-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ch1TzgWydvhZFp/rKwuZnlLVXUv7j2X5zH9ZmlNlQ4scIqXpGaNwWAxQ3SOX0Oua WV6XuYsDF7aDA6+je9HFCw== 0000950123-96-001394.txt : 19960329 0000950123-96-001394.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950123-96-001394 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS RESOURCES INC CENTRAL INDEX KEY: 0000810020 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 362729497 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-11634 FILM NUMBER: 96540172 BUSINESS ADDRESS: STREET 1: 9 WEST 57TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2128883044 MAIL ADDRESS: STREET 1: 9 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 10-K405 1 ANNUAL REPORT ON FORM 10-K, TRANS-RESOURCES, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 33-11634 TRANS-RESOURCES, INC. (Exact name of registrant as specified in its charter) Delaware 36-2729497 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 10019 9 West 57th Street, New York, NY (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (212) 888-3044 Securities registered pursuant to Section 12 (b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: NONE Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ State the aggregate market value of the voting stock held by non-affiliates of registrant. None held by non-affiliates Indicate the number of shares outstanding of each of registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at March 25, 1996 ----- ----------------------------- Common Stock, par value $.01 per share 3,000 shares (Owned by TPR Investment Associates, Inc.)
Documents incorporated by reference. None 2 TABLE OF CONTENTS
PAGE PART I Item 1. Business............................................................... 1 Item 2. Properties............................................................. 10 Item 3. Legal Proceedings...................................................... 10 Item 4. Submission of Matters to a Vote of Security Holders.................... 12 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................................................. 12 Item 6. Selected Financial Data................................................ 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 14 Item 8. Financial Statements and Supplementary Data............................ 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 18 PART III Item 10. Directors and Executive Officers of the Registrant.................... 18 Item 11. Executive Compensation................................................ 20 Item 12. Security Ownership of Certain Beneficial Owners and Management........ 22 Item 13. Certain Relationships and Related Transactions........................ 22 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 22 Signatures .................................................................. 23
3 PART I ITEM 1. Business Trans-Resources, Inc., a privately owned Delaware corporation ("the Company"), is a multinational manufacturer of specialty plant nutrients, organic chemicals, industrial chemicals and potash and distributes its products in over 80 countries. The Company is the world's largest producer of potassium nitrate, which is marketed principally under the brand names K-Power domestically and Multi-K internationally (collectively, referred to as K-ower). The Company is also the world's largest producer of propanil, a leading rice herbicide. In addition, the Company is the largest United States producer of potash. During 1995, specialty plant nutrients, organic chemicals, industrial chemicals and potash contributed approximately 49%, 12%, 25% and 14%, respectively, of the Company's total revenues. The following table sets forth the primary markets and applications for each of the Company's principal products:
Principal Products Primary Markets Applications SPECIALTY PLANT NUTRIENTS K-Power - Fresh fruits and vegetables, - Fertigation and foliar sprays flowers, cotton and tobacco (fully soluble, readily absorbed, Polyfeed Horticulture no harmful residues) Multi-MAP Horticulture Multi-MKP Horticulture Magnisal Vegetables, citrus, tropical fruits and flowers Multicote - Vegetables, turf, fruit trees and - Time release of nutrients (to potted plants optimize plant feeding and minimize labor requirements) ORGANIC CHEMICALS Propanil - Rice - Broad spectrum weed control Dichloroaniline - Organic chemical manufacturers - Intermediate propanil product Butoxone - Peanuts - Weed control Diuron - Food crops, alfalfa and cotton - Broad use herbicide Pluck - Cotton, fruit and vegetables - Plant growth regulator Custom Manufacturing - Various industrial companies - Various organic synthesis INDUSTRIAL CHEMICALS Technical Grade Potassium - Glass, ceramics, food, explosives, - Oxidization and ion exchange Nitrate metal, petrochemical and heat treatment industries Potassium Carbonate - Glass, detergents and horticulture - Oxidization and cleansing Phosphoric Acid - Industrial production, food and - Metal treatment, industrial fertilizer industries cleaning and fermentation Sodium Tripolyphosphate - Soaps and detergents - Cleansing ingredient Monoammonium Phosphate - Chemical manufacturers - Fire extinguishing powders Diammonium Phosphate Chemical manufacturers and fire retardant formulations Monopotassium Phosphate - Food processing companies - Fermentation process Sodium Acid Pyrophosphate - Food processing companies - Baking powders and potato processing Chlorine - Chemical companies - Water purification, production of paper pulp and PVC pipe Nitrogen Tetroxide - United States Government - Aerospace fuel additive POTASH Agricultural Grade - Corn, wheat, rice, soybeans - Fertilizer Industrial Grade - Various industrial companies - Intermediate production of chemicals and lubricants
1 4 Of the Company's total revenues for the year ended December 31, 1995, approximately 35% and 38% were derived from sales in the United States and Europe, respectively, with the remainder derived from sales in many other countries. On February 7, 1994, the smaller of the two potassium nitrate production units of the Company's Israeli subsidiary, Haifa Chemicals Limited ("HCL"), was damaged by a fire, causing a temporary reduction of the Company's potassium nitrate production capacity. The impact of the loss of the production unit, including the effect of business interruption, was substantially covered by insurance. The insurance proceeds for the property damage is for replacement value, which substantially exceeded the recorded carrying value of the damaged assets. See Note D of Notes to Consolidated Financial Statements for additional information. The Company completed the replacement of the damaged production unit during 1995. Management is not aware of any independent, authoritative source of information about sizes, growth rates or shares for the Company's markets. The market size, market growth rate and market share estimates contained herein have been developed by the Company from internal sources and reflect the Company's current estimates. However, no assurance can be given regarding the accuracy of such estimates. The Company's operations are conducted through its direct and indirect wholly-owned subsidiaries which include HCL, and HCL's wholly-owned subsidiary, Haifa Chemicals South, Ltd., an Israeli corporation ("HCS"); Cedar Chemical Corporation, a Delaware corporation ("Cedar"), and Cedar's wholly-owned subsidiaries, Vicksburg Chemical Company, a Delaware corporation ("Vicksburg"), and New Mexico Potash Corporation, a New Mexico corporation ("NMPC"); Na-Churs Plant Food Company ("Na-Churs"), a Delaware corporation (Na-Churs was acquired in March, 1995); and Eddy Potash, Inc., a Delaware corporation ("Eddy"). The Company was incorporated in Delaware in 1971 under the name Trans-Pacific Resources, Inc. SPECIALTY PLANT NUTRIENTS The Company is a multinational manufacturer of a range of specialty plant nutrients, which contributed approximately $189,000,000 to the Company's revenues for the year ended December 31, 1995, of which K-Power contributed a substantial portion. Products and Markets. K-Power, Polyfeed (a fully soluble plant nutrient containing nitrogen, phosphate and potassium), Magnisal (magnesium nitrate), Multi-MAP (monoammonium phosphate) and Multi-MKP (monopotassium phosphate) are suitable for intensive high value crops such as fresh fruit and vegetables, flowers, cotton and tobacco, since they are fully soluble, easily absorbed and leave no harmful residues such as chloride, sodium or sulfate. Because of their solubility, these products can be used with modern drip irrigation systems, which are increasingly being employed to conserve water. The Company produces several grades of agricultural potassium nitrate, including standard and prilled. The Company is the world's largest producer of potassium nitrate. Worldwide demand for potassium nitrate has been growing steadily since potassium nitrate was introduced in the 1960s. The market for K-Power has enjoyed steady volume growth because it increases plant yields, improves crop quality and shortens growing cycles. As a result, potassium nitrate commands a price premium over other potassic plant nutrients such as potassium sulfate and sulfate of potash magnesia, used in combination with ammonium nitrate. After a multi-year research and development effort, the Company developed a technology for the coating of potassium nitrate and other specialty plant nutrients which promotes the controlled release of nutrients over time. These products increase nutrient uptake by plants while minimizing fertilizer runoff into the soil, thus satisfying growing environmental concerns, and reducing labor requirements. The Company is marketing these controlled release plant nutrients products under the Multicote brand name. 2 5 Marketing and Sales. As part of the Company's market development and sales efforts, resident agronomists are located in the United States, Italy, France, the United Kingdom, Greece, Mexico, South Africa, China, Japan and the Benelux countries. The steady growth in demand for the Company's specialty plant nutrients has been supported by agronomic activities in many countries which have demonstrated the benefits of using K-Power. Horticultural and agricultural growers generally require substantial testing under their own specific climatic, soil and growing conditions before they will adopt a new plant nutrient. The Company has developed application expertise which has produced a growing number of applications and users. To market its specialty plant nutrients, the Company has established a worldwide network of agents and distributors and uses storage facilities in certain countries to provide prompt and responsive customer service. However, depending on the conditions prevailing in the particular market, certain large users are serviced directly and certain products are covered by product managers who have worldwide responsibility for such products. In order to further improve service to its customers in Western Europe, the Company has established subsidiaries in the United Kingdom, Belgium, Spain and Italy. The Company also has established a subsidiary in Mexico. A French subsidiary engaged in the fertilizer business and having its own sales and distribution network also markets the Company's specialty plant nutrients. For United States sales, the Company utilizes its own sales force and also works in selected areas through brokers. In general, in the United States, the Company sells K-Power to blenders who produce mixed fertilizers containing potassium nitrate, which is then sold to growers. Internationally, the Company's distributors usually sell directly to growers. Manufacturing. The Company believes it accounts for approximately 65% of the world's production of potassium nitrate and its current annual potassium nitrate production capacity is approximately 510,000 metric tons. To meet the anticipated continued growing demand of the market, in late 1994 the Company expanded its production capacity by constructing a new facility (the "K3 Plant") in Israel, with capacity to produce approximately 100,000 metric tons of potassium nitrate annually. Capacity of the K3 Plant may be expanded in subsequent years. See "Facilities and Suppliers" below. Competition. The Company's only significant competitor in the production and sale of potassium nitrate is Sociedad Quimica Y Minera De Chile, S.A., a Chilean company. The principal methods of competition are product quality, customer service, agronomic expertise and price. ORGANIC CHEMICALS The Company's organic chemicals business has grown by building upon its capabilities in specialized areas of complex organic synthesis. Its sales were approximately $44,000,000 in 1995, with sales of propanil representing approximately 60% thereof. Products and Markets. The Company's organic chemicals products include propanil (a leading rice herbicide, which Cedar markets principally under the Cedar label and the brand names "Wham! EZ" and "Super Wham!"), dichloroanaline ("DCA," the principal raw material for the production of propanil), Butoxone (a peanut herbicide), Diuron (a broad use herbicide used on food crops, alfalfa and cotton) and Pluck, a cotton, fruit and vegetable growth regulator. The Company also produces and sells "Tham" (trishydroxyaminomethane), a proprietary buffering agent used in industrial and pharmaceutical applications. The Company estimates that it currently produces approximately 85% of the propanil sold in the United States. The Company has also developed several new propanil formulations which offer various advantages 3 6 in terms of ease of application and improved environmental impact in an effort to expand the propanil market. The Company is currently the only producer of DCA in North America. Although the United States is currently the largest propanil market, representing approximately 35% of the world market, the United States contains only a small proportion of the world's rice acreage. Accordingly, the Company believes there is significant potential for propanil growth internationally. The Company has established an international market development program to introduce propanil to additional markets around the world. As the largest propanil producer in the world and a low cost producer, the Company believes it is positioned to benefit from growth in the international propanil market. The Company also produces other organic chemicals as a contract manufacturer for various chemical companies. Through this contract manufacturing, the Company has developed certain techniques for the synthesis of complex organic chemicals which has been beneficial to it in both its contract manufacturing activities as well as its own developmental efforts for proprietary products. Marketing and Sales. The Company produces and sells propanil under its own brand name and supplies propanil to other agrichemical companies under long-term supply contracts. Sales by the Company of propanil and DCA under a long-term supply contract with a major agrichemical company represented approximately 25% of the Company's sales of organic chemicals in 1995. The Company sells propanil and its other organic chemical products through its own sales force, distributors, regional dealers, cooperatives and international brokers. Manufacturing. The Company is a low cost producer of propanil as a result of its 1991 acquisition, relocation and upgrading of a DCA manufacturing plant. The Company intends to continue to expand its organic chemicals business by developing and/or distributing new products that draw upon its skills in organic chemical synthesis and/or its sales organization. Competition. In the United States market, the Company competes primarily with two other propanil suppliers, while in international markets the Company competes with several producers. Propanil competes with several other rice herbicides, but is currently the most commonly used rice herbicide. Diuron and Pluck compete with other products supplied by several multi-national companies. In contract manufacturing, the Company competes with various other producers and the basis of competition is generally the quality and range of production capabilities, service and price. INDUSTRIAL CHEMICALS The Company's industrial chemical products include technical grade potassium nitrate, technical and food grade sodium tripolyphosphate ("STPP"), technical and food grade phosphoric acid, technical grade monoammonium phosphate and diammonium phosphate ("MAP" and "DAP"), technical and food grade monopotassium phosphate ("MKP"), potassium carbonate, food grade sodium acid pyrophosphate ("SAPP"), chlorine, nitrogen tetroxide and food grade salts. Industrial chemicals contributed approximately $98,000,000 to the Company's revenues for the year ended December 31, 1995. Products and Markets. Technical grade potassium nitrate is used in the glass industry for making fine tableware glass, TV tubes and crystal glass; in the metal industry for heat treatment; in the ceramics industry for the glazing process; for making explosives and for the production of heat transfer salts in the petrochemical industry; and for solar energy systems. Phosphoric acid is used in metal treatment, industrial cleaning solutions, fermentation processes and for carbonated drinks in the food industry. STPP is used primarily in the manufacturing of detergents and 4 7 specialty cleaning compounds and in the textile and ceramic clay industry; MAP and DAP are used for fire extinguishing powders and fire retardant functions; MKP is used for the fermentation process; and SAPP is an ingredient in baking powders and is used for potato processing. Chlorine is used in the pulp and paper industry and as a swimming pool disinfectant. Nitrogen tetroxide is an aerospace fuel additive. Food grade salts are used in food processing. Potassium carbonate is used primarily in the glass industry. Marketing and Sales. The Company sells its industrial chemicals through its own sales force and brokers in the United States and internationally through a worldwide network of agents and distributors. Nitrogen tetroxide is primarily sold under a long-term contract to the United States Government. The Company utilizes storage facilities in certain countries. Production. Many of these industrial products are co-products of the Company's potassium nitrate manufacturing process. Given its production flexibility, the Company can vary the relative proportion of the various phosphate chemicals (STPP, MAP, MKP, DAP and SAPP) to optimize its product mix in light of then prevailing market conditions. Competition. Certain of the Company's industrial chemicals products, such as STPP and phosphoric acid, compete in large industrial chemical markets in which the Company has a small position. Others, such as technical grade potassium nitrate, MAP, MKP and nitrogen tetroxide have relatively significant competitive positions in their respective niche markets. The nature of competition for the various industrial chemicals sold by the Company varies by product. However, in general, the principal methods of competition are product quality, customer service and price. POTASH The Company is the largest United States producer of potash, producing approximately 750,000 short tons in 1995, primarily for agricultural use as fertilizer. During 1995, the Company's share of total potash production in the United States was approximately 31% and its share of total North American potash production was approximately 5%. Potash provides potassium, an essential nutrient for a wide range of crops, including wheat, soybeans and corn. The Company, through Eddy and NMPC, mines, refines and distributes potash from two mines and related refineries located in New Mexico. Potash sales in 1995, excluding intercompany sales to Vicksburg, amounted to approximately $54,000,000. Products and Markets. During 1995, approximately 71% of the Company's potash production was sold as fertilizer and the balance was sold for industrial uses or used by Vicksburg as a raw material in the production of potassium nitrate and potassium carbonate. Marketing and Sales. In the United States, the Company's sales force sells potash to blenders for fertilizer material and to industrial customers. Agricultural export sales are handled by a sales subsidiary of Potash Corporation of Saskatchewan. During 1995, the Company sold approximately 77% of its potash production domestically and 23% internationally. The level of average selling prices for potash in the United States are in part the result of the United States Government's preliminary findings in a Canadian potash antidumping investigation and the subsequent 1987 Canadian potash antidumping agreement. If such agreement is terminated or violated by the Canadian producers, then depending on the actions taken by the United States Government, the production and pricing decisions of Canadian producers, and other market factors, it is possible that the current price levels for potash could decline substantially, which would adversely affect the Company's results of operations. See Item 3 - "Legal Proceedings" below. 