1 hereof.
"Lien" means any charge, lien, mortgage, pledge,
security interest or other encumbrance of any nature whatsoever upon, of or in
property or other assets of a Person, whether absolute or conditional,
voluntary or involuntary, whether created pursuant to agreement, arising by
force of statute, by judicial proceedings or otherwise.
"Loan Documents" means this Agreement, the Note, the
Company Pledge Agreement, the TRIL Pledge Agreement, and any other instruments,
agreements or other documents delivered by the Company, TRIL or HCL to the Bank
pursuant to any of the foregoing Loan Documents.
"London Interbank Market" means the London interbank
market for United States Dollars and/or United States Dollar interest rates.
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<PAGE> 6
"Maturity Date" means the ninth anniversary of the
date of this Agreement.
"Net Income" of any Person for any fiscal period
means the difference between gross revenues and all costs, expenses and other
proper charges (including taxes on income) as determined in accordance with
generally accepted accounting principles.
"1990 Pledge Agreement" means the Pledge Agreement
dated as of December 21, 1990 between the Bank, the Trust Company and the
Company.
"1990 Pledge Agreement Amendment No. 1" means
Amendment No. 1 to the 1990 Pledge Agreement, dated as of November 29, 1993.
"1990 Pledge Agreement Amendment No. 2" means
Amendment No. 2 to the 1990 Pledge Agreement, dated as of June 28, 1994.
"1990 Pledge Agreement Amendment No. 3" means
Amendment No. 3 to the 1990 Pledge Agreement, dated as of March 6, 1995.
"1990 Pledge Agreement Amendment No. 4" means
Amendment No. 4 to the 1990 Pledge Agreement in form and substance satisfactory
to the Bank and substantially in the form set forth in Exhibit 1.1-1 annexed
hereto.
"Note" means the Company's promissory note,
substantially in the form of Exhibit 1.1-2 hereto, with appropriate insertions.
"Payment Date" means the second day of each January,
April, July and October following the date hereof.
"PBGC" means the Pension Benefit Guaranty Corporation
and any entity succeeding to any or all of its functions under ERISA.
"Person" shall include an individual, a partnership,
a joint venture, a corporation (including, without limitation, the Company or
any Subsidiary), a trust, an estate, an unincorporated organization or
association and a Governmental Person. If any Person is a corporation, unless
otherwise provided, the use of the term Person to refer to that corporation
means that corporation as a single entity and not as consolidated with its
Subsidiaries.
"Plan" means an employee benefit plan or other plan,
including both single-employer and multi-employer plans, maintained for
employees of the Company or any Subsidiary thereof or any controlled group of
trades or businesses under common control, as defined respectively in Sections
1563 and 414(c) of the Internal Revenue Code of 1986, as
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<PAGE> 7
amended, of which the Company or any Subsidiary thereof is or becomes a part,
and covered by Title IV of ERISA.
"Prime-Based Rate" means the Bank's New York
Branches' stated prime rate as reflected from time to time in its books and
records. The Prime-Based Rate shall change automatically when and as the prime
rate shall change. The Bank may make loans to others at rates above or below
its prime rate.
"Reinvestment Costs" shall have the meaning provided
therefor in Section 2.4 hereof.
"Reportable Event" shall have the meaning set forth
in Section 4043(b) of Title IV of ERISA.
"Senior Indebtedness" means (a) the principal of and
interest on all Indebtedness of the Company whether short or long-term and
whether secured or unsecured (including all Indebtedness evidenced by notes,
bonds, debentures or other securities sold by such Person for money), including
without limitation all Indebtedness incurred by the Company in the acquisition
(whether by way of purchase, merger, consolidation or otherwise and whether by
such Person or another Person) of any capital stock, business, real property or
other assets (except assets acquired in the ordinary course of the conduct of
the acquiror's business), (b) guarantees by the Company of Indebtedness of a
Subsidiary of the Company, and (c) renewals, extensions, refundings, deferrals,
restructurings, amendments and modifications of any such Indebtedness,
obligation or guarantee; provided that Senior Indebtedness shall not include
(i) Indebtedness evidenced by the Senior Subordinated Notes or Senior Reset
Notes, which is subordinated to the Note; (ii) any other Indebtedness that
constitutes Subordinated Debt including Junior Subordinated Debt; or (iii) any
Indebtedness of the Company to any of its Subsidiaries.
"Senior Reset Note Indenture" means the Indenture
dated as of March 1, 1989 between the Company and First Alabama Bank, as
Trustee.
"Senior Reset Notes Repurchase Event" shall have the
meaning set forth in Section 10.9 hereof.
"Senior Reset Notes" means the Company's 14 1/2%
Senior Subordinated Reset Notes due September 1, 1996, issued under the Senior
Reset Note Indenture.
"Senior Subordinated Note Indenture" means the
Indenture dated as of March 30, 1993 between the Company and First Alabama
Bank, as Trustee.
"Senior Subordinated Notes" means the Company's
11-7/8% Senior Subordinated Notes due July 1, 2002, issued under the Senior
Subordinated Note Indenture.
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<PAGE> 8
"Senior Subordinated Notes Repurchase Event" shall
have the meaning set forth in Section 10.9 hereof.
"Significant Subsidiary" means a significant
subsidiary of the Company (other than Eddy Potash, Inc.), as such term is
defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act of
1933, as amended.
"Subordinated Debt" means (a) unsecured obligations
of the Company as reflected on the Company's books which (i) are not due until
the later of (x) the Maturity Date, or (y) the payment in full of the principal
of and interest on the Note, and (ii) are subordinated in right of payment to
the Note (to at least the same extent as the Senior Subordinated Notes are
subordinated to Senior Indebtedness) and shall include an agreement by holders
of such obligations and any transferees not to receive any payments with
respect to such obligations as long as there exists and is continuing a default
in payment of principal or interest on the Note, (b) Junior Subordinated Debt
(including any such Junior Subordinated Debt converted to such after the date
hereof) and (c) the obligations of the Company evidenced by the Senior Reset
Notes and the Senior Subordinated Notes or any other indebtedness that is
subordinated in right of payment to the Note (to at least the same extent as
the Senior Reset Notes and the Senior Subordinated Notes are subordinated to
Senior Indebtedness).
"Subsidiary" means, when used with reference to any
corporation, any corporation of which at least a majority of the outstanding
stock having, by the terms thereof, ordinary voting power to elect a majority
of the Board of Directors of such corporation is at the time directly or
indirectly owned by such first-mentioned corporation.
"Tangible Net Worth" means tangible net worth as
determined in accordance with generally accepted accounting principles on an
unconsolidated basis but including and excluding specific items in the same
manner as is provided in the definition of "Consolidated Tangible Net Worth."
"TPR" means TPR Investment Associates, Inc., a
Delaware corporation.
"Treasury Obligation" means a note, bill or bond
issued by the United States Treasury Department as a full faith and credit
general obligation of the United States.
"TRIL" means Trans-Resources (Israel) Ltd., an
Israeli corporation.
"TRIL Pledge Agreement" means the Pledge Agreement
under which TRIL grants to the Bank a valid perfected first priority lien,
charge and security interest in 6.98% of the outstanding HCL Stock and the
proceeds thereof under Israeli law (which shall be in form and substance
satisfactory to the Bank and substantially in the form set forth in Exhibit
1.1-3 annexed hereto).
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<PAGE> 9
"Trust Company" means Trust Company of Bank Hapoalim
B.M., ([Mem]"[Ayin][Veth] [Mem][Yod][Lamed][Ayin][Vav][Feh][Heh]
[Koph][Nun][Veth] [Lamed][Shin] [Thav][Vav][Nun][Mem][Aleph][Nun]
[Thav][Resh][Veth][Cheth]) a company duly incorporated and existing under the
laws of the State of Israel, having its registered office at 55 Rothschild
Boulevard, Tel-Aviv 65124.
"United States of America," when used in a
geographical sense, means all of the States of the United States of America and
the District of Columbia and, so long as they continue as possessions or
territories of the United States, Puerto Rico and the Virgin Islands.
"Working Capital" of any Person means, as of the date
of any determination thereof, the excess of the Current Assets of that Person
over the Current Liabilities of that Person.
1.2 Use of Accounting Terms. Accounting terms used herein
shall be construed, calculations hereunder shall be made and financial data
required hereunder shall be prepared, both as to classification of items and as
to amounts, in accordance with generally accepted accounting principles in
effect in the United States (except that any reference in this Agreement to
generally accepted accounting principles with respect to financial statements
of HCL shall be deemed to be references to Israeli generally accepted
accounting principles, unless otherwise provided herein) as of the date thereof
consistently applied, which principles shall be consistent with those used in
the preparation of the most recent reviewed financial statements of such Person
delivered to the Bank. All statements relating to earnings and expenses shall
set forth separately or otherwise identify all extraordinary and nonrecurring
items.
2. COMMITMENT OF THE BANK.
2.1 Loans. Subject to the terms and conditions of this
Agreement, the Bank agrees to make loans (collectively called the "Advances"
and individually an "Advance") to the Company on any Business Day during the
period from the date hereof to, but not including, the Commitment Expiration
Date in accordance with Section 2.2 hereof, in such amounts as the Company may
from time to time request, but in no event shall the amount of any Advance,
when added to the amount of all Advances previously made hereunder, exceed
Forty Million Dollars ($40,000,000), less any amount paid or required to be
paid to the Bank as a mandatory prepayment pursuant to Section 2.3(c) hereof,
and in no event shall the Bank be required to make Advances hereunder more
frequently than twice each calendar month. Repayment of the principal amount
of each Advance shall be made in equal quarterly annual installments commencing
on the first Payment Date following the second anniversary of the date on which
such Advance is made and ending on the Maturity Date (it being understood that
the number of such installments will range from 16 installments, in the case of
an Advance made on the Commitment Expiration Date, to 28 installments, in the
case of an Advance made on the date of this Agreement). The last principal
installment shall be in the
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<PAGE> 10
then outstanding unpaid principal balance of the Note and shall be due and
payable on the Maturity Date, together with all unpaid interest accrued through
that date.
2.2 Borrowing Procedures. The Company shall give the Bank at
least three (3) Business Days' prior written notice (which if sent by telecopy
shall promptly be confirmed by delivering the original of the written notice to
the Bank) of each proposed Advance, specifying in reasonable detail to the Bank
the purpose for which the proceeds of such Advance will be used. Upon the
satisfaction of each of the conditions specified in Sections 8 and 9 to the
extent applicable to such Advance, the Bank shall pay over in immediately
available funds to the Company the amount of such proposed Advance, not later
than 3:00 P.M., New York time, on the date of such proposed Advance. Each
Advance shall be in an aggregate amount of at least $500,000.
2.3 Voluntary and Mandatory Prepayments.
(a) The Company may prepay the Note in part or in
full at any time, subject to the provisions set forth in the Note, upon not
less than seven days prior written notice to the Bank, provided that each such
prepayment shall be in the amount of $100,000 or any integral multiple thereof;
except that prepayment of the entire outstanding principal amount of the Note
need not be in the amount of $100,000 or any integral multiple thereof.
(b) Any voluntary or mandatory prepayments of the
principal of the Note, whether partial or full, shall be accompanied by the
payment of any accrued interest on the principal amount so prepaid and any
other payment or charge required by the Note.
