UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended March 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___ to ___
Commission file number 33-67546
HARRIS CHEMICAL NORTH AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 48-1135402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2100 Sanders Road
Northbrook, Illinois 60062-6142
(Address of principal executive offices)(Zip Code)
(847) 272-9200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for 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 ]
The number of shares outstanding of the registrant's common stock at March 28,
1998 was 1,000 shares. All of such shares are owned by Harris Chemical Group,
Inc.
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HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-K For the Fiscal Year ended March 28, 1998
Index
<S> <C> <C>
Part I Description Page #
- ------ ----------- ------
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 13
Item 3. Legal Proceedings........................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......................... 15
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................................... 16
Item 6. Selected Financial Data .................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 17
Item 8. Financial Statements........................................................ 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... 49
Part III
Item 10. Directors and Executive Officers of the Registrant ......................... 49
Item 11. Executive Compensation ..................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 53
Item 13. Certain Relationships and Related Transactions.............................. 54
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 56
Signatures ............................................................................ 59
</TABLE>
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HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-K
PART I
Item 1 BUSINESS1
General
Harris Chemical North America, Inc. ("Harris") was formed in July 1993 for
the purpose of becoming a holding company for its principal wholly-owned
subsidiaries: North American Chemical Company ("NACC"), NAMSCO Inc. ("NAMSCO")
and its subsidiaries North American Salt Company ("NASC") and Sifto Canada Inc.
("Sifto"), and GSL Corporation ("GSL") and its subsidiary Great Salt Lake
Minerals Corporation ("GSLMC"). Harris and its direct and indirect subsidiaries
are collectively referred to as the "Company."
The Company is a leading producer and marketer of inorganic chemical
products, including principally salt, soda products, boron chemicals and
specialty potash fertilizers. The Company markets its products throughout the
United States and Canada as well as in Asia, the Pacific Rim countries, Latin
America and Europe. Revenues derived from areas outside the United States in FY
1998 were approximately $190.0 million or 38.5% of total revenues.
Harris is a wholly owned subsidiary of Harris Chemical Group, Inc. ("HCG").
HCG was formed in 1992. On September 24, 1993 the stockholders of NACC, NAMSCO
and GSL exchanged their shares in those companies for shares in HCG. HCG then
contributed its shares in NACC, NAMSCO and GSL to Harris. Those transactions are
referred to as the "Consolidation."
On April 1, 1998, HCG was acquired by IMC Global Inc. ("IMC") and as a
result all of the subsidiaries of HCG, including Harris, became indirect wholly
owned subsidiaries of IMC. These transactions are referred to as the "Merger."
Following the Merger, the names of HCG, NACC, NASC and GSLMC were changed to IMC
Inorganic Chemicals Inc., IMC Chemicals Inc., IMC Salt Inc. and IMC Kalium Ogden
Corp., respectively. Any references to those companies in this Form 10-K are to
the pre-Merger names.
Subsequent to the Consolidation, the Company was recapitalized (the
"Recapitalization"). As part of the Recapitalization, Harris issued $250 million
of 10.25% Senior Secured Discount Notes due July 15, 2001 (the "Discount Notes")
and $335 million of 10.75% Senior Subordinated Notes due October 15, 2003 (the
"Senior Subordinated Notes") and Sifto issued $100 million of 8.5% Senior
Secured Notes due July 15, 2000 (the "Sifto Notes"). The Discount Notes, the
Senior Subordinated Notes and the Sifto Notes are collectively referred to
herein as the "Notes." The Discount Notes were issued for net proceeds
aggregating $200.4 million. NACC, NAMSCO and GSL, collectively, and Sifto have
also entered into revolving credit agreements (the "Bank Agreements") providing
for borrowings of up to $130 million and $20 million, respectively, secured by
inventory and accounts receivable. Sifto terminated the $20 million revolving
credit agreement simultaneously with the consummation of the Merger.
The Company intends to continue its strategy of growth through internal
reinvestment and development, as well as through joint ventures and
acquisitions, particularly in businesses in which the Company currently competes
or in similar areas of the inorganic chemical industry where the Company's
existing expertise in technology, process capabilities and marketing can be used
to strengthen and improve the acquired business or joint venture.
In addition, the Company continually reviews its businesses and asset
base in light of its cash requirements and strategic plans. Based on these
reviews, the Company may determine that it is in its best interest to (i) enter
into strategic business alliances, including through the possible contribution
of assets to joint ventures and/or (ii) offer for sale assets deemed not to be
strategic. In July 1996, NACC entered into an agreement for the sale and
leaseback of an electric and steam
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1Unless otherwise stated, all references herein to "dollars" or "$" are to
U.S. dollars. References to any particular fiscal year ("FY") mean the 52 or 53
week fiscal year ending on the last Saturday in March of the indicated year.
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generating facility associated with its Searles Valley Soda Ash Facility ("Argus
Utilities"). See Note 7 to the Consolidated Financial Statements.
Except for statements of historical fact contained herein, the statements
appearing under Part I, Item 1, "Business;" Part I, Item 3, "Legal Proceedings;"
and Part II, Item 7, "Management's Discussion and Analysis of Results of
Operations and Financial Condition," presented herein constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include, but are not
limited to, the following: the effect of general business and economic
conditions; weather; product demand and industry capacity; price and
availability of freight transportation; risks associated with investments and
operations in foreign jurisdictions, including those related to economic,
political and regulatory policies of local governments and laws or policies of
the United States and Canada; changes in governmental laws and regulations
affecting environmental compliance, taxes and other matters impacting the
Company; the risks attendant with mining operations; the potential impacts of
increased competition in the businesses in which the Company operates; changes
in interest rates and capital markets; manufacturing efficiencies; availability
and price of raw materials and critical manufacturing equipment; plant expansion
efforts; the international regulatory and trade environment; and other risks
indicated in this report and other SEC filings. These factors could cause actual
results to differ materially from the forward-looking statements set forth
herein.
Products
The Company's net sales (in thousands) by product line and the percentage
of net sales represented by such sales during the last three fiscal years are as
follows:
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Product Line FY 1996 FY 1997 FY 1998
-------------------- ---------------------------- ---------------------------- ----------------------------
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Salt ............... $224,500 47.2% $235,899 46.4% $216,443 43.8%
Soda products ...... 115,978 24.4 119,800 23.6 126,341 25.6
Boron chemicals .... 67,979 14.3 63,051 12.4 68,289 13.8
Specialty potash
fertilizers .... 55,459 11.7 71,547 14.1 68,772 13.9
Other .............. 11,558 2.4 18,325 3.5 14,308 2.9
------------ ----------- ------------ ---------- ------------ ----------
Net Sales .......... $475,474 100.0% $508,622 100.0% $494,153 100.0%
============ =========== ============ ========== ============ ==========
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Salt
Salt is used in a variety of applications, including as a deicer for both
highway and consumer use, an ingredient in the production of chemicals for paper
bleaching and plastic production, a flavor enhancer and preservative in food, an
ingredient and nutrient in animal feeds, and an essential item in both
industrial and consumer water softeners. The demand for salt has historically
remained relatively stable during economic cycles due to the large variety of
uses. However, demand for salt for highway deicing is affected by changes in
winter weather.
The Company produced approximately 9.1 million tons of salt in FY 1998
compared to 9.5 million tons in FY 1997. Production activities are conducted at
nine facilities, five located in the United States and four located in Canada.
Canadian sales represented approximately 32% of the Company's total sales of
salt in FY 1998.
Businesses/Customers. The Company separates sales of salt into three
major segments: general trade, highway deicing and chemical. The general trade
segment is the Company's largest segment and accounted for approximately 46% of
FY 1998 salt sales. This segment includes consumer applications such as table
salt, water conditioning, home ice control, food and meat processing,
agricultural applications, including feed mixes, and a variety of industrial
applications such as oil refining and drilling, metal processing and tanning.
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Highway deicing constitutes the Company's second largest segment of salt
sales accounting for approximately 42% of FY 1998 salt sales. Principal
customers are states, provinces and municipalities that purchase bulk salt for
ice control on public roadways. Highway salt is sold mostly via a tendered bid
contract system with price, product quality and deliverability being the primary
factors in determining a supplier. Location of the source of salt and
distribution outlets also play a significant role. The Company has an extensive
network of approximately 80 depots for storage and distribution of highway
deicing salt. The majority of these depots are located on the Great Lakes and
the Mississippi River system.
Winter weather variability is a factor affecting salt sales for deicing
applications because mild winters reduce the need for salt used in ice and snow
control. During the past five years annual highway deicing sales by the Company
ranged from 3.2 million tons to 5.9 million tons per year. Unusually mild
weather occurring in the Company's principal deicing sales areas would adversely
affect the Company's sales and earnings. The vast majority of the Company's
deicing sales are made in Canada and the northern United States, where winter
weather is generally harsher than in other parts of North America.
The chemical industry accounted for approximately 12% of the Company's FY
1998 salt sales. Principal customers are producers of intermediate chemical
products used in pulp bleaching and plastic production that do not have a
captive source of brine.
Sales and Marketing. The general trade segment is driven by strong
customer relationships. Sales in our general trade segment occur through retail
channels such as grocery, building supply and hardware stores, automotive
stores, feed suppliers, and industrial manufacturers in various industries.
Distribution in the U.S. general trade segment is channeled through a direct
sales force located in various parts of the United States, who sell products to
distributors, dealers and end users. The Company also maintains a network of
brokers who sell table salt, consumer deicing and water conditioning products.
These brokers service wholesale and chain grocery headquarters and retail stores
as well as the food service industry.
The Company has maintained a significant presence in the U.S. general
trade segment over recent years due to its strong focus on the mid-western
region, its distribution network to the grocery trade and its relationships with
the large distributors of water conditioning salt. In order to continue to
expand its volume and profitability in the general trade segment, the Company
has focused its efforts on improving its marketing programs in both Canada and
the U.S. These programs include:(i) differentiating the Company's various brand
names through promotional activities, (ii) developing an exclusive distributor
network, (iii) redesigning the Canadian water conditioning product and (iv)
improving solar salt quality.
The highway deicing customer base consists of states, provinces and
municipalities that purchase bulk salt for ice control. Contracts are awarded
annually on the basis of tendered bids once the purchaser is assured that the
minimum requirements for purity, service and delivery can be met. The bidding
process minimizes the need to invest significant time and effort in marketing
and advertising.
Distribution into the chemical segment is made through long-term supply
agreements, which are negotiated privately. Price, service and quality of
product are the major customer requirements.
Competition. Harris faces significant competition in each of the salt
sales segments in which it operates. Large, nationally recognized firms, such as
Cargill and Morton International, as well as regional firms, compete against the
Company.
Production Techniques and Facilities. Summarized below are the three
processing methods used to produce salt. The Company utilizes all three methods.
Rock Salt Mining. The Company employs a drill and blast mining technique
at its Cote Blanche, Louisiana and Goderich, Ontario rock salt mines.
Mechanical Evaporation. The mechanical evaporation method involves
subjecting salt-saturated brine to vacuum pressure and heat to precipitate salt.
The resulting product has both a high purity and an attractive physical shape.
Solar Evaporation. The solar evaporation method is a cost effective
method of salt production used in areas of the world where high salinity and low
rainfall are common. Water with above average salt content is pumped into large
open ponds where sun and wind evaporate the water and crystallize the salt into
a solid which is then mechanically harvested.
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The Company produces salt at nine different locations. Mechanically
evaporated salt for Canada is produced at three facilities strategically located
throughout Canada: Amherst, Nova Scotia in eastern Canada, Goderich, Ontario in
central Canada and Unity, Saskatchewan in western Canada. From the Goderich rock
salt mine, the Company also serves the highway deicing market in eastern Canada
as well as the Great Lakes region of the United States.
The Company's central and midwest U.S. customer base is served by three
mechanical evaporation plants, two located in Kansas and one in Tennessee. The
Cote Blanche, Louisiana rock salt mine serves chemical customers in the southern
and western U.S. as well as the highway deicing segment through a series of
depots located along the Mississippi and Ohio Rivers. The Company's solar
evaporation facility located at Ogden, Utah is the largest solar salt production
site in the United States. This facility principally serves the western United
States with general trade salt, but also provides salt for chemical applications
and highway deicing.
Control of Resources. Based on the geological characteristics of the salt
deposits that provide the Company's raw materials and the current production
rates, the Company believes there are sufficient sources of readily recoverable
salt for the foreseeable future.
Soda Products
Soda products include soda ash, sodium sulfate and sodium bicarbonate.
Soda ash is used in the production of glass, sodium-based chemicals, detergents,
pulp and paper and for water treatment and numerous other applications. Sodium
sulfate is used as an ingredient in many laundry detergents and in the
processing of wood pulp into paper. Sodium bicarbonate is used as a buffering
agent in animal feeds, as a chemical additive and in pharmaceutical, food and
other consumer applications.
Soda Ash
There are currently two production processes for soda ash. The principal
production process, the "ammonia-soda" or "synthetic" process, is raw material
(using coke, salt, and limestone) and energy-intensive and generates by-products
such as calcium chloride and aluminum chloride. Today, roughly two-thirds of the
worldwide production uses a variation of this process. The other one-third of
worldwide production uses a newer production process, developed only within the
past 30 years, which refines naturally occurring trona deposits and is
considerably less costly than the synthetic process. Outside of the United
States, production of soda ash using trona deposits occurs currently in Kenya,
Botswana and China. The six U.S. producers, by using the natural production
process, are regarded as the world's lowest cost producers of high quality soda
ash.
Of the six U.S. soda ash producers, five are located in Green River,
Wyoming. The Green River suppliers produce soda ash by conventional underground
mining techniques and mechanical separation. The Company is the other domestic
producer and produces soda ash from the carbonation of brine by solution mining
rather than by underground mining. The Company is the only domestic producer not
located in Green River, Wyoming. The Company's California location results in
reduced transportation costs to California and to ports for export.
Prior to April 1996, the Company had higher costs of production than the
Green River producers, but in the Company's opinion these production costs were
largely offset by reduced transportation costs for sales of soda ash in the
western U.S., as well as the European and faster growing Asian, Pacific Rim and
Latin American countries. As of April 1996, the Company completed the first
phase of a two-phase strategic capital expenditure program (Long Range Process
Plan or "LRPP"). By employing newly developed technology which has increased the
mineral concentration of the brine and by modifying the existing manufacturing
process, the Company has reduced production costs and increased capacity by
300,000 tons. See "--Production Techniques and Facilities."
Businesses/Customers. Soda ash produced by the Company is used
principally in the production of container glass, flat glass, sodium-based
chemicals and detergents. Container glass and flat glass include bottles and
other containers, windows for buildings and automobiles, mirrors, lighting ware,
tableware, glassware and laboratory ware. The chemical industry uses soda ash as
a source of sodium ions and to synthesize value-added products. It is mainly
used in the production of sodium bicarbonate, sodium phosphates, sodium
silicates and chrome chemicals. Soda ash is also a component of powdered
detergents and is often the prime alkali used to make phosphates and silicates
for dry detergent applications.
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The Company, along with other U.S. producers of natural soda ash, exports
soda ash through the American Natural Soda Ash Corporation ("ANSAC"), an export
sales and marketing association organized in 1983 which is authorized by the
Webb-Pomerene Act. ANSAC represents the Company and the five other domestic
producers for export sales to customers in all parts of the world other than
Canada and the European Union ("EU"). ANSAC rules require the Company and the
other five domestic producers to sell exclusively through ANSAC in ANSAC
territories, with limited exceptions for sales to affiliates.
The Company exports soda ash to Europe. All of the production of soda ash
within the EU is by the higher cost synthetic method. In 1993, the EU Commission
initiated an antidumping action against American producers of soda ash exported
to the EU, including soda ash manufactured by the Company. This action was
vigorously resisted by the Company. In October of 1997, all dumping actions
against the Company and other soda ash producers involved in the dumping action
were rescinded by the EU Commission. The Company continues to sell to European
customers.
Sales and Marketing. The Company's domestic sales are concentrated in the
western U.S., where the Company's soda ash production facility is located. The
Company's strategy for increasing soda ash sales in the U.S. is to target the
pulp processing, water treatment and chemical market segments as well as to
increase sales into the southeastern United States. The Company expects demand
in these segments to grow faster than demand in the glass segment. The Company
will continue to participate in ANSAC for sales in all export markets where they
are allowed to operate, which include all foreign markets other than Canada and
the EU. ANSAC's strategy is to continue to service these relatively faster
growing developing markets with low cost, high quality soda ash from the U.S.
producers.
Competition. There are numerous competitors in the sale of soda ash on a
worldwide basis. Several of these firms, such as Solvay S.A., are larger, both
in terms of sales and capacity, than the Company. The Company expects
competition in the sale of soda ash to remain robust for the foreseeable future.
Production Techniques and Facilities. The Company produces soda ash at
one facility located at Searles Valley, California ("Searles Valley"). At the
end of FY 1997, the plant had a rated production capacity of 1.5 million tons
per year and accounted for approximately 12.0% of total U.S. soda ash
production. In the Company's process, brine containing carbonate is reacted with
carbon dioxide, cooled to precipitate sodium bicarbonate, and calcined to yield
an intermediate, low-density grade of sodium carbonate. The low-density sodium
carbonate is dissolved and recrystallized, separated by centrifuge, dried, and
stored for sale as dense soda ash.
The Company commenced in FY 1993 the LRPP, a two-phase capital
expenditure program, which could cost up to $132.0 million, intended to lower
the Company's soda ash and boron unit production costs and to increase its soda
ash production capacity. The initial phase of the LRPP utilizes newly developed
technology that increases the mineral concentration of the brine from which soda
ash and boron chemicals are produced and changes the production process, by
including more efficient drying and processing equipment. As a result, the
Company's soda ash rated production capacity is 1.5 million tons annually and
production costs for soda ash and boron chemicals were reduced further in FY
1998. The second phase of the program is designed to increase soda ash rated
production capacity to between 1.8-2.0 million tons annually and reduce costs
further. The Company plans to market the increased soda ash volume both
domestically and in the EU and, through an increase in its ANSAC allocation, in
other parts of the world. The Company spent $68.0 million from FY 1993 through
FY 1997 and completed the first phase of the LRPP. The implementation of the
second phase of the capital expenditure program which is divided into two
increments and the timing of the spending of the remaining estimated capital
requirements of approximately $64.0 million will depend upon the growth of
future market demand for soda ash.
Control of Resources. The Company produces soda ash at its California
plant by processing naturally occurring brines that the Company mines from its
own property as well as under leases with the U.S. Department of the Interior,
Bureau of Land Management (the "BLM"). The Company's supply of brine for the
production of soda ash is extensive. The Company believes that it has adequate
deposits, at the Company's current and projected production rates, for the
foreseeable future.
Sodium Bicarbonate
The Company's sodium bicarbonate is produced at a facility approximately
48 miles northwest of Rifle, Colorado. Commercial production at the plant was
started in July 1991. Located on sodium leases in Rio Blanco County, Colorado,
the facility uses proprietary technology involving solution mining and
crystallization techniques to produce natural sodium bicarbonate. The Bureau of
Land Management approved in March 1996 a new mine plan that includes mine field
innovations and allows for an extraction level of sodium bicarbonate that is
five times higher than was previously allowed.
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The Company's sodium bicarbonate sales are targeted for all major sodium
bicarbonate segments. The Company's marketing strategy for sodium bicarbonate is
to: (i) continue sales for animal feed use through a distributor arrangement
with a recognized leader in animal nutrition products; (ii) develop specific
marketing programs for industrial segments such as swimming pool and water
treatment, fire extinguishers and paper processing through the Company's
existing secondary distribution network and sales force; (iii) continue
promotion of a natural, high quality, sodium bicarbonate in food and consumer
segments through the Company's sales force and become a recognized leader in
distribution to the food industry; and (iv) utilize export logistical advantages
to supply international buyers. Implementation of this strategy has led to
continued sales growth in this segment in FY 1998. The Company believes that the
food processing and selected consumer segments continue to offer opportunities
for growth and improved margins.
Sodium Sulfate
The Company is the leading domestic producer of naturally occurring
sodium sulfate which is used as an inactive ingredient in dry detergents and as
a source of sulfur in pulp processing. Recent strong demand worldwide for sodium
sulfate, particularly from detergent manufacturers, has resulted in Company
sales at capacity with significant margin improvements. Sodium sulfate is
currently produced at Searles Valley.
Boron Chemicals
Boron chemicals include boric acid, several sodium borate products and a
number of related specialty compounds intended for specific applications. Boron
compounds are used in a wide range of applications. Approximately 60% of their
use is in glass and ceramic products to improve chemical and thermal stability.
The remaining 40% is used in fire retardants, fertilizers, soaps, detergents and
pesticides.
Boric acid is used primarily in the production of textile fiberglass and
other borosilicate glasses where it improves strength and imparts chemical and
thermal stability. Sodium borates are used in a broader range of glass and
ceramic products to enhance manufacturing processes. They also improve chemical
resistance and thermal stability in products such as frits, ceramics, fiberglass
insulation and specialty glasses such as Pyrex(R) and automobile headlights.
According to industry data published in 1997, the Company is the second
largest producer of boron chemicals in the United States and the third largest
producer in the world after the U.K. based RTZ Corporation plc and the Turkish
state-owned producer, Etibank.
Businesses/Customers. The Company sells boron chemicals both domestically
and abroad. In FY 1998, a majority of sales were derived from domestic sales to
producers of textile fiberglass, porcelain frits, high quality glasses,
cellulose insulation and chemical distributors. The remaining FY 1998 sales were
derived from international sales, with western Europe and Japan representing the
Company's two largest sales areas.
Sales and Marketing. The Company's sales of boric acid and sodium borates
are handled domestically through its own national sales staff complemented by
approved local or regional chemical distributors. International sales are made
by both commissioned agents and distributors, whose activities are managed by
the Company's marketing staff.
Boric acid is used in the production of textile fiberglass and
borosilicate glass where it improves tensile strength and hardness,
respectively. The Company has traditionally been a strong competitor in this
market due to its product quality. Specialty products marketed by the Company
include nuclear grade and high purity boric acid for laboratory chemicals, which
are produced at Societa Chimica Larderello SpA ("SCL"). SCL is an Italian
producer of specialty boric acid products and an affiliate of HCNA. In FY 1994
the Company entered into an agreement to become the distributor of SCL products
to the U.S. market. See "Certain Relationships and Related
Transactions--Agreements with Affiliates."
The Company's most important sodium borate products include anhydrous
borax, decahydrate and pentahydrate borax, which are used in the production of
frits, ceramics and borosilicate glass where the borate improves the thermal
resistance of the glass. Historically, the Company's strategy has been to focus
on the sale of anhydrous borax. The Company continues to focus marketing efforts
to maintain a leadership position in this segment and to selectively market
decahydrate and pentahydrate in niche segments.
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Competition. The Company's principal competition comes from RTZ Corporation
plc, which is the world's largest boron chemicals producer through its
subsidiaries U.S. Borax, Borax Consolidated Ltd. (U.K.), Borax Francais and
Borax Argentina. Other worldwide competitors are located in Turkey (Etibank),
Chile, Russia and the Commonwealth of Independent States.
Production Techniques and Facilities. Prior to April 1, 1996, the Company
produced its boron chemicals at two separate facilities located in Searles
Valley. Both plants utilized solution mining and chemical processing techniques
to recover borax minerals from the ore bodies and to refine them further into
finished products.
At one site, boric acid is produced by extracting crude borax from brine
through a proprietary solvent extraction process. After extraction, the solution
is concentrated in an evaporator and the boric acid is recovered through
crystallization. At the other site, sodium borates were produced by a cooling
process in which borax-enriched brines were cooled to crystallize a line of
sodium borate products. Effective April 1, 1996, as part of the strategic
capital expenditure program designed to lower the cost of soda ash production,
the Company enhanced its feedstock process to improve sodium borate production
consistency. This has resulted in a significant reduction in production costs.
Control of Resources. The Company produces boric acid and sodium borate
by processing at its California plant naturally occurring brines that the
Company mines from its own property as well as under leases with the BLM. The
Company believes that its supply of brine for the production of boric acid and
sodium borate is adequate for the foreseeable future.
Specialty Potash Fertilizers
Sulfate of potash ("SOP") is a specialty potash fertilizer used for high
value crops such as fruits, vegetables, nuts and tobacco. The Company is the
leading American producer of SOP. The Company markets SOP products both
domestically and overseas. The Company offers several grades of SOP which are
designed to differentiate the Company from its competitors, as well as, better
serve the needs of its customers.
Markets/Customers. The annual worldwide consumption of potash fertilizers
approaches 50 million tons. Muriate of potash ("MOP"), or potassium chloride, is
the most common source of potassium and accounts for approximately 92% of all
potash consumed in fertilizer production. SOP represents about 6% of potash
consumption. The remaining 2% is supplied in the forms of potassium magnesium
sulfate and potassium nitrate. All of these products contain varying concen
trations of potassium expressed as potassium oxide (K20) and different
combinations of co-nutrients.
MOP is the least expensive form of potash fertilizer based on the
concentration of K20. It is the preferred potassium source for most crops and
contains about 60% K20. However, SOP is utilized by growers for some high-value
crops.
Examples of crops where SOP is utilized include tobacco, tea, potatoes,
citrus fruits, grapes, almonds, some vegetables and on turfgrass for golf
courses. Approximately 50% of the Company's annual SOP sales are made to
domestic customers, which include retail fertilizer dealers and distributors of
professional turf care products. These dealers and distributors combine or blend
SOP with other fertilizers and minerals to produce fertilizer blends tailored to
individual requirements.
Approximately 69% of the world SOP production is located in Europe, 18%
in the United States and the remaining 13% in various countries. The world
consumption of SOP totals about 3.5 million tons. Based on studies conducted by
industry analysts, the Company expects consumption of SOP in Asia, the Pacific
Rim countries and Latin America to grow considerably through the end of the
century. This anticipated growth is a result of increased production of high
value cash crops, for which SOP is a preferred potassium source. The Company has
focused on sales to Asia and Pacific Rim countries where its inland and marine
transportation costs are at or below competitors' costs.