5 8 Production. The Company's potash is mined from approximately 90,000 acres which are under long-term lease, principally from the United States Government and the State of New Mexico. Such leases cover estimated ore reserves, as of December 31, 1995, of approximately 137,000,000 short tons of recoverable ore, at thicknesses ranging from four to eight feet. At average recovery rates these ore reserves are estimated to be sufficient to yield approximately 18,200,000 short tons of potash concentrate with an average grade of 60% to 62% "K2O" (a common standard of measurement established by the industry of defining a product's potassium content in terms of equivalent percentages of potassium oxide). As of December 31, 1995 and based on current rates of production in 1996 (aggregating approximately 870,000 short tons annually) and depending on market conditions and production costs, these ore reserves are estimated to be sufficient to support the mining operations of NMPC and Eddy for approximately 25 years and 14 years, respectively. Competition. Potash is available from various sources, both domestic and foreign, including very large Canadian sources of supply. As a result, the market is highly competitive. Since potash is a commodity product, the most significant competitive factor affecting sales is price. FACILITIES AND SUPPLIERS Vicksburg owns the property, plant and equipment located at its Vicksburg, Mississippi site and Cedar owns the property, plant and equipment located at its West Helena, Arkansas site. The Vicksburg plant consists of two adjacent manufacturing plants situated on 600 contiguous acres. Vicksburg recently completed the construction of a third manufacturing plant on its property, which is being used for the production of potassium carbonate. The West Helena plant is located on a 60 acre site. The plants are encumbered by first mortgages and security interests securing long-term bank indebtedness. Cedar's corporate offices are located in leased premises in Memphis, Tennessee. The major raw materials required by Vicksburg for production of potassium nitrate are potash supplied primarily by NMPC and nitric acid which is produced at the Vicksburg plant. Ammonia, the principal raw material required for production of nitric acid, is supplied by a third party in close proximity to the Vicksburg facility. The major raw material for the production of propanil is DCA. The principal raw material for the production of DCA is provided to the Company under a supply contract. Such raw material is available from multiple sources. NMPC owns the property, plant and equipment located at its 320 acre site near Hobbs, New Mexico. The property, plant and equipment is encumbered by a first mortgage and security interest securing long-term Cedar bank indebtedness. Eddy owns the property, plant and equipment located at its 680 acre site in Eddy County, New Mexico. The property, plant and equipment is encumbered by a first mortgage and security interest securing certain long-term indebtedness. HCL owns its machinery and equipment and leases its land and buildings from Oil Refineries Ltd. ("ORL"), a corporation which is majority-owned by the Israeli Government. The leases expire at various dates, principally in 20 years. Substantially all of the assets of HCL are subject to security interests in favor of the State of Israel or banks. HCL also has a contract with ORL for steam and processed water which expires on June 30, 1997 and a lease from ORL of a pipeline which transports ammonia from the port in Haifa to HCL's plant. HCS leases its land from the Israeli Government under a 49 year lease which commenced in 1994, with the payments for such lease paid in advance and included in the K3 Plant construction costs. HCL recently expanded its production capacity by constructing the K3 Plant, with the capacity to produce annually approximately 100,000 metric tons of potassium nitrate and 15,000 metric tons of phosphoric 6 9 acid. Capacity of the K3 Plant may be expanded in subsequent years. Provided it complies with the conditions specified in the applicable certificate of approval, HCL will receive, with respect to taxable income derived from the K3 Plant, certain benefits accorded under Israel's Investments Law. HCL obtains its major raw materials, potash and phosphate rock, in Israel. HCL purchases potash solely from Dead Sea Works, Ltd. ("DSW") in accordance with a supply contract expiring December 31, 1999. The contract provides for prices to be established quarterly, based on the weighted average of the FOB Israeli port prices paid to DSW by its overseas customers during the preceding quarter plus certain adjustments thereto. HCL purchases phosphate rock solely from Rotem Deshanim ("Rotem") (formerly known as Negev Phosphates, Ltd.) pursuant to a supply agreement expiring on June 30, 1996. Based on a letter of intent between Rotem and HCL, a long-term contract is being negotiated. DSW and Rotem are companies that are majority-owned by the Israeli Government and the sole suppliers in Israel of potash and phosphate rock, respectively. While HCL views its current relationships with both of its principal suppliers to be good, the loss of supply from either of these sources would have an adverse effect on the Company. Ammonia, which is used to produce nitric acid (which in turn is used to produce potassium nitrate), is manufactured in Israel as well as imported. The ammonia used by HCL is currently imported from a producer under supply agreements expiring on December 31, 1996. HCL owns ammonia terminal facilities located on leased property in the port of Haifa which have the capacity to store an amount of ammonia sufficient to meet HCL's requirements. Management believes that its facilities are in good operating condition and adequate for its current needs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Capital Expenditures". RESEARCH AND DEVELOPMENT The Company has developed and patented certain manufacturing processes and has submitted other applications for patents for additional processes. As of December 31, 1995, the Company employed 71 research and development scientists, engineers and technicians, who are involved in the development and evaluation of process technologies, efficiencies and quality control. For the years ended December 31, 1993, 1994 and 1995, the Company spent approximately $3,206,000, $3,978,000 and $3,158,000, respectively, on these efforts, which have been charged to current operations. PERSONNEL AND LABOR RELATIONS As of December 31, 1995 the Company employed approximately 1,500 people. Approximately 280 employees have advanced technical and academic qualifications. Except for Eddy and HCL, none of the Company's employees are represented by any collective bargaining unit. Eddy's hourly work force is represented by three labor unions, with its collective bargaining agreements expiring in August 1998. Eddy has enjoyed generally good relations with its labor unions and has not had a significant work stoppage for many years, except for a work stoppage of approximately three weeks during 1995 related to the negotiations of the three year contract expiring in August 1998. Technicians and engineers of HCL are members of the Union of Technicians and Engineers, which operates throughout Israel, and substantial terms of their employment (e.g. salaries and promotions) are governed by a general collective agreement which HCL does not negotiate directly with such employees. The other employees of HCL are members of the "Histadrut", the dominant labor union in Israel, and their terms of employment are governed by a Specific Collective Agreement ("SCA") negotiated by HCL with the Histadrut and the representatives of the employees. In 1994, an agreement was signed with the technicians 7 10 and engineers for the three year period ending December 31, 1996. In 1995, an SCA was signed with the Histadrut and the representatives of the employees for the two year period ending December 31, 1996. HCL's last major labor dispute took place in July 1991 and related to negotiations of the SCA for 1990 and 1991. As a result of this dispute, HCL's employees went on strike for approximately four weeks during the third quarter of 1991. Prior to that, the last major labor dispute took place in 1983, which resulted in a strike of approximately two weeks. ENVIRONMENTAL MATTERS Cedar and Vicksburg Vicksburg's plant located in Vicksburg, Mississippi and Cedar's West Helena, Arkansas plant discharge process waste water and storm water pursuant to permits issued in accordance with the Federal Clean Water Act and related state statutes. Air emissions at each plant are regulated by permits issued pursuant to the Federal Clean Air Act and related state statutes. While the plants have generated solid waste regulated by the Federal Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984 ("RCRA") and related state statutes, the Company believes that such waste is currently handled and disposed of in a manner which does not require the Company to have permits under RCRA or any related state statute. The Environmental Protection Agency's (the "EPA") Regional Office in Atlanta notified Cedar in 1989 that unspecified corrective action will be required to protect against the release of contaminants allegedly present at the Vicksburg plant as a result of previous pesticide manufacturing operations. As a result of the notice, Cedar reached agreement with the EPA and the Department of Justice on the terms of a Consent Decree which was filed in the United States District Court at Jackson, Mississippi in January 1992. Pursuant to the Consent Decree, Cedar submitted a report of current conditions. Upon agency approval of this report and of the facility investigation work plan to be thereafter submitted for the Vicksburg plant, Vicksburg will undertake a site investigation and corrective measures study, followed by implementation of appropriate corrective action. Compliance with the Consent Decree is expected to occur over a five to six year period following approval of the facility investigation work plan. Cedar's West Helena plant utilizes a surface impoundment for biological treatment of non-hazardous waste streams which was the subject of an enforcement proceeding initiated by the Arkansas Department of Pollution Control and Ecology (the "ADPCE") in 1986. The proceeding resulted in a Consent Administrative Order which required Cedar to carry out various studies, ultimately leading to the implementation of a groundwater monitoring system. Based in part on the results of groundwater monitoring and in part on the discovery of a drum burial area on the West Helena plant site, the ADPCE requested Cedar to initiate an expanded plant-wide investigation pursuant to a Consent Administrative Order. The Order was entered in the third quarter of 1991. Implementation is expected to occur over a three year period following completion and approval of the facility investigation. Cedar removed the buried drums from the West Helena site in accordance with a work plan incorporated in the Consent Administrative Order and, shortly thereafter, filed a suit against a former operator of the plant site for contribution for the costs incurred. In October 1994, Cedar reached a settlement pursuant to which it recovered $1,580,000 of its previously incurred drum removal and investigative costs. The settlement also provides for binding arbitration among Cedar and two former operators at the plant site to apportion future investigative and remedial costs required under the Order. Cedar recovered an additional $286,000 of investigation costs in 1995. The Company believes that the future costs required to complete the site investigation and corrective measures studies at Vicksburg and the plant-wide investigation at West Helena will be between $500,000 and 8 11 $1,000,000 and will be expended over two to three years. Interim corrective measures may also be implemented at one or both of these locations during this same period. As of December 31, 1994 and 1995, the Company has accrued an aggregate of $1,250,000 for these matters. Until these investigations are completed, it is not possible to definitively determine the costs of any final corrective actions which will be required. Any such corrective action costs will be expended over a period of years. There can be no assurance that such costs will not be material. In November 1992, Cedar entered into an agreement with the ADPCE to resolve alleged violations of Cedar's National Pollutant Discharge Elimination System permit (issued to its West Helena Plant in accordance with the Federal Clean Water Act and related state statutes) by agreeing to enter into an additional Consent Administrative Order which will require implementation of additional corrective measures intended to assure future compliance with the requirements of the permit and which required the payment of a penalty of $80,000. As of December 31, 1994, Cedar had substantially completed implementation of all measures required under this Order. In 1987, Cedar entered into a cost sharing agreement with 55 other companies to fund costs associated with the clean-up of an abandoned waste disposal site located near Bayou Sorrel, Louisiana. The sharing agreement was the basis for a consent decree to which Cedar and the other companies are parties, settling claims brought by the EPA pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended. The sharing agreement allocates approximately 4% of the clean-up costs to Cedar. The remedy selected by the EPA for this site has been successfully implemented and the participating parties' respective shares for cost of future monitoring and maintenance activities on the site until the year 2022 was redetermined. Cedar's share of such future costs has been paid in full. Eddy and NMPC The Company's potash operations are subject to various Federal, state and local environmental laws. The Company does not believe significant expenditures will be required for the potash operations in the near future or that its ongoing environmental operating costs will be material. HCL As a result of the production of phosphoric acid, HCL generates acid sludge and liquid acid effluent. HCL had previously disposed of its acid sludge in designated approved sites. In accordance with a permit issued by the Israeli Agency for Environmental Preservation of the Ministry of Interior (the "Agency") pursuant to the Law for the Prevention of Sea Pollution (Disposing of Wastes) of 1983 and 1984, HCL is now disposing of the acid sludge in a designated site in the Mediterranean Sea, situated 20 nautical miles from the Israeli coast. The permit allows for the disposal of a quantity which is sufficient to satisfy HCL's needs. The permit is valid until March 31, 1996. The Agency has expressed objections to extending the permit in its present form for an additional period. The Company is in the process of negotiations with the Agency to extend the term of the existing permit for an additional period in order to find a mutually acceptable permanent solution to the sludge disposal. HCL currently disposes of its liquid acid effluents in a local river (the "River"). On December 21, 1994, Man, Nature and Law, an Israeli fellowship for the protection of the environment, together with six fishing companies, filed a private criminal complaint in the Magistrate's Court of Haifa against HCL and its directors, alleging violation of specified Israeli environmental laws as a result of HCL's dumping of chemical waste into the River without adequate permits. The evidence hearing began in December, 1995, and will continue in May, 1996. HCL's defense is based on certain defenses granted under the specified environmental laws. In addition, HCL is attempting to obtain temporary permits for its continuing disposal of liquid acid effluents in the River until an agreed-upon permanent solution is formulated between HCL and the Agency for the disposal of the effluents. Furthermore, HCL has applied to the Israeli Attorney General 9 12 for a suspension of the proceedings in the complaint on the grounds that the authorities have failed in the last several years to respond to HCL's proposed solution (described below) for the disposal of the liquid acid effluents and therefore, under such circumstances, the continuation of the private criminal proceedings against it is inappropriate. The Attorney General has the right under the Israeli law to suspend a private criminal complaint. No assurance can be given that the defense in the complaint and/or the request for suspension or other administrative action taken by HCL will prove successful. The alternative solution proposed by HCL was to dispose of the liquid acid waste two and one half kilometers into Haifa Bay utilizing a marine pipeline. This proposal was submitted for approval by the Committee for permits under the Law for the Prevention of Pollution of the Sea From Continental Sources 1988 ("the Committee"). In 1991 the Committee gave HCL permission to proceed with the initial design of the marine pipeline, subject to HCL fulfilling a number of requirements, including studies of the marine environment in the area of the proposed pipeline and of the effect of the acid waste on the surrounding marine environment. The HCL study was completed and submitted to the Committee on January 20, 1995, with the finding that the proposed marine solution contemplated by HCL would have no damaging effect on the marine environment. The Ministry for Environmental Protection (the "Ministry") commissioned a study of its own which was completed in February, 1996 with certain identified contradictory conclusions, which have been responded to and resolved by the Company. Nevertheless, the Ministry has recently declared that HCL should pursue a search for a land solution (rather than a marine solution) to be based on pre-treatment of HCL liquid acid effluents. Discussions will be held between HCL and Ministry representatives to determine whether such solution is available and practical and to agree upon the criteria required for its implementation. The Company estimated that HCL would have been required to invest approximately $8,000,000 over the next two years if the proposed marine solution was adopted and annual operating costs, after completion of the project, would have been approximately $800,000. The Company is now in the process of studying certain possible land pre-treatment solutions and evaluating the related investment and operating costs required in order to adopt such a solution. Appropriate provisions have been made in the consolidated financial statements with respect to the above matters. See Notes A and O of Notes to Consolidated Financial Statements. ITEM 2. Properties. Reference is made to "Facilities and Suppliers" in Item 1 above, "Business," for information concerning the Company's properties. See also Note D of Notes to Consolidated Financial Statements for additional information. ITEM 3. Legal Proceedings. 1. Beginning in April 1993 a number of class of action lawsuits were filed in several United States District Courts against the major Canadian and United States potash producers, including Eddy and NMPC. The purported class actions were filed on behalf of all direct United States purchasers of potash from any of the named defendants or their respective affiliates, at any time during the period from April 1987 to the present, and allege that the defendants conspired to fix, raise, maintain and stabilize the prices of potash in the United States purchased by the plaintiffs and the other members of the class in violation of the United States antitrust laws. The complaints seek unspecified treble damages, attorneys' fees and injunctive relief against the defendants. Pursuant to an order of the Judicial Panel for Multidistrict Litigation, all of the Federal District Court actions have been consolidated for pretrial purposes in the United States District Court for Minnesota and captioned In Re Potash Antitrust Litigation. Several additional and/or amended 10 13 complaints were filed in the Minnesota Federal District Courts making substantially the same allegations as the earlier complaints. These complaints have been superseded by or deemed included in the Third Amended and Consolidated Class Action Complaint, to which NMPC and Eddy served and filed answers denying all the material allegations thereof on or about July 22, 1994. On or about January 12, 1995 this Court granted plaintiffs' motion to certify the plaintiff class. On or about December 21, 1995, the defendants filed motions for summary judgement. Oral arguments on the motions are scheduled for April 18, 1996. The trial is now scheduled to commence in August, 1996. On or about May 27, 1993 a purported class action captioned Angela Coleman v. New Mexico Potash Corp., et al. was filed against the major Canadian and United States potash producers, including Eddy and NMPC, and unnamed co-conspirators in the Superior Court of the State of California for the County of Los Angeles. The Coleman action was commenced by Angela Coleman on behalf of a class consisting of all California indirect purchasers of potash, and alleges that the defendants conspired to fix, raise, maintain and stabilize the prices of potash indirectly purchased by the members of the class in violation of specified California antitrust and unfair competition statutes. The complaint in Coleman seeks unspecified treble damages, attorneys' fees and injunctive relief against the defendants. In addition, on or about March 29, 1994, a purported class action captioned Neve Bros. et al. v. Potash Corporation of Saskatchewan, et. al., was commenced in the Superior Court of the State of California for the City and County of San Francisco against the major Canadian and United States potash producers and unnamed co-conspirators. Eddy, NMPC, NMPC's parent, Cedar, and Cedar's parent, Nine West Corporation, and the Company are among the named defendants in the Neve action. The Neve action, also brought on behalf of a class of indirect purchasers of potash in California, makes substantially the same allegations as made in the Coleman action and seeks substantially the same legal and equitable remedies and relief. Nine West Corporation and the Company have been dismissed from the Neve action, in each case for lack of personal jurisdiction. Cedar, Eddy and NMPC have served and filed answers in the Neve action, and Eddy and NMPC have served and filed answers in the Coleman action, in each case denying all material allegations of the respective complaint. The Coleman action has been consolidated with the Neve action in the Superior Court of the State of California for the City and County of San Francisco. On or about August 2, 1994, a purported class action on behalf of indirect purchasers of potash outside of California, David B. Gaebler v. New Mexico Potash Corporation, et al., was commenced against the major Canadian and United States potash producers, including Eddy and NMPC, in the Circuit Court of Cook County, Illinois, under the Illinois consumer fraud statute. The Gaebler action makes substantially the same allegations made in the Neve and Coleman actions and seeks unspecified compensatory and punitive damages and an award of attorneys' fees and costs. On or about June 22, 1995, the Court dismissed the Gaebler action and on or about July 14, 1995 the Court denied the Gaebler motion to amend the complaint. The Gaebler plaintiffs have appealed the dismissal. Management has no knowledge of any conspiracy of the type alleged in these complaints. On or about November 26, 1993, Eddy and NMPC (and other major United States potash producers) were served with subpoenas issued by the United States District Court for the Northern District of Ohio to produce documents to a grand jury authorized by the U.S. Department of Justice Antitrust Division ("DOJ") to investigate possible violations of the antitrust laws in connection with the allegations made in the civil actions described above. Personnel presently or formerly employed by the sales group for Eddy and NMPC have been subpoenaed to testify before the grand jury, some of whom have already testified. Eddy and NMPC are cooperating with DOJ in connection with the subpoenas. 11 14 2. On October 24, 1995, several suits were filed in both the State Court in Bogalusa, Louisiana and in the United States District Court for the Eastern District of Louisiana, each purporting to be class actions arising out of an explosion of a tank car at a plant of a customer of Vicksburg located in Bogalusa, Louisiana. The tank car contained nitrogen tetroxide which had been produced and sold by Vicksburg. More than seventy such suits were subsequently filed. Vicksburg and/or Cedar is named a defendant in over thirty of the suits, together with numerous other defendants. The plaintiffs seek unspecified damages arising out of their alleged exposure to toxic fumes which were released as a result of the explosion. The suits have been tendered to Cedar's liability insurance carriers for defense and indemnification. On March 20, 1996, Cedar commenced an action in the United States District Court for the Eastern District of Louisiana against their principal insurance carriers seeking a declaratory judgement that Cedar and Vicksburg are entitled to defense costs and indemnification with respect to these claims under their insurance policies. There are several other legal proceedings pending against the Company and certain of its subsidiaries arising in the ordinary course of its business which management does not consider material. Management of the Company believes, based upon its assessment of the actions and claims outstanding against the Company and certain of its subsidiaries, and after discussion with counsel, that the eventual disposition of the matters described or referred to above should not have a material adverse effect on the financial position, future operations or liquidity of the Company. However, management of the Company cannot predict with certainty the outcome of the potash and Louisiana matters described above. For information relating to certain environmental proceedings affecting the Company, see "Environmental Matters" in Item 1 above, "Business." ITEM 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the quarter ended December 31, 1995. PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters. All of the Company's equity securities are owned by TPR Investment Associates, Inc. ("TPR"). See Item 12 - "Security Ownership of Certain Beneficial Owners and Management." In addition, see Note G of Notes to Consolidated Financial Statements for information regarding certain restrictions on the Company's payment of dividends. During 1993, 1994 and 1995 the Company paid or declared dividends on its Common Stock in the amounts of $7,508,000, $4,466,000 and $856,000, respectively. 12 15 ITEM 6. Selected Financial Data. The following table presents selected consolidated financial data of the Company for the five year period ended December 31, 1995. This data has been derived from the consolidated financial statements of the Company and should be read in conjunction with the notes thereto.