(c) If any law, regulation, directive or treaty or
any change therein or in the interpretation or application thereof shall make
it unlawful for the Bank to maintain the Advances evidenced by the Note or to
claim or receive any amount otherwise payable under the Note or this Agreement,
the Bank shall so notify the Company. In the case of any such notice, the
Company shall prepay the outstanding principal amount of the Note in full
together with all accrued interest (i) on the last Business Day of the Interest
Period which includes the date of such notice, if the Bank may lawfully receive
such prepayment on such day, or (ii) on such earlier date on which the Bank may
lawfully receive such payment, if payment on such earlier date is reasonably
required as a result of such impending illegality.
(d) Notwithstanding anything in this Section 2.3 to
the contrary, any prepayment, whether voluntary or mandatory, may be applied by
the Bank to any principal or interest of the Note, in such amounts and order of
priority as the Bank deems appropriate in its sole discretion. The Bank shall
have no liability to the Company for any failure to apply prepayments in
accordance with any instructions that the Bank may receive from the Company
which are inconsistent with the provisions of this Subsection 2.3(d).
2.4 Compensation for Reinvestment Costs. If the Company
makes any payment or prepayment of or on account of the outstanding principal
amount of the Note at
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<PAGE> 11
any time other than the last day of an Interest Period, whether after an Event
of Default or otherwise, then the Company shall compensate the Bank for the
costs (the "Reinvestment Costs") of reinvesting, for the period extending until
the last day of the then current Interest Period, the funds received by it upon
such payment at a rate or rates which may be less than the LIBOR-Based Rate
applicable to the principal portion of such amount paid (the "Accelerated
Principal"). The Company and the Bank acknowledge that determining the actual
amount of the Reinvestment Costs may be difficult or impossible in any specific
instance. Accordingly, the Company and the Bank agree that the Reinvestment
Costs shall be the excess, if any, of
(i) the product of (A) the Accelerated Principal,
times (B) the applicable LIBOR-Based Rate divided by
360, times (C) the remaining number of days from the
date of the payment to the last day of the relevant
Interest Period, over
(ii) that amount of interest which the Bank
determines that the holder of a Treasury Obligation
selected by the Bank in the amount (or as close to
such amount as feasible) of the Accelerated Principal
and having a maturity date on (or as soon after as
feasible) the last day of the relevant Interest
Period, would earn if that Treasury Obligation were
purchased in the secondary market on the date the
Accelerated Principal is paid to the Bank and were
held to maturity.
The Company agrees that determination of Reinvestment Costs
shall be based on amounts that a holder of a Treasury Obligation could receive
under these circumstances, whether or not the Bank actually invests the
Accelerated Principal in any Treasury Obligation. The Bank's determination as
to Reinvestment Costs pursuant to this Section 2.4 shall be conclusive, final
and binding on the Company in the absence of manifest error.
2.5 Increased Costs. If, after the date of this Agreement,
the adoption of any applicable Governmental Rule, any change in any applicable
Governmental Rule, any change in the interpretation or administration of any
applicable Governmental Rule by any Governmental Person charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law) of any such
Governmental Person
(a) shall subject the Bank to any tax, duty or
other charge with respect to all or any portion of
any Advance, or its obligation to make all or any
portion of any Advance or shall change the basis of
taxation of payments to the Bank of any amounts due
under this Agreement, or the Note (except for changes
which affect franchise taxes or taxes measured by or
imposed on the overall net income of the Bank or any
of its offices imposed by the tax laws of any
jurisdiction in the world); or
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<PAGE> 12
(b) shall impose, modify or deem applicable any
reserve (including, without limitation, any imposed
by the Board of Governors of the Federal Reserve
System), special deposit, capital adequacy
requirement, capital equivalency, ratio of assets to
liabilities or any other capital substitute or
similar requirement against assets of, deposits with
or for the account of, credit extended by, letters of
credit issued and maintained by, or collateral
subject to a lien in favor of the Bank, or shall
impose on the Bank any other condition affecting all
or any portion of any Advance;
and the result of any of the foregoing is to increase the cost to or to impose
a cost on the Bank of making or maintaining all or any portion of any Advance,
or to reduce the amount of any sum received or receivable by the Bank under
this Agreement or the Note, or (in the case of a capital adequacy or similar
requirement) to reduce the rate of return on the Bank's capital as a
consequence of maintaining all or any portion of any Advance to a level below
that which could have been achieved but for the imposition of such requirement
(taking into consideration the Bank's capital adequacy policies), then, within
30 days after demand by the Bank, the Company shall pay the Bank for its own
account such additional amount or amounts as will compensate the Bank for such
increased cost or reduction actually incurred. The Bank will promptly notify
the Company of any event of which it has knowledge, occurring after the date of
this Agreement, which will entitle the Bank to compensation pursuant to this
Section 2.5. A certificate of the Bank claiming compensation for itself under
this Section 2.5 and setting forth in reasonable detail the additional amount
or amounts to be paid to the Bank shall be conclusive evidence of the amount of
such compensation absent manifest error. In determining such amount, the Bank
may use any reasonable averaging and attribution methods.
2.6 Net Payments. All payments to the Bank under this
Agreement or the Note shall be made without defense, setoff or counterclaim and
in such amounts as may be necessary in order that all such payments (after
deduction or withholding for or on account of any present or future taxes,
levies, imposts, duties, or other charges of whatsoever nature imposed by any
government, any political subdivision or any taxing authority, other than any
franchise tax or other tax owed and measured by the overall net income of the
Bank or any of its offices pursuant to the tax laws of any jurisdiction in the
world (collectively, the "Taxes")), shall not be less than the amounts
otherwise specified to be paid under this Agreement or the Note. A certificate
as to any additional amounts payable to the Bank under this Section 2.6
submitted to the Company by the Bank shall show in reasonable detail the
amounts payable and the calculations used to determine in good faith such
amounts and shall be conclusive absent manifest error. Any amounts payable by
the Company under this Section 2.6 with respect to past payments shall be due
within three Business Days following receipt by the Company of such certificate
from the Bank; any such amounts payable with respect to future payments shall
be due concurrently with such future payments. With respect to each deduction
or withholding for or on account of any Taxes, the Company shall promptly
furnish to the Bank such certificates, receipts and other documents as may be
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<PAGE> 13
required (in the reasonable judgment of the Bank) to establish any tax credit
to which the Bank may be entitled.
2.7 Security for the Advances. The Advances shall be secured
by a first priority lien upon and security interest in approximately 99.99% of
the issued and outstanding HCL Stock pursuant to the Company Pledge Agreement
and the TRIL Pledge Agreement.
3. USE OF PROCEEDS. The Company covenants and agrees that it
shall use the proceeds of each and every Advance made to it by the Bank
pursuant hereto (i) to repurchase, or reimburse the Company for purchases after
November 15, 1995 of, outstanding Senior Subordinated Notes and/or Senior Reset
Notes; provided, that not more than $20,000,000 of such proceeds shall be used
for this purpose; and (ii) for general corporate purposes, including the
acquisition by the Company of businesses or lines of businesses.
4. NOTE EVIDENCING BORROWINGS. The Advances shall be evidenced
by the Note. All Advances made by the Bank to the Company and all repayments
of principal by the Company shall be reflected by the Bank in its records or,
at the Bank's option, on the schedule attached to the Note, which records or
schedule shall be rebuttable presumptive evidence of the entries made therein
or thereon. The Bank agrees to provide statements of such amounts to the
Company upon the Company's written request; provided, however, that, in the
event of any conflict between such statement and the Bank's books and records,
the latter shall be controlling absent manifest error.
5. INTEREST AND FEES
5.1 Interest. Subject to Sections 5.2 and 5.3 hereof, the
unpaid principal of each Advance shall bear interest prior to maturity for each
Interest Period at a rate per year (the "LIBOR-Based Rate") equal to 2.25
percentage points per annum above the LIBOR for that Interest Period.
5.2 Absence of LIBOR Determination; Unenforceability.
Notwithstanding anything to the contrary contained in Section 5.1, if the Bank
determines, on any Date of Determination, that (i) by reason of circumstances
affecting the London Interbank Market generally, adequate and fair means do not
exist for ascertaining an applicable LIBOR or it is impractical for the Bank to
continue to fund the outstanding principal amount of the Note during the
applicable Interest Period, or (ii) London Eurodollar Deposit Rates are no
longer being quoted (temporarily or permanently) on the Reuters Monitor Money
Rates Service or such Service is no longer functioning (temporarily or
permanently) in substantially the same manner as on the date hereof, and, after
negotiating in good faith, the Bank has failed to agree with the Company with
respect to a substitute, publicly available reference for the determination of
LIBOR, or (iii) quotes for funds in United States Dollars in sufficient amounts
comparable to the then outstanding principal amount of the Note and for the
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<PAGE> 14
duration of the applicable Interest Period would not be available to the Bank
in the London Interbank Market, or (iv) quotes for funds in United States
Dollars in the London Interbank Market will not accurately reflect the cost to
the Bank of funding the outstanding principal amount of the Note during the
applicable Interest Period, or (v) the making or funding of loans, or charging
of interest at rates, based on LIBOR shall be unlawful or unenforceable for any
reason, then as long as such circumstance(s) shall continue, interest on the
outstanding principal amount of the Note shall be payable at a variable rate
per year which shall be equal to the Prime-Based Rate and such interest shall
be payable on the last day of each Interest Period until the principal amount
of the Note is paid in full.
5.3 Default Rate. Regardless of the applicability of any
other interest rate hereunder, whether pursuant to Section 5.1 or 5.2 or
otherwise, interest on the outstanding principal amount of the Note shall be
payable at the Default Rate (as hereinafter defined), at any date after the
entire outstanding principal balance of the Note shall have become due and
payable (whether by reason of stated maturity, acceleration or otherwise;
provided, however, in the case of acceleration, the Default Rate also shall
apply retroactively from the earliest date an Event of Default, by reason of
nonpayment or otherwise, first occurred). For the purposes hereof, the
"Default Rate" means a variable rate per year which shall at all times be equal
to two percent (2%) per year above the Prime-Based Rate, except that in the
case of acceleration, the Default Rate applicable to any Advance bearing
interest at the LIBOR-Based Rate shall be equal to two percent (2%) per year
above the LIBOR-Based Rate during the Interest Period in which such
acceleration occurs until the last day of such Interest Period and, thereafter,
shall be equal to two percent (2%) per year above the Prime-Based Rate.
5.4 Generally. Interest shall be payable on the unpaid
principal balance of each Advance evidenced by the Note on the last day of each
Interest Period in respect thereof and at any time that any part of such
principal is due or is paid, or any time that the Note is paid in full. Such
interest shall be calculated on a daily basis on the outstanding principal
balance of each Advance at the applicable LIBOR-Based Rate or the Default Rate,
as the case may be, divided by 360 on the actual days elapsed from the date
hereof, or from the date the entire principal balance of the Note shall have
become due and payable, or from the stated date of maturity, as appropriate,
until paid. Any payment by other than immediately available funds shall be
subject to collection. Interest shall continue to accrue until the funds by
which payment of principal is made are available to the Bank for its use.
Interest shall never exceed the maximum lawful rate of interest applicable to
the Note.
5.5 Fees.
(a) The Company shall pay to the Bank a
non-refundable Facility Fee of $200,000 for making this credit facility
available to the Company. The Facility Fee shall be payable in three equal
installments, of which the first such installment is being paid concurrently
with the execution and delivery of this Agreement and the second and third such
installments shall be payable, respectively, on the first and second
anniversaries of the date
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<PAGE> 15
of this Agreement, whether or not any Advances have then been made or requested
or this Agreement otherwise remains in effect.
