<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Materials Pursuant to Section 240.14a-11(c) of Section 240.14a-
12
NU-WEST INDUSTRIES, INC.
_______________
(Name of Registrant as Specified In Its Charter)
NU-WEST INDUSTRIES, INC.
_______________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, Par Value $0.01 per Share _________________________
2) Aggregate number of securities to which transaction applies:
9,377,418 shares ______
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which
the filing fee is calculated and state how it was determined):
Pursuant to the Agreement and Plan of Merger, dated as of August 9, 1995
(the "Merger Agreement"), among Nu-West Industries, Inc., Agrium, Inc. and
Agrium Acquisition Corporation, the price per share of Common Stock, par value
$0.01 per share (the "Common Shares"), is $10.50. Pursuant to Rule 0-11(c)(1),
the filing fee of $19,792.54 was calculated as 1/50 of 1% of the cash payment
required under the Merger Agreement, which is equal to the product of $10.50 per
Common Share and 9,377,418 Common Shares outstanding as of August 9, 1995. Such
number of
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outstanding Common Shares assumes the exercise or conversion of all existing
options, rights and securities which were then exercisable or convertible into
Common Shares.
4) Proposed maximum aggregate value of transaction: $98,462,889 _______
5) Total fee paid: $19,792.54 __________
[_] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $19,792.54 __________
2) Form, Schedule or Registration Statement No.: Schedule 14D-1 and
Schedule 13D ________________________
3) Filing Party: Agrium Inc., Agrium U.S. Inc. and Agrium Acquisition
Corporation ____________________________________
4) Date Filed: August 16, 1995 _______________
2
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NU-WEST INDUSTRIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To approve the Merger of
AGRIUM ACQUISITION COMPANY
with and into
NU-WEST INDUSTRIES, INC.
To the Record Holders of Common Stock
of Nu-West Industries, Inc.:
NOTICE IS HEREBY GIVEN pursuant to Sections 222, 251 and 262(d) of the General
Corporation Law of the State of Delaware (the "DGCL") that on November 6, 1995 a
special meeting (the "Meeting") of all stockholders of Nu-West Industries, Inc.,
a Delaware corporation (the "Company"), of record on October 11, 1995 (the
"Record Date"), will be held at the offices of Holme Roberts & Owen LLC, 1700
Lincoln Street, Suite 4100, Denver, Colorado 80203 at 10:00 a.m., Denver,
Colorado time, to consider (i) adoption and approval of (A) the merger (the
"Merger") of Agrium Acquisition Corporation, a Delaware corporation (the
"Purchaser"), into the Company, pursuant to the terms of that certain Agreement
and Plan of Merger by and between the Company, Agrium Inc. (the "Parent") and
the Purchaser, dated August 9, 1995 (the "Merger Agreement"), and (B) the Merger
Agreement; and (ii) such other matters as may properly be brought before the
Meeting. It is anticipated that the Merger will be effected on November 6, 1995
or as soon thereafter as practicable.
A cash tender offer commenced on August 16, 1995 by the Purchaser for all
outstanding shares of the Company's Common Stock, par value $0.01 per Share (the
"Common Shares") at a price of $10.50 net per Common Share in cash (the
"Offer"), The Offer was consummated on October 2, 1995. A total of 8,886,943
Common Shares, representing approximately 95.9% of the total number of
outstanding Common Shares, were acquired by the Purchaser. The Offer was
conducted pursuant to the Merger Agreement, pursuant to which the Parent agreed
to acquire the Company in a two- step transaction. The Purchaser did not offer
to purchase the Company's Class A Preferred Stock, $100 par value ("Class A
Preferred Shares"), or Class B Preferred Stock, $100 par value ("Class A
Preferred Shares," and together with the Class A Preferred Shares, the
"Preferred Shares") in the Offer and the Preferred Shares will not be affected
by and will remain outstanding after the Merger, except to the extent that Class
B Preferred Shareholders perfect their appraisal rights. The holders of the
Company's Preferred Shares are not entitled to vote on approval of the Merger
Agreement or the Merger, as provided in the DGCL and the Company's Restated
Certi ficate of Incorporation.
The Board of Directors has fixed the close of business on the Record Date for
the determination of stockholders entitled to notice and to vote at the Meeting
or any adjournment thereof. Only stockholders of record at the close of business
on the Record Date are entitled to notice of the Meeting and and only holders of
record of Common Shares at the close of business on the Record Date are entitled
to vote at the Meeting. A complete list of such stockholders will be
i
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available for examination at the offices of the Company in Englewood, Colorado
during normal business hours by any Company stockholder, for any purpose germane
to the Meeting, for a period of 10 days prior to the Meeting.
COMMON SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING,
TO SIGN, DATE AND MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED. If a stockholder who has returned a proxy
attends the meeting in person, such stockholder may revoke the proxy and vote in
person on all matters submitted at the meeting. PROXIES ARE NOT BEING SOLICITED
FROM HOLDERS OF PREFERRED SHARES.
The Purchaser has agreed in the Merger Agreement to vote its Common Shares for
approval of the Merger Agreement and the Merger. UNDER THE DGCL AND THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, NO ACTION WILL BE REQUIRED BY
STOCKHOLDERS OF THE COMPANY (OTHER THAN THE PURCHASER) FOR THE MERGER TO BE
EFFECTED.
Pursuant to the terms of the Merger Agreement, each Common Share outstanding
immediately prior to the effectiveness of the Merger and held by persons other
than the Purchaser, the Parent or any other direct or indirect subsidiary of the
Parent, or the Company will be converted into the right to receive $10.50 in
cash (without interest) (the "Merger Consideration"), payable upon surrender of
the certificate formerly evidencing such share, subject to the right of the
holder of such share and of any holder of Class B Preferred Shares (a
"Dissenting Stockholder") to seek an appraisal of the fair value thereof as
described in the attached Proxy Statement. The Preferred Shares will remain
outstanding, except to the extent that Class B Preferred Shareholders perfect
their appraisal rights. The holders of Class A Preferred Stock are not entitled
to seek appraisal of the fair value of their shares pursuant to the DGCL and the
Company's Restated Certificate of Incorporation because the Class A Preferred
Shares are listed on the Nasdaq National Market and are not affected by the
Merger. Holders of Class B Preferred Shares have appraisal rights, because the
Class B Preferred Shares are not so listed.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE OFFER AND THE MERGER, CONSIDERED AS A WHOLE, ARE FAIR TO AND
IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY. In arriving at its
decision, the Board of Directors considered a number of factors, including the
opinion of PaineWebber Incorporated, the Company's financial advisor, that the
consideration to be received in the Offer and the Merger by the holders of
Common Shares is fair, from a financial point of view, to such stockholders
(other than former stockholders who were affiliates of Weiss, Peck & Greer,
L.L.C.).
A letter of transmittal to enable you to send in your Common Shares and receive
payment of the Merger Consideration is enclosed. To expedite receipt of this
payment, you should fill out the enclosed letter of transmittal promptly and
return it, together with your Common Share certificates, to the indicated
address. The obligations of the Company and the Purchaser to consummate the
Merger are subject to certain conditions. In the unlikely event that the Merger
ii
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Agreement is terminated without the Merger being consummated, certificates
delivered to the paying agent will be promptly returned. PREFERRED SHARE
CERTIFICATES SHOULD NOT BE SENT TO THE COMPANY OR THE PAYING AGENT.
Section 262 of the DGCL provides a procedure by which Dissenting Stockholders
who were record holders of Common Shares or Class B Preferred Shares immediately
prior to the effectiveness of the Merger may seek an appraisal of the fair value
of their shares, exclusive of any element of value arising from the expectation
or accomplishment of the Merger, together with a fair rate of interest, if any,
to be paid thereon. Any Dissenting Stockholder who wishes to exercise this right
to an appraisal must do so by making written demand to the Company at the
address set forth in the Proxy Statement, which must be received before the
taking of the vote on the Merger, and by following certain other procedures set
forth in Section 262 of the DGCL. For purposes of Section 262, this Notice of
Special Meeting of Stockholders is being mailed on October 17, 1995 to record
stockholders of the Company on the Record Date.
APPRAISAL DEMANDS WILL NOT BE ACCEPTED UNLESS MADE BY OR ON BEHALF OF PERSONS
WHO ARE RECORD HOLDERS OF COMMON SHARES OR CLASS B PREFERRED SHARES IMMEDIATELY
PRIOR TO THE EFFECTIVENESS OF THE MERGER.
Reference should be made to the section entitled "Appraisal Rights" in the
attached Proxy Statement and toExhibit D thereto (which sets forth the text of
Section 262 of the DGCL) for a description of the procedures which must be
followed to perfect appraisal rights.
By order of the Board of Directors
Craig D. Harlen
Chairman, President and Chief Executive Officer
October 17, 1995
iii
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------------------------
Nu-West Industries, Inc.
Proxy Statement
------------------------
This Proxy Statement is being furnished to the stockholders of Nu-West
Industries, Inc., a Delaware corporation (the "Company"), as of October 11, 1995
(the "Record Date"), in connection with the proposed merger (the "Merger") of
Agrium Acquisition Corporation, a Delaware corporation (the "Purchaser") and an
indirect wholly owned subsidiary of Agrium Inc., a Canadian corporation (the
"Parent"), with and into the Company pursuant to an Agreement and Plan of
Merger, dated as of August 9, 1995 (the "Merger Agreement"), among the Parent,
the Purchaser and the Company. Pursuant to the Merger Agreement, the Purchaser
commenced a cash tender offer on August 16, 1995 for all outstanding shares of
common stock, $.01 par value per share (the "Common Shares"), of the Company, at
a price of $10.50 per Common Share, net to the Seller in cash (the "Offer"). The
Offer expired at 12:00 midnight, New York City time, on October 2, 1995, at
which time the Purchaser accepted for payment 8,886,943 Common Shares validly
tendered pursuant to the Offer and not withdrawn, representing approximately
95.9% of the total number of outstanding Common Shares. The Merger will be
consummated on the terms and subject to the conditions set forth in the Merger
Agreement, as a result of which at the effective time of the Merger (the
"Effective Time") (a) the Company will continue as the surviving corporation
(the "Surviving Corporation") and will become an indirect wholly-owned
subsidiary of the Parent, with the exception of the outstanding shares of
preferred stock ("Preferred Shares") of the Company, consisting of Class A
Preferred Stock (the "Class A Preferred Shares") and Class B Preferred Stock
(the "Class B Preferred Shares"); and (b) each Common Share issued and
outstanding (other than Common Shares held by the Purchaser, the Parent or any
other direct or indirect subsidiary of the Parent, or the Company) will be
converted into the right to receive $10.50 net per Common Share in cash, without
interest (the "Merger Consideration"). A special meeting (the "Meeting") of the
stockholders of the Company, of record on the Record Date, will be held at the
offices of Holme Roberts & Owen LLC, 1700 Lincoln Street, Suite 4100, Denver,
80203 at 10:00 a.m., Denver, Colorado time, on November 6, 1995, to consider
approval and adoption of the Merger and the Merger Agreement.
The date of this Proxy Statement is October 17, 1995. This Proxy Statement
and the accompanying form of proxy are being furnished by the Company and were
first mailed on or about October 17, 1995 to stockholders of the Company as of
the close of business on the Record Date.
The Board of Directors of the Company (the "Board" or the "Board of
Directors"), by the unanimous vote of all of the Directors of the Company,
approved the Offer and the Merger and determined that the terms of the Offer and
the Merger are fair to and in the best interests of, the stockholders of the
Company. Under the Delaware General Business Corporation Law (the "DGCL"), the
affirmative vote of the holders of a majority of the outstanding Common Shares
is
<PAGE>
required to approve the Merger. The Purchaser owns in the aggregate 8,886,943
Common Shares, representing approximately 95.9% of the Common Shares outstanding
as of the Record Date. Under the Merger Agreement, the Parent has agreed to
vote, or cause to be voted, in favor of the Merger all Common Shares directly or
indirectly beneficially owned by it. As the Purchaser has acquired a majority of
the outstanding Common Shares, the Purchaser has sufficient voting power to
approve the Merger, without the vote of any other stockholder of the Company.
TO RECEIVE PAYMENT AFTER THE MERGER OF $10.50 IN CASH (WITHOUT INTEREST)
PER COMMON SHARE, HOLDERS OF COMMON SHARES MUST DELIVER CERTIFICATES EVIDENCING
SUCH COMMON SHARES ALONG WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL, IN THE
FORM BEING FURNISHED HEREWITH TO HOLDERS OF COMMON SHARES, TO THE PAYING AGENT
AT THE ADDRESS SPECIFIED IN THE LETTER OF TRANSMITTAL (THE "PAYING AGENT"). The
obligations of the Company and the Purchaser to consummate the Merger are
subject to certain conditions. In the unlikely event that the Merger Agreement
is terminated without the Merger being consummated, certificates delivered to
the Paying Agent will be promptly returned. PREFERRED SHARE CERTIFICATES SHOULD
NOT BE SENT TO THE COMPANY OR THE PAYING AGENT, as the Preferred Shares will
remain outstanding following, and will be unaffected by, the Merger, except to
the extent that holders of Class B Preferred Shares perfect their appraisal
rights.
Any holder of Common Shares who does not wish to accept the Merger
Consideration for his Common Shares has the right under the DGCL to seek an
appraisal of and be paid the fair cash value of his Common Shares. Holders of
Class B Preferred Shares also have appraisal rights under the DGCL as a result
of the Merger. Holders of Common Shares and Class B Preferred Shares seeking
such appraisal are referred to herein as "Dissenting Stockholders." To perfect
this right of appraisal, a Dissenting Stockholder must make written demand for
such appraisal to the Company before the taking of the vote on the Merger.
Dissenting Stockholders are urged to carefully review this Proxy Statement and
the Exhibits hereto in their entirety in considering whether to seek an
appraisal pursuant to the DGCL. See "APPRAISAL RIGHTS" and Exhibit D to this
----------------
Proxy Statement. Class A Preferred Shareholders will not have appraisal rights
under the DGCL as a result of the Merger because the Class A Preferred Shares
are listed on the Nasdaq National Market and are not affected by the Merger.
Holders of Class B Preferred Shares have appraisal rights, because the Class B
Preferred Shares are not so listed. The Preferred Shares will remain outstanding
following, and will be unaffected by, the Merger, except to the extent that
holders of Class B Preferred Shares perfect their appraisal rights.
As of the Record Date, there were issued and outstanding 9,265,877 Common
Shares. Holders of record of Common Shares at the close of business on the
Record Date are entitled to one vote per share held on all matters submitted to
a vote of stockholders. The Preferred Shares have no voting rights with respect
to the Merger. PROXIES ARE NOT BEING SOLICITED FROM THE HOLDERS OF PREFERRED
SHARES. The Parent and the Purchaser have not made, and have indicated to the
Company that they do not presently intend to make or to cause the Company to
make in the future, any offer to purchase Preferred Shares, although they could
determine in the future to do so. The Common Shares and the Class A Preferred
Shares are traded on the Nasdaq National Market. As a result of the consummation
of the Offer and the Merger, the registration of
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the Common Shares under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") will be terminated. The Company has no present intention to
terminate the registration under the Exchange Act of the Class A Preferred
Shares, but may in the future determine to do so if it determines that it is
able to do so. The termination of the registration of the Class A Preferred
Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to the Securities and Exchange
Commission (the "Commission") and available to the holders of the Class A
Preferred Shares for review.
The information contained in this Proxy Statement concerning the Parent and
the Purchaser has been furnished to the Company by the Parent, and the Company
assumes no responsibility for the accuracy or completeness of such information.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports, proxy statements and
other information with the Commission. The Tender Offer Statement on Schedule
14D-1, as amended, filed by the Parent and the Purchaser in connection with the
Offer and the Solicitation/Recommendation Statement on Schedule 14D-9, as
amended, filed by the Company in connection with the Offer, as well as such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Commission
at prescribed rates by addressing written requests for such copies to the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, reports, proxy statements and
other information concerning the Company should also be available for inspection
at the offices of the Nasdaq Stock Market at 1735 K Street, N.W., Washington,
D.C. 20006.
The Common Shares and Class A Preferred Shares are currently registered
under the Exchange Act. Following the Merger, the Company will become the
indirect wholly owned subsidiary of the Parent (except for the Preferred
Shares), and there will be no public trading of the Common Shares. Accordingly,
registration of the Common Shares will be terminated upon application of the
Company to the Commission when the Merger is consummated.
3
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION................................................. 5
- ------------
INFORMATION CONCERNING THE COMPANY........................... 7
- ----------------------------------
INFORMATION CONCERNING THE PARENT AND THE PURCHASER.......... 7
- ---------------------------------------------------
THE MEETING.................................................. 8
- -----------
BACKGROUND OF THE MERGER..................................... 9
- ------------------------
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER....... 13
- ------------------------------------------------------
OPINION OF FINANCIAL ADVISOR................................. 14
- ----------------------------
INTEREST OF CERTAIN PERSONS IN THE MERGER.................... 17
- -----------------------------------------
STRUCTURE OF THE MERGER...................................... 21
- -----------------------
ACCOUNTING TREATMENT OF THE MERGER........................... 22
- ----------------------------------
FINANCING THE ACQUISITION.................................... 22
- -------------------------
CERTAIN EFFECTS OF THE MERGER................................ 22
- -----------------------------
CERTAIN FEDERAL TAX CONSEQUENCES OF THE MERGER............... 22
- ----------------------------------------------
THE MERGER AGREEMENT......................................... 23
- --------------------
REGULATORY AND OTHER APPROVALS............................... 30
- ------------------------------
FINANCIAL PROJECTIONS........................................ 30
- ---------------------
APPRAISAL RIGHTS............................................. 31
- ----------------
CERTAIN LITIGATION........................................... 33
- ------------------
MARKET PRICES OF AND DIVIDENDS ON STOCK...................... 34
- ---------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.............. 35
- -----------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS 35
- ------------------------------
STOCKHOLDERS' PROPOSALS 35
- -----------------------
</TABLE>
EXHIBITS:
EXHIBIT A Agreement and Plan of Merger
EXHIBIT B Fairness Opinion of PaineWebber Incorporated
EXHIBIT C Form 10-K of the Company for the year ended June 30, 1995
EXHIBIT D Appraisal Rights
4
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INTRODUCTION
This Proxy Statement is being furnished to the Company's stockholders as of
the Record Date in connection with the solicitation of proxies from holders of
Common Shares by the Board of Directors of the Company for use at a special
meeting of stockholders of the Company to consider the proposed Merger of the
Purchaser with and into the Company, pursuant to the Merger Agreement. Pursuant
to the Merger Agreement, the Purchaser commenced the Offer on August 16, 1995.
The Offer expired at 12:00 midnight, New York City time, on October 2, 1995, as
of which time the Purchaser accepted for payment 8,886,943 Common Shares validly
tendered pursuant to the Offer and not withdrawn, representing approximately
95.9% of the total number of outstanding Common Shares. The Merger will be
consummated on the terms and subject to the conditions set forth in the Merger
Agreement, as a result of which at the Effective Time (a) the Company will
continue as the Surviving Corporation and will become an indirect wholly owned
subsidiary of the Parent, with the exception of the outstanding Preferred
Shares, and (b) each Common Share issued and outstanding (other than Common
Shares held by the Purchaser, the Parent or any other direct or indirect
subsidiary of the Parent, or the Company) will be converted into the right to
receive $10.50 net per Common Share in cash, without interest.
The Meeting will be held on Monday, November 6, 1995, at the offices of
Holme Roberts & Owen LLC, 1700 Lincoln Street, Suite 4100, Denver, 80203 at
10:00 a.m., Denver, Colorado time.
The purpose of the Meeting is to consider and vote upon (i) a proposal to
approve and adopt the Merger Agreement, and (ii) such other matters as may
properly be brought before the Meeting.
Only holders of record of Common Shares at the close of business on the
Record Date are entitled to vote at the Meeting. On such date, there were
9,265,877 Common Shares outstanding, each of which will be entitled to one vote
on each matter to be acted upon at the Meeting. All stockholders of the Company
are entitled to notice of the Meeting.
The presence, in person or by proxy, at the Meeting of the holders of a
majority of the Common Shares outstanding and entitled to vote at the Meeting is
necessary to constitute a quorum at the meeting. The affirmative vote of the
holders of a majority of the Common Shares outstanding and entitled to vote
thereon at the Meeting is required to approve and adopt the Merger Agreement.
As the Purchaser has acquired a majority of the outstanding Common Shares,
the Purchaser has sufficient voting power to approve the Merger, without the
vote of any other stockholder of the Company, and pursuant to the terms of the
Merger Agreement, the Purchaser has agreed to vote such Common Shares for
approval and adoption of the Merger Agreement and the Merger.
TO RECEIVE PAYMENT AFTER THE MERGER OF $10.50 IN CASH (WITHOUT INTEREST)
PER COMMON SHARE, HOLDERS OF COMMON SHARES MUST DELIVER CERTIFICATES EVIDENCING
SUCH COMMON SHARES ALONG WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL TO THE
PAYING AGENT AT THE ADDRESS
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SPECIFIED IN THE LETTER OF TRANSMITTAL. The obligations of the Company and the
Purchaser to consummate the Merger are subject to certain conditions. In the
unlikely event that the Merger Agreement is terminated without the Merger being
consummated, certificates delivered to the Paying Agent will be promptly
returned.
The Company expects that the Merger will be consummated as promptly as
practicable after the Meeting, assuming that the conditions to the Merger set
forth in the Merger Agreement have been satisfied. See "THE MERGER AGREEMENT--
--------------------
THE MERGER".
- ----------
Any Dissenting Stockholder has the right under the DGCL to seek an
appraisal of and be paid the fair value of his shares, together with a fair rate
of interest, if any, to be paid thereon. In order to perfect such right of
appraisal, a Dissenting Stockholder must make a written demand for such
appraisal to the Company before the taking of the vote on the Merger. Such
demand must be sent to the Company at 8400 East Prentice Avenue, Suite 1320,
Englewood, Colorado 80111, Attention: Secretary. See "APPRAISAL RIGHTS" and
----------------
Exhibit D to this Proxy Statement.
The accompanying Notice of Special Meeting of Stockholders constitutes the
notice to Dissenting Stockholders required by Section 262(d)(2) of the DGCL.
Dissenting Stockholders are urged to carefully review this Proxy Statement
and the Exhibits hereto in their entirety in considering whether to seek an
appraisal pursuant to the DGCL. If a Dissenting Stockholder does not perfect
appraisal rights with respect to his Common Shares before the taking of the vote
on the Merger, such shares will be converted into the right to receive the
Merger Consideration at the Effective Time.
Holders of Class A Preferred Shares will not have appraisal rights under
the DGCL as a result of the Merger, because the Class A Preferred Shares are
listed on the Nasdaq National Market and are not affected by the Merger. Holders
of Class B Preferred Shares will have appraisal rights, because the Class B
Preferred Shares are not so listed. The Preferred Shares will remain outstanding
following, and will be unaffected by, the Merger, except to the extent that
holders of Class B Preferred Shares perfect their appraisal rights.
As of the Record Date, there were issued and outstanding 9,265,877 Common
Shares, 290,000 Class A Preferred Shares and 344 Class B Preferred Shares.
Holders of record of Common Shares at the close of business on the Record Date
are entitled to one vote per share held on all matters submitted to a vote of
stockholders. The Preferred Shares have no voting rights with respect to the
Merger. The Parent and the Purchaser have not made, and have indicated to the
Company that they do not presently intend to make or cause to be made in the
future, any offer to purchase Preferred Shares, although they could determine to
do so in the future.
The Common Shares and the Class A Preferred Shares are traded on the Nasdaq
National Market. As a result of the consummation of the Offer and the Merger,
the registration of the Common Shares under the Exchange Act will be terminated.
The Company has no present intention to terminate the registration under the
Exchange Act of the Class A Preferred Shares, but may in the future determine to
do so if it determines that it is able to do so. The termination of the
registration
6
<PAGE>
of the Class A Preferred Shares under the Exchange Act would substantially
reduce the information required to be furnished by the Company to the Commission
and available to the holders of the Class A Preferred Shares for review.
INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal executive offices
located at 8400 East Prentice Avenue, Suite 1320, Englewood, Colorado. The
telephone number of such offices is (303) 721-1396.
The Company is a producer of concentrated phosphate fertilizer. From its
mining and manufacturing facilities located in southeastern Idaho, it supplies
high-quality fertilizer for markets primarily in western North America.
Additional information regarding the Company is included in its Annual
Report on Form 10-K for the year ended June 30, 1995, which is attached hereto
as Exhibit C.
INFORMATION CONCERNING THE PARENT AND THE PURCHASER
The Parent, a Canadian corporation, is one of North America's largest
integrated and diversified fertilizer companies. It is a major, growth-oriented
producer of nitrogen and potash fertilizers, a leading wholesale and retail
marketer of all four primary nutrients vital to plant growth; nitrogen,
phosphorus, potassium and sulphur, and a leader in the development of new
products and services. At the wholesale level, the Parent's products are sold to
a geographically-diverse group of approximately 1,500 customers from four
regional marketing centers in North America. Approximately one quarter of its
potash production is sold offshore. The Parent's retail subsidiaries supply
agricultural inputs and services to growers from more than 200 farm centers
located in 23 states across the agricultural heartland of the United States.
The Parent is based in Calgary, Canada and has facilities in Canada and the
United States. The Parent's common shares trade on the Toronto Stock Exchange
under the symbol "AGU" and on Nasdaq National Market under the symbol "AGMIF."
The Purchaser, a Delaware corporation, was formed solely for the purpose of
engaging in the transactions contemplated by the Merger Agreement, including the
merger of the Purchaser with and into the Company, and has not conducted any
unrelated activities since its formation. All the outstanding capital stock of
the Purchaser is owned by Agrium U.S. Inc., a wholly owned subsidiary of the
Parent ("Agrium U.S."). Agrium U.S. owns and operates the Parent's facilities
and businesses in the United States.
The principal executive offices of the Parent, Agrium U.S. and the
Purchaser are located at Suite 426, 10333 Southport Road S.W., Calgary, Alberta,
Canada T2W 3X6.
THE MEETING
7
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The Meeting will be held at 10:00 a.m., local time, on November 6, 1995, at
the offices of Holme Roberts & Owen LLC, 1700 Lincoln Street, Suite 4100,
Denver, Colorado 80203, for the purpose of approving and adopting the Merger
Agreement, as required under Delaware law.
Only holders of record of Common Shares outstanding at the close of
business on the Record Date (October 11, 1995) are entitled to vote at the
Meeting. Pursuant to the DGCL, the holders of Preferred Shares of the Company of
record on the Record Date are entitled to notice of the Meeting, although they
are not entitled to vote on approval of the Merger Agreement.
On the Record Date, there were approximately 200 holders of record of
Common Shares, with 9,265,877 Common Shares issued and outstanding. Each Common
Share entitles the holder thereof to one vote on each matter submitted for
stockholder approval. The Purchaser is the only person owning more than 5% of
the outstanding Common Shares. On the Record Date, the directors and executive
officers of the Company held no Common Shares.
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the outstanding Common Shares will constitute a quorum for the
transaction of business, and approval and adoption of the Merger Agreement
requires the affirmative vote of a majority of the issued and outstanding Common
Shares. In determining whether the Merger Agreement has received the requisite
number of affirmative votes, abstentions and broker non-votes will have the same
effect as a vote against the Merger Agreement.
At the date of this Proxy Statement, the Board of Directors of the Company
do not know of any business to be presented at the Meeting other than as set
forth in the notice accompanying this Proxy Statement. If any other matters
should properly come before the Meeting, it is intended that the shares
represented by proxies will be voted with respect to such matters in accordance
with the judgment of the persons voting such proxies.
All properly executed proxies that are not revoked will be voted at the
Meeting in accordance with the instructions contained therein. If a holder of
Common Shares executes and returns a proxy and does not specify otherwise, the
shares represented by such proxy will be voted "for" approval and adoption of
the Merger Agreement in accordance with the recommendation of the Board of
Directors of the Company. A holder of Common Shares who has executed and
returned a proxy may revoke it at any time before it is voted at the Meeting by
(i) executing and returning a proxy bearing a later date, (ii) filing written
notice of such revocation with the Secretary of the Company stating that the
proxy is revoked or (iii) attending the Meeting and voting in person.
In addition to solicitation by mail, the directors, officers, employees and
agents of the Company may solicit proxies from their stockholders by personal
interview, telephone, telegram or otherwise. The Company will bear the costs of
the solicitation of proxies from its stockholders. Arrangements will also be
made with brokerage firms and other custodians, nominees and fiduciaries who
hold of record securities of the Company for the forwarding of solicitation
materials to the beneficial owners thereof. The Company will reimburse such
brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket
expenses incurred by them in connection therewith.
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BACKGROUND OF THE MERGER
In the Spring of 1994, following the completion of the recapitalization of
the Company in November 1993 and with fertilizer prices and demand steadily
improving, the Board of Directors of the Company began exploring alternatives to
enhance long-term stockholder value. On November 14, 1994, the Board of
Directors held a meeting, at which representatives of Kidder, Peabody & Co.
Incorporated ("Kidder, Peabody") were present, to discuss such alternatives,
including strategic relationships with other fertilizer producers, the sale or
merger of the Company, the formation of a joint venture or the continuation of
the Company as a stand-alone entity. The Board of Directors of the Company, with
the assistance of representatives of Kidder, Peabody, discussed the possible
process and timing for contacting potential acquirors.
In December 1994, following the announcement of the sale of certain assets
of Kidder, Peabody and its affiliates to the parent company of PaineWebber
Incorporated ("PaineWebber"), the Board of Directors of the Company informed
PaineWebber that it intended to engage PaineWebber as its exclusive financial
advisor. PaineWebber was so engaged by letter agreement dated as of January 11,
1995.
From mid-December 1994 through March 1995, pursuant to authorizations by
the Company, representatives of PaineWebber contacted twelve parties (including
the Parent) with respect to a possible business combination with the Company.
In mid-December 1994, representatives of the Parent received a telephone
call from representatives of PaineWebber, acting on behalf of the Company,
inquiring whether the Parent would have an interest in some form of business
combination with the Company. Later that month, the Parent was provided with
certain non-confidential information on the Company. In January 1995,
representatives of the Parent and PaineWebber had several telephone discussions
concerning the Parent's interest in potentially acquiring the Company. The
Parent and the Company entered into the Confidentiality Agreement (as defined
below) effective February 1, 1995. See "INTEREST OF CERTAIN PERSONS IN MATTERS
--------------------------------------
TO BE ACTED UPON" below.
- ----------------
On February 21, 1995, representatives of the Parent met in Denver with
representatives of the Company and PaineWebber and received a formal
presentation from senior management of the Company with respect to the Company.
On March 7, 1995, the Company publicly announced its decision to explore
alternatives to enhance long-term stockholder value, as well as the engagement
of PaineWebber as its exclusive financial advisor. Following this public
announcement, PaineWebber received nine unsolicited inquiries regarding the
Company. None of such inquiries resulted in due diligence reviews or
negotiations following the initial inquiry.
Throughout the period from mid-February through May, the Company provided
detailed information to the Parent and the Parent conducted its assessment and
valuation of the Company. The Board of Directors of the Parent was apprised of
the potential acquisition at its regularly scheduled meeting on May 10, 1995. A
plant and mine tour of the Company's facilities was attended by representatives
of the Parent on May 23, 1995. Four other potential acquirors of the Company,
who had also executed confidentiality agreements to facilitate further
exploration of a possible
9
<PAGE>
acquisition of the Company, attended separate presentations by senior management
of the Company. Three of such potential purchasers also attended separate plant
and mine tours.
In late May 1995, following these further due diligence investigations,
three of the remaining four parties (including the Parent) continued to pursue
the possible acquisition of the Company. Pursuant to the Board of Directors'
instructions, PaineWebber invited these three potential acquirors (including the
Parent) to submit, on or before June 12, 1995, written proposals with respect to
the possible acquisition of the Company.
On May 31, 1995, the Parent submitted an acquisition proposal to the
Company conditioned upon, among other things, a commitment from the following
affiliates (the "WPG Affiliates") of Weiss, Peck & Greer ("WPG") owning in the
aggregate 49.2% of the Common Shares on a fully diluted basis to support the
transaction: WPG Corporate Development Associates III (Overseas), Ltd., Weiss,
Peck & Greer Venture Associates, L.P. Liquidating Trust, U/T/A dated December
30, 1994, WPG Corporate Development Associates III, L.P. and WPG Corporate
Development Associates II, L.P. Liquidating Trust, U/T/A dated December 31,
1993. By its terms, the proposal required acceptance by the Company by the close
of business on June 2, 1995 and would have prohibited further negotiations with
third parties for a period of time. On June 2, 1995, the Executive Committee of
the Board of Directors of the Company reviewed the Parent's offer and concluded
that the proposal did not justify termination of the process of soliciting
offers from the other interested parties and that any discussions regarding a
commitment from the WPG Affiliates should be held directly with such WPG
Affiliates. Following the June 2 meeting, PaineWebber informed the Parent of the
decision of the Executive Committee of the Board of Directors and encouraged the
Parent to submit a revised proposal.
On June 12, 1995, the Company received a revised proposal from the Parent.
After reviewing this proposal and a proposal from one other party, the Company
concluded that they were both unacceptable, because of inadequacy of price
and/or omissions of certain material terms, among other reasons. Accordingly,
PaineWebber was instructed to continue to solicit proposals for the Company and
to review other alternatives available to the Company to increase stockholder
liquidity, including a secondary offering.
On June 28, 1995, a representative of the Parent met with PaineWebber in
New York to evaluate whether there was any basis for continued discussions
between the parties.
On July 5, 1995, a special meeting of the Executive Committee of the Board
of Directors of the Parent was held to review the proposed acquisition and
consider the various financial, strategic and legal matters as well as the
status of negotiations.
Following that meeting, on July 6, 1995, the Parent submitted a further
proposal to the Company. Also in early July, the Company received a revised
proposal from the other interested party. On July 12, 1995, PaineWebber,
pursuant to instructions from the Company, advised the Parent that its proposal
was not the most attractive alternative available to the Company and its
stockholders, and the Parent was given an opportunity to present its best and
final proposal. On July 14, 1995 the Parent submitted a revised proposal to
acquire the Company pursuant to a one-step
10
<PAGE>
merger transaction at $10.55 per Common Share in cash. Also on July 14, 1995,
the other potential acquiror submitted a revised proposal.
On July 17, 1995, the Board of Directors held a meeting, at which
representatives of PaineWebber were present, to review and compare the terms of
the two pending proposals. At this meeting, the Board of Directors determined
that the Parent's proposal appeared to represent the best alternative available
to the Company and its stockholders, authorized PaineWebber to conduct
discussions with representatives of the Parent in order to clarify certain terms
of the Parent's proposal and, subject to obtaining such clarification,
authorized an exclusive period for discussion with the Parent to permit the
Parent to complete due diligence with respect to the Company and to negotiate a
definitive agreement for the sale of the Company.
On July 20, 1995, the other party submitted a further revised proposal,
which the Company believed was substantially similar to such party's July 14,
1995 proposal. On July 24, 1995, the Company agreed to an exclusive period with
the Parent, expiring on August 9, 1995, previously authorized by the Board of
Directors of the Company.
From July 24 through August 8, 1995, representatives of the Company and the
Parent held numerous meetings in which the terms of the Merger Agreement were
negotiated and due diligence was conducted. Separately, the Parent and
representatives of the WPG Affiliates negotiated the terms of Irrevocable
Proxies (as defined below) pursuant to which the WPG Affiliates agreed to tender
the 4,614,281 shares owned by them, constituting approximately 49.2% of the
Common Shares on a fully diluted basis, in the Offer and appointed employees of
the Parent as proxy and attorney-in-fact (with full power of substitution) (i)
to call a special meeting of stockholders of the Company to consider the Merger
and (ii) to vote all the voting securities of the Company owned by them (A) in
favor of the Merger and adoption of the Merger Agreement and (B) against any
business combination proposal or other matter that may interfere or be
inconsistent with the Merger or the Merger Agreement, at any meeting of
stockholders of the Company. As a result of further discussion regarding the
Parent's due diligence review and the price and structure of the transaction,
the Parent and the Company agreed to reduce the consideration to be paid in the
acquisition transaction from $10.55 to $10.50 per share. In addition, the
Company and the Parent agreed to alter the structure of the proposed acquisition
from a one-step merger transaction to a two-step transaction involving a tender
offer followed by a merger. The Company preferred the tender offer structure,
which it believed would result in a higher present value to holders of Common
Shares because of the earlier receipt of consideration for tendered Common
Shares than would be expected in the one-step merger transaction.
On the evening of August 8, 1995, the Board of Directors of the Company met
to consider the final terms of the Merger Agreement. At this meeting,
PaineWebber delivered its opinion to the Board of Directors to the effect that,
as of such date, the $10.50 cash consideration proposed to be received by the
holders of the Shares pursuant to the Offer and the Merger was fair, from a
financial point of view, to such holders (other than the WPG Affiliates). At
this meeting, the Board of Directors of the Company unanimously approved and
adopted the Merger Agreement and resolved to recommend the Offer and the Merger
to the Company's stockholders.
11
<PAGE>
On August 9, 1995, the respective Boards of Directors of the Parent and the
Purchaser met, considered and each unanimously approved and adopted the Merger
Agreement. The Parent, the Purchaser and the Company executed the Merger
Agreement in the evening of August 9, 1995 and issued a joint press release
announcing the transactions at 7:00 A.M. EDT on August 10, 1995. At the time of
the execution of the Merger Agreement, the Irrevocable Proxies were executed in
favor of the Purchaser by the parties thereto. Pursuant to the terms of the
Merger Agreement, on August 16, 1995, the Purchaser commenced the Offer.
On September 11, 1995, the Board of Directors held a meeting, at which
representatives of PaineWebber were present, to review the status of the
transaction, to receive a report from counsel on certain litigation that had
been filed relating to the transaction (see "CERTAIN LITIGATION") and to review
------------------
the facts surrounding certain payments proposed to be made to officers of the
Company by the WPG Affiliates and certain other stockholders of the Company, as
discussed below under "INTEREST OF CERTAIN PERSONS IN THE MERGER - WEISS, PECK &
---------------------------------------------------------
GREER PAYMENTS." At such meeting, representatives of PaineWebber and the
- --------------
Company's management indicated they had received no inquiries from prospective
acquirors of the Company since the commencement of the Offer by the Purchaser.
PaineWebber also stated that the proposed payments to management discussed above
and the filing of the litigation reported upon at the meeting did not alter the
conclusion reached in the fairness opinion rendered by it to the Company on
August 8, 1995. At the September 11, 1995 meeting the Board unanimously
confirmed approval and adoption of the Merger Agreement.
The plaintiffs and the defendants in the litigation filed in connection
with the Offer and the Merger entered into a Memorandum of Understanding dated
as of September 19, 1995 providing for the settlement of the actions. The
Memorandum of Understanding also provided, among other things, that the Schedule
14D-9 filed by the Company in connection with the Offer be amended to reflect
certain disclosure included herein under "INTEREST OF CERTAIN PERSONS IN THE
----------------------------------
MERGER - WEISS, PECK & GREER PAYMENTS" and "CERTAIN LITIGATION," that the Parent
- ------------------------------------- ------------------
and Purchaser extend the Offer to October 2, 1995 and that the minimum
percentage of Common Shares to be tendered as a condition to Parent's obligation
to consummate the Offer be increased from 60% to 65%. Such disclosure was made
in an amended Schedule 14D-9 mailed to all holders of Common Shares, the Offer
was so extended by the Purchaser, and such minimum percentage was so increased.
A Stipulation of Settlement confirming the terms of the Memorandum of
Understanding described above was entered into by the parties on or about
October 3, 1995 and filed with Delaware Court of Chancery.
The Offer expired on October 2, 1995, at 12:00 midnight, New York City
time. Pursuant to the Offer, the Purchaser accepted for payment and purchased
8,886,943 Common Shares at a price of $10.50 per Common Share in cash. As a
result of these purchases, the Purchaser owns of record approximately 95.9% of
the outstanding Common Shares.
On October 3, 1995, following the acceptance for payment by the Purchaser
of Common Shares pursuant to the Offer, pursuant to the Merger Agreement, Wesley
W. Lang, Mark R. Sanders and Peter B. Pfister resigned from the Company's Board
and three designees of the Parent--Dale W. Massie, Dorothy E.A. Bower and Larry
A. Collins--were appointed to the Company's Board. Information regarding such
persons is contained in the Information Statement pursuant to Section
12
<PAGE>
14(f) of the Exchange Act sent to the holders of the Common Shares as part of
the Company's Schedule 14D-9 sent in response to the Offer.
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER
In light of the Board of Directors' review of the Company's competitive
position, the Company's financial history and current status, past and
anticipated events in the fertilizer industry and the prospects for the Company
as an independent entity, the Board of Directors determined that it would be in
the best interests of the stockholders to approve the Merger Agreement.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders of Shares tender them pursuant to the Offer,
the Board of Directors considered a number of factors including:
(i) the opportunity to sell the Company at a time when the industry
is experiencing its first period of strong fertilizer prices since 1989 at a
price that reflects such strength, and the possibility that such strength will
not be sustained;
(ii) the recent trend toward consolidation among fertilizer
producers;
(iii) the risks to the Company and its stockholders of remaining
independent in view of the Company's highly leveraged position, the volatile and
cyclical nature of the fertilizer industry, the Company's dependence on a single
type of fertilizer produced at a single facility, the Company's future capital
needs, the Company's ability to compete in an increasingly global marketplace
and the past and potential future effects on the Company of market downturns
caused by weather, changes in government farm policies, political instability
and other political considerations in foreign countries, supply and demand
imbalances, currency fluctuations, changes in planted acreage, raw material
costs and other uncontrollable and unpredictable forces;
(iv) the presentation and opinion of PaineWebber at the August 8,
1995 meeting of the Board of Directors to the effect that, as of such date, the
$10.50 cash consideration proposed to be received by the holders of the
Company's Common Shares pursuant to the Offer and in the Merger was fair, from a
financial point of view, to such holders (other than the WPG Affiliates). A copy
of the written opinion of PaineWebber, which sets forth the procedures followed,
matters considered, assumptions made and limitations of the review undertaken by
PaineWebber, is attached hereto as Exhibit B. STOCKHOLDERS ARE URGED TO READ THE
OPINION CAREFULLY IN ITS ENTIRETY;
(v) the favorable price available to the Company's stockholders
under the Merger Agreement compared to selling prices in other recent sale
transactions in the fertilizer industry as measured by multiples of earnings and
revenues;
(vi) the historical market prices for the Common Shares, including
the fact that, although the proposed purchase price for the Common Shares is
less than recent Nasdaq National Market closing prices for the Common Shares,
such purchase price is in excess of the historical
13
<PAGE>
average trading prices of the Common Shares over various periods preceding the
announcement of the engagement of PaineWebber by the Company;
(vii) the lack of liquidity in the market for the Common Shares and
the adverse consequences thereof for the Company and its stockholders;
(viii) the stated intention of holders of 49.2% of the Common Shares
(on a fully diluted basis) to tender into the Offer;
(ix) the terms of the Merger Agreement, the Offer and the
transactions contemplated thereby, including, among others, the right of the
Company's Board of Directors to accept a proposal from another party and
terminate the Offer and Merger Agreement, provided that the Parent would be
entitled to a fee of $4.0 million in such event;
(x) the availability of dissenters' rights of appraisal in the
Merger;
(xi) the financial strength of the Parent and the absence of any
financing condition in the Offer; and
(xii) the anticipated benefits of the Merger on the Company's
employees and the community in which the Company operates.
The Board of Directors did not assign relative weights to the above factors
or determine that any factor was of specific importance relative to any other
factor. Rather, the Board of Directors viewed its position and recommendations
as being based on the totality of the information presented to and considered by
it.
From the standpoint of the Parent and the Purchaser, the purpose of the
Merger is to enable the Parent to acquire substantial control of the Company and
the entire common equity interest in the Company. The Parent regards the
acquisition of the Company as an attractive opportunity to acquire a significant
and well- established business. The Parent believes the increased scale of the
combined businesses will enable the Parent to compete more effectively in the
fertilizer business both domestically and internationally. The transaction
provides the Parent with phosphate fertilizer production capacity and secures
its position as a fully integrated producer of the three essential major plant
nutrients: nitrogen, phosphate and potash. The business of the Parent and the
Company operate in similar markets and geographies and the Merger is expected to
provide considerable synergies and enhance performance.
OPINION OF FINANCIAL ADVISOR
PaineWebber delivered its opinion to the Board that, on the basis of its
review and analysis and subject to the limitations set forth therein, the $10.50
per Common Share cash consideration to be received by the holders of Common
Shares of the Company pursuant to the Offer or the Merger, as the case may be,
is fair, from a financial point of view, to the Common Shareholders (other than
the WPG Affiliates).
14
<PAGE>
A copy of the written opinion of PaineWebber, setting forth the assumptions
made, factors considered and scope of the review undertaken by PaineWebber is
attached hereto as Exhibit B and incorporated herein by reference. The summary
of the opinion set forth below is qualified in its entirety by reference to the
full text of the opinion.
PaineWebber was retained by the Company in January 1995 to act as its
financial advisor in connection with the exploration of alternatives to enhance
long-term stockholder values. PaineWebber was selected over other prospective
financial advisors by the Company based on PaineWebber's experience and
expertise and the familiarity of one of its managing directors with the Company,
its business and its history. PaineWebber is an internationally recognized
investment banking firm and is regularly engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with PaineWebber's engagement, the Company requested that
PaineWebber evaluate the fairness, from a financial point of view, of the
consideration to be received by holders of the Common Shares in the Offer and
the Merger. At a meeting of the Company's Board of Directors held on August 8,
1995, PaineWebber presented certain materials containing a range of values for
the Common Shares using several different analyses and methodologies. At this
same meeting, PaineWebber rendered an oral opinion (subsequently confirmed in
writing as of such date) to the effect that, as of such date, the $10.50 in cash
per Common Share consideration to be received by holders of the Common Shares in
the Offer or the Merger, as the case may be, was fair to such holders from a
financial point of view (other than the WPG Affiliates). In arriving at its
opinion, PaineWebber reviewed certain publicly available information relating to
the business, financial condition and operations of the Company, and certain
financial and other information, including financial forecasts, furnished to
PaineWebber by the Company that is not publicly available. PaineWebber met with
senior officers of the Company to discuss the operations, financial condition,
history and prospects of the Company's business.