Year Ended December 31, 1991 1992 1993 1994 1995 ------ ------ ------ ------ ----- (in thousands) Results of Operations: Revenues....................................... $309,068 $345,356 $326,315 $334,107 $385,564 Operating costs and expenses: Cost of goods sold......................... 238,489 266,770 255,563 265,795 323,126 General and administrative................. 33,262 36,270 38,375 37,780 43,193 --------- --------- --------- -------- -------- Operating income............................... 37,317 42,316 32,377 30,532 19,245 Interest expense............................... (31,210) (27,542) (27,405) (28,369) (34,498) Interest and other income - net (1)............ 14,159 8,476 6,014 15,056 9,128 --------- --------- --------- -------- -------- Income (loss) before income taxes, extraordinary item and change in accounting principle...................... 20,266 23,250 10,986 17,219 (6,125) Income tax provision........................... 2,582 11,231 7,920 14,669 733 -------- -------- -------- -------- -------- Income (loss) before extraordinary item and change in accounting principle........... 17,684 12,019 3,066 2,550 (6,858) Extraordinary item - net....................... 1,186 - (8,830) - (103) Cumulative effect on prior years of change in accounting for income taxes........ - 1,130 - - - ----------- -------- --------- ----------- -------- Net income (loss).............................. $ 18,870 $ 13,149 $ (5,764) $ 2,550 $ (6,961) ========= ========= ========= ========= ========= Dividends: Preferred stock................................ $ 214 $ - $ - $ - $ 851 Common stock................................... 2,850 13,136 7,508 4,466 856
- ------------------ (1) Includes (a) gains of $10,000,000, $18,100,000 and $1,700,000 in the years ended December 31, 1991, 1994 and 1995, respectively, representing the excess of insurance proceeds over the carrying value of certain HCL property destroyed in a fire, (b) security gains (losses) of $2,865,000, $2,261,000, ($1,178,000) and ($413,000) in the years ended December 31, 1992, 1993, 1994 and 1995, respectively, and (c) foreign currency gains (losses) of $4,000,000, $850,000, ($3,800,000) and $5,400,000 in the years ended December 31, 1992, 1993, 1994 and 1995, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note K of Notes to Consolidated Financial Statements. 13 16
December 31, 1991 1992 1993 1994 1995 -------- -------- -------- -------- ------ (in thousands) Financial Position: Cash and cash equivalents...................... $ 39,276 $ 54,745 $ 25,742 $ 15,571 $ 32,872 Working capital................................ 130,072 107,850 103,776 66,294 82,011 Total assets................................... 381,841 341,055 365,865 550,954 467,102 Short-term debt, including current maturities of long-term debt................. 50,105 42,666 47,282 157,986(a) 46,848 Long-term debt, excluding current maturities and subordinated debt............. 84,132 71,318 61,328 102,059 174,506 Senior subordinated debt - net ................ 110,716 103,689 140,133 140,385 114,074 Junior subordinated debt - net................. 14,735 15,089 15,495 7,981 - Stockholder's equity .......................... 28,772 28,882 15,794 20,550 20,675
(a) Was collateralized, in part, by $100,000,000 of certificates of deposit, which were included in "other current assets" in the accompanying December 31, 1994 Consolidated Balance Sheet. See Note G of Notes to Consolidated Financial Statements. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS The following table sets forth as a percentage of revenues and the percentage change of those items as compared to the prior period, certain items appearing in the Consolidated Financial Statements.
PERCENTAGE OF REVENUES YEAR-TO-YEAR CHANGES 1994 1995 YEAR ENDED DECEMBER 31, VS. VS. 1993 1994 1995 1993 1994 Revenues............................................... 100.0% 100.0% 100.0% 2.4% 15.4% ----- ----- ----- Cost and expenses: Cost of goods sold................................ 78.3 79.5 83.8 4.0 21.6 General and administrative........................ 11.8 11.3 11.2 (1.6) 14.3 ----- ----- ----- Operating income....................................... 9.9 9.2 5.0 (5.7) (37.0) Interest expense.................................. (8.4) (8.5) (8.9) 3.5 21.6 Interest and other income - net .................. 1.9 4.5 2.3 150.4 (39.4) ----- ----- ----- Income (loss) before income taxes and extraordinary item ............................... 3.4 5.2 (1.6) 56.7 (135.6) Income tax provision................................... 2.5 4.4 .2 85.2 (95.0) ----- ----- ----- Income (loss) before extraordinary item ............... .9 .8 (1.8) (16.8) (368.9) Extraordinary item - net............................... (2.7) - - 100.0 - ----- ----- ----- Net income (loss)...................................... (1.8)% .8% (1.8)% 144.2% (373.0)% ===== ===== =====
1995 Compared with 1994 Revenues increased by 15.4% to $385,564,000 in 1995 from $334,107,000 in 1994, an increase of $51,457,000, resulting from increased sales of specialty plant nutrients and industrial chemicals ($49,300,000) (including $12,900,000 relating to the acquisition of Na-Churs) and organic chemicals ($5,900,000), which were partially offset by lower potash sales ($3,700,000). 14 17 Cost of goods sold as a percentage of revenues increased during the period (83.8% in 1995 compared with 79.5% in 1994), primarily due to (i) certain raw material and utility cost increases, which were partially offset by increases in the selling prices of the Company's products, and, to a lesser extent, (ii) the customary costs associated with the initial run-in periods of the Company's newly-constructed manufacturing facilities and (iii) a 1994 refund of $1,800,000 received from a utility supplier related to prior years. In addition, effective July 1, 1994 and January 1, 1995, the Company revised the estimate of depreciable lives of its property, plant and equipment at HCL and Eddy, respectively, to more closely approximate the economic lives of those assets. The effect of these changes in estimate was to decrease depreciation expense (and cost of sales) in 1994 and 1995 by approximately $1,800,000 and $2,800,000, respectively. As a result of the foregoing, gross profit was $62,438,000 in 1995 compared with $68,312,000 in 1994 (16.2% of revenues in 1995 compared with 20.5% of revenues in 1994), a decrease of $5,874,000. General and administrative expense increased to $43,193,000 in 1995 (including approximately $2,800,000 relating to Na-Churs) from $37,780,000 in 1994, but declined slightly as a percentage of revenues (11.2% of revenues in 1995 compared with 11.3% of revenues in 1994). Pursuant to an agreement during 1995, the Company recorded a $750,000 reimbursement of certain general and administrative expenses incurred in prior years on behalf of an entity in which the Company has an investment, which is accounted for by the equity method. As a result of the matters described above, the Company's operating income decreased by $11,287,000 to $19,245,000 in 1995 as compared with $30,532,000 in 1994. Interest expense increased by $6,129,000 ($34,498,000 in 1995 compared with $28,369,000 in 1994) primarily as a result of interest on the long-term debt that financed the construction of the K3 Plant. Interest and other income - net decreased in 1995 by $5,928,000, principally as the result of the 1994 period including a gain of approximately $18,100,000 relating to the February 1994 fire at HCL as compared to a $1,700,000 gain in the 1995 period relating to such fire, with the remainder of the decrease in the 1995 period being partially offset primarily by (i) the net adjustments relating to the marking-to-market of forward exchange contracts which do not qualify as hedges and (ii) interest income related to a prior year's tax refund. As a result of the above factors, income before income taxes and extraordinary item decreased by $23,344,000 in 1995. The Company's provisions for income taxes are impacted by the mix between domestic and foreign earnings and vary from the U.S. Federal statutory rate principally due to the impact of foreign operations and certain losses for which there is no current tax benefit. In addition, during the 1995 period HCL recorded a tax benefit for a $1,100,000 tax refund related to prior years. See Note J of Notes to Consolidated Financial Statements for information regarding effective tax rates. 1994 Compared with 1993 Revenues increased by 2.4% to $334,107,000 in 1994 from $326,315,000 in 1993, an increase of $7,792,000, resulting from (i) increased sales of specialty plant nutrients and industrial chemicals ($7,300,000), primarily relating to potassium nitrate, which includes the unfavorable effect ($9,900,000) of certain weakened European currencies in relation to the U.S. dollar (including those covered by forward exchange contracts) in 1994 as compared to the prior year, and (ii) increased sales of organic chemicals ($200,000) and potash ($300,000). Cost of goods sold as a percentage of revenues increased to 79.5% in 1994 compared with 78.3% in 1993, primarily due to the adverse effects of (i) the above-mentioned weakened European currencies, (ii) cancellation of the program of exchange rate insurance by the Israeli Government in August 1993 (which contributed $1,600,000 in revenues in 1993) and (iii) lower margins realized in the potash business, with these items being partially offset by certain cost reductions and the receipt of a $1,800,000 refund from a utility supplier. Gross profit was $68,312,000 in 1994 compared with $70,752,000 in 1993, a decrease of $2,440,000, with such decrease primarily being the net result of the increase in revenues as well as the net effect of the items described in the previous sentence. General and administrative expense decreased slightly to $37,780,000 in 1994 from $38,375,000 in 1993 (11.3% and 11.8% of revenues in 1994 and 1993, respectively). 15 18 As a result of the matters described above, the Company's operating income decreased by $1,845,000 to $30,532,000 in 1994 as compared with $32,377,000 in 1993. Interest expense increased by $964,000 ($28,369,000 in 1994 compared with $27,405,000 in 1993), primarily as a result of (i) higher interest rates in 1994 and (ii) the June 30, 1994 Loan Agreement described below (see Note G of Notes to Consolidated Financial Statements). Interest and other income - net increased in 1994 by $9,042,000, principally as the result of a gain relating to the February, 1994 fire at HCL ($18,100,000), partially offset by several factors during the 1994 period including (i) lower investment income and security gains ($4,300,000) and (ii) a provision for loss on certain foreign currency transactions ($3,800,000) - see Notes D and K of Notes to Consolidated Financial Statements. As a result of the above factors, income before income taxes and extraordinary item increased by $6,233,000 in 1994. The Company's provisions for income taxes are impacted by the mix between domestic and foreign earnings and vary from the U.S. Federal statutory rate principally due to the impact of foreign operations and certain losses for which there is no current tax benefit. See Note J of Notes to Consolidated Financial Statements for information regarding effective tax rates. In the 1993 period the Company acquired $65,497,000 principal amount of its 13 1/2% Senior Subordinated Debentures and $21,500,000 principal amount of its Senior Subordinated Reset Notes, which resulted in a loss of $8,830,000. Such loss (which has no current tax benefit) is classified as an extraordinary item in the accompanying Consolidated Statements of Operations. No such debt was acquired in the 1994 period. See Note G of Notes to Consolidated Financial Statements. CAPITAL RESOURCES AND LIQUIDITY The Company's consolidated working capital at December 31, 1995 and 1994 was $82,011,000 and $66,294,000, respectively. Operations for the years ended December 31, 1995 and 1994, after adding back non-cash items, provided cash of approximately $16,100,000 and $26,900,000, respectively. During such periods other changes in working capital provided (used) cash of approximately ($14,300,000) and $13,000,000, respectively, resulting in net cash being provided from operating activities and working capital management of approximately $1,800,000 and $39,900,000, respectively. Investment activities during the years ended December 31, 1995 and 1994 provided (used) cash of approximately $84,800,000 and ($201,000,000), respectively, including additions to property in 1995 and 1994 of approximately $35,700,000 and $93,300,000, respectively, net purchases of marketable securities and short-term investments of approximately $4,400,000 and $134,800,000, respectively, and sales of marketable securities and other short-term investments of approximately $132,300,000 and $33,500,000, respectively. The 1994 property additions principally relate to (i) the construction of the K3 Plant, (ii) the replacement of the HCL production unit damaged in the fire in February, 1994 and (iii) the construction of a new potassium carbonate manufacturing facility (see "Capital Expenditures" below). The 1994 purchases and the 1995 sales of marketable securities and short-term investments relate principally to the purchase in 1994, and the liquidation in 1995, of the pledged certificates of deposit ("CD's") relating to the Loan Agreement described below. Financing activities during the years ended December 31, 1995 and 1994 provided (used) cash of approximately ($69,300,000) and $150,900,000, respectively (principally relating to the increase of certain long-term debt in 1994 and the prepayment of such debt in 1995, which is described below). During 1994 the Company entered into the Loan Agreement which resulted in new bank loans aggregating $140,000,000 and the repayment of bank loans of approximately $19,000,000; during 1995 a significant portion of such debt was prepaid. During 1994, the Company dividended certain short-term investments to its parent. The carrying value of these investments on the dividend date ($4,241,000) approximated market value. 16 19 On June 30, 1994, the Company entered into the Loan Agreement with a bank and borrowed $40,000,000 (repayable quarterly over a four year period) and utilized a portion of the proceeds to prepay approximately $19,000,000 then owed to such bank. Pursuant to the Loan Agreement, the Company also borrowed an additional $100,000,000, repayable in January, 1996. Under certain specified circumstances prior to such date, the Company could have converted such loan into a term loan maturing five years from the date of conversion. The Company pledged CD's with a principal amount of $100,000,000 as collateral for such loan (such CD's were included in "other current assets" in the accompanying December 31, 1994 Consolidated Balance Sheet). In addition, the Company pledged 79% of the capital stock of HCL to secure its obligations under the Loan Agreement. On January 5, 1995, the Company liquidated the pledged CD's and prepaid the $100,000,000 loan. See Notes B, E and G of Notes to Consolidated Financial Statements. As of December 31, 1995, the Company had outstanding long-term debt (excluding current maturities) of $288,580,000. The Company's primary source of liquidity is cash flow generated from operations and the unused credit lines described in Note E of Notes to Consolidated Financial Statements. During 1995, TPR assumed the Company's obligation for the remaining outstanding 9.5% junior subordinated debentures and the Company's liability thereon was extinguished. The Company recorded such assumed obligation as an $8,177,000 capital contribution by TPR, the amount equivalent to the then net carrying value of the 9.5% debentures. See Note G of Notes to Consolidated Financial Statements. Approximately 90% of HCL's sales are made outside of Israel in various currencies, of which approximately 38% are in U.S. dollars, with the remainder principally in Western European currencies. In order to mitigate the impact of currency fluctuations against the U.S. dollar, the Company has a policy of hedging a significant portion of its foreign sales denominated in Western European currencies by entering into forward exchange contracts. A portion of these contracts qualify as hedges pursuant to Statement of Financial Accounting Standards No. 52 and accordingly, unrealized gains and losses arising therefrom are deferred and accounted for in the subsequent year as part of sales. Unrealized gains and losses for the remainder of the forward exchange contracts are recognized in income currently. If the Company had not followed such a policy of entering into forward exchange contracts in order to hedge its foreign sales, and instead recognized income based on the then prevailing foreign currency rates, the Company's income before income taxes for the years ended December 31, 1995 and 1994 would have increased by approximately $11,200,000 in each year. The principal purpose of the Company's hedging program (which is for other than trading purposes) is to mitigate the impact of fluctuations against the U.S. dollar, as well as to protect against significant adverse changes in exchange rates. Accordingly, the gains and losses recognized relating to the hedging program in any particular period and the impact on revenues had the Company not had such a program are not necessarily indicative of its effectiveness. CAPITAL EXPENDITURES During 1995 (excluding the K3 Plant described below and the reconstruction of the production unit damaged by fire in February 1994) the Company invested approximately $19,900,000 in capital expenditures. During 1993 the Company commenced construction of the K3 Plant. The Company has completed the construction of the K3 Plant and the reconstruction of the damaged HCL production unit. See Note D of Notes to Consolidated Financial Statements. The Company currently anticipates that capital expenditures for the year ending December 31, 1996 will aggregate approximately $20,000,000. The Company's capital expenditures will be used primarily for increasing certain production capacity and efficiency, product diversification and for ecological matters. The Company expects to be able to finance its capital expenditures from internally generated funds, borrowings from traditional lending sources and, where applicable, Israeli Government grants and entitlements. 17 20 INFLATION Inasmuch as only approximately $45,000,000 of HCL's annual operating costs are denominated in New Israeli Shekels ("NIS"), HCL is exposed to inflation in Israel to a limited extent. The combination of price increases coupled with devaluation of the NIS have in the past generally enabled HCL to avoid a material adverse impact from inflation in Israel. However, HCL's earnings could increase or decrease to the extent that the rate of future NIS devaluation differs from the rate of Israeli inflation. For the years ended December 31, 1995 and 1994, the inflation rate of the NIS as compared to the U.S. Dollar exceeded the devaluation rate in Israel by 4.2% and 13.4%, respectively. ENVIRONMENTAL MATTERS See Item 1 - "Business - Environmental Matters" above and Note O of Notes to Consolidated Financial Statements for information regarding environmental matters relating to the Company's various facilities. ITEM 8. Financial Statements and Supplementary Data. See Index to Consolidated Financial Statements and Schedules on page F-1. ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III ITEM 10. Directors and Executive Officers of the Registrant. The directors and executive officers of the Company are as follows:
NAME AGE POSITION Arie Genger................... 50 Chairman of the Board and Chief Executive Officer Thomas G. Hardy............... 50 President and Chief Operating Officer; Director Martin A. Coleman............. 65 Director Sash A. Spencer............... 64 Director Lester W. Youner.............. 50 Vice President, Treasurer and Chief Financial Officer
FINANCIAL ADVISORY COMMITTEE Lawrence M. Small Thomas G. Hardy Sash A. Spencer 18 21 The By-laws of the Company provide for at least one director. Directors hold office until the next annual meeting of stockholders or until their successors are elected and qualified. There are no arrangements or understandings between any director or executive officer of the Company and any other person pursuant to which such person was elected as a director or executive officer. The executive officers serve at the discretion of the Board of Directors. There are no family relationships among any directors or executive officers of the Company. The following are descriptions of the directors and executive officers of the Company and the members of the Financial Advisory Committee. The Financial Advisory Committee advises the Board of Directors regarding financial matters and, when the Committee deems appropriate, make recommendations to the Board of Directors. Arie Genger has been a director and Chairman of the Board of Directors and Chief Executive Officer of the Company since 1986, the sole member of the Executive Committee since June 1988, and was President of the Company from 1986 to December 1993. Thomas G. Hardy has been President and Chief Operating Officer of the Company since December 1993, was Executive Vice President of the Company from June 1987 to December 1993 and has been a director and member of the Financial Advisory Committee since October 1992. He has been a director of Laser Industries Limited (a manufacturer and distributor of surgical lasers and other medical technology in which the Company has an ownership interest) since January 1990. Martin A. Coleman has been a director since March 1993. Since January 1991 he has been a private investor. Prior to that he was a member of the law firm of Rubin Baum Levin Constant & Friedman, general counsel to the Company, for more than five years. Sash A. Spencer has been a director since October 1992 and a member of the Financial Advisory Committee since March 1993. He has been a private investor and Chairman of Holding Capital Management Corp., a private investment firm, for more than five years. He has been a director of Empire Energy Corp., a corporation engaged in the propane gas business, since 1983. Lester W. Youner has been Vice President, Treasurer and Chief Financial Officer of the Company since October 1987. From June 1979 until October 1987 he was a Partner of Deloitte & Touche, a public accounting firm. Lawrence M. Small, 54, has been Chairman of the Financial Advisory Committee of the Board of Directors since October 1992. Mr. Small is President and Chief Operating Officer of Fannie Mae (Federal National Mortgage Association - - the country's largest investor in home mortgages and issuer of mortgage- backed securities) headquartered in Washington, DC, which he joined in September 1991. Prior to that, he was Vice Chairman and Chairman of the Executive Committee of the Boards of Directors of Citicorp and Citibank, N.A., where he was employed for 27 years. He serves as a director of Fannie Mae, The Chubb Corporation (an insurance company) and Marriott International, Inc. (a lodging and food service management company). 19 22 ITEM 11. Executive Compensation The following table sets forth the aggregate compensation paid or accrued by the Company for the past three fiscal years to its Chief Executive Officer and to other executive officers whose annual compensation exceeded $100,000 for the year ended December 31, 1995: SUMMARY COMPENSATION TABLE
Annual Compensation (1) Compen- Name and Principal Position Year Salary (2) Bonus sation (3) - --------------------------- ---------- ---------- --------- ---------- Arie Genger...................................... 1995 $675,000 $ - $ 510,000 Chairman of the Board 1994 750,000 - 509,000 and Chief Executive Officer 1993 750,000 92,000 519,000 Thomas G. Hardy.................................. 1995 360,000 130,000 5,000 President and Chief Operating Officer 1994 400,000 - 1,406,000 and Director 1993 350,000 50,000 8,000 Lester W. Youner................................. 1995 241,000 65,000 5,000 Vice President, Treasurer and 1994 241,000 55,000 6,000 Chief Financial Officer 1993 226,000 70,000 8,000
(1) During the period covered by the table, the Company did not make any restricted stock awards and did not have in effect any stock option or stock appreciation rights plan. See "Compensation Agreements" for Mr. Hardy's bonus arrangement. (2) Amounts shown for 1993 do not include in the case of Messrs. Genger, Hardy and Youner $500,000, $275,000 and $20,000, respectively, of 1994 salary which was prepaid in 1993. Amounts shown for 1994 include such prepayments. (3) For 1995, consists of: (i) in the case of Mr. Genger, $250,000 for an annual premium on ordinary life insurance, $250,000 for related income tax gross-up, $4,000 for the Company's matching contribution to a profit sharing thrift plan, and $6,000 for the premium on term life insurance; (ii) in the case of Messrs. Hardy and Youner, $4,000 each for the Company's matching contribution to a profit sharing thrift plan; and (iii) $1,000 each for Messrs. Hardy and Youner for the premium on term life insurance. For 1994, consists of: (i) in the case of Mr. Genger, $250,000 for an annual premium on ordinary life insurance, $250,000 for related income tax gross-up, $4,000 for the Company's matching contribution to a profit sharing thrift plan, and $5,000 for the premium on term life insurance; (ii) in the case of Messrs. Hardy and Youner, $4,000 each for the Company's matching contribution to a profit sharing thrift plan; and (iii) $2,000 each for Messrs. Hardy and Youner for the premium on term life insurance. In the case of Mr. Hardy, also includes $1,400,000 deposited in trust for Mr. Hardy. See "Compensation Agreements". For 1993, consists of: (i) in the case of Mr. Genger, $250,000 for an annual premium on ordinary life insurance, $258,000 for related income tax gross-up, $6,000 for the Company's matching contribution to a profit sharing thrift plan, and $5,000 for the premium on term life insurance; (ii) in the case of Messrs. Hardy and Youner, $6,000 each for the Company's matching contribution to a profit sharing thrift plan; and (iii) $2,000 each for Messrs. Hardy and Youner for the premium on term life insurance. 20 23 COMPENSATION AGREEMENTS Pursuant to an Agreement entered into in March 1994 (the "New Agreement"), which modified and superseded a 1988 bonus arrangement under which no payments had been made, the Company is required to irrevocably deposit in trust for the benefit of Mr. Hardy an aggregate of $2,800,000, of which $1,400,000 was deposited upon execution of the New Agreement, and the remaining $1,400,000 was deposited in March, 1996. The deposited funds are held under a Trust Agreement (the "Trust Agreement"), which provides that the assets held thereunder are subject to the claims of the Company's general creditors in the event of insolvency of the Company. The Trust Agreement provides that the assets are payable in a lump sum to Mr. Hardy or his beneficiaries upon the earlier of December 1, 2001 or the termination of his employment with the Company. An employment agreement between the Company and Mr. Hardy, effective as of June 1, 1993, having a primary term of seven years, renewable for 10 additional years unless either party gives at least 12 months' prior written notice of termination, provides for an annual salary of $400,000, subject to negotiated annual increases commencing in the year 2000. With certain restrictions, Mr. Hardy will be entitled to receive a bonus (the "Bonus") based on a percentage of the fair market value (the "Value") of the Company's equity at December 31st of the year Mr. Hardy's employment terminates, he turns 65 or certain acceleration events, including a change of control of the Company, occur. If the Company and Mr. Hardy cannot agree on the Value, each may propose an amount. If only one makes a proposal, that would constitute the Value. If each makes a proposal, an investment banker would choose between them. The Bonus, generally payable in installments, would be equal to the excess over $2,800,000 (the aggregate amount Mr. Hardy is to receive under the New Agreement) of specified percentages of different ranges of Value. Mr. Hardy is not entitled to the Bonus if he voluntarily terminates his employment during the primary term (other than by death or disability) or if Mr. Hardy's employment is terminated for cause (as defined). Pursuant to a salary continuation agreement between the Company and Lester W. Youner, the Company is obligated to pay Mr. Youner a retirement allowance ("Allowance") of $100,000 per year for life commencing at age 65. In the event of Mr. Youner's death after the commencement of the payment of the Allowance, Mr. Youner's designated beneficiary is to receive the Allowance until 10 annual payments shall have been made to Mr. Youner and his beneficiary. Mr. Youner will be 25% vested in the Allowance on December 31, 1996 and shall continue to vest at the rate of 5% per year thereafter provided that he remains in the employ of the Company. Notwithstanding the foregoing, the Allowance will become 100% vested on the earlier of Mr. Youner's 65th birthday or the occurrence of an acceleration event, including a change of control of the Company. Mr. Youner forfeits the Allowance if his employment is terminated for cause (as defined) or, if within two years after the voluntary termination of his employment, Mr. Youner engages directly or indirectly in any activity competitive with the Company or any of its subsidiaries. The agreement further provides that in the event of Mr. Youner's death prior to his 65th birthday while in the active employ of the Company, his designated beneficiary is to receive an annual death benefit of $100,000 for 10 years. Mr. Youner's death benefit is currently 50% vested and will become 100% vested on the earlier of December 31, 1996 or the occurrence of an acceleration event. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors does not have a Compensation Committee. Executive officer compensation matters were determined by the Board of Directors, whose four members currently include Mr. Genger, Chairman of the Board and Chief Executive Officer of the Company, and Mr. Hardy, President and Chief Operating Officer of the Company. No director has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity. COMPENSATION OF DIRECTORS Officers of the Company who serve as directors do not receive any compensation for serving as directors. Martin A. Coleman and Sash A. Spencer each receive $15,000 annually for serving as directors. 21 24 ITEM 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth certain information as of March 25, 1996, as to the beneficial ownership of the Common Stock of the Company, which is the only outstanding class of voting security of the Company:
SHARES PERCENT BENEFICIALLY OF NAME AND ADDRESS OWNED CLASS Common Stock, $.01 par value (1): TPR (2) 9 West 57th Street New York, NY 10019.......................... 3,000 100% All executive officers and directors as a group (five persons)(2)........................... 3,000 100%
- --------------------- (1) All of the shares of the Common Stock of the Company are pledged to secure an outstanding TPR note of $7,000,000 issued to a former indirect stockholder and director of the Company. (2) Mr. Genger and members of his family own all of the capital stock of TPR. ITEM 13. Certain Relationships and Related Transactions. The Company is, for Federal income tax purposes, a member of a consolidated tax group of which TPR is the common parent. The Company, TPR, Eddy, Cedar and certain other subsidiaries are parties to a tax sharing agreement, dated as of December 30, 1991, under which, among other things, the Company and such other parties have each agreed to pay TPR amounts equal to the amounts of Federal income taxes that each such party would be required to pay if it filed a Federal income tax return on a separate return basis (or in the case of Cedar, a consolidated Federal income tax return for itself and its eligible subsidiaries), computed without regard to net operating loss carrybacks and carryforwards. However, TPR may, at its discretion, allow tax benefits for such losses. See Note A of Notes to Consolidated Financial Statements. See Notes G and L of Notes to Consolidated Financial Statements for a description of a 1994 transaction pursuant to which TPR acquired the Company's $9,000,000, 9 1/2% junior subordinated debentures due 2005 (the "9.5% Debentures") and became the obligor on an outstanding 8 3/4%, $4,000,000 note due 2005 payable to the Company. Upon TPR's acquisition of the 9.5% Debentures, TPR exchanged the 9.5% Debentures for a new preferred stock of the Company described in said Note L. In addition, as described in Note G, during 1995 TPR assumed the Company's obligation for $9,000,000 principal amount of outstanding 9.5% Debentures due in 1998 and Company's liability thereon was extinguished. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) (1)-(2) See Index to Consolidated Financial Statements and Schedules on Page F-1. (3) See Index to Exhibits on Page E-1. (b) No reports on Form 8-K were filed during the last quarter of the year ended December 31, 1995. 22 25 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Trans-Resources, Inc. (Registrant) By Lester W. Youner Lester W. Youner Vice President, Treasurer and Chief Financial Officer Dated: March 25, 1996 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED: PRINCIPAL EXECUTIVE OFFICER: ARIE GENGER Chairman of the Board and Chief Executive Officer PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER: LESTER W. YOUNER Vice President, Treasurer and Chief Financial Officer By Lester W. Youner Lester W. Youner For Himself and As Attorney-In-Fact Directors: Arie Genger Dated: March 25, 1996 Thomas G. Hardy Martin A. Coleman Sash A. Spencer POWERS OF ATTORNEY AUTHORIZING LESTER W. YOUNER TO SIGN THIS REPORT AND ANY AMENDMENTS HERETO ON BEHALF OF THE PRINCIPAL EXECUTIVE OFFICER AND THE DIRECTORS ARE BEING FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITH THIS REPORT. SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT: No annual report or proxy materials have been sent to the Company's security holders. This Annual Report on Form 10-K will be furnished to the holders of the Company's 11 7/8% Notes and Reset Notes. 23 26 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS Page Independent Auditors' Report............................................... F-2 Report of Independent Accountants.......................................... F-3 Consolidated Balance Sheets, December 31, 1994 and 1995.................... F-4 Consolidated Statements of Operations, for the Years Ended December 31, 1993, 1994 and 1995................... F-5 Consolidated Statements of Stockholder's Equity, for the Years Ended December 31, 1993, 1994 and 1995................... F-6 Consolidated Statements of Cash Flows, for the Years Ended December 31, 1993, 1994 and 1995................... F-7 Notes to Consolidated Financial Statements................................. F-8 SCHEDULE Schedule I - Condensed Financial Information of Registrant, for the Years Ended December 31, 1993, 1994 and 1995................... S-1