Sales and Marketing. The Company's domestic sales of SOP are concentrated
in the western states of California, Oregon, Washington and Idaho and the
central, tobacco belt area where the crops and soil conditions favor SOP. The
Company employs trained agronomic sales personnel and fertilizer agents, who
contact dealers and growers in the United States.
9
<PAGE>
The Company's strategy for increasing SOP sales in the United States is
twofold. First, the Company is targeting specific crops where the benefits of
using SOP versus other potassium sources are identified by research consultants
in agricultural testing programs. The Company believes that these activities
have encouraged the increased use of SOP on potatoes, vegetables, and
professionally managed turf and golf courses. Second, the Company plans to
differentiate itself through unique products specifically designed for targeted
end uses. These SOP products vary in particle size and product quality to
provide marketing strength in bulk fertilizer blending programs where particle
sizing is important, as well as direct SOP application where solubility is
important. In addition, the Company continues to test market unique SOP-based
products, with which the Company has targeted the substantial liquid and
suspension fertilizer markets previously served by non-SOP potassium sources.
The Company generally exports SOP through major trading companies. Export
SOP sales volumes in FY 1998 were 49% of the Company's annual SOP sales.
Competition. The Company's major competition for SOP sales in North
America include imports from large European producers, other North American
producers and functional products of other varieties, such as MOP or Potassium
Nitrate. For exports into Asia, the Pacific Rim countries and Latin America, the
Company competes with various local producers and European production. The
European producers, the largest in the world, include Kali und Salz, A.G.,
Tessenderlo Chemie and Kemira Oy. A new venture in Chile was announced with
annual SOP capacity of 250,000 tons. The new production began in May 1998 and it
is expected to sell product in North America, including the United States.
Production Techniques and Facilities. Prior to April 1, 1996, the Company
produced SOP at two facilities. The largest facility is located on the Great
Salt Lake in Ogden Utah ("Ogden"), while a smaller 50,000 ton facility was
located in Searles Valley, California. During FY 1992 and FY 1993 the Company
invested approximately $13.0 million at its Ogden facility to match its
production of raw materials from the evaporation ponds with its present plant
capacity of approximately 550,000 tons of SOP. This project consisted of
construction of a new 17,500 acre preconcentration pond and a 22 mile underwater
canal on the bottom of the Great Salt Lake. The preconcentration pond and
related canal are operational and supplying increasing levels of potassium each
year to the primary pond system, resulting in increased production. Further
investment in the expansion was completed in FY 1998, which included investments
in cooling capacity and rail facilities at a construction cost of $4.4 million.
In April 1996, the Company discontinued production of SOP at its
California facility. The shutdown was an element of the Company's strategic
capital expenditure program to increase soda ash production, reduce its boron
products production cost and discontinue production of its potash co-products.
Another element of this plan was the discontinuance of 100,000 tons per year of
MOP production at Searles Valley. The Company plans to purchase its requirements
for MOP to serve strategic Western United States markets and has negotiated
supply arrangements.
Record levels of rain from 1982 to 1984 at Ogden, and the resulting rise
in the level of the Great Salt Lake, caused a breach in the dike system at the
facilities in May 1984. A large portion of the evaporation pond area was flooded
and the pond floors dissolved. As a result, GSLMC was unable to produce SOP from
1984 through the beginning of 1989. Following the flood, $26.0 million was
invested to repair the pond system. As part of this project the major perimeter
dikes were raised to a height three feet over the historic peak flood level. The
new dikes employ interior berms to increase their load bearing capability, and
utilize stronger building materials which are designed to retard erosion due to
wave action, a principal cause of the 1984 dike breach. The dikes are also
designed such that they can be raised further without weakening the foundation.
Also, following the flood, the State of Utah constructed and implemented the
West Desert Pumping Project which could be utilized to lower the level of the
Great Salt Lake by up to twelve inches per year thus reducing the risk of
flooding. The Company believes that the subsequent dike improvements and the
West Desert Pumping Project have virtually eliminated the likelihood of future
pond flooding. The Company maintains both property damage and business
interruption insurance policies for this risk.
Control of Resources. The Company obtains its SOP minerals from the
potassium rich brines of the Great Salt Lake in Utah. Based on estimated
deposits of potassium and the current forecast for production requirements, the
Company believes it has adequate deposits for the foreseeable future.
Other Products
The Company also produces several other products which are by-products of
the various manufacturing processes conducted by the Company.
10
<PAGE>
Seasonality and Backlogs
Sales of salt for highway deicing are quite seasonal, and vary with
winter conditions in areas where that product is used. In keeping with industry
practice, ice control salt is stockpiled both by the Company and its customers
in sufficient quantities to meet estimated requirements for the next season.
Sales of soda ash to the glass container industry are somewhat seasonal because
sales of beverage containers are stronger in the summer. SOP sales are seasonal
as most of the Company's sales are made between December and March in order to
meet the spring fertilizer season. Due to the nature of the Company's business,
there are no significant backlogs. For a further discussion of the financial
effects of seasonality on the Company, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Seasonality.
Employees
At the end of FY 1998 the Company had approximately 2,200 full-time
employees, of which approximately 800 are represented by unions. Approximately
400 of these union employees had their collective bargaining agreements
renegotiated in April 1998 and agreements covering an additional approximately
200 employees will expire during the twelve months following FY 1998. The
Company considers its labor relations to be good.
SIFTO
According to industry data published in 1995, Sifto, a wholly owned
subsidiary of NASC, is the fourth largest salt producer in North America. Sifto
produced approximately 6.0 million tons of salt in FY 1998 compared to 5.4
million tons in FY 1997. Sifto sells salt to the full range of end-users in the
highway deicing, general trade and chemical segments. Sifto's major business is
sales of salt for North American highway deicing use. General trade products,
sold predominantly in Canada under the Sifto brand name, include table, water
conditioning, livestock feed, and deicing salt.
Highway deicing salt is sold primarily through a public tender process.
Sifto uses a computer-pricing system to determine its bid prices. General trade
and chemical sales contracts are negotiated privately. Sifto distributes salt
through an extensive network of warehouses and depots located within, or closely
linked to, all its key sales areas.
Sifto operates a large-scale underground rock salt mine in Goderich,
Ontario and evaporator plants at Goderich, Ontario, Amherst, Nova Scotia and
Unity, Saskatchewan. All distribution facilities are leased or operated on a
contract basis.
Sifto is managed from the Company's headquarters located in Overland Park,
Kansas.
Businesses
Highway Deicing Segment. Sifto's North American highway deicing sales
were 47% of Sifto's total revenue in FY 1998. Sifto sells approximately 60% of
its highway deicing volume into the United States and 40% into Canada. Sifto's
competitive strengths are its efficient mining and distribution of rock salt in
large volumes at low cost, and the well-located, high-quality salt deposits in
its rock salt mines. The vast majority of Sifto's deicing sales are made in
Canada and the northern United States, where winter weather is generally harsher
than in other parts of North America.
General Trade Segment. In FY 1998, the general trade segment contributed
44% of Sifto's total revenue. Sifto's direct general trade business is focused
in Canada, where it has established brand-name recognition.
Chemical Segment. In FY 1998, the chemical segment contributed 9% of
Sifto's total revenue. Consumption of salt by the chemical industry is largely
dependent on the demand for chlor-alkali products, especially chlorine gas and
caustic soda.
Production
Sifto produces salt at four locations. Its rock salt mine is located in
Goderich, Ontario and is the largest rock salt mine in North America. Sifto uses
the bench mining method to extract salt. The Company believes that the Goderich
mine operating cost structure is among the lowest in the North American salt
industry.
Sifto's evaporated salt plants are located in Amherst, Nova Scotia,
Goderich, Ontario and Unity, Saskatchewan. The Amherst plant serves the east
coast of Canada and the United States. The Goderich plant serves Ontario, Quebec
and the Great Lakes states. The Unity plant serves western Canada. See
"Properties."
11
<PAGE>
Competition
Sifto's competition in the highway deicing segment is principally from
Morton and Cargill. Morton competes with Sifto throughout Canada, principally
from its rock salt plant in Ojibway, Ontario. Akzo competes with Sifto from its
mine located in Cleveland, Ohio. In general trade, Sifto competes with Windsor
Salt, the Canadian operation of Morton.
Environmental Matters
As a producer and marketer of inorganic chemical products, the Company is
subject to a myriad of federal, state, provincial and local environmental,
health and safety laws in the United States and Canada. These standards regulate
the management and handling of raw materials and products, air and water
quality, disposal of hazardous and solid wastes, and post-mining land
reclamation. It is the Company's policy to comply with all applicable
environmental, health and safety (EHS) standards. Through its active EHS
management program, the Company is confident that it substantially satisfies
these requirements. Nevertheless, there can be no assurance that unexpected or
additional costs, penalties, or liabilities will not be incurred. Moreover, EHS
standards applicable to the Company's operations, and the industry in general,
continue to evolve. Until implementing regulations have been finalized and
definitive regulatory interpretations have been adopted, it is difficult to
ascertain future compliance obligations or estimate future costs.
The Company has expended, and anticipates that it will continue to
expend, substantial resources, both financial and managerial, to comply with EHS
standards. Based on current information, it is the opinion of management that
the ultimate liability arising from EHS matters, taking into account established
accruals, should not have a material adverse effect on the Company's financial
position. However, no assurance can be given that greater-than-anticipated
environmental expenditures will not be required in 1998 or in the future.
12
<PAGE>
Item 2. PROPERTIES
Facilities
The table below presents certain information relating to facilities owned and
leased by the Company.
<TABLE>
<CAPTION>
Location Description Status
<S> <C> <C>
The Company:
Searles Valley, California .......... Soda Ash, Boron Chemicals and Sodium Sulfate
processing plant totaling 11,000 acres Owned
24,000 acres of mineral leases Leased
Ogden, Utah ......................... SOP Processing Plant totaling 35,000 square feet Owned
Salt Plant totaling 95,000 square feet Owned
Solar Ponding Operations located on 37,000 acres Leased
Solar Ponding Operations located on 1,500 acres Owned
117,000 acres of mineral leases Leased
Cote Blanche, Louisiana ............. Rock Salt Production Facility totaling 11,000 square feet Owned
Rock Salt Mine totaling 200 acres of leased land Leased
Various mineral leases Leased
Lyons, Kansas ....................... Salt Evaporation Plant totaling 134,000 square feet located
on 997 acres Owned
Hutchinson, Kansas .................. Salt Evaporation Plant totaling 165,000 square feet located
on 326 acres Owned
Chicago, Illinois ................... Salt Packaging Facility totaling 20,000 square feet located
on 12 acres Owned
New Johnsonville, Tennessee ......... Salt Processing Facility totaling 60,000 square feet on 2.5
acres Leased
San Diego, California ............... Shipping and Storage Facility totaling 24,000 square feet
on 93,000 square feet of land Owned
Boron, California ................... Transloader Facility located on 75,000 square feet of land Leased
Rifle, Colorado ..................... Sodium Bicarbonate Processing Plant totaling
30,000 square feet Owned
8,200 acres of mineral leases Leased
Sifto:
Goderich, Ontario ................... Salt Evaporation Plant totaling 85,000 square feet located
on 97 acres Owned
Rock Salt Production Facility totaling
250,000 square feet Leased
Rock Salt Mine totaling 50 acres of leased land Leased
Amherst, Nova Scotia ................ Salt Evaporation Plant totaling 90,000 square feet located
on 249 acres Owned
Various mineral leases Leased
Unity, Saskatchewan ................. Salt Evaporation Plant totaling 94,000 square feet located
on 484 acres Owned
Various mineral leases Leased
Montreal, Quebec .................... Salt Packaging Facility totaling 18,000 square feet located
on 4 acres Owned
</TABLE>
In addition to the above properties, the Company leases or owns numerous
warehouses and depots and various sales and administrative offices. It also owns
fresh and brackish water systems, including extensive pipelines and wells, in
conjunction with the Mojave Desert plants in Searles Valley, and track, office
and service areas related to its two short-line common carriers which connect
the Company facilities with commercial railroads. The Searles Valley facility is
supplied by two on-site power generation facilities which sell excess power to a
local utility. In July 1996, NACC entered into an agreement for the sale and
leaseback of one of these facilities (See Note 7 to the Financial Statements).
13
<PAGE>
Encumbrances
The Argus plant, which is part of the Searles Valley property, serves as
steam host for, and receives back-up power from, the on-site cogeneration plant
owned by ACE Cogeneration Company. The Company's Searles Valley properties are
subject to a ground lease and various easements granted to ACE Cogeneration
Company for its cogeneration plant and related utility services, parking lots,
access roads and similar requirements.
Substantially all of the assets of Sifto, except trade accounts receivables
and product inventories, are pledged as security for the Sifto Notes.
Mineral Rights
In connection with its Searles Valley plants, the Company holds 30 leases
from the BLM covering approximately 24,000 acres of the dry lakebed of Searles
Lake. The leases are subject to a royalty fee and have terms of 10 or 20 years
with varying expiration dates and preferential rights for renewal.
In connection with its Goderich, Ontario plant, Sifto holds three mineral
leases from the Ontario Ministry of Northern Development and Mines for salt
deposits located under Lake Huron and one lease for surface rights from the
Canada Department of Transport. Two of the mineral leases expire in 1999 and one
expires in 2003, but Sifto has an option to renew each of the leases for another
21-year term. A rental charge and royalty are paid to the Ontario Ministry of
Northern Development and Mines for each ton of salt mined under the lake. The
surface lease expires in 1998 but is renewable for an additional 21 years. Sifto
also holds a Mining License of Occupation for salt deposits lying under the
Maitland River in Ontario. The license was issued in 1960 and does not have an
expiration date.
In connection with its Cote Blanche, Louisiana rock salt mine, the Company
holds a private lease for surface facilities and an underlying salt dome which
expires in 2060. A royalty is paid to the owners according to a formula based on
the tons of salt shipped and the selling price of the salt for the immediately
preceding calendar year.
In connection with its Ogden plant, the Company holds 9 mineral leases from
the State of Utah. The leases continue in effect so long as salt is produced and
the State of Utah receives a minimum royalty and rent.
In connection with its Amherst, Nova Scotia plant, Sifto leases the salt
mineral rights from the Province of Nova Scotia and pays a royalty for each ton
mined. The leases expire in July 2003 and are renewable for an additional
20-year period.
In connection with its Unity, Saskatchewan plant, Sifto leases the salt
mineral rights from the Saskatchewan provincial government under a 21-year lease
which expires at the end of December 2009. This lease is renewable for a further
21-year period. These mineral rights are subject to a royalty for each ton
extracted and refined.
In connection with its Rifle, Colorado plant, the Company holds four leases
from the BLM covering approximately 8,200 acres. The leases are subject to a
royalty fee and have an expiration of July 1, 2001 with successive 10 year
renewal options provided that sodium is being produced in paying quantities.
Railway Companies
Trona Railway Company ("TRC"), a 31-mile common carrier which is a wholly
owned subsidiary of the Company, provides the Company's Searles Valley
facilities with rail access to Southern Pacific Railroad's track at Searles
Station, California, approximately 30 miles from the Company's plants. The rail
cars and locomotives used by TRC are currently leased. The Hutchinson & Northern
Railway Company ("H&N"), a wholly owned subsidiary of the Company, connects the
Company's Hutchinson, Kansas properties with the Santa Fe Railroad, six miles
away.
North American Terminals, Inc.
North American Terminals, Inc. ("NATI"), a wholly owned subsidiary of the
Company, operates a bulk cargo terminal at the Port of San Diego, California,
from which products produced at the Company's Searles Valley facilities are
exported. Its facilities consist of a transloader in Boron, California ("Boron")
and a bulk loading and storage facility in San Diego. Products are shipped from
the Searles Valley production facility via truck to Boron where they are
transloaded onto the Santa Fe Railroad and shipped to the port in San Diego. In
addition, products are shipped directly by the Southern Pacific Railroad
14
<PAGE>
from the Searles Valley facilities to the San Diego terminal for export. The
Company formed NATI in order to reduce rail and loading costs while providing
soda ash, SOP and sodium sulfate storage capacity. Prior to December 31, 1997,
the San Diego port facilities were leased. On December 31, 1997 the Company
purchased the facilities and satisfied its lease for $9.5 million.
Searles Domestic Water Company
In connection with its acquisition of the Searles Valley facilities from
Kerr-McGee Chemical Corporation ("KMCC"), KMCC transferred all of the
outstanding stock of Searles Domestic Water Company ("SDWC"), a water utility
serving a small number of residential customers in Trona, California to the
Company.
Licenses, Trademarks and Patents
The Company has a licensing agreement with Culligan International to
package and sell water conditioning salt under the Culligan brand name to all
classes of retail trade. The Company is currently marketing the Culligan name
under the brand "Care Cubes." This product is currently available in most
states. Sifto considers the "Sifto" trademark to be valuable because of its name
brand recognition.
On March 28, 1989, a patent was granted to a predecessor of the Company for
a nacholite solution mining process at its sodium bicarbonate operation in
Rifle, Colorado. The Company believes it is the low cost domestic producer of
sodium bicarbonate as a result of this exclusive right to practice this
technology.
Item 3. LEGAL PROCEEDINGS
General
The Company is involved in legal and administrative proceedings and claims
of various types from normal business activities. While any litigation contains
an element of uncertainty, management, based upon the opinion of the Company's
counsel, presently believes that the outcome of each such proceeding or claim
which is pending or known to be threatened, or all of them combined, will not
have a material adverse effect on the Company's results of operations or
financial position.
Environmental Issues
Air Issues. From time to time, the Company has received notices of
violation from the San Bernardino County Air Quality Control District (the
"Local District"), relating to the operation of equipment for which its Searles
Valley facility has air permits. In July 1992, the California Air Resources
Board ("CARB"), which has oversight jurisdiction over the Local District,
conducted an inspection of the Searles Valley facility. CARB reported its
findings to the Local District and to the U.S. Environmental Protection Agency
("EPA") and in 1994, the EPA served the Company with a Finding and Notice of
Violation ("NOV") issued pursuant to the Clean Air Act. On April 26, 1997, the
United States District Court for the Central District of California entered a
Consent Decree settling in full the NOV. The Consent Decree required the Company
to install pollution controls (selective catalytic reduction), on a gas turbine
at the Company's West End facility, to pay a civil penalty of $320,000 and to
spend $140,000 on a supplemental environmental project to pave certain roads to
reduce dust emissions. The Company completed the requirements of the Consent
Decree during FY 1998.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
15
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not Applicable.
Item 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial information should
be read in conjunction with the audited Consolidated Financial Statements of the
Company as of March 28, 1998 and March 29, 1997 and for the three fiscal years
ended March 28, 1998, included in the financial statement section of this Form
10-K.
<TABLE>
<CAPTION>
FY 1994 FY 1995 FY 1996 FY 1997 FY 1998
------------ ------------ ------------ ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ........................................... $ 427,588 $ 435,864 $ 475,474 $ 508,622 $ 494,153
Cost of sales ....................................... 325,690 331,949 351,040 374,137 350,146
------------ ------------ ------------ ------------ -------------
Gross profit ...................................... 101,898 103,915 124,434 134,485 144,007
Selling, general and administrative expenses ........ 50,578 55,578 64,273 57,508 55,670
Recapitalization expenses ........................... 68,753 -- -- -- --
Asset impairment charge ............................. -- -- 7,044 -- --
------------ ------------ ------------ ------------ -------------
Operating income (loss) ........................... (17,433) 48,337 53,117 76,977 88,337
Interest expense .................................... (55,664) (78,526) (84,938) (91,925) (95,348)
Foreign currency exchange gain (loss) ............... (6,078) (1,743) 2,039 (1,301) (685)
Other income ........................................ 5,290 5,944 6,240 3,916 5,518
------------ ------------ ------------ ------------ -------------
Income (loss) before taxes and extraordinary item . (73,885) (25,988) (23,542) (12,333) (2,178)
Provision (benefit) for income taxes ................ (11,093) 5,308 5,200 9,100 6,639
------------ ------------ ------------ ------------ -------------
Income (loss) from continuing operations .......... (62,792) (31,296) (28,742) (21,433) (8,817)
Extraordinary items, net of taxes ................... (71,371) -- -- -- (2,500)
------------ ------------ ------------ ------------ -------------
Net income (loss) ................................. $ (134,163) $ (31,296) $ (28,742) $ (21,433) $ (11,317)
============ ============ ============ ============ =============
Other Data:
Operating income (loss) ............................. $ (17,433) $ 48,337 $ 53,117 $ 76,977 $ 88,337
Depreciation and amortization in operating income ... 49,097 53,295 56,930 54,496 57,558
Capital additions (includes capital leases) ......... 79,863 52,044 45,915 39,270 45,237
Net Sales by Product Line:
Salt ................................................ $ 199,345 $ 191,917 $ 224,500 $ 235,899 $ 216,443
Soda products ....................................... 100,160 103,247 115,978 119,800 126,341
Boron chemicals ..................................... 69,179 67,479 67,979 63,051 68,289
Specialty potash fertilizers ........................ 48,289 61,453 55,459 71,547 68,772
Other ............................................... 10,615 11,768 11,558 18,325 14,308
Balance Sheet Data (end of period):
Total assets ....................................... $ 661,619 $ 651,658 $ 677,973 $ 665,394 $ 643,467
Working capital (1) ................................ 110,671 91,286 117,668 119,362 105,701
Total debt ......................................... 736,650 740,715 792,258 783,775 777,335
Common stockholder's equity (deficit) .............. (216,841) (249,137) (280,930) (306,431) (320,733)
</TABLE>
(1) Working capital represents current assets less current liabilities excluding
the current portion of long-term debt.
16
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's Financial Statements
and related Notes thereto.
Introduction2
The Company is a major producer and marketer of inorganic chemical
products. Its principal products include salt, sodium products (including soda
ash, sodium sulfate and sodium bicarbonate), boron chemicals, and specialty
potash fertilizers. The highway deicing salt business is highly dependent on
weather. Consequently, the extent of snowfall in the Company's primary deicing
markets in Canada and the Upper Midwest can result in significant fluctuations
in the Company's sales, earnings and liquidity. See Item 1 - Products and
Seasonality for additional discussion of the Company's products and the effects
of weather and seasonality on the Company's results of operations.
Results of Operations
The following table sets forth, in both dollars and as percentages of net
sales, selected components of the consolidated statements of operations as well
as net sales by product line, for the fiscal years ended March 30, 1996, March
29, 1997 and March 28, 1998.
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
----------------------- ----------------------- -----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales ..................................... $ 475,474 100.0% $ 508,622 100.0% $ 494,153 100.0%
Cost of sales ................................. 351,040 73.8 374,137 73.6 350,146 70.9
-------------- -------- -------------- -------- -------------- --------
Gross profit ............................... 124,434 26.2 134,485 26.4 144,007 29.1
Selling, general and administrative expenses .. 64,273 13.5 57,508 11.3 55,670 11.2
Asset impairment charge ....................... 7,044 1.5 -- 0.0 -- 0.0
-------------- -------- -------------- -------- -------------- --------
Operating income ........................... 53,117 11.2 76,977 15.1 88,337 17.9
Interest expense .............................. (84,938) (17.9) (91,925) (18.1) (95,348) (19.3)
Foreign currency exchange gain (loss) ......... 2,039 0.4 (1,301) (0.3) (685) (0.1)
Other income .................................. 6,240 1.3 3,916 0.8 5,518 1.1
-------------- -------- -------------- -------- -------------- --------
Income (loss) before taxes and
extraordinary item ......................... (23,542) (5.0) (12,333) (2.5) (2,178) (0.4)
Provision for income taxes .................... 5,200 1.0 9,100 1.7 6,639 1.4
-------------- -------- -------------- -------- -------------- --------
Income (loss) before extraordinary item ..... (28,742) (6.0) (21,433) (4.2) (8,817) (1.8)
Extraordinary item ............................ -- 0.0 -- 0.0 (2,500) (0.5)
-------------- -------- -------------- -------- -------------- --------
Net income (loss) ....................... $ (28,742) (6.0)% $ (21,433) (4.2)% $ (11,317) (2.3)%
============== ======== ============== ======== ============== ========
Net sales by product line:
Salt ....................................... $ 224,500 47.2% $ 235,899 46.4% $ 216,443 43.8%
Soda products .............................. 115,978 24.4 119,800 23.6 126,341 25.6
Boron chemicals ............................ 67,979 14.3 63,051 12.4 68,289 13.8
Specialty potash fertilizers ............... 55,459 11.7 71,547 14.1 68,772 13.9
Other ...................................... 11,558 2.4 18,325 3.5 14,308 2.9
-------------- -------- -------------- -------- -------------- --------
Total ................................... $ 475,474 100.0% $ 508,622 100.0% $ 494,153 100.0%
============== ======== ============== ======== ============== ========
</TABLE>
- --------
2Parenthetical references herein to a "Note" followed by a number refer to
the notes accompanying the consolidated financial statements.
17
<PAGE>
FY 1998 Compared With FY 1997
Net sales for FY 1998 were $494.2 million compared to $508.6 million for FY
1997.
Salt sales decreased $19.5 million for FY 1998 versus FY 1997. The highway
deicing and chemicals segment sold 8% fewer tons than in the prior year period,
due to a less favorable winter season in FY 98 compared to above average deicing
weather conditions in the FY 97 winter season. Additionally, general trade
segment sales declined by $12.0 million, compared to prior year, due to a 15%
decline in volumes resulting from the introduction of the exclusive distributor
program.
Net sales from soda products (soda ash, sodium sulfate and sodium
bicarbonate) increased $6.5 million, or 5% versus FY 1997. Most of the increase
was due to increases of $3.3 million and $3.0 million in the sales of soda ash
and sodium sulfate, respectively. The soda ash increase was due to a 6% increase
in the volumes sold partially offset by lower prices. The sodium sulfate
increase was due to both a 16% increase in the average sales price and a 3%
increase in volumes sold. Sodium sulfate, which is used as an ingredient in
detergents, among other things, experienced a price increase late in FY 1997 due
to strong demand for this product. Both soda ash and sodium sulfate, which are
produced at the Searles Valley facility, benefited from the greater availability
of these products, resulting from higher production. The higher production
reflects the first full year of production following the completion of the Long
Range Process Plan. Sales of sodium bicarbonate in FY 1998 were substantially
unchanged from the prior year period.