In conducting its analysis, PaineWebber reviewed, among other public
information, the Company's Annual Reports and Forms 10-K and related financial
information for the five fiscal years ended June 30, 1994, and the Company's
Form 10-Q and the related unaudited financial information for the nine months
ended March 31, 1995; reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets and prospects
of the Company furnished to it by the Company; conducted discussions with
members of senior management of the Company concerning its businesses and
prospects; reviewed the historical market prices and trading activity for the
Common Shares and compared such price and trading history with that of certain
other publicly traded companies which it deemed relevant; compared the financial
position and operating results of the Company with those of certain other
publicly traded companies which it deemed relevant; reviewed the proposed
financial terms of the Offer and Merger and compared such terms with the
financial terms of certain other business combinations which it deemed relevant;
and reviewed a draft of the Merger Agreement in the form presented to the Board
of Directors of the Company. In addition, PaineWebber reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as it deemed
15
<PAGE>
appropriate in arriving at its opinion, including its assessment of general
economic, market and monetary considerations. PaineWebber was requested by the
Company to and did approach third parties to solicit indications of interest in
acquiring the Company.
Based on the foregoing, PaineWebber delivered its oral opinion to the Board
of Directors of the Company on August 8, 1995, and following a review of the
Merger Agreement and related documents, delivered its written opinion dated
August 8, 1995 to the Board of Directors of the Company, that, as of such date,
the cash consideration to be received by the holders of the Common Shares
pursuant to the Offer or the Merger, as the case may be, is fair to such holders
from a financial point of view (other than the WPG Affiliates).
In the course of its investigation, PaineWebber relied on the accuracy and
completeness of all information that was publicly available or supplied or
otherwise communicated to it by the Company and it did not independently verify
such information. It assumed that the financial forecasts examined by it were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the management of the Company as to the future
performance of the Company. It did not undertake, and was not provided with, an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company and assumed that all material liabilities (contingent
or otherwise, known or unknown) of the Company were as set forth in the
Company's consolidated financial statements. PaineWebber's written opinion to
the Board of Directors was based on the regulatory, economic, monetary and
market conditions existing on the date thereof. Although PaineWebber evaluated
the fairness of the cash consideration to be received by the holders of Common
Shares in the Offer and the Merger from a financial point of view, the specific
consideration payable in the Offer and the Merger was determined by the Parent
and the Company through arm's length negotiation.
The opinion of PaineWebber should be read in its entirety. The summary of
the financial and comparative analyses set forth above contains a summary of all
material analyses employed by PaineWebber in reaching such opinion, but does not
purport to be a complete description of PaineWebber's presentation to the Board
on either August 8, 1995 or the analyses conducted by PaineWebber. PaineWebber
believes that its analyses and the summary thereof set forth above must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all the factors or analyses, could
create an incomplete and/or misleading view of the process underlying its
opinion. In performing its analyses, PaineWebber made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the Company. Any value contained in the analyses performed by PaineWebber is not
necessarily indicative of the actual values or actual future results, which may
be significantly more or less favorable than as set forth therein. Analyses
relating to the value of the business or Common Shares do not purport to be
appraisals or to reflect the prices at which such business or Common Shares may
be sold. Accordingly, such analyses and valuations are inherently subject to
substantial uncertainty. No public company utilized as a comparison is identical
to the Company, and none of the precedent transactions utilized as a comparison
is identical to the Offer and the Merger. Accordingly, an analysis of publicly
traded comparable companies and precedent transactions is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and
16
<PAGE>
operating characteristics of the comparable companies or the companies involved
in precedent transactions and other factors that could affect the public trading
value of the comparable companies or company or transaction to which they are
being compared.
As discussed above under "BACKGROUND OF THE MERGER," on September 11, 1995,
------------------------
the Board of Directors held a meeting, at which representatives of PaineWebber
were present, to review the status of the transaction, to receive a report from
counsel on the litigation that had been filed relating to the transaction and to
review the facts surrounding certain payments proposed to be made to officers of
the Company by the WPG Affiliates and certain other stockholders of the Company.
At such meeting, representatives of PaineWebber and the Company's management
indicated they had received no inquiries from prospective acquirors of the
Company since the commencement of the Offer by the Purchaser. PaineWebber also
stated that the proposed payments to management and the filing of the litigation
reported upon at the meeting did not alter the conclusion reached in the
fairness opinion rendered by it to the Company on August 8, 1995.
PaineWebber was retained by the Company to act as its exclusive financial
advisor with respect to the Offer, the Merger and matters arising in connection
therewith. Pursuant to a letter agreement dated January 11, 1995 between the
Company and PaineWebber, the Company, as compensation for the services of
PaineWebber (i) paid PaineWebber $100,000 on April 3, 1995, (ii) agreed to pay
PaineWebber a fee of $325,000 upon delivery of the fairness opinion and (iii)
agreed to pay an additional fee, less any fees paid pursuant to clauses (i) and
(ii) above, based upon the aggregate value paid or otherwise assumed in
connection with the Offer and the Merger. As of September 30, 1995, the
additional fee was estimated to be approximately $1,500,000. The Company has
also agreed to reimburse PaineWebber for its reasonable out-of-pocket expenses,
including the reasonable fees and expenses of its counsel, in an amount not to
exceed $75,000, and to indemnify PaineWebber against certain liabilities,
including liabilities arising under federal securities laws. Other than with
respect to its services under the PaineWebber Agreement, PaineWebber has not
provided investment banking services to the Company in the past three years.
INTEREST OF CERTAIN PERSONS IN THE MERGER
Certain existing and former members of the Company's management and Board
(as well as other employees of the Company) have certain interests that are
described below that may present them with actual or potential conflicts of
interest in connection with the Merger.
Three designees of the Parent--Dale W. Massie, Dorothy E.A. Bower and Larry
A. Collins--were appointed to the Company's Board following consummation of the
Offer. The Parent owned, through the Purchaser, approximately 95.9% of the
Common Shares as of the Record Date. The Company purchased approximately
$4,083,000, $3,768,000 and $3,647,000 of anhydrous ammonia from the Parent and
its affiliates and sold approximately $16,408,000, $13,877,000 and $14,755,000
of phosphate fertilizer products to the Parent and its affiliates during the
fiscal years ended June 30, 1995, 1994 and 1993, respectively.
Stock Options. As a result of the Offer, each holder of an outstanding
option to purchase Common Shares under the Company's 1988 Employee Stock Option
Plan, 1994 Employee Stock
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<PAGE>
Incentive Plan and Nonemployee Director Stock Option Plan became entitled to
exercise, subject to the consummation of the Offer, his or her options, in order
to be able to tender such Common Shares in the Offer. All of the executive
officers or directors exercised their options and tendered their Common Shares
in the Offer. The executive officers and directors of the Company received net
amounts in settlement of such options as follows:
<TABLE>
<CAPTION>
NAME/TITLE AMOUNT
- ---------- ------
<S> <C> <C>
Craig D. Harlen $476,696 President, Chief Executive Officer and Chairman of the Board
Mark R. Sanders $297,802 Senior Vice President, Chief Financial Officer and a Director
Cecil D. Andrus $ 8,334 Director
H. Alan Dahlbach $297,802 Executive Vice President
Steven W. Gampp $297,802 Vice President, Secretary and Treasurer
John D. Yokley $184,798 Vice President--National Sales
Larry C. Dearing $184,798 Vice President--Regional Sales
Don G. LaRue $227,290 Vice President--Operations
Helen K. Smith $143,040 Corporate Controller and Assistant Secretary
</TABLE>
Employment and Compensation Agreements. On December 1, 1994, the Company
entered into an employment agreement (the "Harlen Agreement") with Craig D.
Harlen to serve as the Company's President and Chief Executive Officer. The
Harlen Agreement provides for an annual base salary of $250,000 (which was
increased to $257,500 effective July 1, 1995) and automatically renews for
successive twelve month periods. The Harlen Agreement provides for severance
compensation equal to one year's base salary in the event of a termination
without cause, and severance compensation in the event of a termination by
reason of a change in control of the Company equal to three times the sum of (i)
Mr. Harlen's base salary at the time of the change in control, plus (ii) the
average of the performance bonus paid for the prior two fiscal years of the
Company. In no event, however, shall such severance compensation exceed the
amount that the Company may deduct for federal income tax purposes by virtue of
Section 280G of the Internal Revenue Code of 1986, as amended, or any successor
provision.
On December 1, 1994, the Company entered into employment agreements with
each of H. Alan Dahlbach, Mark R. Sanders, Steven W. Gampp, Larry C. Dearing and
John D. Yokley. Each of these employment agreements provides for an annual base
salary and for severance compensation in the event of termination without cause
or by reason of a change in control, calculated in the same manner as described
above with respect to the Harlen Agreement. Effective July 1, 1995, the
employment agreements provide for annual base salaries in the aggregate amount
for all individuals of $816,790 per year. The compensation paid to each of the
employees under his employment agreement for the three fiscal years ended June
30, 1995 are listed in the Summary Compensation Table included in the Annual
Report on Form 10-K attached hereto as Exhibit C. The Harlen Agreement and each
of the above described employment agreements provides for certain payments in
the event of death or disability. Also, each such agreement contains non-
competition and confidentiality provisions. For purposes of the above
agreements, a change in control occurred upon completion of the Offer. A
termination by reason of a change in control of the Company includes
constructive termination, as defined in the agreements, including, for example,
resignation following
18
<PAGE>
a substantial change in duties, a reduction in salary or benefits, a relocation
of the employee to an office other than his current office, an uncured material
breach by the Company of the agreement or the failure of the executive and the
Company or its successor to negotiate a mutually agreeable amendment to the
current employment agreement or a new employment agreement within 90 days after
the change in control of the Company.
Compensation to Directors. The Company has agreed to pay Cecil D. Andrus an
annual retainer of $35,000 for his services as a non-employee director of the
Company during his current two-year term, which term ends in fiscal 1997.
Pursuant to the Merger Agreement, Governor Andrus has agreed to resign as a
director of the Company effective as of the Effective Date. The Company will
honor its agreement with Governor Andrus by the payment of the unpaid balance of
his retainer for the full two year term on or prior to the Effective Date. No
other director receives compensation for services as a director, but all
directors are reimbursed for travel and other expenses directly related to their
activities as directors.
Confidentiality Agreement. The Parent and the Company entered into a
Confidentiality Agreement, dated as of February 1, 1995 (the "Confidentiality
Agreement"), pursuant to which the Parent and its Representatives (as defined in
the Confidentiality Agreement) agreed to keep confidential certain business
and/or technical information of the Company to be furnished to them in
connection with the evaluation of a possible business combination or other
transaction. The Confidentiality Agreement also provides, among other things,
that, without the prior written consent of the Company, for a period of one year
neither the Parent nor its affiliates or agents will attempt to employ any
person who is at the time an employee of the Company.
In addition, the Confidentiality Agreement provides that, for a period of
eighteen months, neither the Purchaser nor its affiliates will (or will assist
or encourage others to), without the prior written consent of the Company, (i)
acquire or agree to acquire, offer, seek or propose to acquire, or cause to be
acquired, ownership of any of the Company's assets or business or any voting or
debt securities or preferred stock issued by the Company or any rights or
options to acquire such ownership; (ii) seek or propose to influence or control
management or policies of the Company or to obtain representation on the
Company's Board of Directors, solicit or participate in the solicitation of any
proxies or consents with respect to any securities of the Company or make any
public announcement with respect to any of the foregoing; (iii) seek to
negotiate or influence the terms and conditions of employment of employees of
the Company; or (iv) enter into any discussions, negotiations, arrangements or
understandings with any third parties with respect to any of the foregoing.
Weiss, Peck & Greer Payments. In June 1995, Wesley W. Lang, a director of
the Company and a principal in WPG, discussed with Craig D. Harlen, Chairman of
the Board of the Company, his personal desire that senior management receive
some form of monetary award from certain major stockholders of the Company in
the event of a sale of the Company in recognition of senior management's
contributions to the Company through its many difficult years. Mr. Lang also
discussed the matter with Peter B. Pfister, who is also a director of the
Company and a principal in WPG. In July, Mr. Lang and Mr. Harlen further
discussed the proposal, including Mr. Harlen's response to Mr. Lang's request
for suggestions regarding which members of management might
19
<PAGE>
participate and the amounts such individuals might receive if Mr. Lang were
successful in implementing his views. In the first week of August 1995, Mr. Lang
advised Mr. Harlen of the proposed amount and allocation of the payments that
might be made by the stockholders affiliated with WPG and perhaps by one or more
other stockholders of the Company, assuming that all tax and other legal
considerations could be satisfactorily addressed. Mr. Harlen at that time
mentioned to Mark R. Sanders, a director of the Company, the possibility of such
payments, but not the proposed amounts or intended recipients of the proposed
payments. On August 8, 1995, following the Board meeting at which the Merger
Agreement with the Parent and the Purchaser was approved, Mr. Lang informed
Cecil D. Andrus, a director of the Company, of the desire of the WPG Affiliates
and perhaps other stockholders to make certain payments to various executives of
the Company, subject to the identification and resolution of tax and other legal
issues. Thereafter, all of the intended recipients of the proposed payments were
notified of the desire of the WPG Affiliates to make the proposed payments. At
no time during these discussions did these proposals become a commitment to make
these payments and the WPG Affiliates have indicated that, although they intend
to make the payments if tax and other legal issues are resolved, they are not
committed to do so.
The Company was initially advised that the WPG Affiliates proposed to make
payments in the aggregate amount of $1,500,000 to certain executives of the
Company. The Company was subsequently informed that the aggregate payments had
been reduced to $1,300,000, to be paid following consummation of the Offer (or
any other transaction that provides value to all holders of the Common Shares in
excess of the consideration being paid by the Purchaser in the tender offer) as
follows: $780,000 to Mr. Harlen, Chairman of the Board of the Company; and
$173,333 to each of Mr. Sanders, Senior Vice President, Chief Financial Officer
and a director of the Company, H. Alan Dahlbach, Executive Vice President of the
Company, and Steven W. Gampp, Vice President, Treasurer and Secretary of the
Company. The Company has been informed that the WPG Affiliates would contribute
to these payments, pro rata in accordance with their Common Share ownership of
the Company. The Company has also been informed that one or more other
stockholders might participate in making the payments. In addition, the WPG
Affiliates agreed to make a $200,000 contribution to the Company to be used in
connection with the settlement of the litigation described in "CERTAIN
-------
LITIGATION" on behalf of all holders of Common Shares. The $200,000 contribution
- ----------
will be paid upon court approval of the settlement of the litigation.
Irrevocable Proxies. The WPG Affiliates agreed to tender, and did tender,
the 4,614,281 Common Shares owned by them in the Offer and appointed employees
of the Parent as proxies and attorneys-in-fact (with full power of substitution)
(i) to call a special meeting of stockholders of the Company to consider the
Merger and (ii) to vote (or, at their discretion, execute a written consent with
respect to) with or without the other, all the voting securities of the Company
owned by them (A) in favor of the Merger and adoption of the Merger Agreement
and (B) against any business combination proposal or other matter that may
interfere or be inconsistent with the Merger or the Merger Agreement, at any
meeting of stockholders of the Company and any adjournment or adjournments
thereof (the "Irrevocable Proxies"). Peter B. Pfister and Wesley W. Lang, who
are also principals of WPG, resigned as directors of the Company upon
consummation of the Offer.
Directors' and Officers' Indemnification. Pursuant to the Merger Agreement,
the Company must indemnify and hold harmless, and after the Effective Date, the
Parent and the Surviving
20
<PAGE>
Corporation must indemnify and hold harmless, each present employee, agent,
director or officer of the Company and the Company's subsidiaries (the
"Indemnified Parties") (a) with respect to any losses, claims, damages,
liabilities, costs and expenses, including reasonable attorneys' and expert
witness fees, arising out of or pertaining to any action or omission occurring
prior to the Effective Date (including any which arise out of or pertain to the
transactions contemplated by the Merger Agreement) and (b) as provided in their
respective charters or by-laws in effect at the date hereof (to the extent
consistent with applicable law), which provisions will survive the Merger and
will continue in full force and effect for a period of not less than five years
from the Effective Date. In the event any claim or claims (a "Claim or Claims")
are asserted or made pursuant to the preceding sentence within such five-year
period, all rights to indemnification in respect of any such Claim or Claims
shall continue until disposition of any and all such Claims. In the event that a
claim is asserted against any Indemnified Party with respect to any matter to
which the indemnities contained in this section relate, the Indemnified Party
shall give prompt written notice to the Company as the Surviving Corporation
setting forth in reasonable detail the basis for such claim for indemnification.
The Surviving Corporation has the right, at its election, to take over the
defense or settlement of such claim at its own expense by giving prompt notice
to that effect to the Indemnified Party. If the Company as the Surviving
Corporation has assumed the defense of any Claim, the Company is authorized to
consent to a settlement of, or the entry of any judgment arising from, any such
Claim, without the prior written consent of the Indemnified Party; provided,
however, that a condition to any such settlement will be a complete release of
the Indemnified Party with respect to such Claim. If the Company does not,
within thirty days after receipt of the Indemnified Party's notice of Claim, (x)
give such notice to take over the defense of such Claim and proceed to defend
the Claim or (y) object to such Claim in writing to the Indemnified Party, then
the Indemnified Party will have the right to undertake the defense of such Claim
and the Company will pay to the Indemnified Party the reasonable fees and
expenses of its counsel. The Company will not be liable for any settlement
effected without its consent, which consent will not be unreasonably withheld.
The Indemnified Party will at all times have the right, at its option and
expense, to participate fully in, but not to control, any such defense. Without
limiting the foregoing, the Company and, after the Effective Date, the Surviving
Corporation, to the extent permitted by applicable law, will periodically
advance reasonable expenses as incurred with respect to the foregoing to the
fullest extent permitted under applicable law provided the person to whom the
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification. In
the event that within five years from the Effective Date the Company
consolidates or merges with or into any other person or transfers all or
substantially all of its assets to any person and such person surviving such
consolidation or merger or to which such assets have been transferred is not a
Delaware corporation, the Company will enter into an agreement pursuant to which
such person must agree to provide indemnification substantially equivalent to
that required of the Company hereunder.
STRUCTURE OF THE MERGER
In the Merger, each outstanding Common Share not held, directly or
indirectly, by the Purchaser, the Parent or any other direct or indirect
subsidiary of the Parent, or the Company, will be converted into the right to
receive $10.50 in cash, without interest. Each share of common stock of the
Purchaser issued and outstanding immediately prior to the Effective Time will be
converted into and become one Common Share of the Company in the Merger. The
Company will thereupon
21
<PAGE>
become an indirect subsidiary of the Parent and the Parent will indirectly own
the entire common equity interest in the Company.
The acquisition of the Common Shares is structured as a cash merger, with
the Company as the Surviving Corporation, to ensure that the Parent will acquire
all outstanding Common Shares from all public holders thereof without materially
disrupting the Company's operations.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method of accounting,
whereby the purchase price for the Company will be allocated to the identifiable
assets and liabilities of the Company and its subsidiaries based on their
respective fair values.
FINANCING THE ACQUISITION
The Purchaser has estimated that the total amount of funds required by the
Purchaser to purchase Common Shares pursuant to the Offer and the Merger and to
pay related fees and expenses will be approximately $99 million, of which
approximately $93 million was paid to purchase Common Shares tendered pursuant
to the Offer. The Parent has informed the Company that it obtained such funds,
and intends to obtain the funds necessary to consummate the Merger, from
existing working capital.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, holders of Common Shares will not have an
opportunity to continue their common equity interest in the Company as an
ongoing operation and therefore will not have the opportunity to share in its
future earnings and potential growth, if any. The Preferred Shares will remain
outstanding following, and will be unaffected by, the Merger, except to the
extent that holders of Class B Preferred Shares perfect their appraisal rights.
CERTAIN FEDERAL TAX CONSEQUENCES OF THE MERGER
The following is a summary of the principal federal income tax consequences
of the Merger to holders of Common Shares who hold their Common Shares as
capital assets. The discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations ("Regulations") and public administrative and judicial
interpretations of the Code and Regulations, all of which are subject to change,
which changes could be applied retroactively.
The tax consequences of the transfer of Common Shares by a holder pursuant
to the Merger will depend on the holder's particular facts and circumstances.
This discussion is for general information only and may not apply to particular
categories of holders of Common Shares who are subject to special treatment
under the Code, such as (but not limited to) foreign persons, retirement plans,
regulated investment companies and dealers in securities. It does not cover the
special tax consequences that may apply to holders who acquired their Common
Shares pursuant to the exercise
22
<PAGE>
of employee stock options or otherwise as compensation. This summary does not
discuss any aspects of state, local, foreign or other tax laws. The discussion
assumes that the Company is not a collapsible corporation under section 341 of
the Code.
The receipt of cash from the Purchaser for Common Shares pursuant to the
Merger will be a taxable sale for federal income tax purposes (and probably also
will be a taxable sale under applicable state, local or foreign tax laws). In
general, a holder of Common Shares will recognize gain or loss for federal
income tax purposes equal to the difference between the amount of cash received
for the Common Shares and the holder's adjusted tax basis in such Common Shares.
Gain or loss must be determined separately for each identifiable block of Common
Shares (i.e., shares acquired at the same time and at the same price in one
transaction) converted to cash in the Merger. Provided the Common Shares
constitute capital assets in the hands of the holder thereof, such gain or loss
will be capital gain or loss and will be long-term capital gain or loss if, on
the date of the sale pursuant to the Merger, the Common Shares were held for
more than one year. The deduction of any capital loss may be limited under the
Code.
Unless a holder of Common Shares complies with certain reporting and
certification procedures or is an exempt recipient under applicable withholding
provisions of the Code and Regulations, such holder may be subject to
withholding tax of 31% with respect to any cash payments received pursuant to
the Merger. Holders of Common Shares should consult their brokers or the Paying
Agent to ensure compliance with such procedures. Foreign holders of Common
Shares should consult their own tax advisors regarding withholding taxes in
general.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL THE POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
HOLDERS OF COMMON SHARES ARE URGED AND EXPECTED TO CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM UNDER
FEDERAL, STATE, LOCAL OR OTHER TAX LAWS AND THE EFFECT OF ANY CHANGE IN THE
APPLICABLE TAX LAWS SINCE THE DATE HEREOF.
THE MERGER AGREEMENT
Set forth below is a description of the principal terms of the Merger
Agreement which are of continuing applicability. This description is qualified
in its entirety by reference to the Merger Agreement, which is attached as
Exhibit A hereto and is incorporated herein by this reference.
General. The Merger Agreement provides that as promptly as practicable
after completion of the Offer, the Purchaser will be merged with and into the
Company.
Board Representation. The Merger Agreement provides that upon the
acquisition of Common Shares pursuant to the Offer, which, when added together
with Common Shares owned by the Parent or any of its direct or indirect
subsidiaries, equal at least a majority of the then outstanding Common Shares,
the Company will fill any vacancies and increase the size of its Board
23
<PAGE>
as necessary to enable the Parent to designate at its option a majority of the
Company's Board, and shall cause the Purchaser's designees to be so elected and
shall mail promptly the information required by Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder. The Merger Agreement provides that,
without the prior written consent of the Company, the Purchaser shall not
decrease the Merger Price, decrease the number of Common Shares being sought in
the Offer, change the form of consideration payable in the Offer, add additional
conditions to the Offer or make any other material change in the terms or
conditions to the Offer. After the time that the Purchaser's designees
constitute at least a majority of the Board and until the Effective Date, any
amendment or termination of the Merger Agreement, extension for the performance
or waiver of the obligations or other acts of the Purchaser or the Parent
(except pursuant to the Merger Agreement) or waiver of the Company's rights
under the Merger Agreement, which amendment, termination, extension or waiver
would adversely affect the stockholders, optionholders or employees of the
Company, will also require the approval of a majority (or such higher percentage
as is required under the By-laws of the Company) of the then serving directors,
if any, who were directors as of August 9, 1995 (the "Continuing Directors").
Promptly following the acceptance for payment by the Purchaser of Common
Shares pursuant to the Offer, pursuant to the Merger Agreement, Wesley W. Lang,
Mark R. Sanders and Peter B. Pfister resigned from the Company's Board, and
three designees of the Parent--Dale W. Massie, Dorothy E.A. Bower and Larry A.
Collins--were appointed to the Company's Board. See "BACKGROUND OF THE MERGER,"
------------------------
above.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, the Purchaser shall be merged with and into the Company,
which shall be the Surviving Corporation, on the Effective Date. Pursuant to the
Merger, (x) the Restated Certificate of Incorporation of the Company will be the
Restated Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law, and (y) the By-laws of the Company will
be the By-laws of the Surviving Corporation until thereafter amended. The
directors of the Purchaser on the Effective Date will become the directors of
the Surviving Corporation until their respective successors are duly elected and
qualified. The officers of the Company on the Effective Date will continue as
the officers of the Surviving Corporation, to serve in accordance with the By-
Laws thereof until their respective successors are duly elected and qualified.
The Merger will have the effects set forth in the DGCL.
Conversion of Common Shares. The Merger Agreement provides that each
outstanding Common Share (other than Common Shares which are held by the Company
as treasury shares, all authorized and unissued Common Shares and any Common
Shares owned by the Purchaser, the Parent or any other direct or indirect
subsidiary of the Parent and Common Shares held by stockholders who exercise
their statutory dissenters' rights as described below) will be converted into
the right to receive $10.50 net in cash or such higher amount per Common Share
as may be paid to any holder of Common Shares pursuant to the Offer.
The Merger Agreement provides that each issued and outstanding share of
capital stock of the Purchaser shall be converted into one validly issued, fully
paid and non-assessable Common Share of the Surviving Corporation.
24
<PAGE>
The Merger Agreement provides that any issued and outstanding Common Shares
or Class B Preferred Shares ("Dissenting Shares") held by a Dissenting
Stockholder shall not be converted as described above but shall become, at the
Effective Date, by virtue of the Merger and without any further action, the
right to receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the DGCL; provided, however, that Common
Shares outstanding immediately prior to the Effective Date and held by a
Dissenting Stockholder who shall, after the Effective Date, withdraw his demand
for appraisal or lose his right of appraisal, in either case pursuant to the
DGCL, shall be deemed to be converted as of the Effective Date, into the right
to receive the Merger Consideration. The Merger Agreement provides that the
Company will not, without the prior written consent of the Purchaser,
voluntarily make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any demands by Dissenting Stockholders.
Stockholders' Meeting. Pursuant to the Merger Agreement, the Company has
agreed to take all action necessary in accordance with applicable law and its
Restated Certificate of Incorporation and By-Laws to convene a meeting of the
holders of the Common Shares as promptly as practicable after the expiration of
the Offer to consider and vote upon the adoption of the Merger Agreement. The
Company has agreed that in this Proxy Statement, the Company will, through its
Board, recommend that the holders of the Common Shares adopt the Merger
Agreement, except to the extent that the Board of Directors will have withdrawn
or modified its approval or recommendation of the Merger Agreement after
determining that it has a duty in the proper discharge of its fiduciary
responsibilities under applicable law to withdraw or modify such approval or
recommendation. The Parent has agreed that at any stockholders' meeting it will
vote or cause all of the Common Shares acquired pursuant to the Offer or
otherwise by the Purchaser or any affiliate of the Parent to be voted in favor
of the Merger.
Interim Operations of the Company. In the Merger Agreement, the Company
has agreed that, except as expressly provided in the Merger Agreement or
consented to in writing by the Parent or unless the failure to comply with any
of the following covenants results from actions by the Board which are approved
by a majority of the directors appointed by the Parent pursuant to the Merger
Agreement, prior to the Effective Date, (i) the businesses of the Company and
its subsidiaries will be conducted only in the ordinary and usual course of
business and (ii) the Company will not (A) (1) increase the compensation payable
to or to become payable to any director or executive officer, except for
increases in salary or wages payable or to become payable in the ordinary course
of business and consistent with past practice; (2) grant any severance or
termination pay (other than pursuant to the normal severance policy of the
Company or its subsidiaries as in effect on the date of the Merger Agreement)
to, or enter into or amend any employment or severance agreement with, any
director, officer or employee; (3) establish, adopt or enter into any new
employee benefit plan or arrangement; or (4) except as may be required by
applicable law and actions that are not inconsistent with the provisions of the
Merger Agreement, amend, or take any other actions (other than the acceleration
of vesting or waiving of performance criteria permitted pursuant to the employee
benefit plans upon a change in control of the Company) with respect to, any of
the Company's employee benefit plans; (B) declare or pay any dividend on, or
make any other distribution in respect of, outstanding shares of capital stock,
except for dividends by a subsidiary to the Company or another subsidiary; (C)
(1) except as described in the Company Disclosure Schedule (as defined in the
Merger Agreement), redeem, purchase or otherwise acquire any shares
25
<PAGE>
of its or any of its subsidiaries' capital stock or any securities or
obligations convertible into or exchangeable for any shares of its or its
subsidiaries' capital stock (other than any such acquisition directly from any
wholly owned subsidiary of the Company in exchange for capital contributions or
loans to such subsidiary), or any options, warrants or conversion or other
rights to acquire any shares of its or its subsidiaries' capital stock or any
such securities or obligations (except in connection with the exercise of
outstanding stock options or warrants in accordance with their terms); (2)
effect any reorganization or recapitalization; or (3) split, combine or
reclassify any of its or its subsidiaries' capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its or its subsidiaries' capital stock; (D) (1)
except as described in the Company Disclosure Schedule, issue, deliver, award,
grant or sell, or authorize or propose the issuance, delivery, award, grant or
sale (including the grant of any security interests, liens, claims, pledges,
limitations in voting rights, charges or other encumbrances) of, any shares of
any class of its or its subsidiaries' capital stock (including shares held in
treasury), any securities convertible into or exercisable or exchangeable for
any such shares, or any rights, warrants or options to acquire any such shares
(except as permitted for the issuance of shares upon the exercise of stock
options outstanding as of the date of the Merger Agreement and and certain other
exceptions), the exercise of warrants or the exercise of options under the
Company's stock option plans; or (2) amend or otherwise modify the terms of any
such rights, warrants or options the effect of which shall be to make such terms
more favorable to the holders thereof; (E) acquire or agree to acquire, by
merging or consolidating with, by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets of any other person (other than
the purchase of assets from suppliers or vendors in the ordinary course of
business) in each case which are material, individually or in the aggregate, to
the Company and its subsidiaries, taken as a whole; (F) sell, lease, exchange,
mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease,
exchange, mortgage, pledge, transfer or otherwise dispose of, any of its
material assets or any material assets of any of its subsidiaries, except for
dispositions in the ordinary course of business and consistent with past
practice; (G) adopt or propose to adopt any amendments to its charter or By-Laws
which would alter the terms of its capital stock or would have an adverse impact
on the consummation of the transactions contemplated by the Merger Agreement;
(H) (1) change, in any material respect, any of its methods of accounting in
effect at June 30, 1995, or (2) make or rescind any express or deemed election
relating to taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to taxes
(except where the amount of such settlements or controversies, individually or
in the aggregate, would not have a Company Material Adverse Effect (as defined
in the Merger Agreement)), or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year ending June
30, 1994, except, in each case, as may be required by law or U.S. generally
accepted accounting principles; (I) other than as permitted by the Harris Loan
(as defined in the Merger Agreement), incur any material obligation for borrowed
money or purchase money indebtedness, whether or not evidenced by a note, bond,
debenture or similar instrument; (J) enter into any material arrangement,
agreement or contract with any third party (other than customers in the ordinary
course of business) that provides for an exclusive arrangement with that third
party or is substantially more restrictive on the Company or substantially less
advantageous to the Company than arrangements, agreements or contracts existing
on the date hereof unless such arrangement is
26
<PAGE>
entered into in the ordinary course of business; or (K) agree in writing or
otherwise to do any of the foregoing.
No Solicitation. In the Merger Agreement, the Company has agreed that the
Company will not solicit, initiate or knowingly encourage any inquiries,
discussions or negotiations with any person (other than the Purchaser or the
Parent) concerning any Acquisition Proposal or solicit, initiate or knowingly
encourage any effort or attempt by any other person to do, make or seek an
Acquisition Proposal or, unless required in order for the Board to comply with
its fiduciary responsibilities, with a view to pursuing an Acquisition Proposal
with such person, engage in discussions or negotiations with or disclose any
nonpublic information relating to the Company or any of its subsidiaries to such
person or authorize or permit any of the officers, directors or employees of the
Company or any of its subsidiaries or any investment banker, financial adviser,
attorney, accountant or other representative retained by the Company or any of
its subsidiaries to take any such action. The Company has agreed to immediately
communicate to the Parent in writing the terms of any Acquisition Proposal which
it may receive. As used in the Merger Agreement, "Acquisition Proposal" means
any bona fide written proposal or offer from a third party relating to (i) the
acquisition or purchase of all or substantially all of the assets of, or more
than a 50% equity interest (including any Common Shares theretofore acquired) in
the Company, (ii) a merger, consolidation or similar business combination with
the Company or (iii) a tender or exchange offer for the Company conditioned on
ownership of more than 50% of the outstanding Common Shares following such
tender or exchange offer.
Compensation and Benefits. Pursuant to the Merger Agreement, the Parent
and the Surviving Corporation have agreed for a period of two years from the
Effective Date, to honor in accordance with their terms the Company's employee
benefit plans, in each case to the extent the same have been delivered or made
available to the Purchaser for review, provided however that the Parent and the
Purchaser may amend or terminate any such plan at any time after the Effective
Date to the extent the amendment or termination is deemed to be necessary or
appropriate to comply with the requirements of applicable law.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to the Parent and the Purchaser
with respect to, among other things, its organization, authorization,
capitalization, potential conflicts, inventory, insurance, intellectual
property, financial statements, public filings, employee benefit plans,
defaults, information in this Proxy Statement, compliance with laws, litigation,
tax matters, real and personal property, environmental matters, consents and
approvals, undisclosed liabilities and the absence of certain events. None of
the representations and warranties in the Merger Agreement will survive the
Effective Date of the Merger.
Conditions to the Merger. Pursuant to the terms of the Merger Agreement,
the obligations of each party to effect the Merger are subject to the
fulfillment at or prior to the Effective Date of the following conditions: (i)
the holders of the Common Shares must have duly approved the Merger if required
by applicable law; (ii) no preliminary or permanent injunction or other order by
a court of competent jurisdiction which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use its
reasonable best efforts to have any such
27
<PAGE>
injunction lifted); and (iii) no action shall have been taken nor shall any
statute, rule or regulation have been enacted by the government of the United
States or any state thereof that makes the consummation of the Offer or the
Merger illegal in any material respect. The obligations of the Purchaser and the
Parent to effect the Merger shall be subject to the fulfillment at or prior to
the Effective Date of the following additional conditions: (i) the
representations and warranties of the Company set forth in the Merger Agreement
must be true and correct in all material respects on the Effective Date (or on
such other date specified in the Merger Agreement) with the same force and
effect as though made on and as of such date, and the Purchaser and the Parent
must have received a certificate to that effect from the Chief Executive Officer
and the Treasurer of the Company; (ii) all of the covenants and agreements of
the Company to be performed or complied with pursuant to the Merger Agreement
prior to the Effective Date must have been duly performed and complied with in
all material respects, and the Purchaser and the Parent must have received a
certificate to that effect from the Chief Executive Officer and the Treasurer of
the Company; (iii) holders of no more than 400,000 Common Shares, in the
aggregate, shall have filed with the Company written objections to the Merger
and made written demands for payment of the fair value of their shares in the
manner permitted by the DGCL; (iv) all of the Continuing Directors of the
Company on the Effective Date must have resigned; (v) since the date of the
Merger Agreement, there shall have been no Company Material Adverse Effect
(provided, however, that certain IRS Notices of Proposed Adjustment will not be
considered a Company Material Adverse Effect); and (vi) other than taxes duly
paid, withheld or reserved for by the Company, no taxes shall be payable, or
reasonably expected by the Company to be payable, with respect to items or
periods covered by the returns and reports referred to in the Merger Agreement
(whether or not shown on or reportable on such returns or reports or with
respect to any period prior to the Effective Date), other than any such taxes
which would not have a Company Material Adverse Effect. The obligation of the
Company to effect the Merger shall be subject to the fulfillment at or prior to
the Effective Date of the following additional conditions: (i) the
representations and warranties of the Purchaser and the Parent set forth in the
Merger Agreement shall be true and correct in all material respects on the
Effective Date (or on such other date specified in the Merger Agreement) with
the same force and effect as though made on and as of such date, and the Company
shall have received certificates to that effect from the Chief Executive Officer
and the Treasurer of the Parent and the President of the Purchaser; and (ii) all
of the covenants and agreements of the Purchaser and the Parent to be performed
or complied with pursuant to the Merger Agreement prior to the Effective Date
shall have been duly performed and complied with in all material respects, and
the Company shall have received certificates to that effect from the Chief
Executive Officer and the Treasurer of the Parent and the President of the
Purchaser.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Date, whether before or after approval by the stockholders of the
Company, if required, (i) by mutual consent of the Parent and the Board; (ii) by
the Parent or the Company if the Merger shall not have been consummated on or
before December 15, 1995, which date may be extended by mutual agreement of the
boards of directors of the Company and the Parent; (iii) by the Company if,
prior to the Effective Date, the Company, its Board or its stockholders shall
receive an Acquisition Proposal and the Board determines that it has a duty in
the proper discharge of its fiduciary responsibilities under applicable law to
consider such other proposal or offer, and then such Board either (A) accepts
such proposal or offer, (B) recommends to the stockholders acceptance of such
proposal or offer or (C) in the case of a tender or exchange offer, takes no
position with respect
28
<PAGE>
thereto and all conditions (other than terminating the Merger Agreement) of such
tender or exchange offer have been satisfied, in which event the Merger
Agreement shall be terminated without any liability to the Company or the
Company's Board as a result of such termination other than payment of the
(U.S.)$4,000,000 fee as set forth below; (iv) by the Parent upon a breach of any
material representation, warranty, covenant or agreement on the part of the
Company set forth in the Merger Agreement or if any representation or warranty
of the Company shall have become untrue and such breach or untruth shall have
caused a Company Material Adverse Effect; (v) by the Company upon a breach of
any material representation, warranty, covenant or agreement on the part of the
Parent set forth in this Agreement or if any representation or warranty of the
Parent shall have become untrue and such breach or untruth shall have caused a
Parent Material Adverse Effect (as defined in the Merger Agreement). If the
Merger Agreement is terminated pursuant to (iii) above, the Company shall pay to
Parent (U.S.)$4,000,000 in cash. In the event of termination of the Merger
Agreement by the Parent, the Purchaser or the Company other than pursuant to
(iii) above, there shall be no liability under the Merger Agreement on the part
of either the Company, the Parent or the Purchaser or their respective officers
or directors, with certain exceptions as provided in the Merger Agreement
including failure to convene the meeting of stockholders to vote on the Merger,
certain confidentiality provisions and a wilful breach of any representation,
warranty, covenant or agreement of the Purchaser, the Parent or the Company
contained in the Merger Agreement.
Amendment. The Merger Agreement may be amended by the parties thereto, by
action taken by the respective Boards of Directors of the Purchaser, the Parent
and the Company, at any time before or after approval hereof by the holders of
Common Shares, but, after any such approval, if required, no amendment shall be
made which changes the Merger Consideration without the further approval of such
holders. The Merger Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties thereto.
Delaware Law. Before the Offer was made, the Board approved the Merger
Agreement and the transactions contemplated by it, including the Offer, the
Merger Agreement and the Merger for purposes of Section 203 of the DGCL.
Accordingly, the restrictions of Section 203 do not apply to the transactions
contemplated by the Offer and the Merger Agreement. Section 203 of the DGCL
prevents an "interested stockholder" (generally, a stockholder owning 15% or
more of a corporation's outstanding voting stock or an affiliate or associate of
that stockholder) from engaging in a "business combination" (defined to include
a merger and certain other transactions) with a Delaware corporation for a
period of three years following the date on which the stockholder became an
interested stockholder, unless (i) prior to that date, the corporation's board
of directors approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
corporation's voting stock outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock plans and persons who are
directors and also officers of the corporation) or (iii) on or subsequent to
that date, the business combination is approved by the corporation's board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder. As described
above, Section 203 of the DGCL does not apply to the Offer or the Merger.
29
<PAGE>
REGULATORY AND OTHER APPROVALS
Except for the filing of the Restated Certificate of Merger with the
Secretary of State of the State of Delaware, there are no federal or state
regulatory requirements which remain to be complied with in order for the Merger
to be consummated in accordance with the terms of the Merger Agreement.
FINANCIAL PROJECTIONS
During the course of discussions between the Purchaser and the Company that
led to the execution of the Merger Agreement, commencing in February 1995 the
Company provided the Purchaser and the Parent with certain non-public business
and financial information about the Company. Included among the information the
Company provided the Purchaser were projections for fiscal years 1996, 1997,
1998, 1999 and 2000 that indicated results in the following ranges: income
before taxes of $16.6-20.8 million, $19.9-30.1 million, $21.7-32.9 million,
$23.6-35.9 million, and$25.7-40.0 million, respectively, and revenues of $113.4-
121.0 million, $116.8-120.2 million, $120.3-123.8 million, $124.0-127.5 million
and $127.7- 131.4 million, respectively. The Company has advised the Parent that
these projections were based on numerous assumptions (not all of which are
stated in the projections) and are subject to significant economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control, including commodity prices and the availability of financing
for and the ultimate effect of significant new capital expenditures. In
particular, the projections assumed increased net revenues for fiscal 1995 of
$109 million which did not occur because of decreased demand due to unusually
wet weather in the Company's market area. Projections beyond fiscal 1995 also
assumed annual price increases of 3% (despite volatile historical prices),
additional earnings resulting from capital expenditures of $3.7-7.7 million
which are still in the planning stages and the results or success of which are
uncertain, and the effect of various refinancing alternatives which were then
under consideration by the Company. In addition, the projections varied from one
another in the periods in which the capital expenditures and the earnings
therefrom were included. Because of the nature of the assumptions used for these
projections, the Company believes that actual future results will vary
substantially from these projected results. THE PROJECTIONS WERE NOT PREPARED
WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE
COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS. THE PROJECTIONS ARE INCLUDED HEREIN ONLY BECAUSE SUCH
INFORMATION WAS PROVIDED TO THE PARENT AND THE PURCHASER. NONE OF THE PARENT,
THE PURCHASER, OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY OF SUCH INFORMATION. WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, THESE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS
RELATING TO THE BUSINESSES OF THE COMPANY WHICH MAY NOT BE REALIZED AND ARE
SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND
THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL
BE REALIZED AND ACTUAL RESULTS MAY VARY SUBSTANTIALLY FROM THOSE SHOWN. THE
PROJECTIONS HAVE NOT BEEN EXAMINED OR COMPILED BY THE COMPANY'S INDEPENDENT
PUBLIC
30
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ACCOUNTANTS. FOR THESE REASONS, AS WELL AS THE BASES ON WHICH SUCH PROJECTIONS
WERE COMPILED, THERE CAN BE NO ASSURANCE THAT SUCH PROJECTIONS WILL BE REALIZED,
OR THAT ACTUAL RESULTS WILL NOT BE HIGHER OR LOWER THAN THOSE ESTIMATED. THE
INCLUSION OF SUCH PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS AN INDICATION
THAT THE PARENT, THE PURCHASER OR ANY OTHER PERSON WHO RECEIVED SUCH INFORMATION
CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS.
APPRAISAL RIGHTS
Dissenting Stockholders who hold Dissenting Shares of record as of the
Effective Time of the Merger are entitled to appraisal rights under Section 262
of the DGCL ("Section 262"). Section 262 is reprinted in its entirety in Exhibit
D to this Proxy Statement. All references in Section 262 and in this discussion
to a "stockholder" are to the record holder of Dissenting Shares as to which
appraisal rights are asserted. A person having a beneficial interest in
Dissenting Shares that are held of record in the name of another person, such as
a broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect whatever
appraisal rights the beneficial owner may have.
The holders of Class A Preferred Stock are not entitled to seek appraisal
of the fair value of their shares pursuant to the DGCL and the Company's
Restated Certificate of Incorporation because the Class A Preferred Shares are
listed on the Nasdaq National Market and are not affected by the Merger. Holders
of Class B Preferred Shares have appraisal rights, because the Class B Preferred
Shares are not so listed.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Exhibit D.
This discussion and Exhibit D should be reviewed carefully by any Dissenting
Stockholder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, since failure to comply with the procedures set
forth herein or therein will result in the loss of appraisal rights.
Dissenting Stockholders of record who desire to exercise their appraisal
rights must satisfy the following conditions. A written demand for appraisal of
Dissenting Shares must be mailed or delivered to the Company at the following
address: 8400 East Prentice Avenue, Suite 1320, Englewood, Colorado 80111,
Attention: Secretary. In order to constitute a valid exercise of appraisal
rights, the written demand must be received by the Company before the taking of
the vote on the Merger. The failure to vote for the Merger or a vote against the
Merger by a holder of Common Shares will not be deemed to satisfy such notice
requirement. The written demand for appraisal must specify the Dissenting
Stockholder's name and mailing address, the number of Dissenting Shares for
which appraisal is demanded, and that the Dissenting Stockholder is thereby
demanding appraisal of such Dissenting Shares. The demand for appraisal must be
executed by or for the Dissenting Stockholder of record, fully and correctly, as
such Dissenting Stockholder's name appears on the certificate or certificates
representing his Dissenting Shares. If the Dissenting Shares are owned of record
in a fiduciary capacity, such as by a trustee, guardian, or custodian, such
demand must be executed by the fiduciary. If the Dissenting Shares are owned of
record by more
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than one person, as in a joint tenancy or tenancy in common, such demand must be
executed by all record owners. An authorized agent, including an agent for two
or more record owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner and expressly disclose
the fact that, in exercising the demand, such person is acting as agent for the
record owner.