F - 1 27 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholder of Trans-Resources, Inc. New York, New York We have audited the accompanying consolidated financial statements and financial statement schedule of TransResources, Inc. (a wholly-owned subsidiary of TPR Investment Associates, Inc.) and Subsidiaries listed in the foregoing Index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We did not audit the consolidated financial statements of Cedar Chemical Corporation, a wholly-owned subsidiary, which statements reflect total assets constituting 26 percent and 21 percent of consolidated total assets as of December 31, 1995 and 1994, respectively, and total revenues constituting 34 percent, 38 percent and 35 percent of consolidated total revenues for the years ended December 31, 1995, 1994 and 1993, respectively. Such financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Cedar Chemical Corporation, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Trans-Resources, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the report of other auditors, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP New York, N.Y. March 19, 1996 F - 2 28 Report of Independent Accountants To the Board of Directors and Shareholder of Cedar Chemical Corporation: In our opinion, the consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows (not presented separately herein) present fairly, in all material respects, the financial position of Cedar Chemical Corporation (a wholly-owned subsidiary of Trans-Resources, Inc.) and its subsidiaries ("Cedar") at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Cedar's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Memphis, Tennessee February 9, 1996 F - 3 29 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 1995 ---- ---- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents .............................................. $ 15,571 $ 32,872 Accounts receivable .................................................... 66,106 75,630 Inventories ............................................................ 51,313 66,474 Other current assets ................................................... 168,200 19,364 Prepaid expenses ....................................................... 18,852 19,316 --------- --------- Total Current Assets ............................................... 320,042 213,656 PROPERTY, PLANT AND EQUIPMENT - net ......................................... 202,085 220,191 OTHER ASSETS ................................................................ 28,827 33,255 --------- --------- Total ......................................................... $ 550,954 $ 467,102 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current maturities of long-term debt ................................... $ 124,465 $ 40,703 Short-term debt ........................................................ 33,521 6,145 Accounts payable ....................................................... 57,077 51,383 Accrued expenses and other current liabilities ......................... 38,685 33,414 --------- --------- Total Current Liabilities .......................................... 253,748 131,645 --------- --------- LONG-TERM DEBT - net: Senior indebtedness, notes payable and other obligations ............... 102,059 174,506 Senior subordinated debt - net ......................................... 140,385 114,074 Junior subordinated debt - net ......................................... 7,981 -- --------- --------- Long-Term Debt - net ............................................... 250,425 288,580 --------- --------- OTHER LIABILITIES ........................................................... 26,231 26,202 --------- --------- STOCKHOLDER'S EQUITY: Preferred stock, $1.00 par value, 100,000 shares authorized, issued and outstanding ................................. 7,960 7,960 Common stock, $.01 par value, 3,000 shares authorized, issued and outstanding ............................................. -- -- Additional paid-in capital ............................................. 505 8,682 Retained earnings ...................................................... 13,432 4,764 Cumulative translation adjustment ...................................... (360) (594 Unrealized losses on marketable securities ............................. (987) (137 --------- --------- Total Stockholder's Equity ......................................... 20,550 20,675 --------- --------- Total ......................................................... $ 550,954 $ 467,102 ========= =========
See notes to consolidated financial statements. 4 30 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995 (IN THOUSANDS) REVENUES .............................. $ 326,315 $ 334,107 $ 385,564 OPERATING COSTS AND EXPENSES: Cost of goods sold ................ 255,563 265,795 323,126 General and administrative ........ 38,375 37,780 43,193 --------- --------- --------- OPERATING INCOME ...................... 32,377 30,532 19,245 Interest expense .................. (27,405) (28,369) (34,498) Interest and other income - net ... 6,014 15,056 9,128 --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ................ 10,986 17,219 (6,125) INCOME TAX PROVISION .................. 7,920 14,669 733 --------- --------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 3,066 2,550 (6,858) EXTRAORDINARY ITEM - Loss on repurchase of debt (no income tax benefit) ....... (8,830) -- (103) --------- --------- --------- NET INCOME (LOSS) ..................... $ (5,764) $ 2,550 $ (6,961) ========= ========= =========
See notes to consolidated financial statements. F - 5 31 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY For the Years Ended December 31, 1993, 1994 and 1995
ADDITIONAL CUMULATIVE UNREALIZED PREFERRED COMMON PAID-IN RETAINED TRANSLATION (LOSSES) ON STOCK STOCK CAPITAL EARNINGS ADJUSTMENT SECURITIES TOTAL (IN THOUSANDS) BALANCE, JANUARY 1, 1993 ................. $ -- $ -- $ 500 $ 28,620 $(238) $-- $28,882 Net loss ............................. (5,764) (5,764) Dividends - common stock ............. (7,508) (7,508) Net change during year ............... 184 184 ------- ------- ------- -------- ----- ---- ------- BALANCE, DECEMBER 31, 1993 ............... -- -- 500 15,348 (54) -- 15,794 Net income ........................... 2,550 2,550 Dividends - common stock, including non-cash dividend of $4,241,000 .. (4,466) (4,466) Issuance of preferred stock upon conversion of 9 1/2% junior subordinated debentures .......... 7,960 7,960 Net change during year ............... 5 (306) (987) (1,288) ------- ------- ------- -------- ----- ---- ------- BALANCE, DECEMBER 31, 1994 ............... 7,960 -- 505 13,432 (360) (987) 20,550 Net loss ............................. (6,961) (6,961) Dividends: Common stock ..................... (856) (856) Preferred stock .................. (851) (851) Capital contribution by parent company upon assumption of 9 1/2% junior subordinated debentures .......... 8,177 8,177 Net change during year ............... (234) 850 616 ------- ------- ------- -------- ----- ---- ------- BALANCE, DECEMBER 31, 1995 ............... $ 7,960 $ -- $ 8,682 $ 4,764 $(594) $(137) $ 20,675 ======= ======= ======= ======== ===== ==== =======
See notes to consolidated financial statements. F - 6 32 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995 ---- ---- ---- (IN THOUSANDS) OPERATING ACTIVITIES AND WORKING CAPITAL MANAGEMENT: Operations: Net income (loss) .............................. $ (5,764) $ 2,550 $ (6,961) Items not requiring cash: Depreciation and amortization ............. 24,490 20,859 22,409 Increase (decrease) in other liabilities .. 725 509 (37) Deferred taxes and other - net ............ (2,494) 2,986 688 --------- --------- --------- Total ................................. 16,957 26,904 16,099 Working capital management: Accounts receivable and other current assets ... (9,222) (26,105) 15,585 Inventories .................................... (9,872) 9,616 (11,274) Prepaid expenses ............................... (2,187) (1,367) (443) Accounts payable ............................... 9,842 22,153 (7,753) Accrued expenses and other current liabilities . 1,323 8,658 (10,381) --------- --------- --------- Cash provided by operations and working capital management ................ 6,841 39,859 1,833 --------- --------- --------- INVESTMENT ACTIVITIES: Additions to property, plant and equipment ......... (29,056) (93,314) (35,661) Sales of marketable securities and short-term investments, including in 1995 liquidation of CD's securing a bank loan (see Note G) ...... 15,825 33,543 132,260 Purchases of marketable securities and short- term investments, including in 1994 purchase of CD's securing a bank loan (see Note G) ...... (34,118) (134,790) (4,371) Other - net ........................................ (6,087) (6,403) (7,441) --------- --------- --------- Cash provided by (used in) investment activities (53,436) (200,964) 84,787 --------- --------- --------- FINANCING ACTIVITIES: Increase in long-term debt ......................... 124,660 183,330 101,616 Repurchases, payments and current maturities of long-term debt ................................. (109,286) (43,211) (141,452) Increase (decrease) in short-term debt ............. 9,726 11,040 (27,776) Dividends to stockholders .......................... (7,508) (225) (1,707) --------- --------- --------- Cash provided by (used in) financing activities 17,592 150,934 (69,319) --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... (29,003) (10,171) 17,301 CASH AND CASH EQUIVALENTS: Beginning of year .................................. 54,745 25,742 15,571 --------- --------- --------- End of year ........................................ $ 25,742 $ 15,571 $ 32,872 ========= ========= =========
See notes to consolidated financial statements. F - 7 33 TRANS-RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements of Trans-Resources, Inc. ("TRI" or the "Company"), include the Company and its subsidiaries, after elimination of intercompany accounts and transactions. The Company's principal subsidiaries are Cedar Chemical Corporation ("Cedar"), and Cedar's two wholly-owned subsidiaries - New Mexico Potash Corporation ("NMPC") and Vicksburg Chemical Company ("Vicksburg"); Eddy Potash, Inc. ("Eddy"); Na-Churs Plant Food Company ("Na-Churs"); and Haifa Chemicals Ltd. ("HCL") and HCL's wholly-owned subsidiary, Haifa Chemicals South, Ltd. ("HCS"). The Company is a wholly-owned subsidiary of TPR Investment Associates, Inc. ("TPR"). Effective March 31, 1995 the Company acquired the assets of Na-Churs, a company headquartered in Ohio and engaged in the specialty plant nutrient business. The acquisition was accounted for as a purchase. Such acquisition did not have a significant effect on the Company's results of operations. Substantially all of the companies' revenues, operating profits and identifiable assets are related to the chemical industry. The Company is a multinational manufacturer of specialty plant nutrients, organic chemicals, industrial chemicals and potash and distributes its products internationally. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management believes that the estimates used are reasonable. Operating Data The Company's revenues by region for the years ended December 31, 1993, 1994 and 1995 are set forth below:
1993 1994 1995 ---- ---- ---- (IN MILLIONS) Western Hemisphere: United States .................... $121 $122 $136 Other ............................ 30 23 22 Europe ............................... 119 117 146 Asia and Australia ................... 30 41 40 Israel ............................... 17 18 21 Africa and other ..................... 9 13 21 ---- ---- ---- Total ............................ $326 $334 $386 ==== ==== ====
As of December 31, 1994 and 1995, the Company's assets were located in the United States (44% and 40%, respectively) and abroad (principally Israel) (56% and 60%, respectively). The Company has no single customer accounting for more than 10% of its revenues. F - 8 34 HCL leases land and buildings from Oil Refineries Ltd. ("ORL"), a corporation which is majority-owned by the Israeli Government. The leases expire at various dates, principally in 20 years. HCL also has a contract with ORL for steam and processed water which expires on June 30, 1997 and a lease from ORL of a pipeline which transports ammonia from the port in Haifa to HCL's plant. HCS leases its land from the Israeli government under a 49 year lease which commenced in 1994. HCL obtains its major raw materials, potash and phosphate rock, in Israel. Potash is purchased solely from Dead Sea Works, Ltd. ("DSW") in accordance with a supply contract expiring December 31, 1999. Phosphate rock is purchased solely from Rotem Deshanim ("Rotem") pursuant to a supply agreement expiring on June 30, 1996. DSW and Rotem are companies that are majority-owned by the Israeli Government and are the sole suppliers in Israel of potash and phosphate rock, respectively. While management believes its current relationships with both of its principal suppliers to be good, the loss of supply from either of these sources would have an adverse effect on the Company. Contracts and Revenue Recognition Under the terms of a long-term contract with the U.S. Government for the manufacture of an industrial chemical, revenues are recognized ratably for the duration of the contract and billings are rendered as product is shipped. Current deferred revenue of $2,541,000 at December 31, 1994 represents billings in excess of revenues recognized under the contract. Such amount is classified within "accrued expenses and other current liabilities" in the accompanying Consolidated Balance Sheet. Functional Currency and Transaction Gains and Losses Approximately 90% of HCL's sales are made outside of Israel in various currencies, of which approximately 38% are in U.S. dollars, with the remainder principally in Western European currencies. In order to mitigate the impact of currency fluctuations against the U.S. dollar, the Company has a policy of hedging a significant portion of its foreign sales denominated in Western European currencies by entering into forward exchange contracts. A portion of these contracts qualify as hedges pursuant to Statement of Financial Accounting Standards No. 52 and, accordingly, unrealized gains and losses arising therefrom are deferred and accounted for in the subsequent year as part of sales. Unrealized gains and losses for the remainder of the forward exchange contracts are recognized in operations currently. At December 31, 1994 and 1995, there were outstanding contracts to purchase $117 million and $148 million, respectively, in various European currencies, principally Deutsche Marks and Japanese Yen. In addition, at December 31, 1995 there were outstanding contracts to purchase 95 million Deutsche Marks, and to sell a corresponding amount of Italian Lira and Spanish Pesetas. Gains (losses) of approximately ($2,300,000) and $900,000 were deferred at December 31, 1994 and 1995, respectively, for forward exchange contracts which qualify as hedges. If the Company had not followed such a policy of entering into forward exchange contracts in order to hedge its foreign sales, and instead recognized income based on the then prevailing foreign currency rates, the Company's operating income for the years ended December 31, 1993, 1994 and 1995 would have increased (decreased) by ($5,250,000), $7,400,000 and $16,600,000, respectively, and income before taxes would have increased (decreased) by approximately ($6,100,000), $11,200,000, and $11,200,000, respectively. The principal purpose of the Company's hedging program (which is for other than trading purposes) is to mitigate the impact of fluctuations against the U.S. dollar, as well as to protect against significant adverse changes in exchange rates. Accordingly, the gains and losses recognized relating to the hedging program in any particular period and the impact on revenues had the Company not had such a program are not necessarily indicative of its effectiveness. Raw materials purchased in Israel are mainly quoted at prices linked to the U.S. dollar. The U.S. dollar is the functional currency and accordingly the financial statements of HCL are prepared, and the books and records of HCL (except for a subsidiary described below) are maintained, in U.S. dollars. F - 9 35 The assets, liabilities and operations of one of HCL's foreign subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Revenues, expenses, gains and losses are translated at the weighted average exchange rate for the period. Translation adjustments, resulting from the process of translating such subsidiary's financial statements from its currency into U.S. dollars, are recorded directly as a separate component of stockholder's equity. Exchange Rate Insurance In 1981, HCL joined a program of exchange rate insurance of the Israeli Government designed to protect participating Israeli exporters from losses resulting from the widening of the gap between the inflation rate in Israel and the rate of devaluation of the New Israeli Shekel against a weighted basket of currencies of Israel's major trading partners. The net benefits received by HCL for the year ended December 31, 1993 were $1,616,000, which benefits have been included in revenues. As part of various economic measures adopted in Israel subsequent to December 31, 1988, the Israeli Government gradually reduced the insurance proceeds granted under its program of exchange rate insurance, with the program having been fully eliminated on August 31, 1993. Inventories Inventories are carried at the lower of cost or market. Cost is determined on the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is recorded under the straight-line method at generally the following annual rates: Buildings................................... 5-8% Machinery, plant and equipment.............. 7-25% Office furniture and equipment.............. 6-20%