(b) The Company shall pay the usual and customary
fees and charges of the Trust Company for its services in holding, as trustee
for the Bank, the certificates representing HCL Stock, in accordance with the
Company Pledge Agreement and the TRIL Pledge Agreement.
5.6 Conclusive Determination. The Bank's determination (i)
as to the occurrence or continuation of any of the events referred to in
Section 5.2, and (ii) of LIBOR and the applicable interest rate and the amount
of interest accrued under the Note, shall be conclusive, final and binding on
the Company in the absence of manifest error.
6. PAYMENTS, OFFSETS AND REDUCTION OR TERMINATION OF THE CREDIT
6.1 Place of Payment. All payments hereunder (including
payments with respect to the Note) shall be made without set-off, counterclaim
or deduction and shall be made in immediately available funds by the Company to
the Bank, prior to 3:00 p.m., New York time, at its offices at 1177 Avenue of
the Americas, New York, New York 10036 or at such other place as may be
designated by the Bank to the Company in writing. Any payment received after
3:00 p.m., New York time, shall be deemed received on the next Business Day.
If any payment of principal of or interest on the Note or any other amount
under the Note or this Agreement falls due on a day that is not a Business Day,
it shall be payable on the next succeeding Business Day (unless such day would
be a day in the next calendar month, and in such case payment shall be due on
the immediately preceding Business Day), and the resulting additional or
decreased time (if any) shall be included in or deducted from the computation
of interest.
6.2 Set-Off. In addition to and not in limitation of all
rights of set-off that the Bank may have under applicable law, any and all
balances, credits, deposits, accounts or moneys of the Company then or
thereafter maintained or held at any of the Bank's offices worldwide and in any
currency, shall be subject to being set off against any obligations of the
Company to the Bank arising under this Agreement or the other Loan Documents,
and in furtherance thereof, the Bank may at any time and from time to time
after an Event of Default shall have occurred and be continuing at its option
and without notice to the Company, except as may be required by law,
appropriate and apply toward the payment of any of such obligations of the
Company to the Bank all or any part of the balances of each such balance,
credit, deposit, account, or money with the Bank.
7. REPRESENTATIONS AND WARRANTIES.
To induce the Bank to enter into this Agreement and to make
Advances hereunder, the Company represents, warrants and covenants to the Bank
that:
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<PAGE> 16
7.1 Corporate Existence. The Company is a duly organized and
validly existing corporation in good standing under the laws of the State of
Delaware and has the corporate power and authority to own its properties and
other assets and to transact the business in which it is now engaged or
proposes to engage. Each of TRIL and HCL is a duly organized and validly
existing corporation under the laws of the State of Israel and has the
corporate power and authority to own its properties and other assets and to
transact the business in which it is now engaged or proposes to engage. Each
of the Company and HCL is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which the failure to qualify would have a
material adverse effect on its business.
7.2 Holdings. TPR owns both beneficially and of record all
of the issued and outstanding capital stock of the Company. The Company owns
beneficially (including 3,662,830 shares owned of record by TRIL) 52,480,013
shares of HCL Stock, which represents approximately 99.999% of the issued and
outstanding HCL Stock, of which 48,817,183 shares, representing approximately
93.02%, are owned of record by the Company. HCL owns beneficially and of
record all 2,640 of the issued and outstanding shares of capital stock of TRIL,
except for one share owned of record by a subsidiary of HCL. As of the date
hereof, (i) the shareholders of TPR and their respective interests therein, and
(ii) the identity of the principal stockholder of the Company and its interest
therein, are as set forth in the Company's Form 10-K for the fiscal year ended
December 31, 1994. As of the date hereof, the Company has no Subsidiaries
other than those listed on Exhibit 21 to such Form 10-K, and certain other
Subsidiaries which, if considered in the aggregate as a single Subsidiary,
would not constitute a Significant Subsidiary.
7.3 Authorization and Execution. (a) The Company has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Loan Documents executed by it. The execution, delivery and
performance by the Company of such Loan Documents and the borrowing hereunder
have been duly authorized by all requisite corporate action. This Agreement,
the 1990 Pledge Agreement, the 1990 Pledge Agreement Amendment No. 1, the 1990
Pledge Agreement Amendment No. 2 and the 1990 Pledge Agreement Amendment No. 3,
are, and the Note and the 1990 Pledge Agreement Amendment No. 4, when executed
and delivered by the Company pursuant hereto, will be legal, valid and binding
obligations of the Company, enforceable against the Company, in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by the application by a
court of equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The 1990 Pledge Agreement,
the 1990 Pledge Agreement Amendment No. 1, the 1990 Pledge Agreement Amendment
No. 2 and the 1990 Pledge Agreement Amendment No. 3 remain in full force and
effect and upon the execution and delivery of the 1990 Pledge Amendment No. 4
they shall constitute a valid, binding and enforceable pledge of 48,817,183
shares of HCL Stock, as security for the obligation of the Company to the Bank
under the Note. Since the 1990 Pledge Agreement was entered into, neither the
Company nor, to the best knowledge of the Company, any other party to the
Company Pledge Agreement has in any manner violated or caused the violation of
any of the terms and conditions of the 1990 Pledge Agreement, the 1990 Pledge
Agreement Amendment No. 1,
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<PAGE> 17
the 1990 Pledge Agreement Amendment No. 2 or the 1990 Pledge Agreement
Amendment No. 3, nor failed to perform or fulfill any of its obligations
thereunder.
(b) TRIL has the corporate power and authority to execute,
deliver and carry out the terms and provisions of the TRIL Pledge Agreement and
any other Loan Documents executed by it. The execution, delivery and
performance by TRIL of such Loan Documents has been duly authorized by all
requisite corporate action. The TRIL Pledge Agreement, when executed and
delivered by TRIL pursuant hereto, will be a legal, valid and binding
obligation of TRIL, enforceable against TRIL, in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by the application by a court of equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The TRIL Pledge Agreement, when executed and
delivered by TRIL, shall constitute a valid, binding and enforceable pledge of
3,662,830 shares of HCL Stock, as security for the obligation of the Company to
the Bank under the Note.
7.4 Compliance with Other Instruments. Neither the Company
nor HCL is in default in the performance, observance or fulfillment of any of
the material obligations, covenants or conditions contained in any evidence of
Indebtedness of the Company or HCL, or contained in any instrument under or
pursuant to which any such evidence of Indebtedness has been issued or made and
delivered. Neither the execution and delivery of the Loan Documents, nor the
consummation of the transactions herein contemplated, including but not limited
to the use of the proceeds of any Advance for the funding of any acquisition or
for any other purpose, will conflict with or result in a breach of any of the
terms, conditions or provisions of the Certificate of Incorporation or By- laws
or other organizational charter and instruments of the Company, or of any
agreement or instrument to which the Company is now a party or otherwise bound
or to which any of the Company's properties or other assets is subject, or of
any law, statute, rule or regulation or any order or decree of any court or
governmental instrumentality, or of any arbitration award, franchise or permit,
or constitute a default thereunder, or result in the creation or imposition of
any Lien upon any of the properties or other assets of the Company, except as
herein contemplated.
7.5 Consents. No consent or approval of, or exemption by,
any Person (including, without limitation, the shareholders of the Company),
and no waiver of any right by any Person is required to authorize or permit, or
is otherwise required in connection with, the execution, delivery and
performance of the Loan Documents, or with respect to the required use by the
Company of the proceeds of any Loan, except those which shall have been
obtained on or prior to the date hereof.
7.6 Financial Statements. The Company has heretofore
furnished to the Bank copies of the unqualified audited consolidated financial
statements of the Company as of December 31, 1994 and for the year then ended,
the unaudited consolidated financial statements of the Company as of September
30, 1995 and for the nine-month period then ended, and the unqualified audited
consolidated financial statements of HCL as of December 31, 1994 and for the
year then ended and the unaudited consolidated financial statements of HCL as
of September 30, 1995 and for the nine-month period then ended
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<PAGE> 18
(collectively, the "Financial Statements"). All of the Financial Statements
present fairly the financial position of the Company or HCL, as the case may
be, on the date of the balance sheet included therein and the results of the
operations of the Company or HCL, as the case may be, for the period involved,
and have been prepared in accordance with, in the case of the Company,
generally accepted accounting principles in effect in the United States and in
the case of HCL, generally accepted accounting principles in effect in Israel,
applied on a consistent basis throughout the periods involved (subject to, in
the case of the interim financial statements, normal year-end audit adjustments
not material in amount).
7.7 No Material Changes. There has been no material adverse
change in the business, properties or other assets or in the condition,
financial or otherwise, of the Company or HCL since the date of the most recent
balance sheets included in their respective Financial Statements.
7.8 Litigation. Except as set forth on Schedule A, there are
no actions, suits, investigations or proceedings (whether or not purportedly on
behalf of the Company or HCL) pending or, to the knowledge of the Company
threatened against or affecting the Company or HCL, at law or in equity or
before or by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind,
which involve the possibility of any material liability or of any material
adverse effect on the business, operations, prospects, properties or other
assets or in the condition, financial or otherwise, of the Company or HCL.
7.9 Compliance with Law. Each of the Company and HCL is in
compliance, in all material respects, with all applicable requirements of law
and all applicable rules and regulations of each Federal, state, municipal or
other governmental department, agency or authority, domestic or foreign, the
noncompliance with which would have a material adverse effect on the business,
affairs, or financial condition of the Company or HCL, as the case may be.
7.10 Investment Company. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, or the regulations under such
act.
7.11 Residency and Citizenship Status of Company. The
Company (i) is not an "Israel resident" for purposes of Israeli Exchange
Control Law, 5738-1978, (ii) maintains its chief executive offices and
principal place of business in the State of New York, (iii) is not registered
in Israel as a foreign company and does not have a registered office in Israel,
and (iv) is not a representative, branch or agency in Israel for any other
Person.
7.12 Ownership of Company. As of the date of this Agreement,
none of the issued and outstanding shares of each class of the Company's
capital stock are owned, directly or indirectly, of record and/or beneficially,
by Israeli Residents.
7.13 Regulation U, Etc. None of the proceeds of any Advance
will be used, directly or indirectly, for any purpose that will violate, or
cause the Bank to be in violation of, or that will require the Bank to file or
obtain any forms or notices or applications of any
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<PAGE> 19
kind so as not to be in violation of, Regulation U (12 CFR, Part 221) of the
Board of Governors of the Federal Reserve System. Neither the Company nor any
agent acting on its behalf has taken or will take any action which might cause
this Agreement or the Note or the making of any Advance to violate Regulation U
or any other regulation of the Board of Governors of the Federal Reserve
System.
7.14 ERISA. (i) Each single-employer Plan has been
maintained and funded, in all material respects, in accordance with its terms
and with all provisions of ERISA applicable thereto, and the Company and its
Subsidiaries have each taken all actions required to be taken by them to cause
each multi-employer Plan to be maintained and funded, in all material respects,
in accordance with its terms and with all provisions of ERISA applicable
thereto; (ii) no Reportable Event has occurred and is continuing with respect
to any single-employer Plan or, to the Company's knowledge, any multi-employer
Plan; and (iii) no liability to PBGC has been incurred by the Company or any
Subsidiary thereof with respect to any single-employer Plan or, to the
Company's knowledge, any multi-employer Plan, other than for premiums due and
payable.