A record owner, such as a broker, who holds Dissenting Shares as a nominee
for others, may exercise appraisal rights with respect to the Dissenting Shares
held for all or less than all beneficial owners of Dissenting Shares as to which
such person is the record owner. In such case, the written demand for appraisal
must set forth the number of Dissenting Shares covered by such demand. Where the
number of Dissenting Shares is not expressly stated, the demand will be presumed
to cover all Dissenting Shares outstanding in the name of such record owner.
Beneficial owners who are not record owners and who intend to exercise appraisal
rights should instruct their record owners to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights, before the taking
of the vote on the Merger.
Within 120 days after the Effective Time, either the Surviving Corporation
or any Dissenting Stockholder who has complied with the requirements of Section
262 may file a petition in the Delaware Court of Chancery (the "Delaware
Chancery Court") demanding a determination of the fair value of the Dissenting
Shares of all of the stockholders demanding appraisal rights. If a petition for
an appraisal is timely filed, after a hearing on such petition, the Delaware
Chancery Court will determine which stockholders are entitled to appraisal
rights and will appraise the Dissenting Shares owned by such persons,
determining the fair value of such Dissenting Shares, exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest to be paid, if any, upon the amount determined to
be fair value. In determining fair value, the Delaware Chancery Court is to take
into account all relevant factors.
In Weinberger v. UOP, Inc., et al., decided February 1, 1983, the Delaware
Supreme Court, in discussing the considerations that could be taken into account
in determining fair value in an appraisal proceeding, stated that "proof of
value by any techniques or methods which are generally considered acceptable in
the financial community and otherwise admissible in court" should be considered
and that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which could be ascertained as of the date of the merger which throw
any light on future prospects of the merged corporation. Section 262 provides
that fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the Merger." In Weinberger, the Delaware
Supreme Court construed Section 262 to mean that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation may be
considered."
Dissenting Stockholders owning Common Shares considering seeking appraisal
should consider that the fair value of their Dissenting Shares determined under
Section 262 could be more than, the same as, or less than the consideration they
are to receive pursuant to the terms of the Merger Agreement if they do not seek
appraisal of their Dissenting Shares, and that opinions of
32
<PAGE>
independent experts as to fairness, from a financial point of view, are not
deemed determinative as to fair market value under Section 262. Moreover, the
Purchaser may argue in an appraisal proceeding that, for purposes of such a
proceeding, the fair value of the Common Shares is less than the price paid in
the Offer and the Merger. See Exhibit D to this Proxy Statement for the
procedures required for perfecting appraisal rights in connection with the
Merger.
The costs of the appraisal proceeding may be determined by the Delaware
Chancery Court and assessed against such parties as the Delaware Chancery Court
deems equitable in the circumstances. Upon application of a stockholder seeking
appraisal, the Delaware Chancery Court may order that all or a portion of the
expenses incurred by any such stockholder in connection with the appraisal
proceeding, including without limitation reasonable attorneys' fees and the fees
and expenses of experts, be assessed pro rata against the value of all
Dissenting Shares entitled to appraisal.
Any Dissenting Shareholder who has duly demanded appraisal in compliance
with Section 262 will not, after the Effective Time, be entitled to vote for any
purpose the shares subject to such demand or to receive any dividends or other
distributions on such Dissenting Shares, except for dividends or distributions
payable to Dissenting Stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any Dissenting
Stockholder will have the right to withdraw his, her or its demand for appraisal
and to accept the Merger Consideration. After this period, the Dissenting
Stockholder may withdraw his, her or its demand for appraisal only with the
consent of the Surviving Corporation. If no petition for appraisal is filed with
the Delaware Chancery Court within 120 days after the Effective Time, Dissenting
Stockholder's rights to appraisal will cease, and all holders of Dissenting
Shares shall be entitled only to receive to file such a petition, and has no
present intention to do so, any stockholder who desires such a petition to be
field is advised to file it on a timely basis. No petition timely filed in the
Delaware Chancery Court demanding appraisal shall be dismissed as to any
Dissenting Stockholder without the approval of the Delaware Chancery Court, and
such approval may be conditioned upon such terms as the Delaware Chancery Court
deems just.
CERTAIN LITIGATION
Since the commencement of the Offer, four class action complaints have been
filed in the Delaware Chancery Court on behalf of all persons who own Common
Shares against the Company, certain of its directors and, in one instance, the
Parent. In the suits, filed as Civil Action Nos. 11468, 11469, 14477 and 14484,
respectively, the plaintiffs have alleged, among other things, that the Company
and certain of its directors have breached their fiduciary duties to holders of
the Common Shares by, among other things, entering into an agreement with the
Purchaser and failing to attempt to maximize stockholder value. In the suit in
which the Parent is named as a defendant, the plaintiffs have also alleged that
the Parent aided and abetted such alleged breach of fiduciary duty. Each suit
seeks various remedies, including an injunction to prevent consummation of the
transaction, and damages, costs and disbursements of the action. The plaintiffs
and the defendants have entered into a Memorandum of Understanding dated as of
September 19, 1995 that provides for the settlement
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of the above-referenced actions. As provided in the Memorandum of Understanding,
the Company's Schedule 14D-9 was amended to reflect the disclosure included
herein, the Parent and Purchaser extended the Offer to October 2, 1995 and the
minimum percentage of Common Shares to be tendered as a condition to Parent's
obligation to consummate the Offer was increased from 60% to 65%. A Stipulation
of Settlement on substantially the terms set forth in the Memorandum of
Understanding was entered into by the parties on or about October 3, 1995 and
filed with Delaware Chancery Court.
MARKET PRICES OF AND DIVIDENDS ON STOCK
The Common Shares are traded on the Nasdaq National Market under the symbol
"FERT." The Class A Preferred Shares are traded on the Nasdaq National Market
under the symbol "FERTP." The following table sets forth, for the periods
indicated, the high and low sale prices per Common Share on the Nasdaq National
Market (adjusted to give effect to a 1 for 6 reverse stock split of the Common
Shares in December 1994). The Class B Preferred Shares have never been publicly
traded.
<TABLE>
<CAPTION>
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HIGH LOW
---- ---
- -------------------------------------------------------------------------------
<S> <C> <C>
Fiscal 1993:
- -------------------------------------------------------------------------------
First Quarter...................... $ 6.75 $3.00
- -------------------------------------------------------------------------------
Second Quarter..................... 7.50 3.75
- -------------------------------------------------------------------------------
Third Quarter...................... 4.50 2.44
- -------------------------------------------------------------------------------
Fourth Quarter..................... 4.19 1.50
- -------------------------------------------------------------------------------
Fiscal 1994:
- -------------------------------------------------------------------------------
First Quarter...................... 4.50 1.88
- -------------------------------------------------------------------------------
Second Quarter..................... 9.38 1.50
- -------------------------------------------------------------------------------
Third Quarter...................... 17.25 9.94
- -------------------------------------------------------------------------------
Fourth Quarter..................... 13.50 8.63
- -------------------------------------------------------------------------------
Fiscal 1995:
- -------------------------------------------------------------------------------
First Quarter...................... 13.50 9.00
- -------------------------------------------------------------------------------
Second Quarter..................... 10.88 5.38
- -------------------------------------------------------------------------------
Third Quarter...................... 14.88 8.13
- -------------------------------------------------------------------------------
Fourth Quarter..................... 14.50 9.13
- -------------------------------------------------------------------------------
Fiscal 1996:
- -------------------------------------------------------------------------------
First Quarter 12.38 9.88
- -------------------------------------------------------------------------------
Second Quarter (through October 13).. 10.88 10.38
- -------------------------------------------------------------------------------
</TABLE>
On August 9, 1995, the last full day before the public announcement of the
Purchaser's intention to acquire the Common Shares, the closing bid price per
Common Share on the Nasdaq National Market was $12.00. On August 15, 1995, the
last full trading day before the commencement of the Offer, the closing bid
price per Common Share on the Nasdaq National Market was $10.50 per Share. On
October 13, 1995, the closing bid price per Common Share on the Nasdaq National
Market was $10.38 per Common Share. Stockholders are urged to obtain current
market quotations for the Common Shares.
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<PAGE>
The Company has paid no dividends on its Common Shares. Holders of the
Common Shares are entitled to receive dividends, when and as declared by the
Board of Directors, only after the holders of the Company's Preferred Shares
have received their preferential dividend amounts, to the extent such dividends
have accrued under the terms of the Company's Restated Certificate of
Incorporation. The payment of future dividends and the amounts thereof will
depend on the Company's earnings, financial condition, capital requirements and
such other factors as the Company's Board of Directors may consider relevant.
The Company does not anticipate the payment of dividends to the holders of
either the Class A Preferred Stock, the Class B Preferred Stock or the Common
Shares in the foreseeable future. Payment of Class A and Class B Preferred Share
dividends is prohibited by the terms of the Company's senior secured loan
agreement. Dividends of $3,190,000 per year have accumulated with respect to the
Class A Preferred Stock for each of the fiscal years 1990, 1991, 1992, 1993,
1994 and 1995. For a description of the dividends payable to the holders of the
Class A Preferred Stock and the Class B Preferred Stock, and the restrictions
thereon, see Note 6 to the Company's Consolidated Financial Statements contained
in the Annual Report on Form 10-K attached hereto as Exhibit C.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
According to information available to the Company as of the Record Date and
as reported in Amendment No. 1 to the Schedule 14D-1 and Schedule 13D filed on
October 3, 1995 by the Parent, the Purchaser and Agrium U.S., as of the Record
Date such persons beneficially owned 8,886,943 Common Shares, or 95.9% of the
Common Shares. Dale W. Massie, Dorothy E.A. Bower and Larry A. Collins, who are
the designated directors of the Parent, may be deemed to beneficially own such
Common Shares. Each of them disclaims beneficial ownership of such shares.
According to information available to the Company as of the Record Date,
all other current executive officers and directors of the Company tendered their
Common Shares in the Offer.
INDEPENDENT PUBLIC ACCOUNTANTS
It is not expected that representatives of Arthur Andersen LLP will be
present at the Meeting.
STOCKHOLDERS' PROPOSALS
If the Merger is not consummated, any proposals of holders of Common Shares
intended to be presented at the Annual Meeting of Stockholders of the Company to
be held in 1996 must have been received by the Company, addressed to the
Secretary at 8400 East Prentice Avenue, Suite 1320, Englewood, Colorado 80111,
no later than June 16, 1996, to be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
35
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NU-WEST INDUSTRIES, INC.
Special Meeting of Stockholders - November 6, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dorothy E. A. Bower and
Dale W. Massie, and each of them, the attorneys and proxies of the
undersigned, each with full power of substitution, to vote all the shares of
Common Stock of Nu-West Industries, Inc. which the undersigned is entitled to
vote at the Special Meeting of Stockholders of the Company to be held at the
offices of Holme Roberts & Owen LLC, 1700 Lincoln, Suite 4100, Denver, Colorado
on November 6, 1995 at 10:00 a.m., Denver time, and at any adjournment or
adjournments thereof, and authorizes and instructs said proxies to vote in the
manner directed below:
1. On the Proposal to Approve and Adopt the Merger Agreement described in the
accompanying Proxy Statement: [ ] FOR [ ] ABSTAIN [ ] AGAINST
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting, or any adjournment
thereof, upon matters incident to the conduct of the meeting.
IF NO INSTRUCTION TO THE CONTRARY IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
A copy of the Notice of Special Meeting of Stockholders and Proxy Statement,
dated October 17, 1995, has been received by the undersigned.
Please sign exactly as name or names appear
on this Proxy, including the title "Executor",
"Guardian," etc., if the same is indicated.
When joint names appear both should sign. If
stock is held by a corporation this proxy
should be executed by a proper officer
thereof, whose title should be given.
Dated:_______________________________, 1995
___________________________________________
Signature
___________________________________________
Signature if jointly held
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE TODAY
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 9, 1995
BY AND AMONG
AGRIUM INC.,
AGRIUM ACQUISITION CORPORATION
AND NU-WEST INDUSTRIES, INC.
<PAGE>
TABLE OF CONTENTS
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<C> <S> <C>
ARTICLE I THE TENDER OFFER................................................ 1
Section 1.1 The Tender Offer........................................ 1
Section 1.2 Action by the Company................................... 2
Section 1.3 Continuing Directors.................................... 2
ARTICLE II THE MERGER..................................................... 2
Section 2.1 The Merger.............................................. 2
Section 2.2 Consummation of the Merger.............................. 2
ARTICLE III CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION.................................................... 3
Section 3.1 Certificate of Incorporation............................ 3
Section 3.2 By-Laws................................................. 3
Section 3.3 Officers and Board of Directors......................... 3
ARTICLE IV CONVERSION OF SHARES........................................... 3
Section 4.1 Conversion of Shares.................................... 3
Section 4.2 Payment for Shares...................................... 3
Section 4.3 Shares of Dissenting Stockholders....................... 4
Section 4.4 Closing of the Company's Transfer Books................. 4
Section 4.5 Status of Share Certificates............................ 4
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER AND ACQUISITION..... 4
Section 5.1 Organization............................................ 4
Section 5.2 Authority Relative to this Agreement.................... 4
Section 5.3 No Conflicts; Required Filings and Consents............. 4
Section 5.4 Information............................................. 5
Section 5.5 Litigation.............................................. 6
Section 5.6 Financing............................................... 6
Section 5.7 Ownership of Capital Stock.............................. 6
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 6
Section 6.1 Organization and Qualification; Subsidiaries............ 6
Section 6.2 Charter and By-Laws..................................... 6
Section 6.3 Capitalization.......................................... 7
Section 6.4 Authority............................................... 8
Section 6.5 No Conflict; Required Filings and Consents.............. 8
Section 6.6 Permits; Compliance..................................... 8
Section 6.7 Reports; Financial Statements........................... 9
Section 6.8 Absence of Certain Changes or Events.................... 9
Section 6.9 Absence of Litigation................................... 10
Section 6.10 Employee Plans; Labor Matters........................... 10
Section 6.11 Taxes................................................... 12
Section 6.12 Environmental Matters................................... 12
Section 6.13 Delaware Law............................................ 13
Section 6.14 Inventory; Accounts Receivable.......................... 13
Section 6.15 Insurance............................................... 14
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Section 6.16 Properties............................................. 14
Section 6.17 Certain Contracts and Restrictions..................... 14
Section 6.18 Information Supplied................................... 14
Section 6.19 Opinion of Financial Advisor........................... 14
Section 6.20 Futures Trading and Fixed Price Exposure............... 14
Section 6.21 Intellectual Property.................................. 14
Section 6.22 Contributions, Etc..................................... 15
Section 6.23 Easements.............................................. 15
Section 6.24 Information............................................ 15
ARTICLE VII COVENANTS.................................................... 15
Section 7.1 Conduct of Business by the Company Pending the Merger.. 15
Section 7.2 Stockholders' Meeting and Proxy Statement.............. 17
Section 7.3 Certain Filings and Consents........................... 17
Section 7.4 Access................................................. 17
Section 7.5 Expenses............................................... 18
Section 7.6 Employee Stock Options; Warrant........................ 18
Section 7.7 Indemnification and Insurance.......................... 18
Section 7.8 Employee Benefits...................................... 19
Section 7.9 Maintenance of Financing............................... 19
Section 7.10 Resignation of Directors............................... 19
Section 7.11 Board of Directors..................................... 19
ARTICLE VIII CONDITIONS.................................................. 19
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger................................................. 19
Section 8.2 Conditions to Obligations of Purchaser and Acquisition
to Effect the Merger................................... 20
Section 8.3 Conditions to Obligation of the Company to Effect the
Merger................................................. 20
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................. 21
Section 9.1 Termination............................................ 21
Section 9.2 Break-Up Fee; Effect of Termination.................... 21
Section 9.3 Amendment.............................................. 21
Section 9.4 Waiver................................................. 22
ARTICLE X GENERAL PROVISIONS............................................. 22
Section 10.1 Notice of Breach....................................... 22
Section 10.2 Cooperation............................................ 22
Section 10.3 Non-Survival of Representations and Warranties......... 22
Section 10.4 Brokers................................................ 22
Section 10.5 Entire Agreement....................................... 22
Section 10.6 Applicable Law......................................... 22
Section 10.7 Interpretation; Headings............................... 22
Section 10.8 Assignment............................................. 22
Section 10.9 Separability........................................... 23
Section 10.10 Publicity.............................................. 23
Section 10.11 Notices................................................ 23
Section 10.12 Counterparts........................................... 23
Section 10.13 No Third Party Beneficiaries........................... 23
Section 10.14 Schedules.............................................. 24
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AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger dated as of August 9, 1995 (this "Agreement")
by and among Agrium Inc., a Canadian corporation ("Purchaser"), Agrium
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
Purchaser ("Acquisition"), and Nu-West Industries, Inc., a Delaware
corporation (the "Company"). (Acquisition and the Company are hereinafter
collectively referred to as the "Constituent Corporations.")
Whereas, Purchaser and the Boards of Directors of the Constituent
Corporations (a) desire to enter into this Agreement and (b) have approved the
merger of Acquisition with and into the Company (the "Merger"), all upon the
terms and subject to the conditions set forth herein.
Now, Therefore, the parties hereto agree as follows:
ARTICLE I
Tender Offer
Section 1.1 The Tender Offer.
(a) As long as none of the events set forth in Exhibit A hereto shall have
occurred or be existing, Acquisition shall, and Purchaser shall cause
Acquisition to, commence as promptly as practicable, but in no event later
than five business days after the date hereof, a tender offer (as amended or
extended from time to time, the "Tender Offer") subject to the conditions set
forth in Exhibit A hereto, for all outstanding shares of Voting Common Stock,
par value $.01, and Nonvoting Common Stock, par value $.01 (collectively, the
"Shares") of the Company, which Tender Offer is conditioned upon a sufficient
number of Shares being properly tendered and not withdrawn, which, when added
together with any Shares owned by Purchaser and any of its subsidiaries or
which Purchaser and Acquisition have the right to acquire, will equal at least
60% of the Shares on a fully diluted basis. The per Share price to be paid in
the Tender Offer, which shall be paid net to the sellers in cash, shall be
$10.50. Purchaser agrees, subject to the terms and conditions of the Tender
Offer, to pay for all Shares tendered that it is obligated to purchase as soon
as legally permissible.
(b) Without the prior written consent of the Company, Acquisition shall not
decrease the Merger Price (as defined in Section 4.1), decrease the number of
Shares being sought in the Tender Offer, change the form of consideration
payable in the Tender Offer, add additional conditions to the Tender Offer or
make any other material change in the terms or conditions to the Tender Offer.
(c) On the date the Tender Offer is commenced, Purchaser and Acquisition
shall file with the Securities and Exchange Commission (the "SEC") a tender
offer statement on Schedule 14D-1 (together with all amendments and
supplements thereto, the "Schedule 14D-1") with respect to the Tender Offer.
The Schedule 14D-1 shall contain (included as an exhibit) or shall incorporate
by reference the Offer to Purchase (or portions thereof) and forms of the
related Letter of Transmittal and summary advertisement and shall comply as to
form in all material respects with the requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder (the "Rules and Regulations"). If at any time prior to
the expiration or termination of the Tender Offer any event occurs which is
required by the Act and the Rules and Regulations to be described in an
amendment to the Schedule 14D-1 or any supplement thereto, Purchaser and
Acquisition will file and disseminate, as required, an amendment or supplement
which complies in all material respects with the Act and the Rules and
Regulations. The Company and its counsel shall be given an opportunity to
review the Schedule 14D-1 and any amendment or supplement thereto prior to its
being filed with the SEC. Purchaser and Acquisition agree to provide the
Company and its counsel with any written comments (and to inform the Company
and its counsel of the tenor of any oral comments) Purchaser and Acquisition
or their counsel may receive from the SEC with respect to the Offer Documents
(as defined in Section 5.4) is made promptly after the receipt of such
comments.
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Section 1.2 Action by the Company. The Company hereby represents that the
Board of Directors of the Company, in connection with its approval of this
Agreement, by resolution has (a) approved the Tender Offer and the Merger and
(b) resolved to recommend acceptance of the Tender Offer and approval and
adoption of the Merger and this Agreement by the holders of the Shares if such
approval and adoption is required by the General Corporation Law of the State
of Delaware (the "GCL"). On the date the Schedule 14D-1 is filed with the SEC,
the Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto, the
"Schedule 14D-9") and shall mail the Schedule 14D-9 to the stockholders of the
Company. The Schedule 14D-9 shall comply as to form in all material respects
with the requirements of the Act and the Rules and Regulations. Purchaser,
Acquisition and their counsel shall be given the opportunity to review the
Schedule 14D-9 and any amendment or supplement thereto prior to its filing
with the SEC. The Company agrees to provide Purchaser and Acquisition and
their counsel with any written comments (and to inform them of the tenor of
any oral comments) that the Company or its counsel receive from the SEC with
respect to the Schedule 14D-9 promptly after the receipt of such comments. If
at any time prior to the expiration or termination of the Tender Offer any
event occurs which is required by applicable law to be described in an
amendment to the Schedule 14D-9 or any supplement thereto, the Company will
file and disseminate, as required, an amendment or supplement which complies
in all material respects with the Act, the Rules and Regulations and any other
applicable laws. In connection with the Tender Offer, the Company will or will
cause its transfer agent to furnish Purchaser with a list of stockholders and
mailing labels containing the names and addresses of all record holders of the
Shares held in stock depositories, each as of a recent date. The Company shall
furnish Purchaser with any additional information, including an updated list
of stockholders, mailing labels and lists of security positions, and any
assistance as Purchaser may reasonably request in communicating the Tender
Offer to the record and beneficial holders of the Shares.
Section 1.3 Continuing Directors. After the time that Acquisition's
designees constitute at least a majority of the Board of Directors of the
Company and until the Effective Date (as defined in Section 2.2), any
amendment or termination of this Agreement, extension for the performance or
waiver of the obligations or other acts of Purchaser or Acquisition (except
pursuant to this Agreement) or waiver of the Company's rights hereunder, which
amendment, termination, extension or waiver would adversely affect the
stockholders, optionholders or employees of the Company, shall also require
the approval of a majority (or such higher percentage as is required under the
By-laws of the Company) of the then serving directors, if any, who are
directors as of the date hereof (the "Continuing Directors"). If the number of
Continuing Directors prior to the Effective Date is reduced below two for any
reason, the remaining Continuing Directors or Continuing Director shall be
entitled to designate persons to fill such vacancies who shall be deemed
Continuing Directors for all purposes of this Agreement.
ARTICLE II
The Merger
Section 2.1 The Merger. Upon the terms and subject to the conditions hereof,
on the Effective Date, Acquisition shall be merged with and into the Company,
which shall be the surviving corporation (the Company in such capacity being
hereinafter sometimes called the "Surviving Corporation"). From and after the
Effective Date, the status, rights and liabilities of, and the effect of the
Merger on, each of the Constituent Corporations in the Merger and the
Surviving Corporation shall be as provided in Section 259 of the GCL. At any
time, and from time to time after the Effective Date, the last acting officers
of Acquisition, or the corresponding officers of the Surviving Corporation,
may, in the name of Acquisition, execute and deliver all such proper deeds,
assignments, and other instruments and take or cause to be taken all such
further or other action as the Surviving Corporation may deem necessary or
desirable in order to vest, perfect or confirm in the Surviving Corporation
title to and possession of all of the Company's property, rights, privileges,
powers, franchises, immunities and interests and otherwise to carry out the
purposes of this Agreement and the Merger.
Section 2.2 Consummation of the Merger. As soon as practicable (but in any
event within five business days) after the receipt of any required approval of
the Company's stockholders and Board of Directors (or, if
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such approval is not required, all other corporate action required as a
precondition to effect the Merger), and subject to the conditions hereinafter
set forth, the parties hereto shall cause the Merger to be consummated by the
approval and filing with the Secretary of the State of Delaware of a
certificate of merger (or a certified copy of this Agreement) in such form as
required by and executed in accordance with the relevant provisions of
applicable law (the time of such filing being the "Effective Date").
ARTICLE III
Certificate of Incorporation and By-Laws
of the Surviving Corporation
Section 3.1 Certificate of Incorporation. The Certificate of Incorporation
of the Company in effect on the Effective Date shall be the Certificate of
Incorporation of the Surviving Corporation, until thereafter amended as
provided by law.
Section 3.2 By-Laws. The By-Laws of the Company in effect on the Effective
Date shall be the By-Laws of the Surviving Corporation, until thereafter
amended as provided by law and the Surviving Corporation's Certificate of
Incorporation.
Section 3.3 Officers and Board of Directors. The directors of Acquisition on
the Effective Date shall become the directors of the Surviving Corporation
until their respective successors are duly elected and qualified. The officers
of the Company on the Effective Date shall continue as the officers of the
Surviving Corporation, to serve in accordance with the By-Laws thereof until
their respective successors are duly elected and qualified.
ARTICLE IV
Conversion of Shares
Section 4.1 Conversion of Shares. As of the Effective Date, by virtue of the
Merger and without any action on the part of Purchaser, Acquisition, the
Company or the holders of any securities of the Company:
(a) All Shares which are held by the Company as treasury shares, all
authorized and unissued Shares and any Shares owned by Purchaser,
Acquisition or any other direct or indirect subsidiary of Purchaser, shall
be canceled.
(b) Each other outstanding Share (other than Shares held by Dissenting
Stockholders (as defined in Section 4.3)) shall be converted into the right
to receive (U.S.)$10.50 net in cash or such higher amount per Share as may
be paid to any holder of Shares pursuant to the Tender Offer (the "Merger
Price").
(c) Each issued and outstanding share of capital stock of Acquisition
shall be converted into one validly issued, fully paid and non-assessable
share of Voting Common Stock, par value $.01 per share, of the Surviving
Corporation.
(d) Except as provided in Section 7.6 and as set forth in Schedule 4.1,
all notes and other debt or equity instruments of the Company which are
outstanding at the Effective Date shall continue to be outstanding
subsequent to the Effective Date as debt or equity instruments of the
Surviving Corporation, subject to their respective terms and provisions.
Section 4.2 Payment for Shares. Purchaser shall authorize one or more
persons to act as paying agent in connection with the Merger (the "Paying
Agent"). Upon or as soon as practicable after the Effective Date, Purchaser
shall make available and each former holder of Shares shall be entitled to
receive pursuant to Section 4.1(b), upon surrender to the Paying Agent of the
certificate or certificates, which immediately prior to the Effective Date
represented such outstanding Shares, for cancellation, the aggregate amount of
cash into which those Shares shall have been converted in the Merger. Until so
surrendered, each certificate, which immediately prior to the Effective Date
represented outstanding Shares, shall represent solely the right to receive,
upon
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surrender, the aggregate amount of cash into which the Shares represented
thereby shall have been converted. No interest shall accrue or be paid on the
cash payable upon the surrender of the certificate or certificates. Purchaser
shall pay on the Effective Date the amounts due in respect of the stock
options referred to in Section 7.6.
Section 4.3 Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any issued and outstanding shares of capital
stock of the Company held by a stockholder who has not voted in favor of nor
consented to the Merger and who complies with all the provisions of the GCL
concerning the right of holders of such stock to dissent from the Merger and
require appraisal of their shares (a "Dissenting Stockholder"), shall not be
converted as described in Section 4.1 but shall become, at the Effective Date,
by virtue of the Merger and without any further action, the right to receive
such consideration as may be determined to be due to such Dissenting
Stockholder pursuant to the GCL; provided, however, that Shares outstanding
immediately prior to the Effective Date and held by a Dissenting Stockholder
who shall, after the Effective Date, withdraw his demand for appraisal or lose
his right of appraisal, in either case pursuant to the GCL, shall be deemed to
be converted as of the Effective Date, into the right to receive the Merger
Price. The Company shall give Purchaser (a) prompt notice of any written
demands for appraisal of shares of capital stock of the Company received by
the Company and (b) the opportunity to direct all negotiations and proceedings
with respect to any such demands. The Company shall not, without the prior
written consent of Purchaser, voluntarily make any payment with respect to, or
settle, offer to settle or otherwise negotiate, any such demands.
Section 4.4 Closing of the Company's Transfer Books. Upon the Effective
Date, the stock transfer books of the Company shall be closed and no transfer
of Shares (other than shares of Voting Common Stock, par value $.01 per share,
into which the capital stock of Acquisition is to be converted pursuant to the
Merger) shall thereafter be made.
Section 4.5 Status of Share Certificates. From and after the Effective Date,
the holders of certificates evidencing ownership of Shares outstanding
immediately prior to the Effective Date shall cease to have any rights with
respect to such Shares except as otherwise provided for herein or by
applicable law.
ARTICLE V
Representations and Warranties of Purchaser and Acquisition
Purchaser and Acquisition jointly and severally represent and warrant to the
Company as follows:
Section 5.1 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of Canada and has the requisite
corporate power to carry on its business as it is now being conducted.
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is a wholly-owned
subsidiary of Purchaser.
Section 5.2 Authority Relative to this Agreement. Purchaser and Acquisition
have the requisite corporate power and authority to make the Tender Offer,
execute and deliver this Agreement, to perform their obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Purchaser and Acquisition and the consummation by
Purchaser and Acquisition of the transactions contemplated hereby have been
duly authorized by all necessary corporate and, to the extent necessary,
stockholder action of Purchaser and Acquisition and no other acts or corporate
proceedings on the part of Purchaser or Acquisition are necessary to authorize
the Tender Offer, the Merger or this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Purchaser and Acquisition and is a valid and binding obligation
of Purchaser and Acquisition, enforceable against them in accordance with its
terms.
Section 5.3 No Conflicts; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Purchaser and
Acquisition does not, and the consummation of the transactions contemplated
hereby will not (i) conflict with or violate the charter or By-
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Laws, or the equivalent organizational documents, in each case as amended or
restated, of Purchaser or any of its subsidiaries, (ii) in any material
respect, conflict with or violate any federal, state, foreign or local law,
statute, ordinance, rule, regulation, order, judgment or decree (collectively,
"Laws") applicable to Purchaser or any of its subsidiaries or by which any of
their respective properties is bound or subject or (iii) result in any
material breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of a lien
or encumbrance on any of the properties or assets of Purchaser or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Purchaser or any of its subsidiaries is a party or by or to which
Purchaser or any of its subsidiaries or any of their respective properties is
bound or subject, except for any such conflicts, violations, breaches,
defaults, events, rights of termination, amendment, acceleration or
cancellation, payment obligations or liens or encumbrances described in
clauses (ii) or (iii) that would not, in the aggregate, prevent the Purchaser
and Acquisition from performing, in any material respect, their respective
obligations under this Agreement (a "Purchaser Material Adverse Effect").
(b) The execution and delivery of this Agreement by Purchaser and
Acquisition does not, and consummation of the transactions contemplated hereby
will not, require either Purchaser or Acquisition to obtain any consent,
license, permit, approval, waiver, authorization or order of, or to make any
filing with or notification to, any governmental or regulatory authority,
domestic or foreign (collectively, "Governmental Entities"), except (i) for
applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Exchange Act, state securities or blue sky laws
("Blue Sky Laws"), and the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "Hart-Scott-Rodino Act"), and the filing and recordation
of appropriate merger documents as required by the GCL, and (ii) where the
failure to obtain such consents, licenses, permits, approvals, waivers,
authorizations or orders, or to make such filings or notifications, would not,
either individually or in the aggregate, constitute a Purchaser Material
Adverse Effect.
Section 5.4 Information. (a) The documents pursuant to which the Tender
Offer is made, including a Schedule 14D-1, an Offer to Purchase and a related
Letter of Transmittal and any amendments thereof or supplements thereto (the
"Offer Documents"), will not at the respective times such documents are filed
with the SEC, contain any untrue statement of a material fact or omit to state
any material fact (other than information with respect to the Company supplied
by the Company, with respect to which no representation is made) required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. None of
the information to be supplied by Purchaser or Acquisition for inclusion in a
proxy statement in connection with the meeting of the Company's stockholders,
if required, described in Section 7.2 hereof (the "Proxy Statement") or in an
information statement mailed to the Company's stockholders (the "Information
Statement") or any amendments thereof or supplements thereto, will, at the
time of the meeting of stockholders to be held in connection with the Merger
or the mailing to stockholders, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) Since their inception, Purchaser and its subsidiaries have filed all
forms, reports, statements and other documents required to be filed with
applicable Canadian and United States securities authorities, except where the
failure to file such documents would not have a Purchaser Material Adverse
Effect (all such forms, reports, statements and other documents being referred
to herein, collectively, as the "Purchaser Reports"). The Purchaser Reports,
including all Purchaser Reports filed after the date of this Agreement and
prior to the Effective Date, (i) were or will be prepared in all material
respects in accordance with the requirements of applicable Law and (ii) did
not at the time they were filed, or will not at the time they are filed,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except where any such statement or omission would not have a
Purchaser Material Adverse Effect. Notwithstanding this Section 5.4(b),
Purchaser shall not be deemed to represent or warrant the preparation or
accuracy of any Purchaser Report, statement, document or other information
included in the Purchaser Reports that were provided to the Purchaser for
inclusion therein by a third party.
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Section 5.5 Litigation. There is no claim, action, suit, litigation,
proceeding, arbitration or, to the knowledge of Purchaser, any investigation
of any kind at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge of Purchaser, threatened
against Purchaser or any of its subsidiaries or any properties or rights of
Purchaser or any of its subsidiaries (except for claims, actions, suits,
litigation, proceedings, arbitrations or investigations which would not
reasonably be expected to have a Purchaser Material Adverse Effect), and
neither Purchaser nor any of its subsidiaries is subject to any continuing
order of, consent decree, settlement agreement or other similar written
agreement with, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease and desist or other orders, except for
matters which would not have a Purchaser Material Adverse Effect.
Section 5.6 Financing. Purchaser and Acquisition have funds available to
them sufficient to consummate the Tender Offer and the Merger on the terms
contemplated hereby.
Section 5.7 Ownership of Capital Stock. As of the date hereof, each of
Purchaser, Acquisition and their respective affiliates is not an interested
stockholder of the Company (as defined in Section 203 of the GCL).
ARTICLE VI
Representations and Warranties of the Company
The Company represents and warrants to Purchaser and Acquisition as follows:
Section 6.1 Organization and Qualification; Subsidiaries. Each of the
Company and its subsidiaries (as defined in Section 10.7) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, has all requisite corporate or partnership
power and authority to own, lease and operate its properties and to carry on
its business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing would not have a Company Material Adverse
Effect. The term "Company Material Adverse Effect" as used in this Agreement
shall mean any change or effect that, individually or when taken together with
all other such changes or effects, would be materially adverse to the
financial condition, results of operations or fair market value of the Company
and its subsidiaries, taken as a whole. Schedule 6.1 of the disclosure
schedule delivered to Purchaser by the Company on the date hereof (the
"Company Disclosure Schedule") sets forth, as of the date of this Agreement, a
true and complete list of all the Company's subsidiaries and investments in
business entities together with (A) the jurisdiction of incorporation or
organization of each subsidiary and the percentage of each subsidiary's
outstanding capital stock or other equity interests owned by the Company or
another subsidiary of the Company, and (B) an indication of whether each such
subsidiary is a "Significant Subsidiary" as defined in Rule 1-02 of Regulation
S-X of the SEC. Neither the Company nor any of its subsidiaries owns or has
owned since its inception (other than Nu-South Industries, Inc., a Delaware
corporation, the Conda Partnership, an Idaho general partnership and Nu-Gulf
Industries, Inc., a Delaware corporation), an equity interest in any other
corporation, partnership or joint venture arrangement or other business entity
that is or was material to the financial condition, results of operations or
fair market value of the Company and its subsidiaries, taken as a whole.
Section 6.2 Charter and By-Laws. The Company has heretofore furnished to
Purchaser complete and correct copies of the charter and the By-Laws or the
equivalent organizational documents, in each case as amended or restated, of
the Company and each of its subsidiaries. Neither the Company nor any of its
subsidiaries is in violation of any of the provisions of its charter or any
material provision of its By-Laws (or equivalent organizational documents).
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Section 6.3 Capitalization.
(a) The authorized capital stock of the Company consists of 14,666,667
shares of Voting Common Stock, par value $.01 per share, of which 7,453,258
shares are issued and outstanding; 2,000,000 shares of Nonvoting Common Stock,
par value $.01 per share, of which 633,105 shares are issued and outstanding;
290,000 shares of Class A Preferred Stock, par value $100 per share, of which
290,000 shares are issued and outstanding; 20,000 shares of Class B Preferred
Stock, par value $100 per share, of which 344 shares are issued and
outstanding; and 500,000 shares of Serial Preferred Stock, par value $1.00 per
share, none of which is issued and outstanding. Except as described in this
Section 6.3 or in Schedule 6.3(a) of the Company Disclosure Schedule, as of
the date of this Agreement, no shares of capital stock of the Company are
reserved for any purpose. Each of the outstanding shares of capital stock of,
or other equity interests in, each of the Company and its subsidiaries is duly
authorized, validly issued and, in the case of shares of capital stock, fully
paid and nonassessable, and has not been issued in violation of (nor are the
authorized shares of capital stock of any of such corporate entities subject
to) any preemptive or similar rights created by statute, the charter or By-
Laws (or the equivalent organizational documents) of the Company or any of its
subsidiaries, or any agreement to which the Company or any of its subsidiaries
is a party or bound, and such outstanding shares or other equity interests
owned by the Company or a subsidiary of the Company are owned free and clear
of all security interests, liens, claims, pledges, agreements, limitations on
the Company's or such subsidiaries' voting rights, charges or other
encumbrances of any nature whatsoever, except as set forth in the Second
Amended and Restated Agreement of Limited Partnership of NuTec Mineral &
Chemical Company, a Colorado limited partnership, dated as of January 1, 1994,
and as provided in the documents evidencing the Company's credit facility with
Harris Trust and Savings Bank (the "Harris Loan").
(b) There are no existing options, warrants, calls, subscriptions,
convertible securities or other securities, agreements, commitments or
obligations which would require the Company to issue or sell Shares except
pursuant to (a) the 1988 Employee Stock Option Plan and the Company's 1994
Employee Stock Incentive Plan (collectively, the "Stock Option Plans") under
which, as of the close of business on the date hereof, 497,721 Shares were
issuable and reserved for issuance pursuant to outstanding options, (b) the
Company's Nonemployee Director Stock Option Plan (the "Nonemployee Plan")
under which, as of the close of business on the date hereof, 4,167 Shares were
issuable and reserved for issuance pursuant to outstanding options, (c) the
warrant issued September 18, 1989 by the Company to GE Capital Corporation
(the "GE Warrant") under which, as of the close of business on the date
hereof, 111,541 Shares were issuable and reserved for issuance, and (d) the
warrants issued November 2, 1993 by the Company originally to Indosuez CM II,
Inc. under which, as of the close of business on the date hereof, 677,626
Shares were issuable and reserved for issuance (together with the GE Warrant,
the "Warrants"). Except as set forth in Section 6.3 or in Schedule 6.3(b) to
the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its subsidiaries (i) to repurchase, redeem
or otherwise acquire any shares of the capital stock of the Company, or the
capital stock or other equity interests of any subsidiary of the Company or
(ii) (other than advances to subsidiaries in the ordinary course of business)
to provide material funds to, or make any material investment in (in the form
of a loan, capital contribution or otherwise), or provide any guarantee with
respect to the obligations of, any subsidiary of the Company or any other
person. Except as described in Schedule 6.3(b) to the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries (x) directly or
indirectly owns, (y) has agreed to purchase or otherwise acquire or (z) holds
any interest convertible into or exchangeable or exercisable for, 5% or more
of the capital stock of any corporation, partnership, joint venture or other
business association or entity (other than the subsidiaries of the Company set
forth in Schedule 6.1 of the Company Disclosure Schedule). Except as set forth
in Schedule 6.3(b) of the Company Disclosure Schedule and except for any
agreements, arrangements or commitments between the Company and its
subsidiaries or between such subsidiaries, there are no agreements,
arrangements or commitments of any character (contingent or otherwise)
pursuant to which any person is or may be entitled to receive any payment
based on the revenues or earnings, or calculated in accordance therewith, of
the Company or any of its subsidiaries. There are no voting trusts, proxies or
other agreements or understandings to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound with respect to the voting of any shares of capital stock of the Company
or any of its subsidiaries.
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(c) The Company has delivered to Purchaser complete and correct copies of
the Stock Option Plans and the Nonemployee Plan and each form of option issued
thereunder and the Warrants, including all amendments thereto, and the Company
has delivered a complete and correct list of all outstanding awards under the
Stock Option Plans and the Nonemployee Plan, setting forth as of the date
hereof (i) the number and type of awards outstanding, (ii) the exercise price
of each outstanding option, (iii) the number of options exercisable, and
(iv) assuming no amendment or waiver of the terms thereof, the number of
options which will become exercisable, and the number of shares of restricted
stock with respect to which the restrictions will lapse, on account of the
Tender Offer, the Merger or any other transaction contemplated hereby.
Section 6.4 Authority. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (subject to
the approval of the Merger, this Agreement and the transactions contemplated
hereby by the affirmative vote of the holders of a majority of the outstanding
shares of Voting Common Stock of the Company ("Stockholder Approval")). The
Company's Board of Directors has unanimously recommended approval and adoption
of this Agreement by the Company's stockholders entitled to vote on the
Merger. Subject to Stockholder Approval, the execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Company and is a valid and binding obligation of the Company, enforceable
against it in accordance with its terms.
Section 6.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated hereby will not (i)
conflict with or violate the charter or By-Laws, or the equivalent
organizational documents, in each case as amended or restated, of the Company
or any of its subsidiaries, (ii) in any material respect, conflict with or
violate any Laws applicable to the Company or any of its subsidiaries or by
which any of their respective properties is bound or subject or (iii) except
as described in Schedule 6.5 to the Company Disclosure Schedule, result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company or any of its subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by or to which the Company or any of its
subsidiaries or any of their respective properties is bound or subject, except
for any such conflicts, violations, breaches, defaults, events, rights of
termination, amendment, acceleration or cancellation, payment obligations or
liens or encumbrances described in clauses (ii) or (iii) that would not have a
Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company does not,
and consummation of the transactions contemplated hereby will not, require the
Company to obtain any consent, license, permit, approval, waiver,
authorization or order of, or to make any filing with or notification to any
Governmental Entities, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, state securities or Blue Sky Laws, and the
Hart-Scott-Rodino Act, and the filing and recordation of appropriate merger
documents as required by the GCL and (ii) where the failure to obtain such
consents, licenses, permits, approvals, waivers, authorizations or orders, or
to make such filings or notifications, would not, either individually or in
the aggregate, prevent the Company from performing, in any material respect,
its obligations under this Agreement and would not have a Company Material
Adverse Effect.
Section 6.6 Permits; Compliance. Each of the Company and its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
(other than any thereof covered by Section 6.12) necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted (collectively, the "Company Permits"), and
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there is no action, proceeding or investigation pending or, to the knowledge
of the Company, threatened regarding suspension or cancellation of any of the
Company Permits, except where the failure to possess, or the suspension or
cancellation of, such Company Permits, or such action, proceeding or
investigation, would not have a Company Material Adverse Effect. Neither the
Company nor any of its subsidiaries is in conflict with, or in default or
violation of (a) any Law applicable to the Company or any of its subsidiaries
or by or to which any of their material respective properties is bound or
subject or (b) any of the Company Permits, except for any such conflicts,
defaults or violations which would not have a Company Material Adverse Effect.
During the period commencing on June 30, 1991 and ending on the date hereof,
neither the Company nor any of its subsidiaries has received from any
Governmental Entity any written notification, asserting that the Company was
in possible default or violation of any Laws, except as described in Schedule
6.6 to the Company Disclosure Schedule, and except for defaults or violations
that would not have a Company Material Adverse Effect.
Section 6.7 Reports; Financial Statements.
(a) Since June 30, 1991, the Company and its subsidiaries have filed all
forms, reports, statements and other documents required to be filed with (A)
the SEC including, without limitation, (1) all Annual Reports on Form 10-K,
(2) all Quarterly Reports on Form 10-Q, (3) all proxy statements relating to
meetings of stockholders (whether annual or special), (4) all Current Reports
on Form 8-K and (5) all other reports, schedules, registration statements or
other documents (collectively referred to as the "Company SEC Reports") and
(B) any applicable state securities authorities, except where the failure to
file such documents would not have a Company Material Adverse Effect (all such
forms, reports, statements and other documents being referred to herein,
collectively, as the "Company Reports"). The Company Reports, including all
Company Reports filed after the date of this Agreement and prior to the
Effective Date, (i) were or will be prepared in all material respects in
accordance with the requirements of applicable Law (including, with respect to
the Company SEC Reports, the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to such
Company SEC Reports) and (ii) did not at the time they were filed, or will not
at the time they are filed, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Notwithstanding this Section 6.7(a), the
Company shall not be deemed to represent or warrant the preparation or
accuracy of any form, report, statement, document or other information
included in the Company Reports that were provided to the Company for
inclusion therein by a third party.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports filed since
June 30, 1991, (i) have been or will be prepared in accordance with the
published rules and regulations of the SEC and U.S. generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except (A) to the extent required by changes in U.S. GAAP
and (B) with respect to the Company SEC Reports filed prior to the date of
this Agreement, as may be indicated in the notes thereto) and (ii) fairly
present or will fairly present the consolidated financial position of the
Company and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated
(including reasonable estimates of normal and recurring year-end adjustments),
except that any unaudited interim financial statements were or will be subject
to normal and recurring year-end adjustments.