Expenditures for maintenance and repairs are charged to expense as incurred. Investment grants from the Israeli Government are initially recorded as a reduction of the capitalized asset and are recognized in income over the estimated useful life of the respective asset. HCL recorded investment grants for the years ended December 31, 1993, 1994 and 1995 amounting to $10,952,000, $22,708,000 and $995,000, respectively. Effective July 1, 1994 and January 1, 1995, the Company revised the estimate of depreciable lives of its property, plant and equipment at HCL and Eddy, respectively, to more closely approximate the economic lives of those assets. The effect of these changes in estimate was to decrease depreciation expense in 1994 and 1995 by approximately $1,800,000 and $2,800,000, respectively. Investments In Marketable Securities and Other Short-Term Investments In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). The adoption of this Statement, which was not required until 1994, required the Company to classify its equity and fixed maturity securities as available-for-sale and reported at fair value, with unrealized gains and losses included as a separate component of stockholder's equity. Effective January 1, 1994, the Company adopted SFAS No. 115. The initial adoption of SFAS No. 115 did not have a material effect on the Company's consolidated financial position or results of operations. F - 10 36 Income Taxes The Company is included in the consolidated Federal income tax return of TPR. Under the tax allocation agreement with TPR, the annual current Federal income tax liability for the Company and each of its domestic subsidiaries reporting profits is determined as if such entity had filed a separate Federal income tax return; no tax benefits are given for companies reporting losses. However, TPR may, at its discretion, allow tax benefits for such losses. For purposes of the consolidated financial statements, taxes on income have been computed as if the Company and its domestic subsidiaries filed its own consolidated Federal income tax return without regard to the tax allocation agreement. Payments to TPR, if any, representing the excess of amounts determined under the tax allocation agreement over amounts determined for the purposes of consolidated financial statements are charged to retained earnings. During the three years in the period ended December 31, 1995, TPR did not require payment of amounts different from that which was computed as if the Company and its consolidated subsidiaries filed its own consolidated income tax returns. The Company accounts for income taxes under the asset and liability method. Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Environmental Costs Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations (including fines levied under environmental laws, reclamation costs and litigation costs), and which do not contribute to current or future revenue generation ("environmental clean-up costs"), are expensed. Such environmental clean-up costs do not encompass ongoing operating costs relating to compliance with environmental laws, including disposal of waste. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, the cost can be reasonably estimated and the Company's responsibility is established. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company's commitment to a formal plan of action. Accruals relating to costs to be incurred, if any, at the end of the useful life of equipment, facilities or other assets are made over the useful life of the respective assets. During 1993, 1994 and 1995 the Company incurred environmental clean-up costs of approximately $900,000, $600,000 and $300,000, respectively. In addition, at both December 31, 1994 and 1995, the Company has accrued approximately $1,600,000 related to the estimated costs to be incurred for various environmental liabilities. Research and Development Costs Research and development costs are charged to expense as incurred and amounted to $3,206,000, $3,978,000 and $3,158,000 for the years ended December 31, 1993, 1994 and 1995, respectively. Risk Management Derivatives Amounts receivable or payable under interest rate swap agreements are recognized as interest expense. Statements of Cash Flows Investments with original maturities of three months or less are classified as cash equivalents by the Company. F - 11 37 Concentration of Credit Risk The Company believes no significant concentration of credit risk exists with respect to investments and accounts receivable. Reclassifications Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year. B. OTHER CURRENT ASSETS Other current assets consist of the following at December 31, 1994 and 1995:
1994 1995 ---- ---- (IN THOUSANDS) Marketable securities (carried at market)...................... $ 22,923 $ 2,393 Miscellaneous receivables, other securities, deferred income taxes, etc................................ 45,237 16,971 Certificates of deposit pledged as collateral (see Note G)..... 100,040 - -------- ------ Total .................................................. $168,200 $19,364 ======== =======
The Company classifies all of its marketable securities (including U.S. Government obligations) as available-for-sale securities. The following is a summary of available-for-sale securities as of December 31, 1994 and 1995:
Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value (IN THOUSANDS) December 31, 1994: U.S. Government obligations................. $ 1,989 $ 2 $ - $ 1,991 Foreign Government obligations.............. 989 34 - 1,023 ------- -------- --------- ------- Total debt securities.................. 2,978 36 - 3,014 ------- -------- --------- ------- Common stocks and mutual funds investing primarily therein............... 10,418 31 637 9,812 Mutual funds investing in U.S. government bonds and investment grade corporate bonds .................... 9,970 - 318 9,652 Preferred stocks............................ 544 - 99 445 -------- --------- -------- -------- Total equity securities................ 20,932 31 1,054 19,909 ------- -------- ------- ------- Total ............................... $23,910 $ 67 $ 1,054 $22,923 ======= ======== ======= =======
F - 12 38
Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value (IN THOUSANDS) December 31, 1995: Foreign Government obligations $ 877 $ 21 $-- $ 898 Other debt securities ........ 393 9 -- 402 Total debt securities ... 1,270 30 -- 1,300 ------ ---- ------ ------ Common stocks and mutual funds investing primarily therein 872 25 129 768 Preferred stocks ............. 388 -- 63 325 ------ ---- ------ ------ Total equity securities . 1,260 25 192 1,093 ------ ---- ------ ------ Total ................... $2,530 $ 55 $ 192 $2,393 ====== ==== ====== ======
The cost and estimated fair value of debt securities at December 31, 1995, by contractual maturity, are as follows:
Estimated Cost Fair Value (IN THOUSANDS) Due in one year or less .............. $ 277 $ 283 Due after one year through three years 382 390 Due after three years ................ 611 627 ------ ------ Total ............................ $1,270 $1,300 ====== ======
During 1994, the gross realized gains on sales of securities totaled approximately $66,000 and the gross realized losses totaled approximately $1,244,000; during 1995 such gross realized gains totaled approximately $555,000 and gross realized losses totaled approximately $968,000 (see Note K). C. INVENTORIES Inventories consist of the following at December 31, 1994 and 1995:
1994 1995 ---- ---- (IN THOUSANDS) Raw materials .......................... $17,566 $20,444 Finished goods ......................... 33,747 46,030 ------- ------- Total .............................. $51,313 $66,474 ======= =======
F - 13 39 D. PROPERTY, PLANT AND EQUIPMENT - NET Property, plant and equipment at December 31, 1994 and 1995 consists of the following:
1994 1995 ---- ---- (IN THOUSANDS) Land ................................................. $ 2,116 $ 4,328 Buildings ............................................ 21,753 28,413 Machinery, plant and equipment ....................... 181,364 304,228 Office furniture, equipment and water rights ......... 10,750 10,955 Construction-in-progress ............................. 102,494 8,823 -------- -------- Total, at cost ................................... 318,477 356,747 Less accumulated depreciation and amortization ....... 116,392 136,556 -------- -------- Property, plant and equipment - net .............. $202,085 $220,191 ======== ========
During 1993 the Company commenced construction of the K3 Plant, a new facility in Israel, with initial capacity to produce approximately 100,000 metric tons of potassium nitrate annually. The Company substantially completed the construction of the K3 Plant in the fourth quarter of 1994. During 1993, 1994 and 1995 capital expenditures in connection with the K3 Plant (net of aggregate Israeli Government grants of approximately $35,000,000) amounted to approximately $19,000,000, $43,000,000 and $4,000,000, respectively. Product sales from the K3 Plant commenced in 1995. The capacity of the new plant may be expanded in subsequent years. The Company capitalized interest costs aggregating $352,000, $3,360,000 and $953,000 during the years ended December 31, 1993, 1994 and 1995, respectively, with respect to several construction projects. Certain property, plant and equipment has been pledged as collateral for long-term debt - see Note G. On February 7, 1994, the smaller of HCL's two potassium nitrate production units was damaged by a fire, causing a temporary reduction of the Company's potassium nitrate production capacity. The Company completed the replacement of the damaged unit during 1995. The impact of the loss of the facility, including the effect of business interruption, was substantially covered by insurance. The insurance proceeds relating to the property damage was for replacement value, which was greater than the recorded carrying value of the damaged assets. Accordingly, during the years ended December 31, 1994 and 1995, HCL has recorded pre-tax gains of approximately $18,100,000 and $1,700,000, respectively. Such pre-tax gains are included in the caption "interest and other income-net" in the accompanying Consolidated Statements of Operations - see Note K. E. SHORT-TERM DEBT AND UNUSED CREDIT LINES The weighted average interest rates for short-term debt outstanding at December 31, 1994 and 1995 were 8.8% and 6.5%, respectively. As of December 31, 1995, the Company and its subsidiaries have unused revolving loan commitments and other credit lines from banks aggregating approximately $87,000,000. F - 14 40 F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following at December 31, 1994 and 1995:
1994 1995 (in thousands) Compensation and payroll taxes ................. $ 9,625 $10,159 Interest ....................................... 11,437 11,020 Income taxes ................................... 3,127 1,518 Other .......................................... 14,496 10,717 ------- ------- Total ...................................... $38,685 $33,414
======= ======= G. LONG-TERM DEBT - NET Long-term debt consists of the following at December 31, 1994 and 1995:
Payable Description Interest Rate* Through 1994 1995 (in thousands) TRI: Bank loans (1)................................ Various 1998 $137,500 $ 27,500 Senior subordinated reset notes, net of unamortized debt discount of $349,000 and $150,000 (effective interest rate of 15.4%)(2).... 14.5% 1996 26,401 23,350 11.875% Senior subordinated notes, net of unamortized debt discount of $1,016,000 and $926,000 (effective interest rate of 12.1%)(3).... 11.875% 2002 113,984 114,074 9.5% Junior subordinated debentures, net of unamortized debt discount of $1,019,000 at December 31, 1994 (effective interest rate of 14.1%)(4)......................................... 9.5% 1998 7,981 -- Subsidiaries: Bank loans and other financing..................... Various 2020 89,024 164,359 -------- -------- Total.......................................... 374,890 329,283 Less current portion........................... 124,465 40,703 -------- -------- Long-term debt-net............................. $250,425 $288,580 ======== ========
- ----------- * As prevailing on respective balance sheet dates. Such rates (other than the subordinated debt) generally "float" according to changes in the Prime or LIBOR rates. At December 31, 1995 such rates were approximately 8.5% and 6.0%, respectively. 1. On June 30, 1994, the Company entered into a Loan Agreement with a bank and borrowed $40,000,000 (repayable quarterly over a four year period) and utilized a portion of the proceeds to prepay approximately $19,000,000 then owed to such bank. Pursuant to the Loan Agreement, the Company also borrowed an additional $100,000,000, repayable in January, 1996. Under certain specified circumstances prior to such date, the Company could have converted such loan into a term loan maturing five years from the date of conversion. At December 31, 1994 the Company pledged certificates of deposit ("CD's") with a principal amount of $100,000,000 as collateral for such loan (such CD's are included in "other current assets" in the F - 15 41 accompanying December 31, 1994 Consolidated Balance Sheet). The Company pledged 79% of the capital stock of HCL to secure its obligations under the Loan Agreement. On January 5, 1995, the Company liquidated the pledged CD's and prepaid, in full, the $100,000,000 loan. Such loan is included in current maturities of long-term debt at December 31, 1994. 2. The Senior Subordinated Reset Notes (the "Reset Notes") bear interest at 14.5% and mature on September 1, 1996. The Reset Notes are not subject to any mandatory sinking fund requirement. During 1995, the Company acquired $3,250,000 principal amount of the Reset Notes. In connection with such acquisition of the Reset Notes, the Company has recorded an extraordinary loss of $103,000. Such loss had no current tax benefit. 3. On March 30, 1993, the Company privately placed $115,000,000 principal amount of the 11 7/8% Notes due 2002, Series A (the "11 7/8% Notes") at 99% of principal amount (the "Offering"). The net proceeds to the Company from the Offering were approximately $109,700,000. Approximately $24,200,000 of such proceeds were used to acquire $21,500,000 principal amount of the Company's Reset Notes. In addition, approximately $63,900,000 of the proceeds were used in May, 1993 to acquire all of the Company's $60,997,000 then outstanding principal amount of 13.5% Senior Subordinated Debentures (the "Debentures") through utilization of the applicable sinking fund and optional redemption provisions of the Debentures. As a result of the redemptions and purchases described above, as well as the Company's acquisition of $4,500,000 principal amount of the Debentures in January 1993, the Company has recorded an extraordinary loss of $8,830,000 during 1993, including the write-off of applicable deferred debt issuance costs. Such loss had no current tax benefit. On May 6, 1993, to satisfy its obligations with respect to the registration of the 11 7/8% Notes, the Company commenced an offer (the "Exchange Offer") to exchange up to $115,000,000 principal amount of its registered 11 7/8% Senior Subordinated Notes due 2002, Series B (the "New 11 7/8% Notes") for a like principal amount of the 11 7/8% Notes. The terms of the 11 7/8% Notes and the New 11 7/8% Notes were identical in all material respects. Pursuant to the Exchange Offer, which expired on June 9, 1993, all outstanding 11 7/8% Notes were tendered and exchanged for the New 11 7/8% Notes. The New 11 7/8% Notes mature on July 1, 2002 and are redeemable at the option of the Company at any time after July 1, 1998 at stipulated redemption prices. There are no mandatory sinking fund requirements. 4. On November 28, 1986, the Company issued junior subordinated debentures (the "9.5% Debentures") in the aggregate principal amount of $9,000,000, with interest payable quarterly. The 9.5% Debentures were initially recorded at $6,700,000, the estimated value on the date of issue, and were scheduled to mature in 1998. During 1991, the Company's then outstanding redeemable preferred stock was converted into another $9,000,000 principal amount of the Company's 9.5% Debentures. Subsequently, during 1991, the then holder of this $9,000,000 principal amount of 9.5% Debentures agreed to extend the maturity date of such principal amount by seven years to the year 2005. The carrying value of the 9.5% Debentures issued upon conversion of the redeemable preferred stock was equivalent to the previous carrying value of the preferred stock. During 1994, as a result of the settlement of certain litigation with a former indirect stockholder and director of the Company, TPR acquired the 9.5% Debentures then held by the wife of such stockholder. Upon TPR's acquisition of such 9.5% Debentures, TPR exchanged these 9.5% Debentures for a new Company preferred stock - see Note L. Also as part of the settlement of such litigation, TPR assumed a $4,000,000 obligation that was previously owed to the Company by the wife of the former indirect stockholder and director. Such obligation, which is included in "other assets" in the accompanying Consolidated Balance Sheets, bears interest at the rate of 8.75% per year and is due in the year 2005. During 1995, TPR assumed the Company's obligation for the remaining outstanding 9.5% Debentures and the Company's liability thereon was extinguished. The Company recorded such assumed obligation as an F - 16 42 $8,177,000 capital contribution by TPR, the amount equivalent to the then net carrying value of the 9.5% Debentures. The Reset Notes are pari passu with the New 11 7/8% Notes and are subordinated in right of payment to all Senior Indebtedness (as defined) of the Company. Certain of the Company's and its subsidiaries' loan agreements and Indentures require the Company and/or the respective subsidiary to, among other things, maintain various financial ratios including minimum net worth, ratios of debt to net worth, interest and fixed charge coverage tests and current ratios. In addition, there are certain limitations on the Company's ability make certain Restricted Payments and Restricted Investments (each as defined), etc. The Company is also required to offer to purchase a portion of the New 11 7/8% Notes and the Reset Notes if it fails to maintain minimum amounts of Junior Subordinated Capital (as defined). In the event of a Change in Control (as defined), the Company is required to offer to purchase all the New 11 7/8% Notes and Reset Notes as well as to repay certain bank loans. Certain of the respective instruments also limit the payment of dividends, capital expenditures and the incurring of additional debt and liens. As of December 31, 1995, the Company and its subsidiaries are in compliance with the covenants of each of the respective loan agreements and Indentures. The aggregate maturities of long-term debt are set forth below, which data is shown after giving effect to the Company's refinancing of certain bank debt as of January 2, 1996.