Boron products' net sales were up $5.2 million, or 8%, in the FY 1998 period
compared to FY 1997. The primary reason for the higher sales was a 7% increase
in sales volumes during the FY 1998 period. The boron products which are also
produced at Searles Valley benefited from the same full year of expanded
production from the Long Range Process Plan.
Specialty potash fertilizer net sales were down $2.8 million, or 4%, for FY
1998 versus FY 1997, due to a 12% decline in volumes sold. This was partially
offset by a 9% increase in the average sales price. The decline in volumes was
primarily due to the depletion of the remaining inventory from the Searles
Valley facilities in California. Production of the specialty potash fertilizer
was terminated in Searles Valley upon completion of the Long Range Process Plan.
Other sales declined by $4.0 million in FY 1998 versus FY 1997. Other sales
include magnesium chloride, crude trona and the revenues of other service
subsidiaries of the Company. Approximately $1.5 million of the decline was
related to sales of magnesium chloride used in deicing.
Cost of sales as a percentage of net sales in FY 1998 was 71% compared to 74%
in FY 1997. The improvement in the gross margin percentage from the prior year
period is attributable to continued efficiencies being gained in the soda
products and boron businesses from the implementation of cost reduction
strategies and the positive impact of capital projects which have resulted in
higher levels of production at lower average costs. Additionally, the gross
margin percentage in the general trade salt segment increased due to the
implementation of an exclusive distributor program. These factors were partially
offset by higher raw material costs in the specialty potash fertilizer business
resulting from last year's poor summer solar evaporation season.
Selling, general and administrative expenses for FY 1998 were $55.7 million,
or 11.3% of net sales, down from $57.5 million, also 11.3% of net sales in the
previous year. The decline in selling, general and administrative expenses is
primarily due to a decline in salaries and benefits costs for the year,
partially offset by an increase in professional fees which occurred early in the
fiscal year.
Interest expense was $3.4 million higher in FY 1998 compared to FY 1997. The
increase was due to higher interest costs for the Argus utilities debt which
originated in the second quarter of FY 1997, lower capitalized interest, and
$1.5 million of accreted interest on the San Diego Terminal lease obligation in
FY 1998 (see Note 10).
The exchange loss, relating to the translation of the United States
dollar-denominated debt of Sifto into Canadian dollars, declined by $0.6 million
in FY 1998 compared to FY 1997. No other significant exchange gains or losses
were recorded during the year.
Other income was $1.6 million higher in FY 1998 than in FY 1997 primarily
due to the second quarter sale of land near the Searles Valley facility in
California for a gain of $0.8 million. Other miscellaneous expenses were also
lower in FY 1998.
18
<PAGE>
A provision for income taxes of $6.6 million was recorded in FY 1998
relating to Sifto's Canadian income taxes, Ontario mining taxes, and current
state income taxes. Lower income in Canada in FY 1998 resulted in a lower tax
provision in FY 1998 than in FY 1997. Income tax benefits associated with the
U.S. FY 1998 loss have not been recognized as future realization is uncertain
(see Note 5).
The extraordinary loss is due to the early extinguishment of the San Diego
Terminal lease obligation (see Note 10). On December 31, 1997, the Company paid
$9.5 million to the lessor in satisfaction of its obligations under the lease
agreement, resulting in a $2.5 million loss to the Company.
FY 1997 Compared with FY 1996
Net sales for FY 1997 were $508.6 million compared to $475.5 million for FY
1996.
Salt sales increased $11.4 million for FY 1997 versus FY 1996 because of
greater volumes partially offset by unfavorable price/mix variances compared to
the prior year. Total volumes were up 9% compared to the prior year because of
an increase in highway deicing tons, partly offset by lower chemical and general
trade volumes. The increased highway deicing tons sold were the result of record
production combined with increased sales resulting from heavy snowfalls in
Canada and the Upper Midwest, the Company's primary highway deicing markets.
Highway deicing sales experienced slight price declines due to mix offset by
favorable price/mix variances in chemical and general trade salt.
FY 1997 soda products (soda ash, sodium sulfate and sodium bicarbonate)
sales increased $3.8 million or 3% versus FY 1996. Soda ash volumes decreased 2%
compared to the prior year and average sales prices per ton increased 3%. Net
unfavorable soda ash volume variances were due to decreased sales volume in both
domestic and non-ANSAC export markets partially offset by increased sales volume
in the ANSAC market. Domestic soda ash pricing was higher than in FY 1996 while
export and ANSAC pricing was slightly lower than in FY 1996 resulting in a net
favorable price variance. Domestic demand in FY 1997 was impacted by a decline
in caustic soda pricing, a drop of 7% in demand for container glass and a delay
in the start-up of a major soda ash consumption project at Du Pont, coupled with
a capacity expansion by another soda ash manufacturer. Sodium sulfate volumes
were down 28% partially offset by an increase in prices and a more favorable
mix. As a result of production volume constraints for sodium sulfate related to
the start up of the Long Range Process Plan ("LRPP") project and reduced
inventory carryover from FY 1996, the Company selectively reduced sales to its
lower margin markets and improved overall pricing. Sodium bicarbonate sales
increased 59% over the prior year. Increased production at the White River plant
allowed the Company to increase sales volumes by 47%. Average sales prices
increased 8% compared to the prior year because of increased sales to the higher
margin food and chemical processing segments.
In the aggregate, boron chemical sales were $4.9 million lower for FY 1997
compared to FY 1996. The unfavorable variance is due to net unfavorable volume
variances partially offset by net favorable price variances and improved product
mix. The unfavorable volume variances result from a shortfall in the production
of crude borax during the start up phase of the LRPP project.
The Company's specialty potash fertilizer sales in FY 1997 increased $16.1
million or 29% compared by FY 1996. Volumes were up 28% and average pricing was
up 1% compared to FY 1996. The increased volumes were due to greater export
shipments in FY 1997 compared to FY 1996.
Other sales increased by $6.8 million in FY 1997 versus FY 1996. Other sales
include magnesium chloride, crude trona and the revenues of other service
subsidiaries of the Company. Approximately $4.4 million of the increase in FY
1997 versus FY 1996 was related to magnesium chloride sales.
Cost of sales were $374.1 million or 73.6% of sales in FY 1997 compared to
$351.0 million or 73.8% of sales in FY 1996. The $23.1 million increase in cost
of sales was primarily due to increased sales volumes in salt and specialty
potash fertilizer products. The slight decline in cost of sales as a percentage
of sales was largely due to price improvements in sodium and boron products and
reduced production costs as a result of increased production volumes of rock
salt and soda ash partially offset by decreased production of boron chemical
products and sodium sulfate.
Selling, general and administrative expenses were $57.5 million or 11.3% of
sales in FY 1997 compared to $64.3 million or 13.5% of sales in FY 1996. The
decrease was due principally to lower incentive compensation, payroll, selling
expenses and professional fees.
19
<PAGE>
The asset impairment charge of $7.0 million in FY 1996 was a non-cash
write-down arising out of the shut down in March 1996 of the Company's Main
Plant Cycle at the Searles Valley plant in California. The shut down was the
result of the implementation of the strategic LRPP at the Searles Valley plant.
Interest expense was $7.0 million higher in FY 1997 compared to FY 1996. The
increase was due to higher average long-term debt balances in FY 1997 versus FY
1996, higher interest costs recorded for the Argus Utilities transaction (see
Note 7) and interest capitalized on construction in process being $3.0 million
lower in FY 1997 compared to FY 1996.
An exchange loss of $1.3 million related to the translation of United Sates
dollar-denominated debt of Sifto into Canadian dollars was recorded in FY 1997
compared to a gain of $2.0 million in FY 1996.
Other income principally consists of ground lease and maintenance income,
gains and losses on disposals of property, plant and equipment and equity in
earnings on investments. Other income was $2.3 million lower in FY 1997 compared
to FY 1996. The decrease was due to $0.8 million higher losses on disposition of
assets in FY 1997 compared to FY 1996 and an equity loss of $0.4 million on
investments in FY 1997 compared to equity income of $0.5 million in FY 1996.
A provision for income taxes of $9.1 million was recorded in FY 1997
primarily relating to Sifto's Canadian income tax, Ontario mining taxes, current
U.S. alternative minimum tax and state income taxes. Greater income in Canada in
FY 1997 utilized all of the Canadian net operating loss carryforwards and
resulted in a higher tax provision in FY 1997. A $5.2 million provision for
income taxes was recorded in FY 1996. Income tax benefits associated with the
U.S. FY 1997 loss have not been recognized as future realization is uncertain
(see Note 5).
Liquidity, Capital Resources and Financial Condition
Seasonality and Cash Flows
The Company's combined accounts receivable and inventory levels have varied
by as much as $60 million during a fiscal year. Generally, during the second and
third fiscal quarters highway deicing salt inventories are increased in
preparation for the winter season. The harvesting of the solar ponds at the
Ogden facility also takes place in the third quarter adding to the inventory
levels. Inventories begin to decline in the fourth fiscal quarter. Accounts
receivable increase during the third and fourth fiscal quarters as highway salt
sales and specialty potash fertilizer sales peak during this period. Cash
requirements rapidly decline near the end of the fourth fiscal quarter and the
early part of the next fiscal year first fiscal quarter as accounts receivable
are converted into cash. Sales of soda products and boron chemicals are, for the
most part, not as cyclical.
Cash provided by operating activities increased $22.9 million to $61.2
million in FY 1998 compared to FY 1997, primarily because of an increase in net
income before extraordinary loss. Receivables generated $11.2 million of funds
in FY 1998, compared to a use of funds of $8.5 million and $17.8 million in FY
1997 and FY 1996, respectively. The increase in cash provided from receivables
is due to the collection of receivables associated with the relatively high
sales of salt in the fourth quarter of FY 1997 caused by a severe winter.
Offsetting this cash inflow was a build-up of inventories during FY 1998 due to
lower sales of salt and a more depleted level of inventory opening the year due
to the high FY 1997 fourth quarter sales. Accounts payable and accrued expenses
provided $11.8 million more cash in FY 1998 than in prior year due to the timing
of payments.
FY 1998 investing activities used $38.3 million of cash compared to a use of
$33.3 million in FY 1997 and $47.1 million in FY 1996. The change in use of cash
from investing activities is primarily due to the change in capital spending
from year to year. The decline in expenditures from FY 1996 is primarily related
to the Long Range Process Plan at Searles Valley, a multi-year project which was
substantially completed in FY 1996.
FY 1998 financing activities used $20.0 million of cash compared to a source
of cash in FY 1997 and FY 1996 of $3.1 million and $16.2 million, respectively.
During FY 1998, the capital lease obligation related to the San Diego Terminal
was extinguished, resulting in a $9.5 million cash payment to the lessors (see
Note 10). Net revolver payments or borrowings fluctuate based on cash provided
from operations, cash used in investing activities, principal payments on
long-term debt and proceeds from the issuance of new debt. As a result, net
revolver borrowings were $3.0 million in FY 1998 compared to net revolver
payments of $79.0 million in FY 1997 and net revolver borrowings of $32.0
million in FY 1996. The net payments in FY 1997 were the result of a sale and
leaseback transaction. In FY 1997, the Company issued $75.0 million in debt by
entering into an agreement for the sale and leaseback of an electric and steam
generating facility associated with
20
<PAGE>
the Searles Valley soda ash facilities (see Note 7). Also in FY 1997, a steam
provider prepaid $23.2 million for contractual amounts due to the Company over
an 18 year period. The prepayment was recorded as deferred revenue to be
amortized over the remaining life of the contract. The FY 1997 proceeds from the
sale and leaseback and prepayment transactions were used to pay down borrowings
under the Company's revolving lines of credit.
Long-term Debt and Liquidity
At March 28, 1998, the Company had $100 million of 8.5% Senior Notes, $250
million of 10.25% Senior Notes and $335 million of Senior Subordinated Notes
(collectively, "Notes"). The Notes require that Harris or Sifto, as applicable,
offer to purchase all of the outstanding Notes for 101% of their principal
amount plus accrued interest ("Offer to Purchase") within 60 days following a
change of control of Harris or HCG. The consummation of the Merger (see Note 1)
on April 1, 1998, resulted in a change of control transaction, as defined by the
Notes. Both Harris and Sifto made the Offer to Purchase on May 28, 1998, which
will be outstanding until June 29, 1998, unless extended. Because the Company
and IMC intend to finance any repayments of principal with long-term borrowings,
the Notes are classified as long-term debt in the accompanying Consolidated
Balance Sheets.
At March 28, 1998, the Company had a $130 million revolving line of credit
("US Credit Facility") with a group of lenders for three of its U.S.
subsidiaries (NACC, NAMSCO and GSL). At March 28, 1998, the aggregate principal
amount outstanding under the US Credit Facility was $3 million. The US Credit
Facility is guaranteed by the Company and each of the Company's other U.S.
subsidiaries, and is secured by the trade accounts receivable and product
inventories of NACC, NAMSCO and GSL. The US Credit Facility terminates on the
earlier of February 28, 2002 or February 15, 2001 if any Discount Notes are
outstanding as of such date. The US Credit Facility accrues interest, at Harris'
option, at either a defined US Base Rate plus 1.50% or LIBOR plus 2.75%.
Commitment fees of 0.375% per year of the unused portion of the US Credit
Facility are payable quarterly. Simultaneously with the consummation of the
Merger (see Note 1), the lenders under the US Credit Facility assigned all of
their rights and interest under the US Credit Facility to IMC. Prior to its
assumption by IMC and amendment, the US Credit Facility and the Sifto Credit
Facility required the Company to maintain certain minimum interest coverage,
fixed charge and net funded debt coverage ratios. The Company modified its US
Credit Facility in May 1998 to delete or change certain covenant requirements.
Borrowing availability for the Company is determined based on a borrowing base
calculation.
At March 28, 1998, Sifto had a $20 million revolving line of credit ("Sifto
Credit Facility") with a group of Canadian banks which would terminate on the
earlier of February 28, 2002 or February 15, 2001 if any Discount Notes are
outstanding on such date. At March 28, 1998, there were no outstanding
borrowings under the Sifto Credit Facility. The Sifto Credit Facility is secured
by the trade accounts receivable and product inventories of Sifto and accrues
interest, at Sifto's option, at either a defined Canadian Base Rate plus 1.50%,
or a defined Bankers Acceptance Loan Rate plus 2.75%. Commitment fees of 0.375%
per year of the unused portion of the Sifto Credit Facility are payable
quarterly. Sifto terminated the Sifto Credit Facility simultaneously with the
consummation of the Merger (see Note 1).
As of March 28, 1998, the Company had $72.7 million of available borrowing
capacity under its revolving lines of credit and $18.1 million of cash. No
significant long term debt payments are due until FY 2001. Capital expenditures
for the next twelve months are estimated to be approximately $34 million. The
Company's new parent, IMC (see Note 1), is currently evaluating the debt
structure of Harris and is considering various options available to it. The
Company believes that cash generated from operations along with capital
contributions from IMC will be adequate to meet the Company's anticipated
working capital needs during the next twelve months, including any cash
requirements necessary as a result of the Offer to Purchase.
Impact of Year 2000
The Year 2000 is not expected to have a material impact on the Company's
information systems. Significant applications currently in use are either Year
2000 compliant or are being modified to be Year 2000 compliant. The cost of
these modifications has not been material. The Company has a plan in the
remainder of 1998 and 1999 to modify and test any additional hardware and
software for compatibility with the Year 2000. These additional costs are not
expected to be material. The impact of the Year 2000 on the Company's customers
and vendors is not known.
In addition, the Company is starting the process of assessing the effect the
Year 2000 will have on its operations. An assessment will be made and conversion
plan developed to have all modifications implemented and operational by year-end
1999. The cost of this project is yet undetermined, but is not expected to be
material to the Company.
21
<PAGE>
Impact of Inflation
Inflation has not had a significant impact on the Company's operations
during the three fiscal years ended March 28, 1998.
Environmental Matters
Due to the nature of the Company's business, it must continually monitor
compliance with all applicable environmental laws and regulations. At March 28,
1998, the Company had recorded $3.8 million of current liabilities and $6.9
million of non-current liabilities to reflect the estimated future costs
associated with environmental matters. Environmental costs, other than those of
a capital nature, are accrued at the time the exposure becomes known and costs
can reasonably be estimated. Management believes that the outcome of presently
known environmental contingencies will not have a material adverse effect on the
operations, financial condition or liquidity of the Company.
Amounts expensed for environmental costs were $1.9 million in FY 1998, $1.6
million in FY 1997 and $1.8 million in FY 1996.
Recently Issued Accounting Standards
In June 1997, Statement of Financial Accounting Standard ("SFAS") No. 130,
"Reporting Comprehensive Income" was issued. This statement established
standards of reporting and display of comprehensive income and its components in
a full set of general purpose financial statements. Also in June 1997, SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" was
issued. This standard establishes standards of reporting and displaying segments
of a business by requiring segments to be disclosed in accordance with
management's criteria for reviewing operating performance. In February 1998,
SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits" was issued. These statements established standards of reporting and
displaying information about pension plans and other benefit plans. These
statements will be effective for the Company's next audited reporting period
ending December 31, 1998 (see the discussion regarding the change in the
Company's fiscal year end in Note 1) and require comparative prior period
presentation. Adoption of these statements is not expected to significantly
alter the Company's financial statement presentation.
Seasonality and Quarterly Financial Data (Unaudited)
The Company experiences a substantial amount of seasonality in sales of the
various products. The result of this seasonality is that net sales and operating
income are generally higher in the third and fourth fiscal quarters and lower in
the first and second fiscal quarters of each fiscal year.
Sales of highway deicing salt in particular, are seasonal in nature, varying
with the winter conditions in areas where the product is used. Following
industry practice, the Company and its customers stockpile sufficient quantities
of ice control salt in the first three fiscal quarters to meet estimated
requirements for the winter season. Soda ash sales to the glass container
industry tend to be somewhat seasonal due to stronger summer demand for
beverages packaged in glass bottles. Most of the Company's specialty potash
sales are made between December and March in order to meet the spring planting
season requirements.
22
<PAGE>
The table below reflects the seasonality of the Company's business by fiscal
quarter.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
------------------------------------------------ -------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales .................... $99,581 $92,337 $151,068 $165,636 $93,199 $94,907 $146,214 $159,833
Gross profit ................. 18,103 17,854 46,715 51,813 17,192 22,923 50,254 53,638
Operating income (loss) ...... 4,138 4,841 32,217 35,781 1,685 9,672 36,238 40,742
Interest expense ............. 20,533 22,293 24,485 24,614 23,660 24,109 24,456 23,123
Net income (loss) ............ (15,092) (17,589) 5,763 5,485 (20,245) (13,557) 8,230 14,255
Sales by Product:
Salt ......................... 35,287 35,141 72,124 93,347 31,021 33,965 73,737 77,720
Soda products ................ 31,186 28,302 31,179 29,133 31,333 30,200 34,430 30,378
Boron chemicals .............. 17,214 14,743 14,417 16,677 16,109 17,505 17,313 17,362
Specialty potash fertilizers . 12,465 11,068 23,484 24,530 11,587 10,053 16,086 31,046
Other ........................ 3,429 3,083 9,864 1,949 3,149 3,184 4,648 3,327
</TABLE>
23
<PAGE>
Item 8. FINANCIAL STATEMENTS
Index
<TABLE>
<CAPTION>
Description Page #
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants 25
Consolidated Balance Sheets as of March 29, 1997 and March 28, 1998 26
Consolidated Statements of Operations for the three fiscal years ended March 28, 1998 27
Consolidated Statements of Common Stockholder's Equity (Deficit) for the three fiscal
years ended March 28, 1998 28
Consolidated Statements of Cash Flows for the three fiscal years ended March 28, 1998 29
Notes to Consolidated Financial Statements 31
</TABLE>
24
<PAGE>
REPORT OF COOPERS & LYBRAND L.L.P. INDEPENDENT ACCOUNTANTS
To the Board of Directors of Harris Chemical North America, Inc. and
Subsidiaries
We have audited the consolidated financial statements of Harris Chemical
North America, Inc. and Subsidiaries listed in the index on page 56 of this Form
10-K. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Harris
Chemical North America, Inc. and Subsidiaries as of March 28, 1998 and March 29,
1997 and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended March 28, 1998, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Kansas City, Missouri COOPERS & LYBRAND L.L.P.
May 22, 1998
25
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of March 29, 1997 and March 28, 1998
(in thousands)
March 29, March 28,
1997 1998
----------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 17,076 $ 18,088
Trade accounts receivable, less allowance for doubtful
accounts of $1,716 at March 29, 1997 and $1,772
at March 28, 1998 ................................................ 117,726 101,440
Other receivables ..................................................... 9,916 14,986
Inventories ........................................................... 86,818 97,017
Deferred income taxes ................................................. 6,019 4,092
Other ................................................................. 6,938 5,367
------------ ------------
Total current assets .............................................. 244,493 240,990
Property, plant and equipment, net ...................................... 388,011 374,916
Deferred financing costs, net ........................................... 25,553 21,125
Other ................................................................... 7,337 6,436
------------ ------------
Total assets ...................................................... $ 665,394 $ 643,467
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt ..................................... $ 9,403 $ 10,674
Accounts payable ...................................................... 59,526 70,069
Accrued expenses ...................................................... 25,259 21,702
Accrued interest ...................................................... 23,250 23,700
Accrued salaries and wages ............................................ 14,613 16,963
Income taxes payable .................................................. 2,483 2,855
------------ ------------
Total current liabilities ......................................... 134,534 145,963
Long-term debt, net of current portion .................................. 774,372 766,661
Deferred income taxes ................................................... 26,417 24,393
Other noncurrent liabilities ............................................ 36,502 27,183
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par .................................................. -- --
Additional paid-in capital ............................................ 99,941 97,341
Cumulative translation adjustment ..................................... (3,532) (3,700)
Common stockholder's receivable ....................................... (3,462) (3,679)
Accumulated deficit ................................................... (399,378) (410,695)
------------ ------------
Total common stockholder's deficit ................................ (306,431) (320,733)
------------ ------------
Total liabilities and stockholder's deficit ....................... $ 665,394 $ 643,467
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three fiscal years ended March 28, 1998
(in thousands)
FY 1996 FY 1997 FY 1998
--------------- -------------- ---------------
<S> <C> <C> <C>
Net sales .................................................... $ 475,474 $ 508,622 $ 494,153
Cost of sales ................................................ 351,040 374,137 350,146
--------------- -------------- ---------------
Gross profit .............................................. 124,434 134,485 144,007
Selling, general and administrative expenses ................. 64,273 57,508 55,670
Asset impairment charge ...................................... 7,044 -- --
--------------- -------------- ---------------
Operating income .......................................... 53,117 76,977 88,337
Other income (expense):
Interest expense .......................................... (84,938) (91,925) (95,348)
Foreign currency transaction gain (loss) .................. 2,039 (1,301) (685)
Other, net ................................................ 6,240 3,916 5,518
--------------- -------------- ---------------
Income (loss) before taxes and extraordinary item ......... (23,542) (12,333) (2,178)
Provision for income taxes ................................... 5,200 9,100 6,639
--------------- -------------- ---------------
Income (loss) before extraordinary item ................... (28,742) (21,433) (8,817)
Extraordinary item - loss on early retirement of debt......... -- -- (2,500)
--------------- -------------- ---------------
Net income (loss) ......................................... $ (28,742) $ (21,433) $ (11,317)
=============== ============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY (DEFICIT)
for the three fiscal years ended March 28, 1998
(in thousands)
Common
Common Additional Cumulative Stockholder's
Stock, Paid-in Translation Notes Accumulated
at Par Capital Adjustment Receivable Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance, March 25, 1995 ........ $ -- $ 107,253 $ (3,395) $ (3,792) $ (349,203) $ (249,137)
Translation adjustment ...... 52 52
Receivable from HCG ......... (3,103) (3,103)
Noncash capital
distribution to HCG ...... (1,812) 1,812 0
Harris Chemical Australia
rights (Note 10) ......... (2,000) 2,000 0
Net loss .................... (28,742) (28,742)
------------- -------------- --------------- --------------- ---------------- -------------
Balance, March 30, 1996 ........ -- 103,441 (3,343) (3,083) (377,945) (280,930)
Translation adjustment ...... (189) (189)
Receivable from HCG ......... (1,129) (1,129)
Noncash capital
distribution to HCG ...... (750) 750 0
Purchase of patents
from affiliate ........... (2,750) (2,750)
Net loss .................... (21,433) (21,433)
------------- -------------- --------------- --------------- ---------------- -------------
Balance, March 29, 1997 ........ -- 99,941 (3,532) (3,462) (399,378) (306,431)
Translation adjustment ...... (168) (168)
Receivable from HCG.......... (217) (217)
Purchase of trademarks
from affiliate............. (2,600) (2,600)
Net loss..................... (11,317) (11,317)
------------- -------------- --------------- --------------- ---------------- -------------
Balance, March 28, 1998......... $ -- $ 97,341 $ (3,700) $ (3,679) $ (410,695) $ (320,733)
============= ============== =============== =============== ================ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three fiscal years ended March 28, 1998
(in thousands)
FY 1996 FY 1997 FY 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item ........................................... $ (28,742) $ (21,433) $ (8,817)
Adjustments to reconcile loss to net cash flows from operating activities:
Depreciation .......................................................... 56,187 53,242 56,877
Finance fee amortization .............................................. 5,749 5,342 4,800
Operating amortization ................................................ 743 1,254 681
Accreted interest ..................................................... 19,362 -- 1,502
Deferred income taxes ................................................. 3,778 3,768 (292)
Unrealized foreign currency transaction loss (gain) ................... (2,317) (232) 747
Loss (gain) on disposal of property, plant and equipment .............. 47 895 (529)
Asset impairment charge ............................................... 7,044 -- --
Other ................................................................. (959) 440 (106)
Changes in operating assets and liabilities:
Receivables ........................................................ (17,796) (8,527) 11,216
Inventories ........................................................ (15,201) 16,437 (10,200)
Other assets ....................................................... 1,067 (2,597) 1,806
Accounts payable ................................................... 6,409 (6,775) 10,543
Accrued expenses and other noncurrent liabilities .................. (1,156) (3,499) (9,025)
------------ ------------ -----------
Net cash provided by operating activities ....................... 34,215 38,315 59,203
------------ ------------ -----------
Cash flows from investing activities:
Capital expenditures ..................................................... (41,382) (32,719) (38,885)
Capitalized interest ..................................................... (4,230) (1,244) (243)
Proceeds from sales of property, plant and equipment ..................... 171 679 853
Other .................................................................... (1,650) -- --
------------ ------------ -----------
Net cash used in investing activities ........................... (47,091) (33,284) (38,275)
------------ ------------ -----------
Cash flows from financing activities:
Revolver borrowings ...................................................... 152,287 206,745 158,302
Revolver payments ........................................................ (120,287) (285,745) (155,302)
Principal payments on other long-term debt, including capital leases ..... (11,645) (8,155) (19,889)
Issuance of long-term debt ............................................... -- 75,000 --
Capitalized finance costs ................................................ (1,049) (6,794) (324)
Proceeds from deferred revenue ........................................... -- 23,152 --
Other .................................................................... (3,103) (1,129) (2,817)
------------ ------------ -----------
Net cash provided by (used in) financing activities ............. 16,203 3,074 (20,030)
------------ ------------ -----------
Effect of exchange rate changes on cash ..................................... 118 (122) 114
------------ ------------ -----------
Net increase in cash ............................................ 3,445 7,983 1,012
Cash and cash equivalents, beginning of period .............................. 5,648 9,093 17,076
------------ ------------ -----------
Cash and cash equivalents, end of period .................................... $ 9,093 $ 17,076 $ 18,088
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -
(Continued) for the three fiscal years ended
March 28, 1998
(in thousands)
FY 1996 FY 1997 FY 1998
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid including capitalized interest ............................. $ 60,009 $ 91,578 $ 93,983
Income taxes paid ........................................................ 1,695 3,007 5,773
Supplemental disclosure of noncash activities:
Assets acquired under capital leases ..................................... $ 4,533 $ 6,551 $ 6,352
Acquisition of White River Nahcolite L.L.C. .............................. 9,008 -- --
Noncash capital distribution ............................................. 1,812 750 --
Harris Chemical Australia rights ......................................... 2,000 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Merger:
The consolidated financial statements include the consolidated accounts
of: Harris Chemical North America, Inc. ("Harris") and its wholly owned
subsidiaries, North American Chemical Company ("NACC"), NAMSCO Inc. ("NAMSCO")
and its wholly owned subsidiaries North American Salt Company ("NASC") and Sifto
Canada Inc. ("Sifto"), and GSL Corporation ("GSL") and its wholly owned
subsidiary Great Salt Lake Minerals Corporation ("GSLMC"). Harris and its direct
and indirect subsidiaries are collectively referred to as the "Company." Harris
is a wholly owned subsidiary of Harris Chemical Group, Inc. ("HCG"). The common
stockholder's equity of Harris consists of a single class of $.01 par value
common stock with 1,000 shares authorized, issued and outstanding at March 28,
1998.