Section 6.8 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement or as
contemplated by this Agreement or as set forth in Schedule 6.8 of the Company
Disclosure Schedule, since June 30, 1994 the Company and its subsidiaries have
conducted their respective businesses only in the ordinary course and there
has not been: (i) any damage, destruction or loss (whether or not covered by
insurance) with respect to any assets of the Company or any of its
subsidiaries which would have a Company Material Adverse Effect; (ii) any
material change by the Company or its subsidiaries in their accounting
methods, principles or practices; (iii) except for dividends by a subsidiary
to the Company or another subsidiary, any declaration, setting aside or
payment of any dividends or distributions in respect of shares of the
Company's capital stock or the shares of stock of, or other equity interests
in, any subsidiary, or any
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redemption, purchase or other acquisition by the Company or any of its
subsidiaries of any of the Company's securities or any of the securities of
any subsidiary; (iv) except in the ordinary course of business and consistent
with past practice, any increase in the benefits under, or the establishment
or amendment of, any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock purchase or other employee Plan (as
defined in Section 6.10) or any increase in the compensation payable or to
become payable to directors, officers or employees of the Company or its
subsidiaries, (v) any grant of stock options other than grants prior to March
31, 1995; (vi) any revaluation by the Company or any of its subsidiaries of
any of their assets, including the writing down of the value of inventory or
the writing down or off of notes or accounts receivable, other than in the
ordinary course of business; (vii) any entry by the Company or any of its
subsidiaries into any commitment or transaction material to the Company and
its subsidiaries, taken as a whole (other than this Agreement and the
transactions contemplated hereby); (viii) except pursuant to the Harris Loan,
any material increase in indebtedness for borrowed money; or (ix) a Company
Material Adverse Effect other than a Company Material Adverse Effect that is
caused by changes in the market price of raw materials, feedstocks or finished
goods.
Section 6.9 Absence of Litigation. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement or as set forth in Schedule
6.9 to the Company Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding, arbitration or, to the knowledge of the Company,
investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries or any
properties or rights of the Company or any of its subsidiaries (except for
claims, actions, suits, litigation, proceedings, arbitrations or
investigations which would not reasonably be expected to have a Company
Material Adverse Effect), and neither the Company nor any of its subsidiaries
is subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with any Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Government Entity or
arbitrator, including, without limitation, cease and desist or other orders,
except for matters which would not have a Company Material Adverse Effect.
Section 6.10 Employee Plans; Labor Matters.
(a) Schedule 6.10 of the Company Disclosure Schedule sets forth, and the
Company has made available to Purchaser true and correct copies of, (i) all
employment agreements with officers of the Company or its subsidiaries and all
increases in their compensation and benefits since December 31, 1994; (ii) all
agreements with consultants of the Company or its subsidiaries obligating the
Company or any subsidiary to make annual cash payments in an amount exceeding
$50,000; (iii) all non-competition agreements with the Company or a subsidiary
executed by officers of the Company; and (iv) all material plans, programs,
agreements and other arrangements of the Company or its subsidiaries with or
relating to its employees.
(b) Except for the plans and arrangements set forth on Schedule 6.10 to the
Company Disclosure Schedule (the "Scheduled Plans"), neither the Company nor
any member of the Controlled Group now maintains, has ever maintained or
contributed to, or has any plans or commitments for, any employee Plans (as
such term is defined in the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (S) 3(3)) or any other retirement, pension, stock option,
stock appreciation right, profit sharing, incentive compensation, deferred
compensation, savings, thrift, vacation pay, severance pay, or other employee
compensation or Plan, agreement, practice, or arrangement, whether written or
unwritten, whether or not legally binding (collectively, the "Plans"). For
purposes of this Agreement, "Controlled Group" means a controlled or
affiliated group within the meaning of the Internal Revenue Code of 1986, as
amended ("Code") (S) 414(b), (c), (m), or (o) of which the Company is a
member. The Company has made available to Purchaser correct and complete
copies of all Scheduled Plans (including a detailed written description of any
Scheduled Plan that is unwritten, including a description of eligibility
criteria, participation, vesting, benefits, funding arrangements and assets
and any other provisions relating to the Company) and, with respect to each
Scheduled Plan, a copy of each of the following: (i) the most recent favorable
determination letter, (ii) materials submitted to the Internal Revenue Service
in support of a pending determination letter request, (iii) the most recent
letter issued by the Internal Revenue Service recognizing tax exemption, (iv)
each insurance contract, trust agreement, or other funding vehicle, (v) the
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most recently filed Forms 5500 plus all schedules and attachments, and (vi)
each summary plan description or other general explanation or communication
distributed or otherwise provided to employees with respect to each Scheduled
Plan that describes the terms of the Scheduled Plan.
(c) Each Scheduled Plan has at all times been in compliance, in form and in
operation, in all material respects with all applicable requirements of law
and regulations, including without limitation ERISA. Each Scheduled Plan that
is intended to be a qualified plan has received a favorable determination
letter from the Internal Revenue Service; nothing has occurred since the date
of the most recent favorable determination letter that would cause the loss of
the Scheduled Plan's qualification; and each such Scheduled Plan has at all
times been in compliance, in form and in operation, in all material respects
with the applicable requirement of the Code and the applicable Treasury
Regulations.
(d) Neither the Company nor any party in interest (as such term is defined
in ERISA (S) 3(14)) nor any disqualified person (as such term is defined in
Code (S) 4975) has engaged in any prohibited transaction within the meaning of
ERISA (S) 406 or Code (S) 4975 that would have a Company Material Adverse
Effect.
(e) All contributions to Scheduled Plans for all periods ending prior to the
Effective Date (including periods from the first day of the current plan year
to the Effective Date) will be made prior to or accrued as of the Effective
Date by the Company in accordance with past practice.
(f) All insurance premiums with respect to each Scheduled Plan have been
paid in full or accrued, subject only to normal retrospective adjustments in
the ordinary course for policy years or other applicable policy periods ending
on or before the Effective Date.
(g) Neither the Company nor any member of the Controlled Group has any
liability for failure to comply with ERISA or the Code for any action or
failure to act in connection with the administration or investment of any
Scheduled Plan, except where such liability would not have a Company Material
Adverse Effect.
(h) Neither the Company nor any member of the Controlled Group has ever
maintained, contributed to, or been obligated to contribute to any plan that
is subject to Title IV of ERISA or the minimum funding requirements of Code
(S) 412. Neither the Company nor any member of the Controlled Group has ever
contributed to or been obligated to contribute to a multiemployer plan (as
such term is defined in ERISA (S) 3(37)).
(i) With respect to each Scheduled Plan and Plan, there are no material
actions, suits, grievances, arbitrations or other manner of litigation or
material claims, with respect to any Scheduled Plan (except for routine claims
for benefits made in the ordinary course of plan administration for which plan
administrative procedures have not been exhausted) pending or, to the
Company's knowledge, threatened against or with respect to any Scheduled Plan
or Plan, any plan sponsor, or any fiduciary (as such term is defined in ERISA
(S) 3(21)) of such Scheduled Plan or Plan, other than actions, suits,
grievances, claims, arbitrations or other manner of litigation that would not
have a Company Material Adverse Effect.
(j) Except as set forth in Schedule 6.10 to the Company Disclosure Schedule,
neither the Company nor any member of the Controlled Group has any liability
for post-retirement welfare benefits except for the continuation coverage
required by Part 6 of Title I of ERISA.
(k) Neither the Company nor any of its subsidiaries is a party to any
collective bargaining or other labor union contracts. No collective bargaining
agreement is being negotiated by the Company or any of its subsidiaries. To
the Company's knowledge, there is no pending or threatened labor dispute,
strike or work stoppage against the Company or any of its subsidiaries which
may materially interfere with the respective business activities of the
Company or any of its subsidiaries. To the knowledge of the Company, none of
the Company, any of its subsidiaries or any of their respective
representatives or employees has committed any unfair labor practices in
connection with the operation of the respective businesses of the Company or
its subsidiaries and, to the knowledge of the Company, there is no pending or
threatened charge or complaint against
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the Company or any of its subsidiaries by the National Labor Relations Board
or any comparable state agency that would have a Company Material Adverse
Effect.
Section 6.11 Taxes. The Company has prepared and duly filed (and to its
knowledge has done so accurately and correctly) all material federal, state,
county and local income, franchise, use, real property and personal property
tax returns and reports (including all attached statements and schedules)
required to be filed as of the date hereof with respect to the Company and its
subsidiaries and has duly paid, withheld or reserved for all taxes, penalties
and other governmental charges required to be paid that have been assessed or
levied against or upon the Company and its subsidiaries or any of their
properties, assets, income, franchises, licenses or sales including without
limitation income, gross receipt and property taxes. To the extent that any
such taxes relate to periods on or prior to June 30, 1994, such taxes have
either been paid or are reflected as a liability on the Company's June 30,
1994 audited financial statements. If not paid, the Company is contesting such
amount in good faith by appropriate proceedings. In the event the Company is
contesting such amounts in good faith, the Company has set aside on its books
adequate reserves in accordance with U.S. GAAP with respect thereto and all of
such matters involving an amount in excess of $100,000 are described in
Schedule 6.11 to the Company Disclosure Schedule. Except as set forth in
Schedule 6.11 to the Company Disclosure Schedule, the Company does not know of
any proposal by any taxing authority for material additional taxes or
assessments against or upon the Company. Except as set forth in Schedule 6.11
to the Company Disclosure Schedule, to the knowledge of the Company all monies
required to be withheld by the Company from employees for income taxes, social
security taxes and unemployment insurance taxes have been collected or
withheld or either paid to the respective governmental agencies or set aside
in cash for such purpose. Except as set forth in Schedule 6.11 to the Company
Disclosure Schedule, the Company has not entered into any agreement for the
extension of time for the assessment of any tax or tax delinquency. The
Company has made available to Purchaser an accurate, correct and complete copy
of each return or statement filed by, on behalf of or including the Company
for federal income tax purposes or state and local income or franchise tax
purposes for the tax years of the Company ended June 30, 1992, June 30, 1993
and June 30, 1994. The Company is not subject to any joint venture,
partnership or other arrangement or contract that is treated as a partnership
for federal income tax purposes, except for NuTec Mineral & Chemical Company.
The net operating losses, net operating loss carry forwards and other tax
attributes of the Company as shown in the federal corporate income tax return
of the Company for the year ended June 30, 1994 are not subject to any
limitation under Code Sections 381, 382, 383 or 384, or any other provision of
the Code or the federal consolidated return regulations (or any predecessor
provision of any Code section or the regulations), and, to the knowledge of
the Company, no event has occurred since June 30, 1994 that would prevent the
Company from utilizing these net operating losses, net operating loss carry
forwards or other tax attributes if it had sufficient income. For purposes of
the prior sentence "any limitation" shall not include the specific tax issues
regarding the Company's net operating losses that have been raised by the
Internal Revenue Service in written communications to the Company that have
been provided to the Purchaser.
Section 6.12 Environmental Matters. Except for matters disclosed in the
Company SEC Reports or Schedule 6.12 to the Company Disclosure Schedule and
except for matters that would not result in a Company Material Adverse Effect,
to the knowledge of the Company, (i) the properties, operations and activities
of the Company and its subsidiaries are in compliance with all applicable
Environmental Laws; (ii) the Company and its subsidiaries and the properties
and operations of the Company and its subsidiaries are not subject to any
existing, pending or threatened action, suit, investigation, inquiry or
proceeding by or before any governmental authority under any Environmental Law
and neither the Company nor its subsidiaries have received any notice that
they are responsible or potentially responsible for clean up of any property;
(iii) all notices, permits, licenses, or similar authorizations, if any,
required to be obtained or filed by the Company or any of its subsidiaries
under any Environmental Law in connection with any aspect of the business of
the Company or its subsidiaries, including without limitation those relating
to the treatment, storage, disposal or release of a hazardous substance, have
been duly obtained or filed and the Company and its subsidiaries are in
compliance, in all material respects, with the terms and conditions of all
such notices, permits, licenses and similar authorizations; (iv) the Company
and its subsidiaries have satisfied and are currently in compliance with all
financial responsibility requirements applicable to their operations and
imposed by any governmental authority under any Environmental Law, and
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the Company and its subsidiaries have not received any notice of material
noncompliance with any such financial responsibility requirements; (v) there
are no physical or environmental conditions existing on any property of the
Company or its subsidiaries or resulting from the Company's or such
subsidiaries' operations or activities, past or present, at any location, that
would be reasonably likely to give rise to any on-site or off-site remedial
obligations imposed on the Company or any of its subsidiaries under any
Environmental Laws; (vi) since the effective date of the relevant requirements
of applicable Environmental Laws and to the extent required by such applicable
Environmental Laws, all hazardous substances and wastes generated by the
Company and its subsidiaries have been handled and stored in compliance with
Environmental Laws, transported only by carriers authorized under
Environmental Laws to transport such substances and wastes, and disposed of
only at treatment, storage, and disposal facilities authorized under
Environmental Laws to treat, store or dispose of such substances and wastes;
(vii) there has been no exposure of any person or property to hazardous
substances or any pollutant or contaminant, nor has there been any release of
hazardous substances, or any pollutant or contaminant into the environment by
the Company or its subsidiaries or in connection with their properties or
operations that could reasonably be expected to give rise to any claim against
the Company or any of its subsidiaries for costs, damages or compensation;
(viii) the Company and its subsidiaries have made available to Purchaser or
its agents all internal and external environmental audits and studies and all
correspondence on substantial environmental matters or liabilities in the
possession of the Company or its subsidiaries relating to any of the current
or former properties or operations of the Company and its subsidiaries (except
that in the case of any written materials for which the Company asserts an
attorney client privilege, the Company shall provide Purchaser with a list of
such materials and a summary of their contents, and the Company shall
cooperate with Purchaser to provide Purchaser with access to such materials if
such access can be provided without violation of the attorney client
privilege); and (ix) neither the Company nor its subsidiaries are subject to
or have entered into any agreement requiring that they pay to, defend,
indemnify or hold harmless any person for or against any environmental
liabilities and costs other than agreements disclosed in the Company SEC
Reports and the Harris Loan. For purposes of this Agreement, the term
"Environmental Laws" shall mean any and all laws, statutes, ordinances, rules,
regulations, or orders of any Governmental Entity pertaining to health or the
environment currently in effect in any and all jurisdictions in which the
party in question and its subsidiaries own property or conduct business,
including without limitation, the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"),
as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Hazardous Materials Transportation Act, as amended, any state laws
implementing the foregoing federal laws, and any similar state laws, and all
other federal, state and local environmental conservation or protection laws.
For purposes of this Agreement, the terms "hazardous substance" shall mean
hazardous substance as defined in CERCLA, petroleum, and any other chemical or
material regulated under any Environmental Laws, "release" shall have the
meanings specified in CERCLA, and "disposal" shall have the meaning specified
in RCRA; provided, however, that to the extent the current laws of the state
in which the property is located have established a meaning for "hazardous
substance," "release," or "disposal" that is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply.
Section 6.13 Delaware Law. The Board of Directors of the Company has
approved the Tender Offer, the Merger and this Agreement, and such approval is
sufficient to render inapplicable the restrictions on business combinations
set forth in Section 203 of the GCL, to the Tender Offer, the Merger, this
Agreement, the transactions contemplated by this Agreement and any additional
acquisitions of the Shares by Purchaser or Acquisition.
Section 6.14 Inventory; Accounts Receivable. The inventory of the Company
and its subsidiaries consists of raw materials, work in process and finished
goods and supplies, all of which is merchantable and fit, in all material
respects, for the purpose for which it was procured or manufactured, and none
of which is slow-moving, obsolete, damaged or defective, subject only to the
reserve for inventory writedown provided for in the Company's March 31, 1995
financial statements, as adjusted for operations and transactions through the
date hereof in accordance with the past custom and practice of the Company and
its subsidiaries. All notes and
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accounts receivable of the Company and its subsidiaries are reflected properly
on their books and records in all material respects.
Section 6.15 Insurance. The Company and each of its subsidiaries are
currently insured for reasonable amounts against such risks as companies
engaged in a similar business would, in accordance with good business
practice, customarily be insured.
Section 6.16 Properties. Except for liens and encumbrances (a) referred to
in the reports described in Schedule 6.16 to the Company Disclosure Schedule,
(b) granted by a subsidiary of the Company to the Company or another
subsidiary, (c) granted pursuant to the Harris Loan, or (d) arising in the
ordinary course of business and for properties and assets disposed of in the
ordinary course of business after June 30, 1994, the Company and its
subsidiaries have defensible title or leasehold interest, free and clear of
all liens, the existence of which would have a Company Material Adverse
Effect, to all their material properties and assets, whether tangible or
intangible, real, personal or mixed. All buildings, and all fixtures,
equipment and other property and assets which are material to its business on
a consolidated basis, held under leases by any of the Company or its
subsidiaries are, to the Company's knowledge, held under valid instruments
enforceable by the Company or its subsidiaries in accordance with their
respective terms. In all material respects, the Company's and its
subsidiaries' plant and equipment have been maintained consistently with
industry standards and are in good and serviceable condition, reasonable wear
and tear excepted.
Section 6.17 Certain Contracts and Restrictions. The Company SEC Reports or
Schedule 6.17 to the Company Disclosure Schedule list, as of the date of this
Agreement, each agreement, contract or commitment (other than any thereof
entered into in the ordinary course of business) of a duration in excess of
six months to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound pursuant to which the
Company or its subsidiaries paid consideration during the previous twelve
months in excess of $1,000,000, or which is otherwise material to the
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. The Amendment to Ore Purchase Agreement,
effective as of June 1, 1995, between Rhone-Poulenc, Inc. and the Company
remains in effect and has not been amended or otherwise modified.
Section 6.18 Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of the Company set forth herein contains any untrue statement of material
fact, or, at the date thereof, omits to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which such statements are made, not misleading.
Section 6.19 Opinion of Financial Advisor. The Company has received the
opinion of PaineWebber Incorporated to the effect that, as of August 8, 1995,
the consideration to be received by the holders of the Shares (other than
stockholders of the Company affiliated with Weiss, Peck & Greer) in the Tender
Offer and/or the Merger is fair, from a financial point of view, to such
holders.
Section 6.20 Futures Trading and Fixed Price Exposure. Except as set forth
in Schedule 6.20 of the Company Disclosure Schedule and except as contemplated
by the Harris Loan, none of the Company or any of its subsidiaries engages in
any futures or options trading or is a party to any price swaps, hedges,
futures or similar investments.
Section 6.21 Intellectual Property. Schedule 6.21 to the Company Disclosure
Schedule contains a complete list as of the date of this Agreement of all
material (i) patents owned or used by the Company or patent applications filed
by the Company, (ii) trademarks, service marks, tradenames, Company
copyrights, or applications therefor, owned or used by the Company. Schedule
6.21 of the Company Disclosure Schedule lists all officers of the Company who
have executed technology rights agreements with the Company. To the Company's
knowledge, no patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade secrets,
tradenames, copyrights, licenses, inventions, drawings, designs, customer
lists, proprietary know how or information or other rights with respect
thereto (collectively referred to
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as "Proprietary Rights"), are necessary to or presently being used in the
business of the Company other than those which have been lawfully obtained or
applied for; and to the Company's knowledge, the operations of the Company do
not in any material respect conflict with or infringe on the rights of any
third party. Any person who has asserted that the Company's operations
conflict with or infringe upon any of such person's rights, or any Proprietary
Rights owned, possessed or used by such other person has been disclosed.
Section 6.22 Contributions, Etc. The Company annually inquires of at least
its executive officers concerning conduct of the business including use of
funds for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activities unlawful payments to foreign or
domestic government officials, political parties, or campaigns and no material
violation or unlawful activity has been identified.
Section 6.23 Easements. The business of the Company and its subsidiaries has
been operated in a manner that does not violate the material terms of any
easements, rights of way, permits, servitudes, licenses, leasehold estates and
similar rights relating to real property used by the Company and its
subsidiaries in such business (collectively, "Easements") material to such
business. All material Easements are valid and enforceable and grant the
rights purported to be granted thereby and all rights necessary thereunder for
the current operation of such business.
Section 6.24 Information. Neither (a) the Proxy Statement or Information
Statement (other than information provided by Purchaser or Acquisition, as to
which no representation is made), nor (b) any information provided by the
Company for inclusion in any amendments or supplements to the Offer Documents,
nor (c) the Schedule 14D-9 to be filed by the Company in connection with the
Tender Offer and any amendments thereof or supplements thereto will contain,
at the respective times such documents are filed with the SEC, and, in the
case of the Proxy Statement or Information Statement or any amendments thereof
or supplements thereto, at the time of the meeting of stockholders to be held
in connection with the Merger, if required, or at the time of mailing to
stockholders, as the case may be, any untrue statement of a material fact or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Schedule 14D-9,
the Proxy Statement or Information Statement, as the case may be, and any
amendments of or supplements to any of the foregoing, will comply as to form
in all material respects with the provisions of the Exchange Act.
ARTICLE VII
Covenants
Section 7.1 Conduct of Business by the Company Pending the
Merger. Subsequent to the date hereof and prior to the Effective Date, unless
Purchaser shall otherwise agree in writing or unless the failure to comply
with any of the following covenants results from actions by the Board of
Directors of the Company which are approved by a majority of the directors
appointed by Purchaser pursuant to Section 7.11 hereof and except as otherwise
specifically contemplated by this Agreement:
(a) the businesses of the Company and its subsidiaries shall be conducted
only in, and neither the Company nor any of its subsidiaries shall take any
action except in, the ordinary and usual course of business.
(b) the Company shall not
(i) increase the compensation payable to or to become payable to any
director or executive officer, except for increases in salary or wages
payable or to become payable in the ordinary course of business and
consistent with past practice; (ii) grant any severance or termination
pay (other than pursuant to the normal severance policy of the Company
or its subsidiaries as in effect on the date of this Agreement) to, or
enter into or amend any employment or severance agreement with, any
director, officer or employee; (iii) establish, adopt or enter into any
new employee Plan or arrangement; or (iv) except as may be required by
applicable law and actions that are not inconsistent with the
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provisions of Section 6.10 of this Agreement, amend, or take any other
actions (other than the acceleration of vesting or waiving of
performance criteria permitted pursuant to the Plans upon a change in
control of the Company) with respect to, any of the Plans;
(2) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock, except for dividends
by a subsidiary to the Company or another subsidiary;
(3) (i) except as described in Schedule 7.1(b)(3) to the Company
Disclosure Schedule, redeem, purchase or otherwise acquire any shares
of its or any of its subsidiaries' capital stock or any securities or
obligations convertible into or exchangeable for any shares of its or
its subsidiaries' capital stock (other than any such acquisition
directly from any wholly owned subsidiary of the Company in exchange
for capital contributions or loans to such subsidiary), or any options,
warrants or conversion or other rights to acquire any shares of its or
its subsidiaries' capital stock or any such securities or obligations
(except in connection with the exercise of outstanding stock options or
Warrants in accordance with their terms); (ii) effect any
reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its subsidiaries' capital stock or issue or
authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its or its
subsidiaries' capital stock;
(4) (i) except as described in Schedule 7.1(b)(4) to the Company
Disclosure Schedule, issue, deliver, award, grant or sell, or authorize
or propose the issuance, delivery, award, grant or sale (including the
grant of any security interests, liens, claims, pledges, limitations in
voting rights, charges or other encumbrances) of, any shares of any
class of its or its subsidiaries' capital stock (including shares held
in treasury), any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to
acquire any such shares (except as permitted for the issuance of shares
upon the exercise of stock options outstanding as of the date of this
Agreement) other than (a) the conversion of Voting Common Stock and
Nonvoting Common Stock as provided in paragraph 4(D) of Section 2 of
Article IV of the Company's Certificate of Incorporation, (b) the
exercise of the Warrants or (c) the exercise of options under the Stock
Option Plans or the Nonemployee Plan; or (ii) amend or otherwise modify
the terms of any such rights, warrants or options the effect of which
shall be to make such terms more favorable to the holders thereof;
(5) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets of any other person
(other than the purchase of assets from suppliers or vendors in the
ordinary course of business) in each case which are material,
individually or in the aggregate, to the Company and its subsidiaries,
taken as a whole;
(6) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its material assets or any
material assets of any of its subsidiaries, except for dispositions in
the ordinary course of business and consistent with past practice;
(7) solicit, initiate or knowingly encourage any inquiries,
discussions or negotiations with any person (other than Purchaser or
Acquisition) concerning any Acquisition Proposal (as defined in Section
9.1(c)) or solicit, initiate or knowingly encourage any effort or
attempt by any other person to do, make or seek an Acquisition Proposal
or, unless required in order for the Board of Directors of the Company
to comply with its fiduciary responsibilities, with a view to pursuing
an Acquisition Proposal with such person, engage in discussions or
negotiations with or disclose any nonpublic information relating to the
Company or any of its subsidiaries to such person or authorize or
permit any of the officers, directors or employees of the Company or
any of its subsidiaries or any investment banker, financial adviser,
attorney, accountant or other representative retained by the Company or
any of its subsidiaries to take any such action. The Company shall
immediately communicate to Purchaser in writing the terms of any
Acquisition Proposal which it may receive;
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(8) adopt or propose to adopt any amendments to its charter or By-
Laws, which would alter the terms of its capital stock or would have an
adverse impact on the consummation of the transactions contemplated by
this Agreement;
(9) (i) change, in any material respect, any of its methods of
accounting in effect at June 30, 1995, or (ii) make or rescind any
express or deemed election relating to taxes, settle or compromise any
claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the
amount of such settlements or controversies, individually or in the
aggregate, would not have a Company Material Adverse Effect), or change
any of its methods of reporting income or deductions for federal income
tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ending June 30, 1994, except,
in each case, as may be required by Law or U.S. GAAP;
(10) other than as permitted by the Harris Loan, incur any material
obligation for borrowed money or purchase money indebtedness, whether
or not evidenced by a note, bond, debenture or similar instrument;
(11) enter into any material arrangement, agreement or contract with
any third party (other than customers in the ordinary course of
business) that provides for an exclusive arrangement with that third
party or is substantially more restrictive on the Company or
substantially less advantageous to the Company than arrangements,
agreements or contracts existing on the date hereof unless such
arrangement is entered into in the ordinary course of business; or
(12) agree in writing or otherwise to do any of the foregoing.
Section 7.2 Stockholders' Meeting and Proxy Statement. Except as provided in
Section 9.1 of this Agreement, the Company shall take all action necessary in
accordance with applicable law and its Certificate of Incorporation and By-
Laws to convene a meeting of the holders of the shares of Voting Common Stock
of the Company as promptly as practicable after the expiration of the Tender
Offer to consider and vote upon the adoption of the Merger Agreement, if such
stockholder approval is required by applicable law. In connection with any
stockholders' meeting, if required, the Company shall prepare and file the
Proxy Statement with the SEC and Purchaser shall furnish all information
concerning Purchaser and Acquisition as the Company may reasonably request in
connection with the preparation of the Proxy Statement. At any stockholders'
meeting, Purchaser agrees to vote or cause all of the Shares acquired pursuant
to the Tender Offer or otherwise by Acquisition or any affiliate of Purchaser
to be voted in favor of the Merger. The Company shall in the Proxy Statement,
through its Board of Directors, recommend that the Company's stockholders
adopt the Merger Agreement, if such vote is required, except to the extent
that the Board of Directors shall have withdrawn or modified its approval or
recommendation of the Tender Offer or the Merger Agreement as contemplated by
Section 9.1(c).
Section 7.3 Certain Filings and Consents. Purchaser, Acquisition and the
Company shall (a) cooperate with each other in determining whether any filings
are required to be made or consents, approvals, permits or authorizations are
required to be obtained under any federal or state law or regulation or
whether any consents, approvals or waivers are required to be obtained from
other parties to loan agreements or other contracts material to the business
of the Company and its subsidiaries taken as a whole in connection with the
consummation of the Merger and (b) actively assist each other in making any
such filings and obtaining any consents, permits, authorizations, approvals or
waivers that are required.
Section 7.4 Access. Upon reasonable notice, the Company shall, and shall
cause each of its subsidiaries to, afford Purchaser and Acquisition, and their
respective representatives, full access during normal business hours until the
Effective Date to all of its properties, books, contracts, commitments and
records (including, but not limited to, tax returns) and, during that period,
the Company and each of its subsidiaries shall furnish promptly to Purchaser
and Acquisition, and their respective representatives, all information
concerning its business, properties, assets, liabilities, operations,
financial condition and personnel as Purchaser or Acquisition
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may reasonably request; except that in the case of all written materials for
which the Company asserts an attorney client privilege, the Company shall
provide Purchaser with a list of such materials and a summary of their
contents, and the Company shall cooperate with Purchaser to provide Purchaser
with access to such materials if such access can be provided without violation
of the attorney client privilege. Purchaser and Acquisition shall, and shall
use their reasonable best efforts to cause their consultants and advisors to,
hold in confidence all such information until such time as such information is
otherwise publicly available (unless otherwise required to disclose such
information by law), and if this Agreement is terminated, Purchaser and
Acquisition shall deliver to the Company all documents, work papers and other
material obtained by them from the Company pursuant to the terms of this
Agreement.
Section 7.5 Expenses.
(a) Except as provided in Section 9.2(a) of this Agreement, all Expenses (as
defined in Section 7.5(b) hereof) incurred by the parties hereto shall be
borne solely and entirely by the party which has incurred such Expenses.
(b) "Expenses" as used in this Agreement shall include all out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of the Tender Offer, this Agreement, the preparation, printing,
filing and mailing of the Offer Documents, the Schedule 14D-1, the Schedule
14D-9, the Proxy Statement, the Information Statement, the solicitation of
stockholder approvals and all other matters related to the consummation of the
transactions contemplated hereby; provided, however, that "Expenses" shall not
include any fees of legal counsel or advisors of any stockholder of any party.
Section 7.6 Employee Stock Options; Warrant. On or before the Effective Date
of the Merger, the Company shall take all steps necessary for all outstanding
options granted under the Stock Option Plans and the Nonemployee Plan to be
converted by the Merger into the right to receive for each Share covered
thereby a cash amount equal to the excess of the Merger Price over the option
exercise price. Such amount shall be paid by Purchaser on the Effective Date.
On the Effective Date of the Merger, all rights under the Warrants shall be
converted by the Merger into the right to receive for each Share covered
thereby the right to receive the Merger Price upon payment to the Company of
the applicable Warrant exercise price. The Company shall take no action, or
allow any action to be taken, or fail to take any action, that would cause or
result in any acceleration of exercisability of outstanding options granted
under the Stock Option Plans and the Nonemployee Plan.
Section 7.7 Indemnification and Insurance. The Company shall indemnify and
hold harmless, and after the Effective Date, Purchaser and the Surviving
Corporation shall indemnify and hold harmless, each present employee, agent,
director or officer of the Company and the Company's subsidiaries (the
"Indemnified Parties") (a) with respect to any losses, claims, damages,
liabilities, costs and expenses, including reasonable attorneys' and expert
witness fees, arising out of or pertaining to any action or omission occurring
prior to the Effective Date (including any which arise out of or pertain to
the transactions contemplated by this Agreement) and (b) as provided in their
respective charters or by-laws in effect at the date hereof (to the extent
consistent with applicable law), which provisions shall survive the Merger and
shall continue in full force and effect for a period of not less than five
years from the Effective Date. In the event any claim or claims (a "Claim or
Claims") are asserted or made pursuant to the preceding sentence within such
five-year period, all rights to indemnification in respect of any such Claim
or Claims shall continue until disposition of any and all such Claims. In the
event that a claim is asserted against any Indemnified Party with respect to
any matter to which the indemnities contained in this section relate, the
Indemnified Party shall give prompt written notice to the Surviving
Corporation setting forth in reasonable detail the basis for such claim for
indemnification. The Surviving Corporation shall have the right, at its
election, to take over the defense or settlement of such claim at its own
expense by giving prompt notice to that effect to the Indemnified Party. If
the Surviving Corporation shall have so assumed the defense of any Claim, the
Surviving Corporation shall be authorized to consent to a settlement of, or
the entry of any judgment arising from, any such Claim, without the prior
written consent of the Indemnified Party; provided,
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however, that a condition to any such settlement shall be a complete release
of the Indemnified Party with respect to such Claim. If the Surviving
Corporation does not, within thirty days after receipt of the Indemnified
Party's notice of Claim, (x) give such notice to take over the defense of such
Claim and proceed to defend the Claim or (y) object to such Claim in writing
to the Indemnified Party, then the Indemnified Party shall have the right to
undertake the defense of such Claim and the Surviving Corporation shall pay to
the Indemnified Party the reasonable fees and expenses of its counsel. The
Surviving Corporation shall not be liable for any settlement effected without
its consent, which consent shall not be unreasonably withheld. The Indemnified
Party shall at all times have the right, at its option and expense, to
participate fully in, but not to control, any such defense. Without limiting
the foregoing, the Company and, after the Effective Date, the Surviving
Corporation, to the extent permitted by applicable law, will periodically
advance reasonable expenses as incurred with respect to the foregoing to the
fullest extent permitted under applicable law provided the person to whom the
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification. In
the event that within five years from the Effective Date the Surviving
Corporation shall consolidate or merge with or into any other person or shall
transfer all or substantially all of its assets to any person and such person
surviving such consolidation or merger or to which such assets shall have been
transferred is not a Delaware corporation, the Surviving Corporation shall
enter into an agreement pursuant to which such person shall agree to provide
indemnification substantially equivalent to that required of the Company
hereunder.
Section 7.8 Employee Benefits. For a period of two years from the Effective
Date, Purchaser and the Surviving Corporation agree to honor in accordance
with their terms the Company's employee benefit plans, in each case to the
extent the same have been delivered or made available to Purchaser for review,
provided however that Purchaser or the Surviving Corporation may amend or
terminate any such plan at any time after the Effective Date to the extent the
amendment or termination is deemed to be necessary or appropriate to comply
with the requirements of applicable law.
Section 7.9 Maintenance of Financing. Purchaser and Acquisition shall at all
times have available to them funds sufficient to consummate the Tender Offer
and the Merger on the terms contemplated by this Agreement.
Section 7.10 Resignation of Directors. The Company will obtain the
resignations of all of the Continuing Directors of the Company on the
Effective Date.
Section 7.11 Board of Directors. Upon the acquisition of Shares pursuant to
the Tender Offer, which, when added together with Shares owned by Purchaser or
any of its direct or indirect subsidiaries, equal at least a majority of the
then outstanding shares of Voting Common Stock, the Company shall fill any
vacancies and increase the size of its Board of Directors as necessary to
enable Purchaser to designate at its option a majority of the Company's Board
of Directors, and shall cause Purchaser's designees to be so elected and shall
mail promptly the information required by Section 14(f) of the Act and Rule
14f-1 promulgated thereunder.
ARTICLE VIII
Conditions
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) The holders of the Voting Common Stock of the Company entitled to
vote shall have duly approved the Merger if required by applicable law.
(b) No preliminary or permanent injunction or other order by a court of
competent jurisdiction which prevents the consummation of the Merger shall
have been issued and remain in effect (each party agreeing to use its
reasonable best efforts to have any such injunction lifted).
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(c) No action shall have been taken nor shall any statute, rule or
regulation have been enacted by the government of the United States or any
state thereof that makes the consummation of the Tender Offer or the Merger
illegal in any material respect.
(d) The applicable waiting period under the Hart-Scott-Rodino Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
Section 8.2 Conditions to Obligations of Purchaser and Acquisition to Effect
the Merger. The obligations of Purchaser and Acquisition to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Date of the
following additional conditions:
(a) The representations and warranties of the Company set forth in
Article VI shall be true and correct in all material respects on the
Effective Date (or on such other date specified in Article VI) with the
same force and effect as though made on and as of such date, and Purchaser
and Acquisition shall have received a certificate to that effect from the
Chief Executive Officer and the Treasurer of the Company.
(b) All of the covenants and agreements of the Company to be performed or
complied with pursuant to this Agreement prior to the Effective Date shall
have been duly performed and complied with in all material respects, and
Purchaser and Acquisition shall have received a certificate to that effect
from the Chief Executive Officer and the Treasurer of the Company.
(c) Holders of no more than 400,000 Shares, in the aggregate, shall have
filed with the Company a written objection to the Merger and made a written
demand for payment of the fair value of his shares in the manner permitted
by the GCL.
(d) All of the Continuing Directors of the Company on the Effective Date
shall have resigned.
(e) Since the date of this Agreement, there shall have been no Company
Material Adverse Effect; provided, however, that an IRS Notice of Proposed
Adjustment (to the extent it relates to specific tax issues regarding the
Company's net operating losses that have been raised by the Internal
Revenue Service in a written communication referred to in the last sentence
of Section 6.11) shall not be considered a Company Material Adverse Effect
for this purpose.
(f) Other than taxes duly paid, withheld or reserved for by the Company,
no taxes are payable, or reasonably expected by the Company to be payable,
with respect to items or periods covered by the returns and reports
referred to in Section 6.11 (whether or not shown on or reportable on such
returns or reports or with respect to any period prior to the Effective
Date), other than any such taxes which would not have a Company Material
Adverse Effect.
Section 8.3 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following additional
conditions.
(a) The representations and warranties of Purchaser and Acquisition set
forth in Article V shall be true and correct in all material respects on
the Effective Date (or on such other date specified in Article V) with the
same force and effect as though made on and as of such date, and the
Company shall have received certificates to that effect from the Chief
Executive Officer and the Treasurer of Purchaser and the President of
Acquisition.
(b) All of the covenants and agreements of Purchaser and Acquisition to
be performed or complied with pursuant to this Agreement prior to the
Effective Date shall have been duly performed and complied with in all
material respects, and the Company shall have received certificates to that
effect from the Chief Executive Officer and the Treasurer of Purchaser and
the President of Acquisition.
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ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 Termination. This Agreement shall be subject to termination at
any time prior to the Effective Date, whether before or after approval by the
stockholders of the Company, if required, as follows:
(a) by mutual consent of Purchaser and the Board of Directors of the
Company;
(b) by Purchaser or the Company if the Merger shall not have been
consummated on or before December 15, 1995, which date may be extended by
mutual agreement of the Boards of Directors of the Company and Purchaser;
(c) by the Company if, prior to the Effective Date, the Company, its
Board of Directors or its stockholders shall receive a bona fide written
proposal or offer from a third party (each an "Acquisition Proposal")
relating to:
(i) the acquisition or purchase of all or substantially all of the
assets of, or more than a 50% equity interest (including any Shares
theretofore acquired) in the Company;
(ii) a merger, consolidation or similar business combination with the
Company;
(iii) a tender or exchange offer for the Company conditioned on
ownership of more than 50% of the outstanding Shares following such
tender or exchange offer;
and the Board of Directors of the Company determines that it has a duty in
the proper discharge of its fiduciary responsibilities under applicable law
to consider such other proposal or offer, and then such Board of Directors
either (A) accepts such proposal or offer, (B) recommends to the
stockholders acceptance of such proposal or offer, or (C) in the case of a
tender or exchange offer, takes no position with respect thereto and all
conditions (other than terminating this Agreement) of such tender or
exchange offer have been satisfied, in which event this Agreement shall be
terminated without any liability to the Company or the Company's Board of
Directors as a result of such termination other than as set forth in
Section 9.2(a).
(d) by Purchaser upon a breach of any material representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement or if any representation or warranty of the Company shall have
become untrue and such breach or untruth shall have caused a Company
Material Adverse Effect.
(e) by the Company upon a breach of any material representation,
warranty, covenant or agreement on the part of the Purchaser set forth in
this Agreement or if any representation or warranty of the Purchaser shall
have become untrue and such breach or untruth shall have caused a Purchaser
Material Adverse Effect.
Section 9.2 Break-Up Fee; Effect of Termination.
(a) If the Agreement is terminated pursuant to Section 9.1(c), the Company
shall pay to Purchaser U.S. $4,000,000 in cash. Any payment required to be
made pursuant to this Section 9.2(a) shall be made as promptly as practicable
but not later than three business days after termination of this Agreement,
and shall be made by wire transfer of immediately available funds to an
account designated by Purchaser.
(b) In the event of termination of this Agreement by Purchaser, Acquisition
or the Company (other than pursuant to Section 9.1(c)), there shall be no
liability under this Agreement on the part of either the Company, Purchaser or
Acquisition or their respective officers or directors, except for any breach
of the provisions of Section 7.2 and the confidentiality provisions of Section
7.4, and except for any termination pursuant to Section 9.1(d) or (e) as a
result of a wilful breach of any representation, warranty, covenant or
agreement of Purchaser, Acquisition or the Company contained herein.
Section 9.3 Amendment. This Agreement may be amended by the parties hereto,
by action taken by the respective Boards of Directors of Purchaser,
Acquisition and the Company, at any time before or after approval hereof by
the stockholders of the Company, but, after any such approval, if required, no
amendment shall be made which changes the Merger Price without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
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Section 9.4 Waiver. At any time prior to the Effective Date, the parties
hereto, by action taken by the respective Boards of Directors of Purchaser,
Acquisition or the Company, may (a) extend, for a reasonable time, the time
for the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of the party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
General Provisions
Section 10.1 Notice of Breach. Each party shall promptly give written notice
to the other parties upon becoming aware of the occurrence, or impending or
threatened occurrence, of any event which would cause or constitute a breach
of any of its representations, warranties of covenants contained or referred
to in this Agreement and shall use its reasonable best efforts to prevent or
promptly remedy the same.
Section 10.2 Cooperation. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions
contemplated by this Agreement. In case at any time after the Effective Date
any further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and/or directors of Purchaser, Acquisition or
the Company shall take, or cause to be taken, all such necessary action.
Purchaser shall cause Acquisition to comply with all of Acquisition's
obligations hereunder.
Section 10.3 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Date of the Merger.
Section 10.4 Brokers. The Company represents and warrants that, except for
its financial advisor, PaineWebber Incorporated, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Tender Offer or the Merger.
Section 10.5 Entire Agreement. Other than the Confidentiality Agreement,
dated February 1, 1995, between the Company and Purchaser, this Agreement
contains the entire agreement among Purchaser, Acquisition and the Company
with respect to the Tender Offer, the Merger and the other transactions
contemplated hereby, and supersedes all prior agreements, understandings,
representations, and warranties with respect to the subject matter.
Section 10.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (without giving
effect to its choice of laws principles).
Section 10.7 Interpretation; Headings. When a reference is made in this
Agreement to subsidiaries of the Company or Purchaser, the word "subsidiaries"
means any corporation, partnership, limited liability company or other entity
more than 50% of whose outstanding voting securities are directly or
indirectly owned by the Company or Purchaser, as the case may be. The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
Section 10.8 Assignment. Purchaser and Acquisition shall have the right (a)
to assign to Purchaser or any direct or indirect wholly-owned subsidiary of
Purchaser any and all of the rights and obligations of Acquisition or
Purchaser under this Agreement, including, without limitation, the right to
substitute in Acquisition's place such a subsidiary as one of the Constituent
Corporations in the Merger (such subsidiary assuming all of the obligations of
Acquisition in connection with the Merger) and (b) to transfer to Purchaser or
to one or more
22
<PAGE>
directly or indirectly wholly-owned subsidiaries of Purchaser the right to
purchase Shares tendered pursuant to the Tender Offer.
Section 10.9 Separability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only
so broad as is enforceable.
Section 10.10 Publicity. Except as required by law or the rules of any
exchange on which the shares of Purchaser or Company are traded, as long as
this Agreement is in effect, neither the Company nor Purchaser shall issue or
cause the publication of any press release or other announcement with respect
to the Tender Offer, the Merger or this Agreement without the prior consent of
the other, which consent shall not be unreasonably withheld.
Section 10.11 Notices. All notices or other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally or sent by first-class mail, postage prepaid, with return receipt
requested, addressed as follows:
If to Purchaser or Acquisition, to:
D.E.A. Bower, General Counsel
10333 Southport Road SW, Suite 426
Calgary, Alberta T2W 3X6
Fax # 403-258-5761
with copies to:
Thomas A. Richardson
Holme Roberts & Owen LLC
1700 Lincoln, Suite 4100
Denver, CO 80203
Fax # 303-866-0200
If to the Company, to:
Nu-West Industries, Inc.
3010 Conda Road
Soda Springs, Idaho 83276
Attn: Craig D. Harlen
Fax # 208-547-2550
with copies to:
Davis, Graham & Stubbs, L.L.C.
370 17th Street
Suite 4700
Denver, Colorado 80202
Attn: John L. McCabe, Esq.
Fax # 303-893-1379
Section 10.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one agreement.
Section 10.13 No Third Party Beneficiaries. No provision of this Agreement
is intended to benefit any person other than the parties hereto.
23
<PAGE>
Section 10.14 Schedules. Inclusion of, or reference to, matters in a schedule
to this Agreement does not constitute an admission of what is material or the
materiality of such matter.
In Witness Whereof, Purchaser, Acquisition and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
Agrium Inc.
/s/ Dorothy E.A. Bower
By: _________________________________
Title: Secretary and General Counsel
Agrium Acquisition Corporation
/s/ Dorothy E.A. Bower
By: _________________________________
Title: Secretary and Treasurer
Nu-West Industries, Inc.
/s/ Steven Gampp
By: _________________________________
Title: Vice President
24
<PAGE>
EXHIBIT A
The capitalized terms used herein have the meanings set forth in the
Agreement and Plan of Merger dated as of August 9, 1995 (the "Merger
Agreement") to which this Exhibit A is attached.
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Tender Offer, Acquisition shall
not be required to accept for payment, purchase or pay for any Shares tendered
and may terminate or (subject to the terms of the Merger Agreement) amend the
Tender Offer or may postpone the acceptance for payment, purchase of or
payment for Shares tendered, if before acceptance for payment for any such
Shares (whether or not any Shares have theretofore been accepted for payment
or paid for pursuant to the Tender Offer) (i) there shall not have been
validly tendered and not properly withdrawn pursuant to the Tender Offer at
least 60% of the Shares on a fully diluted basis (the "Minimum Condition"),
(ii) any waiting period under the Hart-Scott-Rodino Act applicable to the
purchase of Shares pursuant to the Tender Offer shall not have expired or been
terminated, or (iii) any of the following shall occur:
(a) Any representation or warranty of the Company in the Merger Agreement
shall have been untrue or incorrect in any material respect as of the date
of the Merger Agreement and the date of consummation of the Tender Offer
with the same force and effect as though made on and as of the date of
consummation of the Tender Offer, or there has been a breach by the Company
of any covenant or agreement set forth in the Merger Agreement which breach
shall not be remedied within five days (or by the Expiration Date if
sooner) of written notice specifying such breach in reasonable detail and
demanding that same be remedied (except where such failure to be true and
correct or such breach would not reasonably be expected to have a Company
Material Adverse Effect).