7.15 Control of the Company. TPR (i) is a Delaware
corporation, the economic equity interest of which is 100% owned by Arie Genger
and members of his family, and (ii) owns all of the issued and outstanding
common stock of the Company and Controls the Company.
7.16 Senior Subordinated Note Indenture. The Company has
delivered to the Bank a true and correct copy of the Senior Subordinated Note
Indenture and all amendments and supplements thereto as in effect on the date
hereof.
7.17 Senior Reset Note Indenture. The Company has delivered
to the Bank a true and correct copy of the Senior Reset Note Indenture and all
amendments and supplements thereto as in effect on the date hereof.
7.18 Priority of Loans. All indebtedness of the Company to
the Bank arising from the Loan Documents, including but not limited to the
Company's obligations to pay the principal of and interest on the Note, is and
at all times will be senior in right of payment to the Senior Subordinated
Notes and the Senior Reset Notes, as provided in the Senior Reset Note
Indenture and Senior Subordinated Note Indenture, respectively.
7.19 No Bank of Israel Approval Needed. No exchange control
specific permit issued by the Bank of Israel is required in connection with the
transactions contemplated in this Agreement, other than the specific permit for
the TRIL Pledge Agreement, which was issued prior to the date hereof.
7.20 Refinancing Commitment for Senior Reset Notes. The
Company or its Subsidiary has obtained a firm written commitment to provide it
with funds sufficient to refinance or otherwise repay the Senior Reset Notes, a
true and complete copy of which commitment has been furnished to the Bank.
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<PAGE> 20
8. CONDITIONS PRECEDENT TO INITIAL ADVANCE.
The obligation of the Bank to make the initial Advance to the
Company hereunder is subject to the satisfaction, on or before the date of the
making of such Advance, of each of the following conditions precedent which are
solely for the benefit of the Bank:
8.1 Repayment of Previous Company Loan. The Company (i)
shall have repaid in full the loan in the principal amount of $27,500,000
previously made by the Bank to the Company pursuant to the Loan Agreement dated
as of June 30, 1994 between the Bank and the Company and (ii) shall have
delivered to the Bank a duly executed guarantee of the loan from the Bank to
HCL referred to in Section 11.19(i) hereof, which guarantee shall be in form
and substance satisfactory to the Bank.
8.2 Note. The Note shall have been duly executed and
delivered to the Bank.
8.3 Pledge and Security Agreements. (i) The Company shall
have delivered to the Bank (A) a duly executed copy of the Company Pledge
Agreement, together with certificates representing 48,817,183 shares of HCL
Stock, registered in the name of the Trust Company, and a certificate from the
Secretary of HCL certifying that such shares are so registered (in form and
substance acceptable to the Bank), (B) a certificate from the Registrar of
Pledges in Jerusalem, Israel to the effect that the pledge of such shares has
been duly filed therewith in accordance with applicable law (in form and
substance acceptable to the Bank), (C) a duly executed copy of the 1990 Pledge
Agreement Amendment No. 4, and (D) any other instruments and documents as the
Bank may reasonably require to perfect its lien on such collateral under both
United States and Israeli law, as appropriate, including UCC-1 financing
statements, and the Bank shall have a valid and enforceable first priority lien
and security interest in all of such collateral.
(ii) TRIL shall have delivered to the Bank (A) a duly
executed copy of the TRIL Pledge Agreement, together with certificates
representing 3,662,830 shares of HCL Stock, registered in the name of the Trust
Company, and a certificate from the Secretary of HCL certifying that such
shares are so registered (in form and substance acceptable to the Bank), (B) a
certificate from the Registrar of Companies to the effect that the pledge of
such shares has been duly filed therewith in accordance with applicable law (in
form and substance acceptable to the Bank), and (C) any other instruments and
documents as the Bank may reasonably require to perfect its lien on such
collateral under both United States and Israeli law, as appropriate, including
UCC-1 financing statements, and the Bank shall have a valid and enforceable
first priority lien and security interest in all of such collateral.
8.4 Opinions of Counsel. The Bank shall have received (i)
from United States counsel for the Company a favorable written opinion
addressed to the Bank and dated the date of the initial Advance hereunder,
satisfactory to the Bank and substantially in the form set forth in Exhibit
8.4-1 annexed hereto, and (ii) from Israeli counsel to the Company and HCL, a
favorable written opinion addressed to the Bank and dated the date of the
initial Advance hereunder, satisfactory to the Bank and substantially in the
form set forth in Exhibit 8.4-2.
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<PAGE> 21
8.5 Supporting Documents. The Bank shall have received the
following from each of the Company and TRIL: (i) a certificate of its
Secretary or an Assistant Secretary, dated the date of the initial Advance
hereunder, certifying as to (A) its By-laws, in the case of the Company, and
its Memorandum of Association, in the case of TRIL; (B) resolutions of its
Board of Directors authorizing the execution, delivery and performance of this
Agreement, the Note and any other Loan Documents executed by it, in the case of
the Company and the TRIL Pledge Agreement, in the case of TRIL; (C) the full
force and effect of such resolutions on the date of such Advance; and (D) the
incumbency and signature of each of the officers of the Company who sign the
Loan Documents and all other closing papers hereunder; (ii) certified copies of
its Certificate of Incorporation, in the case of the Company, and its Articles
of Association, in the case of TRIL, listing all charter papers on file, as
amended through the date hereof; (iii) a good standing certificate from the
Secretary of State of the State of Delaware, in the case of the Company; and
(iv) such additional supporting documents as the Bank may reasonably request.
8.6 Fees. All applicable fees and charges payable by the
Company to the Bank or with respect to the transactions described in this
Agreement shall have been paid.
8.7 Proceedings. All corporate and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
this Agreement shall be satisfactory in form, scope and substance to the Bank
and its counsel, and the Bank and such counsel shall have received all
information and copies of all documents, including records of corporate
proceedings, which the Bank or its counsel may reasonably have requested in
connection therewith, such documents where appropriate to be certified by
proper corporate and governmental authorities.
9. CONDITIONS PRECEDENT TO ALL ADVANCES INCLUDING THE INITIAL
ADVANCE.
The obligation of the Bank to make each Advance (including the
initial Advance) is subject to the satisfaction, on or before the date of the
making of such Advance, of each of the following conditions precedent which are
solely for the benefit of the Bank:
9.1 Borrowing Request. Written request for the borrowing
shall have been received by the Bank at least three (3) Business Days before
the proposed borrowing pursuant to Section 2.2 hereof.
9.2 No Default. Both before and after giving effect to the
Advance (including upon application of the proceeds thereof), there shall exist
no Default or Event of Default.
9.3 Representations. Both before and after giving effect to
the Advance (including upon application of the proceeds thereof), all
representations and warranties by the Company contained herein and all
representations and warranties contained in the other Loan Documents shall be
true and correct, with the same force and effect as if made on and as of the
date of the Advance.
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<PAGE> 22
9.4 Officers' Certificate. The Company shall have delivered
to the Bank a certificate signed by the chief financial officer and the
Chairman, President or any Vice President (other than the chief financial
officer) of the Company dated the date of the Advance, certifying and
confirming that (i) no Default or Event of Default exists as set forth in
Section 9.2 hereof, and (ii) the representations and warranties referred to in
Section 9.3 hereof are true and correct and, in furtherance of and without
limiting the generality of the foregoing, the Company is not "insolvent" within
the meaning of the Federal Bankruptcy Code Section 101(32).
9.5 Pledge Agreements. The Company Pledge Agreement and the
TRIL Pledge Agreement shall remain in full force and effect and all filings
necessary to perfect and protect the Bank's interest in the HCL Stock subject
to the Company Pledge Agreement and the TRIL Pledge Agreement shall have been
filed and kept current in the appropriate offices of all applicable
jurisdictions.
9.6 Fees. All applicable fees and charges payable by the
Company to the Bank or with respect to the transactions described in this
Agreement shall have been paid.
9.7 Proceedings. All corporate and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
this Agreement shall be satisfactory in form, scope and substance to the Bank
and its counsel, and the Bank and such counsel shall have received all
information and copies of all documents, including records of corporate
proceedings, which the Bank or its counsel may reasonably have requested in
connection therewith, such documents where appropriate to be certified by
proper corporate and governmental authorities.
10. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that from and after the date
hereof until the expiration or termination of the commitment of the Bank to
make Advances under the terms of this Agreement and all sums due and to become
due hereunder or under any other Loan Document have been paid or repaid in
full, unless the Bank shall otherwise consent in a writing delivered to the
Company:
10.1 Pay Principal and Interest. The Company will punctually
pay or cause to be paid the principal and interest to become due in respect of
the Note according to the terms hereof and thereof.
10.2 Maintenance of Company Office. The Company will
maintain an office in New York, New York (or such other place in the United
States of America as the Company may designate in writing to the Bank or to any
subsequent holder of the Note), where notices and demands to or upon the
Company in respect of the Note may be given or made.
10.3 Keep Books. The Company will keep proper books of
record and account in which true, correct and complete entries will be made of
its transactions in accordance with generally accepted accounting principles.
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10.4 Payment of Taxes; Corporate Existence; Maintenance of Properties.
The Company will, as to itself, and will cause HCL to:
(a) Pay and discharge promptly all taxes (including, without
limitation, all payroll withholdings), assessments and governmental charges or
levies imposed upon it or upon its income or profits or upon any of its
property, real, personal or mixed, or upon any part thereof, before the same
shall become in default, as well as all claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon its property; provided,
however, that it shall not be required to pay any such tax, assessment, charge,
levy or claim or discharge any such Lien if the validity thereof shall be
contested in good faith by appropriate proceedings and if it shall have set
aside on its books such reserves, if any, as may be required in accordance with
generally accepted accounting principles with respect to the tax, assessment,
charge, levy or claim so contested;
(b) (i) Conduct its business according to good business practices; (ii)
keep in full force and effect its corporate existence, and material rights,
licenses, permits and franchises (except those the Company determines to be no
longer material) and comply in all material respects with all of the laws, rules
and regulations governing its business (except such non-compliance as does not
have a material adverse effect on the Company or HCL); and (iii) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other things as may be lawfully required, to maintain its material rights,
licenses, powers and franchises under the laws of the United States of America
and of the States or jurisdictions in which it is organized or does business;
and
(c) Maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time to time
make or cause to be made all needful repairs, renewals, replacements and
improvements so that the business carried on in connection therewith may be
properly conducted at all times.