Years Ending December 31, (in thousands) 1996........................................ $ 40,703 1997........................................ 15,851 1998........................................ 17,607 1999........................................ 14,448 2000........................................ 11,600 Thereafter.................................. 229,074 -------- Total.................................... $329,283 ========
Substantially all of the assets of HCL and HCS are subject to security interests in favor of the State of Israel and/or banks. In addition, substantially all of the assets of the Company's United States subsidiaries are subject to security interests in favor of banks pursuant to loan agreements. The capital stock of HCL and the Company's other subsidiaries (except for Eddy) have also been pledged to the banks pursuant to these agreements. The Company's common stock is pledged to secure the repayment obligations of TPR under a note issued by it to a former indirect shareholder of the Company. Interest paid, net of capitalized interest, totaled $21,852,000, $24,089,000 and $33,445,000 for the years ended December 31, 1993, 1994 and 1995, respectively. H. OTHER LIABILITIES Under Israeli law and labor agreements, HCL is required to make severance and pension payments to dismissed employees and to employees leaving employment in certain other circumstances. These liabilities are covered by regular deposits to various severance pay funds and by payment of premiums to an insurance company for officers and non-factory personnel under approved plans. "Other liabilities" in the Consolidated Balance Sheets as of December 31, 1994 and 1995 include accruals of $2,596,000 and $2,528,000, respectively, for the estimated unfunded liability of complete severance of all HCL employees. Costs incurred were approximately $1,974,000, $2,648,000 and $2,060,000 for the years ended December 31, 1993, 1994 and 1995, respectively. F - 17 43 No information is available regarding actuarial present value of HCL's pension plans and the plans' net assets available for benefits, as these plans are multi-employer, external and independent of HCL. Cedar has a defined benefit pension plan which covers all of the full-time employees of Cedar and Vicksburg. Funding of the plan is made through payment to various funds managed by a third party and is in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Cedar's net pension cost for the years ended December 31, 1993, 1994 and 1995 included the following benefit and cost components:
1993 1994 1995 ------ ------ ----- (in thousands) Service cost......................................................... $552 $657 $603 Interest cost........................................................ 659 756 844 Amortization of unrecognized prior service cost...................... 120 109 109 Actual return on plan assets......................................... (592) (751) (793) Amortization of unrecognized net transition obligation............... 58 58 59 ----- ----- ----- Net pension cost................................................ $797 $829 $822 ==== ==== ====
The funded status and the amounts recognized in the Company's December 31, 1994 and 1995 Consolidated Balance Sheets for Cedar's benefit plan is as follows:
1994 1995 (in thousands) Plan assets at market value.................................. $ 8,604 $10,059 Actuarial present value of projected benefit obligation...... 10,210 12,910 ------- ------- Funding status............................................... (1,606) (2,851) Unrecognized net transition obligation....................... 410 351 Unrecognized prior service cost.............................. 1,061 952 Unrecognized net loss........................................ 475 1,065 ------- ------- Prepaid (accrued) pension cost............................... $ 340 $ (483) ======= =======
At December 31, 1994 and 1995 the actuarial present value of Cedar's vested benefit obligation was $7,512,000 and $9,493,000 and the accumulated benefit obligation was $7,922,000 and $9,949,000, respectively. Actuarial assumptions used at December 31, 1994 and 1995 were as follows:
1994 1995 ------ ----- Discount rate - projected benefit obligation................. 8.2% 7.5% Rate of increase in compensation levels...................... 5.0% 5.0% Expected long-term rate of return on assets.................. 9.0% 9.0%
The unrecognized net transition obligation is being amortized on a straight-line basis over fifteen years beginning January 1, 1987. The Company's United States subsidiaries have profit sharing thrift plans designed to conform to Internal Revenue Code Section 401(k) and to the requirements of ERISA. The plans, which cover all full-time employees (and one of which includes Company headquarters employees), allow participants to contribute as much as 15% of their annual compensation, up to a maximum permitted by law, through salary reductions. The companies' contributions to the plans are based on a percentage of the participant's contributions, and the companies may make additional contributions to the plans at the discretion of their F - 18 44 respective Boards of Directors. The contribution expense relating to the profit sharing thrift plans totaled $595,000, $538,000 and $559,000 for the years ended December 31, 1993, 1994 and 1995, respectively. I. COMMITMENTS Operating Leases The Company and its subsidiaries are obligated under non-cancelable operating leases covering principally land, office facilities and equipment. At December 31, 1995, minimum annual rental commitments under these leases are:
Years Ending December 31, (in thousands) 1996................................................................ $ 4,084 1997................................................................ 3,782 1998................................................................ 3,709 1999................................................................ 3,018 2000................................................................ 2,198 Thereafter.......................................................... 10,440 ------- Total........................................................... $27,231 =======
Rent expense for 1993, 1994 and 1995 was $3,835,000, $3,485,000 and $5,308,000, respectively, covering land, office facilities and equipment. Purchase Commitment HCL has an agreement for the purchase of potash which expires in 1999. The terms of the agreement require HCL to purchase a minimum quantity at the weighted average of the FOB Israeli port prices received by the seller for the immediately preceding quarter plus certain adjustments thereto. Based upon current prices and at current capacity, the annual commitment is approximately $26,000,000. There are currently no purchase commitments in excess of market prices. J. INCOME TAXES The Company's income tax provision for the years ended December 31, 1993, 1994 and 1995 consist of the following:
1993 1994 1995 ---- ---- ---- (in thousands) Currently payable (refundable): Federal................................................ $ - $ 2,193 $ - Foreign................................................ 7,939 4,872 (364) State.................................................. 301 432 392 ------ -------- ---- Total current .................................... 8,240 7,497 28 ------ ------- ---- Deferred (benefit): Foreign................................................ (472) 7,135 507 State.................................................. 152 37 198 ------- -------- ---- Total deferred.................................... (320) 7,172 705 ------- -------- ---- Total............................................. $7,920 $14,669 $733 ====== ======= ====
F - 19 45 The provision for income taxes for the years ended December 31, 1993, 1994 and 1995 amounted to $7,920,000, $14,669,000 and $733,000, respectively, representing effective income tax rates of 72.1%, 85.2% and 12.0%, respectively. These amounts differ from the amounts of $3,845,000, $6,027,000 and ($2,144,000), respectively, computed by applying the statutory Federal income tax rates to income (loss) before income taxes. The reasons for such variances from statutory rates were as follows:
1993 1994 1995 ---- ---- ---- Statutory Federal rates ................................ 35.0% 35.0% (35.0)% Increase (decrease) in income tax rate resulting from: Israeli operations - net impact of Israeli statutory rate, effects of "inflation allowances", withholding taxes, etc ........................ (10.1) (6.1) (53.5) Net losses without current tax benefit, Alternative Minimum Tax ("AMT") and other ..... 47.4 56.1 96.1 Additional depletion expense ....................... (2.9) (1.6) (1.9) State and local income taxes - net ................. 2.7 1.8 6.3 ---- ---- ---- Effective income tax rates ............................. 72.1% 85.2% 12.0% ==== ==== ====
At December 31, 1994 and 1995, deferred taxes (liabilities) consisted of the following:
1994 1995 (in thousands) Depreciation and property and equipment basis differences........... $(19,841) $(23,360) Contract revenue recognition method................................. 965 - Nondeductible reserves.............................................. 3,976 4,429 Net operating loss carryforwards.................................... - 10,665 Capital loss and capital loss carryforwards......................... 3,762 4,112 Foreign tax credit carryovers....................................... 2,517 2,507 AMT credit carryovers............................................... 3,886 6,313 Investment tax credit carryovers.................................... 200 200 Other............................................................... 140 879 -------- -------- Deferred taxes - net, exclusive of valuation allowance.............. (4,395) 5,745 Valuation allowance................................................. (13,968) (25,506) -------- -------- Deferred taxes - net................................................ $(18,363) $(19,761) ======== ========
At December 31, 1994, deferred tax assets of $1,050,000 are classified as "other current assets" and deferred tax liabilities of $19,413,000 are classified as "other liabilities". At December 31, 1995, deferred tax assets of $1,227,000 are classified as "other current assets" and deferred tax liabilities of $20,988,000 are classified as "other liabilities". F - 20 46 At December 31, 1995, the Company had various tax loss and credit carryovers which expire as follows:
U.S. Federal -------------------------------------------------------------- Investment Net Alternative State Net Foreign Net Capital Foreign Tax Operating Minimum Operating Operating Expiration Loss Tax Credit Credit Loss Tax Credit Loss Loss - ---------- ------- ---------- ---------- --------- ------------ --------- ----------- (in thousands) 1997 ......... $9,867 1998 ......... $2,466 1999 ......... 2000 ......... 41 2001 ......... $200 2010 ......... $20,000 $14,400 Unlimited .... $6,313 $10,253 ------ ------- ---- ------- ------- ------- ------- Total ........ $9,867 $2,507 $200 $20,115 $6,313 $14,400 $10,253 ====== ====== ==== ======= ====== ======= =======
Income taxes paid totalled approximately $11,600,000, $7,300,000 and $3,700,000, respectively, during the years ended December 31, 1993, 1994 and 1995. These amounts are exclusive of a prior year tax refund received by HCL in 1995 of approximately $4,000,000. K. INTEREST AND OTHER INCOME - NET Interest and other income - net for the years ended December 31, 1993, 1994 and 1995 consists of the following:
1993 1994 1995 ---- ---- ---- (in thousands) Interest and dividend income................................ $3,258 $ 2,442 $2,459 Security gains (losses) - net............................... 2,261 (1,178) (413) Gain on involuntary conversion (see Note D)................. - 18,100 1,700 Other, including gains (losses) of $850,000, $(3,800,000) and $5,400,000 in 1993, 1994 and 1995, respectively, relating to foreign currencies (see Note A)............. 495 (4,308) 5,382 ------ ------- ------ Total................................................... $6,014 $15,056 $9,128 ====== ======= ======
L. PREFERRED STOCK As discussed in Note G, preferred stock was issued to TPR in December, 1994. The dividend on the preferred stock is cumulative at the rate of $8.50 per share per annum. The preferred shares are non-voting and were recorded at $7,960,000, TRI's carrying value of the 9.5% Debentures held by TPR on the date of conversion. The preferred shares are redeemable, at the option of the Company, at any time, at a redemption price of $79.60 per share, plus an amount equal to cumulative dividends, accrued and unpaid thereon up to the date of redemption. M. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In connection with a credit agreement, Cedar has entered into several three-year interest rate swap agreements with a bank to effectively convert a portion of its floating rate debt to fixed, thereby managing its credit risk. An interest rate swap generally involves the exchange of fixed for floating rate interest payment streams on specified notional principal amounts for an agreed-upon period of time, without the exchange of the underlying principal amounts. Notional amounts often are used to express the volume of F - 21 47 these transactions, but the amounts potentially subject to credit risk are much smaller. Cedar's credit risk involves the possible default of the counterparty (the bank). No collateral requirements are imposed. During 1995, Cedar entered into the following interest rate swap agreements which are used to manage its interest-rate risk. Cedar receives variable rate payments and pays fixed rate payments. The following is a summary of the contracts outstanding (in thousands of dollars) at December 31, 1995, all of which mature in October, 1998:
Nominal Fixed Rate Variable Rate Amount Paid Received ------- ---------- ------------- $10,000 6.17% 5.94% 10,000 6.04% 5.94% 7,500 5.99% 5.94%
The variable rate received is tied to the three-month LIBOR rate. The quarterly repricing dates for each of these agreements are as of month-end, beginning January, 1996. N. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
December 31, 1994 December 31, 1995 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (in thousands) Assets: Marketable securities (included within "other current assets") ............ $ 22,923 $ 22,923 $ 2,393 $ 2,393 Investments in certain securities (included within "other assets" and accounted for by the equity method) 3,335 5,855 3,607 12,355 Liabilities: Long-term debt .......................... 374,890 366,731 329,283 320,832 Off-balance sheet financial instruments: Foreign currency contracts .............. (3,800) (6,100) 1,600 2,500 Risk management derivative .............. -- -- -- (109)
Cash and Cash Equivalents, Accounts Receivable, Short-Term Debt and Accounts Payable - The carrying amounts of these items are a reasonable estimate of their fair value. F - 22 48 Investments in Securities - The fair value of these securities is estimated based on quoted market prices. Long-Term Debt - Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used on a discounted cash flow basis to estimate fair value for debt issues for which no market quotes are available. Foreign Currency Contracts - The fair value of foreign currency purchase contracts is estimated by obtaining quotes from brokers. The contractual amount of these contracts totals approximately $117,000,000 and $214,000,000 as of December 31, 1994 and 1995, respectively. Risk Management Derivatives - The fair value generally reflects the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1994 and 1995. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. O. CONTINGENT LIABILITIES AND OTHER MATTERS For a description of certain pending legal proceedings, see Item 3 - "Legal Proceedings", which is an integral part of these financial statements. The Company is vigorously defending against the allegations described therein. Management of the Company believes, based upon its assessment of the actions and claims outstanding against the Company and certain of its subsidiaries, and after discussion with counsel, that the eventual disposition of the matters referred to above should not have a material adverse effect on the financial position, future operations or liquidity of the Company. However, management of the Company cannot predict with certainty the outcome of the potash and Louisiana matters described in Item 3. The production of fertilizers and chemicals involves the use, handling and processing of materials that may be considered hazardous within the meaning of applicable environmental or health and safety laws. Accordingly, the Company's operations are subject to extensive Federal, state and local regulatory requirements in the United States and regulatory requirements in Israel relating to environmental matters. Operating permits are required for the operation of the Company's facilities, and these permits are subject to revocation, modification and renewal. Government authorities have the power to enforce compliance with these regulations and permits, and violators are subject to civil and criminal penalties, including civil fines, injunctions or both. The Company has entered into consent decrees and administrative orders with certain governmental authorities which are expected to result in unspecified corrective actions - see "Environmental Matters" in Item 1 - "Business". There can be no assurance that the costs of such corrective actions will not be material. The Company has accrued for the estimated costs of facility investigations, corrective measures studies and known remedial measures relating to environmental clean-up costs. However, the Company has been unable to ascertain the range of reasonably possible costs that may be incurred for environmental clean-up costs pending completion of investigations and studies. Based on currently available information, Management believes that the Company's expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental actions will not have a material adverse effect on the Company's liquidity and capital resources, competitive position or financial statements. However, Management cannot assess the possible effect of compliance with future requirements. F - 23 49 Except for Eddy and HCL, none of the Company's employees are represented by any collective bargaining unit. Eddy's hourly work force is represented by three labor unions, with its collective bargaining agreements expiring in August, 1998. Eddy has enjoyed generally good relations with its labor unions and has not had a significant work stoppage for many years, except for a work stoppage of approximately three weeks during 1995 related to the negotiations of the three year contract expiring in August, 1998. Technicians and engineers of HCL are members of the Union of Technicians and Engineers, which operates throughout Israel, and substantial terms of their employment (e.g. salaries and promotions) are governed by a general collective agreement which HCL does not negotiate directly with such employees. The other employees of HCL are members of the "Histadrut", the dominant labor union in Israel, and their terms of employment are governed by a Specific Collective Agreement ("SCA") negotiated by HCL with the Histadrut and the representatives of the employees. In 1994, an agreement was signed with the technicians and engineers for the three year period ending December 31, 1996. In 1995, an SCA was signed with the Histadrut and the representatives of the employees for the two year period ending December 31, 1996. HCL's last major labor dispute took place in July 1991 and related to negotiations of the SCA for 1990 and 1991. As a result of this dispute, HCL's employees went on strike for approximately four weeks during the third quarter of 1991. Prior to that, the last major labor dispute took place in 1983, which resulted in a strike of approximately two weeks. F - 24 50 CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I TRANS-RESOURCES, INC. BALANCE SHEETS
December 31, 1994 1995 (in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents ............................................ $ 9,570 $ 17,760 Receivables and other current assets ................................. 133,492 1,012 Prepaid expenses ..................................................... 40 291 --------- --------- Total Current Assets ........................................ 143,102 19,063 INVESTMENTS IN SUBSIDIARIES ............................................... 143,324 152,731 DUE FROM SUBSIDIARIES - net ............................................... 17,324 6,359 OTHER ASSETS .............................................................. 16,221 18,614 --------- --------- Total ............................................... $ 319,971 $ 196,767 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current maturities of long-term debt ................................. $ 110,000 $ 23,350 Accrued expenses and other current liabilities ....................... 10,583 9,565 --------- --------- Total Current Liabilities ................................... 120,583 32,915 --------- --------- LONG-TERM DEBT - net: Senior indebtedness, notes payable and other obligations ............. 27,500 27,500 Senior subordinated debt - net ....................................... 140,385 114,074 Junior subordinated debt - net ....................................... 7,981 -- --------- --------- Long-Term Debt - net (Note) ................................. 175,866 141,574 --------- --------- OTHER LIABILITIES ......................................................... 2,972 1,603 --------- --------- STOCKHOLDER'S EQUITY: Preferred stock, $1.00 par value, 100,000 shares authorized, issued and outstanding .......................... 7,960 7,960 Common stock, $.01 par value, 3,000 shares authorized, issued and outstanding ...................................... -- -- Additional paid-in capital ........................................... 505 8,682 Retained earnings .................................................... 13,432 4,764 Cumulative translation adjustment .................................... (360) (594) Unrealized losses on marketable securities ........................... (987) (137) --------- --------- Total Stockholder's Equity .................................. 20,550 20,675 --------- --------- Total ............................................... $ 319,971 $ 196,767 ========= =========