(b) There shall be any action taken, or any statute, rule, regulation,
decree, order or injunction promulgated, enacted, entered into or enforced
by any state, federal or foreign government or governmental agency or
authority or by any court (domestic or foreign) that would (i) make the
acceptance for payment of, the payment for, or the purchase of, some or all
of the Shares by Acquisition illegal or otherwise prohibit consummation of
the Tender Offer or the Merger, (ii) prohibit the ability of Acquisition,
or render Acquisition unable, to accept for payment, pay for or purchase
some or all of the Shares in a manner that is adverse in any material
respect to the transactions contemplated by the Tender Offer or the Merger,
(iii) require the divestiture by Purchaser, Acquisition or the Company or
any of their respective subsidiaries of all or any material portion of the
business, assets or property of any of them or any Shares, or impose any
material limitation on the ability of any of them to conduct their business
and own such assets, properties and Shares, (iv) impose material
limitations on the ability of Acquisition or Purchaser to acquire or hold
or to exercise effectively all rights of ownership of Shares, including,
without limitation, the right to vote any Shares purchased by Acquisition
on all matters properly presented to the stockholders of the Company or (v)
impose any material limitations on the ability of Purchaser or Acquisition
or any of their respective subsidiaries effectively to control in any
material respect the business or operations of the Company and its
subsidiaries.
(c) Since the date of the Merger Agreement there shall have been a
Company Material Adverse Effect.
(d) The Merger Agreement shall have been terminated in accordance with
its terms.
(e) The Company's Board of Directors shall have withdrawn, modified or
amended in any respect materially adverse to Purchaser or Acquisition its
recommendation of the Tender Offer and the Merger or resolved to do so.
A-1
<PAGE>
EXHIBIT B
INVESTMENT BANKING DIVISION
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-2000
PAINEWEBBER
August 8, 1995
Board of Directors
Nu-West Industries, Inc.
3010 Conda Road
Soda Springs, ID 83276
Gentlemen:
Nu-West Industries, Inc. (the "Company") proposes to enter into an Agreement
and Plan of Merger (the "Agreement") with Agrium Inc. ("Agrium") and Agrium
Acquisition Corporation, a wholly owned indirect subsidiary of Agrium
("Acquisition"). Pursuant to the Agreement: (i) Acquisition will make a tender
offer (the "Offer") for all of the outstanding shares of voting and non-voting
common stock, par value $.01 per share ("Common Stock") of the Company at
$10.50 per share in cash (the "Consideration") and (ii) following completion
of the Offer, each issued and outstanding share of Common Stock (other than
shares owned by Agrium, Acquisition or any direct or indirect subsidiary of
Agrium and shares held by parties perfecting dissenters' rights) will be
converted in a merger (the "merger" and, together with the Offer, the
"Transaction") solely into the right to receive the Consideration.
You have asked us whether or not, in our opinion, the Consideration to be
received in the Transaction by the holders of the Common Stock is fair, from a
financial point of view, to such holders (other than holders that are
affiliates of Weiss, Peck & Greer).
In arriving at the opinion set forth below, we have among other things:
(1) Reviewed, among other public information, the Company's Annual Reports,
Forms 10-K and related financial information for the five fiscal years
ended June 30, 1994 and the Company's Form 10-Q and the related
unaudited financial information for the nine months ended March 31,
1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
voting Common Stock and compared such price and trading history with
that of certain other publicly traded companies which we deemed
relevant;
(5) Compared the financial position and operating results of the Company
with those of certain other publicly traded companies which we deemed
relevant;
(6) Reviewed the proposed financial terms of the Transaction and compared
such terms with the financial terms of certain other business
combinations which we deemed relevant;
(7) Reviewed a draft of the Agreement in the form presented to the Board of
Directors of the Company;
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed appropriate, including our assessment of general economic,
market and monetary considerations.
B-1
<PAGE>
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available or supplied or otherwise
communicated to us by the Company and we have not independently verified such
information. We have assumed that the financial forecasts examined by us were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the management of the Company as to the future
performance of the Company. We have not undertaken, and have not been provided
with, an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company and have assumed that all material
liabilities (contingent or otherwise, known or unknown) of the Company are as
set forth in the Company's consolidated financial statements. In connection
with our engagement, we were requested to and did solicit third party
indications of interest in acquiring the Company. Our opinion is based upon
the regulatory, economic, monetary and market conditions existing on the date
hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any holder of Common Stock as to whether or
not such holder should tender his or her shares pursuant to the Offer or
approve the Merger. This opinion does not address the relative merits of the
Transaction and any other potential transactions or business strategies
discussed by the Board of Directors of the Company.
This opinion has been prepared solely for the use of the Board of Directors
of the Company and shall not be reproduced, summarized, described or referred
to or given to any other person or otherwise made public without the prior
written consent of PaineWebber Incorporated; provided, however, that this
letter may be reproduced in full in the Schedule 14D-9 relating to the Offer.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Transaction and will receive a fee upon
delivery of this opinion and upon consummation of the Offer. We may provide
financial advisory or other investment banking services to Weiss, Peck & Greer
or its affiliates in the future.
In the ordinary course of our business, we may actively trade the securities
of the Company and Agrium for our own account and for the accounts of our
customers and, accordingly, may at any time hold long or short positions in
such securities.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Consideration to be received in the Transaction by the
holders of Common Stock is fair, from a financial point of view, to such
holders (other than shareholders that are affiliates of Weiss, Peck & Greer).
Very truly yours,
PAINEWEBBER INCORPORATED
B-2
<PAGE>
EXHIBIT C
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended JUNE 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
__________ to __________
Commission file number 0-17399
NU-WEST INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
a Delaware corporation 82-0415557
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8400 East Prentice Avenue, Suite 1320
Englewood, Colorado 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 721-1396
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Each Class on Which Registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value) NASDAQ Stock Market
Class A Preferred Stock ($100 par value) NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
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]
Based on the NASDAQ Stock Market closing sales price as of July 31, 1995, the
aggregate market value of the Common Stock held by non-affiliates of the
registrant was approximately $42.5 million.
As of July 31, 1995, there were approximately 8,086,363 shares of the
registrant's Common Stock outstanding.
Documents Incorporated by Reference
- -----------------------------------
None
================================================================================
<PAGE>
TABLE OF CONTENTS TO FORM 10-K
PAGE
----
PART I
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 1. BUSINESS........................................................ 1
Introduction and Overview....................................... 1
The Fertilizer Market........................................... 3
Principal Products.............................................. 4
Sales and Marketing............................................. 6
Competition..................................................... 7
Existing Mining Operations...................................... 7
Manufacturing Process and Raw Materials......................... 10
Environmental Matters........................................... 11
NuTec Mineral and Chemical Company.............................. 12
Employees....................................................... 13
ITEM 2. PROPERTIES...................................................... 14
ITEM 3. LEGAL PROCEEDINGS............................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS......................................................... 16
PART II
ITEM 5. TRADING MARKET FOR COMMON STOCK AND DIVIDEND
POLICY.......................................................... 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................ 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.............................. 20
General......................................................... 20
Results of Operation............................................ 21
Acquisitions and Dispositions................................... 23
Liquidity and Capital Resources................................. 24
Changing Prices and Inflation................................... 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT...................................................... 32
ITEM 11. EXECUTIVE COMPENSATION.......................................... 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................. 43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K............................................. 47
</TABLE>
(ii)
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION AND OVERVIEW
Nu-West Industries, Inc. (the "Company") is engaged in the production and sale
of concentrated, phosphate-based fertilizer products for markets primarily in
western North America. All references to a "fiscal" year are to the twelve month
period ended June 30 of that year.
On August 10, 1995 the Company and Agrium Inc. announced that they have entered
into a definitive merger agreement (the "Merger Agreement") which provides for
the acquisition of the Company by Agrium. Under the terms of the Merger
Agreement, a subsidiary of Agrium is making a tender offer to purchase all of
the outstanding common stock of the Company at $10.50 per share in cash. The
tender will expire on September 14, 1995 unless extended. As soon as practical
following the tender offer, the Agrium subsidiary will merge into the Company,
and each remaining share of the Company's common stock will be converted into
the right to receive $10.50 per share in cash. See Item 7 "Liquidity and
Capital Resources - Other" for further information.
The Company owns fertilizer manufacturing facilities located near Soda Springs,
Idaho (the "Conda Plant") and through fiscal 1994 conducted phosphate ore mining
and milling operations through a general partnership (the "Conda Partnership").
The Company was formed in July 1987 for the purpose of acquiring the Conda Plant
and a 50% interest in the Conda Partnership from bankruptcy proceedings relating
to Beker Industries Corp. ("Beker"). As part of that purchase transaction, the
Company succeeded to substantial tax net operating loss carryforwards available
to Beker. The Company acquired the other 50% interest in the Conda Partnership
in July 1992.
The Company's production and marketing strategy emphasizes the liquid fertilizer
product Super Phosphoric Acid ("SPA"). The Company services a diverse base of
agricultural customers geographically dispersed across the western portion of
North America, and is perceived as a high quality manufacturer of liquid
fertilizer products while maintaining a price competitive position. The Company
believes it has an approximate 40% share of the SPA market and an approximate
30% share of the total phosphate fertilizer market in its market area. Total
fertilizer customers number in excess of 200, although sales to only one
exceeded 10% of total product sales for fiscal 1995. The Company benefits from
its close proximity to certain raw materials used in its production processes,
including phosphate ore, sulfur, and sulfuric acid.
-1-
<PAGE>
The Company has emerged from a period marked by liquidity problems and a
significant increase in long-term debt as the result of a failed expansion
strategy into the export market by previous management in 1988, the bankruptcy
of a subsidiary of the Company in 1990, and product prices throughout the
phosphate ferilizer industry which reached historic low levels in 1993. During
this period, the Company refocused its efforts around the Conda Plant, which has
historically been a profitable operation. The combination of product cost
reductions and a strong industry-wide fertilizer price recovery beginning in
1994 has led to substantial gains in profitability and cash flow for the
Company.
In fiscal 1994, the Company refinanced its long-term debt as part of a
Recapitalization Plan approved by a vote of its shareholders in October 1993.
The Recapitalization included the refinancing of a significant portion of the
Company's outstanding debt to longer maturities, the conversion of certain
existing debt from a senior secured to a junior unsecured position with no
current payment of interest, and the issuance of warrants to acquire
approximately 58% of the Company's common stock on a fully diluted basis. The
Recapitalization was completed on November 2, 1993.
The Recapitalization allowed the Company to make significant improvements to its
operating cost structure. Until November 1993, the Company operated its own
phosphate ore mining operation through the Conda Partnership, which has the
rights to approximately 60-70 million tons of proven ore reserves, sufficient
for nearly 40 years of operations at present ore consumption rates. In fiscal
1994, the Company entered into a seven year purchase agreement with Rhone-
Poulenc Basic Chemicals Company, a division of Rhone-Poulenc, Inc. ("RP") to
purchase phosphate ore from a 20-year deposit owned by RP near the Conda Plant
(the "RP Agreement").
The RP Agreement provides the Company with higher grade ore at a substantially
lower cost than the Company could obtain from its own reserves. These savings
are due primarily to less costly mining operations resulting from the geologic
formation of the RP reserves, and production efficiencies at the Conda Plant
which result from the higher concentration of phosphate ("P\\2\\0\\5\\") in the
RP ore relative to the Company's own reserves. The Company will retain its
existing reserves for development in future years. In June 1995, the RP
Agreement was extended for an additional five years through 2005.
In July 1994, the Company entered into an agreement with Kennecott Utah Copper
Corporation ("Kennecott") for the purchase of sulfuric acid beginning in fiscal
1996 (the "Kennecott Agreement"). This purchase contract will replace the
production from a sulfuric acid facility at the Conda Plant which is being
phased-out. See Item 7, "Liquidity and Capital Resources" for further
information.
A one-for-six reverse stock split was proposed by the Company and approved by
its shareholders in November 1994. The stock split became effective at the
close of business on December 9, 1994 and the number of authorized shares of
common stock was reduced to 16,666,667.
-2-
<PAGE>
In March 1995, the Company disclosed that it had retained PaineWebber
Incorporated to assist it in exploring alternatives for enhancing long-term
shareholder value. Alternatives to be considered included, but were not limited
to, strategic relationships with other fertilizer producers and customers, the
sale or merger of the Company, or the continuation of the Company's current
business plan of internal growth. The result was the Merger Agreement.
On August 3, 1995, the Company completed the refinancing of substantially all
of its long-term debt, including all of the senior secured, senior unsecured and
junior unsecured debt incurred during the 1993 Recapitalization. The new credit
facility results in a lower blended interest rate and estimated savings in
fiscal 1996 of approximately $2.6 million in interest expense based on current
interest rates and loan balances. See Item 7, "Liquidity and Capital Resources"
for further information.
The Company's manufacturing and certain administrative offices are located near
Soda Springs, Idaho. The Company's marketing and executive offices are located
at 8400 East Prentice Avenue, Suite 1320, Englewood, Colorado, 80111. The
telephone number is (303)721-1396.
THE FERTILIZER MARKET
Phosphate fertilizer production capacity of U.S. producers is estimated to be
approximately 12 million tons per year of P\\2\\O\\5\\ equivalent, with the
majority of the domestic production capacity located in the Gulf Coast states
and in North Carolina. Approximately 925,000 tons per year of P\\2\\O\\5\\
equivalent are produced at three facilities in the western United States. The
Conda Plant has a phosphoric acid production capacity of approximately 300,000
tons per year of P\\2\\O\\5\\ equivalent. Currently, it is estimated that 55-60%
of U.S. production, on a P\\2\\O\\5\\ equivalent basis, is exported. Other than
sales to customers in Canada and Mexico, which accounted for approximately 14%
of the Company's fiscal 1995 gross sales revenues, the Company did not export
any of its fertilizer products.
The western North American phosphate fertilizer market is highly dependent on
the agricultural economy, particularly the size of annual crop plantings,
weather conditions, USDA and other government farm programs, and disposable farm
income levels. Export demand for U.S. phosphate products also plays a major
role in the supply available for and the product price in the domestic
fertilizer market. Various unfavorable combinations of these factors during
recent years resulted in price volatility and generally lower prices. Closer
proximity to sources of certain raw materials, the ability to diversify product
mix and the emphasis by the Company on the production and sale of liquid
fertilizer products have, among other factors, moderated the effect of the
cyclicality of the domestic fertilizer business on the Conda Plant's operations.
Average prices received by the Company for products in its market area tend to
follow the relative movement of prices received in the U.S. Gulf Coast region.
However, freight differentials and other geographical factors result in
generally higher costs and average product prices in the western U.S.
-3-
<PAGE>
Prices for phosphate fertilizer products dropped to twenty-year low levels
industry-wide during fiscal years 1992 and 1993. India and China, which
historically accounted for well over half of U.S. phosphate export activity,
determine to a large extent the level of export demand. Currency instability in
China and political uncertainty regarding fertilizer subsidies in India resulted
in a substantial reduction in demand for phosphate products from the U.S.
during fiscal years 1992 and 1993. Adding further to the world-wide imbalance
in supply and demand was significantly reduced consumption of fertilizer by the
former Soviet Union and Eastern European countries as a result of difficulties
related to conversion of those economies to free market systems. Industry
consolidation during this period significantly reduced the number of U.S.
producers, and some curtailment in production output has followed. Beginning in
the fall of 1993 a price recovery resulted from the combination of this reduced
production output and improved export demand, largely from China. However, the
volatility of the market has historically frustrated attempts to predict with
accuracy future pricing trends.
Extremely wet weather patterns in the western and central U.S. during the peak
fertilizer consumption period of March and April 1995 resulted in lower than
anticipated application rates and relatively high inventories at the conclusion
of the spring season. Prices remained relatively stable, however, during the
spring season and did not decline significantly until the normal off-season
summer months. Price declines were more pronounced with liquid phosphate
products than with dry granular products due to limited industry-wide storage
capacity and shorter shelf life; dry granular fertilizer is more easily stored
for longer durations. Sales volumes of liquids have also declined in early
fiscal 1996 due to carryover inventories from the spring season.
PRINCIPAL PRODUCTS
Phosphate fertilizers provide phosphorus, one of the three primary plant
nutrients required by plant life. The other two primary nutrients are nitrogen
and potassium. Phosphate fertilizer products which are made with ammonia also
provide nitrogen. The principal applications of phosphate fertilizers are in
the production of corn, wheat, soybeans, barley, cotton, and other small grain
crops, fruits and vegetables. Phosphate rock, sulfur and anhydrous ammonia are
the primary raw materials for the production of ammonium phosphate fertilizers.
Phosphate rock is combined with sulfuric acid to produce phosphoric acid which
is then either (i) combined with anhydrous ammonia to produce various dry
granular fertilizers that are differentiated by their NPK content (% nitrogen-%
phosphorus-% potassium), including DAP (18-46-0), MAP (11-52-0) and 16-20-0, or
(ii) concentrated to produce liquid fertilizer products containing no nitrogen
and 52% to 72% P\\2\\O\\5\\. Generally, a product with a higher P\\2\\O\\5\\
content sells for a higher price per unit. The Conda Plant produces multiple
products and alters its product mix to meet the changing requirements of its
customers. The following is a brief description of the products manufactured at
the Conda Plant.
Super Phosphoric Acid
---------------------
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The manufacture of liquid SPA accounts for approximately 50% of the Company's
total production volume and sales, and a substantially higher percentage of its
gross profits. SPA is produced by concentrating phosphoric acid to a level of
68-72% P\\2\\O\\5\\. Because of its unique chelating and suspending properties,
which allow impurities to remain dissolved, SPA has few substitutes as a liquid
fertilizer, and is the highest margin product currently manufactured by the
Company. The use of liquid fertilizer as a percentage of total phosphate
fertilizers applied in the domestic U.S. market has grown steadily over the past
few years, due to its agronomic, economic and ecologic advantages. SPA is not an
end use fertilizer but is upgraded, mixed or blended with other liquid
nutrients, pesticides and/or herbicides before it is applied. As a liquid, it
allows for easy and precise application to crops, which makes more nutrient
available for use by the plant, and can be injected below the soil in minimum-
till or no-till programs to prevent leaching into waterways.
The customers for SPA are diverse and consist of large wholesalers such as
cooperatives and grain companies, and many smaller independent distributors.
The principal factors in the SPA customer purchase decision are price,
dependability of supply and quality. Phosphate solution products are primarily
used for corn, wheat, alfalfa and soybeans; however, the properties and ease of
application allow for use on other row crops such as lettuce, strawberries and
cotton.
The Conda Plant has a current production capacity for SPA of approximately
175,000 P\\2\\0\\5\\ tons annually. This represents approximately 55% to 60% of
the Conda Plant's phosphoric acid capacity. The remaining capacity is used to
produce dry granular fertilizer products.
Merchant Grade Acid
-------------------
Merchant Grade Acid ("MGA"), is produced by concentrating phosphoric acid to a
level of 52% P\\2\\O\\5\\. Like SPA, MGA contains no nitrogen and is generally
diluted and mixed with other nutrients before application. The characteristics
of MGA are similar to those of SPA, but because of certain processing and
storage requirements the capacity to produce MGA is currently limited to
approximately 14,000 P\\2\\0\\5\\ tons per year.
Dry Granular Products
---------------------
Dry granular products manufactured at the Conda Plant are commodities and
consequently are very price sensitive in the market place. The customers for
these dry products are more diverse than for liquid products, and they range
from large cooperatives to small retail stores. The uses for dry granular
fertilizer are varied, and they can be applied to many different crops including
corn, wheat, vegetables, rice and grasses.
The major dry granular fertilizer products manufactured by the Company are:
. Diammonium Phosphate ("DAP" or 18-46-0); DAP is the most common
granular phosphate fertilizer product manufactured by domestic producers, and as
much as 70% of total U.S. production of DAP is exported.
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. Mono-ammonium Phosphate ("MAP" or 11-52-0)
. Ammonium Phosphate (16-20-0)
SALES AND MARKETING
The Company's customers include retailers, distributors, producers and others
who purchase in bulk for use or resale, before or after blending with other
fertilizer materials. The Company also enters into a limited number of exchange
agreements with other domestic producers whereby the parties trade equivalent
quantities of products for delivery by each other to or for the account of the
other. The Company's products are distributed by rail and, to a lesser extent,
by truck.
The Company's sales and inventory levels follow the seasonal trends of the
fertilizer business. Periods of heavy crop planting in the spring and fall
seasons result in relatively higher sales and receivables, while early summer
and winter generally reflect a build-up of product inventory. The Company's
emphasis on liquid fertilizers somewhat mitigates the seasonality of sales with
relatively constant demand as dealers refill storage tanks on a year-round
basis. Limited storage life and capacity for these liquids results in a greater
need to sell and ship product throughout the year than for dry granular
fertilizers, which can be stockpiled and moved between producers, dealers and
end-users more readily as needed. Receivables are typically on fifteen to
thirty-day terms in the western U.S. market, although variations can occur based
on competitive conditions. The Company's credit policies are generally in line
with those of its competitors. The Company has had no substantial bad trade
debts.
Due largely to the seasonal nature of the fertilizer business, working capital
requirements vary significantly through the year. The Company's needs are
generally greatest in late summer and fall due to the seasonality described
above as well as the timing of the annual maintenance campaign at the Conda
Plant and the ore mining schedule. Production is halted for approximately two
weeks each summer for an annual refurbishment or "turnaround" of plant
facilities at a time when fertilizer sales demand is low. Mining activity is at
a peak during the summer months with the largest build-up of ore inventory
occurring in the fall season as delivery of ore to the Conda Plant is concluded
prior to the onset of winter weather.
Sales to Cenex/Land O'Lakes, Inc. constituted 17% and 16% of product sales
during the fiscal years 1995 and 1994, respectively. No other customer accounts
for more than 10% of the Company's aggregate revenues. The Company does not
believe that the loss of any individual customer would have a material adverse
impact on its consolidated operating results or financial condition. The
Company's sales force consists of five field salesmen, three officers in charge
of sales and a sales support staff of two based in Denver.
During fiscal years 1995, 1994, and 1993 approximately $14.0, $13.1, and $12.1
million of sales, respectively, were export sales to Canadian and to a lesser
extent Mexican customers. Sales
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to Mexico have declined due largely to Mexico's internal economic difficulties
and are not considered a material portion of the Company's sales.
COMPETITION
The phosphate fertilizer business is intensely competitive. Certain of the
Company's principal competitors have greater available resources than the
Company and are less dependent on phosphate-based fertilizer sales. Certain of
these competitors may be at an advantage to the extent that they own, control or
have access to sources of supply for raw materials at a lower cost than is
available to the Company.
The relative cost of transportation of raw materials and finished product to
manufacturing facilities and markets is also an important competitive factor.
The Company's principal marketing area includes the United States west of the
Mississippi River, the southern portions of the Canadian provinces of Alberta,
Saskatchewan and British Columbia, and the northwestern Mexican states of Sonora
and Sinaloa. As a result, the operations of the Conda Plant are, to some
extent, insulated from competitors located outside western North America because
of the cost of transporting finished products from Gulf Coast manufacturing
facilities to the principal markets served by the Company. The lack of an
inland waterway to provide barge transportation into the Company's market area
from Gulf Coast and other eastern phosphate manufacturing facilities requires
more expensive rail and truck freight over relatively long distances and often
mountainous terrain.
The Company's most direct competitors are the J.R. Simplot Company ("Simplot")
operations located in Pocatello, Idaho, and SF Industries, a joint venture
between Simplot and Farmland Industries, which owns a production facility
located near Rock Springs, Wyoming. It is estimated that the total phosphate
fertilizer demand within the western U.S. significantly exceeds the production
capacity of the three western producers which is estimated at 925,000 tons per
year of P\\2\\0\\5\\ equivalent. The Company has, and it believes that its
direct competitors also have, been operating at maximum effective production
capacity for the past five years, and will likely continue to do so.
MINING OPERATIONS
The Company began to receive phosphate ore under the RP Agreement in March 1994.
The phosphate ore mined by RP contains higher quality ore with substantially
lower overburden removal requirements than found in other known reserves in
southeastern Idaho, including those owned by the Company. The Company realized
significant annual production cost savings in fiscal 1995 by purchasing
phosphate ore under the RP Agreement versus the estimated cost of mining its own
reserves, and expects similar or greater benefits in future years.
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The RP Agreement was contingent on the Company's ability to obtain and make
available to RP approximately $13.3 million of mobile mining equipment. In
November 1993, the Company entered into a five-year lease financing arrangement
with Caterpillar Financial Services Corp. ("Caterpillar") providing for the
necessary mining equipment. The equipment is subleased by the Company to RP on
payment terms equivalent to those between the Company and Caterpillar. RP may
cancel the sublease if the Company fails to take ore or make timely payment for
ore received under the RP Agreement.
The terms of the RP Agreement provide that the Company will not be required to
take a minimum annual tonnage of ore and may mine its own ore reserves, but will
be responsible for idle leased equipment costs resulting from a reduction in the
Company's purchase requirements below 1.6 million tons per year. The Company
may not purchase more than 1.6 million tons per year without the consent of RP
and must give six months' notice of reductions in its ore purchase requirements.
The Company has constructed a new haul road and ore loading system at the RP
mine site. Construction is also nearly completed of an equipment maintenance
shop at that location at a total cost of approximately $2.2 million.
Payment for delivery of ore will be based on the actual cost of mining by RP
plus 50% of the net savings recognized by RP and the Company as a result of the
RP Agreement. RP is prohibited from selling its ore reserves without assumption
of the RP Agreement by any purchaser. Part of the mining cost paid by the
Company will be the cost of reclamation of mined acreage based on cost estimates
as the ore is mined, with subsequent adjustments for actual expenditures as
required. RP will be responsible for all reclamation work and has indemnified
the Company against environmental exposure at the mine.
In June 1995, RP notified the Company of its intent to mothball its elemental
phosphate processing facilities in Montana and cease taking ore from the mine
for its own account. An amendment to the RP Agreement executed in July 1995
allows RP to resume taking ore with ninety days notice although no such action
is anticipated in the foreseeable future. The Company's ore requirements have
exceeded 80% of the total output of the mine since March 1994 and no material
cost or operational disadvantage is expected as a result of the cessation of
deliveries to RP. RP also provided notice of termination to a contractor
engaged in ore hauling services at the mine. Existing equipment will allow RP
to haul ore for the Company without the use of a contractor and should result in
increased savings.
The Company purchased phosphate rock from the Conda Partnership from the time
the Company acquired the Conda Plant and a 50% interest in the Conda Partnership
in July 1987 until November 1993, when mining ceased at the Conda Partnership
mine. On July 14, 1992, the Company purchased 100% of the common stock of
Western Cooperative Fertilizers (U.S.) Inc. ("WCF(US)"), a previously
unaffiliated entity which owned the other 50% interest in the Conda Partnership.
The transaction effectively gave the Company complete ownership of the Conda
Partnership, and thereby control of significant phosphate ore reserves in
southeastern Idaho and the processing facilities adjacent to the Conda Plant.
The name of WCF(US) has been changed to Nu-West Mining, Inc. ("Nu-West Mining").
Effective July 1, 1994, all assets of the Conda
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Partnership were transferred to either Nu-West Mining or the Company, and the
Conda Partnership has been dissolved.
The Company currently has an estimated 60-70 million tons of proven reserves,
which are located on lands leased primarily from federal and state governments
under long-term leases. Some of the leases are subject to renegotiation of
certain terms at varying times over the next 16 years, including terms
concerning the amount of royalty fees, penalties for failure to conduct
sufficient mining operation and reclamation requirements. None of these leases
require the commencement of mining operations during their term, and the Company
anticipates renewals without material modifications.
With the exception of the Company's first mining season in 1987, which was
shortened because of the late season startup of the Conda Plant, the Conda
Partnership mined and delivered approximately 1.5 to 1.9 million tons per year
through 1992. Approximately 1.2 million tons were mined during the 1993 mining
season and an additional 400,000 tons were purchased from RP. The Company
purchased 1.9 million tons from RP in 1994 and anticipates the purchase of a
similar tonnage in the 1995 mining season. The Company does not foresee any
mining operation of its own leased reserves during the remaining term of the RP
Agreement.
The mining operations must meet certain reclamation requirements mandated by the
Bureau of Land Management and the U.S. Forest Service. These requirements
include controlling overburden disposal, backfill and reseeding. In July 1992,
the Company received the 1991 Idaho Outstanding Achievement for Excellence in
Reclamation for its Mountain Fuel mine from the State of Idaho and cooperating
federal agencies. This award is given annually to the Idaho mining operation
which, in the opinion of the state and federal agencies which have oversight in
mine operation and reclamation activities, exceeds guidelines for mine site
reclamation. The Company has complied with agency requirements for cash bonding
to complete future reclamation of previously mined properties.
Mining operations at the existing reserves of the Conda Partnership had been
carried out by a third party general contractor (the "General Contractor") since
inception of the Conda Partnership. The contract required the Conda Partnership
to mine a minimum amount of phosphate ore each year, or pay the General
Contractor a negotiated price adjustment. In addition, the Company and the
Conda Partnership were required to use the General Contractor for all mining
activity on its leases through 1997.
On November 30, 1993, the Company and the Conda Partnership executed an Ore
Requirement Reduction Settlement Agreement with the General Contractor providing
for an extension of the mining contract through December 31, 2007 and the
payment of $1,000,000 to the General Contractor. In return, the annual minimum
ore requirement under the mining agreement was reduced to a minimal amount. On
August 9, 1994, the Company executed a Work Reduction and Buy-Out Settlement
Agreement to eliminate the minimum ore requirement, reduce the term to 2005,
eliminate a requirement to use the General Contractor for ore handling functions
at the Conda Plant and for certain other modifications to the contract. The
Company has made a
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payment to the General Contractor of $100,000 for the further modification of
the contract and expects to save $1.0-1.5 million annually as a result of these
changes.
The Company currently has a completed mine plan, approved by government
agencies, to mine an estimated six million tons of phosphate ore from its North
Maybe Extension lease. This reserve would be the next lease to be developed.
Approximately $2-3 million in capital expenditures and approximately six months
time would be required to construct roads, power lines and loading facilities.
The normal progression to this property has been postponed as a result of the RP
Agreement.
The Company has complied in the past with federal lease terms, which include
minimum royalty payments and other conditions and believes it will continue to
do so in the future. After the stipulated renewal dates, the United States
Department of Interior has the right to reasonably readjust the lease terms and
conditions. Based on past experience, the Company presently believes that it
will be successful in renewing its leases.
MANUFACTURING PROCESS AND RAW MATERIALS
The Company benefits from its close proximity to sources of phosphate rock,
sulfuric acid, and sulfur, the principal raw materials used in its manufacturing
process. Phosphoric acid is produced through the acidulation of ground
phosphate rock with sulfuric acid, water and recycled phosphoric acid in
reaction tanks. The sulfuric acid reacts with the phosphate slurry to produce
liquid phosphoric acid and solid gypsum crystals composed of calcium sulfate,
which are physically separated. The phosphoric acid is concentrated in steam
evaporators, and used as feedstock in the fertilizer production process, and the
gypsum crystals are impounded. The phosphoric acid is then either (i) combined
with anhydrous ammonia to produce various dry granular fertilizers, or (ii)
further concentrated to produce liquid fertilizer products containing no
ammonia.
The sulfuric acid used in the process is either manufactured by the Company from
elemental sulfur or is purchased from third party sources. Approximately 20% of
the sulfuric acid utilized at the Conda Plant is currently purchased from
Kennecott. All of the Company's requirements for sulfur are purchased from
unaffiliated third parties who extract the sulfur as a by-product of natural gas
production in western Wyoming.
The Company purchases sulfur primarily under short term contracts with terms of
one year and generally based on the market price of sulfur at the beginning of
each calendar quarter. The market price for sulfur has increased by 68% in
fiscal 1995 over the previous fiscal year in conjunction with the recovery in
phosphate fertilizer prices. Supply and demand currently appear to be
relatively balanced and the Company presently expects only moderate sulfur price
increases in fiscal 1996.
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The Company's requirements for ammonia are purchased from unaffiliated third
parties, are contracted for a year at a time, and are subject to periodic market
price adjustments. Prices increased in fiscal 1995 as a result of greater
demand for nitrogen fertilizers and reduced production of ammonia but have
stabilized recently due to lower demand during the spring planting season
resulting from wet weather conditions.
On July 28, 1994, the Company entered into the Kennecott Agreement for the
purchase of 300,000 tons of sulfuric acid per year to replace the output of the
older of the two sulfuric acid facilities currently operating at the Conda
Plant. Shut down of the older sulfuric acid plant will significantly reduce
sulfur dioxide ("SO\\2\\") emissions as proposed to the U.S. Environmental
Protection Agency ("EPA") as part of a settlement of the air quality enforcement
action described under "Environmental Matters." Shipments of sulfuric acid are
to begin no later than November 1995, and prices under the Kennecott Agreement
will be adjusted quarterly based on the equivalent cost of sulfur and the
Company's selling price for one of its dry fertilizer products. The Company will
continue to produce approximately 50% of its sulfuric acid requirement after
shut down of the sulfuric plant.
The Company's key raw materials are available from numerous sources and the
Company has experienced no difficulty in the past in obtaining them. The
Company expects to be able to continue to acquire adequate supplies of raw
materials, as needed.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental laws and
regulations. Significant costs could be incurred on account of these
environmental laws and regulations in the future. Most of the Company's
environmental expenditures and potential costs are, or would be, in response to
provisions of various federal environmental laws, particularly the Clean Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act and the
Comprehensive Environmental Response, Compensation and Liability Act (aka
"Superfund"), and the land use, air, surface and ground water, and hazardous
waste regulations of the State of Idaho.
The phosphoric acid process water and calcium sulfate or "phosphogypsum" handled
at the Company's Conda Plant are currently exempt from regulation as a
"hazardous waste" under Subtitle C of the Resource Conservation and Recovery Act
("RCRA"). The EPA, with input from an advisory committee, is currently
evaluating potential improved processing, handling and storage measures for
phosphogypsum under provisions of the Toxic Substances Control Act and the RCRA.
The exact requirements of those potential future rules cannot be predicted with
certainty at this time but will likely affect the Company's handling of these
materials.
These materials are also regulated under Section 112 of the federal Clean Air
Act, which contains closure requirements for gypsum stacks that are no longer
used for water management and otherwise become deactivated. The Company does
not currently plan to deactivate any of its gypsum stacks under these
provisions.
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The Company has been subject to normal periodic review under Superfund, and an
Expanded Site Inspection was recently completed by an EPA contractor. This
inspection included an initial site visit in August 1993, followed by well water
sampling and testing in March 1994. Based on the contractor's report, the EPA
notified the Company in October 1994 that no further action under the Federal
Superfund Program is currently recommended at the Conda Plant.
In March 1994, the EPA issued a Notice of Violation pertaining to numerous
SO\\2\\ emissions during the period from October 1989 to May 1993. The Company
has negotiated a settlement with the EPA, which is now pending final federal
court approval, that provides for the payment of a $150,000 fine and reduced
SO\\2\\ emissions limitations until November 1995, at which time the Company
will shut down the older of its two sulfuric acid plants. The Company has
entered into the Kennecott Agreement to replace the production of this plant.
The Company has recently received a Notice of Violation from the EPA for alleged
violations under the Safe Drinking Water Act ("SDWA") relating to testing and
reporting on the quality of water used for human consumption from a public water
supply system at the Conda Plant. The Company has initiated testing of water
that potentially could be used for human consumption and believes, based on
discussions with agency officials, that no or only minimal civil penalties will
be assessed in connection with this matter. However, the Company has committed
to make improvements to its water supply system to comply with SDWA requirements
at a cost of approximately $100,000.
NUTEC MINERAL & CHEMICAL COMPANY
In January 1991, a wholly-owned subsidiary of the Company, Nu-West Minerals,
Inc. ("Nu-West Minerals"), formed a joint venture, NuTec Mineral & Chemical
Company ("NuTec"), with Mineral Technology Corporation ("MinTec") of Custer,
South Dakota, for the development and production of high purity synthetic silica
and other chemical and natural quartz products. MinTec had obtained a license
from an international chemical company of the worldwide patented rights to a
process which extracts high-purity synthetic silica in a gaseous form from the
production of phosphoric acid. The process also includes techniques for the
refinement and further purification of the extracted "wet cake" into dry
synthetic silica products.
MinTec contributed its existing natural quartz mining and processing operations
located in and around Custer, South Dakota (net of liabilities conditionally
assumed by NuTec) and the license for the process to NuTec in exchange for a 20%
general partnership interest. Nu-West Minerals contributed $2 million in cash,
a contract for the use of the phosphoric acid production process at the Conda
Plant, and a lease from the Company for the use of land and facilities in
exchange for an 80% General Partnership interest. In addition, the Company
provides operations support to NuTec at its actual cost.
In January 1992, NuTec obtained a $3 million senior secured term loan from GE
Capital. The loan was collateralized by the assets of NuTec, including the
license. The lender also received
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a variable profit sharing interest in the partnership for a period of ten years
beginning with the quarter that commercial production commences. This loan was
repaid, the joint venture was converted to a limited partnership, and a note was
issued by NuTec to the Company for $3.4 million on November 2, 1993 in
connection with the Recapitalization.
Effective January 1, 1994, NuTec distributed to MinTec certain assets and
liabilities associated with the natural quartz business of NuTec originally
contributed by MinTec. In return, MinTec reduced its ownership interest in
NuTec to 5%, thereby increasing the Company's indirect ownership of NuTec to
95%. The 5% ownership interest in NuTec retained by MinTec was also converted
from a general partnership interest to a limited partnership interest as part of
the transaction. NuTec retained the license rights and related assets for the
production of synthetic silica and certain other products.
NuTec's production facilities have been constructed at the Conda Plant for the
processing of synthetic silica. These facilities have been operated
sufficiently to test production capacities and to produce sample quantities of
high-purity synthetic silica which have been introduced into the marketplace for
analysis by prospective customers. While initial market response has been
encouraging, continuous operation and process refinement will be required to
meet various end-user requirements for product particle size and density.
Potential end uses for which NuTec's products may serve as feedstock include
high-purity glass applications, implements and crucibles used in the production
of silicon crystals, low alpha fillers used for silicon chip encapsulation,
fibre optic wave guides, high temperature lighting and other technical
applications.
No attempt at commercial operations will be undertaken, however, unless and
until NuTec is successful in marketing its products and in obtaining sufficient
additional working capital to sustain operations. Uncertainty remains at this
time as to the success of the production scale processes, availability of
working capital, and the ultimate acceptance and marketing of NuTec's products.
Development of the synthetic silica business has been constrained by lack of
capital, including a restriction in its previous credit facility to the
investment of not more than $300,000 in NuTec during fiscal 1995 and a
limitation to investment of no more than $150,000 per year under its new credit
agreement. NuTec has worked within its capital limitation to continue testing
of various processes to increase particle size and density of its dry silica.
Test samples of wet cake silica, using currently available product
specifications, have been shipped to prospective customers in recent months for
product testing. There can be no assurance, however, that an economical means
of increasing particle size and density will be found or that wet cake sales
will be sufficient to justify continued operations. NuTec management believes
that it will recover its investment over time based on its projections of
production cost and potential sales to certain interested parties. Any such
sales are contingent on further testing and process refinement by such parties
and the timing or certainty of any transactions cannot yet be determined.
EMPLOYEES
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As of June 30, 1995, the Company had 298 employees, approximately 95% of whom
were engaged in production activities. The Company believes that its relations
with its employees are good. The Company maintains employee benefit plans
providing for retirement savings, disability income, life insurance and medical,
dental and hospitalization coverage. None of the employees of the Company is
represented by a labor union.
In June 1994, the Company and its employees at the Conda Plant received
recognition for an exceptional safety program from the Occupational Safety and
Health Administration ("OSHA"). Following an extensive on-site OSHA review late
in 1993, the Conda Plant was awarded Merit status for a three-year period as
part of the agency's Voluntary Protection Program. An award received by fewer
than 0.1% of eligible industrial facilities nationwide, the Conda Plant and its
employees were recognized for voluntary compliance with OSHA regulations and
programs and are exempted from routine compliance inspections during the three-
year period of the Merit designation.
In June 1995, following an even more extensive on-site review by OSHA, the
Company was awarded STAR status, the highest achievement under the Voluntary
Protection Program. The Company's commitment to safety continues to be a top
priority as recognized by this prestigious award.
ITEM 2. PROPERTIES
CONDA PLANT
The Conda Plant is located near Soda Springs, Idaho, on approximately 630 acres
owned by the Company. The Conda Plant has the ability to produce multiple
phosphate fertilizer products simultaneously and to alter product mix to meet
changing requirements of its customers. The Conda Plant has a phosphoric acid
production capacity of approximately 300,000 P\\2\\O\\5\\ tons per year.
Approximately 50% of this phosphoric acid is currently concentrated to produce
SPA for direct sale. A granulation plant in the complex converts varying
quantities of the phosphoric acid to dry granular fertilizers. See "Business -
Principal Products" in Item 1. A small amount of phosphoric acid is also sold
directly as MGA. Two sulfuric acid plants, a 900 ton/day unit and a 1,200
ton/day unit, supply 80-90% of the sulfuric acid requirements for the complex.
The Company has an active preventive maintenance program at the Conda Plant to
assure the continuing operation of the plant and equipment. In addition,
production is halted for approximately two weeks each summer for an annual
refurbishment or "turnaround" of plant facilities at a time when fertilizer
sales demand is low.
NUTEC PLANT
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NuTec has constructed equipment at the Conda Plant for the purpose of producing
high purity synthetic silica. Further process and product development will be
necessary to meet market requirements and to achieve commercial production
capacity. See "NuTec Mineral & chemical Company" in Item 1.
MINING PROPERTIES
The Company's mining properties and reserves in Idaho are described under the
heading "Existing Mining Operations" in Item 1.
OTHER
The Company acquired the Conda Plant and a 50% interest in the Conda Partnership
in 1987 from the bankruptcy estates of Beker and one of its subsidiaries which
filed for reorganization in 1985. The Company co-sponsored a bankruptcy
reorganization plan for Beker and its subsidiary that was confirmed by the U.S.
Bankruptcy Court on October 6, 1988. As a result of the acquisition of these
Beker assets, the Company believes that it has obtained substantial tax benefits
that will be available to it in future years. (See Note 5 to the Company's
Consolidated Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
NU-SOUTH BANKRUPTCY
In November 1992, the Company executed an agreement with the Trustee of the
bankruptcy estate of Nu-South Industries, Inc. ("Nu-South"), a wholly owned
subsidiary of the Company, and Mississippi Chemical Company ("MCC") for the
settlement of, and the mutual release from, all claims against the Company
relating to the Nu-South bankruptcy (the "Settlement Agreement"). The Trustee
had filed a complaint against the Company in January 1992 for the recovery of
unspecified amounts relating to alleged preferential transfers by Nu-South, and
was considering possible additional claims against the Company, including claims
which would assert that the Company should be held liable for the debts of Nu-
South. As part of the settlement, the Trustee obtained such releases or
dismissal with prejudice so as to protect the Company from indemnity claims by
defendants in certain third party guaranty preference cases. The Settlement
Agreement was approved by the Bankruptcy Court on December 7, 1992 and all
required payments were made as scheduled. The Nu-South bankruptcy estate was
terminated on April 1, 1994, and the Company expects no further liabilities or
financial exposure relating to Nu-South.
SHAREHOLDER LITIGATION
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On August 10, 1995, the Company and Agrium issued a press release which
disclosed the contemplated tender offer by Agrium and the proposed merger
between Agrium and the Company. In the succeeding seven days, four class action
lawsuits were filed by various Company shareholders in the Court of Chancery of
the State of Delaware, New Castle County, Delaware, alleging that the Company
and its board of directors had breached their fiduciary duties to the
shareholders of the Company by agreeing to and supporting the tender offer and
merger. One of the lawsuits also named Agrium as a defendant and alleged that
Agrium had aided and abetted the alleged breach of fiduciary duty. Among other
claims, the lawsuits allege that the Company's Board of Directors had breached
its fiduciary duties to the shareholders by failing to take certain actions to
maximize the value of the Company's shares. The four lawsuits are captioned as
follows:
Elyse Azus v. Craig D. Harlen, Mark R. Sanders, Wesley W. Lang, Peter
B. Pfister, Nu-West Industries, Inc. and Agrium, Inc., Civil Action
No. 14484 (filed August 17, 1995)
Steven Grumet v. Craig D. Harlen, Mark R. Sanders, Wesley W. Lang,
Peter B. Pfister and Nu-West Industries, Inc., Civil Action No. 14477
(filed August 14, 1995)
Daniel Pitluck v. Craig D. Harlen, Mark R. Sanders, Wesley W. Lang,
Peter B. Pfister and Nu-West Industries, Inc., Civil Action No. 14469
(filed August 11, 1995)
Mark Bruckner v. Craig D. Harlen, Mark R. Sanders, Wesley W. Lang,
Peter B. Pfister and Nu-West Industries, Inc., Civil Action No. 14468
(filed August 10, 1995)
Each of the lawsuits seek a variety of injunctive and equitable relief as well
as unspecified money damages and an award of attorneys' fees and costs. The
Company intends to vigorously defend each of the lawsuits. Because the lawsuits
have only recently been filed and evidence has not yet been fully developed,
the Company is unable to comment with regard to the probable outcome of the
litigation.
OTHER
The Company is a party to certain legal actions or potential actions which it
considers routine litigation incidental to its business. The final resolution
of each such action cannot be predicted at this time although any potential
liabilities are estimated to be immaterial to the ongoing business of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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<PAGE>
Not applicable.
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<PAGE>
PART II
ITEM 5. TRADING MARKET FOR COMMON STOCK AND DIVIDEND POLICY
The Company's common stock trades on The Nasdaq Stock Market under the symbol:
FERT. As of June 30, 1995, there were approximately 443 holders of record of the
Company's common stock.
The following table sets forth the range of high and low closing sales prices as
reported on the Nasdaq Stock Market for the periods indicated adjusted for the
one-for-six reverse stock split which was effective December 9, 1994.