10.5 Financial Statements and Reports. The Company will furnish to the
Bank, in duplicate:
(a) As soon as practicable, and in any event within 90 days after
the end of each fiscal year of the Company, annual unqualified audited
consolidated balance sheets of the Company and its Subsidiaries as at the end of
such year and related consolidated statements of income, retained earnings and
cash flows of the Company and its Subsidiaries for such year, setting forth in
comparative form the corresponding figures for the preceding fiscal year,
audited by independent certified public accountants of recognized standing
selected by the Company and acceptable to the Bank;
(b) As soon as practicable, and in any event within 105 days after
the end of each fiscal year of the Company, annual unaudited consolidating
balance sheets of the Company and its Subsidiaries as at the end of such year
and related consolidating statement of income of the Company and its
Subsidiaries for such year, certified by the chief financial officer of the
Company as to (i) fair presentation of the financial position and the results of
operations of the Company and (ii) having been prepared in accordance with
generally accepted accounting principles consistently applied;
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(c) As soon as practicable, and in any event within 60 days after
the end of each fiscal quarter of the Company, a consolidated balance sheet,
related consolidated statements of income, retained earnings and cash flows of
the Company showing its financial condition as of the last day of such fiscal
quarter and the results of operations for such fiscal quarter, certified by the
chief financial officer of the Company as to (i) fair presentation of the
financial position and the results of operations of the Company and (ii) having
been prepared in accordance with generally accepted accounting principles
consistently applied;
(d) As soon as practicable, and in any event within 60 days after
the end of each fiscal quarter of the Company, a consolidating balance sheet and
related consolidating statement of income of the Company showing its financial
condition as of the last day of such fiscal quarter and the results of
operations for the fiscal year to date, certified by the chief financial officer
of the Company as to (i) fair presentation of the financial position and of the
Company and the results of operations (ii) having been prepared in accordance
with generally accepted accounting principles consistently applied;
(e) As soon as practicable, and in any event within 180 days after
the end of each fiscal year of HCL, unqualified audited consolidated balance
sheets, related statements of income, retained earnings and cash flows showing
HCL's financial condition, as of the close of such fiscal year and its results
of operations during such year, setting forth in each case in comparative form
the corresponding figures for the preceding fiscal year, audited by independent
certified public accountants of recognized standing selected by the Company or
HCL and acceptable to the Bank;
(f) Promptly upon filing with the United States Securities and
Exchange Commission, copies of the Company's Forms 10-K and 10-Q as well as all
other reports required of the Company under Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended;
(g) Promptly following the occurrence thereof, notice of any
material adverse change in the business, affairs or financial condition of the
Company or HCL;
(h) Promptly following the occurrence thereof, notice that the
operations of Eddy Potash, Inc. have been put on a standby basis or
discontinued;
(i) Promptly following the occurrence thereof, notice of any
Default hereunder or of any default under any other Loan Document, the Senior
Subordinated Note Indenture, the Senior Reset Note Indenture, any Senior
Indebtedness, any Junior Indenture, or any Indebtedness to any institutional
lender;
(j) When any quarterly or annual financial statements are required
under this Section 10.5, or more often at the Bank's request, a certificate
signed by the chief executive officer or chief financial officer of the Company
(or, if requested by the Bank, by the Company's independent certified public
accountants) certifying that no Default has occurred and is continuing; and
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(k) Such other information as to the financial condition,
operations, business, properties and other assets of the Company or HCL as the
Bank may from time to time reasonably request.
The Company shall cause all audited financial statements required to be
delivered to the Bank pursuant to this Section 10.5 to be addressed to the Bank
by the independent certified public accountant who performed the audit.
10.6 Application of Proceeds. The Company will apply all proceeds of
each Advance as provided in Section 3 hereof. In furtherance of the foregoing,
the Company shall give notice to the Bank promptly and in no event less than
five Business Days following any acquisition for which the proceeds of any
Advance are used.
10.7 ERISA Compliance. The Company will comply, in all material
respects, and cause each of its Subsidiaries to comply, in all material
respects, with the provisions of ERISA, if applicable, with respect to each of
its or their respective Plans and as soon as possible after the Company knows or
has reason to know that any Reportable Event with respect to any Plan has
occurred, furnish to the Bank a statement signed by its chief executive officer
or its chief financial officer setting forth details as to such Reportable Event
and the action, if any, which the Company or its Subsidiary proposes to take
with respect thereto, together with a copy of the notice of such Reportable
Event furnished to PBGC.
10.8 HCL Dividends. If the Company is unable to make any payment when
due under the Note, the Company shall cause HCL to declare and pay cash
dividends to the Company in amounts sufficient so that the Company may make such
payments, and the Company shall use such dividends for such purpose; provided,
however, that if the declaration and payment of such dividends would be
prohibited by any applicable Governmental Rule, the Company shall not be
required to cause such declaration and payment, but shall use its best efforts
to obtain any necessary approvals and permits so that such declaration and
payment can be made in compliance with applicable Governmental Rules.
10.9 Senior Subordinated Notes Repurchase Event or Senior Reset Notes
Repurchase Event. In the event of either (i) a "Change of Control," as defined
in the Senior Subordinated Note Indenture, of the Company giving rise to an
offer by the Company to purchase Senior Subordinated Notes pursuant to Section
4.18 of the Senior Subordinated Note Indenture (a "Senior Subordinated Notes
Repurchase Event") or (ii) a "Change of Control," as defined in the Senior Reset
Note Indenture, of the Company giving rise to an offer by the Company to
purchase Senior Reset Notes pursuant to Section 4.17 of the Senior Reset Note
Indenture (a "Senior Reset Notes Repurchase Event"), the Company shall give the
Bank notice of such event not more than five Business Days thereafter.
10.10 Senior Reset Note Indenture Covenants. So long as the Senior
Reset Note Indenture is in force and effect, the Company agrees to do and
perform, in favor of and for the benefit of the Bank, all things set forth in
Sections 4.02, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.19
and 4.20 of the Senior Reset Note Indenture, as in
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<PAGE> 26
effect on the date hereof (notwithstanding any amendment thereof), and such
sections are incorporated herein by reference, as if set out herein in full,
with such modifications as may be appropriate, mutatis mutandis.
10.11 Senior Subordinated Note Indenture. The Company agrees to do and
perform, in favor of and for the benefit of the Bank, all things set forth in
Section 4.02, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14,
4.15 and 4.16 of the Senior Subordinated Note Indenture, as in effect on the
date hereof (notwithstanding any amendment or termination thereof), and such
sections are incorporated herein by reference, as if set out herein in full,
with such modifications as may be appropriate, mutatis mutandis, provided that,
for the purposes of this Section 10.11, the term "Event of Default" as used in
such Sections shall be deemed to mean an Event of Default as defined in this
Agreement, and any notice required to be furnished to the trustee under the
Senior Subordinated Note Indenture pursuant to the provisions of Sections 4.12
and 4.15 shall be furnished to the Bank.
11. NEGATIVE COVENANTS.
The Company covenants and agrees that from and after the date hereof
until the expiration or termination of the commitment of the Bank to make
Advances under the terms of this Agreement and all sums due and to become due
hereunder or under any other Loan Document have been paid or repaid in full,
unless the Bank shall otherwise consent in a writing delivered to the Company,
the Company, after giving effect to any Advance hereunder, will not:
11.1 Indebtedness to Adjusted Net Worth Ratio of the Company. Permit
the ratio of the Company's total Indebtedness to the Company's Adjusted Net
Worth to exceed, at any time, (a) 3 to 1, or (b) on a consolidated basis, 5 to
1.
11.2 Maintenance of Adjusted Net Worth of the Company. Permit the
Company's Adjusted Net Worth to be less than $100,000,000.
11.3 Maintenance of Tangible Net Worth of the Company. Permit (a) the
Company's Tangible Net Worth to be $0 or less at any time, or (b) the Company's
Tangible Net Worth, on a consolidated basis, to be $0 or less at any time.
11.4 Maintenance of Tangible Net Worth of HCL. Permit HCL's Tangible
Net Worth on a consolidated basis, as calculated according to Israeli generally
accepted accounting principles, to be less than $65,000,000.
11.5 Maintaining Current Ratios. Permit (a) the Company's Current Ratio
to be less than 1.5 to 1 at any time, or (b) the Company's Current Ratio, on a
consolidated basis, to be less than (i) 1.35 to 1 at any time prior to March 31,
1996 or (ii) 1.5 to 1 at any time on or subsequent to March 31, 1996, or (c)
HCL's Current Ratio, on a consolidated basis, to be less than 1.5 to 1 at any
time.
11.6 Maintenance of Working Capital. Permit the Company's Working
Capital, on a consolidated basis, to be less than (i) $60,000,000 at any time
prior to March
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31, 1996, (ii) $70,000,000 at any time on or subsequent to March 31, 1996 and
prior to June 30, 1996, and (iii) $75,000,000 at any time on or subsequent to
June 30, 1996.
11.7 No Net Losses. Permit the Company to have, on a consolidated
basis, a net loss at the end of any fiscal year (other than the fiscal year
ending December 31, 1995), or HCL to have a net loss at the end of any fiscal
year (including the year ending December 31, 1995).
11.8 Restrictions on Dividends. Pay dividends during the period
beginning on January 1, 1995 and ending on the Maturity Date (or, if later, the
date on which all principal of and interest on the Note has been paid in full)
that exceed, in the aggregate, (i) $4,000,000 plus (ii) an additional amount of
$4,000,000 for each calendar year, beginning with the 1996 calendar year, on a
cumulative basis, plus (iii) an additional amount of $500,000 for every three
calendar month period beginning January 1, 1996, on a cumulative basis,
provided, that no dividends may be paid upon the occurrence and during the
continuance of an Event of Default or if, immediately after the payment thereof,
a Default or Event of Default would exist.
11.9 Maintenance of Average Net Income. Permit the average of the
Consolidated Net Income of HCL for the most recently completed fiscal year and
for the next preceding fiscal year to be less than $8,000,000 per year.
11.10 Amendment of Subordinated Debt. Amend or otherwise change the
terms of any Subordinated Debt, or make any payment consistent with an amendment
or change thereto, if the effect of such amendment or change is to increase the
interest rate or the liquidation preference of such debt securities, accelerate
the dates upon which payments of principal or interest are due thereon, change
any event of default or condition to an event of default with respect to such
indenture or agreement, change the redemption provisions thereof or change the
subordination provisions thereof, or which, together with all such other
amendments or changes made, increase the obligations of the obligor or confer
additional rights on the holder of such debt securities.
11.11 Amendments of Junior Subordinated Capital. Amend or otherwise
change the terms of any Junior Subordinated Capital, or make any payment
consistent with an amendment or change thereto, if the effect of such amendment
or change is to increase the interest rate, the dividend rate or the liquidation
preference on such Junior Subordinated Capital, accelerate the dates upon which
payments of principal, dividends or interest are due thereon, change any event
of default or condition to an event of default with respect to such Junior
Subordinated Capital, change the redemption provisions thereof or change the
subordination provisions thereof, or which, together with all other amendments
or changes made, increase the obligations of the obligor or confer additional
rights on the holder of such Junior Subordinated Capital.
11.12 Use of Proceeds of Advances. Use any part of the proceeds of any
Advance hereunder for any purpose other than those specified in Section 3
hereof.
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11.13 Disposal of Property; Merger. (i) Wind up, liquidate or dissolve;
(ii) sell, exchange, lease, transfer or otherwise dispose of all or
substantially all of (or agree to do any of the foregoing) its properties or
other assets (unless the net proceeds are applied to prepay the Note in
accordance with Section 2.3 hereof) other than in transactions with Subsidiaries
of the Company; or (iii) consolidate with or merge with or into any other
corporation, firm or entity.
11.14 HCL Disposal of Property; Merger.
(a) Permit HCL to sell, exchange, lease, transfer or otherwise
dispose of all or substantially all of its assets, except in the ordinary course
of business.
(b) Permit HCL to sell, exchange or otherwise transfer the shares
of any of HCL's controlled Subsidiaries except to another HCL-controlled
Subsidiary.
(c) Permit HCL to consolidate with or merge with or into any
other corporation, firm or entity.
11.15 Release of Obligations. Discharge or release HCL from, or extend
or otherwise modify in any material way any or all of HCL's material obligations
to the Company, now or hereafter incurred.