On April 1, 1998, HCG was acquired by IMC Global Inc., a Delaware
corporation ("IMC"), pursuant to an Agreement and Plan of Merger, dated as of
December 11, 1997, by and among HCG, IMC and IMC Merger Sub Inc., a Delaware
corporation and a wholly owned subsidiary of IMC. On April 1, IMC Merger Sub
Inc. was merged with and into HCG ("the Merger") and as a result, all of the
subsidiaries of HCG, including Harris, became wholly owned subsidiaries of IMC.
Harris is a producer and marketer of inorganic chemical and extractive
mineral products with manufacturing sites in North America. Its principal
products are salt, sodium-based chemicals including soda ash and sodium
bicarbonate, sulfate of potash, and boron chemicals. Together, these businesses
serve a variety of markets, including agriculture, food processing, the chemical
process industry, glass manufacturing and highway de-icing.
2. Summary of Significant Accounting Policies:
a. Management Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
b. Basis of Consolidation: The consolidated financial statements include the
consolidated accounts of Harris and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the prior year's
financial statements to conform with the current year presentation.
c. Foreign Currency Translation: Assets and liabilities are translated into
U.S. dollars at year-end exchange rates. Revenues and expenses are translated
using the average rates of exchange for the year. Adjustments resulting from the
translation of a foreign currency financial statement into the reporting
currency, U.S. dollars, are made directly to a separate component of common
stockholder's equity. Exchange gains and losses from transactions denominated in
a currency other than a company's functional currency are included in income.
d. Fiscal Year-End: The Company has adopted a 52-53 week fiscal year ("FY")
ending on the last Saturday in March. FYs 1998 and 1997 include 52 weeks and FY
1996 includes 53 weeks. On April 1, 1998, in connection with the Merger, the
Company changed its fiscal year end to December 31, 1998. A report on Form 10-K
will be filed by the Company covering the transition period beginning March 29,
1998 and ending December 31, 1998.
e. Cash and Cash Equivalents: The Company considers all investments with
original maturities of three months or less to be cash equivalents. The Company
maintains the majority of its cash in bank deposit accounts with two commercial
banks with high credit ratings in the U.S. and Canada. The Company does not
believe it is exposed to any significant credit risk on cash and cash
equivalents.
f. Inventories: Inventories are stated at the lower of cost or market. Raw
materials and supply costs are determined by either the first-in, first-out
(FIFO) or the average cost method. Finished goods costs are determined by either
the last-in, first-out (LIFO) or average cost method.
g. Revenue Recognition: Revenue is recognized by the Company upon the transfer
of title to the customer, which is generally at the time product is shipped.
31
<PAGE>
h. Property, Plant and Equipment: Property, plant and equipment, including
assets under capital leases, are stated at cost and include interest on funds
borrowed to finance construction. The costs of replacements or renewals which
improve or extend the life of existing property are capitalized. Maintenance and
repairs are expensed as incurred. The costs of certain major maintenance
projects are accrued ratably over the periods prior to the next scheduled
maintenance project. Depreciation and amortization are provided on the
straight-line method over the following estimated useful lives:
Land improvements........................................ 5 to 25 years
Buildings and improvements...............................10 to 40 years
Machinery and equipment.................................. 3 to 18 years
Solar ponds complex......................................10 to 20 years
Rolling stock and track..................................15 to 25 years
Furniture and fixtures................................... 3 to 10 years
i. Deferred Financing Costs: Deferred financing costs are net of accumulated
amortization of $18,727,000 in FY 1997 and $23,427,000 in FY 1998. Deferred
financing costs are amortized using the effective interest rate method over the
term of the related debt.
j. Income Taxes: HCG files consolidated federal income tax returns with Harris
and its U.S. subsidiaries. Under the Tax Sharing Agreement, Harris generally
agrees to reimburse HCG in amounts designed to approximate the amount of income
taxes that Harris and its wholly owned subsidiaries (other than Sifto) would
have paid had they filed consolidated federal income tax returns (and analogous
state and local returns) separate from HCG. Sifto files a separate Canadian
income tax return.
The Company accounts for income taxes using the liability method in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109 - Accounting for Income Taxes ("SFAS 109"). Under the liability method,
deferred taxes are determined based on the differences between the financial
statement and the tax basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
k. Research and Development Expenses: Research and development expenditures
are expensed as incurred and were approximately $1,041,000, $1,010,000 and
$1,147,000 in FYs 1996, 1997 and 1998, respectively.
l. Environmental Costs: Environmental costs, other than those of a capital
nature, are accrued at the time the exposure becomes known and costs can
reasonably be estimated. Costs are accrued based upon management's estimates of
all direct costs, after taking into account reimbursement by third parties
(primarily the sellers of acquired businesses), and are reviewed by outside
consultants. Environmental costs are charged to expense unless a settlement with
an indemnifying party has been reached. Reimbursement of costs previously
expensed is recorded as a reduction of operating expense when settlement with
the indemnifying party is reached. The Company does not accrue liabilities for
unasserted claims that are not probable of assertion, nor does it provide for
environmental clean-up costs, if any, at the end of the useful lives of its
facilities because, given the long lives of its mineral deposits, it is not
practical to estimate such costs.
m. Recently Issued Accounting Standards: In June 1997, SFAS No. 130, "Reporting
Comprehensive Income" was issued. This statement established standards of
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Also in June 1997, SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" was
issued. This standard establishes standards of reporting and displaying segments
of a business by requiring segments to be disclosed in accordance with
management's criteria for reviewing operating performance. In February 1998,
SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits" was issued. These statements established standards of reporting and
displaying information about pension plans and other benefit plans. These
statements will be effective for the Company's next audited reporting period
ending December 31, 1998 (see the discussion regarding the change in the
Company's fiscal year end in Note 1) and require comparative prior period
presentation. Adoption of these statements is not expected to significantly
alter the Company's financial statement presentation.
32
<PAGE>
3. Inventories:
Inventories are stated at the lower of cost or market, and consist of the
following (in thousands):
<TABLE>
<CAPTION>
March 29, 1997 March 28, 1998
------------------- -------------------
<S> <C> <C>
Finished goods ............................ $ 54,820 $ 63,336
Raw materials and supplies ................ 31,998 33,681
------------------- -------------------
$ 86,818 $ 97,017
=================== ===================
</TABLE>
As of March 29, 1997 and March 28, 1998 approximately 52% and 44%,
respectively, of finished goods inventories are valued at LIFO. The excess of
LIFO costs over the current cost of inventories based upon the LIFO method (and
after lower of cost or market adjustments) was $3,402,000 at March 29, 1997 and
$3,377,000 at March 28, 1998.
4. Property, Plant & Equipment:
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
March 29, 1997 March 28, 1998
------------------- -------------------
<S> <C> <C>
Land and improvements ..................... $ 30,992 $ 30,459
Buildings and improvements ................ 76,764 83,712
Machinery and equipment ................... 523,295 550,997
Solar ponds complex ....................... 33,233 36,776
Rolling stock and track ................... 7,464 8,737
Furniture and fixtures .................... 8,724 9,055
Construction in progress .................. 22,472 25,872
------------------- -------------------
702,944 745,608
Less accumulated depreciation ............. 314,933 370,692
------------------- -------------------
$ 388,011 $ 374,916
=================== ===================
</TABLE>
In April, 1996, the Company discontinued production at a section of its
facility located in Searles Valley, California. The shutdown was an element of
the Company's strategic capital expenditure program to increase soda ash
production and reduce boron and soda ash production costs. The amount of the
loss due to the discontinued production was $7.0 million which is reflected as a
charge against operating income for the year ended March 30, 1996. To the extent
that assets were no longer of any use to other production facilities at the
Searles Valley location, they were written off in their entirety as they
represent no additional value to the Company. For those assets which can be used
by other production facilities, the values were transferred to those facilities
at their net book value as of March 30, 1996. In connection with Argus Utilities
Financing in July 1996 (see Note 7), the Company extended the useful lives of
Argus Utilities plant and equipment with a net book value of $28.2 million to 15
years to match the terms of the lease. This revision in useful lives reduced
depreciation expense and the net loss by $6.5 million in FY 1997.
33
<PAGE>
5. Income Taxes:
The income tax provisions for FYs 1996, 1997 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal .............................................. $ 50 $ 545 $ 0
State ................................................ 150 760 711
Foreign income ....................................... 438 645 2,751
Foreign mining ....................................... 984 3,050 2,801
------------ ------------ ------------
Total current ...................................... 1,622 5,000 6,263
------------ ------------ ------------
Deferred:
Federal .............................................. (14,362) (13,577) (9,378)
State ................................................ (3,314) (3,133) (2,164)
Foreign income ....................................... 2,403 3,366 (560)
Foreign mining ....................................... 1,032 532 2
Change in valuation allowance ........................ 17,819 16,912 12,476
------------ ------------ ------------
Total deferred ..................................... 3,578 4,100 376
------------ ------------ ------------
Total provision before extraordinary item .............. 5,200 9,100 6,639
Tax benefit of extraordinary item -- early
extinguishment of debt .............................. -- -- (875)
Valuation allowance .................................... -- -- 875
------------ ------------ ------------
Total provision for income taxes ....................... $ 5,200 $ 9,100 $ 6,639
============ ============ ============
</TABLE>
The sources of income (loss), excluding extraordinary items, before taxes
are as follows (in thousands):
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
--------------- ------------- ------------
<S> <C> <C> <C>
United States .................................. $ (31,877) $ (27,821) $ (12,776)
Foreign ........................................ 8,335 15,488 10,598
--------------- ------------- ------------
Income (loss) before taxes and
extraordinary item .......................... $ (23,542) $ (12,333) $ (2,178)
=============== ============= ============
</TABLE>
The Company does not provide U.S. federal income taxes on undistributed
earnings of foreign subsidiaries that are not currently taxable in the United
States. No undistributed earnings of foreign subsidiaries were subject to U.S.
income tax in FY 1996, FY 1997 or FY 1998. Total undistributed earnings on which
no U.S. federal income tax has been provided were $33.5 million at March 28,
1998. If these earnings are distributed, foreign tax credits may become
available under current law to reduce or possibly eliminate the resulting U.S.
income tax liability.
Reconciliation of the U.S. statutory federal income tax rate to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
------------- ------------- -------------
<S> <C> <C> <C>
U.S. federal statutory tax rate ................. 35.0% 35.0% 35.0%
U.S. statutory depletion ........................ 22.9 39.4 254.0
State income taxes, net of federal tax benefit .. 9.2 12.5 43.4
Foreign income tax rate differential ............ 0.3 11.4 69.7
Foreign mining taxes ............................ (8.6) (29.0) (128.7)
Change in valuation allowance.................... (75.7) (137.2) (572.8)
Other, net ...................................... (5.2) (5.9) (5.4)
------------- ------------- -------------
Effective tax rate .......................... (22.1)% (73.8)% (304.8)%
============= ============= =============
</TABLE>
34
<PAGE>
Deferred tax assets and liabilities are recognized for the estimated
future tax effects, based on enacted tax law, of temporary differences between
the values of assets and liabilities recorded for financial reporting and for
tax purposes and of net operating loss and other carryforwards. The tax effects
of the types of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
March 29, 1997 March 28, 1998
-------------------- ---------------------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets and deprecation ............................. $ 40,385 $ 39,375
Inventories .............................................. 521 481
Other .................................................... 7,924 6,999
-------------------- ---------------------
48,830 46,855
-------------------- ---------------------
Deferred tax assets:
Inventories ............................................. 202 202
Accrued reserves and liabilities ........................ 7,640 5,127
Interest on high yield debt ............................. 19,795 19,795
Prepaid income .......................................... 9,627 8,878
Net operating loss carryforwards ........................ 72,947 89,079
Alternative minimum tax credit carryforwards ............ 2,720 2,670
Other ................................................... 5,902 4,555
-------------------- ---------------------
118,833 130,306
Less valuation allowance ................................... 90,401 103,752
-------------------- ---------------------
28,432 26,554
-------------------- ---------------------
Net deferred tax liabilities ............................... 20,398 20,301
Less net current deferred tax assets ....................... 6,019 4,092
-------------------- ---------------------
Net long-term deferred tax liabilities ..................... $ 26,417 $ 24,393
==================== =====================
</TABLE>
SFAS 109 requires a valuation allowance against deferred tax assets if,
based on available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company carried a valuation
allowance relating to the future utilization of net operating loss carryforwards
and foreign currency translation losses of $90.4 million and $103.8 million as
of March 29, 1997 and March 28, 1998, respectively.
At March 28, 1998, net operating loss carryforwards for U.S. federal
income tax purposes available to offset future taxable income for the Company
are approximately $229.0 million. If not utilized, these carryforwards expire in
the FYs 2005 through 2013. As of March 28, 1998, Sifto has fully utilized its
Canadian federal and provincial net operating loss carryforwards.
In addition, the Company has an alternative minimum tax credit
carryforward at March 28, 1998 of approximately $2.3 million. These credit
carryforwards may be carried forward indefinitely to offset any excess of
regular tax liability over alternative minimum tax liability subject to certain
separate company limitations. To the extent not offset by a valuation allowance,
these net operating loss and alternative minimum tax credit carryforwards have
been reflected as a reduction of noncurrent deferred income tax liabilities for
financial reporting purposes.
The Company has begun assessing the impact the Merger (see Note 1) will
have on the valuation allowance relating to the future utilization of net
operating loss carryforwards. The ultimate utilization of these net operating
loss carryforwards by the Company as a subsidiary of IMC will be impacted by the
future profitability of HCG and its U.S. subsidiaries and will further be
subject to annual limitations under the change in control provisions of the IRS
rules and regulations.
35
<PAGE>
6. Other Income:
Other income, net consists of the following (in thousands):
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
------------- ------------ -------------
<S> <C> <C> <C>
Land lease and revenue sharing - cogeneration facility ............. $ 4,033 $ 4,774 $ 5,663
Interest income .................................................... 379 213 364
Equity income (loss) in Harris Chemical Europe Ltd. ................ 513 (399) (61)
Other .............................................................. 1,315 (672) (448)
------------- ------------ -------------
Other income, net ............................................... $ 6,240 $ 3,916 $ 5,518
============= ============ =============
</TABLE>
7. Long-term Debt:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 28, 1997 March 28, 1998
------------------- --------------------
<S> <C> <C>
Senior debt:
Notes payable, 8.5%, due July 15, 2000 ................................ $ 100,000 $ 100,000
Notes payable, 10.25%, due July 15, 2001 .............................. 250,000 250,000
Senior subordinated debt:
Notes payable, 10.75%, due October 15, 2003 ........................... 335,000 335,000
Revolving lines of credit ................................................ -- 3,000
Argus utilities notes payable, 12.3%, due through 2011 ................... 73,517 71,502
Other, including capital lease obligations ............................... 25,258 17,833
------------------- --------------------
783,775 777,335
Less current portion ..................................................... (9,403) (10,674)
------------------- --------------------
$ 774,372 $ 766,661
=================== ====================
</TABLE>
Contractual maturities of long-term debt are as follows (in thousands): $10,674
in FY 1999; $6,738 in FY 2000; $108,726 in FY 2001; $254,261 in FY 2002; $4,018
in FY 2003 and $392,918 thereafter.
In FY 1994, Harris issued $250 million of 10.25% Senior Secured Discount
Notes due July 15, 2001 (the "Discount Notes"), $335 million of 10.75% Senior
Subordinated Notes due October 15, 2003 (the "Senior Subordinated Notes") and
Sifto issued $100 million of 8.5% Senior Secured Notes due July 15, 2000 (the
"Sifto Notes"). The Discount Notes, the Senior Subordinated Notes and the Sifto
Notes are collectively referred to herein as the "Notes." The Sifto Notes
require interest payments each January 15 and July 15. The Discount Notes began
accruing cash interest January 15, 1996 with interest payable each January 15
and July 15 starting July 15, 1996. The Senior Subordinated Notes require
interest payments each April 15 and October 15.
The Discount Notes and Senior Subordinated Notes are redeemable at any
time on or after October 15, 1998 and prior to maturity at the option of Harris,
in whole or in part, at the following redemption prices (expressed as
percentages of principal amount) plus accrued interest if redeemed during the
12-month periods beginning October 15 of the years indicated:
Senior Subordinated
Senior Notes Notes
---------------------- ------------------------
1998 ......................... 103.0% 104.05%
1999 ......................... 101.5% 102.70%
2000 ......................... 100.0% 101.35%
2001 and thereafter .......... 100.0% 100.00%
.
The Notes require that Harris or Sifto, as applicable, offer to purchase
all of the outstanding Notes for 101% of their principal amount plus accrued
interest ("Offer to Purchase") within 60 days following a change of control of
Harris or
36
<PAGE>
HCG. The consummation of the Merger (see Note 1) on April 1, 1998, resulted in a
change of control transaction, as defined by the Indentures, pursuant to which
the Notes were issued. The Offer to Purchase must be outstanding between 30 and
60 days. Both Harris and Sifto intend to make the Offer to Purchase no later
than May 31, 1998. Because the Company and IMC intend to finance any repayments
of principal with long-term borrowings, the Notes are classified as Long-term
debt in the accompanying Consolidated Balance Sheets.
At March 28, 1998, the Company had a $130 million revolving line of credit
("US Credit Facility") with a group of lenders for three of its U.S.
subsidiaries (NACC, NAMSCO and GSL). At March 28, 1998, the Company had $3
million outstanding under the US Credit Facility. The US Credit Facility is
guaranteed by the Company and each of the Company's other U.S. subsidiaries, and
is secured by the trade accounts receivable and product inventories of NACC,
NAMSCO and GSL. The US Credit Facility terminates on the earlier of February 28,
2002 or February 15, 2001 if any Discount Notes are outstanding as of such date.
The US Credit Facility accrues interest, at Harris' option, at either a defined
US Base Rate plus 1.50% or LIBOR plus 2.75%. Commitment fees of 0.375% per year
of the unused portion of the US Credit Facility are payable quarterly.
Simultaneously with the consummation of the Merger (see Note 1), the lenders
under the US Credit Facility assigned all of their rights and interest under the
US Credit Facility to IMC. The Company modified it US Credit Facility in May
1998 to delete or change certain covenant requirements.
At March 28, 1998, Sifto had a $20 million revolving line of credit ("Sifto
Credit Facility") with a group of Canadian banks which would terminate on the
earlier of February 28, 2002 or February 15, 2001 if any Discount Notes are
outstanding on such date. The Sifto Credit Facility is secured by the trade
accounts receivable and product inventories of Sifto and accrues interest, at
Sifto's option, at either a defined Canadian Base Rate plus 1.50%, or a defined
Bankers Acceptance Loan Rate plus 2.75%. Commitment fees of 0.375% per year of
the unused portion of the Sifto Credit Facility are payable quarterly. Sifto
terminated the Sifto Credit Facility simultaneously with the consummation of the
Merger (see Note 1).
Harris has pledged the common stock of NACC, NAMSCO and GSL for the benefit
of the Discount Notes and the Senior Notes. The Sifto Notes are secured by all
of the assets of Sifto (other than trade accounts receivable and product
inventories). Borrowing capacity under the US and Sifto credit facilities is
reduced by outstanding letters of credit, which totaled $25.9 million at March
28, 1998. The Company had $72.7 million of available borrowing capacity under
its revolving credit facilities at March 28, 1998. Prior to its assumption by
IMC and amendment, the revolving credit facilities required the Company to
maintain certain minimum interest coverage, fixed charge and net funded debt
coverage ratios.
In July 1996, NACC entered into an agreement for the sale and leaseback of
an electric and steam generating facility associated with its Searles Valley
soda ash facilities (the "Argus Utilities"). Under the terms of the agreement
the Argus Utilities were sold to two institutional investors for $75 million,
approximately $70 million in cash, net of related expenses and taxes. The
initial term of the lease is 13 years with a two-to-fifteen year reduced rate
renewal option. After expiration of the reduced rate renewal period there are
three fair market renewal options of up to 5 years each. The Company has
provided a guarantee for the performance of NACC's obligations under the lease
and related agreements. In addition, during the initial term of the lease NACC
is required to provide letters of credit of approximately $15 million as
additional credit support. The Company has also agreed to certain covenants,
including maintaining access to adequate working capital, meeting fixed charge
and interest coverage ratios, and restrictions on assets dispositions and
mergers. The transaction is being accounted for as a financing transaction
during the initial and reduced rate rental periods. Proceeds from this
transaction were used to reduce the outstanding revolving credit balance.
In August 1995, NACC and NaTec Resources, Inc. ("NRI") executed an
agreement regarding the acquisition by NACC of the remaining 50% interest in
White River Nahcolite Limited Liability Co. ("White River") owned by NRI.
Pursuant to that agreement, the consideration paid to NRI totaled $9,508,000
consisting of (i) $500,000 in cash paid by NACC to NRI, (ii) a $4.0 million
non-interest bearing promissory note of NACC payable in installments through the
third anniversary of the closing date (discounted balance $3,236,000) and (iii)
a $6.0 million non-interest bearing promissory note of White River which was
paid on January 12, 1996 (discounted balance $5,772,000). The remaining note is
collateralized by substantially all of White River's assets and has been
classified as Current portion of long-term debt in the accompanying Consolidated
Balance Sheet of March 28, 1998.
37
<PAGE>
8. Employee Benefit Plans:
The Company has a 401(k) retirement savings and investment plan covering
substantially all employees. Contributions are made to this plan by participants
through voluntary salary deferral and by the Company in accordance with the
terms of the plan. Company contributions to the plan were approximately
$6,295,000, $6,199,000 and $5,728,000 in FYs 1996, 1997 and 1998, respectively.
NAMSCO has defined benefit pension plans that cover certain of its hourly
employees. Benefits are based on years of service and levels of compensation.
NAMSCO funds an amount equal to the maximum allowable deduction for tax
purposes. Net periodic pension cost for FYs 1996, 1997 and 1998 was $95,000,
$86,000, and $109,000, respectively. At March 28, 1998, the NAMSCO plans are
fully funded and have net prepaid pension assets of $293,000. The Company
distributed the assets of a GSL defined benefit pension plan to the vested
participants in FY 1997.
The Company offers a variety of health and welfare benefit plans to active
employees. No Company-sponsored health and welfare benefit plans are offered to
retirees.
9. Commitments and Contingencies:
The Company is involved in legal and administrative proceedings and claims
of various types from normal business activities. While any litigation contains
an element of uncertainty, management, based upon the opinion of the Company's
counsel, presently believes that the outcome of each such proceeding or claim
which is pending or known to be threatened, or all of them combined, will not
have a material adverse effect on the Company's results of operations, financial
condition or liquidity.
Leases: The Company leases certain property and equipment under non-cancelable
operating leases for varying periods. The Company also leases various equipment
under capital leases with a net book value of $16,828,000 and $17,085,000 at
March 29, 1997 and March 28, 1998, respectively, that are included in property,
plant, and equipment in the accompanying consolidated balance sheet.