<TABLE>
<CAPTION>
Prices
--------------------------
High Low
---- ---
<S> <C> <C>
Fiscal 1993:
First Quarter... 6 3/4 3
Second Quarter.. 7 1/2 3 3/4
Third Quarter... 4 1/2 2 7/16
Fourth Quarter.. 3 3/16 1 1/2
Fiscal 1994:
First Quarter... 4 1/2 1 7/8
Second Quarter.. 9 3/8 1 1/2
Third Quarter... 17 1/4 9 15/16
Fourth Quarter.. 13 1/2 8 5/8
Fiscal 1995:
First Quarter... 12 3/8 9
Second Quarter.. 10 7/8 5 3/8
Third Quarter... 14 7/8 8 1/8
Fourth Quarter.. 14 1/2 9 1/8
</TABLE>
The Company has paid no dividends on its common stock. Holders of the Company's
common stock are entitled to receive dividends, when and as declared by the
Board of Directors, only after the holders of the Company's Class A Preferred
Stock and Class B Preferred Stock have received their respective preferential
dividend amounts, to the extent such dividends have accrued under the terms of
the Company's Restated Certificate of Incorporation. The payment of future
dividends and the amounts thereof will depend on the Company's earnings,
financial condition, capital requirements and such other factors as the
Company's Board of Directors may consider relevant.
The Company does not anticipate the payment of dividends to the holders of
either the Class A Preferred Stock, the Class B Preferred Stock or the common
stock in the foreseeable future. Payment of Class A and Class B Preferred Stock
dividends is prohibited by the terms of the Company's senior secured loan
agreement. Dividends of $3,190,000 per year have
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accumulated with respect to the Class A Preferred Stock for each of the fiscal
years 1990, 1991, 1992, 1993, 1994 and 1995. For a description of the dividends
payable to the holders of the Class A Preferred Stock and the Class B Preferred
Stock, and the restrictions thereon, see Note 6 to the Company's Consolidated
Financial Statements.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information of the Company with
respect to the years ended June 30, 1991, 1992, 1993, 1994 and 1995 is derived
from the financial statements of the Company and related notes. This
information should be read in conjunction with the consolidated financial
statements and related notes elsewhere in this Form 10K and "Manage ment's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------
Operations Data: 1991 1992 1993 1994 1995
- ---------------- --------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $92,178 $98,099 $ 87,288 $94,104 $103,327
Cost of Sales 82,339 88,225 79,538 77,984 79,302
------- ------- -------- ------- --------
Gross Margin 9,839 9,874 7,750 16,120 24,025
Selling, General and
Administrative Expenses 4,165 4,483 4,045 4,604 4,592
Provision for Litigation 1,300 400 150 - -
Partnership Investment
Valuation Adjustment 700 - - - -
------- ------- -------- ------- --------
Income from Operations 3,674 4,991 3,555 11,516 19,433
Interest Expense 9,222 9,380 8,673 8,737 9,555
Other (Income) Expense, Net (173) (126) (121) 187 177
------- ------- -------- ------- --------
Income (Loss) Before
Income Taxes and Minority
Interest (5,375) (4,263) (4,997) 2,592 9,701
Minority Interest 24 51 367 56 -
Provision for (Benefit From)
Income Taxes - - - - -
------- ------- -------- ------- --------
Net Income (Loss) Before
Extraordinary Item (5,351) (4,212) (4,630) 2,648 9,701
Extraordinary Loss from
Early Extinguishment of Debt - - - 1,660 -
------- ------- -------- ------- --------
Net Income (Loss) (5,351) (4,212) (4,630) 988 9,701
Preferred Stock Dividends (3,190) (3,190) (3,190) (3,194) (3,194)
-------
Net Income (Loss) Applicable
to Common Stockholders $(8,541) $(7,402) $ (7,820) $(2,206) $ 6,507
======= ======= ======== ======= ========
Net Income (Loss) per
Common Share $(.57) $(.49) $(.52) $(.06) $.72
======= ======= ======== ======= ========
As of June 30,
---------------------------------------------------
Financial Position: 1991 1992 1993 1994 1995
- ------------------- ------- ------- -------- ------- --------
Working Capital $16,287 $ 6,329 $(23,905) $16,731 $ 24,833
Total Assets 87,882 76,840 69,908 84,185 91,629
Long Term Debt 59,000 54,174 52,532 65,851 63,711
Stockholders' Equity 14,681 10,582 5,940 7,307 17,008
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the production and sale of concentrated phosphate
fertilizer products. Its production facilities are located near Soda Springs,
Idaho (the "Conda Plant"), and its primary marketing area is western North
America. It operates on a fiscal year ended June 30.
In March 1995, the Company disclosed that it had retained PaineWebber
Incorporated to assist it in exploring alternatives for enhancing long-term
shareholder value. Alternatives to be considered included, but were not limited
to, strategic relationships with other fertilizer producers and customers, the
sale or merger of the Company, or the continuation of the Company's current
business plan of internal growth. On August 10, 1995 the Company and Agrium
announced that they had entered into a definitive Merger Agreement which
provides for the acquisition of the Company by Agrium. Under the terms of the
Merger Agreement, a subsidiary of Agrium is making a tender offer to purchase
all of the outstanding common stock of the Company at $10.50 per share in cash.
The tender will expire on September 14, 1995, unless extended. As soon as
practical following the tender offer, the Agrium subsidiary will merge into the
Company, and each remaining share of the Company's common stock will be
converted into the right to receive $10.50 per share in cash. See "Liquidity
and Capital Resources - Other" for further information.
The fertilizer industry is a commodity-oriented business, and has historically
experienced wide-ranging volatility in prices due to supply and demand
imbalances both domestically and overseas. Government farm policies, weather and
disposable farm income, in addition to international politics and economics with
their effect on export demand, are among the factors contributing to price
volatility.
Largely a result of reduced export demand, prices for phosphate fertilizer
products dropped to record low levels industry-wide during the Company's fiscal
year 1993. Beginning in the Fall of 1993, a steady recovery of product prices
began due to reduced production by certain U.S. Gulf Coast manufacturers and
improved export demand, primarily from China. The average prices received for
the Company's dry granular products were 14 - 19% higher during the year ended
June 30, 1995 compared to the prior year, and prices for its liquid products
increased approximately 8%. The combination of product price gains, increased
production, and ore cost reductions, which offset other raw material cost
increases, has enabled the Company to post improved operating earnings and net
income for fiscal 1995.
The Company's business is very seasonal in nature with emphasis on the crop
planting seasons of spring and fall. The spring of 1995 resulted in lower
domestic application of fertilizer than had been anticipated due to extremely
wet weather conditions in California, the Pacific Northwest and the Midwest.
Crop planting was delayed and farmers were unable to apply fertilizer in optimal
quantities. Total planted acreage of corn, the heaviest user of fertilizer, was
reduced due to time
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<PAGE>
constraints and substitution of soybean or other crops. Consequently, some
producer inventories were higher than normal at June 30, 1995. Subsequent to
June 30, 1995, the Company shipped a significant quantity of MAP and 16-20-0 as
export sales, lowering its inventory levels by selling outside its normal market
area.
The outlook for the price of phosphate fertilizer remains relatively good due
to product demand both internationally and domestically. Worldwide grain
inventories are low, as are certain grain stocks in the U.S. The possibility
exists for increased domestic crop planting and relatively high grain prices in
the year ahead with an attendant increase in fertilizer application. It has
historically been difficult to forecast the effects of international politics
and economics on fertilizer export tonnage or the uncertainty of weather
patterns and farm income in the U.S.
RESULTS OF OPERATIONS
The results of operations as reported in the Consolidated Statements of
Operation for the years ended June 30, 1995, 1994, and 1993 represent the
operation of the Company's Conda Plant and its wholly-owned subsidiaries, Nu-
West Minerals, Inc. ("Nu-West Minerals") and Nu-West Mining, Inc. ("Nu-West
Mining").
1995 VS. 1994
- -------------
Consolidated net income for the year ended June 30, 1995 was $9.7 million, or
$.72 per share, as compared to a net income before extraordinary loss of $2.6
million, or a loss of $.09 per share, for the prior year. After an
extraordinary loss of $1.6 million from the write-off of loan fees and
discounts, the total consolidated net income for the year ended June 30, 1994
was $1.0 million, or a loss of $.38 per share. Included in the consolidated
results are losses from NuTec Mineral and Chemical Company ("NuTec"), net of
minority interest and including amortization of goodwill, of $882,000 and $1.3
million for the years ended June 30, 1995 and 1994, respectively.
Net sales were $103.3 million for the current year compared to $94.1 million for
the prior year, or a 10% increase. Improved product prices caused the increase
in sales revenue. Sales prices of liquid fertilizer products increased
approximately 8% while the average prices for dry granular products improved 17%
for fiscal 1995 as compared to the previous year. Sales of dry granular
products on a P\\2\\O\\5\\ ton basis decreased 4% during the year ended June 30,
1995 as compared to the prior year while sales of liquid fertilizer products
were approximately the same as the prior year. Inventories of dry granular
products increased substantially over the prior year due to lower than
anticipated spring season sales of both dry and liquid products, a result of
prolonged adverse weather conditions. Sales of liquid products accounted for
54% of net product sales in the current period and 55% in the prior year
period, and contributed a substantial portion of gross margins in both periods.
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<PAGE>
The gross operating margin of $24.0 million for fiscal 1995 compares to a gross
margin of $16.1 million for the prior year. This improvement is a result of the
higher product prices discussed above and the effects of higher production
output and reduced ore cost, which largely offset increases in other raw
material costs. The per ton production costs of the Company's products were 1 -
2% higher in fiscal 1995 than in fiscal 1994. Although the cost of phosphate
ore for the current year decreased by 13% as compared to the prior year, the
cost of sulfur, purchased sulfuric acid and ammonia increased 68%, 52% and 9%,
respectively. Ore cost, however, accounts for the greatest portion of production
cost on a weighted basis. Production volume increased 3% for fiscal 1995 as
compared to the prior year. The components of cost of sales are raw materials,
labor, manufacturing overhead and on-site administration, as well as
depreciation and amortization.
Selling, general and administrative expenses ("SGA") were slightly less in the
current year than in the prior year and decreased as a percentage of sales from
4.9% to 4.4% as a result of the increase in sales revenue. Interest expense
increased $818,000 largely as a result of the change to variable rate debt
instruments as part of the Recapitalization in November 1993 and the increase in
the prime lending rate during the current fiscal year. See Note 4 to the
Company's Consolidated Financial Statements for the year ended June 30, 1995 for
further information.
1994 VS. 1993
- -------------
Net income before preferred stock dividends and before the extraordinary loss
from the write-off of loan fees and discounts in connection with the
Recapitalization, for the year ended June 30, 1994 was $2.6 million, or a
loss of $.09 per share, as compared to a loss of $4.6 million, or $3.12 per
share, for the prior year. Consolidated net income, including the extraordinary
loss of $1.6 million, for the year ended June 30,1994 was $1.0 million, or a
loss of $.38 per common share. Included in the consolidated earnings are losses
of $1.3 million and $1.5 million for the years ended June 30, 1994 and 1993,
respectively, representing the Company's allocable share of the loss net of
minority interest for NuTec.
Net sales were $94.1 million for the year ended June 30, 1994 as compared to
$87.3 million for the prior year. This increase in sales revenue is due to
increased sales volumes and prices. Total sales volume on a P\\2\\O\\5\\ basis
increased by approximately 3%. This increase in sales volume was possible due
to a corresponding increase in tons produced. Sales prices increased during the
year ended June 30, 1994 by 3-5% for granular products compared to fiscal 1993,
while prices for liquid fertilizer products increased by approximately 6%.
Sales of liquid fertilizer products accounted for 55% of net product sales in
fiscal 1994 and 57% in fiscal 1993, and contributed a substantial portion of
gross margin in both fiscal years.
The gross operating margin of $16.1 million for the year ended June 30, 1994
compares to a gross margin of $7.8 million for the comparable prior year period.
The difference is due to the increased sales revenues discussed above and to a
decrease in production costs. The reduction in production costs was due to a
48% decrease in the cost of sulfur and a 38% decrease in the cost of purchased
sulfuric acid, partially offset by a 3% increase in the cost of ammonia.
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<PAGE>
Depreciation and amortization expense for fiscal 1994 totalled $5.5 million as
compared to $5.8 million in fiscal 1993. This decrease is due to lower Conda
Partnership depreciation expense. Since the Company discontinued the mining of
its reserves in November 1993, depreciation and depletion associated with mine
assets and reserves were discontinued. The mine assets had been depreciated to
salvage value at that date. Although the Company incurred significant loan fees
in connection with its Recapitalization, these fees are being amortized over the
life of the associated loans which are longer than those of the loans which were
repaid with the proceeds of the refinancing, resulting in a lower annual
amortization of discounts and loan fees.
Selling, general and administrative expenses increased by $559,000 during fiscal
1994 as compared to the previous year, and as a percentage of sales was 4.9%
for fiscal 1994 compared to 4.6% for fiscal 1993. This increase in SGA is
primarily due to legal fees and an increase in compensation which had been
deferred until completion of the Company's Recapitalization.
Interest expense increased slightly, due to the increase in the prime lending
rate during the fourth quarter of fiscal 1994 and to the increased outstanding
debt following the Recapitalization. See Note 4 to the Company's Consolidated
Financial Statements.
ACQUISITIONS AND DISPOSITIONS
Nu-South Industries: In February 1990, Nu-South Industries, Inc. ("Nu-South"),
a wholly-owned subsidiary of the Company, filed a voluntary petition for
liquidation under the provisions of Chapter 7 of the Bankruptcy Code. Severe
liquidity problems and large operating losses caused by a period of extremely
low fertilizer prices extending through the 1989 Fall season fertilizer market
coupled with high capital requirements for refurbishment of the Pascagoula Plant
owned by Nu-South limited its ability to operate without external cash
infusions. Restrictions under the Company's term loan agreement with GE Capital
limited total cash advances which could be made by the Company to Nu-South and
prevented the Company from continued funding of production operations. In
December 1990, the Trustee of the Nu-South bankruptcy estate executed and
delivered deeds in lieu of foreclosure and related instruments covering the
Pascagoula Plant to Mississippi Chemical Company ("MCC"), Nu-South's principal
secured creditor, thereby transferring to MCC all of the production facilities,
equipment and real property owned by Nu-South.
In December 1992, the Company executed an agreement with the Trustee and MCC for
the settlement of, and the mutual release from, all claims against the Company
relating to the Nu-South bankruptcy (the "Settlement Agreement"). The
Settlement Agreement required a series of payments totalling $550,000 in
exchange for a general and irrevocable release by the Trustee and MCC of all
claims against the Company, its current and former officers and directors, and
its affiliates. The Settlement Agreement was approved by the Bankruptcy Court
on December 7, 1992 and all required payments were made by the Company as
scheduled. The Nu-South bankruptcy estate was closed on April 1, 1994 and the
Company expects no further liability relating to Nu-South.
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<PAGE>
Nu-West Mining: In July 1992, the Company purchased 100% of the capital stock
of WCF(US), which owned a 50% interest in the Conda Partnership. The Company
owned the other 50% interest. The consideration for the stock purchase included
cash of $150,000 and a senior secured promissory note in the amount of $4.95
million, which was repaid as part of the Recapitalization. The Company has
also provided an unlimited indemnification against certain tax and other
liabilities related to WCF(US) and the transaction.
The transaction effectively gave the Company complete ownership of the Conda
Partnership, and thereby control of significant phosphate ore reserves in
southeastern Idaho and the processing facilities adjacent to the Conda Plant.
The name of WCF(US) has been changed to Nu-West Mining. Effective July 1, 1994,
all assets of the Conda Partnership were transferred to either Nu-West Mining or
the Company, and the Conda Partnership has been dissolved.
LIQUIDITY AND CAPITAL RESOURCES
Recapitalization Plan: As a result of the sustained depressed market conditions
in fiscal years 1992 and 1993 and the Company's substantial debt repayment
requirements, the Company defaulted on principal and interest payments on its
senior indebtedness due on July 1, 1993 and October 1, 1993. At a Special
Meeting of Stockholders held on October 20, 1993, the Company received approval
for a Recapitalization Plan, which was completed on November 2, 1993. For a
detailed discussion of the various components of the Recapitalization, see Note
4 of the Company's Consolidated Financial Statements. The Recapitalization
included the refinancing of substantially all of the Company's long-term debt.
This included (i) a six-year $20 million revolving loan at Prime interest rate
plus 2% with Banque Indosuez, New York Branch, as agent, (ii) a six-year $30
million senior secured term loan at the same rate of interest, (iii) an eight-
year $10 million 12.5% senior subordinated unsecured term loan, and (iv) $13.6
million of 18% nine-year junior subordinated unsecured deferred interest notes.
All of the Company's assets were pledged to secure the working capital revolver
and the senior secured term loan. The Recapitalization strengthened the
Company's liquidity position and allowed it to implement various production
cost savings projects which would not otherwise have been available to it.
However, the Recapitalization required substantial dilution of common stock
holdings due to issuance of warrants to various lenders. In August 1995, the
Company refinanced the debt acquired under the Recapitalization at substantially
lower interest rates. See "Liquidity and Capital Resources - Financing
Activities."
Operating Activities: Cash provided by operations for fiscal 1995 was $10.7
million as compared to a use of cash for operations of $4.2 million for the
prior year. The Company's liquidity and profitability have improved during the
past eighteen months as a result of higher phosphate fertilizer prices and the
realization of phosphate ore cost reductions. Prices averaged 17% and 8%
higher for dry and liquid products, respectively, for the fiscal year ended June
30, 1995 compared to the prior year. Sulfur prices compared over the same
periods were approximately 68% higher, a result primarily of increased demand by
the phosphate fertilizer industry. Ammonia prices increased 9% during fiscal
1995 due to high demand for and reduced
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<PAGE>
supply of nitrogen fertilizers and are expected to remain at relatively high
levels in future months, although the extremely wet 1995 spring season weather
resulted in a moderation of that trend. The Company expects further moderate
increases in its cost of sulfur and ammonia in the near term. The Company
expects continued savings from the purchase of ore under the RP Agreement to
largely offset these raw material cost increases. The combined effect of higher
product prices and cost reduction efforts has been improved product margins and
higher earnings.
Domestic fertilizer usage was down in the spring of 1995 due to wet weather
conditions, although world-wide demand for fertilizer has moderated the effect
on prices. The current outlook for product prices industry-wide remains
positive based on the need for phosphates in both the United States and in
foreign markets such as China, India and South America. Increased buying in the
international market has been a key factor in the balancing of supply and demand
that has led to reduced inventories and product price recovery. It is
difficult, however, to forecast the future effect or duration of the near term
buying patterns of China and India. The Company's product prices continue to be
related to those received by producers of phosphate fertilizers in the Gulf
Coast region, and the uncertainties associated with the export market serviced
by those producers. Factors such as weather conditions, the timing and quantity
of export demand, and other unforeseeable market forces on a world-wide basis
have frustrated previous attempts to predict with accuracy a sustained recovery.
The Company finances its working capital needs through its revolving line of
credit. Working capital increased by $8.2 million due primarily to a $7.7
million increase in inventories. Higher inventories are due to increased
finished good inventory resulting from increased production rates and the
delayed Spring planting season as discussed above. Ore inventories are somewhat
higher at June 30, 1995 than at June 30, 1994 due to unusually low levels in
the prior year resulting from the transition to ore purchased under the RP
contract.
The Company's revolving credit facility at June 30, 1995 bore interest at prime
plus 2% (11% at June 30). Cash balances were $140,000 and unused borrowing
capacity totalled approximately $9.9 million. Outstanding borrowings were $6.5
million at June 30, 1995. The Company had working capital of approximately
$24.8 million and a current ratio of 2.65:1 at June 30, 1995. Based on current
projections, the Company expects results of operations to generate sufficient
borrowing capacity under its revolving line of credit to continue to meet its
working capital needs.
Investing Activities: Capital expenditures were $6.4 million for the twelve
months ended June 30, 1995. Of this amount $1.5 million relates to the RP
Agreement and $2.0 million relates to construction of certain assets required by
the sulfuric acid purchase contract with Kennecott described below.
Future capital expenditure requirements of the Company include an additional
$0.8 million required by the RP Agreement, approximately $2 million required by
the Kennecott Agreement and $3.5 million for the construction of a new double
lined cooling pond to be completed during the summer and fall of 1995. In
addition the Company believes that approximately $2 million per
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<PAGE>
year of estimated capital expenditures, along with an approximate $4-5 million
per year of annual maintenance turnaround expenditures (included in cost of
sales), will be sufficient to maintain production capacity of the Conda Plant
for the foreseeable future.
On July 28, 1994, the Company entered into the five-year Kennecott Agreement
for the purchase of 300,000 tons of sulfuric acid per year to replace the output
of the older of the two sulfuric acid facilities currently operating at the
Conda Plant. Shut down of the older sulfuric acid plant will significantly
reduce sulfur dioxide emissions as proposed to the EPA as part of a settlement
of an air quality enforcement action. Shipments of sulfuric acid are to begin
no later than November 1995 and prices under the contract will be adjusted
quarterly based on the equivalent cost of sulfur and the Company's selling price
for one of its fertilizer products.
The Company also entered into a $4 million loan agreement with Kennecott. The
proceeds of the $4 million loan are being used to construct tankage and rail
spurs to receive and unload the sulfuric acid and a boiler to replace the steam
now supplied by the older sulfuric acid plant. The five-year senior subordinated
loan is secured by the constructed assets described and bears interest at prime
plus 2%. Interest will be paid quarterly and principal will be repaid as
sulfuric acid is purchased over the five-year term of the loan. Borrowings
under this facility were $1.9 million at June 30, 1995. The Company will
continue to produce approximately 50% of its sulfuric acid requirement after the
shutdown. See Note 13 to the Company's June 30, 1995 Consolidated Financial
Statements for further information.
The capital expenditure requirements for the RP Agreement, the new cooling pond
and those required to maintain capacity will be funded from the results of
operations. The construction of the assets required by the Kennecott Agreement
will be financed by the five-year, $4 million loan from Kennecott described
above.
On August 9, 1994, the Company executed a Work Reduction and Buy-Out Settlement
Agreement with the third party general contractor (the "General Contractor")
that prior to the RP Agreement mined Conda Partnership ore reserves to eliminate
a minimal annual mining requirement and the use of the General Contractor for
ore handling functions at the Conda Plant, and to make certain other
modifications to the mining contract. The Company paid the General Contractor a
payment of $100,000 for the further modification of the contract, and expects to
save $1.0-1.5 million annually as a result of these changes. Under an operating
lease, the Company has acquired equipment valued at $1.3 million to conduct the
ore handling operations previously performed by the General Contractor.
The Company has pursued product diversification through its indirect interest in
NuTec. Capital investment by the Company in NuTec is currently limited to no
more than $150,000 per year. NuTec has worked within its capital limitation to
continue testing of various processes to increase particle size and density of
its dry silica. Test samples of wet cake silica, using currently available
product specifications, have been shipped to prospective customers in recent
months for product testing. There can be no assurance, however, that an
economical means of increasing particle size and density will be found or that
wet cake sales will be sufficient to justify continuous
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<PAGE>
operation. NuTec believes that it will recover its investment over time based on
its projections of production cost and potential sales to certain interested
parties. Any such sales are contingent on further testing and process refinement
by such parties and the timing or certainty of any transactions cannot yet be
determined. NuTec believes it will be able to obtain sufficient capital when
required, however, production scale operation on a continuous basis will require
additional capital beyond that currently available under the Company's loan
agreements.
Financing Activities: On August 3, 1995, the Company refinanced substantially
all of its long-term debt with a $75 million senior secured loan agreement with
Harris Trust and Savings Bank ("Harris"), as agent, consisting of (i) a five-
year $15 million revolving credit facility, $5 million of which is available
only during the Company's period of peak working capital requirement from July
through February, (ii) a $5 million letter of credit facility which expires
December 31, 1998, (iii) a five-year $25 million term loan with equal quarterly
amortization, and (iv) a six-year $30 million term loan with quarterly
amortization in varying amounts. The loans bear interest based, at the
Company's option, on either (i) LIBOR or (ii) the prime commercial rate
announced from time to time by Harris, plus a variable margin determined by
the Company's fixed charge ratio. Based on the initial margin at closing, the
$25 million loan and revolving credit facility bear interest at LIBOR plus
2.25% and the $30 million loan bears interest at LIBOR plus 3.0%. Using current
loan balances and interest rates, the Company estimates interest savings for
fiscal 1996 of approximately $2.6 million and a reduction in blended interest
rates from 13.3% to 8.5%.
The Company made $5.2 million in regularly scheduled principal payments on its
previous senior secured term loan during fiscal 1995.
Agrium Tender Offer: In March 1995, the Company disclosed that it had
retained PaineWebber Incorporated to assist it in exploring alternatives for
enhancing long-term shareholder value. The alternatives to be considered
included, but were not limited to, strategic relationships with other
significant fertilizer producers and customers, the sale or merger of the
Company, the formation of a joint venture with one or more parties, or the
continuation of the Company's current business plan to concentrate on internal
growth. Agrium and the Company announced on August 10, 1995 that they had
entered into a definitive Merger Agreement which provides for the acquisition of
the Company by Agrium.
Under the terms of the Merger Agreement, a subsidiary of Agrium is making a
tender offer to purchase all of the outstanding common stock of the Company at
$10.50 per share in cash. The tender offer commenced on August 16, 1995 and
will expire September 14, 1995, unless extended. As soon as practical following
the tender offer, the Agrium subsidiary will merge into the Company, and each
remaining share of the Company's common stock will be converted into the right
to receive $10.50 per share in cash. Total consideration to be paid to the
common stockholders of the Company will be approximately $98.5 million.
The completion of the tender offer is conditioned upon, among other things, the
tender of at least 60% of the shares of common stock of the Company on a fully-
diluted basis and applicable
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<PAGE>
regulatory review. The Board of Directors of the Company has unanimously
approved the Merger Agreement. The Board of Directors of the Company may
withdraw its recommendation for and support of the transaction if required to do
so in furtherance of its fiduciary responsibilities; however, if the Merger
Agreement is terminated or not completed because of such withdrawal, Agrium will
be entitled to a payment from the Company of $4 million. PaineWebber
Incorporated has acted as financial advisor to the Company and has rendered a
fairness opinion in connection with the transaction. The Board of Directors of
Agrium has also unanimously approved the merger agreement.
Certain shareholders of the Company, who own in the aggregate approximately 57%
of the outstanding and 49% of the fully-diluted common shares, have agreed with
Agrium to tender those shares in the tender offer, subject to certain revocation
rights.
The Company's current debt structure, as recently refinanced, is expected to
remain in place as of the date of the contemplated merger. The Class A and
Class B Preferred Stock of the Company will also remain outstanding at the
effective date of the merger. Due to the change of ownership which will result
if the tender is successful, the Company's usage of its tax net operating losses
will be limited based on the market value of the Company's stock.
CHANGING PRICES AND INFLATION
The fertilizer industry is subject to volatile price fluctuations due to supply
and demand imbalances caused by factors such as crop prices, disposable farm
income, adverse weather conditions, and political and economic factors affecting
both domestic and foreign purchasers of fertilizer. Following a sustained
downturn in fiscal 1993 that resulted in prices at twenty year low levels, the
recovery in fiscal years 1994 and 1995 has resulted in granular fertilizer
prices 17% higher in fiscal 1995 than 1994.
Although the Company does not generally ship product overseas, over half of the
U.S. phosphate fertilizer production is exported, principally to India and
China. Changes in export demand and other factors have a direct effect on
prices realized by the Company in its market area and add to the volatility and
uncertainty of product prices.
The Company does not consider the impact of inflation on its business activities
to have been significant to date.
-29-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Nu-West Industries, Inc. and Subsidiaries
-----------------------------------------
Index to Financial Statements and Supporting Schedules
------------------------------------------------------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Independent Public Accountants.................................. F-1
Consolidated Balance Sheets -- June 30, 1995 and 1994..................... F-2
Consolidated Statements of Operation for the years
ended June 30, 1995, 1994 and 1993....................................... F-3
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1995, 1994 and 1993............................. F-4
Consolidated Statements of Cash Flows for the years
ended June 30, 1995, 1994 and 1993....................................... F-5
Notes to Consolidated Financial Statements................................ F-6
Schedule for the years ended June
30, 1995, 1994 and 1993:
II - Valuation and Qualifying Accounts.................................... S-1
</TABLE>
-30-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Nu-West Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Nu-West
Industries, Inc. (a Delaware corporation), and subsidiaries as of June 30, 1995
and 1994, and the related consolidated statements of operation, stockholders'
equity, and cash flows for the years ended June 30, 1995, 1994 and 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nu-West Industries, Inc. and
subsidiaries as of June 30, 1995 and 1994, and the results of their operations
and their cash flows for the years ended June 30, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed on S-1
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This information has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
/s/ ARTHUR ANDERSEN LLP
Boise, Idaho
July 28, 1995
(Except with respect to the
merger agreement and related
shareholder litigation, as
described in Note 15, as to
which the date is August 23, 1995)
F-1
<PAGE>
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30,
(In thousands, except shares and par values)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 140 $ 1,137
Receivables, net of allowance for doubtful accounts
of $264,000 and $311,000, respectively 11,207 9,543
Inventories 26,814 18,888
Deferred turnaround costs 840 1,397
Prepaid expenses and other current assets 904 990
--------- ---------
Total current assets 39,905 31,955
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation, depletion and amortization 37,978 38,793
DEFERRED FINANCING FEES 9,038 9,717
DEFERRED COSTS AND OTHER ASSETS 4,708 3,720
--------- ---------
Total assets $ 91,629 $ 84,185
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 5,019 $ 5,262
Accounts payable 2,812 1,456
Accrued liabilities 7,241 8,506
--------- ---------
Total current liabilities 15,072 15,224
LONG-TERM DEBT 58,692 60,589
OTHER LIABILITIES 230 141
DEFERRED INCOME TAXES 627 924
--------- ---------
Total liabilities 74,621 76,878
STOCKHOLDERS' EQUITY
Preferred stock Class A, $100 par value, 290,000
shares authorized and outstanding 29,000 29,000
Preferred stock Class B, $100 par value, 20,000
shares authorized, 344 and 362 shares
outstanding, respectively 34 36
Common stock, $.01 par value, 16,666,667 shares authorized
of which 2,000,000 shares are non-voting, 8,086,363 shares
outstanding, of which 633,106 shares are non-voting 81 81
Additional paid-in capital 46,972 46,970
Accumulated deficit (59,079) (68,780)
--------- ---------
Total stockholders' equity 17,008 7,307
--------- ---------
Total liabilities and stockholders' equity $ 91,629 $ 84,185
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-2
<PAGE>
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
For the Years Ended June 30,
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales $103,327 $94,104 $87,288
Cost of sales 79,302 77,984 79,538
-------- ------- -------
Gross margin 24,025 16,120 7,750
Selling, general and admin-
istrative expenses 4,592 4,604 4,045
Provision for litigation - - 150
-------- ------- -------
Income from
operation 19,433 11,516 3,555
Interest expense 9,555 8,737 8,673
Other (income) expense, net 177 187 (121)
-------- ------- -------
Income (loss) before income taxes and
minority interest 9,701 2,592 (4,997)
Minority interest - 56 367
Income taxes - - -
-------- ------- -------
Net income (loss) before extra-
ordinary item 9,701 2,648 (4,630)
Extraordinary loss from early
extinguishment of debt - (1,660) -
-------- ------- -------
Net income (loss) 9,701 988 (4,630)
Preferred dividends (3,194) (3,194) (3,190)
-------- ------- -------
Net income (loss) applicable to
common shareholders $ 6,507 $(2,206) $(7,820)
======== ======= =======
Net income (loss) before extra-
ordinary item per common share $ .72 $ (.09) $ (3.12)
Extraordinary item - (.29) -
-------- ------- -------
Net income (loss) per common share $ .72 $ (.38) $ (3.12)
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1995, 1994, and 1993
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ADDITIONAL WARRANTS TO
PREFERRED STOCK PREFERRED STOCK PAID IN PURCHASE ACCUMULATED
CLASS A CLASS B COMMON STOCK CAPITAL COMMON STOCK DEFICIT
--------------- ---------------- ------------ ---------- ------------ -----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30,
1992 290,000 $29,000 20,000 $ 2,000 14,964,567 $ 150 $40,095 4,475 $(65,138)
Net (loss) - - - - - - - - (4,630)
Stock issued to
employees - - - - 78,300 - 85 - -
Adjustment to warrants
issued in prior
periods, net - - - - - - - (97) -
------- ------- ------ ------- ---------- ----- ------- ----- --------
Balance June 30,
1993 290,000 29,000 20,000 2,000 15,042,867 150 40,180 4,378 (69,768)
Net income - - - - - - - - 988
Stock issued under
employee stock grant
plan - - - - 107,200 2 38 - -
Preferred stock
surrendered - - (19,638) (1,964) - - 1,964 - -
Stock options
granted at less than
market value - - - - - - 70 - -
Warrants exercised - - - - 33,367,610 333 4,314 (4,378) -
------- ------- ------- ------- ----------- ----- ------ ----- --------
Balance June 30,
1994 290,000 29,000 362 36 48,517,677 485 46,566 - (68,780)
Net income - - - - - - - - 9,701
Preferred stock
surrendered - - (18) (2) - - 2 - -
Reverse stock
split - - - - (40,431,314) (404) 404 - -
------- ------- ------- ------- ----------- ----- ------ ----- --------
Balance June 30,
1995 290,000 $29,000 344 $ 34 8,086,363 $ 81 $46,972 - $(59,079)
======= ======= ======= ======= =========== ===== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES
Net income (loss) $ 9,701 $ 988 $ (4,630)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation, depletion and amortization 5,783 5,537 5,848
Amortization of discounts and loan fees 1,531 1,680 2,083
Interest paid in kind 2,870 1,658 -
Deferred income taxes (297) (140) -
Other (83) 49 69
Write-off of loan fees and discounts - 1,560 -
Loan fees deferred (195) (6,833) (681)
Changes in operating assets and liabilities:
Receivables (1,294) (3,058) 1,211
Inventories (7,744) (5,830) 2,221
Deferred turnaround costs 556 (722) 590
Deferred mining costs (4) 862 1,098
Prepaid expenses and other current assets (237) 187 (5)
Accounts payable 1,358 468 (1,282)
Accrued liabilities (1,311) (708) (379)
Other liabilities 89 141 4
Minority interest - (56) (367)
-------- -------- ---------
Net cash provided by (used for)
operating activities 10,723 (4,217) 5,780
CASH FLOWS USED FOR INVESTING ACTIVITIES
Capital expenditures (6,426) (3,288) (673)
Net proceeds from Nu-West Mining acquisition - - 350
Purchase of bonding deposit investment securities (365) (5) (565)
Proceeds from maturity of bonding deposit investments 525 329 442
Proceeds from collection of long-term note receivable 161 - -
Other 8 - 2
-------- -------- ---------
Net cash used for investing activities (6,097) (2,964) (444)
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from revolving lines of credit 12,800 52,399 105,730
Payments on revolving lines of credit (15,000) (50,839) (104,512)
Proceeds from long-term debt 1,877 43,250 -
Principal payments on long-term debt (5,300) (36,658) (8,048)
Proceeds from exercise of warrants - 74 -
-------- -------- ---------
Net cash provided by (used
for) financing activities (5,623) 8,226 (6,830)
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH (997) 1,045 (1,494)
CASH AT BEGINNING OF PERIOD 1,137 92 1,586
-------- -------- ---------
CASH AT END OF PERIOD $ 140 $ 1,137 $ 92
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during fiscal year for:
Interest $ 5,231 $ 6,492 $ 6,676
Income taxes $ 297 $ 507 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
NU-WEST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements include the accounts of Nu-West
Industries, Inc. (the "Company") and its wholly owned subsidiaries, Nu-West
Minerals, Inc. ("Nu-West Minerals") and Nu-West Mining, Inc. ("Nu-West Mining").
All significant intercompany transactions have been eliminated.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market value
and include the cost of materials, direct labor and manufacturing overhead.
Inventories consisted of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Finished goods $ 8,811 $ 3,705
Work in progress 3,948 2,885
Raw materials 10,364 8,894
Supplies 3,691 3,404
------- -------
$26,814 $18,888
======= =======
</TABLE>
Supplies consist of replacement parts, chemicals and coal. Supplies are charged
to production as they are consumed and are expensed, as Cost of sales, as the
associated finished goods are sold.
Deferred Turnaround Costs
Production facilities are periodically shut down (typically once annually), at
which time repair and maintenance procedures are performed. Related costs
("turnaround costs") are deferred and amortized ratably throughout the fiscal
year which is benefitted by these costs.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Significant improvements and
betterments are capitalized, while repairs and maintenance, other than
turnaround costs, are charged to operations as incurred.
Lease obligations for which the Company assumes substantially all property
rights and risks of ownership are capitalized. All other leases are treated as
operating leases. Payments on operating leases totaled $3.0 million in fiscal
1995 and $2.3 million in fiscal 1994. See Note 13 for annual minimum lease
payments on certain material operating leases.
F-6
<PAGE>
The major components of property, plant and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Mineral reserves $ 2,465 $ 2,465
Land and Land improvements 7,863 7,812
Buildings 3,460 3,230
Operating equipment 50,804 48,612
Plant and Construction in progress 6,657 4,868
-------- --------
71,249 66,987
Accumulated depreciation (33,271) (28,194)
-------- --------
$ 37,978 $ 38,793
======== ========
</TABLE>
Depreciation of plant and equipment and amortization of land improvements and
assets under capital leases are calculated using the straight-line method over
10 - 20 years for land improvements, 10 - 20 years for buildings and 3 - 15
years for plant and operating equipment. Depletion of mineral reserves is
provided based on the estimated recoverable reserves on the units of production
method.
Deferred Financing Fees
The Company incurred loan fees of $195,000 in fiscal 1995, $10,362,000 in
fiscal 1994 (including $3,529,000 of noncash items) and $681,000 in fiscal 1993,
which were deferred and are being amortized over the lives of the associated
loans. In fiscal 1995, deferred financing fees increased by $657,000 due to an
adjustment in the estimated value of the Cash Settlement Option. (See Note 4.)
Amortization of loan fees was $1,531,000 in each of fiscal 1995 and 1994, and
$1,513,000 in fiscal 1993. Unamortized loan fees were $9,038,000 at June 30,
1995 and $9,717,000 at June 30, 1994. Loan fees totalling $1,193,000 were
written off in fiscal 1994 in connection with the Company's Recapitalization
Plan (See Note 4).
Deferred Costs and Other Assets
Deferred costs and other assets consisted of the following at June 30 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Goodwill $ 858 $1,102
Rhone-Poulenc mine site development 728 508
Rhone-Poulenc note receivable 1,398 -
Bonding deposits 367 527
Ore requirement reduction agreement 796 870
Exploratory drilling 539 646
Other 22 67
------ ------
$4,708 $3,720
====== ======
</TABLE>
Goodwill is recorded at cost and amortized on a straight line basis over a
period of five years.
Mine site development costs relate to costs incurred at the Rhone-Poulenc mine
and are being amortized on a units of production basis over the life of the RP
Agreement (See Note 13).
Bonding deposits represent bank certificates of deposit and United States
Treasury securities pledged to various state and federal government agencies to
guarantee compliance with royalty and mine rehabilitation requirements pursuant
to existing agreements with such agencies.
Exploratory drilling costs are associated with mineral properties on which
mining permits have been granted, or are in the process of being granted, by the
state and federal agencies with jurisdiction over them. Exploratory drilling
represents costs incurred to define the existence and layout of ore reserves in
a given mineral property. If the Company determines the ore cannot be
economically mined, or a state or federal agency declines to grant a
F-7
<PAGE>
mining permit on a specific property, any associated costs, including
exploratory drilling, are expensed. These mineral properties will be required
in the event Rhone-Poulenc is unable to fully perform under the terms of the RP
Agreement (See Note 13).
See Note 2 "Synthetic Silica Business" and Note 13 "Mining Contracts" and
"Rhone-Poulenc Agreement" for a description of additional components of Deferred
costs and Other assets.
Product Sales
Upon shipment, the Company records product sales net of related freight,
commissions, cash discounts, price adjustments and heel credits.
Major Customers and Export Sales
Sales to one domestic customer represented 17% of product sales during fiscal
1995, 16% during fiscal 1994 and 14% during fiscal 1993. Other than sales to
customers in Canada and Mexico, which accounted for approximately 14% of the
Company's product sales for all periods presented, the Company has not exported
any of its fertilizer products.
Income Taxes
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standard 109, "Accounting for Income Taxes" ("SFAS 109"), and therefore
continues to follow the liability method of accounting for income taxes as it
had since 1988 under SFAS 96. Adoption of these requirements based on a one
time adjustment had no effect on the Company's income for the year ended June
30, 1994. Financial Statements for prior periods have not been restated.
Deferred income tax liabilities are recorded based on the difference between the
tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes.
Net Income or Loss Per Common Share
Net income or loss per common share is computed by dividing income applicable to
common shareholders by the weighted average number of shares outstanding during
the period (9,018,000 in fiscal 1995, 5,759,000 in fiscal 1994, and 2,507,000 in
fiscal 1993). The effect of the Company's common stock equivalents (warrants
and options) was anti-dilutive at June 30, 1994 and 1993.
(2) SYNTHETIC SILICA BUSINESS
Effective January 1, 1991, Nu-West Minerals formed a general partnership, NuTec
Mineral and Chemical Company ("NuTec"), with Mineral Technology Corporation
("MinTec") of Custer, South Dakota, for the development and production of high
purity silica and other chemical and natural quartz products. Initially, Nu-
West Minerals owned an 80% interest in NuTec, and MinTec held a 20% interest.
Effective January 1, 1994, NuTec distributed to MinTec certain assets and
liabilities associated with the natural quartz business of NuTec which had
originally been contributed by MinTec. In return, MinTec reduced its ownership
interest in NuTec to 5%, thereby increasing the Company's indirect ownership of
NuTec to 95% through its subsidiary, Nu-West Minerals. The 5% ownership
interest retained by MinTec was also converted from a general partnership
interest to a limited partnership interest as part of the transaction. NuTec
retained the license rights to patented technology and related assets for the
production of synthetic silica and certain other products. In connection with
the transaction, the Company recorded $1,225,000 of goodwill which is being
amortized on a straight line basis over five years. The unamortized balance of
$858,000 at June 30, 1995 and $1,102,000 at June 30, 1994 is included in
Deferred costs and Other assets on the Consolidated Balance Sheet.
Potential end uses for which NuTec's products may serve as feedstock include
high-purity glass applications, implements and crucibles used in the production
of silicon crystals, low alpha fillers used for silicon chip
F-8
<PAGE>
encapsulation, fibre optic wave guides, high temperature lighting and other
technical applications. Since its formation, development of the synthetic
silica business has been constrained by a lack of capital, including a
restriction under its current credit agreement to invest no more than $300,000
during fiscal 1995. The new Harris credit agreement (See Note 4) further limits
the investment in NuTec to no more than $150,000 per year. Accordingly, NuTec
has operated its facilities principally to test production capacities and to
produce sample quantities of high purity synthetic silica for prospective
customers. While initial prospective customer response has been encouraging,
continuous operation and process refinement will be necessary to meet various
end-user requirements. Management's plans are to not undertake commercial
operations until NuTec is successful in marketing its products and in obtaining
sufficient capital to sustain operations. While uncertainty exists, management
believes it will be able to obtain sufficient capital and, based on its
projection of potential sales and production costs, the Company's investment in
NuTec is recoverable over time.
Summarized financial information for NuTec is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net sales to unaffiliated customers $ 8 $ 152 $ 277
Net loss 882 1,373 1,836
Net loss allocable to Nu-West 882 1,317 1,469
Identifiable assets 6,048 6,339 7,038
Depreciation and amortization 245 180 232
Capital expenditures - 29 264
</TABLE>
(3) ACQUISITION OF THE CONDA PARTNERSHIP
AND WESTERN COOPERATIVE FERTILIZERS (US)
Until July 14, 1992, the Company had a 50% interest in the Conda Partnership.
The Conda Partnership was a general partnership which held significant phosphate
ore reserves in southeastern Idaho, operated processing facilities adjacent to
the Company's Conda, Idaho manufacturing operation ("the Conda Plant") and until
fiscal 1994 supplied the Company with substantially all its phosphate ore
requirements. (See Note 13 "Rhone-Poulenc Agreement".)
On July 14, 1992, the Company purchased 100% of the capital stock of Western
Cooperative Fertilizers(U.S.) Inc. ("WCF(US)"), a wholly owned subsidiary of
Western Cooperative Fertilizers Limited ("WCFL"). WCF(US) owned the other 50%
interest in the Conda Partnership. Following the closing, the name of WCF(US)
was changed to Nu-West Mining. This acquisition was accounted for as a purchase
and, accordingly, the accounts of the Conda Partnership have been consolidated
with those of the Company and Nu-West Mining since the beginning of fiscal 1993.
In connection with the transaction, the Company has provided an unlimited
indemnification to WCFL against tax and certain other liabilities related to
WCF(US) and the transaction.
Immediately following the closing of the stock purchase, WCF(US) prepaid all of
its outstanding debt, consisting of certain long-term notes, by payment to the
note holders of outstanding principal, interest and prepayment penalties
totalling approximately $20.7 million. Funds to satisfy the notes were supplied
by the payment of approximately $21.2 million from WCFL in return for the
cancellation of sales contracts which would require WCFL to take future delivery
of phosphate rock from WCF(US) through 1996.
The Company dissolved the Conda Partnership effective July 1, 1994, and its
assets and liabilities were distributed to the Company and Nu-West Mining.
F-9
<PAGE>
(4) LONG-TERM DEBT
Long-term debt at June 30 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Senior secured term loan, due September 1999 $23,250 $28,500
Revolving credit loan, due September 1999 6,521 8,721
Junior secured term loan, due November 2000 1,880 -
12.5% senior subordinated unsecured term loan, due October 2001 10,000 10,000
18% subordinated notes, due October 2002 13,600 13,600
18% subordinated PIK interest notes, due October 2002 4,529 1,659
Cash settlement option 3,736 3,179
Non-interest bearing promissory notes, due October 2002 156 156
Capitalized lease obligations 39 16
Conda Partnership obligation - 20
------- -------
$63,711 $65,851
Less - Current portion (5,019) (5,262)
------- -------
$58,692 $60,589
======= =======
</TABLE>
On October 20, 1993, the Company held a Special Meeting of Stockholders at which
stockholders approved the Company's Recapitalization Plan (as described below),
an increase in the authorized number of common shares from 35 million to 100
million, and the creation of a non-voting class of common stock.