11.16 Certain Liens. Contract, create, assume, incur or suffer to be
created, assumed or incurred any Lien upon, or pledge of, any property or other
assets of the Company or any of its Subsidiaries which will secure any other
Senior Indebtedness, Senior Subordinated Notes, Senior Reset Notes, any Junior
Subordinated Debt or any Subordinated Debt other than (i) Liens created pursuant
hereto, (ii) Liens securing the purchase price of goods acquired in the ordinary
course of business, not exceeding, in aggregate amount, $1,000,000 and (iii)
Liens existing on the date hereof upon the Company's stock ownership of certain
of its Subsidiaries, other than HCL, securing loans made to such Subsidiaries by
Persons unaffiliated with TPR, the Company or any Subsidiary, and Liens which
may arise hereafter upon such stock ownership in connection with the refinancing
of such loans.
11.17 Maintenance of Priority. Permit or cause the Indebtedness of the
Company to the Bank arising under the Loan Documents, including but not limited
to the Company's obligations to pay the principal of and interest on the Note,
to not be fully senior in right of payment in all respects to the Senior
Subordinated Notes, the Senior Reset Notes, any Junior Subordinated Debt and all
other Subordinated Debt.
11.18 HCL Stock. Permit HCL to issue any additional shares of capital
stock or sell, assign or transfer or permit HCL to sell, assign or transfer, any
of the HCL Stock owned by the Company or TRIL or, anything herein to the
contrary notwithstanding, permit the creation of any liens or encumbrances on
any of the HCL Stock, whether or not pledged pursuant to the Company Pledge
Agreement or the TRIL Pledge Agreement, except pursuant to the Company Pledge
Agreement and the TRIL Pledge Agreement. Nothing in this Section 11.18 shall
prohibit HCL from issuing additional shares of HCL Stock if required to do so
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<PAGE> 29
pursuant to a Governmental Rule, provided that such additional shares are
expressly pledged and made subject to a first priority security interest in
favor of the Bank.
11.19 Contingent Obligations. Assume, guarantee, endorse or otherwise
become directly or contingently liable for the obligations of any other Person
or Persons in excess of $40 million in the aggregate, except for (i) the
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business, and (ii) the guarantee by the Company of a loan that may be
granted by one of the Bank's Israeli branches to HCL, the proceeds of which will
be used, directly or indirectly, to repay the loan referred to in Section 8.1
hereof.
11.20 Issuance of Securities. The Company shall not issue any shares of
capital stock or securities convertible into shares of capital stock, or grant
any options or rights to acquire any shares of capital stock, to any Israeli
Resident, if, upon such issuance or upon the conversion of all outstanding
convertible securities of the Company or upon the exercise of all existing
options or rights, 25% or more of the issued and outstanding shares of any class
of the Company's capital stock would be owned, directly or indirectly,
beneficially and/or of record by Israeli Residents.
12. DEFAULTS AND REMEDIES.
12.1 Events of Default. In the case of the occurrence of any of the
following events for any reason whatsoever, and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any governmental body or otherwise (each herein
sometimes called an "Event of Default"):
(a) Any representation or warranty made herein or in any
certificate hereafter delivered to the Bank pursuant to this Agreement, the Note
or any other Loan Document shall prove to have been false or misleading in any
material respect when made; or
(b) Any default shall occur in the payment of principal of or
interest on the Note, as and when the same shall become due and payable, whether
at the due date thereof, by acceleration, mandatory prepayment or otherwise; or
(c) (i) Any default shall occur in the due observance or
performance by the Company of any other covenant, agreement or condition
contained herein (other than pursuant to Section 10.10 or 10.11 hereof) or in
the Note, the Company Pledge Agreement, the TRIL Pledge Agreement or any other
Loan Document to be performed by the Company; or (ii) any default shall occur in
the due observance or performance by the Company of any covenant, agreement or
condition contained in Section 10.10 or 10.11 hereof and, in the case of this
clause (ii), such default shall continue for 30 days after receipt of notice
thereof from the Bank or of a "Notice of Default" pursuant to Section 6.01 of
the Senior Subordinated Note Indenture or the Senior Reset Note Indenture, as
applicable; or
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(d) (i) TPR, the Company, HCL, or any Significant Subsidiary
shall suspend or discontinue its business, or (ii) TPR, the Company, HCL, Eddy
Potash, Inc. or any Significant Subsidiary shall call a meeting of its creditors
for the purpose of postponing or adjusting its liabilities or seeking an
arrangement with its creditors, shall make an assignment for the benefit of
creditors or a composition with creditors, shall be unable or admit in writing
its inability to pay its debts generally as they mature, shall generally not pay
its debts when they are due, shall file a petition in bankruptcy, shall become
insolvent (howsoever such insolvency may be evidenced), shall suffer an order
for relief to be entered against it under any bankruptcy law which shall remain
undismissed or unstayed for a period of 45 days or more, shall petition or apply
to any tribunal for the appointment of any receiver, custodian, liquidator or
trustee of or for it or any substantial part of its property or other assets or
shall commence any proceeding relating to it under any bankruptcy,
reorganization, arrangement, readjustment of debt, receivership, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or there shall be commenced against TPR, the Company, HCL, Eddy Potash,
Inc. or any Significant Subsidiary any such proceeding which shall remain
undismissed or unstayed for a period of 45 days or more; or TPR, the Company,
HCL, Eddy Potash, Inc., or any Significant Subsidiary shall take any action for
the purpose of effecting any of the foregoing; or
(e) Any order, judgment or decree shall be entered in any
proceeding against TPR, the Company, HCL, Eddy Potash, Inc. or any Significant
Subsidiary decreeing the dissolution of TPR, the Company, HCL, Eddy Potash, Inc.
or any Significant Subsidiary and such order, judgment or decree shall remain
undischarged or unstayed for a period in excess of 30 days; or
(f) Any Loan Document shall become invalid or unenforceable, in
whole or in part, or any default or event of default shall have occurred
thereunder; or the Bank shall not have a valid perfected first priority lien,
pledge and charge with respect to the HCL Stock under the laws of the State of
Israel; or
(g) Any default (unless duly waived in writing by the obligee)
shall occur with respect to any Indebtedness (other than the Indebtedness
evidenced by the Note) of the Company aggregating more than $250,000, any of its
Subsidiaries for or relating to borrowed money (including, without limitation,
for the deferred purchase price of property or for the payment of rent under any
lease), aggregating more than $250,000, or under any agreement under which any
evidence of Indebtedness may be issued by the Company or any of its Subsidiaries
and such default shall continue for more than the period of grace, if any,
specified therein, if the effect of such default is to accelerate the maturity
of such Indebtedness or to permit the holder thereof, or any trustee, to cause
the same to become due prior to its stated maturity or if any such Indebtedness
shall not be paid when due; or
(h) Final judgment for the payment of money in excess of $250,000
shall be rendered by a court of record against the Company or any of its
Subsidiaries, and the Company or any of its Subsidiaries shall not discharge the
same or provide for its discharge in accordance with its terms, or procure a
stay of execution thereof within 30 days from the date of entry thereof and
within such period of 30 days, or such longer period
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<PAGE> 31
during which execution of such judgment shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
(i) Any Reportable Event which the Bank determines in good faith
might constitute grounds for the termination of any Plan or for the appointment
by the appropriate United States District Court of a trustee to administer any
Plan shall have occurred and be continuing 30 days after notice to such effect
shall be given to the Company by the Bank, or any Plan shall be terminated (with
the exception of any Plan covering employees at Eddy Potash, Inc.), or a trustee
shall be appointed by an appropriate United States District Court to administer
any Plan, or PBGC shall institute proceedings to terminate any Plan or appoint a
trustee to administer any Plan, or the Company or any of its Subsidiaries shall
completely or partially withdraw from any multi-employer Plan (with the
exception of any Plan covering employees at Eddy Potash, Inc.) or appoint a
trustee to administer any such Plan or shall cease operation at any facility
where such cessation could reasonably be expected to result in a separation from
employment of more than 20% of the total number of employees who are
participants under a Plan (with the exception of any Plan covering employees at
Eddy Potash, Inc.); and in each case such event or condition, together with all
such other events or conditions, if any, would subject the Company or any of its
Subsidiaries to any tax, penalty or other liability aggregating in excess of
$250,000, provided, however, that in determining whether such taxes, penalties
or other liabilities exceed such limitation, there shall be excluded therefrom
any tax, penalty or other liability which (i) within 30 days of being imposed,
is paid or satisfied, or (ii) is being contested in good faith and by
appropriate proceedings, with respect to which adequate reserves have been set
aside by the Company and its Subsidiaries in conformity with generally accepted
accounting principles and with respect to which none of the property or assets
of the Company or any of its Subsidiaries has become or is about to become
subject to any Lien; or
(j) An Event of Default as defined under the Senior Subordinated
Note Indenture or the Senior Reset Note Indenture shall occur; or
(k) The Company shall be in default under any other obligation to
Bank Hapoalim B.M. for the payment of money; or
(l) TPR shall no longer Control the Company, or shall cease to
own a majority of the issued and outstanding common stock of the Company, or
Arie Genger and members of his immediate family shall cease to own, in the
aggregate, directly or indirectly, more than a majority of the equity and voting
interests in TPR, unless any such change constitutes an Approved Change, or Arie
Genger shall at any time for a reason other than death or serious disability,
fail to maintain beneficial ownership, directly or indirectly, of at least 20%
of the voting stock of the Company; or
(m) The Company or any Subsidiary thereof shall become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, or the regulations under such
Act; or
(n) a Senior Subordinated Notes Repurchase Event or Senior Reset
Notes Repurchase Event shall occur;
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<PAGE> 32
then, if any Event of Default described in subsection (d) above shall have
occurred the Note shall immediately become due and payable, and if any Event of
Default described in any other subsection of this Section 12.1 shall have
occurred, and at any time thereafter, if any such event shall then be
continuing, the Bank may, by written notice to the Company, declare the
principal of and accrued interest on the Note, and any other amounts owed under
this Agreement, the Note or any Loan Document, to be due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived.
12.2 Suits for Enforcement. If any one or more of such Events of
Default shall occur and be continuing, the holder of the Note may proceed, to
the extent permitted by law, to protect and enforce such holder's rights either
by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, condition or agreement contained in the Loan
Documents or in aid of the exercise of any power granted in the Loan Documents,
or proceed to enforce the payment of the Note or to enforce any other legal or
equitable right of the holder of the Note.
12.3 Remedies Cumulative. No right or remedy herein or in any
other agreement or instrument conferred upon the Bank or the holder of the Note
is intended to be exclusive of any other right or remedy, and each and every
such right or remedy shall be cumulative and shall be in addition to every other
right and remedy given hereunder or under any Loan Document or now or hereafter
existing at law or in equity or by statute or otherwise. Without limiting the
generality of the foregoing, if the Note or any of the other obligations of the
Company to the Bank shall not be paid when due, whether at the stated maturity
thereof, by acceleration or otherwise, the Bank shall not be required to resort
to any particular security, right or remedy or to proceed in any particular
order of priority, and the Bank shall have the right at any time and from time
to time, in any manner and in any order, to enforce its security interests,
liens, rights and remedies, or any of them, as it deems appropriate in the
circumstances and apply the proceeds of its collateral to such obligations of
the Company as it determines in its sole discretion.