The aggregate minimum annual rentals under lease arrangements are as
follows (in thousands):
Fiscal Capital Operating
Year Leases Leases
- ------------------------------------------ -------------- --------------
1999 ..................................... $ 6,404 $ 15,324
2000 ..................................... 4,159 14,582
2001 ..................................... 2,474 13,870
2002 ..................................... 573 13,434
2003 ..................................... 109 13,036
Thereafter ............................... -- 113,820
-------------- --------------
Total ................................ $ 13,719 $ 184,066
==============
Less amounts representing interest ....... 1,563
--------------
Present value of net minimum lease ....... $ 12,156
==============
Rental expense, net of sublease income, for FYs 1996, 1997 and 1998 was
$16,514,000, $16,603,000, and $16,998,000, respectively.
Royalties: A substantial portion of the land used in the Company's operations at
the Searles Valley facility is owned by the U.S. government. The Company pays a
royalty to the U.S. government of 5% on the sales value of the minerals
extracted from government land. The leases generally have a term of 10 years
with preferential renewal options. Total royalty expense was approximately
$6,732,000, $4,675,000 and $3,274,000 in FYs 1996, 1997 and 1998, respectively.
In addition, the Company has various private, state and Canadian provincial
leases associated with the salt and specialty potash businesses. Total royalty
expense related to these leases was approximately $2,018,000, $3,459,000 and
$3,826,000 in FYs 1996, 1997 and 1998, respectively.
38
<PAGE>
Purchase Commitments: NACC is committed under a contract to purchase a
percentage of tons of coal based on total coal purchases per year, at agreed
upon prices, for operations at its Searles Valley facility in California. The
contract continues through December 1999, with an option to extend the agreement
an additional five years.
Environmental Matters: At March 28, 1998, the Company has recorded accruals of
$10.7 million ($3.8 million classified in accrued expenses and $6.9 million
classified in other noncurrent liabilities) for future costs associated with
existing environmental exposures at certain of its facilities. The Company
estimates that a significant portion of these accruals will be used over the
next five years. It is the opinion of management that the outcome of known
environmental contingencies will not have a material adverse effect on the
results of operations, financial condition or liquidity of the Company.
10. Related Party Transactions:
HCG's wholly owned subsidiaries include Harris (see Note 1), Harris
Chemical Europe, Ltd. ("HCEL") and Harris Chemical Group Europe, Inc. ("HCGE").
The principal wholly owned subsidiaries of HCEL include NAMSCO (UK), Ltd.
("NUK"), with salt operations in the United Kingdom (Salt Union Ltd. or "SUL"),
Matthes + Weber GmbH ("M&W"), with soda operations in Germany, Harris Soda
Products Europe ("HSPE") which is based in France and markets and sells soda
products in Europe, and Societa Chimica Larderello ("SCL"), with boron
operations in Italy. In addition, certain stockholders of HCG have minority
ownership interests in Penrice Soda Products Pty Ltd. ("Penrice"), U.S. Silica
and Harris Specialty Chemical Company. These entities are collectively referred
to as HCG affiliates.
The Company has management services agreements with HCG and certain of its
affiliates and the Company occasionally purchases and sells products at
market-based prices to HCG affiliates in the ordinary course of business. The
following table summarizes the revenues (expenses) with HCG affiliates in FY's
1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
FY 1996 FY 1997 FY 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Harris services agreement with HCG ......................... $408 $408 $ --
NAMSCO services agreement with NUK ......................... 403 378 415
NAMSCO fee to HCGE for services to NUK ..................... (282) (378) (415)
NACC technical services agreement with SCL ................. -- (105) (250)
NACC inventory sales to SCL ................................ 1,852 217 1,299
GSL inventory sales to SCL ................................. 911 356 --
NACC inventory sales to HSPE ............................... -- 66 305
NACC inventory sales to Penrice ............................ -- 118 43
NACC inventory purchases from SCL .......................... (2,643) (2,963) (2,769)
GSL inventory purchases from SCL ........................... -- (343) --
</TABLE>
The Notes and, prior to its amendment, the US Credit Facility, permit
Harris to pay to HCG an amount not to exceed $750,000 per fiscal year for the
purpose of enabling HCG to pay its actual operating expenses in the ordinary
course of business. The total amount paid by Harris to HCG was $750,000 in FY's
1996, 1997 and 1998. At March 29, 1997 and March 28, 1998, the Company has a
balance due from HCG of approximately $3,462,000 and $3,679,000, respectively,
classified as a reduction in stockholder's equity. Such amount consists of
advances to HCG for the repurchase of common shares of HCG from employees who
terminated their relationship with the Company and the services agreement with
Harris (see above).
The Company has net receivables from HCG affiliates totaling $458,000 and
$210,000 at March 29, 1997 and March 28, 1998, respectively.
In FY 1996, NAMSCO exchanged its 5.6% economic ownership in NUK for a 6.51%
economic ownership in Harris Chemical Europe Limited ("HCEL"), a corporation
organized under the laws of the United Kingdom. NAMSCO has recorded an equity
investment in HCEL of $1,674,000 and $1,664,000 at March 29, 1997 and March 28,
1998, respectively.
39
<PAGE>
The Company entered into an agreement in FY 1994 to become a distributor of
SCL products to the U.S. market. SCL also distributes certain boron chemical
products of the Company in Europe. The Company prepaid to SCL $1,300,000 in FY
1997 for boron containing minerals used in SCL's production process. In FY 1997,
NACC entered into a technical services agreement with SCL for $250,000 annually
to compensate SCL for providing technical expertise and assistance to NACC in
specialty boron production. Additionally, in FYs 1997 and 1998, an agreement was
reached whereby NACC purchased patents and trademarks from SCL for $2,750,000
and $2,600,000, respectively. The amounts have been reflected as a reduction to
paid in capital in the accompanying balance sheets and statements of common
stockholder's equity. The Company had net receivables due from SCL of $91,000
and $695,000 at March 29, 1997 and March 28, 1998, respectively.
In FY 1996, certain stockholders of HCG purchased a minority interest in
Penrice, an Australian enterprise engaged in the production and distribution of
soda ash products. In connection therewith, HCG obtained an option agreement
that permits HCG to purchase Penrice at fair market value under certain
circumstances. HCG transferred this option to the Company. In addition, HCG
permitted the Company to enter into a services agreement with Penrice. The
agreement provides that Penrice will pay the Company 200,000 Australian dollars
per year beginning in FY 1997 for management consulting and operating support
services. Management believes this agreement will also open up new markets for
certain of the Company's products. The Company agreed to consideration of $2.0
million to HCG which is the estimated fair market value to HCNA of the above
agreements. The $2.0 million is reflected as a reduction of both stockholder's
receivable and paid in capital in the accompanying balance sheet and statement
of common stockholder's equity.
In 1993, NACC entered into an agreement to sell its port facilities in San
Diego to SDT Capital, Inc. ("SDT") for $5.5 million, and lease such facilities
back from SDT. SDT's president is a relative of a former officer of Harris who
was a shareholder in HCG. Annual rentals under the agreement were $1.7 million
per year payable quarterly for the initial four-year period. Additional rents
were due at $3 per ton for shipments in excess of 850,000 tons per year. The
Company had the option to repurchase the facilities at the end of either the
initial lease period (December 31, 1997) or any renewal option period for the
greater of $7.0 million or fair market value. This transaction was accounted for
as a financing with the difference between the initial stated value of $5.5
million and the minimum repurchase value of $7.0 million being accrued through
the term of lease. During fiscal year 1998, the Company exercised its option to
repurchase the port facilities. On December 31, 1997, the Company reached an
agreement as to the fair market value of the facilities, $9.5 million, and paid
that amount to SDT in satisfaction of its obligations under the lease agreement.
As a result, the Company has recorded an extraordinary loss, net of income
taxes, of $2.5 million in fiscal 1998 for the early extinguishment of debt.
11. Fair Value of Financial Instruments:
The carrying amounts and estimated fair values of the Company's financial
instruments at March 28, 1998 are as follows (in thousands):
Carrying Estimated
Value Fair Value
--------------- ---------------
Senior debt:
Notes payable, 8.5% ................. $100,000 $104,250
Notes payable, 10.25% ............... 250,000 261,875
Subordinated debt:
Notes payable, 10.75% ............... 335,000 355,938
Revolving lines of credit ............... 3,000 3,000
Argus utilities notes payable, 12.3% .... 71,502 71,502
Other, including capital leases ......... 17,833 17,833
The following methods and assumptions were used to estimate the fair value
of the financial instruments:
Senior debt and Subordinated debt: The fair value is based on the quoted market
price at the close of trading on March 27, 1998.
40
<PAGE>
Revolving Lines of Credit Argus Utilities and Other, Included Capital Leases:
The Company believes that the interest rates, including the applicable margin
percentage, is reflective of current interest rates available to the Company for
obligations with similar terms and maturities. Therefore, the fair value
approximates carrying value.
12. Export Sales:
Export sales from the United States were as follows (in millions):
FY 1996 FY 1997 FY 1998
------------ ------------ ------------
Asia/Pacific Rim .............. $ 51.9 $ 58.3 $ 64.7
Latin America ................. 21.5 25.9 26.2
Europe ........................ 14.9 11.2 19.5
Canada ........................ 4.5 4.2 5.3
Other ......................... 6.1 7.0 4.8
------------ ------------ ------------
Total ...................... $ 98.9 $ 106.6 $ 120.5
============ ============ ============
13. Valuation and Qualifying Accounts:
Activity in the valuation and qualifying accounts for the years ended March
30, 1996, March 29, 1997 and March 28, 1998 is as follows:
<TABLE>
<CAPTION>
Additions Additions
Charged Charged
Balance at to to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
(000's) (000's) (000's) (000's) (000's)
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended March 30, 1996:
Allowance for doubtful accounts ...... $ 1,155 $ 1,381 $ 65 $ 265 $ 2,336
Inventory obsolescence reserves ...... 1,522 985 201 1,259 1,449
Accumulated amortization:
Deferred financing costs .......... 7,459 5,888 81 -- 13,428
Deferred organization costs ....... 770 553 406 -- 1,729
Year ended March 29, 1997:
Allowance for doubtful accounts ...... $ 2,336 $ 2,909 $ 71 $ 3,600 $ 1,716
Inventory obsolescence reserves ...... 1,449 1,804 1 997 2,257
Accumulated amortization:
Deferred financing costs .......... 13,428 5,336 -- 37 18,727
Deferred organization costs ....... 1,729 545 -- -- 2,274
Year ended March 28, 1998:
Allowance for doubtful accounts ...... $ 1,716 $ 169 $ (253) $ (140) $ 1,772
Inventory obsolescence reserves ...... 2,257 738 (110) 471 2,414
Accumulated amortization:
Deferred financing costs .......... 18,727 4,777 -- 77 23,427
Deferred organization costs ....... 2,274 543 -- -- 2,817
</TABLE>
41
<PAGE>
14. Condensed Consolidating Financial Statements:
Separate condensed consolidating financial statements of certain
subsidiaries of the Company are presented below. Except for Sifto, which is
domiciled in Canada, all subsidiaries of Harris are domiciled in the United
States. In order to present the financial statements of Sifto separately, the
financial statements of NAMSCO present the investment in Sifto using the cost
method.
Separate financial statements of the subsidiaries of Harris which have
guaranteed Harris' and Sifto's outstanding public debt (the "Guarantors"),
including NACC, North American Terminals, Inc., NAMSCO, NASC, Carey Salt
Company, The Hutchinson & Northern Railway Company, GSL, GSLMC, and White River,
are not included for the following reasons: (i) pursuant to their respective
guarantees, the Guarantors are jointly and severally liable with respect to
Harris' and Sifto's outstanding public debt, (ii) the aggregate assets,
liabilities, earnings and equity of the Guarantors and Sifto are substantially
equal to the assets, liabilities, earnings and equity of Harris on a
consolidated basis and (iii) accordingly, Harris does not believe that separate
full financial statements concerning the Guarantors and Sifto are material to
investors. Financial statements of the subsidiaries of Harris which are not
Guarantors are not presented separately as these companies are immaterial.
42
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
March 29, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents .... $ -- $ -- $ (3,980) $ 5,561 $ 15,495 $ -- $ 17,076
Receivables, net ............. 49,298 24,502 30,630 22,754 458 -- 127,642
Inventories .................. 39,403 15,389 20,663 11,983 -- (620) 86,818
Other current assets ......... 9,539 185 1,979 752 502 -- 12,957
Property, plant and
equipment, net ............. 216,334 42,828 65,206 63,643 -- -- 388,011
Investment in Sifto .......... -- -- 2,513 -- -- (2,513) --
Other ........................ 10,006 46 1,833 2,410 413,250 (394,655) 32,890
----------------------------------------------------------------------------------------
Total assets ................. $ 324,580 $ 82,950 $ 118,844 $ 107,103 $ 429,705 $ (397,788) $ 665,394
========================================================================================
Total current liabilities .... $ 52,129 $ 14,020 $ 21,936 $ 20,797 $ 25,599 $ 53 $ 134,534
Long-term debt, net of
current portion ............ 83,234 1,440 2,878 101,820 585,000 -- 774,372
Other noncurrent liabilities . 43,718 (5,629) (32,875) (30,001) 125,537 (37,831) 62,919
Total common stockholder's
equity (deficit) ........... 145,499 73,119 126,905 14,487 (306,431) (360,010) (306,431)
----------------------------------------------------------------------------------------
Total liabilities and
common stockholder's
equity (deficit) ........... $ 324,580 $ 82,950 $ 118,844 $ 107,103 $ 429,705 $ (397,788) $ 665,394
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING BALANCE SHEETS
March 28, 1998
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents .... $ -- $ -- $ -- $ 16,175 $ 1,913 $ -- $ 18,088
Receivables, net ............. 48,996 14,195 34,212 16,775 2,248 -- 116,426
Inventories .................. 38,709 17,676 28,706 12,007 -- (81) 97,017
Other current assets ......... 8,534 245 1,815 588 204 (1,927) 9,459
Property, plant and
equipment, net ............. 195,618 45,668 66,398 67,232 -- -- 374,916
Investment in Sifto .......... -- -- 2,513 -- -- (2,513) --
Other ........................ 9,289 52 1,837 1,674 466,860 (452,151) 27,561
----------------------------------------------------------------------------------------
Total assets ................. $ 301,146 $ 77,836 $ 135,481 $ 114,451 $ 471,225 $ (456,672) $ 643,467
========================================================================================
Total current liabilities .... $ 56,348 $ 14,222 $ 22,974 $ 27,919 $ 24,642 $ (142) $ 145,963
Long-term debt, net of
current portion ............ 72,366 1,256 6,162 101,877 585,000 -- 766,661
Other noncurrent liabilities . 17,315 (20,611) (38,631) (34,907) 182,316 (53,906) 51,576
Total common stockholder's
equity (deficit) ........... 155,117 82,969 144,976 19,562 (320,733) (402,624) (320,733)
----------------------------------------------------------------------------------------
Total liabilities and
common stockholder's
equity (deficit) ........... $ 301,146 $ 77,836 $ 135,481 $ 114,451 $ 471,225 $ (456,672) $ 643,467
=============================================================================================
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year Ended March 30, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales .................... $ 202,797 $ 67,943 $ 154,840 $ 94,023 $ -- $ (44,129) $ 475,474
Cost of sales ................ 172,192 54,574 104,268 64,208 -- (44,202) 351,040
----------------------------------------------------------------------------------------
Gross profit ............... 30,605 13,369 50,572 29,815 -- 73 124,434
Selling, general and
administrative expenses ... 25,197 5,302 18,908 11,818 3,048 -- 64,273
Write down of assets ......... 7,044 -- -- -- -- -- 7,044
----------------------------------------------------------------------------------------
Operating income (loss) ... (1,636) 8,067 31,664 17,997 (3,048) 73 53,117
Interest (expense) income .... 284 (218) 443 (11,696) (73,751) -- (84,938)
Other income (expense) ....... 5,853 6,956 (6,564) 2,034 48,176 (48,176) 8,279
----------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes ..................... 4,501 14,805 25,543 8,335 (28,623) (48,103) (23,542)
Provision (benefit) for
income taxes .............. -- 2,991 4,891 4,300 119 (7,101) 5,200
----------------------------------------------------------------------------------------
Net income (loss) ......... $ 4,501 $ 11,814 $ 20,652 $ 4,035 $ (28,742) $ (41,002) $ (28,742)
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year Ended March 29, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales .................... $ 197,717 $ 84,490 $ 159,606 $ 105,080 $ -- $ (38,271) $ 508,622
Cost of sales ................ 172,508 69,068 106,602 64,021 -- (38,062) 374,137
----------------------------------------------------------------------------------------
Gross profit ............... 25,209 15,422 53,004 41,059 -- (209) 134,485
Selling, general and
administrative expenses ... 17,598 5,542 16,795 13,146 4,427 -- 57,508
----------------------------------------------------------------------------------------
Operating income (loss) .... 7,611 9,880 36,209 27,913 (4,427) (209) 76,977
Interest (expense) income .... (11,293) (284) 462 (11,110) (69,700) - (91,925)
Other income (expense) ....... 5,442 6,525 (8,037) (1,315) 54,034 (54,034) 2,615
----------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes ..................... 1,760 16,121 28,634 15,488 (20,093) (54,243) (12,333)
Provision (benefit) for
income taxes .............. 125 5,701 10,594 7,547 1,340 (16,207) 9,100
----------------------------------------------------------------------------------------
Net income (loss) ......... $ 1,635 $ 10,420 $ 18,040 $ 7,941 $ (21,433) $ (38,036) $ (21,433)
========================================================================================
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year Ended March 28, 1998
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales .................... $ 202,691 $ 78,824 $ 146,499 $ 96,334 $ -- $ (30,195) $ 494,153
Cost of sales ................ 161,542 64,284 92,996 62,058 -- (30,734) 350,146
----------------------------------------------------------------------------------------
Gross profit ................. 41,149 14,540 53,503 34,276 -- 539 144,007
Selling, general and
administrative expenses ... 18,059 6,347 18,251 11,789 1,224 -- 55,670
----------------------------------------------------------------------------------------
Operating income (loss) ...... 23,090 8,193 35,252 22,487 (1,224) 539 88,337
Interest (expense) ........... (17,056) (304) (659) (10,026) (67,303) -- (95,348)
Other income (expense) ....... 6,160 6,274 (5,908) (1,863) 57,834 (57,664) 4,833
----------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes and extraordinary
item ...................... 12,194 14,163 28,685 10,598 (10,693) (57,125) (2,178)
Provision (benefit) for
income taxes .............. 76 4,313 10,667 5,302 624 (14,343) 6,639
----------------------------------------------------------------------------------------
Net income (loss) before
extraordinary item ......... 12,118 9,850 18,018 5,296 (11,317) (42,782) (8,817)
Extraordinary item ........... (2,500) -- -- -- -- -- (2,500)
----------------------------------------------------------------------------------------
Net income (loss) ............ $ 9,618 $ 9,850 $ 18,018 $ 5,296 $ (11,317) $ (42,782) $ (11,317)
========================================================================================
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended March 30, 1996
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities .. $ 63,388 $ 1,107 $ (10,998) $ 6,306 $ 13,149 $ (38,737) $ 34,215
----------------------------------------------------------------------------------------
Cash flows from investing:
Capital expenditures ...... (32,369) (2,767) (3,704) (2,542) -- -- (41,382)
Capitalized interest ...... (4,230) -- -- -- -- -- (4,230)
Proceeds from sales ....... 111 59 -- 1 -- -- 171
Other ..................... (1,679) -- 29 -- (18,489) 18,489 (1,650)
----------------------------------------------------------------------------------------
Net cash used in
investing activities ...... (38,167) (2,708) (3,675) (2,541) (18,489) 18,489 (47,091)
----------------------------------------------------------------------------------------
Cash flows from financing:
Gross borrowings .......... 19,643 25,184 75,342 32,118 -- -- 152,287
Gross repayments .......... (24,617) (18,644) (56,115) (32,556) -- -- (131,932)
Other ..................... (20,247) (4,939) (4,554) -- (4,100) 29,688 (4,152)
----------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities .. (25,221) 1,601 14,673 (438) (4,100) 29,688 16,203
----------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash ........... -- -- -- 118 -- -- 118
----------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents ... -- -- -- 3,445 (9,440) 9,440 3,445
Cash and cash equivalents:
Beginning of period ....... -- -- -- 5,648 11,851 (11,851) 5,648
----------------------------------------------------------------------------------------
End of period ............. $ -- $ -- $ -- $ 9,093 $ 2,411 $ (2,411) $ 9,093
========================================================================================
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended March 29, 1997
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities .. $ 29,690 $ 16,933 $ 38,177 $ 24,134 $ (16,246) $ (54,373) $ 38,315
----------------------------------------------------------------------------------------
Cash flows from investing:
Capital expenditures ...... (9,638) (6,574) (9,975) (6,532) -- -- (32,719)
Capitalized interest ...... (1,244) -- -- -- -- -- (1,244)
Proceeds from sales ....... 24 -- 503 152 -- -- 679
Other ..................... -- -- -- -- (53,845) 53,845 --
----------------------------------------------------------------------------------------
Net cash used in
investing activities ...... (10,858) (6,574) (9,472) (6,380) (53,845) 53,845 (33,284)
----------------------------------------------------------------------------------------
Cash flows from financing:
Gross borrowings .......... 99,986 21,995 108,502 51,262 -- -- 281,745
Gross repayments .......... (63,493) (29,746) (148,530) (52,131) -- -- (293,900)
Other ..................... (55,325) (2,608) 7,343 (20,295) 83,175 2,939 15,229
----------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities .. (18,832) (10,359) (32,685) (21,164) 83,175 2,939 3,074
----------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash ........... -- -- -- (122) -- -- (122)
----------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents . -- -- (3,980) (3,532) 13,084 2,411 7,983
Cash and cash equivalents:
Beginning of period ....... -- -- -- 9,093 2,411 (2,411) 9,093
----------------------------------------------------------------------------------------
End of period ............. $ -- $ -- $ (3,980) $ 5,561 $ 15,495 $ -- $ 17,076
========================================================================================
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended March 28, 1998
(in thousands)
NACC GSL NAMSCO Sifto HCNA Eliminations Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities .. $ 42,881 $ 28,979 $ 25,662 $ 28,641 $ (9,296) $ (57,664) $ 59,203
----------------------------------------------------------------------------------------
Cash flows from investing:
Capital expenditures ...... (9,897) (7,767) (7,823) (13,398) -- -- (38,885)
Capitalized interest ...... (243) -- -- -- -- -- (243)
Proceeds from sales ....... 846 -- 5 2 -- -- 853
Other ..................... -- -- -- -- (57,496) 57,496 --
----------------------------------------------------------------------------------------
Net cash used in
investing activities ...... (9,294) (7,767) (7,818) (13,396) (57,496) 57,496 (38,275)
----------------------------------------------------------------------------------------
Cash flows from financing:
Gross borrowings .......... 74,500 11,000 61,000 11,802 -- -- 158,302
Gross repayments .......... (90,264) (12,982) (59,215) (12,730) -- -- (175,191)
Other ..................... (17,823) (19,230) (15,649) (3,817) 53,210 168 (3,141)
----------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities .. (33,587) (21,212) (13,864) (4,745) 53,210 168 (20,030)
----------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash ........... -- -- -- 114 -- -- 114
----------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents . -- -- 3,980 10,614 (13,582) -- 1,012
Cash and cash equivalents:
Beginning of period ....... -- -- (3,980) 5,561 15,495 -- 17,076
----------------------------------------------------------------------------------------
End of period ............. $ -- $ -- $ -- $ 16,175 $ 1,913 $ -- $ 18,088
========================================================================================
</TABLE>
48
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position with Harris or
Sifto of each person who is currently an executive officer or director of Harris
or Sifto.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert E. Fowler, Jr............... 62 Chairman and Director of Harris
John F. Tancredi................... 55 President of Harris
J. Bradford James.................. 51 Vice President of Harris
Marschall I. Smith................. 53 Vice President and Assistant Secretary and Director of Harris
William J. Sichko, Jr.............. 44 Director of Harris
Rose Marie Williams................ 44 Director and Secretary of Harris
Robert F. Clark.................... 56 President of IMC Salt Inc. and Director of Sifto
Rowland Howe....................... 40 Director of Sifto
Allan Hamilton..................... 46 Director of Sifto
</TABLE>
The Certificate of Incorporation and By-Laws of Harris provide for a Board of
Directors of not less than three or more than fifteen directors, with the number
of directors currently set at four. Directors are elected at the annual meeting
of the stockholders. Each director holds office until a successor is elected and
qualified, or until such director's earlier resignation or removal.
Robert E. Fowler, Jr.
Mr. Fowler has been Chairman and director of Harris since the Merger with
IMC Global Inc. ("IMC") on April 1, 1998. Additionally, Mr. Fowler has served as
President and Chief Executive Officer of IMC from July 1997 to present and as
President and Chief Operating Officer of IMC from March 1996 through June 1997.
He served as President and Chief Executive Officer of The Vigoro Corporation
("Vigoro") from September 1994 through February 1996 and as President and Chief
Operating Officer of Vigoro from July 1993 to September 1994. Mr. Fowler served
as President and Chief Executive Officer of BCC Industrial Services from June
1991 to June 1993. He is a director of Anixter International Inc. Mr. Fowler
previously served as a director of Vigoro from August 1993 through February 1996
and has served as an IMC Director since March 1996.
John F. Tancredi
Mr. Tancredi has been President of Harris since the Merger with IMC on
April 1, 1998 and President of IMC Chemicals Inc. and its predecessor, NACC,
since April 1996. Previously, since 1989, Mr. Tancredi was Vice President- Chief
Technical and Quality Officer of International Specialty Products.
J. Bradford James
Mr. James has been a Vice President of Harris since the Merger with IMC on
April 1, 1998. Additionally, Mr. James has been Senior Vice President and Chief
Financial Officer of IMC since joining IMC in February 1998. Prior to joining
IMC, Mr. James served as Executive Vice President of USG Corporation from 1995
through 1997 and Senior Vice President and Chief Financial Officer of USG
Corporation from 1991 through 1994.
Marschall I. Smith
Mr. Smith has been Vice President and Assistant Secretary and director of
Harris since the Merger with IMC on April 1, 1998. Additionally, Mr. Smith has
been Senior Vice President and General Counsel of IMC since joining IMC in 1993.