The Recapitalization Plan involved the refinancing of substantially all of the
Company's existing long-term debt and the issuance of additional equity
securities. On November 2, 1993, the Company entered into loan agreements with
Banque Indosuez, New York Branch, as agent, providing for (i) a six-year $30
million senior secured term loan, (ii) an eight-year $10 million senior
subordinated unsecured term loan, and (iii) a six-year $20 million revolving
credit facility, a portion of which is used for letters of credit. The senior
secured term loan bears a floating interest rate of 2.0% over the higher of (i)
the Federal Funds Rate plus 1/2% or (ii) the prime rate of Banque Indosuez.
Principal and interest are payable quarterly and principal repayment began on
June 30, 1994. Additional principal payments are required to be made from the
proceeds of asset sales, sales of equity or debt securities and from excess cash
flow (as defined in the Credit Agreement). The senior subordinated term loan
bears interest at a fixed rate of 12.5% with principal due at maturity on
October 15, 2001. Warrants to purchase 799,087 shares (or 9% on a fully diluted
basis) of the Company's common stock at an exercise price of $.06 per share were
issued in connection with the bank financing. At June 30, 1995, 479,452 non-
voting common shares had been issued in connection with the exercise of
warrants. The Company also agreed to pay to an affiliate of Banque Indosuez an
amount equal to 12.6% of the appreciation in trading value of Class A Preferred
Stock above $40 per share (the "Cash Settlement Option"). The estimated amount
of such payment of $3,736,000 at June 30, 1995 and $3,179,000 at June 30, 1994
was recorded as long-term debt and deferred loan fees which will be amortized
over the term of the agreement. These items are non-cash and are not reflected
in the Company's Consolidated Statement of Cash Flows. The Cash Settlement
Option is payable upon exercise of the option by the holder after November 2,
1996 (unless accelerated as a result of the occurrence of certain events) and
before November 1, 2003. The revolving credit facility bears interest at prime
plus 2% (11% at June 30, 1995) and advances are limited to a maximum of 85% of
eligible accounts receivable, 35% of eligible phosphate ore inventories and 70%
of eligible raw materials and finished goods inventories. At June 30, 1995, the
Company had $9.9 million of available capacity under the revolving line of
credit after a reduction for $3.5 million of outstanding letters of credit. See
Note 13 "Rhone-Poulenc Agreement". Subsequent to the refinancing Banque
Indosuez obtained other participating investors in the financing.
The Company also executed a purchase agreement with a former member of the board
of directors, a member of the WPG Debtholder Group ( as defined below) and an
affiliate of Banque Indosuez for the purchase of $3.5 million of junior
subordinated notes ("Subordinated Notes"). The Subordinated Notes are payable
at maturity on October 20, 2002 and bear interest at a rate of 18%, payable
semi-annually in cash or in Subordinated PIK Notes, at the option of the
Company. The senior secured term loan and the senior subordinated unsecured term
loan each
F-10
<PAGE>
prohibit the payment of interest on the Subordinated Notes in cash. Also,
warrants for the purchase of 1,118,722 shares, or 12.6% on a fully-diluted
basis, of common stock at an exercise price of $.06 per share were issued to
these purchasers in connection with the financing. At June 30, 1995, warrants to
purchase 760,731 common shares had been exercised. Proceeds of the Subordinated
Notes were used for transaction costs of the Recapitalization Plan and for
certain capital expenditures, including capital projects necessary to meet the
requirements of the RP Agreement (See Note 13).
Because of the Company's financial condition at the time, its small balance in
stockholders' equity and the liquidation preference of the Preferred Stock over
the common stockholders, warrants issued in conjunction with the
Recapitalization were assigned no value.
The holders of $10.1 million of secured senior subordinated debt issued in July
1989 and November 1990 (the "WPG Debtholder Group") exchanged that debt for
$10.1 million of Subordinated Notes. This non-cash exchange is not reflected in
the Company's Consolidated Statement of Cash Flows. The Company issued warrants
for the purchase of 3,231,864 shares, or 36.4% on a fully-diluted basis, of
common stock at an exercise price of $0.06 per share in connection with the
exchange. These warrants were exercised by the WPG Debtholder Group on November
2, 1993. The exercise price was paid by reducing the balance of the $350,000
notes discussed below to $156,000. In addition, the holders of the Subordinated
Notes contributed to the capital of the Company, for no consideration, 19,638
shares of Class B Preferred Stock held by them. Subsequent to the refinancing,
substantially all of the Subordinated Notes have been transferred to other
investors.
Certain warrants to purchase common stock issued to the WPG Debtholder Group in
connection with the July 1989 and November 1990 financings were adjusted because
of the Recapitalization, giving effect to the anti-dilution provisions of the
warrants, and these warrants as adjusted were exercised on November 2, 1993.
The exercise price of the warrants was paid to the Company by surrender of
warrants, resulting in a net issuance of 1,089,221 shares of common stock. As
consideration for the agreement by the WPG Debtholder Group to exercise the
warrants issued in the 1989 and 1990 financings prior to their expiration date,
the Company issued non-interest bearing promissory notes to the WPG Debtholder
Group in the aggregate principal amount of $350,000 payable on October 21, 2002.
These notes, which were reduced to $156,000 as discussed above, will begin to
bear interest from October 20, 1998 to maturity at prime.
The Company was required to write-off deferred financing costs and unamortized
discounts totalling $1,560,000 related to the debt retired in connection with
the Recapitalization Plan. The Company also incurred a prepayment penalty of
$100,000 in connection with this debt retirement. The total write-off of
$1,660,000 is presented as an extraordinary loss in the fiscal 1994 statement of
operation. Other than the $100,000 prepayment penalty, this charge had no cash
effect.
See Note 13 "Kennecott Agreement" for further information regarding the Junior
Secured Term Loan due November 2000.
The scheduled annual minimum maturities for long-term debt, including
capitalized lease obligations, are as follows (in thousands):
Fiscal Year Amount
----------- -------
1996 $ 5,019
1997 9,374
1998 6,133
1999 6,380
2000 8,397/*/
2001 and thereafter 28,408
-------
$63,711
=======
/*/Includes $6,521,000 which was the balance of the Company's revolving line of
credit at June 30, 1995.
F-11
<PAGE>
On August 3, 1995, the Company refinanced substantially all of its long-term
debt described earlier. The Company entered into a $75 million senior secured
loan agreement with Harris Trust and Savings Bank ("Harris") as agent providing
for (i) a five-year $15 million revolving credit facility, $5 million of which
is available only during the period July through February of each year, (ii) a
$5 million letter of credit facility which expires December 31, 1998, (iii) a
five-year $25 million term loan with equal quarterly amortization, and (iv) a
six-year $30 million term loan with quarterly amortization in varying amounts.
The loans bear interest based, at the Company's option, on either (i) LIBOR or
(ii) the prime commercial rate announced from time to time by Harris, plus a
variable margin determined by the Company's fixed charge ratio. Based on the
initial margin at closing, the $25 million loan and revolving credit facility
bear interest at LIBOR plus 2.25% and the $30 million loan bears interest at
LIBOR plus 3.0%. The loan agreements require the Corporation to maintain
certain financial ratios and other covenants, and the notes are secured by
substantially all of the assets of the Company.
If the Recapitalization had occurred on July 1, 1994, net sales for the year
ended June 30, 1995 would not have changed and unaudited pro forma net income
and net income per common share before extraordinary items would have been
approximately $13.7 million and $1.17, respectively. After an extraordinary loss
for early extinguishment of debt of approximately $10.7 million, net income
would have been approximately $3 million and a net loss per common share of $.02
after preferred dividend requirements. The extraordinary loss which was
recorded at August 3, 1995 due to write off of loan fees and prepayment
penalties was $9.8 million, or $1.09 per common share of which $8.8 million had
no cash effect.
The pro forma scheduled annual minimum maturities for long-term debt assuming
the refinancing completed in August 1995 had been completed at June 30,1995,
including capitalized lease obligations, are as follows (in thousands):
Fiscal Year Amount
----------- ------
1996 $ 6,019
1997 10,374
1998 9,383
1999 10,380
2000 17,897/*/
2001 and thereafter 13,124
-------
$67,177
=======
/*/Includes $6,521,000 which was the balance of the Company's revolving line of
credit at June 30, 1995.
The foregoing unaudited proforma information does not purport to be indicative
of the financial position or results of operations which actually would have
occurred had the refinancing been completed on the dates indicated.
(5) INCOME TAXES
Due to the Company's net operating loss carryforwards, it is subject only to
alternative minimum taxes. During 1995 and 1994, the Company provided
alternative minimum taxes of $194,000 and $20,000, respectively, which were
offset by the reversal of excess tax liabilities provided in prior years.
Benefits relating to the net operating losses for fiscal 1993 were not recorded
as the Company could not carry them back for refunds and future realization was
not assured.
The Conda Plant and the interest in the Conda Partnership were purchased from
the bankruptcy estate of Beker Industries Corp. ("Beker") on July 24, 1987. In
this transaction, the Company succeeded to Beker's tax basis in the assets
purchased as well as Beker's net operating loss and investment tax credit
carryforwards. Deferred income taxes were provided at the acquisition date for
the difference in the tax basis of the acquired assets from the book basis.
These deferred taxes are required for alternative minimum taxes that will not be
reduced by the Company's operating loss and investment tax credit carryforwards.
The components of the net deferred tax liability on the Company's Balance Sheet
were determined in accordance with SFAS 109 and were as follows at June 30, (in
thousands):
F-12
<PAGE>
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Book basis in excess of tax basis of acquired assets $ 4,980 $ 5,515
Other 19 328
-------- --------
Total Deferred Tax Liabilities 4,999 5,843
DEFERRED TAX ASSETS
Operating loss carryover 84,276 86,962
Tax credit carryover 2,012 2,583
AMT credit carryover 805 397
Other 238 83
-------- --------
Total Deferred Tax Assets 87,331 90,025
Less Valuation Allowance (82,959) (85,106)
-------- --------
4,372 4,919
-------- --------
$ 627 $ 924
======== ========
</TABLE>
The fiscal 1995 and 1994 Consolidated Statement of Cash Flows includes alternate
minimum taxes paid on taxable income arising from the purchase of WCF(US) (see
Note 3) which were accrued as part of the purchase price, as well as estimated
alternative minimum taxes paid on fiscal 1995 and 1994 taxable income from
operations.
At June 30, 1995, net operating loss carryforwards of approximately $232 million
were available to offset future taxable income and investment tax credit
carryforwards of approximately $2 million were available to offset future tax
liabilities. These carryforwards expire in 1998 through 2007. The Company also
has $805,000 of alternative minimum tax credits which can be carried forward
indefinitely.
(6) PREFERRED STOCK
At June 30, 1995, 290,000 shares of Class A Preferred Stock and 344 shares of
Class B Preferred Stock were outstanding. Each share of Class A Preferred Stock
is entitled to an $11 per share annual cash dividend payable on December 1
following the Company's fiscal year end. Dividends are cumulative, and unpaid
dividends were $19,140,000 at June 30, 1995 and $15,950,000 at June 30, 1994.
Although not accrued as a liability, Class A Preferred Stock dividends are taken
into effect in the calculation of earnings per share. The Class A Preferred
Stock is redeemable by the Company at $100 per share plus any unpaid cumulative
dividends. Redeemed Class A Preferred Stock may not be reissued by the Company.
In connection with the Company's fiscal 1994 refinancing (see Note 4) certain
holders of the Class B Preferred Stock surrendered 19,638 shares for no
consideration. An additional 18 shares were surrendered in fiscal 1995. Each
remaining share of Class B Preferred Stock is entitled to an $11 per share
annual cash dividend beginning in fiscal year 1994, and payable on December 1
following the Company's fiscal year end. Dividends are cumulative, and unpaid
dividends were $8,000 at June 30, 1995. Payment of dividends is dependent upon
certain cash flow requirements in excess of current and cumulative dividend
payments on Class A Preferred Stock. Such dividends are cumulative for any
amounts not paid. Although not accrued as a liability Class B Preferred Stock
dividends are taken into effect in the calculation of earnings per share. The
Class B Preferred Stock is redeemable by the Company at $100 per share plus any
unpaid cumulative dividends. Redeemed Class B Preferred Stock may not be
reissued by the Company.
Payment of Class A and Class B Preferred Stock dividends is prohibited by the
covenants of certain of the Company's loan agreements, including the new senior
secured loan agreement with Harris. (See Note 4.)
In the event of liquidation, the Class A and Class B Preferred Stock are
entitled to a liquidation preference of $100 per share plus any accumulated
dividends prior to any distribution to common stockholders. The Class A and
Class B Preferred Stock do not have voting rights on matters presented to the
Company's shareholders.
F-13
<PAGE>
(7) COMMON STOCK
On November 15, 1994, the stockholders of the Company authorized a reverse stock
split of one share of newly issued Common Stock for each six shares of existing
Common Stock. On that same date, the Board of Directors approved a one-for-six
reverse stock split to be effective at the close of business on December 9,
1994. Accordingly, the Restated Certificate of Incorporation was amended to
reduce the number of authorized shares of common stock to 16,666,667. Every six
shares of common stock outstanding on the effective date were reclassified into
one share of common stock. All per share amounts in this report reflect the
effect of this one-for-six reverse stock split.
By a vote of the common shareholders in October 1993, the authorized shares of
common stock was increased from 35,000,000 to 100,000,000, and a class of
12,000,000 shares of non-voting common stock was authorized (see Note 4). After
adjustment for the reverse stock split, 633,105 shares of non-voting common
stock were outstanding at June 30, 1995.
At June 30, 1995, a total of 1,291,000 shares of common stock are reserved for
the exercise of employee stock options (501,833 shares) and warrants for the
purchase of common stock (789,167 shares). The exercise price for warrants to
purchase 111,541 shares is 75% of market price on the date of exercise. The
exercise price for the remaining warrants is $.06 per share.
(8) RELATED PARTY TRANSACTIONS
The Company paid consulting fees and expenses of $259,000 in fiscal 1995 and
$255,000 in each of fiscal 1994 and 1993 to an affiliate of Weiss, Peck and
Greer. Certain principals of Weiss, Peck and Greer are directors of the Company
and certain of their affiliates are major shareholders of the Company.
(9) STOCK OPTION PLANS
Employee Stock Option Plans
In May 1988, the Company adopted the Employee Stock Option Plan (the "Option
Plan"), which provides for the issuance of incentive stock options ("ISOs") and
nonstatutory options ("NSOs") as well as stock appreciation rights ("SARs") to
qualified officers and employees of the Company. Options to acquire up to
300,000 shares of common stock of the Company may be granted under the Option
Plan. On November 15, 1994, the stockholders of the Company approved the Nu-
West Industries, Inc. 1994 Employee Stock Incentive Plan. An additional
300,000 shares of common stock of the Company may be granted under this option
plan.
ISOs may be granted at exercise prices that are not less than the fair market
value of the common stock at the date of grant. NSOs may be granted at exercise
prices at or below the fair market value of the common stock at the date of
grant. Options granted under the Option Plan become exercisable as determined
at the date of grant and expire no later than 10 years after the date of grant
if not previously exercised. If an Option Plan participant owns more than 10%
of the Company's outstanding common stock, the exercise price of any ISOs
granted must be at least 110% of fair market value of the common stock at the
date of grant.
Directors Stock Option Plan
On November 15, 1994, the stockholders of the Company approved the Nu-West
Industries, Inc. Nonemployee Director Stock Option Plan (the "Directors' Plan").
Options to acquire up to 50,000 shares of the common stock of the Company may be
granted under the Directors' Plan. Only directors who are not employees of the
Company and who are not affiliated with any entity or group of entities which
own more than 20% of the fully-diluted Common Stock of the Company are eligible
to participate in the Directors' Plan.
F-14
<PAGE>
Stock options shall be granted automatically under the Directors' Plan as
follows: (i) upon initial election or appointment to the Board, a non-employee
director shall be granted a stock option to purchase 4,167 shares of Common
Stock; and, (ii) each non-employee director shall be granted a stock option to
purchase 833 shares of Common Stock for each full fiscal year of the Company
during which he or she served as a non-employee director, effective on the
succeeding July 1. Each non-employee director shall be eligible to receive stock
options exercisable for a maximum of 16,667 shares of Common Stock. The
exercise price of all stock options granted under the Option Plan shall be 100%
of the fair market value of the Common Stock as of the date of grant. Stock
options will be fully vested on the date of grant and will expire not more than
ten years from the date of grant.
Summary of Option Plan Transactions
A summary of option transactions for fiscal years 1995, 1994, and 1993 is as
follows (in thousands except exercise price):
<TABLE>
<CAPTION>
Employee Directors
Option Option Exercise
Plans Plan Price
-------- --------- -----------
<S> <C> <C> <C>
Options outstanding June 30, 1992 78 - 5.04
Options granted 43 - 3.96
---- ----
Options outstanding June 30, 1993 121 5.04 & 3.96
Options canceled due to surrender (121) - 5.04 & 3.96
Options granted 237 - 2.70
---- ----
Options outstanding June 30, 1994 237 - 2.70
Options granted 261 4 6.38 & 8.50
---- ----
Options outstanding June 30, 1995 498 4
==== ====
</TABLE>
The options issued in fiscal 1994 are not exercisable until December 1, 1996.
Of the options issued in fiscal 1995, forty percent are exercisable on January
1, 1997 and twenty percent become exercisable on each of January 1, 1998, 1999,
and 2000. As of June 30, 1995, 39,167 shares were available for grant under the
Employee Option Plan, and 45,833 shares were available for grant under the
Directors Plan.
Compensation expense of $70,000 was recognized in fiscal 1994 for options to
acquire 237,000 shares of common stock which were granted at an exercise price
of $2.70 per share, which was 90% of the fair market value of the common stock
at the date of grant. The options granted in fiscal 1995 are noncompensatory,
since the exercise price was the closing price of the common stock on the date
of grant.
(10) EMPLOYEE STOCK GRANT PLAN
In May 1991, the Company adopted the Employee Stock Grant Plan which provided
for the issuance of up to 167 shares of the Company's common stock to each
eligible employee, other than senior management, as defined by the plan.
Accordingly, 17,867 shares in fiscal 1994 and 13,050 shares in fiscal 1993 were
issued to eligible employees. Compensation expense of $40,000 in fiscal 1994
and $86,000 in fiscal 1993 has been recognized in the Financial Statements which
was a non-cash expense and is not reflected in the Consolidated Statement of
Cash Flows. No stock was issued to employees in fiscal year 1995.
(11) RETIREMENT AND BENEFIT PLANS
Effective January 1, 1988, the Company adopted a profit sharing plan qualified
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate in the plan immediately upon employment with the
F-15
<PAGE>
Company. The Company matches a certain percentage of the employees'
contributions. Company contributions were $526,000 in fiscal 1995, $305,000 in
fiscal 1994, and $286,000 in fiscal 1993.
The Company incurred approximately $15,000 in 1995 and $20,000 in both 1994 and
1993 in cash payments for postretirement benefits. The Company has agreed to
provide a Medicare supplement and $5,000 of life insurance to its employees upon
retirement. Effective July 1, 1993, the Company adopted Financial Accounting
Standards Board Statement 106, "Employers Accounting for Postretirement Benefits
Other Than Pensions", which requires that the cost of these benefits be accrued
as a form of deferred compensation earned during the period that employees
render service, rather than the previously permitted practice of accounting for
such costs as incurred. The Company has elected to amortize the unrecognized
accumulated postretirement benefit obligation ("transition obligation") of
$963,000 at July 1, 1993 to expense over a twenty year period. This obligation
was determined by application of the terms of the Medicare supplement and life
insurance plans, together with relevant actuarial assumptions and historical
health-care cost trend rates of 7%. The assumed health-care cost trend rate for
fiscal 1995 was 4%. The effect of a 1% annual increase in the assumed cost
trend rates would increase the accumulated postretirement benefit obligation by
approximately $52,000 and the annual service cost by approximately $19,000. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7%. The plans are unfunded.
The following table sets forth the plans' combined status reconciled with the
amount included in the Consolidated Balance Sheets at June 30, (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Retirees $ 200 $ 299
Other active plan participants 442 775
Unrecognized transition obligation (865) (913)
Unrecognized gain 473 -
----- -----
Total accumulated postretirement obligation accrued at June 30 $ 250 $ 161
===== =====
Net periodic postretirement benefit cost for the years ended June 30,
included the following components:
1995 1994
----- -----
Service cost-benefits attributed
to service during the period $ 55 $113
Amortization of unrecognized gain (14) -
Amortization of transition obligation 48 48
---- ----
Net periodic postretirement benefit cost $ 89 $161
==== ====
</TABLE>
The adoption of the new accounting method will have no effect on the Company's
cash outlays for retiree benefits.
(12) LITIGATION
In fiscal 1993, the Company executed an agreement with the Trustee of the Estate
of Nu-South Industries, Inc. ("Nu-South") and Mississippi Chemical Corporation
("MCC"), a major creditor of Nu-South, for the settlement of, and the mutual
release from all claims against the Company relating to the Nu-South bankruptcy
(the "Settlement Agreement"). Nu-South was a wholly owned subsidiary of the
Company that filed a voluntary petition for liquidation under the provisions of
Chapter 7 of the Bankruptcy Code on February 1, 1990. The Trustee had filed a
complaint against the Company in January 1992 for the recovery of unspecified
amounts relating to alleged preferential transfers by Nu-South and was
considering possible additional claims against the Company, including claims
which would assert that the Company should be held liable for the debts of Nu-
South. In addition, the Trustee had filed certain preference claims against
other parties which involved payments by Nu-South of debts allegedly guaranteed
by the Company.
The Settlement Agreement required a payment of $400,000 in cash on December 1,
1992, plus deferred payments totalling an additional $150,000 through May 1993,
in exchange for a general and irrevocable release by the Trustee
F-16
<PAGE>
and MCC of all claims against the Company, its current and former officers and
directors, and its affiliates. The Trustee has obtained such releases or
dismissals with prejudice as would protect the Company from indemnity claims by
defendants in the guaranty preference cases. The Settlement Agreement was
approved by the Bankruptcy Court on December 7, 1992. A provision for $400,000
was recorded during fiscal 1992 and an additional $150,000 was recorded in
fiscal 1993 to provide for payment of this settlement. The Nu-South bankruptcy
estate was closed on April 1, 1994.
The Company is not a party to or involved in any other legal action except for
routine litigation incidental to its business.
(13) COMMITMENTS AND CONTINGENT LIABILITIES
Mining Contract
Mining operations at the existing reserves of the Conda Partnership have been
carried out by a third party general contractor (the "General Contractor") since
1972. The agreement between the Conda Partnership and the General Contractor
required the Conda Partnership to mine a minimum amount of phosphate ore each
year, or pay the General Contractor a price adjustment determined at the
conclusion of the mining season, which typically runs through November. The
agreement also required the Conda Partnership to use the General Contractor as
the miner on its reserves through 1997.
The Company entered into an Ore Requirement Reduction Settlement Agreement
effective November 30, 1993 with the General Contractor which reduced the amount
of ore required to be mined by the Conda Partnership each year to a minimal
amount and extends the term of the mining agreement to December 31, 2007. The
Company paid $500,000 in January 1994 and $500,000 plus accrued interest in
March 1994 to the General Contractor in connection with this agreement.
On August 9, 1994 the Company entered into a Work Reduction and Buy-Out
Settlement Agreement with the General Contractor. This amendment to the mining
contract eliminates the remaining minimum annual mining requirement and the
required use of the General Contractor for ore handling functions at the Conda
Plant, as well as certain other modifications. The Company paid the General
Contractor $100,000 for the modification of the contract and expects to save
$1.0 to $1.5 million annually as a result of these changes. The payments
associated with both of these agreements are included in Deferred Costs and
Other Assets on the Consolidated Balance Sheet and are being expensed on a units
of production basis over the life of the RP Agreement (as defined below). The
unamortized balance of these payments was $796,000 at June 30, 1995 and $870,000
at June 30, 1994.
The Company entered into a $1.2 million, five year operating lease with
Caterpillar Financial Services Corporation for Equipment to conduct the ore
handling operations previously performed by the general contractor. The annual
minimum lease payments for this equipment are $266,000 for fiscal 1996, $249,000
for fiscal 1997 through 1999 and $58,000 for fiscal 2000.
Rhone-Poulenc Agreement
The Company entered into a seven-year agreement with Rhone-Poulenc Basic
Chemical Company, a division of Rhone-Poulenc, Inc. ("RP") for supply of
phosphate ore (the "RP Agreement"). The phosphate ore mined by RP contains
higher quality ore with substantially lower overburden removal requirements than
found in other known reserves in southeastern Idaho, including those owned by
Nu-West Mining. The Company has realized significant annual production cost
savings by purchasing phosphate ore under the RP Agreement versus the estimated
cost of mining its own reserves. The RP Agreement was contingent on the
Company's ability to obtain and make available to RP approximately $13.3 million
of mobile mining equipment. On November 2, 1993, the Company entered into a
lease financing arrangement with Caterpillar Financial Services Corp.
("Caterpillar") providing for the necessary mining equipment. The Company has
posted a $3.2 million letter of credit with Caterpillar to secure its
obligations under the lease.
F-17
<PAGE>
The Caterpillar lease has a 60 month term and provides for the optional purchase
of the equipment based on fair market value at the end of the lease. The
annual minimum lease payments under this lease are $2.4 million for fiscal
1996, 1997 and 1998, and $608,000 for fiscal 1999. The equipment is subleased
by the Company to RP on payment terms equivalent to those between the Company
and Caterpillar. RP may cancel the sublease, however, if the Company fails to
take shipments or make timely payment for ore received under the RP Agreement.
The terms of the RP Agreement provide that the Company will not be required to
take a minimum annual tonnage of ore and may mine its own phosphate ore
reserves, but will be responsible for idle leased equipment costs resulting from
a reduction in the Company's purchase requirements from RP below 1.6 million
tons per year. The Company may not elect to purchase more than 1.6 million tons
of ore per year without the consent of RP and must give six months' notice of
reductions in its ore purchase requirements. The Company has constructed a new
haul road and ore loading system at the RP mine site at a combined total cost of
approximately $1.8 million and has transferred these assets to RP in exchange
for a 69 month non-interest bearing note receivable. RP makes equal monthly
payments on the note. The unpaid balance at June 30, 1995 was $1.7 million of
which $1.4 million is included in Deferred costs and Other assets and the
balance is included in Accounts receivable. Through June 30, 1995, the Company
had spent $1.4 million on the construction of a maintenance shop, and additional
expenditures of $780,000 will be required in fiscal 1996 for the completion of
this project. This asset will also be transferred to RP in exchange for a non-
interest bearing note receivable. Payment for delivery of ore is based on the
actual cost of mining by RP plus 50% of the net savings recognized by RP and the
Company as a result of the RP Agreement. RP is prohibited from selling its ore
reserves without assumption of the RP Agreement by any purchaser. Part of the
mining cost paid by the Company will be the cost of reclamation of mined acreage
based on cost estimates as the ore is mined, with subsequent adjustments as
required. RP will be responsible for all reclamation work and has indemnified
the Company against environmental exposure at the mine.
In June 1995, the RP Agreement was extended for an additional five year term
through 2005. RP also notified the Company of its intent to cease taking ore
from the mine for its own account. RP may resume taking ore with ninety days
notice, although no such action is anticipated in the foreseeable future. The
Company's ore requirements have exceeded 80% of the total output of the RP mine
during fiscal 1995, and no material cost or operational disadvantage is expected
as a result of the cessation of deliveries to RP.
Since the Company discontinued the mining of its reserves in November 1993,
depreciation and depletion associated with mine assets and reserves were
discontinued. The mine assets had been depreciated to salvage value at that
date.
Kennecott Agreement
On July 28, 1994, the Company entered into a five-year sulfuric acid purchase
contract with Kennecott Utah Copper Corporation ("Kennecott") for the purchase
of 300,000 tons of sulfuric acid per year to replace the output of the older of
the two sulfuric acid facilities currently operating at the Conda Plant. Shut
down of the older sulfuric acid plant will significantly reduce sulfur dioxide
emissions as part of a settlement of the air quality enforcement action
described below. Shipments of sulfuric acid are to begin no later than November
1995 and prices under the contract will be adjusted quarterly based on the
equivalent cost of sulfur and the Company's selling price for one of its
fertilizer products. The Company also entered into a $4 million loan agreement
with Kennecott. The proceeds of the $4 million loan are being used to
construct tankage and rail spurs to receive and unload the sulfuric acid and a
boiler to replace the steam now supplied by the older acid plant. At June 30,
1995, $2.0 million had been spent toward the construction of those assets, and
advances on the loan were $1.9 million. The five-year senior subordinated loan
is secured by the constructed assets described and bears interest at prime plus
2%. Interest will be paid quarterly, and principal will be repaid as sulfuric
acid is purchased over the five year term of the loan.
Environmental Matters
The Company is subject to federal, state and local environmental laws and
regulations. Significant costs could be incurred on account of these
environmental laws and regulations in the future. Most of the Company's
environmental expenditures and potential costs are or would be in response to
provisions of various federal environmental laws,
F-18
<PAGE>
particularly the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act and the Comprehensive Environmental Response, Compensation and
Liability Act (aka "Superfund"), and the land use, air, surface and ground
water, and hazardous waste regulations of the State of Idaho.
The phosphoric acid process water and calcium sulfate or "phosphogypsum" handled
at the Company's Conda Plant are currently exempt from regulation as a
"hazardous waste" under Subtitle C of the Resource Conservation and Recovery Act
("RCRA"). The EPA, with input from an advisory committee, is currently
evaluating potential improved processing, handling and storage measures for
phosphogypsum under provisions of the Toxic Substances Control Act and RCRA.
The exact requirements of those potential future rules cannot be predicted with
certainty at this time but will likely control the Company's handling of these
materials.
These materials are also regulated under Section 112 of the federal Clean Air
Act, which contains closure requirements for gypsum stacks that are no longer
used for water management and otherwise become deactivated. The Company does not
currently plan to deactivate any of its gypsum stacks under these provisions.
The Company has been subject to normal periodic review under Superfund, and an
Expanded Site Inspection was recently completed by an EPA contractor. This
inspection included an initial site visit in August 1993, followed by well water
sampling and testing in March 1994. Based on the contractor's report, the EPA
notified the Company in October 1994 that no further action under the Federal
Superfund Program is currently recommended at the Conda Plant.
In March 1994, the EPA issued a Notice of Violation pertaining to numerous
excess SO\\2\\ emissions during the period from October 1989 to May 1993. The
Company has negotiated a settlement with the EPA, which is now pending final
federal court approval, that provides for the payment of a $150,000 fine and
reduced SO\\2\\ emissions limitations until November 1995, at which time the
Company will shut down the older of its two sulfuric acid plants. The Company
has entered into a five-year contract with Kennecott to replace the production
of this plant. (See Note 13 "Kennecott Agreement" for further information.)
The Company has recently received a Notice of Violation from the EPA for alleged
violations under the Safe Drinking Water Act ("SDWA") relating to testing and
reporting on the quality of water used for human consumption from a public water
supply system at the Conda Plant. The Company has initiated testing of water
that potentially could be used for human consumption and believes, based on
discussions with agency officials, that no or only minimal civil penalties will
be assessed in connection with this matter. However, the Company has committed
to make improvements to its water supply system to comply with SDWA requirements
at a cost of approximately $100,000.
(14) ACCRUED LIABILITIES
Accrued liabilities consisted of the following at June 30 (in thousands):
F-19
<PAGE>
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Accrued raw materials and
operating supplies $2,634 $2,518
Accrued capital expenditures - 750
Salaries, wages and
employee benefits 2,154 2,265
Interest 294 324
Shipping costs 698 881
Legal fees and provision for litigation 29 47
Accrued rehabilitation 758 957
Other 674 764
------ ------
$7,241 $8,506
====== ======
</TABLE>
Pursuant to the terms of mineral leases with state and federal agencies, the
Company is required to rehabilitate acreage disturbed during mining of leases.
The estimated cost of rehabilitation is calculated in consultation with the
appropriate state or federal agency, and is accrued to Cost of sales using the
units of production method as the related ore is mined. The rehabilitation
liability is secured by Bonding deposits (see Note 1) and existing surety bonds.
(15) SUBSEQUENT EVENT
In March 1995, the Company disclosed that it had retained PaineWebber
Incorporated to assist it in exploring alternatives for enhancing long-term
shareholder value. The alternatives to be considered included but were not
limited to strategic relationships with other significant fertilizer producers
and customers, the sale or merger of the Company, the formation of a joint
venture with one or more parties, or the continuation of the Company's current
business plan to concentrate on internal growth. Agrium, Inc. and the Company
announced on August 10, 1995 that they had entered into a definitive Merger
Agreement which provides for the acquisition of the Company by Agrium.
Under the terms of the Merger Agreement, a subsidiary of Agrium is making a
tender offer to purchase all of the outstanding common stock of the Company at
$10.50 in cash. The tender offer commenced on August 16, 1995 and will expire
on September 14, 1995 unless extended. As soon as practical following the
tender offer, the Agrium subsidiary will merge into the Company, and each
remaining share of the Company's common stock will be converted into the right
to receive $10.50 per share in cash. Total consideration to be paid to the
common stockholders of the Company will be approximately $98.5 million.
The completion of the tender offer is conditioned upon, among other things, the
tender of at least 60% of the shares of common stock of the Company on a fully-
diluted basis and applicable regulatory review. The Board of Directors of the
Company has unanimously approved the Merger Agreement. The Board of Directors
of the Company may withdraw its recommendation for and support of the
transaction if required to do so in furtherance of its fiduciary
responsibilities; however, if the transaction with Agrium is terminated or not
completed because of such withdrawal, Agrium will be entitled to a payment from
the Company of $4 million. PaineWebber Incorporated has acted as financial
advisor to the Company and has rendered a fairness opinion in connection with
the transaction. The Board of Directors of Agrium has also unanimously approved
the merger agreement.
Certain shareholders of the Company, who own in the aggregate approximately 57%
of the outstanding and 49% of the fully-diluted common shares, have agreed with
Agrium to tender those shares in the tender offer, subject to certain revocation
rights.
The Company's current debt structure, as recently refinanced, is expected to
remain in place as of the date of the contemplated merger. The Class A and
Class B Preferred Stock of the Company will also remain outstanding at the
effective date of the merger. Due to the change of ownership which will result
if the tender is successful, the Company's usage of its net operating losses
will be limited based on the market value of the Company's stock.
F-20
<PAGE>
In the succeeding seven days following the announcement of the Merger Agreement,
four class action lawsuits were filed by various shareholders of the Company in
the Court of Chancery of the State of Delaware, New Castle County, Delaware,
alleging that the Company and its board of directors had breached their
fiduciary duties to the shareholders of the Company by agreeing to and
supporting the tender offer and merger. One of the lawsuits also named Agrium
as a defendant and alleged that Agrium had aided and abetted the alleged breach
of fiduciary duty. Among other claims, the lawsuits allege that the Company's
Board of Directors had breached its fiduciary duties to the shareholders by
failing to take certain actions to maximize the value of the Company's shares.
Each of the lawsuits seek a variety of injunctive and equitable relief as well
as unspecified money damages and an award of attorneys' fees and costs. The
Company intends to vigorously defend each of the lawsuits. Because the lawsuits
have only recently been filed and evidence has not yet been fully developed, the
Company is unable to comment with regard to the probable outcome of the
litigation.
F-21
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June, 30 1995, 1994, and 1993
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
----------------------------------------- ----------------------
Balance at Charged to Allowance for Bad Service Accounts Balance at
Beginning of Costs and Uncollectible Debts Charges Receivable End of
Description Period Expenses Service Charges Collected Waived Written Off Period
- ---------------------- ------------ ---------- --------------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
June 30, 1993 $361 8 141 3 38 42 $433
June 30, 1994 $433 - 154 - 57 219 $311
June 30, 1995 $311 - 109 - 133 23 $264
</TABLE>
S-1
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-31-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Restated Certificate of Incorporation provides for a Board of
Directors composed of not less than six nor more than nine persons. The Board
is divided into three classes, with each class consisting, as nearly as
possible, of one-third of the number of directors constituting the Board. Each
class of directors serves three year staggered terms, which expire at the Annual
Meetings during the fiscal years specified below. The size of the Board is
presently five, with one vacancy in Class III Directors.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------- --- ------------------------------------------------------------
<S> <C> <C>
Craig D. Harlen 46 Chairman of the Board of Directors; President and Chief
Executive Officer
H. Alan Dahlbach 50 Executive Vice President
Mark R. Sanders 45 Director, Senior Vice President, and Chief Financial Officer
Steven W. Gampp 43 Vice President, Secretary and Treasurer
Larry C. Dearing 52 Vice President - Regional Sales
John D. Yokley 54 Vice President - National Sales
Don G. LaRue 43 Vice President - Operations
Helen K. Smith 44 Controller and Assistant Secretary
Cecil D. Andrus 63 Director
Peter B. Pfister 35 Director
Wesley W. Lang 38 Director
</TABLE>
Craig D. Harlen. Mr. Harlen has been a director of the Company since 1987
and has served as Chairman of the Board since 1994. He was Senior Vice
President and General Manager of the Company's manufacturing operations at the
Conda Plant until he was appointed President and Chief Executive Officer in June
1989. Prior to joining the Company, Mr. Harlen held various positions with
Beker since 1975, including General Manager of its western phosphate operations
for more than five years. Mr. Harlen's term as a director will expire in 1995.
H. Alan Dahlbach. Mr. Dahlbach joined the Company in September 1988, and is
responsible for overseeing all of the Company's sales and marketing activities.
From 1972 to 1986, Mr. Dahlbach held various positions with Gardinier, Inc., a
major phosphate fertilizer mining and manufacturing firm based in Tampa,
Florida. From March 1986 to September 1988, he was self-employed and engaged in
a variety of private business ventures.
Mark R. Sanders. Mr. Sanders became a director of the Company in June 1991.
Mr. Sanders, who joined the Company in 1987 as Controller for the Conda Plant,
was elected Senior Vice President and Chief Financial Officer in June 1989.
From April 1981 through June 1987, he served as Plant Controller for Beker's
western phosphate operations. Mr. Sanders' term as a director will expire in
1996.
Steven W. Gampp. Mr. Gampp joined the Company in February 1989 as Corporate
Treasurer and was appointed Vice President, Secretary and Treasurer in June
1989. From 1983 until 1989, Mr. Gampp held various financial executive
positions with Quinoco Petroleum, Inc., an oil and gas syndication, exploration
and production company based in Denver, Colorado.
-32-
<PAGE>
Larry C. Dearing. Mr. Dearing joined the Company in July 1987, and is
responsible for the regional sales activities of the Company. From 1978 to June
1986, Mr. Dearing held various positions at Beker, including Senior Vice
President - Marketing. From November 1986 to June 1987, he was the Chief
Executive Officer of an employee benefits consulting firm.
John D. Yokley. Mr. Yokley joined the Company in August 1989, and is
responsible for national account sales and raw materials procurement. From 1981
to September 1988, Mr. Yokley was Executive Vice President of Chemex, Inc., a
commodities trading firm. From September 1988 to August 1989, he directed the
marketing operations of Chemtran, a fertilizer joint venture with the Pillsbury
Company.
Don G. LaRue. Mr. LaRue joined the Company in July 1987 as Production Manager
for the Conda Plant and, in July 1989, was appointed the General Manager of
those operations. In February 1994, Mr. LaRue was appointed Vice President -
Operations for the Company. From August 1986 through June 1987, he was
Production Manager for Beker's western phosphate operations.
Helen K. Smith. Mrs. Smith joined the Company in August 1987 as General
Accounting Manager, was appointed the Corporate Controller in July 1989, and
assumed her current position in November 1991. Prior to her employment with the
Company, Mrs. Smith was a Senior Accountant with Peat Marwick & Main.
Cecil D. Andrus. Mr. Andrus became a director of the Company in January 1995.
Mr. Andrus was elected governor of Idaho four times -- in 1970, 1974, 1986 and
1990. He served as Secretary of the Interior in the Carter Administration from
1977-1981. Mr. Andrus' term as a director will expire in 1997.
Wesley W. Lang. Mr. Lang became a director of the Company in May 1988. Mr.
Lang is a partner in Weiss, Peck & Greer, L.L.C., an investment management firm
("WPG"), which he joined in 1985, and he is also a director of Durakon
Industries, Inc. Mr. Lang's term as a director will expire in 1996.
Peter B. Pfister. Mr. Pfister became a director of the Company in February
1994. Mr. Pfister is a partner in WPG, which he joined in 1987. Prior to his
association with WPG, he was with Manufacturers Hanover Trust Company where he
specialized in acquisition financing. Mr. Pfister's term as a director will
expire in 1997.
No family relationships among members of the Board of Directors and officers
exist.
-33-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation paid to the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers for services rendered to the Company and its
subsidiaries during the fiscal years ended June 30, 1995, 1994 and 1993. All of
the persons named below continue to serve as officers of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)/(1)/ ($)/(1)/ /(2)/ (#)/(3)/ ($)/(4)/
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CRAIG D. HARLEN 1995 $250,000 $150,000 41,666 $12,732
President and Chief 1994 250,000 235,000 39,080 8,533
Executive Officer 1993 200,000 50,000 25,000 7,893
- ----------------------------------------------------------------------------------------------------
H. ALAN DAHLBACH 1995 $193,000 $ 95,000 16,666 $10,083
Executive Vice President 1994 193,000 185,000 29,366 6,346
1993 178,500 40,000 20,000 6,299
- ----------------------------------------------------------------------------------------------------
MARK R. SANDERS 1995 $160,000 $ 80,000 16,666 $ 8,908
Senior Vice President and 1994 160,000 180,000 29,366 5,552
Chief Financial Officer 1993 145,002 40,000 20,000 5,286
- ----------------------------------------------------------------------------------------------------
JOHN D. YOKLEY 1995 $154,000 $ 75,000 13,333 $ 8,955
Vice President - 1994 154,000 55,000 16,641 5,353
National Sales 1993 142,942 30,000 11,000 4,947
- ----------------------------------------------------------------------------------------------------
STEVEN W. GAMPP 1995 $143,000 $ 60,000 16,666 $ 8,361
Vice President, Secretary 1994 143,000 165,000 29,366 5,353
and Treasurer 1993 132,000 40,000 20,000 4,947
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts shown include cash compensation earned by the named executive
officer during the fiscal year listed, including amounts deferred at the
election of those officers. Bonuses are paid in the fiscal year following
the year in which they are earned.
(2) Amounts shown include payment in April 1994 of cash bonuses deferred from
1991 in the following amounts: Mr. Harlen - $135,000; Mr. Dahlbach -
$105,000; Mr. Sanders - $105,000; Mr. Gampp -$105,000.
(3) All of the Company's executive officers voluntarily surrendered their
outstanding stock options granted in 1992 and 1993 for no consideration on
November 2, 1993 in connection with the Recapitalization (See Note 4 to the
June 30, 1995 Consolidated Financial Statements). No Stock Appreciation
Rights ("SARs") were granted by the company in fiscal 1995, and there are
no outstanding SARs held by any employee or director of the Company. The
number shown for each year represents the number of shares of Common
-34-
<PAGE>
Stock for which options were granted to the named executive officer in that
year, and reflect the 1:6 reverse stock spilt of the Company's common stock
effective December 9, 1994.
(4) Amounts shown are the matching contributions made by the Company to its
Employee Retirement Savings Plan, a qualified Section 401(k) profit sharing
plan, and the amount of premiums for term life insurance paid by the
Company for the named executive officers as follows:
<TABLE>
<CAPTION>
401(k) Life
Contributions Insurance
-------------- ---------
<S> <C> <C>
Craig D. Harlen $10,512 $2,220
H. Alan Dahlbach 8,369 1,714
Mark R. Sanders 7,487 1,421
John D. Yokley 7,587 1,368
Steven W. Gampp 7,091 1,270
</TABLE>
EMPLOYMENT AND COMPENSATION AGREEMENTS
On December 1, 1994, the Company entered into an employment agreement
with Craig D. Harlen to serve as the Company's President and Chief Executive
Officer. The agreement provides for an annual base salary of $250,000 (which
was increased to $257,500 effective July 1, 1995) and automatically renews for
successive twelve month periods. The agreement provides for severance
compensation equal to one year's base salary in the event of a termination
without cause, and severance compensation in the event of a termination by
reason of a change of control equal to three times the sum of (i) base salary at
the time of the change of control, plus (ii) the average of the performance
bonus paid for the prior two fiscal years of the Company. In no event, however,
shall such severance compensation exceed the amount that the Company may deduct
for federal income tax purposes by virtue of Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor provision.
On December 1, 1994, the Company entered into employment agreements
with H. Alan Dahlbach, Mark R. Sanders, Steven W. Gampp, Larry C. Dearing and
John D. Yokley. Each of these employment agreements provide for an annual base
salary, and for severance compensation in the event of termination without cause
or by reason of a change of control calculated in the same manner as described
above with respect to Mr. Harlen's agreement. Effective July 1, 1995, the
agreements provide for annual base salaries in the aggregate amount of $816,790
per year. The amounts applicable to each of the employees under his employment
agreement have been included in the Summary Compensation Table, where
applicable.
Each of the above described agreements provides for certain payments
in the event of death or disability. Also, each such agreement contains non-
competition and confidentiality provisions. For purposes of the above
agreements, a change of control occurs (i) if a person other than the Company
or Weiss, Peck and Greer ("WPG") or its affiliates acquires 40% or more of the
outstanding shares of Common Stock, (ii) if any merger, share exchange,
issuance of capital stock, tender offer or similar transaction results in the
existing stockholders owning fewer than 50% of the outstanding shares of Common
Stock after the transaction, (iii) upon a sale, lease or exchange of
substantially all of the Company's assets other than a sale/leaseback or similar
financing transaction, or (iv) upon the adoption of a plan for the liquidation
or dissolution of the
-35-
<PAGE>
Company. A termination by reason of a change of control of the Company includes
constructive termination, as defined in the agreements, including, for example,
resignation following a substantial change in duties, a reduction in salary or
benefits or the failure of the executive and the Company or its successor to
negotiate a mutually agreeable amendment to the current employment agreement or
a new employment agreement within 90 days after the change in control of the
Company. The transactions contemplated by the Merger Agreement will result in a
change of control of the Company, as defined by the above agreements.