13. MISCELLANEOUS.
13.1 Notices. All notices, requests and other communications to any
party under this Agreement and the other Loan Documents shall be in writing and
shall be given to such party, by mail, telecopy, telex, personal delivery or
other customary means of delivery, addressed to it as set forth below or such
other address or telex number as such party may in the future specify for such
purpose by notice to the other party. Each such notice, request or communication
shall be effective (i) if given by telex, when such telex is transmitted to the
telex number specified below and the appropriate answerback is received, (ii) if
given by mail, two days after such communication is deposited in the United
States mails and sent by certified or registered mail, return receipt requested,
with first class postage prepaid, addressed as aforesaid or (iii) if given by
telecopy, personal delivery or any other means, when received at the address
specified below.
-32-
<PAGE> 33
Party Address
If to the Company: Trans-Resources, Inc.
9 West 57th Street
Suite 3900
New York, New York 10019
Attention: President
Telephone: (212) 888-3044
Telecopier: (212) 888-3708
with a copy to: Lester W. Youner
Vice President, Treasurer and
Chief Financial Officer
Trans-Resources, Inc.
9 West 57th Street
New York, New York 10019
Telephone: (212) 888-3044
Telecopier: (212) 888-3708
and with a copy to: Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Edward Klimerman, Esq.
Telephone: (212) 698-7700
Telex: 147264
Answerback: RBLNYK
Telecopier: (212) 698-7825
If to the Bank: Bank Hapoalim B.M. New York Branches
1177 Avenue of the Americas
New York, New York 10036
Attention: Mordechai Kremer
First Vice President
Telephone: (212) 782-2165
Telecopier: (212) 782-2222
with a copy to: Bank Hapoalim B.M.
New York Branches
1177 Avenue of the Americas
New York, New York 10036
Attention: Lawrence Lefkowitz, Esq.
Telephone: (212) 782-2130
Telecopier: (212) 782-2141
-33-
<PAGE> 34
and with a copy to: Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attention: Steven K. Weinberg, Esq.
Telephone: (212) 479-6240
Telecopier: (212) 479-6275
13.2 Survival of Representations; Successors and Assigns. All
covenants, agreements, representations and warranties made herein and in any
certificate delivered pursuant hereto shall survive the making by the Bank of
the Advances contemplated herein and the execution and delivery to the Bank of
the Note evidencing the Advances regardless of any investigation made by the
Bank and of the Bank's access to any information and shall continue in full
force and effect until the expiration or termination of the commitment of the
Bank to make Advances under the terms of this Agreement and all sums due and to
become due hereunder or under any other Loan Document have been paid or repaid
in full. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party, subject to the provisions hereof. All covenants, agreements,
representations and warranties by the Company which are contained or
incorporated in this Agreement or in any other Loan Document shall inure to the
benefit of the successors and assigns of the Bank and any holder of the Note.
Except for the parties hereto and their respective successors and assigns, no
other Person shall be entitled to the benefits of this Agreement or to rely
thereon.
13.3 Effect of Delay. No failure or delay on the part of the Bank in
exercising any right, power or privilege hereunder or under the Note, nor any
course of dealing between the Company and the Bank, shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise or the exercise of any other right, power or privilege.
13.4 Expenses. The Company agrees to pay all out-of-pocket costs and
expenses (including the reasonable fees and disbursements of special counsel)
incurred by the Bank in connection with (i) the preparation and execution of the
commitment letter and this Agreement and the other Loan Documents and the making
of the Advances hereunder; provided, however, that whether or not the Advances
are ever made, the Company agrees to pay the Bank all of its costs and expenses,
including the reasonable fees and disbursements of the Bank's counsel, incurred
in connection with the preparation and negotiation of the commitment letter and
the Loan Documents, and in addition the Company shall pay the reasonable fees
and disbursements of Israeli counsel to the Bank, (ii) any modifications or
waivers of this Agreement or any other Loan Document requested by the Company,
and (iii) the enforcement and preservation of the rights of the Bank under or in
connection with the Loan Documents. All of such expenses shall be paid by the
Company on demand as incurred. The provisions of this Section 13.4 shall survive
any termination of this Agreement, whether by reason of bankruptcy of the
Company or otherwise.
13.5 Modifications and Waivers. No modification or waiver of any
provisions of this Agreement or of any other agreement or instrument made or
issued pursuant hereto or contemplated hereby, nor consent to any departure by
the Company
-34-
<PAGE> 35
therefrom, shall in any event be effective, irrespective of any course of
dealing between the parties, unless the same shall be in a writing executed by
the Bank, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
the Company in any case shall thereby entitle the Company to any other or
further notice or demand in the same, similar or other circumstances. Any
transaction or matter excepted from the operation of any Section of this
Agreement shall nevertheless be subject to the prohibitions and limitations
contained elsewhere in this Agreement, unless expressly stated otherwise.
13.6 Set-Off of Accounts. The balance of every account of the Company
with the Bank existing from time to time at any of the Bank's offices worldwide
and in any currency, shall be subject to being setoff against any obligations of
the Company to the Bank arising under this Agreement or other Loan Documents,
and the Bank may at any time and from time to time after an Event of Default
shall have occurred and be continuing at its option and without notice to the
Company, except as may be required by law, appropriate and apply toward the
payment of any of such obligations of the Company to the Bank all or any part of
the balance of each such account with the Bank.
13.7 Counterparts. This Agreement may be executed in any number of
counterparts and by telecopier, each of which shall constitute an original, and
all of which taken together shall constitute one and the same agreement.
13.8 Construction and Jurisdiction. This Agreement, the Note and the
other Loan Documents, except the Company Pledge Agreement and the TRIL Pledge
Agreement, shall be governed by and construed and enforced in accordance with
the laws of the State of New York applicable to contracts made and to be
performed wholly within such State. The Company Pledge Agreement and the TRIL
Pledge Agreement shall be governed by the laws of Israel applicable to contracts
made and to be performed wholly within such nation. Any action or proceeding in
connection with this Agreement or the Note may be brought in a court of record
of the State of New York, County of New York or any federal court located
therein, the parties hereby consenting to the jurisdiction thereof, and service
of process may be made upon any party by mailing a copy thereof to such party,
by registered mail, at its address to be used for the giving of notices under
this Agreement. IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTE
AND THE OTHER LOAN DOCUMENTS, THE PARTIES MUTUALLY WAIVE TRIAL BY JURY AND ANY
CLAIM THAT NEW YORK COUNTY IS AN INCONVENIENT FORUM. The Company hereby
irrevocably appoints Rubin Baum Levin Constant & Friedman, and any successor
firm or professional corporation, as its agent for service of process for any
and all matters related to or arising out of any of the Loan Documents or any
transactions contemplated thereby.
13.9 Headings. Section headings are for convenience only and shall not
affect the interpretation or construction of this Agreement or the Note.
13.10 Scope of Pledge Agreements; Termination.
It is hereby agreed as follows:
-35-
<PAGE> 36
(a) The security interest created in favor of the Bank under the
TRIL Pledge Agreement shall secure payment of all amounts due or that may become
due under this Agreement and the Note. Upon the expiration or termination of the
commitment of the Bank to make Advances under the terms of this Agreement and
the payment in full of any amount due or that may become the due under this
Agreement or the Note, TRIL shall be entitled to the return to it of all of the
Pledged Shares (as defined in the TRIL Pledge Agreement) or the unrealized
remainder thereof and the TRIL Pledge Agreement shall thereupon be terminated in
accordance with Clause 13 thereof.
(b) Subject to Section 13.10(c) hereof, the security interest
created in favor of the Bank under the Company Pledge Agreement only shall
secure payment of all amounts due or that may become due under this Agreement
and the other Loan Documents and, upon the expiration or termination of the
commitment of the Bank to make Advances under the terms of this Agreement and
the payment in full of any amount due or that may become due under this
Agreement or any other Loan Document, the Company shall be entitled to the
return to it of all of the Pledged Shares (as defined in the Company Pledge
Agreement) or the unrealized remainder thereof and the Company Pledge Agreement
shall thereupon be terminated in accordance with Clause 13 thereof. For the
removal of doubt it is specifically acknowledged that the guarantee of the
Company to be delivered in accordance with Section 8.1(ii) hereof shall not be
secured by the TRIL Pledge Agreement or the Company Pledge Agreement.
(c) The limitation as to the applicability of the security
interest created in favor of the Bank under the Company Pledge Agreement set
forth in Section 13.10(b) above shall be of no force or effect and shall not be
effective unless and until the Company shall have repaid in full the loan in the
outstanding principal amount of $27,500,000 previously made by the Bank to the
Company pursuant to the Loan Agreement dated as of June 30, 1994 between the
Bank and the Company.
13.11 Transfers and Booking of Advances. (a) Without limiting any of
the Bank's rights hereunder, the Bank may, after any Advance is made hereunder,
book any of the Advances in any of its branches anywhere in the world, or
negotiate, assign, grant security interests in, delegate or otherwise transfer
(each of the foregoing acts, a "Transfer") all of, or sell one or more
participations in any portion of, any or all of the following: (i) the Note, and
(ii) the Bank's rights and related obligations under this Agreement and the
other Loan Documents (any of the foregoing which is subject to a Transfer, a
"Transferred Item"); provided, however, that at no time shall the Company be
required, as a result of any such Transfer or participation, to (x) to give
notices required by this Agreement to more than one Person and that one Person's
designated department, employees and/or counsel, or (y) to obtain any consent or
approval required under this Agreement from more than one Person, or (z) be
subject to any additional taxes, fees, costs or expenses (including withholding
taxes).
(b) In the event the Bank Transfers any Transferred Item, then to
the extent provided by the Bank with respect to such Transfer, the Person to
whom such Transfer is made (the "Transferee") shall have, and may exercise and
enjoy, the rights, powers, privileges and remedies of the Bank with respect to
such Transferred Item. The
-36-
<PAGE> 37
Bank shall, after any Transfer, and to the extent of such Transfer, be forever
relieved and fully discharged from all liability and responsibility, if any,
that it may thereafter have to the Company with respect thereto, but not with
respect to matters occurring prior to such Transfer. The Bank shall retain all
its rights and powers with respect to any Transferred Item to the extent not so
Transferred.
(c) The provisions of Section 13.6 (regarding setoff rights)
shall apply to any account of the Company with, and any claim of the Company
against, any Transferee to the extent of such Transfer which shall have
purchased the loan representing the Advance or any portion thereof and shall
become a "Bank" hereunder. This subsection (c) of Section 13.11 shall not limit
any other rights of the Bank or such Transferee whether arising under this
Section 13.11, or otherwise hereunder or under applicable law.
[Remainder of page intentionally left blank.]
-37-
<PAGE> 38
(d) The Bank is authorized to disclose any information it may
have or acquire about the Company and its Subsidiaries to any prospective or
actual Transferee.
IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement
to be duly executed and delivered in the City of New York by their duly
authorized officers, all as of the date first above written.
TRANS-RESOURCES, INC.
By: Lester Youner
--------------------------------
Title: Vice President
BANK HAPOALIM B.M.