Mr. Smith was Senior Vice President and General Counsel of American Medical
International Inc. from 1992 until 1993.
49
<PAGE>
William J. Sichko, Jr.
Mr. Sichko has been a director of Harris since the Merger with IMC on April
1, 1998. Additionally, Mr. Sichko has been the Senior Vice President of Human
Resources of Harris since 1996, and has served as an officer and/or director of
various subsidiaries of Harris and HCG since 1991.
Rose Marie Williams
Ms. Williams has been a director and Secretary of Harris since the Merger
with IMC on April 1, 1998. Additionally, Ms. Williams has been Secretary of IMC
since March 1996. Prior thereto, she was Secretary of Vigoro from May 1993 to
March 1996.
Robert F. Clark
Mr. Clark has been President of IMC Salt Inc. and a director of Sifto since
the Merger with IMC on April 1, 1998. Previously, Mr. Clark served as President
and director of GSL and GSLMC (1993-1998), and Vice President of NACC
(1991-1993).
Rowland Howe
Mr. Howe has been a director of Sifto since April 1, 1998. Since 1995 he
has been the Goderich Mine Manager and prior to that from 1993 to 1995, he
served as Manager of SUL's Windsford mine.
Allan Hamilton
Mr. Hamilton has been a director of Sifto since August 1995. From 1989 to
1995, Mr. Hamilton was the Mine Manager at the Goderich Mine and since 1995 he
has been Sifto's Chemical Business Manager.
Directors serving after the Merger receive no additional compensation for
serving on the Board of Directors. Directors serving during FY 1998 who were
officers of the Company received no additional compensation for serving on the
Board of Directors. Prior to the Merger, the Company had authorized an annual
retainer to non-employee Directors of $15,000 plus $1,000 for each day on which
they attend a Board meeting and/or one or more Board Committee meetings, with
any director who served as a chair of such Committee meeting receiving an
additional $250.
50
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the Harris related compensation earned by
the Chief Executive Officer and the four next most highly compensated executive
officers of the Company in FY 1998 and their Harris related compensation for FY
1997 and FY 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation (1)
Annual Compensation Awards Payouts
---------------------------------------------------- -------------------------------------
Other Securities
Annual Restricted Underlying All Other
Name and Fiscal Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary Bonus sation Awards SARs Payouts sation (3)
- ------------------------- ------ ------------- ------------- ------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
D. George Harris 1998 $ 945,833 $ (2) $ 148,070 - - - $ 100,133
Chairman 1997 1,150,000 (2) - - - - 55,707
1996 1,150,000 (2) - - - - 135,845
Anthony J. Petrocelli 1998 648,667 (2) - - - - 61,695
Vice Chairman 1997 758,000 (2) - - - - 48,323
1996 775,000 (2) - - - - 98,206
Michael R. Boyce 1998 650,000 332,907 - - - - 32,198
Chief Operating Officer1997 550,000 441,784 - - - - 22,410
1996 550,000 279,043 - - - - 65,284
Donald G. Kilpatrick 1998 420,833 204,284 - - - - 26,009
General Counsel 1997 400,000 271,095 - - - - 21,128
1996 370,000 157,532 - - - - 14,682
Richard J. Donahue 1998 325,001 121,057 - - - - 23,312
Senior Vice President 1997 275,000 160,649 - - - - 21,838
1996 275,000 71,470 - - - - 16,152
</TABLE>
(1) The named executive officers did not participate in any of the long term
compensation plans offered by HCG.
(2) No bonus awarded based on the joint compensation agreement (see "Joint
Compensation Agreement").
(3) All Other Compensation in FY 1998 consists of Company contributions to
defined contribution plans on behalf of the executive officer, imputed
income on excess Company-paid life insurance premiums and automobile and
personal tax return allowances. The following table identifies and
quantifies these amounts for the named executive officers in FY 1998:
401(K) Automobile and
Company Excess Life Tax Return
Name Contribution Insurance Allowances
- ---------------------- ---------------- ----------------- -----------------
D. George Harris $ 29,955 $ 15,379 $ 54,799
Anthony J. Petrocelli 28,443 8,668 24,584
Michael R. Boyce 13,400 6,707 12,091
Donald G. Kilpatrick 22,600 1,909 1,500
Richard J. Donahue 19,176 3,496 640
51
<PAGE>
Aggregated Warrants/Exercises in FY 1998
There were no warrants exercised in FY 1998.
Compensation Committee Interlocks and Insider Participation
The Harris Board of Directors had a Compensation Committee consisting of
six directors, two of whom were designated by the Chairman and three of whom
were designated by The Prudential Insurance Company of America ("Prudential
Insurance"), Chase Manhattan Capital Corporation ("Chase Capital") and First
Plaza Group Trust ("First Plaza") (collectively, the "Institutional Investors").
Pursuant to the terms of the Stockholders Agreement which became effective with
the completion of the Recapitalization among HCG, the Institutional Investors,
certain members of management of HCG and other stockholders of HCG (the
"Stockholders Agreement"), any increase in compensation of officers of the
Company required approval of the Compensation Committee. During FY 1998, D.
George Harris, the former chief executive officer of the Company, and Michael R.
Boyce, the former president and chief operating officer of the Company, and four
former directors, James T. Beale, Fred W. Broling, John D. Burns and Heinn F.
Tomfohrde III served as members of the Compensation Committee until they ceased
to serve as directors of Harris, effective April 1, 1998, in connection with the
Merger of HCG with IMC.
Joint Compensation Agreement
D. George Harris, Anthony J. Petrocelli and Richard J. Donahue were parties
to a joint compensation agreement (the "Joint Compensation Agreement") with HCG,
Harris and certain subsidiaries of Harris. The Joint Compensation Agreement
contained customary employment terms and provided for a base annual salary and a
bonus based on the earnings of the Company before interest, taxes and
depreciation. The Joint Compensation Agreement was canceled in October 1997 and
a new compensation agreement was entered into between Mr. Harris, Mr. Petrocelli
and HCG, Harris and certain subsidiaries.
Sale Bonuses For Five Key Employees
During 1997, HCG entered into arrangements with each of D. George Harris,
Anthony J. Petrocelli, Michael R. Boyce, Donald G. Kilpatrick and Richard J.
Donahue providing for the payment of a sale incentive bonus to such individuals
upon the sale of HCG. Payments in the amount of $5,300,000, $3,710,000,
$650,000, $400,000 and $650,000 were made to such persons, respectively, in
April 1998 in satisfaction of such arrangements in connection with the Merger of
HCG and IMC.
Severance Payments
As a result of the Merger of HCG and IMC, Michael R. Boyce, Donald G.
Kilpatrick and Richard J. Donahue ceased employment with HCG. Under the terms of
the Company's severance policy, payments in the amount of $200,000 and $243,750
were made to Mr. Kilpatrick and Mr. Donahue, respectively, in April 1998. A
severance payment of $975,000 was made to Mr. Boyce in April 1998.
52
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Harris is a wholly owned subsidiary of HCG. In connection with the Merger,
HCG became a wholly owned subsidiary of IMC. The following table sets forth the
beneficial ownership of the IMC Common Stock as of June 1, 1998, by (i) each
director of Harris and Sifto, (ii) each executive officer named in Item 11
hereof, and (iii) all current directors and executive officers of Harris and
Sifto as a group.
<TABLE>
<CAPTION>
Number of
Shares
Name and Address of Beneficially Percent of
Beneficial Owner Owned Class
<S> <C> <C> <C>
Robert E. Fowler, Jr........................................ 648,374 -- (1)
John F. Tancredi............................................ -- -- (1)
J. Bradford James........................................... 1,000 -- (1)
Marschall I. Smith.......................................... 95,540 -- (1)
William J. Sichko, Jr....................................... 1,000 -- (1)
Rose Marie Williams......................................... 4,390 -- (1)
Robert F. Clark............................................. -- -- (1)
Rowland Howe................................................ -- -- (1)
Allan Hamilton.............................................. -- -- (1)
D. George Harris ........................................... -- -- (1)
Anthony J. Petrocelli ...................................... 3,000 -- (1)
Michael R. Boyce............................................ -- -- (1)
Richard J. Donahue.......................................... -- -- (1)
Donald G. Kilpatrick ....................................... -- -- (1)
Directors and executive officers of Harris and Sifto as a group
(18 persons).............................................. 750,304 -- (1)
(1) Less than 1%.
</TABLE>
53
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For descriptions of certain continuing transactions with affiliates, see
Note 10.
HCG's wholly owned subsidiaries include Harris (see Note 1), Harris
Chemical Europe, Ltd. ("HCEL") and Harris Chemical Group Europe, Inc. ("HCGE").
The principal wholly owned subsidiaries of HCEL include NAMSCO (UK), Ltd.
("NUK"), with salt operations in the United Kingdom (Salt Union Ltd. or "SUL"),
Matthes + Weber GmbH ("M&W"), with soda operations in Germany, Harris Soda
Products (Europe) SAS ("HSPE") which is based in France and markets and sells
soda products in Europe, and Societa Chimica Larderello S.p.A. ("SCL"), with
boron operations in Italy. In addition, certain persons who were stockholders of
HCG prior to the Merger of HCG and IMC Global Inc. ("IMC") held minority
ownership interests in Penrice Soda Products Pty Ltd. ("Penrice") prior to their
divestiture of such interests as of the completion of such Merger, and such
persons continue to hold interests in U.S. Silica Company and Harris Specialty
Chemicals, Inc. These entities are collectively referred to as HCG affiliates.
On April 1, 1998, HCG was acquired by IMC and as a result, all of the
subsidiaries of HCG, including Harris, became indirect wholly owned subsidiaries
of IMC.
Services Agreement with HCG
Upon consummation of the Recapitalization, Harris entered into a services
agreement with HCG pursuant to which Harris provides to HCG office space and
certain corporate tax, treasury, legal and other administrative services from
time to time. As compensation for such services, Harris is entitled to receive a
fee for the services provided.
There was no compensation to Harris under this agreement in FY 1998.
Management Agreement with HCG
Pursuant to the Notes and, prior to its amendment, the US Credit Facility,
Harris is allowed to pay to HCG an amount not to exceed $750,000 per fiscal year
for the purpose of enabling HCG to pay its actual operating expenses in the
ordinary course of business. The total amount paid by Harris to HCG in FY 1998
was $750,000.
Arrangements with Affiliates
SCL is an Italian producer of specialty boric acid and caustic soda
products, and is a subsidiary of HCEL, which is a subsidiary of HCG. During FY
1994, the Company entered into an agreement to become a distributor of SCL
products in North America. SCL also distributes certain boron chemical products
of the Company in Europe. In FY 1997, NACC entered into a technical services
agreement with SCL for $250,000 annually to compensate SCL for providing
technical expertise and assistance to NACC in specialty boron production.
Additionally, in FY 1998, an agreement was reached whereby NACC purchased
trademarks from SCL for $2,600,000. See "Business--Boron Chemicals."
In FY 1996, HCG entered into a services agreement with Penrice. Certain
persons who were stockholders of HCG owned an indirect minority interest in
Penrice, prior to the merger of HCG and IMC. The agreement provides that Penrice
will pay HCG 200,000 Australian dollars per year for management consulting and
operating support services.
HCG received $145,000 in FY 1998.
The Company markets its soda products in Europe through HSPE. Sales to HSPE
in FY 1998 were $305,000.
North American Terminals, Inc. Asset Sale and Purchase
In 1993, NACC entered into an agreement to sell its port facilities in San
Diego to SDT Capital, Inc. ("SDT") for $5.5 million, and lease such facilities
back from SDT. SDT's president is a relative of a former officer of Harris who
was a shareholder in HCG. Annual rentals under the agreement were $1.7 million
per year payable quarterly for the initial four-year period and the first and
second five-year option periods. The agreement provided that annual rentals for
the first and second option periods would be increased for any increases in the
seven-year U.S. Treasury note rate. Additional rents were due at $3 per ton for
shipments in excess of 850,000 tons per year through the end of the second
option period. The agreement also provided for three additional five-year option
periods and a final six-year option period with rents based on fair market value
rents as agreed to by SDT and the Company. The Company had the
54
<PAGE>
option to repurchase the facilities at the end of either the initial lease
period (December 31, 1997) or any renewal option period for the greater of $7.0
million or fair market value. During FY 1998, the Company exercised its option
to repurchase the port facilities. On December 31, 1997, the Company reached an
agreement as to the fair market value of the facilities, $9.5 million, and paid
that amount to SDT in satisfaction of its obligations under the lease agreement.
Tax Sharing Agreement
Pursuant to a Tax Sharing Agreement entered into in connection with the
Consolidation, HCG agreed to file consolidated federal income tax returns with
Harris and its U.S. subsidiaries. According to the Tax Sharing Agreement, Harris
agreed generally to reimburse HCG in amounts designed to approximate the amount
of income taxes that Harris and its wholly owned subsidiaries (other than Sifto)
would have paid had they filed consolidated federal income tax returns (and
analogous state and local returns) separate from HCG.
The Stockholders Agreement
Pursuant to the terms of the Stockholders Agreement, each party thereto
agreed to vote all of the shares of HCG Common Stock owned by such party (i) for
the maintaining of the number of directors of HCG at eleven and (ii) for the
election of a slate of directors so that at all times five directors would be
designated by D. George Harris, three directors would be designated by Anthony
J. Petrocelli and two directors would be designated by the Institutional
Investors.
The Stockholders Agreement contained certain rights and obligations of HCG
and the stockholders thereof with respect to HCG Common Stock, such as
preemptive rights of the stockholders with respect to certain issuances of HCG
capital stock, rights of first offer of HCG and the stockholders with respect to
certain sales of HCG Common Stock by any stockholder, rights of certain
stockholders to sell HCG Common Stock to HCG at certain times or upon the
occurrence of certain events, rights of HCG to purchase HCG Common Stock from
certain HCG stockholders at certain times or upon the occurrence of certain
events and rights of the stockholders to cause the sale of HCG Common Stock held
by other stockholders, or participate in the sale of HCG Common Stock held by
other stockholders, upon the occurrence of certain events. The Stockholders
Agreement also contained certain covenants which prohibited HCG from taking
certain actions, such as amending HCG's Certificate of Incorporation, entering
into certain transactions with affiliates of HCG, disposing of significant
assets, incurring indebtedness above specified levels and entering into
transactions which would cause a change of control of HCG, or require HCG to
take certain actions, unless the consent of the holders of specified percentages
of the HCG Common Stock was obtained. Such rights and obligations were subject
to various restrictions, limitations and exceptions set forth in the
Stockholders Agreement.
In connection with the Merger of HCG and IMC, the Stockholders Agreement was
amended to clarify that the rights of certain Stockholders to sell HCG Common
Stock to HCG at certain times or upon the occurrence of certain events would not
be triggered in the event of a merger involving HCG. Upon the completion of the
Merger of HCG and IMC, the Stockholders Agreement terminated.
The Registration Rights Agreement
Certain of the parties to the Stockholders Agreement were also parties to a
Registration Rights Agreement (the "Registration Rights Agreement") which
provided that upon the earlier of an initial public offering of HCG Common Stock
and the fourth anniversary of the Recapitalization, the Institutional Investors
holding 10% of the HCG Common Stock would have the right, for five years
thereafter, to demand that HCG register at least 10% of the HCG Common Stock
held by them under the Securities Act of 1933, as amended. The Institutional
Investors were entitled to exercise such right six times (no more than three
times for long form registrations and the remainder for short form
registrations) in which HCG would have been obligated to pay all registration
expenses. The Institutional Investors also had rights to an unlimited number of
"piggyback" registrations. All of such registration rights were subject to
various restrictions, limitations and exceptions set forth in the Registration
Rights Agreement. The Registration Rights Agreement was terminated upon the
Merger of HCG and IMC.
55
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Set forth below is a list of documents filed as part of this report.
1. Financial Statements included in Item 8.
<TABLE>
<CAPTION>
Description Page No.
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent Accountants 25
Consolidated Balance Sheets as of March 29, 1997 and March 28, 1998 26
Consolidated Statements of Operations for the three fiscal years ended March 28, 1998 27
Consolidated Statements of Common Stockholder's Equity (Deficit) for the three fiscal
years ended March 28, 1998 28
Consolidated Statements of Cash Flows for the three fiscal years ended March 28, 1998 29
Notes to Consolidated Financial Statements 31
</TABLE>
2. The following exhibits are required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
<S> <C>
2.1 Consolidation Agreement among Harris Chemical Group, Inc. ("HCG"), Harris, NAMSCO Inc.
("NAMSCO"), NAMSCO Acquisition Corp., GSL Corporation ("GSL"), GSL Acquisition Corp., North
American Chemical Company ("NACC"), and NACC Acquisition Corp., dated as of August 5, 1993.
(1)
2.2 Agreement of Merger dated as of August 5, 1993 among HCG, NACC Acquisition Corp. and NACC.
(1)
2.3 Agreement of Merger dated as of August 5, 1993 among HCG, NAMSCO Acquisition Corp. and
NAMSCO. (1)
2.4 Agreement of Merger dated as of August 5, 1993 among HCG, GSL Acquisition Corp. and GSL. (1)
2.5 Certificate of Ownership and Merger, merging GSL Holdings, Inc. into GSL Corporation. (4)
2.6 Agreement and Plan of Merger, dated as of December 11, 1997, by and among HCG, IMC Global Inc.
and IMC Merger Sub Inc. (10)
3.1 Certificate of Incorporation of Harris together with amendments thereto. (1)
3.2 By-Laws of Harris as amended June 28, 1996. (6)
4.1 Senior Secured Indenture dated as of October 15, 1993 by and between Harris, the Subsidiary
Guarantors named therein and the Bank of New York. as trustee. (2)
4.2 Senior Subordinated Indenture dated as of October 15, 1993 by and between Harris, the Subsidiary
Guarantors named therein and the IBJ Schroder Bank & Trust Company. as trustee. (2)
4.3 Senior Secured Indenture dated as of October 15, 1993 by and between Sifto, Harris, the Subsidiary
Guarantors named therein and Chemical Bank, as trustee. (2)
4.4 Deed of Trust and Mortgage dated as of October 15, 1993 between Sifto and TD Trust Company, as
trustee. (2)
4.5 Certificate of Incorporation of Sifto together with amendments thereto. (1)
4.6 Restated Certificate of Incorporation of NAMSCO. (1)
4.7 Restated Certificate of Incorporation of North American Salt Company ("NASC") together with
amendments thereto. (1)
4.7.1 Certificate of Amendment to Restated Certificate of Incorporation of NASC.
4.8 Restated Certificate of Incorporation of NACC. (1)
4.8.1 Certificate of Amendment to Restated Certificate of Incorporation of NACC.
56
<PAGE>
Exhibit No. Description of Exhibit
4.9 Restated Certificate of Incorporation of GSL. (1)
4.10 Restated Certificate of Incorporation of Great Salt Lake Minerals Corporation ("GSLMC") together with
amendments thereto. (1)
4.10.1 Certificate of Amendment to Restated Certificate of Incorporation of GSLMC.
4.11 Certificate of Incorporation of Carey Salt Company ("Carey") together with amendments thereto. (1)
4.12 Certificate of Incorporation of The Hutchinson & Northern Railway Company ("H&N") together with
amendments thereto. (1)
4.13 Articles of Incorporation of North American Terminals, Inc. ("NATI") together with amendments
thereto.(1)
4.14 By-Laws of Sifto. (1)
4.15 By-Laws of NAMSCO. (1)
4.16 By-Laws of NASC (formerly American Salt Company). (1)
4.17 By-Laws of NACC. (1)
4.18 By-Laws of GSL. (1)
4.19 By-Laws of GSLMC. (1)
4.20 By-Laws of Carey (formerly Carey Louisiana Inc.). (1)
4.21 By-Laws of H&N. (1)
4.22 By-Laws of NATI. (1)
10.1 Recapitalization Agreement dated as of October 18, 1993, between Harris, HCG Recapitalization Corp.
and the other persons named therein. (2)
10.2 Recapitalization Merger Agreement dated as of October 18, 1993, between HCG and the HCG
Recapitalization Corp. (2)
10.3 Services Agreement dated as of October 28, 1993 between Harris and HCG. (2)
10.4 Tax Sharing Agreement dated as of September 24, 1993 among HCG, Harris and other signatories
thereto. (2)
10.5 Harris Chemical Group Incentive Compensation Plan.
10.6 Lease dated June 17, 1985 between Minister of Natural Resources for the Province of Ontario and
Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.7 Lease dated June 17, 1985 between Minister of Natural Resources for the Province of Ontario and
Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.8 Lease dated April 16, 1986 between Minister of Northern Development and Mines for the Province of
Ontario and Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.9 Sodium Chloride Agreement dated December 1, 1988 between Minister of Energy and Mines for the
Province of Saskatchewan and Domtar Inc. (predecessor in interest to Sifto) together with amendments
thereto. (1)
10.10 Lease dated July 2, 1983 between Minister of Mines and Energy for the Province of Nova Scotia and
Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.11 Lease dated July 2, 1983 between Minister of Mines and Energy for the Province of Nova Scotia and
Domtar Inc. (predecessor in interest to Sifto) together with amendments thereto. (1)
10.12 Salt and Surface Lease dated June 21, 1961 between John Taylor Caffery, et al., and Carey with
amendments thereto. (1)
10.13 Distribution Agreement dated December 18, 1988 between Cargill, Incorporated and Domtar Industries
Inc., Sifto Salt Division (predecessor in interest to Sifto). (1)
10.14 Master Purchase and Lease Agreement between NACC and KENETECH Energy Systems, Inc. dated
October 29, 1993, Equipment Schedule No.1 dated November 4, 1993 and Equipment Schedule No. 2
dated February 28, 1994. (4)
10.15 Acquisition Agreement between NACC and NaTec Resources, Inc. dated April 5, 1995. (5)
10.16 Amendment No. 1 to Acquisition Agreement between NACC and NaTec Resources, Inc. dated July 31,
1995. (7)
10.17 Form of Participation Agreements dated as of July 15, 1996 among NACC, Harris, Owner Participant
and U.S. Trust Company of California, N.A., as Owner Trustee. (8)
10.18 Form of Annex A to Participation Agreement. (8)
10.19 Form of Facility Lease dated as of July 15, 1996 between U.S. Trust Company of California, N.A., as
Owner Trustee as Lessor, and NACC, as Lessee. (8)
10.20 Form of Guaranty Agreement dated as of July 15, 1996 by Harris for the benefit of Owner Participants
and U.S. Trust Company of California, N.A., as Owner Trustee. (8)
57
<PAGE>
Exhibit No. Description of Exhibit
10.21 US $130,000,000 Credit and Guarantee Agreement dated as of October 15, 1993, as amended and
restated as of February 27, 1997. (9)
10.21.1 Assignment and Acceptance of US $130,000,000 Credit and Guarantee Agreement dated as of April 1,
1998.
10.21.2 Amendment No. 1 and Consent to US $130,000,000 Credit and Guarantee Agreement, dated May 22,
1998.
10.22 Compensation agreement dated October 31, 1997 between D. George Harris, Anthony J. Petrocelli and
HCG.
10.23 Change of control arrangement dated April 25, 1997 between Richard J. Donahue and HCG.
10.24 Sale incentive bonus arrangement dated November 11, 1997 between Richard J. Donahue and HCG.
10.25 Sale incentive bonus arrangement dated November 11, 1997 between Michael R. Boyce and HCG.
10.26 Sale incentive bonus arrangement dated November 11, 1997 between Donald G. Kilpatrick and HCG.
10.27 Severance and resignation arrangement dated March 30, 1998 between Michael R. Boyce and HCG.
21 Subsidiaries of Harris.
- -----------------------------------------------------------------------------------------------------------------------
(1) Incorporated by reference from the registration statement on Form S-1, as amended (Registration No.
33-67546) filed by Harris and Sifto.
(2) Incorporated by reference from the quarterly report on Form 10-Q
for the second quarter ended September 23, 1993 filed by Harris.
(3) Not used.
(4) Incorporated by reference from the annual report on Form 10-K for the fiscal year ended March 26,
1994.
(5) Incorporated by reference from the annual report on Form 10-K for the fiscal year ended March 25,
1995.
(6) Incorporated by reference from the annual report on Form 10-K for the fiscal year ended March 29,
1997 filed by Harris.
(7) Incorporated by reference from the quarterly report on Form 10-Q
for the second quarter ended September 23, 1995 filed by Harris.
(8) Incorporated by reference from the quarterly report on Form 10-Q for the first quarter ended June 29,
1996 filed by Harris.
(9) Incorporated by reference from the current report on Form 8-K dated February 27, 1997 filed by Harris.
(10) Incorporated by reference from the current report on Form 8-K dated April 1, 1998 filed by Harris.
</TABLE>
(b) A report on Form 8-K dated April 1, 1998 was filed reporting on HCG's
Merger with IMC.
A report on Form 8-K dated May 28, 1998 was filed reporting on Harris' and
Sifto's Offer to Purchase the outstanding senior notes.
58
<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.
Harris Chemical North America, Inc.
(Registrant)
June 26, 1998 /s/ Robert E. Fowler, Jr.
-----------------------------------
Robert E. Fowler, Jr.
Chairman and Director
(Principal Executive Officer)
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>
<S> <C> <C> <C>
June 26, 1998 /s/ Robert E. Fowler, Jr. June 26, 1998 /s/ J. Bradford James
------------------------------ ------------------------------
Robert E. Fowler, Jr. J. Bradford James
Chairman and Director Vice President
(Principal Financial and Accounting Officer)
June 26, 1998 /s/ Marschall I. Smith June 26, 1998 /s/ William J. Sichko, Jr..
------------------------------ ------------------------------
Marschall I. Smith William J. Sichko, Jr.
Vice President and Director
Assistant Secretary and Director
June 26, 1998 /s/ Rose Marie Williams
------------------------------
Rose Marie Williams
Secretary and Director
</TABLE>
59
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report covering FY 1998 or proxy materials have been sent to
security-holders.