COMPENSATION TO DIRECTORS
The Company has agreed to pay Cecil D. Andrus an annual retainer of
$35,000 for his services as a non-employee director of the Company during his
current two-year term, which term ends in fiscal 1997. Pursuant to the Merger
Agreement, Governor Andrus has agreed to resign as a director of the Company
effective as of the Effective Date. The Company will honor its agreement with
Mr. Andrus by the payment of the unpaid balance of his retainer for the full two
year term on or prior to the Effective Date. No other director receives
compensation for services as a director, but all directors are reimbursed for
travel and other expenses directly related to their activities as directors.
The Company also has a Company Non-Employee Director Stock Option Plan, of which
Governor Andrus is the sole participant.
COMPENSATION PURSUANT TO PLANS
Stock Incentive Plans
---------------------
In 1988, the Company adopted an Employee Stock Option Plan (the "1988
Plan") to provide long-term incentives and rewards to the Company's officers and
employees. Under the 1988 Plan, options to acquire up to 300,000 shares of
Common Stock were authorized (as adjusted for the 1:6 reverse stock split in
December 1994). In 1994, the Company adopted the 1994 Employee Stock Incentive
Plan (the "1994 Plan") to provide long-term incentives and rewards to the
Company's officers and employees. Under the 1994 Plan, options to acquire up to
300,000 shares of Common Stock were authorized (as adjusted for the 1:6 reverse
stock split in December 1994). Both the 1988 Plan and the 1994 Plan are
administered by the Compensation Committee of the Board of Directors.
Under the 1988 Plan and the 1994 Plan, the Company may grant both
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended ("ISOs"), and nonqualified stock options
("NSOs"). ISOs may be granted at exercise prices that are not less than the
fair market value of the Common Stock at the date of grant, except that the
exercise price of ISOs granted to any person who owns more than 10% of the
outstanding Common Stock must be at least 110% of the fair market value on the
date of grant. NSOs can be granted at exercise prices at or below the fair
market value of the Common Stock on the date of grant.
The exercise price of an ISO or NSO may be paid with cash, shares of
Common Stock or recourse promissory notes at the option of the Compensation
Committee. The 1988 Plan and the 1994 Plan also provide for the grant of SARs.
An SAR permits the participant to surrender a specified portion of his options
in exchange for a payment representing the unrealized appreciation of those
options. No SARs have been granted under either of the plans. Each of the
plans also provides for supplemental bonuses granted at the discretion of the
Compensation Committee designed to offset all or part of the tax liability
incurred by participants who exercise ISOs or NSOs. The supplemental bonus may
not exceed the participant's tax liability arising from the exercise.
-36-
<PAGE>
The 1988 Plan was adopted in May 1988. At June 30, 1995, NSOs had
been granted under the 1988 Plan for an aggregate of 236,887 shares of Common
Stock to 42 officers and employees, and NSOs had been exercised to purchase
63,111 shares of Common Stock in prior fiscal years.
The following table contains information relating to ISO grants made
in fiscal 1995 under the 1994 Plan to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
% of Total Realizable Value at Assumed
Options Granted Exercise Annual Rates of Stock Price
Options To Employees in Price Expiration Appreciation for Option Term
Name Granted (#) Fiscal Year/(1)/ ($/sh)/(2)/ Date 5%/(3)/ 10%/(4)/
- ----------------- ----------- ---------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Craig D. Harlen 41,666 16.0% $6.375 11/22/04 $166,872 $432,535
H. Alan Dahlbach 16,666 6.9% $6.375 11/22/04 66,747 169,410
Mark R. Sanders 16,666 6.9% $6.375 11/22/04 66,747 169,410
John D. Yokley 13,333 5.1% $6.375 11/22/04 53,399 135,530
Steven Gampp 16,666 6.9% $6.375 11/22/04 66,747 169,410
</TABLE>
(1) In fiscal 1995, the Company granted incentive stock options exercisable for
an aggregate of 260,834 shares of Common Stock to 49 employees.
(2) The exercise price is 100% of the closing price of the Company's Common
Stock on the NASDAQ/National Market on November 22, 1994 (adjusted for the
1:6 reverse stock split in December 1994). All options shown in this table
were granted on November 22, 1994. The options vest 40% on January 1,
1997, and 20% on each of January 1, 1998, 1999 and 2000.
(3) Assumes a price of $10.38 at the end of ten years.
(4) Assumes a price of $16.54 at the end of ten years.
-37-
<PAGE>
The following table shows the potential realizable value of stock options
held by each of the named executive officers as of June 30, 1995:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Shares Underlying Unexercised Unexercised -
Acquired on Value Options at In the Money
Name Exercise (#) Realized ($) FY End (#)/(1)/ Options/(1)/
- ------------ ------------ ------------ ------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
<S> <C> <C> <C> <C>
Craig D. Harlen 0 0 0/80,746 0/$446,417
H. Alan Dahlbach 0 0 0/46,032 0/280,540
Mark R. Sanders 0 0 0/46,032 0/280,540
John D. Yokley 0 0 0/29,974 0/173,558
Steven W. Gampp 0 0 0/46,032 0/280,540
</TABLE>
(1) None of the options outstanding at June 30, 1995 are not exercisable
before December 1, 1996. The value shown is based on the closing price of
$10.125 per share for the Common Stock on June 30, 1995.
Directors' Stock Option Plan
----------------------------
In November 1994, the Company adopted the Non-employee Director Stock
Option Plan (the "Director Plan"), covering an aggregate of 50,000 shares of
Common Stock (adjusted for the reverse stock split in December 1994). Qualified
non-employee directors are eligible to receive grants of NSOs to purchase 4,167
shares of Common Stock on the date when service as a director commences, and to
receive NSOs for an additional 167 shares of Common Stock for each full fiscal
year of service as a director. All options to non-employee directors are fully
exercisable six months after the date of grant. During the twelve months ended
June 30, 1995, Mr. Andrus was granted an option to purchase 4,167 shares of
Common Stock at an exercise price of $8.50. Such option expires on January 3,
2005. All options granted under the Director Plan are fully vested.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
At its meeting in November 1992, the Company's Board of Directors
established a Compensation Committee to be responsible for establishing,
implementing and monitoring the Company's policies and plans for executive
development, succession planning and compensation. The Committee is composed of
Messrs. Lang, Pfister and Andrus.
The Company's policy is (i) to attract high caliber managerial and
technical talent to meet the Company's human resources needs, (ii) to assess and
develop such talent to succeed to key positions throughout the Company and its
operating subsidiaries, (iii) to provide compensation opportunities that are
competitive with those provided by comparable fertilizer companies, and (iv) to
motivate and reward its executives individually based on the contribution of
each toward the meeting of Company objectives, which include annual and long-
term business performance objectives and creation of stockholder value.
-38-
<PAGE>
In accordance with its responsibilities, at the beginning of each fiscal
year the Compensation Committee reviews a summary of objectives for the Company
and for the executive officers which are derived from the Company's strategic
and financial planning activities. Based on this review and a review of the
compensation offered by the Company's competitors, the Compensation Committee
determines for the Chief Executive Officer and, upon the recommendation of the
Chief Executive Officer, the other executive officers of the Company,
compensation levels for base salary, annual incentive awards and long-term
incentive compensation. At the end of the fiscal year, results achieved are
assessed by the Compensation Committee relative to the previously approved
objectives taking into consideration prevailing economic and business
conditions.
For fiscal 1995, the compensation of the Company's Chief Executive Officer
and the next four highest paid executive officers of the Company is consistent
with the Company's policies and plans which provide for three major elements of
compensation:
1. Base salaries have ranges which are established to reflect the
competitive marketplace at the appropriate job level. Placement within base
salary ranges reflects the individual performance of each executive officer,
time in position and the overall financial condition of the Company. Base
salaries are generally reviewed each year for adjustment by the Compensation
Committee. As of July 1, 1993, the salaries of all of the executive officers,
as well as all of the salaried and hourly employees of the Company, were frozen
at their 1992 levels on the recommendation of the Chief Executive Officer to
reflect the Company's financial difficulties pending completion of the
Recapitalization. After consummation of the Recapitalization, the salaries of
all salaried and hourly employees, including the executive officers, were
adjusted retroactively to July 1, 1993. No adjustments were made to salaries of
executive officers until July 1, 1995.
2. Annual incentive awards are contingent on the Compensation Committee's
year-end assessment of the performance of the Company and the individual
executive officer in relation to goals and objectives set for such executive
officers at the beginning of the year. Awards are generally made in cash during
the following fiscal year.
3. Equity participation has been provided in the form of stock options
which strengthen the coincidence of interest of executive officers, as well as
other salaried employees, and the Company's stockholders in the Company's growth
in real value over the long term. Stock options awarded under the 1988 Plan are
exercisable for 10 years. If employment terminates, other than for cause, there
are certain limited periods during which the stock options may be exercised.
Stock option grants may be made to all Company's officers and other key
employees at option prices equal to or less than the fair market value of the
Company's Common Stock at the date of grant. Stock options are granted to
Company's officers on a discretionary basis. Such grants reflect the relative
value of the individual's position as well as his or her current performance,
continuing contributions and the prospective impact of the officer on the
Company's future success and creation of stockholder value.
Compensation of the Chief Executive Officer
- -------------------------------------------
The Chief Executive Officer of the Company participates in the Company's
compensation programs discussed above on substantially the same basis as other
participants. The base salary of the Chief Executive Officer, which had been
maintained at the same level since fiscal 1990, was adjusted on February 24,
1994 retroactive to the beginning of the fiscal year and was further adjusted on
July 1, 1995 to $257,500.
The Compensation Committee will continue to review, monitor and evaluate
the Company's program for executive compensation to assure that it is effective
in support of the Company's strategy, is competitive in the marketplace to
attract, retain and motivate the talent needed to succeed, and appropriately
pays for performance on behalf of all Company stockholders.
-39-
<PAGE>
Members of the Compensation Committee
Wesley W. Lang Peter B. Pfister Cecil D. Andrus
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on its Common Stock over the prior five
years with the cumulative total return on the published NASDAQ Stock Market -
U.S. Index and the cumulative total return of certain peer companies with
investment weighted on the basis of market capitalization. THE FOLLOWING GRAPH
IS PRESENTED PURSUANT TO THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION
("SEC"). THE COMPANY BELIEVES THAT WHILE TOTAL SHAREHOLDER RETURN IS A VERY
IMPORTANT CRITERION OF CORPORATE PERFORMANCE, IT IS SUBJECT TO THE VAGARIES OF
THE MARKET. IN ADDITION TO STOCK PRICE PERFORMANCE, THE COMPANY'S EXECUTIVE
COMPENSATION PROGRAM IS BASED ON FINANCIAL AND STRATEGIC RESULTS, AS WELL AS
OTHER FACTORS SET FORTH AND DISCUSSED IN THE REPORT BY THE COMPENSATION
COMMITTEE.
The Peer group in the performance graph consisted of Agricultural Minerals Co.
LP, Arcadian Partners LP, Freeport McMoran Resource Partners, IMC Global Inc.,
Terra Industries, Inc., Vigoro Corp., and First Mississippi Corp.
-40-
<PAGE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG NU-WEST INDUSTRIES, INC., THE NASDAQ STOCK MARKET-US INDEX
AND A PEER GROUP
DOLLARS
<TABLE>
<CAPTION>
Measurement Period NU-WEST NASDAQ STOCK
(Fiscal Year Covered) INDUSTRIES,INC. PEER GROUP MARKET-US
- ------------------- --------------- ---------- ------------
<S> <C> <C> <C>
Measurement Pt -
06/30/90 $100 $100 $100
FYE 06/30/91 $ 50 $113 $106
FYE 06/30/92 $ 80 $124 $127
FYE 06/30/93 $ 27 $102 $160
FYE 06/30/94 $132 $129 $162
FYE 06/30/95 $123 $184 $215
</TABLE>
/*/ $100 INVESTED ON 06/30/90 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
-41-
<PAGE>
Compliance with Section 16(A)
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers to file with the Securities and Exchange
Commission and the National Association of Securities Dealers initial reports of
ownership and reports of changes in ownership of the Company's securities.
Copies of all such Section 16(a) reports are required to be furnished to the
Company. These filing requirements also apply to holders of more than ten
percent of the Company's common stock.
To the Company's knowledge, based solely on a review of the copies of
Section 16(a) reports furnished to it and representations that no other reports
were required, during the fiscal year 1995 all such reports have been timely
filed.
-42-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of June 30, 1995 (except as otherwise noted),
information regarding the beneficial ownership of (i) the Company's voting and
non-voting securities by each person known by the Company to own beneficially
more than five percent of any class of the Company's voting securities and (ii)
the Company's equity securities owned by each director and by the Company's
Chief Executive Officer and the four most highly compensated executive officers
other than the Chief Executive Officer. Except as otherwise indicated, the
Company believes that the beneficial owners of its capital stock listed below
have sole investment and voting power as to such shares.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Preferred Stock Preferred Stock
Beneficial Ownership(1) Beneficial Ownership(1) Beneficial Ownership(1)
----------------------- ----------------------- -----------------------
Name and Address Number Percent Number Percent Number Percent
- --------------------------- --------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Weiss, Peck & Greer, L.L.C. 4,614,281(2) 57.1% 0 0 0(2) 0%
and Affiliated Persons
One New York Plaza
New York, New York 10004
Glenbrook Partners 563,000 7.0% 4,000 1.4% 0
P. O. Box 12219
Zephyr Cove, Nevada 89448
Indosuez CM II, Inc. 633,105(3) 7.8% 0 0
Les Lieberman 456,063(4) 5.3% 0 0
c/o Banque Indosuez
1211 Avenue of the Americas
New York, New York 10036
DIRECTORS:
Craig D. Harlen 87,031(5) 1.1% 0 0
Mark R. Sanders 46,199(5) * 0 0
Cecil D. Andrus 4,500(5) * 0 0
c/o Nu-West Industries, Inc.
3010 Conda Road
Soda Springs, Idaho 83276
Wesley W. Lang 1,166(6) * 0 0
Peter B. Pfister 389(6) * 0 0
One New York Plaza
New York, New York 10004
</TABLE>
-43-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS:
H. Alan Dahlbach 46,199(7) * 0 0
John D. Yokley 32,132(7) * 0 0
Steven W. Gampp 46,032(7) * 0 0
c/o Nu-West Industries, Inc.
8400 East Prentice Avenue
Suite 1320
Englewood, Colorado 80111
Executive Officers 359,546(8) 4.3% 0 0
and Directors as
a Group (11 Persons)
</TABLE>
* Less than one percent.
(1) A person is deemed to be a "beneficial owner" of a security if that
person has or shares "voting power," which includes the power to vote or
direct the voting of such security, or "investment power," which includes
the power to dispose of, or to direct the disposition of, such security. A
person is also deemed to be the beneficial owner of a security over which
he has the right to acquire either voting power or investment power within
60 days, either through the exercise of a warrant or option or the
conversion of a convertible security. More than one person may be deemed to
be a beneficial owner of the same securities, and a person may be deemed to
be a beneficial owner of securities which he may not vote.
(2) Includes 2,488,005 shares of Common Stock held by WPG Corporate
Development Associates II, L.P. Liquidating Trust, U/T/A dated December 31,
1993 ("CDA II"), 880,563 shares of Common Stock held by Weiss, Peck & Greer
Venture Associates, L.P. Liquidating Trust U/T/A dated December 30, 1994
("WPGVA"), 1,027,714 shares of Common Stock held by WPG Corporate
Development Associates III, L.P. ("CDA III"), and 217,999 shares of Common
Stock held by WPG Corporate Development Associates III (Overseas) Ltd.
("Overseas, Ltd.") See additional discussion under the heading "Certain
Relationships and Related Transactions." Does not include shares held by
Messrs. Lang and Pfister -- see note 6 below.
(3) Consists of 633,105 Non-Voting shares issued upon the exercise of warrants
issued by the Company on November 2, 1993 in connection with the
Recapitalization Plan.
(4) Consists of 456,063 shares issuable upon exercise of warrants issued by
the Company on November 2, 1993 in connection with the Recapitalization to
Indosuez CM II, Inc. and subsequently transferred to Mr. Lieberman.
(5) Includes shares issuable under options granted by the Company in the
following amounts: Mr. Harlen - 80,746; Mr. Sanders - 46,032; Governor
Andrus - 4,167.
(6) Messrs. Lang and Pfister are principals of WPG and Mr. Lang is a managing
partner of WPG CDA III, L.P. WPG is the sole trustee of CDA II and WPGVA;
WPG CDA III, L.P. is the general partner of CDA III. Another principal of
WPG is a director of Overseas, Ltd. Messrs. Lang and Pfister each disclaim
beneficial ownership of the shares held by CDA II, WPGVA, CDA III and
Overseas, Ltd., except to the extent of his own beneficial ownership
interest (direct or indirect) therein. Accordingly, the shares set forth as
beneficially owned by Messrs. Lang and Pfister exclude 2,488,005 shares of
Common Stock held by CDA II, 880,563 shares of Common Stock held by WPGVA,
1,027,714 shares of Common Stock held by CDA III, and 217,999 shares of
Common Stock held by Overseas, Ltd.--see Note 2 above.
-44-
<PAGE>
(7) Includes shares issuable under options granted by the Company in the
following amounts: Mr. Dahlbach - 46,032; Mr. Yokley - 29,974; Mr. Gampp -
46,032.
(8) Includes 342,214 shares issuable under options granted by the Company.
As of June 30, 1995, 8,086,363 shares of Common Stock (7,453,174 shares of
Voting Common Stock and 633,106 shares of Non-Voting Common Stock), 290,000
shares of non-voting Class A Preferred Stock and 344 shares of non-voting Class
B Preferred Stock were issued and outstanding.
-45-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and WPG-CDA, an affiliate of WPG, have entered into an agreement
under which WPG-CDA provides management and financial consulting services to the
Company for an annual fee of $250,000, plus expenses. The Company paid WPG-CDA
$259,000 in fees and related expenses during fiscal 1995 for such services.
-46-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
FILED IN THIS REPORT.
1. Index to Financial Statements and Supplementary Data. See
page 30.
2. Index to Financial Statement Schedules. See page 30.
3. Index to Exhibits required by Form 10-K.
Exhibit Index to Form 10-K for
Fiscal Year Ended June 30, 1995
-------------------------------
<TABLE>
<CAPTION>
Exhibit Page
------- ----
<S> <C> <C>
3(a) Restated Certificate of Incorporation, Incorporated herein by reference.
as amended. See Footnote Numbers 1, 6 & 8 below.
3(b) Bylaws, as amended. Incorporated herein by reference. See
Footnote Number 2 below.
10(a) Non-employee Director Stock Option Plan Incorporated herein by reference.
See Footnote Number 9 below.
10(b) Amended and Restated Employee Stock Incorporated herein by reference.
Option Plan, as amended. See Footnote Number 2 below.
10(c) 1994 Employee Stock Incentive Plan Incorporated herein by reference.
See Footnote Number 9 below.
10(d) Warrant to Purchase 250,000 Shares Incorporated herein by reference.
of Common Stock of the Company See Footnote Number 3 below.
in name of General Electric
Capital Corporation.
10(e) Registration Rights Agreement Incorporated herein by reference.
between the Company and General See Footnote Number 3 below.
Electric Capital Corporation, dated
as of September 18, 1989.
10(f) Employment Agreement dated as of
December 1, 1994 between the Company
and H. Alan Dahlbach.
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(g) Employment Agreement dated as of
December 1, 1994 between the Company
and Craig Harlen.
10(h) Employment Agreement dated as of
December 1, 1994 between the Company
and Mark R. Sanders.
10(i) Employment Agreement dated as of
December 1, 1994 between the Company
and Steven W. Gampp.
10(j) License Agreement dated September 28, Incorporated herein by reference.
1990 between IMCERA Group, Inc. and See Footnote Number 4 below.
Mineral Technology Corporation.
10(k) Indemnity and Tax Reporting Agreement Incorporated herein by reference.
dated as of July 15, 1992 by and among See Footnote Number 5 below.
Western Co-operative Fertilizers Limited,
Western Co-operative Fertilizers(U.S.),
Inc., and Nu-West Industries, Inc.
10(l) Ore Purchase Agreement between Rhone- Incorporated herein by reference.
Poulenc Basic Chemicals Co., a division See Footnote Number 6 below.
of Rhone-Poulenc, Inc. and Nu-West
Industries, Inc., dated June 15, 1993.
a. Collateral Assignment of Ore Purchase Agreement
b. Access Agreement
c. Amendment dated June 1, 1995
10(m) Lease Financing Agreement dated Incorporated herein by reference.
November 2, 1993 between Caterpillar See Footnote Number 6 below.
Financial Services Corporation and the
Company.
a. Sublease between Nu-West and Rhone-Poulenc
b. Collateral Assignment of Lease Financing Agreement
10(n) Ore Requirement Reduction Settlement Incorporated herein by reference.
Agreement between Conda Partnership, See Footnote Number 6 below.
a partnership composed of Nu-West
Industries, Inc. and Nu-West Mining, Inc.,
and WCG Holdings, Inc., dated effective
November 30, 1993.
10(o) Subordination Agreement dated as of Incorporated herein by reference.
October 15, 1993 between the Company See Footnote Number 6 below.
and Weiss, Peck & Greer.
</TABLE>
-48-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(p) Amended and Restated Limited Partner- Incorporated herein by reference.
ship Agreement for NuTec Mineral & See Footnote Number 6 below.
Chemical Company, dated November 1,
1993.
a. Senior Secured Promissory Note from NuTec to Nu-West Industries
b. Assignment and Pledge Agreement between the Company and the Collateral
Agent
10(q) Warrant issued to Indosuez CM II, Inc. Incorporated herein by reference.
See Footnote Number 6 below.
10(r) Registration Rights Agreement between the Incorporated herein by reference.
Company and Indosuez CM II, Inc. See Footnote Number 6 below.
10(s) Cash Settlement Option Agreement Incorporated herein by reference.
between the Company and Indosuez See Footnote Number 6 below.
CM II, Inc.
10(t) Acid Sales Contract between Nu-West Incorporated herein by reference.
Industries, Inc. and Kennecott Utah See Footnote 7 below.
Copper Corporation, dated July 28, 1994.
10(u) $4,000,000 Loan Agreement between Incorporated herein by reference.
Nu-West Industries, Inc. and Kennecott See Footnote 7 below.
Utah Copper Corporation, dated July 28,
1994.
10(v) Intercreditor Agreement among the Harris
Trust and Savings Bank and the Lending
Institution listed therein and Kennecott
Copper Corporation, dated August 3, 1995.
10(w) Work Reduction and Buy-Out Settlement Incorporated herein by reference.
Agreement among Conda Partnership whose See Footnote 7 below.
partners are Nu-West Industries, Inc. and
Nu-West Mining, and WCG Holdings, Inc.
10(x) Agreement and Plan of Merger, dated Incorporated herein by reference.
August 9, 1995 among Nu-West Industries, See Footnote 9 below.
Inc. and Agrium Inc., Agrium Acquisition
Corporation and Agrium U.S. Inc.
10(y) $75,000,000 Credit Agreement among Nu-West
Industries, Inc. and Harris Trust and Savings
Bank and the Lending Institutions listed
therein, dated as of August 3, 1995.
a. Form of Mortgage and Security Agreement
b. Form of Security Agreement
11 Statement regarding computation of per share
earnings.
</TABLE>
-49-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
22 Subsidiaries of Registrant.
27 Financial Data Schedule.
</TABLE>
- --------------------------
(1) Incorporated herein by reference from the Exhibits to the Company's
Registration Statement on Form S-1 as filed on November 9, 1988,
Registration No. 33-25448.
(2) Incorporated herein by reference from the Exhibits to Amendment No. 1 to
the Company's Registration Statement on Form S-1 as filed on November 18,
1988, Registration No. 33-25448.
(3) Incorporated herein by reference from the Exhibits to the Company's Form
10-K, as filed on October 10, 1989.
(4) Incorporated herein by reference from the Exhibits to the Company's Form
10-K, as filed on September 10, 1991.
(5) Incorporated herein by reference from the Exhibits to the Company's
Report on Form 8-K, as filed on July 28, 1992.
(6) Incorporated herein by reference from the Exhibits to the Company's
Report on Form 10-Q, as filed on November 12, 1993.
(7) Incorporated herein by reference from the Exhibits to the Company's
Report on Form 10-K, as filed on September 15, 1994.
(8) Incorporated herein by reference from the Exhibits to the Company's
Report on Form 10-Q, as filed on January 31, 1995.
(9) Incorporated herein by reference from the Exhibits to the Company's Proxy
Statement as filed on October 11, 1994.
(10) Incorporated herein by reference from the Exhibits to the Company's
Schedule 14D-9, as filed on August 16, 1995.
-50-
<PAGE>
(B) Reports on Form 8-K.
None
-51-
<PAGE>
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.
NU-WEST INDUSTRIES, INC.
Date: August 24, 1995 By: /s/ Craig D. Harlen
-------------------------------------
Craig D. Harlen, President and Chief Executive Officer
Know all men by these presents that each person whose signature
appears below does hereby constitute and appoint Wesley W. Lang, Mark R.
Sanders, Steven W. Gampp, and each of them, with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign all amendments to this report, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission granting unto said attorney-in-fact
and agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or his substitute or substitutes, lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ---------------------- --------------------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER
/s/ Craig D. Harlen Chairman of the Board, August 24, 1995
- -------------------------------------------- President, Chief Executive
Craig D. Harlen Officer and Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
/s/ Mark R. Sanders Senior Vice President, August 24, 1995
- -------------------------------------------- Chief Financial Officer and
Mark R. Sanders Director
DIRECTORS
/s/ Peter B. Pfister Director August 24, 1995
- --------------------------------------------
Peter B. Pfister
/s/ Wesley W. Lang Director August 24, 1995
- --------------------------------------------
Wesley W. Lang
</TABLE>
-52-
<PAGE>
Exhibit D
Delaware General Corporation Law
Section 262.
Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository. (b)
Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to Section 251, Section 252, Section 254, Section 257, Section 258,
Section 263 or Section 264 of this title: (1) Provided, however, that no
appraisal rights under this section shall be available for the shares of any
class or series of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as provided
in subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to Sections 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock or depository receipts at the effective date of
the merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
D-1
<PAGE>
d. Any combination of the shares of stock, depository receipts and cash in lieu
of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to
a merger effected under Section 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares. (e)
Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery
D-2
<PAGE>
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f)
D-3
<PAGE>
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
D-4
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES FORMERLY REPRESENTING
SHARES OF COMMON STOCK
OF
NU-WEST INDUSTRIES, INC.
SURENDERED FOR CASH PAYMENT PURSUANT TO THE MERGER WITH
AGRIUM ACQUISITION CORPORATION
A WHOLLY-OWNED SUBSIDIARY OF AGRIUM U.S. INC.,
A WHOLLY-OWNED SUBSIDIARY OF
AGRIUM INC.
Mail or deliver this Letter of Transmittal, or a facsimile hereof, together
with the certificate(s) representing your shares of common stock, to Chemical
Mellon Shareholder Services, at the following address.
The Paying Agent
CHEMICAL MELLON SHAREHOLDER SERVICES
<TABLE>
<CAPTION>
By Mail By Hand
<S> <C> <C>
Chemical Mellon Shareholder Services For Information: Chemical Mellon Shareholder Services
Reorganization Department 1-800-777-3674 Reorganization Department
P.O. Box 837 120 Broadway
Midtown Station 13th Floor
New York, NY 10018 New York, NY 10271
</TABLE>
By Overnight Courier
Chemical Mellon Shareholder Services
Reorganization Department
85 Challenger Road
Ridgefield Park, NJ 07660
DO NOT SEND STOCK CERTIFICATES TO
NU-WEST INDUSTRIES, INC. OR AGRIUM ACQUISITION CORPORATION
Do Not Send Certificate
for Preferred Shares
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID SURRENDER. YOU
MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR PROVIDED
BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
DESCRIPTION OF COMMON SHARES SURRENDERED
- --------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Share Number of Shares
(Please Fill in, if Blank, Exactly as Name(s) Certificates Represented by
Appear(s) on the Certificate(s)) Number(s) Certificate(s)
<S> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total Shares
- --------------------------------------------------------------------------------------------
</TABLE>
Ladies and Gentlemen:
The undersigned, the registered holder(s) of the certificate(s) referred to
above or the assigns of such registered holders, hereby surrender(s) to Chemical
Mellon Shareholder Services as Paying Agent the above-described shares of Common
Stock, $.01 par value (the "Common Shares"), of Nu-West Industries, Inc., a
Delaware corporation (the "Company"), in exchange for the right to receive
$10.50 per Common Share, in cash without interest, in connection with the merger
of Agrium Acquisition Corporation ("Agrium Acquisition"), a Delaware
corporation, a wholly-owned subsidiary of Agrium U.S. Inc. ("Agrium U.S."), a
wholly-owned subsidiary of Agrium Inc., a Canadian corporation, with and into
the Company with the Company surviving as a direct wholly-owned subsidiary of
Agrium U.S. (the "Merger"), all as described and on the terms and conditions set
forth in the Proxy Statement of the Company dated October 17, 1995 (the Proxy
Statement").
The undersigned hereby surrenders all right, title and interest in and to
the certificate(s) formerly representing the Common Shares (the
"certificate(s)"). The undersigned hereby irrevocably appoints Chemical Mellon
<PAGE>
Shareholder Services and the Company as the lawful attorneys-in-fact of the
undersigned, each with full power of substitution, to deliver such
certificate(s) together with all accompanying evidence of authority to the
Company and to effect the cancellation of such certificate(s). All such powers
of attorney, being deemed to be irrevocable, shall be considered coupled with an
interest in the certificate(s) surrendered with this Letter of Transmittal. Such
appointment will be effective when, and only to the extent that, such
certificate(s) are surrendered. Upon such surrender of certificate(s), all prior
powers of attorney given by the undersigned with respect to such certificate(s)
will be revoked, without further action, and no subsequent powers of attorneys
and proxies may be given with respect thereto (and, if given, will be deemed
ineffective).
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to surrender the certificate(s) and that there is no
lien, restriction, charge or encumbrance against the certificate(s). The
undersigned, upon request, will execute and deliver any additional documents
deemed to be necessary or desirable to perfect the surrender of certificate(s).
Agrium acquired approximately 95.9 percent of the Common Shares of and a
majority of the Common Shares must approve the Merger at the stockholders'
meeting to be held on November 6, 1995, to consummate the Merger. In the
unlikely event that the Merger Agreement is terminated without the Merger being
consummated, certificates delivered to the Paying Agent will be promptly
returned.
The undersigned hereby acknowledges that the undersigned has received and
read the Proxy Statement referred to in the first paragraph and the "General
Instructions" accompanying the Letter of Transmittal.
Unless otherwise indicated in this Letter of Transmittal under "Special
Payment Instructions," please issue the check in payment for the certificate(s)
surrendered in the name(s) of the registered holder(s) appearing under
"Description of Common Shares Surrendered." Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail the check in
payment for the certificate(s) surrendered or return any certificate(s) should
the Merger Agreement be terminated without the Merger being consummated to the
address(es) of the registered holder(s) appearing under "Description of Common
Shares Surrendered." In the event that both the "Special Payment Instructions"
and the "Special Delivery Instructions" are completed, please issue such check
or return any such certificate(s) (and accompanying documents, as appropriate)
in the name(s) of, and deliver such check and/or return such certificate(s) (and
accompanying documents, as appropriate) to the person(s) so indicated.
<TABLE>
<CAPTION>
- -------------------------------------- ---------------------------------------
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7)
To be completed ONLY if the check in To be completed ONLY if the check in
payment for the certificate(s) surrendered is to be issued in the
name of someone other than the surrendered or the certificate(s)to
undersigned. be returned should the Merger
Agreement be terminated without the
Issue check to: Merger being consummated are to be
sent to someone other than the
undersigned or to the undersigned at
an address other than that shown
above
Mail Check/Certificate(s) to:
Name:_____________________________ Name:_____________________________
(Please type or print) (Please type or print)
Address:__________________________ Address:__________________________
__________________________________ __________________________________
__________________________________ __________________________________
(Tax Identification or Social (Tax Identification or Social
Security No.) Security No.)
- -------------------------------------- ---------------------------------------
</TABLE>
<PAGE>
NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
IMPORTANT
STOCKHOLDER: SIGN HERE AND COMPLETE SUBSTITUTE FORM W-9 ON REVERSE
________________________________________________________________________________
(Signature(s) of Stockholder(s))
Dated:____________, 1995
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
the certificate or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, agents, officers or corporations or others acting in a fiduciary or
representative capacity, please provide the following information. See
Instruction 5.)
Name(s):________________________________________________________________________
________________________________________________________________________________
(Please type or print)
Capacity (Full Title):__________________________________________________________
(See Instruction 5)
Address:________________________________________________________________________
(Include a Zip Code)
Area Code and Telephone Number:_________________________________________________
(Home)
________________________________________________________________________________
(Business)
Taxpayer Identification or Social Security No.:_________________________________
(Complete Substitute Form W-9 on Reverse)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
________________________________________________________________________________
(Authorized signature(s))
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Name of Firm)
________________________________________________________________________________
(Address Including Zip Code)
________________________________________________________________________________
(Area Code and Telephone Number)
Dated:___________, 1995
GENERAL INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below,
signatures on this Letter of Transmittal must be guaranteed by a member firm of
a registered national securities exchange (registered under Section 6 of the
Securities Exchange Act of 1934 (the "Exchange Act")), by a member firm of the
National Association of Securities Dealers, Inc., by a commercial bank or trust
company having an office or correspondent in the United States or by any other
"Eligible Guarantor Institution" (bank, stockholder, savings and loan
association or credit union with membership approved signature guarantee
medallion program) as defined in Rule 17Ad-15 under the Exchange Act (each of
the foregoing constituting an "Eligible Institution"), unless the certificate(s)
surrendered hereby are surrendered (i) by the registered holder of such
certificate(s) who has completed neither the box entitled "Special Payment
Instructions" nor the box entitled "Special Delivery Instructions" in this
Letter of Transmittal or (ii) for the
<PAGE>
account of an Eligible Institution. See Instruction 5. If the certificate(s) are
registered in the name of a person other than the signer of this Letter of
Transmittal, or if payment is to be made or delivered to, or certificate(s) are
to be returned to, a person other than the registered owner, then the
surrendered certificate(s) must be endorsed or accompanied by duly executed
stock powers, in either case signed exactly as the name or names of the
registered owner or owners appear on the certificate(s), with the signatures on
the certificate(s) or stock powers guaranteed by an Eligible Institution as
provided in this Letter of Transmittal. See Instruction 5.
2. METHOD OF DELIVERY. The certificate(s) for Common Shares of Nu-West
Industries, Inc. and the Letter of Transmittal must be sent or delivered to the
Paying Agent in order to make an effective surrender. The method of delivery of
certificate(s), this Letter of Transmittal and any other required documents, to
the Paying Agent set forth on the front of the Letter of Transmittal is at the
option and sole risk of the holder of Common Shares and the delivery will be
deemed made only when actually received by the Paying Agent. If delivery is by
mail, registered mail with return receipt requested, properly insured, is
recommended. Do not send material to Agrium Acquisition or Nu-West Industries,
Inc.
3. INADEQUATE SPACE. If the space provided in this Letter of Transmittal
is inadequate, the information required under "Description of Common Shares
Surrendered" should be listed on a separate signed schedule attached to this
Letter of Transmittal .
4. SIGNATURES ON LETTER OF TRANSMITTAL, INSTRUMENTS OF TRANSFER AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered
holder(s) of the certificate(s) surrendered hereby, the signature(s) must
correspond exactly with the name(s) as written on the face of the certificate(s)
without alteration, enlargement or any change whatsoever.
If any of the certificate(s) surrendered hereby are owned of record by two
or more joint owners, all the owners must sign this Letter of Transmittal.
If any of the surrendered certificate(s) are registered in different names
on several certificate(s), it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificate(s).
If this Letter of Transmittal or any certificate(s) or instruments of
transfer are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, that person should so indicate when signing, and
proper evidence satisfactory to the Purchaser of that person's authority to so
act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
certificate(s) listed and transmitted hereby, no endorsements of certificate(s)
or separate instruments of transfer are required unless payment is to be made,
or certificate(s) are to be returned should the Merger Agreement be terminated
without the Merger being consummated, to a person other than the registered
holder(s). Signatures on the certificate(s) or instruments of transfer must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Common Shares evidenced by the certificate(s) listed
and transmitted hereby, the certificate(s) must be endorsed or accompanied by
appropriate instruments of transfer, in either case signed exactly as the
name(s) of the registered holder(s) appear on the certificate(s). Signatures on
the certificate(s) or instruments of transfer must be guaranteed by an Eligible
Instruction.
5. TRANSFER TAXES. Except as set forth in this Instruction 5, Agrium
Acquisition will pay or cause to be paid any transfer taxes with respect to the
surrender of certificate(s) to it. If, however, payment for the certificates
surrendered is to be made to any person other than the registered holder(s), or
if surrendered certificate(s) are registered
<PAGE>
in the name of any person other than the person(s) signing this Letter of
Transmittal, the amount of any transfer taxes (whether imposed on the registered
holder(s) or such person) payable on account of the transfer to such person will
be deducted from the purchase priced unless satisfactory evidence of the payment
of such taxes or exemption therefrom is submitted.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) listed in this Letter of
Transmittal.
6. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued
in the name of a person other than the signer of this Letter of Transmittal or
if a check is to be sent and/or certificate(s) are to be returned to someone
other than the signer of this Letter of Transmittal or to an address other than
that shown above, the appropriate boxes on this Letter of Transmittal should be
completed.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance may be directed to the Paying Agent at its address or telephone
number set forth below and requests for additional copies of the Proxy Statement
and this Letter of Transmittal may be directed to the Paying Agent or brokers,
dealers, commercial banks and trust companies and such materials will be
furnished at Agrium Acquisition's expense.
8. BACKUP WITHHOLDING TAX. Each holder of Common Shares surrendering
certificate(s) is required to provide the Paying Agent with a correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9, which is provided under
"Important Tax Information" below and to certify that Stockholder is not subject
to backup withholding. Failure to provide the information on the Substitute Form
W-9 may subject the holder to 31% federal income tax backup withholding on the
payment of the amounts due for the certificate(s). The holder should indicate in
the box in Part III of the Substitute Form W-9 if the holder has not been issued
a TIN and has applied for a TIN or intends to apply for a TIN in the near
future. If the holder has indicated in the box in Part III that a TIN has been
applied for and the Paying Agent is not provided with a TIN by the time of
payment, the Paying Agent will withhold 31% of the payment amounts due for the
certificate(s) until a TIN is provided to the Paying Agent.
9. LOST OR DESTROYED CERTIFICATE(S). If any certificate(s) representing
Common Shares has been lost or destroyed, the holders should promptly notify the
Company's transfer agent, American Stock Transfer Company. The holders will then
be instructed as to the procedure to be followed in order to replace the
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificate(s)
have been followed.
IMPORTANT TAX INFORMATION
Under federal income tax law, a holder of Common Shares whose surrendered
certificate(s) are accepted for payment is required to provide the Paying Agent
(as payor) with such holder's correct TIN on Substitute Form W-9 below. If such
holder is an individual, the TIN is his social security number. If the holder
has not been issued a TIN and has applied for a TIN or intends to apply for a
TIN in the near future, the holder should so indicate on the Substitute Form W-
9. See Instruction 8. If the Paying Agent is not provided with the correct TIN,
the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to the holder with respect to
certificate(s) surrendered may be subject to backup federal income tax
withholding.
Certain Stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that Stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Forms for such statements
can be obtained from the Paying Agent. See the enclosed Guidelines for
Certificate(s) of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
<PAGE>
If backup withholding applies, the Paying Agent is required to withhold 31%
of any payments made to the Stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup federal income tax withholding with respect to payment of
the amounts due for the certificate(s), a holder must provide the Treasury with
his correct TIN by completing the Substitute Form W-9 below, certifying that the
TIN provided on Substitute Form W-9 is correct (or that the holder is awaiting a
TIN) and that (1) the holder has not been notified by the Internal Revenue
Service that he is subject to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal Revenue Service has
notified the holder that he is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE PAYING AGENT
The holder is required to give the Paying Agent the social security number
or employer identification number of the record holder of the certificate(s)
surrendered. If the certificate(s) are registered in more than one name or are
not in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
<TABLE>
<CAPTION>
PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PART I-- PLEASE PROVIDE YOUR TIN IN Part III Social Security Number or
THE BOX AT RIGHT AND CERTIFY BY Employer Identification Number
SIGNING AND DATING BELOW. ======================================
(If awaiting TIN write "Applied For")
----------------------------------------------------------------------------
SUBSTITUTE PART II-- For Payees exempt from backup withholding, see the enclosed
Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 and complete as instructed therein
FORM W-9 Certifications-- Under penalties of perjury, I certify that:
DEPARTMENT OF THE (1) The Number shown on this form is my correct Taxpayer Identification
TREASURY (or I am waiting for a number to be issued to me); and
INTERNAL REVENUE SERVICE (2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
----------------------------------------------------------------------------
Certification Instructions-- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you are subject to backup withholding,
PAYER'S REQUEST FOR TAXPAYER you receive another notification from the IRS that you were no longer
IDENTIFICATION NUMBER (TIN) subject to backup withholding, do not cross out item (2). (Also see
instructions in the enclosed guidelines).
SIGNATURE:___________________________ DATE:___________________________
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty that a taxpayer identification number has not
been issued to me, and either (1) I have mailed or delivered an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me thereafter will be withheld until I provide a number.
Signature_______________________________ Date ____________________________.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payor-
Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-
0000. Employer identification numbers have nine digits separated by one hyphen:
i.e., 00-0000000. The table below will help determine the number to give the
payor.
<TABLE>
<CAPTION>
============================================================================
Give the
For this type of account: SOCIAL SECURITY
number of--
============================================================================
<S> <C>
1. Individual The individual
2. Two or more individuals (joint The actual owner of the account
account) or, if combined funds, the first
individual on the account/1/
3. Custodian account of a minor The minor/2/
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee/1/
trust (grantor is also trustee)
b. So-called trust account that The actual owner/1/
is not a legal or valid trust
under State law
5. Sole proprietorship The owner/3/
6. Sole proprietorship The owner/3/
============================================================================
<CAPTION>
============================================================================
Give the EMPLOYER
For this type of account: IDENTIFICATION
number of--
============================================================================
<S> <C>
7. A valid trust, estate or The legal entity/4 /
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, education or
other tax-exempt
organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity of Agriculture in
Department the name of a public entity (such as
a state or local government, school
district, or prison) that receives
agricultural program payments
============================================================================
</TABLE>
/1/ List first and circle the name of the person whose number you furnish.
/2/ Circle the minor's name and furnish the minor's social security number.
/3/ Show your individual name. You may also enter your business name. You may
use your SSN or EIN.
/4/ List first and circle the name of the valid trust, estate or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER (TIN) ON SUBSTITUTE FORM W-9
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE)
Page 2
NAME
If you are an individual, you must generally provide the name shown
on your social security card. However, if you have changed your last
name, for instance, due to marriage, without informing the Social
Security Administration of the name change, please enter your first
name, the last name shown on your social security card, and your new
last name.
OBTAINING A NUMBER
If you don't have a taxpayer identification number ("TIN"), apply for
one immediately. To apply, obtain Form SS-5, Application for a
Social Security Card, from your local office of the Social Security
Administration, or Form SS-4, Application for Employer
Identification Number, from your local Internal Revenue Service
(the "IRS") office.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding
and for which no information reporting is required. For interest and
dividends, all listed payees are exempt except item (9). For broker
transactions, payees listed in (1) through (13) and a person registered
under the Investment Advisers Act of 1940 who regularly acts as a
broker are exempt. Payments subject to reporting under sections
6041 and 6041A are generally exempt from backup withholding
only if made to payees described in items (1) through (7), except that
a corporation that provides medical and health care services or bills
and collects payments for such services is not exempt from backup
withholding or information reporting.
(1) A corporation.
(2) An organization exempt from tax under section 501(a),
or an individual retirement plan ("IRA"), or a custodial
account under section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the
United States, or any of their political subdivisions or
instrumentalities.
(5) A foreign government or any of its political subdivisions,
agencies or instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register
in the U.S. or a possession of the U.S.
(9) A futures commission merchant registered with the
Commodity Futures Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under
the Investment Company Act of 1940.
(12) A common trust fund operated by a bank under
section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a
nominee or listed in the most recent publication of the
American Society of Corporate Secretaries, Inc.,
Nominee List.
(15) A trust exempt from tax under section 664 or described
in section 4947.
Payments of dividends generally not subject to backup withholding
include the following:
. Payments to nonresident aliens subject to withholding under
section 1441.
. Payments to partnerships not engaged in a trade or business
in the U.S. and that have at least one nonresident partner.
. Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding
include the following:
. Payments of interest on obligations issued by individuals.
NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS
INTEREST IS $600 OR MORE AND IS PAID IN THE COURSE OF THE
PAYOR'S TRADE OR BUSINESS AND YOU HAVE NOT
PROVIDED YOUR CORRECT TIN TO THE PAYOR.
. Payments of tax-exempt interest (including exempt-interest
dividends under section 852).
. Payments described in section 6049(b)(5) to nonresident
aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Mortgage interest paid by you.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see sections 6041,
6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and the
regulations under those sections.
PRIVACY ACT NOTICE. Section 6109 requires you to furnish your
correct TIN to persons who must file information returns with the
IRS to report interest, dividends, and certain other income paid to
you, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an IRA. The IRS
uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or
not you are qualified to file a tax return. Payors must generally
withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a TIN to a payor. Certain
penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TIN. If you fail to furnish your correct
TIN to a requester (the person asking you to furnish your TIN), you
are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO
WITHHOLDING. If you make a false statement with no reasonable
basis that results in no backup withholding, you are subject to a
$500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully
falsifying certifications or affirmations may subject you to criminal
penalties including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE IRS