AN ISRAELI BANK ACTING THROUGH
ITS NEW YORK BRANCHES
By: Barry Ben-Zeev
--------------------------------
Title: Senior Vice President
By: Mordechai Kremer
--------------------------------
Title: First Vice President
<PAGE> 39
EXHIBIT 1.1-1 -- Form of 1990 Pledge Agreement Amendment No. 4
EXHIBIT 1.1-2 -- Form of Note
EXHIBIT 1.1-3 -- Form of TRIL Pledge Agreement
EXHIBIT 8.4-1 -- Form of Opinion of United States Counsel to the Company
EXHIBIT 8.4-1 -- Form of Opinion of Israeli Counsel to the Company
SCHEDULE A -- Litigation
<PAGE> 40
EXHIBIT 1.1-2
SECURED PROMISSORY NOTE
U.S. $40,000,000.00 December ___, 1995
New York, New York
1. Obligation and Repayment:
FOR VALUE RECEIVED, TRANS-RESOURCES, INC., a Delaware corporation (the
"Borrower"), promises to pay to the order of BANK HAPOALIM B.M. (the
"Bank") at the Bank's office at 1177 Avenue of the Americas, New York,
New York 10036 or at such other place in the United States as the Bank
may specify by notice (the "Office"), the principal amount of FORTY
MILLION DOLLARS ($40,000,000.00) or, if less, the aggregate unpaid
principal amount of all Advances made by the Bank to the Borrower under
the Loan Agreement dated as of December 29, 1995 (the "Loan Agreement")
between the Borrower and the Bank, in lawful money of the United
States, in immediately available funds. Repayment of the principal
amount of each Advance shall be made, as provided in the Loan
Agreement, in equal quarterly annual installments commencing on the
first Payment Date following the second anniversary of the date on
which such Advance is made and ending on the Maturity Date (it being
understood that the number of such installments will range from 16
installments, in the case of an Advance made on the Commitment
Expiration Date, to 28 installments, in the case of an Advance made on
the date of the Loan Agreement). The last principal installment shall
be in the then outstanding unpaid principal balance of this Note and
shall be due and payable on the Maturity Date (i.e., the ninth
anniversary of the date of the Loan Agreement), together with all
unpaid interest accrued through the Maturity Date. All capitalized
terms not otherwise defined herein shall have the respective meanings
assigned to them in the Loan Agreement.
2. Interest and Fees:
The Borrower further agrees to pay interest on the unpaid principal of
each Advance from time to time from the date hereof to the date such
Advance is paid in full in lawful money of the United States, as
specified in the Loan Agreement, at the Office at the respective rates
and on the respective dates specified in the Loan Agreement. The
Borrower also further agrees to pay all such other fees as are
specified in the Loan Agreement.
<PAGE> 41
3. Schedule:
All Advances made by the Bank to the Borrower and all repayments of
principal by the Borrower shall be reflected by the Bank in its records
or, at the Bank's option, on the Schedule attached to this Note (the
"Schedule"), which records or Schedule shall be rebuttable presumptive
evidence of the entries made therein or thereon. The Borrower hereby
unconditionally and irrevocably authorizes the Bank to make such
notations on the Schedule. Notwithstanding anything to the contrary
contained herein, the failure of the Bank to make any appropriate
notation on the Schedule shall not prevent or hinder the Bank from
collecting, or affect the Bank's right to payment of the principal of
and interest on this Note.
4. Voluntary and Mandatory Prepayment:
The Borrower shall be entitled to prepay the outstanding principal
amount of this Note in part or in full on any Business Day, upon not
less than seven days prior written notice to the Bank, provided that
each such prepayment shall be in the amount of $100,000 or any integral
multiple thereof; except that prepayment of the entire outstanding
principal amount of the Note need not be in the amount of $100,000 or
any integral multiple thereof. The Borrower shall be required to prepay
the outstanding principal of this Note in whole or in part as set forth
in Section 2.3 of the Loan Agreement. Any such prepayment, whether
voluntary or mandatory, shall be together with all interest due on the
principal amount prepaid to the date of payment. Any prepayment shall
be applied by the Bank in accordance with Section 2.3 of the Loan
Agreement.
5. Certain Definitions:
a. Liabilities shall include all amounts from time to time
payable by the Borrower under this Note or the Loan Agreement
and any and all other obligations or liabilities of the
Borrower arising under this Note or the Loan Agreement.
b. Person shall mean "Person" as defined in the Loan Agreement.
c. Transfer shall mean any negotiation, assignment, granting of a
security interest in, delegation or other transfer of, a
complete or partial interest or obligation; such term shall
also mean to make a Transfer.
2
<PAGE> 42
6. Waiver:
Notice, presentment, protest, notice of dishonor and demand for payment
are hereby waived as to all of the Liabilities.
7. Costs and Expenses:
The Borrower shall pay all costs and expenses of every kind incurred by
the Bank in connection with any proceedings to collect any Liabilities,
including reasonable attorneys fees and disbursements, as provided in
the Loan Agreement.
8. Maturity on Business Day:
If any payment of principal of or interest on this Note or any other
amount under this Note falls due on a day that is not a Business Day,
it shall be payable on the next succeeding Business Day (unless such
day would be a day in the next calendar month, and in such case payment
shall be due on the immediately preceding Business Day), and the
resulting additional or decreased time (if any) shall be included in or
deducted from the computation of interest.
9. Parties; No Transfers by the Borrower:
a. Without the Bank's written consent, the Borrower shall have no
right to Transfer any of its obligations hereunder and any
such purported Transfer shall be void. Subject to the
foregoing, this Note is binding upon the Borrower and upon the
Borrower's successors and assigns.
b. If this Note is not a negotiable instrument, then the Borrower
hereby waives all defenses (except such defenses as may be
asserted against a holder in due course of a negotiable
instrument) which the Borrower may have or acquire against any
Transferee who takes this Note, or any complete or partial
interest in it, for value, in good faith and without notice
that it is overdue or has been dishonored or of any defense
against or claim to it on the part of any Person.
10. Reference to Loan Agreement, Company Pledge Agreement and TRIL Pledge
Agreement, Acceleration, Remedies:
This Note is entitled to the security and benefits provided in the Loan
Agreement, the Company Pledge Agreement and the TRIL Pledge Agreement
and is subject to the terms and conditions thereof. This Note is
subject to mandatory prepayment in whole or in part as specified in
Section 2.3 of the Loan Agreement and upon the occurrence of an Event
of Default, the principal of and accrued interest hereon may
automatically become, or may be declared to be, forthwith due and
payable, as provided in the Loan
3
<PAGE> 43
Agreement, the Company Pledge Agreement and the TRIL Pledge Agreement,
and the Bank shall be entitled to each and every one of the remedies
set forth therein.
11. No Oral Changes; No Waiver; Other Rights:
This Note may not be changed orally. Neither a waiver by the Bank of
any of its options, powers or rights in one or more instances, nor any
delay on the part of the Bank in exercising any of its options, powers
or rights, nor any partial or single exercise thereof, shall constitute
a waiver thereof in any other instance. The options, powers and rights
of the Bank specified herein are in addition to those otherwise created
in the Loan Agreement and other Loan Documents.
12. Partial Unenforceability:
Any provision of this Note which is prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
nonauthorization, without invalidating the remaining provisions of this
Note in that or any other jurisdiction and without affecting the
validity, enforceability or legality of such provision in any other
jurisdiction.
13. Governing Law, Jurisdiction, Litigation and Waiver of Jury Trial:
This Note shall be governed by and construed and enforced in accordance
with the laws of the State of New York applicable to contracts made and
to be performed wholly within such State. Any action or proceeding in
connection with this Note may be brought in a court of record of the
State of New York, County of New York or any federal court located
therein, the parties hereby consenting to the jurisdiction thereof, and
service of process may be made upon any party by mailing a copy thereof
to such party, by registered mail, at its address to be used for the
giving of notices under the Loan Agreement. IN ANY ACTION OR ANY
JUDICIAL PROCEEDING RELATING TO THIS NOTE THE BORROWER AND THE BANK
MUTUALLY WAIVE TRIAL BY JURY.
TRANS-RESOURCES, INC.
By:__________________________
Name:
Title:
4
<PAGE> 44
SCHEDULE A
OF ADVANCES AND PAYMENTS TO SECURED PROMISSORY NOTE
DATED DECEMBER ___, 1995
MADE BY TRANS-RESOURCES, INC.
ADVANCES AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of Notation
Date Advance Made Amount of Advance Repaid made by
- -------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
5
<PAGE> 1
EXHIBIT 21
The following table sets forth certain information, as of March 25,
1996, with respect to the subsidiaries of the Company, other than certain
subsidiaries which, if considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary.
<TABLE>
<CAPTION>
Percentage Of
Voting Securities State Or Other
Owned By Its Jurisdiction In
Immediate Parent Which Incorporated
----------------- ------------------
<S> <C> <C>
Subsidiaries of the Company:
Haifa Chemicals Ltd. 100%(1) Israel
Haifa Chemicals South, Ltd. 100% Israel
Hi-Chem (UK) Ltd. 100% United Kingdom
Hi-Chem S.A. 100% Belgium
Hi-Chem Holdings B.V. 100% Netherlands
Fertilizantes Quimicos, S.A. 100% Spain
Hi-Agri S.R.L. 100%(2) Italy
Haifa Quimica De Mexico 80% Mexico
Duclos International S.A. 80% France
Eddy Potash, Inc. 100% Delaware
Na-Churs Plant Food Company 100% Delaware
Nine West Corporation 100% Delaware
Cedar Chemical Corporation 100% Delaware
New Mexico Potash Corporation 100% New Mexico
Vicksburg Chemical Company 100% Delaware
</TABLE>
(1) Including approximately 7% owned by Trans-Resources (Israel) Ltd.
(2) Including approximately 5% owned by Haifa Chemicals South, Ltd.
E - 5
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned officers and directors of Trans-Resources,
Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint
Arie Genger and Lester W. Youner, and each of them, as the undersigned's true
and lawful attorney-in-fact, with full power to each of them to act without the
other, to execute in the name and on behalf of the undersigned, individually and
in the capacity stated below, the Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 1995 and any and all amendments thereto,
which amendments may make such changes in such Form 10-K as either such
attorney-in-fact may deem appropriate.
Each of the undersigned does further hereby ratify and confirm all that
either said attorney-in-fact may do or cause to be done pursuant to the power
granted hereby.
Dated: March 25, 1996
/s/ Arie Genger
----------------------------------------
Arie Genger
Director,
Chairman of the Board
and Chief Executive Officer
(principal executive officer)
/s/ Lester W. Youner
----------------------------------------
Lester W. Youner
Vice President,
Treasurer and
Chief Financial Officer
(principal financial and
accounting officer)
/s/ Thomas G. Hardy
----------------------------------------
Thomas G. Hardy
Director
/s/ Martin A. Coleman
----------------------------------------
Martin A. Coleman
Director
/s/ Sash A. Spencer
----------------------------------------
Sash A. Spencer
E-6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 32,872
<SECURITIES> 0
<RECEIVABLES> 75,630
<ALLOWANCES> 0
<INVENTORY> 66,474
<CURRENT-ASSETS> 213,656
<PP&E> 356,747
<DEPRECIATION> 136,556
<TOTAL-ASSETS> 467,102
<CURRENT-LIABILITIES> 131,645
<BONDS> 288,580
0
7,960
<COMMON> 0
<OTHER-SE> 12,715
<TOTAL-LIABILITY-AND-EQUITY> 467,102
<SALES> 385,564
<TOTAL-REVENUES> 385,564
<CGS> 323,126
<TOTAL-COSTS> 323,126
<OTHER-EXPENSES> 43,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,498
<INCOME-PRETAX> (6,125)
<INCOME-TAX> 733
<INCOME-CONTINUING> (6,858)
<DISCONTINUED> 0
<EXTRAORDINARY> (103)
<CHANGES> 0
<NET-INCOME> (6,961)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