60
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 28, 1998 (Audited) and the Consolidated
Statement of Operations for the Fiscal Year Ended March 28, 1998 (Audited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> MAR-28-1998
<CASH> 18,088
<SECURITIES> 0
<RECEIVABLES> 103,212
<ALLOWANCES> 1,772
<INVENTORY> 97,017
<CURRENT-ASSETS> 240,990
<PP&E> 745,608
<DEPRECIATION> 370,692
<TOTAL-ASSETS> 643,467
<CURRENT-LIABILITIES> 145,963
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (320,733)
<TOTAL-LIABILITY-AND-EQUITY> 643,467
<SALES> 494,153
<TOTAL-REVENUES> 494,153
<CGS> 350,146
<TOTAL-COSTS> 350,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,348
<INCOME-PRETAX> (2,178)
<INCOME-TAX> 6,639
<INCOME-CONTINUING> (8,817)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,500)
<CHANGES> 0
<NET-INCOME> (11,317)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN SALT COMPANY
The undersigned officers, Robert E. Fowler, Jr. and Rose Marie
Williams, President and CEO, and Secretary, respectively of North American Salt
Company, a corporation organized and existing under the General Corporation Law
of the State of Delaware (the "Corporation"), do hereby certify that:
1. Paragraph FIRST of the Restated Certificate of Incorporation of the
Corporation is hereby amended in its entirety as follows:
"FIRST: The name of the corporation is IMC Salt Inc."
2. This Certificate of Amendment was duly adopted by the sole director and
sole voting stockholder of the Corporation according to the provisions of
Sections 141(f), 229 and 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned have hereunto subscribed their names
this 1st day of May, 1998.
NORTH AMERICAN SALT COMPANY
[seal]
By: /s/ Robert E. Fowler, Jr.
Robert E. Fowler, Jr.
Attest:
/s/ Rose Marie Williams
Rose Marie Williams
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN CHEMICAL COMPANY
The undersigned officers, Robert E. Fowler, Jr. and Rose Marie
Williams, President and CEO, and Secretary, respectively of North American
Chemical Company, a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), do hereby certify
that:
1. Paragraph FIRST of the Restated Certificate of Incorporation of the
Corporation is hereby amended in its entirety as follows:
"FIRST: The name of the corporation is IMC Chemicals Inc."
2. This Certificate of Amendment was duly adopted by the sole director and
sole voting stockholder of the Corporation according to the provisions of
Sections 141(f), 229 and 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned have hereunto subscribed their names
this 1st day of May, 1998.
NORTH AMERICAN CHEMICAL
COMPANY
[seal]
By: /s/ Robert E. Fowler, Jr.
Robert E. Fowler, Jr.
Attest:
/s/ Rose Marie Williams
Rose Marie Williams
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
GREAT SALT LAKE MINERALS CORPORATION
The undersigned officers, Marschall I. Smith and Rose Marie Williams,
Vice President and Assistant Secretary, and Secretary, respectively of Great
Salt Lake Minerals Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), do hereby
certify that:
1. Article FIRST of the Restated Certificate of Incorporation of the
Corporation is hereby amended in its entirety as follows:
"FIRST: The name of the corporation is IMC Kalium Ogden Corp."
2. This Certificate of Amendment was duly adopted by unanimous consent of the
directors and sole voting stockholder of the Corporation according to the
provisions of Sections 141(f), 229 and 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have hereunto subscribed their names
this 18th day of June, 1998.
GREAT SALT LAKE MINERALS
CORPORATION
[seal]
By: /s/ Marschall I. Smith
Marschall I. Smith
Vice President and
Assistant Secretary
Attest:
/s/ Rose Marie Williams
Rose Marie Williams
Secretary
<PAGE>
PLEASE READ CAREFULLY. THIS DOCUMENT IS THE SOLE
DOCUMENT WHICH SETS FORTH THE GUIDELINES FOR THE
INCENTIVE COMPENSATION PLAN FOR HCG EMPLOYEES FOR FISCAL
YEAR 1998.
HARRIS CHEMICAL GROUP, INC.
Incentive Compensation Plan ("ICP") or ("Plan")
The Incentive Compensation Plan's primary objective is to provide a meaningful
financial incentive for participants to achieve and exceed vital financial
targets. The preeminent financial target is Equity Value Enhancement ("EVE") of
the Company, and bonus payments will be tied to this value. All Plan
participants will have the opportunity to participate in the equity appreciation
of HCG, and many will be required to do so. Equity participation aligns the
financial interests of participants with those of other shareholders; in
addition, equity participation significantly increases potential total
compensation. Listed below are the Plan's guidelines:
PREMISES:
o ICP payments will be based on fiscal year-end results.
o All bonus payments must be self funding. This means all payments must
be budgeted and come out of cash from operations. If the cash flow
targets with budgeted ICP payments are not met, a bonus cannot be paid.
o Each senior BU executive submits in writing, as soon as practical, a
list of candidates for participation in the ICP to the Sr. VP - Human
Resources who will secure approvals and return a list of approved
participants to each executive. Criteria for participation include but
are not limited to individual contributions, professional
contributions, and the candidate's position. In essence, employees who
can make a clearly greater contribution than others to the achievement
of EVE goals will be considered for participation.
o Payments will be made as soon as practical after audited annual
financial statements are available.
o ICP payments will not be considered eligible compensation for purposes
of the Harris Chemical North America, Inc. Retirement, Savings and
Investment Plan.
~1~
<PAGE>
HCG Incentive Compensation Plan Fiscal Year 1998
o To receive an ICP payment, an employee must be an active employee at
the time the payment is made. Any participant who is discharged or
resigns, voluntarily or involuntarily, prior to the time such payment
is made will not receive an ICP payment.
o Employees hired after the start of the fiscal year may be considered
for ICP participation on a pro rata basis upon securing appropriate
written approvals.
o Participants' actual base earnings during Fiscal Year 1998, exclusive
of bonuses or other forms of compensation, will be used to calculate
ICP payments. ICP payments at the 100% payout level can be calculated
by multiplying a participant's base earnings times that participant's
participation level (i.e., bonus percentage).
o For purposes of establishing performance goals each year, Equity Value
will be approximated by multiplying EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) times six and then subtracting
debt. (Please note: This formula is used to determine Equity Value for
ICP purposes only. The actual Equity Value of HCG will be determined by
the market.) EVE goals will be established for both the Company as a
whole and for each of the nine strategic Business Units (BU's):
<TABLE>
<S> <C> <C>
--------------------------------------------------------------------------------------------------
European White Salt | North American Sodium | North American Salt -
| Bicarbonate | General Trade
--------------------------------------------------------------------------------------------------
European Rock Salt | North American Soda Ash | North American Salt -
| | Highway/Chemical
--------------------------------------------------------------------------------------------------
European Soda Products | Worldwide Boron | Sulfate of Potash/
| | Magnesium Chloride
--------------------------------------------------------------------------------------------------
</TABLE>
o ICP payments for corporate participants will be based entirely on
overall Company performance against EVE Goals.
o ICP payments for BU participants will be based on both corporate and BU
performance against EVE Goals, as follows:
Presidents, VP's, General Managers and Senior Staff
40% corporate, 60% Business Unit
Other BU Participants
20% corporate, 80% Business Unit
~2~
<PAGE>
HCG Incentive Compensation Plan Fiscal Year 1998
o ICP payments for each of the respective Business Units are independent
of the others. That is, if one of the Business Units achieves its EVE
goal, participants from that BU will receive that portion of their ICP
payment, irrespective of whether the other BU's or the Company as whole
achieve their EVE goals.
o ICP payments will be determined by the Equity Value of the Company and
its Business Units at the end of the fiscal year, measured against
Budgeted Equity Value and Target Equity Value.
o At Budgeted Equity Value, 50% of the expected ICP payment will be paid.
At Target Equity Value, 125% of the expected ICP payment will be paid.
Any Equity Value achieved above Budgeted Equity Value will result in a
pro-rata ICP payment. There is no limit on the level of ICP payments
for performance above Target Equity Value. Failure to reach Budgeted
Equity Value will result in no bonus being paid.
o Business Units will have the same payout schedule as the Company (50%
at Budget, 125% at Target) for Fiscal Year 1998.
o ICP payments will be made in some combination of cash and stock
options. The limit on the cash portion of ICP payments is determined by
ICP participation level, as shown below:
<TABLE>
<S> <C>
Participant's ICP Participation Level Maximum Amount of Payable in Cash
<=20% 100%
25% 90%
30% 75%
>=35% 50%
</TABLE>
o The amount of the ICP payment which is not awarded in cash will be paid
in the form of options to purchase HCG stock at 25% of its value at the
time of option award (the "strike" price). Options will be vested
immediately and may be retained after termination of employment.
o At the end of the Fiscal Year, all participants will have the
opportunity to elect additional options in lieu of any or all of the
cash portion of their ICP payment.
~3~
<PAGE>
HCG Incentive Compensation Plan Fiscal Year 1998
o The number of options awarded is calculated by dividing the amount of
noncash compensation by 0.75 times the price of HCG stock. This price
will be set annually by an independent third party.
o The value of options may change over time, depending on the Equity
Value of the Company. If the Equity Value increases, the value of the
stock options will also increase.
o Participants may exercise options by paying the strike price (25% of
the stock's price at the time the option was awarded).
o The noncash portion of ICP payments is not taxable to participants
until such time as they exercise their options.
THIS DOCUMENT, DATED AUGUST 26, 1997, SUPERSEDES ANY AND ALL PREVIOUS DOCUMENTS
SETTING FORTH GUIDELINES FOR THE HCG ICP. ONLY THE CHAIRMAN RESERVES THE
EXCLUSIVE RIGHT TO MODIFY IN ANY WAY (INCLUDING ADDING OR DELETING PARTICIPANTS,
CHANGING PARTICIPANTS' LEVEL, ETC.) OR CANCEL THIS PLAN FOR ANY REASON AT THE
CONCLUSION OF FISCAL YEAR 1998. ADDITIONALLY, THIS PLAN DOES NOT CREATE ANY
RIGHT OF AN EMPLOYEE TO RECEIVE AN INCENTIVE PAYMENT OR TO PARTICIPATE AT ANY
TIME IN THE FUTURE IN THIS OR ANY OTHER INCENTIVE PLAN OF THE COMPANY.
FURTHERMORE, PARTICIPATION IN THE PLAN DOES NOT CONSTITUTE A CONTRACT OF
EMPLOYMENT BETWEEN THE COMPANY AND THE EMPLOYEE, NOR DOES IT GUARANTEE
EMPLOYMENT FOR ANY LENGTH OF TIME.
~4~
<PAGE>
- 1 -
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ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit and Guarantee Agreement, dated as of
October 15, 1993, as amended and restated as of February 27, 1997 (as further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among North American Chemical Company, North American Salt Company,
Great Salt Lake Minerals Corporation (collectively, the "Borrowers"), Harris
Chemical North America, Inc. ("HCNA"), as guarantor (together with the other
"Guarantors", as defined under the Credit Agreement, the "Guarantors"), the
banks and other financial institutions parties thereto (the "Lenders") and
General Electric Capital Corporation, as collateral agent (in such capacity, the
"Collateral Agent") and administrative agent (in such capacity, the
"Administrative Agent") for the Lenders.
Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.
Each assignor listed on SCHEDULE 1 hereto (each, an "Assignor", and,
collectively, the "Assignors"), the assignee listed on SCHEDULE 1 hereto (the
"Assignee"), each Borrower, each Guarantor, the Administrative Agent and the
Collateral Agent agree as follows:
1. The Assignors hereby severally irrevocably sell and assign to the
Assignee without recourse to any Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignors without recourse to any Assignor, as of
the Effective Date (as defined below), interests (each, an "Assigned Interest")
in and to the Assignors' rights and obligations under the Credit Agreement and
each other Loan Document with respect to those credit facilities contained in
the Credit Agreement as are set forth on SCHEDULE 1 hereto (individually, an
"Assigned Facility"; collectively, the "Assigned Facilities"), in the respective
amounts such that the principal amount of each Assigned Facility sold and
assigned by each Assignor shall be the amount set forth on SCHEDULE 1 hereto
under the caption "ASSIGNORS" opposite such Assignor's name and the principal
amount of each Assigned Facility purchased and assumed by the Assignee shall be
the amount set forth on SCHEDULE 1 hereto under the caption "ASSIGNEE" opposite
the Assignee's name. The successor Administrative Agent (as defined in Section 3
below) agrees to pay to the Administrative Agent for value on the Effective Date
(for distribution to the Assignors) the aggregate amount of the Loans
outstanding under the Credit Agreement, as set forth on SCHEDULE 1 hereto.
2. Each Assignor (a) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the other Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency,
value or perfection of the Credit Agreement, any other Loan Document or any
other instrument or document furnished pursuant thereto, other than that it has
not created any adverse claim upon the Assigned Interest being assigned by it
hereunder and that such Assigned Interest is free and clear of any such adverse
claim; and (b) makes no representation or warranty and assumes no responsibility
with respect to the financial condition
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
- 2 -
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of any Borrower, any Guarantor, any Subsidiary of any Borrower or Guarantor or
any other obligor or the performance or observance by any Borrower, any
Guarantor, any Subsidiary of any Borrower or Guarantor or any other obligor of
any of their respective obligations under the Credit Agreement or the other Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto.
3. Each Administrative Agent and Collateral Agent resigns as
Administrative Agent and Collateral Agent, respectively, effective on the
Effective Date. Each Borrower, Guarantor and Lender agrees to such resignations
and waives the requirement under Section 13.9 of the Credit Agreement that
notice of such resignation be given 10 days prior to such resignation. The
Assignee under the Credit Agreement has appointed and the Borrowers have
approved the appointment of IMC Global Inc. as successor Administrative Agent
and successor Collateral Agent, which appointments shall be effective on the
Effective Date, whereupon such successor administrative agent and collateral
agent shall succeed to the rights and duties of the Administrative Agent and
Collateral Agent, and the term "Administrative Agent" or "Collateral Agent"
under the Loan Documents shall mean such successor administrative agent or
collateral agent, and the rights, powers and duties of the former Administrative
Agent or Collateral Agent (in its capacity as such), as the case may be, shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or Collateral Agent or any of the parties to this
Assignment and Acceptance or the Credit Agreement.
4. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to Section 7.1 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon any Assignor, the
Administrative Agent, the Collateral Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement, each other relevant Loan Document or any other instrument or document
furnished pursuant hereto or thereto; (d) appoints and authorizes the successor
Administrative Agent with respect to the Credit Agreement to take such action as
agent on its behalf and to exercise such powers and discretion under the Credit
Agreement, the other relevant Loan Documents or any other instrument or document
furnished pursuant hereto or thereto as are delegated to such successor
Administrative Agent by the terms thereof, together with such powers as are
incidental thereto; and (e) agrees that it will be bound by the provisions of
the Credit Agreement and each other relevant Loan Document and will perform in
accordance with its terms all the obligations which by the terms of the Credit
Agreement or such other Loan Document are required to be performed by it as a
Lender. The successor Administrative Agent, the successor Collateral Agent and
the Assignee confirm that none of the Assignors, the Administrative Agent or the
Collateral Agent shall have any obligation whatsoever at any time to provide any
of them with any information or document in connection with the Credit
Agreement.
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
- 3 -
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5. This Assignment and Acceptance shall become effective on April 1,
1998 (the "Effective Date"), provided that (A) the Administrative Agent has
received for value on that day the amounts payable under Sections 1, 6 and
10(c)(ii) and (iii) hereof, and all other amounts that may become payable
hereunder on such day, and (B) the other conditions precedent to this Assignment
and Acceptance becoming effective set forth in Section 8 hereof are satisfied on
or before such date. The conditions precedent to this Assignment and Acceptance
becoming effective contained in clauses (A) and (B) of this Section 5 are
inserted solely for the benefit of the Administrative Agent, the Collateral
Agent and the Lenders. Following the execution of this Assignment and
Acceptance, it will be delivered to the Administrative Agent for acceptance by
it and recording by the Administrative Agent pursuant to Section 14.7 of the
Credit Agreement, effective as of the Effective Date.
6. From and after the Effective Date, the successor Administrative
Agent shall make all payments in respect of the Assigned Interests (including
payments of principal, interest, fees and other amounts) to the Assignee. On the
Effective Date, each Borrower shall pay to the Administrative Agent for
distribution to each Assignor, the Administrative Agent and the Collateral Agent
all accrued interest, fees and other accounts owing by such Borrower to such
Assignor, Administrative Agent and Collateral Agent under the Credit Agreement,
as set forth in SCHEDULE 2 hereto.
7. From and after the Effective Date, (a) the Assignee shall be a party
to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other relevant Loan Documents and shall be bound by the provisions thereof and
(b) each Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement and other Loan Documents.
8. With respect to the Credit Agreement, each Borrower and the Assignee
hereby agree, as a condition precedent to the effectiveness of this Assignment
and Acceptance, that, as to each letter of credit identified in SCHEDULE 3
hereto, it shall deliver to the Administrative Agent (A) a letter of credit in
form and substance and amount, and issued by a party or (B) cash collateral in
an amount, in each case, acceptable to the Administrative Agent in its sole
discretion.
9. At any time and from time to time, each of the Administrative Agent,
the Collateral Agent and the Lenders agrees that it will cooperate with the
successor Administrative Agent and the successor Collateral Agent and will
execute and deliver, or cause to be executed and delivered, all such further
instruments and documents, and will take all such further actions, including,
without limitation, the execution and delivery to the successor Collateral Agent
for filing by the successor Collateral Agent of UCC-3 assignments of financing
statements, discharges, lockbox agreement terminations and other release and
termination documents, in each case, as the successor Collateral Agent may
reasonably request following the delivery of such instruments, documents and
other items to the Administrative Agent, the Collateral Agent
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
- 4 -
EXECUTION COPY
and/or the Lenders, as applicable, in order to carry out the provisions and
purposes of this Agreement. Each of the Administrative Agent, the Collateral
Agent and the Lenders further agrees to promptly deliver to HCNA all promissory
notes, and to the successor Collateral Agent all stock certificates and other
instruments, in its possession with respect to the Obligations. The Borrowers
agree to reimburse each of the Administrative Agent, the Collateral Agent and
the Lenders on demand for its reasonable costs and expenses (including, without
limitation, reasonable legal fees) incurred by it in connection with the
performance of any actions that it is requested to perform hereunder.
10. With respect to the Credit Agreement, each of the Borrowers and the
Guarantors hereby jointly and severally agrees to the terms set forth in Section
8 hereof, and each hereby:
(a) releases the Administrative Agent, the Collateral Agent and
the Lenders with respect to the Credit Agreement and other
Loan Documents from any and all obligations owing under or in
connection with the Credit Agreement and the other Loan
Documents, including, without limitation, any obligation to
make Revolving Credit Loans or to incur L/C Obligations under
the Credit Agreement;
(b) releases the Administrative Agent, the Collateral Agent and
the Lenders from any and all claims, liabilities, damages,
costs and expenses now existing or hereafter arising out of or
in connection with the Credit Agreement and the other Loan
Documents;
(c) agrees that it shall pay (i) on demand, from time to time, to
the Collateral Agent the full amount of customer checks and
other remittances which have been applied to the Obligations
(or credited for the purposes of determining the amounts set
forth on SCHEDULE 2 hereto) and which are returned unpaid or
reversed for any reason and (ii) on the date hereof, all
reasonable costs and expenses, including, without limitation,
reasonable legal fees, in connection with the preparation of
draft payoff and release letters and the preparation,
execution and delivery of this Assignment and Acceptance and
the performance of any other acts required to effect the
release of any security interest, hypothec, assignment, charge
or pledge granted under the Loan Documents, (iii) on the date
hereof, any and all taxes and fees payable in connection with
the execution and delivery, filing or recording of this
Assignment and Acceptance and other instruments and documents
to be delivered hereunder, and further agrees to save
Administrative Agent, the Collateral Agent and the Lenders
harmless from and against any and all liabilities with respect
to or resulting from any reasonable delay in paying or
omitting to pay such taxes or fees and (iv) on demand, from
time to time, to the Collateral Agent, normal and customary
fees, charges and expenses incurred by the Collateral Agent in
respect of the letters of credit identified in SCHEDULE 3
hereto; and
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
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(d) agrees that it shall be liable with respect to, and shall
indemnify and hold the Administrative Agent, the Collateral
Agent and the Lenders harmless from, the amount of any payment
by it to the relevant Administrative Agent, the relevant
Collateral Agent and the relevant Lenders which any of them is
for any reason compelled to surrender to any person because
such payment is determined to be void or voidable as a
preference, an impermissible setoff, a diversion of trust
funds or for any other reason, until the Administrative Agent,
the Collateral Agent and such Lenders shall have been finally
and irrevocably paid all Obligations in full in cash.
11. All payments by the successor Administrative Agent, each Borrower
and each Guarantor to the Administrative Agent pursuant to this Assignment and
Acceptance shall be made by wire transfer as follows:
Bank: Bankers Trust Company, New York,
New York
ABA No.: 021001033
Account No.: 50-232-854
Account Name: General Electric Capital Corporation
Reference: CFC - Harris Chemical
12. Each party hereto agrees that the assignments of the Assigned
Interests hereunder shall be effective notwithstanding that such assignments may
not comply in all respects with the provisions of the Credit Agreement.
13. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York (without regard to the
conflict of laws provisions thereof other than ss.5-1401 of the New York General
Obligations Law).
14. This Assignment and Acceptance may be executed by one or more of
the parties to this Assignment and Acceptance in any number of separate
counterparts (including by telecopy), and all of such counterparts taken
together shall be deemed to constitute one and the same instrument.
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of April 1, 1998 by their respective duly
authorized officers.
The Assignors:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Lender
By: _/s/ Rick Luck________________
Name:
Being Duly Authorized
BANKBOSTON, N.A., as Lender
By: _/s/ Mark J. Forti____________
Name: Mark J. Forti
Title: Vice President
HELLER FINANCIAL INC., as Lender
By: _/s/ Thomas W. Bukowski_______
Name: Thomas W. Bukowski
Title: Sr. Vice President
BANKAMERICA BUSINESS CREDIT, INC., as
Lender
By: _/s/ Beverly J. Gray__________
Name: Beverly J. Gray
Title: Sr. Account Executive
THE CIT GROUP/BUSINESS CREDIT INC.,
as Lender
By: _/s/ Nicole Cangelosi_________
Name: Nicole Cangelosi
Title: Assistant Secretary
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
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The Assignee:
IMC GLOBAL INC.
By: _/s/ Eric T. Martinez_________
Name: Eric T. Martinez
Title: Assistant Treasurer
By: _/s/ Rose Marie Williams______
Name: Rose Marie Williams
Title: Corporate Secretary
Borrowers and Guarantors:
NORTH AMERICAN SALT COMPANY,
as Borrower
By: _/s/ Richard J. Nick__________
Name: Richard J. Nick
Title: Sr. Vice President
NORTH AMERICAN CHEMICAL
COMPANY, as Borrower
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
GREAT SALT LAKE MINERALS
CORPORATION, as Borrower
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
- 8 -
EXECUTION COPY
HARRIS CHEMICAL NORTH
AMERICA INC., as Guarantor
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
NAMSCO, INC., as Guarantor
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
CAREY SALT COMPANY, as Guarantor
By: _/s/ Richard J. Nick__________
Name: Richard J. Nick
Title: Vice President
GSL CORPORATION, as Guarantor
By: _/s/ Richard J. Nick__________
Name: Richard J. Nick
Title: Vice President
GSL HOLDINGS INC., as Guarantor
By: ___n/a_______________________
Name:
Title:
THE HUTCHINSON & NORTHERN
RAILWAY COMPANY, as Guarantor
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
- 9 -
EXECUTION COPY
NORTH AMERICAN TERMINALS,
INC., as Guarantor
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
OLDEXAER, INC., as Guarantor
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
WRNM HOLDINGS, INC., as Guarantor
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Vice President
WHITE RIVER NAHCOLITE MINERALS
LIMITED LIABILITY COMPANY,
as Guarantor
By: _/s/ Richard J. Nick_________
Name: Richard J. Nick
Title: Manager
Accepted:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Administrative Agent and
Collateral Agent
By: _/s/ Rick Luck________________
Name:
Being Duly Authorized
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
- 10 -
EXECUTION COPY
Accepted:
IMC GLOBAL INC., as successor Administrative
Agent and successor Collateral Agent
By: _/s/ Eric T. Martinez_________
Name: Eric T. Martinez
Title: Assistant Treasurer
By:_/s/ Rose Marie Williams_______
Name: Rose Marie Williams
Title: Corporate Secretary
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
<PAGE>
EXECUTION COPY
SCHEDULE 1
TO ASSIGNMENT AND ACCEPTANCE
Relating to
the Credit and Guarantee Agreement, dated as of October 15, 1993, as amended
and restated as of February 27, 1997 (as further amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among North
American Chemical Company, North American Salt Company, Great Salt Lake Minerals
Corporation (collectively, the "Borrowers"), Harris Chemical North America,
Inc., as guarantor (together with the other "Guarantors", as defined under the
Credit Agreement, the "Guarantors"), the banks and other financial institutions
parties thereto (the "Lenders") and General Electric Capital Corporation, as
collateral agent (in such capacity, the "Collateral Agent") and administrative
agent (in such capacity, the "Administrative Agent") for the Lenders
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
ASSIGNORS:
<S> <C> <C> <C>
Name of Commitment -- Commitment Loans --
Assignor Credit Agreement Percentage Credit Agreement
- -------- ---------------- ---------- ----------------
General Electric Capital Corporation $42,666,667 32.82051% $20,546,237.59
Heller Financial Inc. $35,000,000 26.92308% $16,854,338.90
BankBoston, N.A. $20,000,000 15.38462% $9,631,052.59
BankAmerica Business Credit, Inc. $17,333,333 13.33333% $8,346,907.65
The CIT Group/Business Credit Inc. $15,000,000 11.53846% $7,223,286.31
ASSIGNEE:
Name of Commitment -- Commitment Loans --
Assignee Credit Agreement Percentage Credit Agreement
IMC Global Inc. $130,000,000 100% $62,601,823.04
</TABLE>
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
Sch 1 - 1
<PAGE>
EXECUTION COPY
SCHEDULE 2
TO ASSIGNMENT AND ACCEPTANCE
Relating to
the Credit and Guarantee Agreement, dated as of October 15, 1993, as amended
and restated as of February 27, 1997 (as further amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among North
American Chemical Company, North American Salt Company, Great Salt Lake Minerals
Corporation (collectively, the "Borrowers"), Harris Chemical North America,
Inc., as guarantor (together with the other "Guarantors", as defined under the
Credit Agreement, the "Guarantors"), the banks and other financial institutions
parties thereto (the "Lenders") and General Electric Capital Corporation, as
collateral agent (in such capacity, the "Collateral Agent") and administrative
agent (in such capacity, the "Administrative Agent") for the Lenders
<TABLE>
<CAPTION>
INTEREST, FEES AND OTHER AMOUNTS
<S> <C>
Accrued and unpaid interest on Eurodollar Loans as of the Effective Date: $0
Accrued and unpaid interest on Base Rate Loans (including all Swing Line $144,137.48
Loans) as of the Effective Date:
Accrued and unpaid Letter of Credit Commissions as of the Effective Date: $161,563.44
Accrued and unpaid Commitment Fees as of the Effective Date: $73,976.55
Unpaid reimbursable expenses of the Administrative Agent and the Collateral
Agent as of the Effective Date: $21,000.00
------------
Total: $400,677.47
============
</TABLE>
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
Sch 2 - 1
<PAGE>
EXECUTION COPY
SCHEDULE 3
TO ASSIGNMENT AND ACCEPTANCE
Relating to
the Credit and Guarantee Agreement, dated as of October 15, 1993, as amended
and restated as of February 27, 1997 (as further amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among North
American Chemical Company, North American Salt Company, Great Salt Lake Minerals
Corporation (collectively, the "Borrowers"), Harris Chemical North America,
Inc., as guarantor (together with the other "Guarantors", as defined under the
Credit Agreement, the "Guarantors"), the banks and other financial institutions
parties thereto (the "Lenders") and General Electric Capital Corporation, as
collateral agent (in such capacity, the "Collateral Agent") and administrative
agent (in such capacity, the "Administrative Agent") for the Lenders
<TABLE>
<CAPTION>
LETTERS OF CREDIT
<S> <C> <C> <C> <C>
L/C No. Beneficiary Amount Expiry Date Issuing Bank
50079492 COUNTY OF SAN BERNARDINO OR THE $904,405.00 3/24/99 BankBoston
CALIFORNIA DEPARTMENT OF
CONSERVATION
50079505 AMERICAN INTERNATIONAL GROUP $2,118,000.00 3/24/99 BankBoston
50079491 FIREMAN'S FUND INSURANCE $20,000.00 3/25/99 BankBoston
COMPANY
50079488 LOUISIANA DEPT OF EMPLOYMENT $450,000.00 3/24/99 BankBoston
AND TRAINING OFFICE OF WORKERS
COMPENSATION
50079487 ACSTAR INSURANCE COMPANY $119,600.00 3/27/99 BankBoston
50079485 ACSTAR INSURANCE COMPANY $4,155,00.00 3/27/99 BankBoston
50079484 UTAH DIVISION OF OIL, GAS AND $298,900.00 4/8/99 BankBoston
MINING
50079486 RELIANCE NATIONAL INDEMNITY CO. $2,275,215.00 5/1/99 BankBoston
50079490 SAN DIEGO UNIFIED PORT AUTHORITY $300,000.00 4/30/99 BankBoston
50079497 KREDIETBANK NV $110,000.00 4/30/99 BankBoston
S970253 GENERAL ELECTRIC CAPITAL $5,860,441.00 7/14/98 ABN AMRO
CORPORATION
S970254 GENERAL FOODS CREDIT INVESTORS $7,511,927.00 7/14/98 ABN AMRO
SA99548096 STATE OF COLORADO MINED LAND $150,750.00 3/31/99 NationsBank
RECLAMATION BOARD
SA99516096 COLORADO NATIONAL BANK $1,083,332.81 8/31/98 NationsBank
SA99517096 WHITE RIVER ELECTRIC ASSOCIATION, $492,579.15 3/31/99 NationsBank
(also identified as INC.
099517AVA99517)
----------------
TOTAL: $25,850,149.96
================
</TABLE>
K:\BANK\RDJR\GE\SIFTO\ASSIGN-X.AGR ASSIGNMENT AND ACCEPTANCE
Sch 3 - 1
<PAGE>
AMENDMENT NO. 1 AND CONSENT
TO
CREDIT AND GUARANTEE AGREEMENT
THIS AMENDMENT NO. 1 AND CONSENT ("Amendment") dated as of May
22, 1998 by and among North American Chemical Company, North American Salt
Company, Great Salt Lake Minerals Corporation (collectively, the "Borrowers"),
Harris Chemical North America, Inc. ("HCNA"), as guarantor (together with the
other "Guarantors" (as defined in the Credit Agreement), the "Guarantors"), IMC
Global Inc., as the sole Lender (the "Lender"), and IMC Global Inc., as
administrative agent (in such capacity, the "Administrative Agent") and as
collateral agent (in such capacity, the "Collateral Agent") for the Lender.
Capitalized terms used in this Amendment which are not otherwise defined herein,
shall have the meanings given such terms in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrowers, the Guarantors, the Lender, the
Administrative Agent and the Collateral Agent are parties to that certain Credit
and Guarantee Agreement, dated as of October 15, 1993, as amended and restated
as of February 27, 1997 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement");
WHEREAS, the Borrowers have requested that the Lender and the
Administrative Agent amend the Credit Agreement on the terms and conditions set
forth herein in order to modify certain covenants contained therein and make
certain other correlative changes resulting therefrom;
WHEREAS, the Administrative Agent and the Lender have agreed
to enter into this Amendment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers, the Lender and the Administrative Agent hereby agree as follows:
1. Amendments to the Credit Agreement. Effective as of
April 1, 1998 and subject to the satisfaction of the conditions precedent set
forth in Section 3 below, the Credit Agreement is hereby amended as follows:
1.1. Section 1 of the Credit Agreement is hereby amended to
delete in their entirety the definitions of "Eligible Inventory" and "Eligible
Receivables" now appearing therein, and to substitute the following therefor:
-1-
<PAGE>
"Eligible Inventory": shall mean, with respect to the
relevant Borrower, an amount equal to the book value of all of
the inventory ("Inventory") of such Borrower, determined in
accordance with GAAP consistently applied.
"Eligible Receivables": shall mean, with respect to the
relevant Borrower, an amount equal to the book value of all of
the accounts receivable ("Accounts") of such Borrower,
determined in accordance with GAAP consistently applied.
1.2. Sections 9.2(a), (b), (c), (d) and (f), 9.5(c) and 9.10
of the Credit Agreement are hereby deleted in their entirety and of no further
force and effect.
1.3. Section 9.2(e) of the Credit Agreement is hereby amended
to delete the phrase "each of (i) the end of the first two weeks of each Interim
Accounting Period and (ii)" now appearing therein.
1.4. Section 10 of the Credit Agreement is hereby deleted
in its entirety and of no further force and effect.
1.5. Section 12 of the Credit Agreement is hereby deleted
in its entirety and the following is substituted therefor:
"If any of the following events shall occur and be continuing:
(a) any Borrower shall fail to pay when due any
principal of any Loan or any L/C Obligation, or shall fail to
pay, within five (5) Business Days after notice from the
Administrative Agent, any interest, fees, or any other amount
payable hereunder;
(b) any Borrower shall fail to observe or perform any
covenant or agreement contained in this Agreement for thirty
(30) days after notice thereof has been given to such Borrower
by the Administrative Agent; or
(c) (i) HCNA or any of its Subsidiaries shall
commence any case, proceeding or action, or (in the case of
any Canadian Subsidiary) file a notice of intention to
commence any of the foregoing, (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or
insolvent or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial
part of its assets, or HCNA or any of its Subsidiaries shall
make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against HCNA or any of its
Subsidiaries any case, proceeding or action of a nature
referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or
-2-
<PAGE>
(iii) there shall be commenced against HCNA or any of its
Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its
assets which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) HCNA or any of its Subsidiaries shall take
any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) HCNA or any of its
Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they
become due or otherwise be insolvent under applicable law of
any jurisdiction;
then, and in any such event, (A) if such event is an
Event of Default specified in clause (i) or (ii) of Section
12(c) above with respect to any Borrower, automatically the
Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement (including, without
limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) and the
Loans shall immediately become due and payable, and (B) if
such event is any other Event of Default, either or both of
the following actions may be taken: (i) with the consent of
the Aggregate Required Lenders, the Administrative Agent may,
or upon the request of the Aggregate Required Lenders, the
Administrative Agent shall, by notice to the Borrowers declare
the Commitments to be limited, restricted or terminated
forthwith, whereupon the Commitments shall immediately so be
limited, restricted or terminated; and (ii) with the consent
of the Aggregate Required Lenders, the Administrative Agent
may, or upon the request of the Aggregate Required Lenders,
the Administrative Agent shall, by notice to the Borrowers,
declare the Loans hereunder (with accrued interest thereon)
and all other amounts owing under this Agreement (including,
without limitation, all amounts of L/C Obligations, whether or
not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder)
and the Loans to be due and payable forthwith, whereupon the
same shall immediately become due and payable (the date of any
termination or declaration referred to in this paragraph, the
"Acceleration Date")."
Except as expressly provided above in this Section 12,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
2. Consent. Each of the Administrative Agent and the Lender
hereby consent to permit each of HCNA and/or Sifto Canada, Inc., as applicable,
to make one or more offers to purchase the Public Debt, provided each such offer
is made no later than December 31, 1998.
3. Conditions of Effectiveness of this Amendment. This
Amendment shall become effective and be deemed effective as of April 1, 1998
(the "Effective Date"), if, and only if the Administrative Agent shall have
received duly executed originals of this Amendment from the Borrowers, the
Guarantors, the Administrative Agent, the Collateral Agent and the Lender.
-3-
<PAGE>
4. Representations and Warranties of the Borrowers and the
Guarantors. The Borrowers and the Guarantors hereby represent and warrant as
follows:
(a) This Amendment and the Credit Agreement as previously
executed and as amended hereby, constitute legal, valid and binding obligations
of the Borrowers and the Guarantors and are enforceable against the Borrowers
and the Guarantors in accordance with their terms.
(b) Upon the effectiveness of this Amendment, the Borrowers
and the Guarantors hereby reaffirm all covenants, representations and warranties
made in the Credit Agreement to the extent the same are not amended hereby,
agree that all such covenants, representations and warranties shall be deemed to
have been remade as of the effective date of this Amendment.
5. Reference to the Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 1 hereof, on and after
the date hereof, each reference in the Credit Agreement to "this Agreement,"
"this Credit Agreement," "hereunder," "hereof," "herein" or words of like import
shall mean and be a reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Administrative Agent or the Lender, nor
constitute a waiver of any provision of the Credit Agreement or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
6. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
7. Counterparts. This Amendment may be executed by one or
more of the parties to the Amendment on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
8. Entire Agreement. This Amendment, taken together with the
Credit Agreement and all of the other Loan Documents, embodies the entire
agreement and understanding of the parties hereto and supersedes all prior
agreements and understandings, written and oral, relating to the subject matter
hereof.
9. Governing Law. This Amendment shall be governed by and
construed in accordance with the internal laws of the State of New York.
-4-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first above written.
NORTH AMERICAN SALT COMPANY,
as Borrower and as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
NORTH AMERICAN CHEMICAL COMPANY,
as Borrower and as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
GREAT SALT LAKE MINERALS CORPORATION,
as Borrower and as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
IMC GLOBAL INC., as Administrative Agent,
Collateral Agent and as Lender
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Sr. Vice President and Chief Executive Officer
-5-
<PAGE>
Acknowledged and agreed as of the 22d day of May, 1998:
HARRIS CHEMICAL NORTH AMERICA
INC., as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
NAMSCO, INC., as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
CAREY SALT COMPANY, as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
GSL CORPORATION, as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
GSL HOLDINGS, INC., as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
-6-
<PAGE>
THE HUTCHINSON & NORTHERN RAILWAY
COMPANY, as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
NORTH AMERICAN TERMINALS, INC.,
as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
OLDEXAER, INC., as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
WRNM HOLDINGS, INC., as Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
WHITE RIVER NAHCOLITE MINERALS
LIMITED LIABILITY COMPANY, as
Guarantor
By: /s/ J. Bradford James
Name: J. Bradford James
Title: Vice President
-7-
<PAGE>
October 31, 1997
Mr. D. George Harris
Mr. Anthony J. Petrocelli
D. George Harris & Associates, Inc.
399 Park Avenue, 32nd Floor
New York, New York 10022
Gentlemen:
This letter is to confirm our understanding with regard to the compensation to
be paid to Messrs. D. George Harris and Anthony J. Petrocelli (collectively, the
"Employees" and individually, an "Employee") for services to be rendered to
Harris Chemical Group, Inc. ("HCG") and its subsidiaries (including, without
limitation, Great Salt Lake Minerals Corporation ("GSL"), Harris Chemical North
America, Inc. ("HCNA"), Harris Soda Products Europe ("HSPE"), Matthes & Weber
("M&W"), North American Chemical Company ("NACC"), North American Salt Company
("NASC"), Salt Union Limited ("SUL"), and Societa Chimica Larderello ("SCL")
(collectively, the "Companies", and individually, a "Company"). This letter
supersedes and cancels: (a) the letter of Agreement dated October 28, 1993 (the
"1993 Agreement"); (b) the Harris Consultancy Agreement with M&W dated March 24,
1994; (c) the Petrocelli Consultancy Agreement dated March 24, 1994; and (d) the
DGH&A Management Agreement dated December 15, 1995.
A. During the term of this Agreement, the Employees will render such services of
an executive and administrative character to the Companies as the respective
boards of directors of the Companies may from time to time direct. Each Employee
will devote his best efforts and such of his business time and attention to the
business of the Companies as is necessary to attain the operational and
strategic goals for the benefit of the stockholders of the Companies. In the
event that any employee fails to devote a majority of his business time and
attention to the business of the Companies, then the Compensation Committee of
the board of directors of HCG (the "Compensation Committee") shall be entitled
to make such adjustments in the amounts payable under this Agreement to such
Employee as it may reasonably determine to reflect the reduction in the
performance of such services.
B. For services rendered during the term of this Agreement, each Employee
shall be entitled to receive monthly compensation in the amount and for the
periods set forth below:
DGH AJP
November 1997 - December 1997 $62,500 $43,750
January 1998 - March 2001 $50,000 $35,000
1
<PAGE>
C. Each Employee will participate in the Incentive Compensation Plan ("ICP") for
executives of the Company under the same rules and conditions applicable to all
other ICP participants, with the exceptions outlined below:
For Fiscal Year 1998 DGH AJP
------------------------------------------ --- ---
Fiscal Year Earnings for ICP Purposes $600,000 $420,000
Nominal ICP Level 100% 100%
For Fiscal Years 1999 through 2001
------------------------------------------
ICP Payment at 100% of HCG Target or above $600,000 $420,000
ICP Payment at 85% of HCG Target $300,000 $210,000
ICP Payment below 85% of HCG Target $0 $0
For HCG performance between 85 and 100% of Target, payment
will be made on a pro-rata basis.
Further, any amount earned under the ICP will only be payable in the form of
deep discount stock options. Also, beginning with Fiscal Year 1999, the above
outlines the only basis under which the Employees will be entitled to receive
ICP payments.
D. The Employees shall be entitled to participate in and be covered by any and
all employee pension or welfare benefit plans under the same terms and
conditions and to the same extent as such participation and coverage are made
available to other employees of the Company.
E. The Companies agree to employ the Employees through March 31, 2001 and no
Employee shall be terminated except for Cause (as such term is defined in the
Stockholders Agreement dated as of October 28, 1993 among HCG and its
Stockholders, as amended (the "Stockholders Agreement") as in effect on the date
hereof). In the event of the termination of any Employee for cause or the
voluntary resignation of any Employee prior to March 31, 2001, this Agreement
shall be automatically terminated and of no further force and effect with
respect to such Employee. In the event of the incapacity of any Employee during
the term of this Agreement, the Agreement shall continue in full force and
effect. In the event of the death of any Employee during the term of this
Agreement, the Agreement shall also continue in full force and effect; provided,
however, the monthly compensation provisions outlined in Paragraph B shall cease
on the last day of the month following the month in which the Employee has died.
F. In the event of a change of control (other than a public offering) prior to
March 31, 2001 which results in all HCG shareholders collectively selling
essentially 100% of their holdings of HCG, the Employees will be entitled to the
payments and benefits outlined in
2
<PAGE>
subparagraphs 1, 2, and 3 below; and this Agreement shall then terminate upon
the effective date of such change of control.
DGH AJP
--- ---
1. Exit Payment $600,000 $420,000
2. Exit Bonus. The Employees will be entitled to an Exit Bonus
based on the realized shareholder equity value of HCG at the
time of the change of control, in accordance with the
following formula:
Equity Value DGH AJP
------------ --- ---
Less than $150MM $ 0 $ 0
$150MM $ 750,000 $ 525,000
$300MM $3,500,000 $2,450,000
$500MM or above $6,000,000 $4,200,000
Exit Bonus payments for an equity value between $150MM and
$300MM will be made on a pro-rata basis between these points;
payments for an equity value between $300MM and $500MM will
likewise be made on a pro-rata basis between these points.
3. Welfare Benefits. Upon the termination of each Employee's
coverage under any HCG Welfare Plan as a result of a change of
control, the Employee (and each of his covered dependents)
shall have the right to elect continuation coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") for as long as such Welfare Plans exist. The
participation in and coverage of the Employee (and/or each of
his covered dependents) under this provision shall be
conditioned upon his (or his covered dependents') payment when
due of the aggregate monthly premium for such coverage.
G. Each Employee agrees that he shall not at any time during or following the
term of this Agreement (or any extension thereof), directly or indirectly,
disclose, transfer or use, for any purpose whatsoever, any information,
observations or data obtained by him during the course of his employment by the
Companies concerning the business or affairs of the Companies in any manner that
is adverse to any Company, except as may be required by law.
H. This Agreement shall be effective November 1, 1997. This Agreement
constitutes the entire agreement among the parties relating to the Employees'
compensation and benefits for services rendered to HCG and its subsidiaries and
supersedes all prior agreements with HCG and/or any of its subsidiaries, whether
oral or written, which may have related to the subject matter hereof including,
without limitation, the 1993, 1994 and
3
<PAGE>
1995 agreements. Except as expressly contemplated herein, this Agreement may be
amended or modified only by written agreement signed by each of the parties
hereto; provided that any amendment or modification (including but not limited
to any addition or other change to the compensation and benefits outlined in
this Agreement) must be authorized by a majority of the disinterested members of
the Compensation Committee. The obligations of the Companies hereunder shall be
joint and several. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by and construed in accordance
with the internal law (and not the law of conflicts) of the State of New York.
Kindly execute the enclosed copy of this Agreement in the space provided below
to indicate your agreement to be bound by the terms hereof.
HARRIS CHEMICAL GROUP, INC.
By /s/ H. F. Tomfohrde III
CHAIRMAN, COMPENSATION COMMITTEE
BOARD OF DIRECTORS
By /s/ William J. Sichko, Jr.
SENIOR VICE PRESIDENT
HUMAN RESOURCES
Agreed and accepted this 31st day of Oct, 1997.
/s/ D. George Harris
D. George Harris
/s/ Anthony J. Petrocelli
Anthony J. Petrocelli
4
<PAGE>
April 25, 1997
Mr. Richard Donahue
1275 Madison Drive
Yardley, PA 19067
Dear Rich:
This will confirm our understanding that if a change of control of Harris
Chemical Group ("HCG") other than a public offering results in D. George Harris
and Anthony J. Petrocelli collectively selling for cash 80% or more of their
current aggregate holdings of HCG, you will be entitled to a payment equal to
one year of your base salary at the time of the change of control.
If the above accurately reflects your understanding of our agreement, please
sign and date in the space provided below and return the original of this letter
in the enclosed envelope.
Sincerely,
/s/ D. George Harris
D. George Harris
Chairman
AGREED:
/s/ Richard Donahue 4/25/97
Richard Donahue Date
cc: WJS
<PAGE>
November 11, 1997
STRICTLY PRIVATE AND CONFIDENTIAL
ADDRESSEE ONLY
Richard J. Donahue
1275 Madison Drive
Yardley, PA 19067
Dear Rich:
You have been, and will continue to be, a key player in the current sale
process. We truly appreciate your efforts to attain the best possible value for
our shareholders.
It is therefore my pleasure to inform you that we have received Board approval
to offer you a Sale Incentive Bonus. Specifically, in the event of a change of
control in the ownership of the Company (other than a public offering), whereby
Tony and I collectively sell 80% or more of our current holdings of HCG and in
recognition of your contributions to this process, you will receive a one-time
payment of $325,000, payable within five (5) days after the Closing Date.
On behalf of our shareholders, thank you in advance for all your efforts.
Sincerely,
/s/ D. George Harris
<PAGE>
November 11, 1997
STRICTLY PRIVATE AND CONFIDENTIAL
ADDRESSEE ONLY
Michael R. Boyce
10600 Highland Lane
Olathe, KS 66061
Dear Mike:
You have been, and will continue to be, a key player in the current sale
process. We truly appreciate your efforts to attain the best possible value for
our shareholders.
It is therefore my pleasure to inform you that we have received Board approval
to offer you a Sale Incentive Bonus. Specifically, in the event of a change of
control in the ownership of the Company (other than a public offering), whereby
Tony and I collectively sell 80% or more of our current holdings of HCG and in
recognition of your contributions to this process, you will receive a one-time
payment of $650,000, payable within five (5) days after the Closing Date.
On behalf of our shareholders, thank you in advance for all your efforts.
Sincerely,
/s/ D. George Harris
<PAGE>
November 11, 1997
STRICTLY PRIVATE AND CONFIDENTIAL
ADDRESSEE ONLY
Donald G. Kilpatrick
31 Jane St., Apt 18A
New York, NY 10014
Dear Don:
You have been, and will continue to be, a key player in the current sale
process. We truly appreciate your efforts to attain the best possible value for
our shareholders.
It is therefore my pleasure to inform you that we have received Board approval
to offer you a Sale Incentive Bonus. Specifically, in the event of a change of
control in the ownership of the Company (other than a public offering), whereby
Tony and I collectively sell 80% or more of our current holdings of HCG and in
recognition of your contributions to this process, you will receive a one-time
payment of $400,000, payable within five (5) days after the Closing Date.
On behalf of our shareholders, thank you in advance for all your efforts.
Sincerely,
/s/ D. George Harris
<PAGE>
March 30, 1998
Michael R. Boyce
10600 Highland Ave.
Olathe, KS 66061
Dear Michael:
This letter will confirm in writing the March 26, 1998 conversation between you
and D. George Harris regarding the conclusion of your employment relationship
with Harris Chemical Group, Inc. ("HCG"). During this discussion, it was agreed:
1. You will voluntarily resign from employment with HCG effective March
31, 1998.
2. You will receive a lump sum payment equal to 18 months of your base
monthly salary, less applicable taxes, sometime on or before April 3,
1998.
3. You will be paid for any earned but unused vacation benefits.
4. You will be paid the Sales Bonus outlined in the November 11, 1997
letter to you.
5. You will be entitled to receive a bonus payment under the Incentive
Compensation Plan for Fiscal Year 1998 ("the Plan") to the extent and
at the time that any such bonus becomes payable to participants in
accordance with the rules of the Plan.
6. Your options with respect to your retirement and welfare benefits will
be outlined to you during the month of April by the Human Resources
Department.
7. This letter supercedes all previous agreements between the Company and
you regarding any pay or benefits to which you may be entitled upon the
conclusion of your employment, including but not limited to the
February 9, 1990 letter from D. George Harris to you.
8. You willingly and knowingly agree to release and hold harmless Harris
Chemical Group, Inc., and all of its affiliates and subsidiaries ("the
Company"), employees, officers, owners and agents from any and all
claims, whether in liability or equity, which you have now or may have
against the Company. This release specifically includes the Kansas Act
Against Discrimination, Title VII of the Civil Rights Act, and the
Americans with Disabilities Act.
<PAGE>
Michael R. Boyce
March 30, 1998
Page 2
It is further understood and agreed that: (i) nothing in this letter shall be
construed to affect your rights as a shareholder of HCG; (ii) the payments and
benefits described above fully satisfy all obligations between HCG and you
regarding the conclusion of your employment; and (iii) you will not receive any
additional payments or benefits from HCG or IMC Global, Inc.
If the foregoing accurately reflects your understanding of the agreement with
George, please sign and date this letter in the space provided below.
Yours very truly,
/s/ William J. Sichko, Jr.
William J. Sichko, Jr.
Senior Vice President - Human Resources
ACCEPTED:
/s/ Michael R. Boyce 3/30/98
Michael R. Boyce Date
cc: D. George Harris
Robert Fowler
<PAGE>
<TABLE>
<CAPTION>
Exhibit 21
State of
List of Subsidiaries Incorporation
<S> <C>
Harris Chemical North America, Inc. Delaware
GSL Corporation Delaware
IMC Kalium Ogden Corp. (formerly, Great Salt Lake Minerals Corporation) Delaware
GSL Agricultural-Industrial Trading, Inc. Delaware
GSL Solar Consultants & Advisors, Inc. Delaware
Weber Canal Water Company Utah
NAMSCO Inc. Delaware
IMC Salt Inc. (formerly, North American Salt Company) Delaware
Carey Salt Company Delaware
Lake Crystal Salt Company Utah
The Hutchinson & Northern Railway Company Kansas
Sifto Canada, Inc. Canada
Timberlea Chemical Company Delaware
IMC Chemicals Inc. (formerly, North American Chemical Company) Delaware
Searles Domestic Water Company California
Searles Valley Residences, Inc. California
Trona Railway Company California
North American Terminals, Inc. California
Harris International Export Company Guam
North American Carbonate Company Delaware
North American Bicarbonate Company Delaware
Oldexaer, Inc. Delaware
White River Nahcolite Minerals Ltd. Liability Company Colorado
WRNM Holdings, Inc. Delaware
</TABLE>
<PAGE>