- ----------------- Note - The aggregate maturities of long-term debt during the next five years is approximately as follows (after giving effect to the Company's refinancing of certain bank debt as of January 2, 1996): 1996 - $23,350,000; 1997 - $0; 1998 - $0; 1999 - $0 and 2000 - $0. Also, see Note G of Notes to Consolidated Financial Statements. S-1 51 CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I (continued) TRANS-RESOURCES, INC. STATEMENTS OF OPERATIONS For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995 (in thousands) REVENUES - EQUITY IN NET EARNINGS OF SUBSIDIARIES: Dividends received from subsidiaries ....................... $ 34,932 $ 17,005 $ 8,609 Undistributed earnings of subsidiaries ..................... (12,474) 11,764 7,021 -------- -------- -------- Total ...................................................... 22,458 28,769 15,630 COSTS AND EXPENSES ............................................. (4,111) (3,674) (4,148) INTEREST EXPENSE ............................................... (22,121) (23,243) (22,250) INTEREST AND OTHER INCOME - net ................................ 5,797 1,392 1,868 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ......................................... 2,023 3,244 (8,900) INCOME TAX BENEFIT (PROVISION) ................................. 1,043 (694) 2,042 -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................... 3,066 2,550 (6,858) EXTRAORDINARY ITEM - Loss on repurchase of debt (no income tax benefit) ............................ (8,830) -- (103) -------- -------- -------- NET INCOME (LOSS) .............................................. $ (5,764) $ 2,550 $ (6,961) ======== ======== ========
S - 2 52 CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I (concluded) TRANS-RESOURCES, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1993, 1994 and 1995
1993 1994 1995 (in thousands) OPERATING ACTIVITIES AND WORKING CAPITAL MANAGEMENT: Operations: Net income (loss) .................................. $ (5,764) $ 2,550 $ (6,961) Items not requiring cash: Unremitted earnings of subsidiaries ............ 12,474 (11,764) (7,021) Depreciation and amortization .................. 3,985 1,226 1,147 Increase in other liabilities .................. 744 29 31 Deferred taxes and other - net ................. (1,048) 242 (1,064) --------- --------- --------- Total ............................................... 10,391 (7,717) (13,868) Working capital management: Receivables and other current assets ................ 4,926 (3,064) 6,115 Prepaid expenses .................................... (155) 851 (251) Accrued expenses and other current liabilities ...... 3,816 2,778 (4,118) --------- --------- --------- Cash provided by (used in) operations and working capital management .......................... 18,978 (7,152) (12,122) --------- --------- --------- INVESTMENT ACTIVITIES: Additions to property, plant and equipment .............. (75) (70) (3) Sales of marketable securities and short-term investments, including in 1995 liquidation of CD's securing a bank loan (see Note G) ........... 12,435 33,543 132,436 Purchases of marketable securities and short-term investments, including in 1994 purchase of CD's securing a bank loan (see Note G) ........... (34,118) (133,396) (4,371) Other - net ............................................. (4,539) (3,464) 7,207 --------- --------- --------- Cash provided by (used in) investment activities ........ (26,297) (103,387) 135,269 --------- --------- --------- FINANCING ACTIVITIES: Increase in long-term debt .............................. 109,166 139,574 -- Payments and current maturities of long-term debt ....... (90,457) (29,040) (113,250) Dividends to stockholders ............................... (7,508) (225) (1,707) --------- --------- --------- Cash provided by (used in) financing activities ......... 11,201 110,309 (114,957) --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................ 3,882 (230) 8,190 CASH AND CASH EQUIVALENTS: Beginning of year ....................................... 5,918 9,800 9,570 --------- --------- --------- End of year ............................................. $ 9,800 $ 9,570 $ 17,760 ========= ========= ========= --------- Interest paid ............................................... $ 16,557 $ 19,913 $ 23,289 ========= ========= ========= Income taxes paid ........................................... $ 2,100 $ 1,113 $ 3,255 ========= ========= =========
S - 3 53 TRANS-RESOURCES, INC. INDEX TO EXHIBITS Exhibit Description Page No. - ------- ----------- 3.1 Certificate of Incorporation of the Company, as amended (in restated form), filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K"), which is incorporated herein by reference. * 3.2 By-laws of the Company, filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (the "1991 Form 10-K"), which is incorporated herein by reference. * 4.1 Indenture, dated as of March 1, 1989, between the Company and First Alabama Bank, as Trustee, relating to the Senior Subordinated Reset Notes due 1996, filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, which is incorporated herein by reference. * 4.2 Indenture, dated as of March 30, 1993 between the Company and First Alabama Bank, as Trustee, relating to the 11 7/8% Senior Subordinated Notes due 2002, filed as Exhibit 4.1 to the Registration Statement of the Company on Form S-1, filed on April 16, 1993, as amended, Registration No. 33-61158, which is incorporated herein by reference. * 10.1 Potash Sales Agreement between Haifa Chemicals Ltd. and Dead Sea Works Limited, dated January 1, 1980 (termination date extended to December 31, 1999), concerning the supply of potash, filed as Exhibit 10.2 to the Registration Statement of the Company on Form S-1, filed on January 30, 1987, as amended, Registration No. 33-11634 (the "1987 Form S-1"), which is incorporated herein by reference. * 10.2 Manufacturing Processes Agreement between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated December 28, 1981, concerning the supply of steam and water, filed as Exhibit 10.6 to the 1987 Form S-1, which is incorporated herein by reference. * 10.3 Agreement of Use of Ammonia Pipeline between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated August 7, 1977, as amended, concerning the use of an ammonia pipeline, filed as Exhibit 10.8 to the 1987 Form S-1, which is incorporated herein by reference. * 10.4 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated December 20, 1968, concerning real property, filed as Exhibit 10.9 to the 1987 Form S-1, which is incorporated herein by reference. * 10.5 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated March 31, 1974, concerning real property, filed as Exhibit 10.10 to the 1987 Form S-1, which is incorporated herein by reference. * E - 1 54 Exhibit Description Page No. - ------- ----------- 10.6 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated April 5, 1978, concerning real property, filed as Exhibit 10.11 to the 1987 Form S-1, which is incorporated herein by reference. * 10.7 Lease between Haifa Chemical Ltd. and Oil Refineries Ltd., dated June 25, 1978, concerning real property, filed as Exhibit 10.12 to the 1987 Form S-1, which is incorporated herein by reference. * 10.8 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated September 25, 1986, concerning real property, filed as Exhibit 10.13 to the 1987 Form S-1, which is incorporated herein by reference. * 10.9 Agreement between Haifa Chemicals Ltd. and The Port Authorities, dated January 31, 1980 (termination date extended to June 1996), concerning real property, filed as Exhibit 10.15 to the 1987 Form S-1, which is incorporated herein by reference. * 10.10 Agreement between the Company and Thomas G. Hardy, dated March 22, 1994, concerning incentive bonus compensation, including, as Exhibit A thereto, the related Trust Agreement, filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, which is incorporated herein by reference. (1) * 10.11 Employment Agreement between the Company and Thomas G. Hardy, dated as of June 1, 1993, filed as Exhibit 10.11 to the 1994 Form 10-K, which is incorporated herein by reference. (1) * 10.12 Salary Continuation Agreement between the Company and Lester W. Youner, dated as of August 24, 1994, filed as Exhibit 10.12 to the 1994 Form 10-K, which is incorporated herein by reference. (1) * 10.13 Credit Agreement, dated as of November 3, 1995, among Cedar Chemical Corporation, the Lenders listed on the signature pages thereof and The Chase Manhattan Bank (National Association), as Administrative Agent (exhibits and schedules omitted), filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995, which is incorporated herein by reference. * 10.14 Loan Agreement, dated as of December 29, 1995, between the Company and Bank Hapoalim (certain exhibits and schedules omitted). E - 4 10.15 Tax Sharing Agreement, dated as of December 30, 1991, among TPR Investment Associates, Inc., the Company, Eddy Potash, Inc., Nine West Corporation, TR Media Corporation and Cedar Chemical Corporation, filed as Exhibit 10.23 to the 1991 Form 10-K, which is incorporated herein by reference. * E - 2 55 Exhibit Description Page No. - ------- ----------- 10.16 Split Dollar Insurance Agreement, entered into as of August 26, 1988, between the Company and Arie Genger, filed as Exhibit 10.27 to the Registration Statement of the Company on Form S-1, filed on October 20, 1992, as amended, Registration No. 33-53486, which is incorporated herein by reference. (1) * 21 Subsidiaries of the Company. E - 5 24 Power of Attorney authorizing Lester W. Youner to sign this report and any amendments hereto on behalf of the principal executive officer and the directors. E - 6 27 Financial Data Schedule. E - 7 * Incorporated by reference (1) Management contract or compensatory plan or arrangement E - 3 E-3 EX-10.14 2 LOAN AGREEMENT 1 EXHIBIT 10.14 LOAN AGREEMENT AGREEMENT, dated as of December 29, 1995, between TRANS-RESOURCES, INC., a Delaware corporation (the "Company"), and BANK HAPOALIM B.M., an Israeli banking corporation acting through its New York Branches (the "Bank"). In consideration of the mutual agreements herein contained, the parties hereto agree as follows: 1. DEFINITIONS. 1.1 Certain General Definitions. For all purposes of this Agreement and the other Loan Documents, unless the context otherwise requires: "Accelerated Principal" shall have the meaning provided therefor in Section 2.4 hereof. "Adjusted Net Worth" of the Company means the sum of (i) the total amount of preferred stockholders' equity and common stockholders' equity that would appear on an unconsolidated balance sheet of the Company, as at such date prepared in accordance with generally accepted accounting principles, plus (ii) the aggregate outstanding principal amount at that date of the Senior Subordinated Notes, the Senior Reset Notes and all other Subordinated Debt. "Advance" shall have the meaning provided therefor in Section 2.1 hereof. "Agreement" means this Agreement, including all Exhibits hereto, as the same may be amended or otherwise modified from time to time, and the terms "herein," "hereof," "hereunder" and like terms shall be taken as referring to this Agreement in its entirety and shall not be limited to any particular section or provision thereof. "Approved Change" means any change in Control of the Company or TPR which has been approved in writing by the Bank, which approval shall not unreasonably be withheld if the Bank has determined that after review of such financial and other information concerning the Person that would become in Control of the Company or TPR and receipt of such additional guarantees or security, if any, as the Bank may reasonably request, there will be no material adverse change in the creditworthiness of the Company or the likelihood of the Advances being repaid in accordance with their terms. "Business Day" means a day on which both (i) banks are regularly open for business in both London and New York City and (ii) the Bank's New York Branches shall be open for ordinary business. In the Bank's discretion, the New York E-4 2 Branches may be closed on any Saturday, Sunday, legal holiday or other day on which it is lawfully permitted to close. "Commitment Expiration Date" means the third anniversary of the date of this Agreement. "Company Pledge Agreement" means collectively the 1990 Pledge Agreement, as amended by 1990 Pledge Agreement Amendment No. 1, 1990 Pledge Agreement Amendment No. 2 and 1990 Pledge Agreement Amendment No. 3 and as further amended by 1990 Pledge Agreement Amendment No. 4, under which the Company grants to the Bank a valid perfected first priority lien, charge and security interest in approximately 93.02% of the outstanding HCL Stock and the proceeds thereof under Israeli law. "Consolidated Indebtedness" of any Person means, as of any date, the aggregate Indebtedness that would appear on a consolidated balance sheet of that Person and its consolidated Subsidiaries, as at such date, prepared in accordance with generally accepted accounting principles. "Consolidated Net Income" of HCL, for any period, means the aggregate of the Net Income of HCL and its Subsidiaries for such period on a consolidated basis; provided that (i) the Net Income of any Person (other than a Subsidiary) in which HCL or any Subsidiary of HCL has a joint interest with a third party shall be included only to the extent of the amount of dividends or distributions paid to HCL or such Subsidiary, (ii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded from Net Income, and (iii) all charges incurred and credits realized which are unusual in nature and infrequently occurring shall be excluded from Net Income. "Consolidated Tangible Net Worth" of any Person means, as of any date, the total amount of non-redeemable preferred stock and common stockholders' equity that would appear on a consolidated balance sheet of that Person and its consolidated Subsidiaries, as at such date prepared in accordance with generally accepted accounting principles, except that there shall be deducted therefrom all intangible assets (determined in accordance with generally accepted accounting principles) including, without limitation, organization costs, patents, trademarks, copyrights, franchises, research and development expenses, and any amount reflected as treasury stock; provided, however, that costs in excess of fair value of net assets of businesses acquired shall not be deducted. "Control" means the power to direct or cause the direction of the management and policies of a Person, either alone or in conjunction with others and whether through the ownership of voting securities, by contract or otherwise. -2- 3 "Current Assets" of any Person means, as of the date of any determination thereof, the aggregate amount carried as current assets on the books of such Person, determined in accordance with generally accepted accounting principles. "Current Liabilities" of any Person means, as of the date of any determination thereof, the aggregate amount carried as current liabilities on the books of such Person, determined in accordance with generally accepted accounting principles; provided, however, that, in the case of the Company, Current Liabilities shall not include the Senior Reset Notes. "Current Ratio" of any Person means the ratio of such Person's Current Assets to such Person's Current Liabilities. "Date of Determination" means, with respect to each Interest Period, two Business Days prior to the commencement of that Interest Period. "Default" means any condition, event or act which, with notice or lapse of time, or both, would constitute an Event of Default. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including the rules and regulations promulgated thereunder. "Event of Default" shall have the meaning provided therefor in Section 12.1 hereof. "Facility Fees" means the fees payable by the Company to the Bank pursuant to Section 5.5 hereof. "Financial Statements" shall have the meaning provided therefor in Section 7.6 hereof. "Governmental Person" means any United States, Israeli, or other national, state or local government, political subdivision, or governmental, quasi-governmental, judicial, public or statutory instrumentality, agency, authority, body or entity including the Federal Deposit Insurance Corporation, any central bank or any comparable authority. "Governmental Rule" means any law, rule, regulation, ordinance, order, code, interpretation, judgment, decree, directive, guideline, policy or similar form of decision of any Governmental Person. "HCL" means Haifa Chemicals Ltd., an Israeli corporation. -3- 4 "HCL Stock" means the ordinary shares, par value NIS 1 per share, issued by HCL. "Indebtedness" of any Person means indebtedness incurred by that Person in respect of (i) money borrowed, (ii) any note, loan, debenture or similar instrument, (iii) deferred payments for assets or services acquired (except for payments deferred by unaffiliated persons on terms consistent with industry standards), (iv) capitalized rentals under any capitalized lease (whether in respect of land, machinery, equipment or otherwise), but excluding rentals under any operating lease, (v) guarantees, bonds, stand-by letters of credit or other instruments issued in support of Indebtedness of any other Person, and (vi) guarantees or other assurances equivalent to guarantees against financial loss in respect of Indebtedness as defined under any of clauses (i) to (v) above. "Interest Period" means, in the case of each Advance, (i) the period commencing on the date on which that Advance is made and ending on the next following Payment Date (the "Initial Interest Period"), and (ii) each consecutive three-month period following such Initial Interest Period commencing at the end of the immediately preceding Interest Period and ending on the next following Payment Date. The last Interest Period for each Advance shall end on the Maturity Date. If any Interest Period would otherwise come to an end on a day which is not a Business Day, the termination thereof shall be postponed to the next day which is a Business Day unless it would thereby terminate in the next calendar month. In such case, such Interest Period shall terminate on the immediately preceding Business Day. "Israeli Resident" means an individual who, under the laws of the State of Israel, is a citizen or resident of the State of Israel or any other Person of which 25% or more of any class of equity securities are owned, directly or indirectly, by one or more Israeli Residents. The term "Israeli Resident" shall not include any "exempted person" under the laws of the State of Israel. "Junior Indenture" means any indenture or agreement pursuant to which any Junior Subordinated Debt has been or will be issued or incurred by the Company. "Junior Subordinated Capital" of any Person means, as of any date, the total of the Consolidated Tangible Net Worth of such Person and the outstanding aggregate principal amount of Junior Subordinated Debt and the outstanding aggregate liquidation value of any outstanding shares of redeemable preferred stock having no mandatory redemption requirements earlier than the later of (x) the Maturity Date, or (y) the payment in full of the principal of and interest on the Note. "Junior Subordinated Debt" means obligations of the Company as reflected on the Company's books which are subordinated in right of payment to the Senior Subordinated Notes and Senior Reset Notes (to at least the same extent as the Senior Subordinated Notes and Senior Reset Notes are subordinated to Senior Indebtedness, -4- 5 including without limitation any class of equity securities convertible into obligations so subordinated) and shall include an agreement by holders of such obligations and any transferees not to receive any payments during the continuation of any default with respect to the Senior Subordinated Notes or Senior Reset Notes or (without the prior written consent of the holders of the Senior Subordinated Notes and the Senior Reset Notes) enforce any remedies with respect to such obligations during the continuation of a default with respect to such obligations as long as the Senior Subordinated Notes and Senior Reset Notes are outstanding. "LIBOR" means, with respect to any Interest Period, the rate or rates established by the New York Branches of the Bank on the Date of Determination for that Interest Period by applying the London Eurodollar Deposit Rates quoted on the display designated as page "RMEY" to subscribers of the Reuters Monitor Money Rates Service. The rates so quoted reflect the selling rates selected by such Service as rates offered at 11:00 A.M. London Standard Time for bank to bank United States Dollar deposits in such amounts and for such periods of time (Interest Periods) as may apply; provided, that, in the case of the initial Interest Period and last Interest Period for each Advance, if that Interest Period is not a one, two or three-month period, LIBOR shall be determined by interpolation by the Bank using the rates so quoted for the relevant one, two or three-month periods, as the case may be. If the RMEY page shall be replaced by another page on the Reuters Money Market Rates Service for quoting London Eurodollar Deposit Rates, then rates quoted on such replacement page shall be applied. If the Bank determines that London Eurodollar Deposit Rates are no longer being quoted (temporarily or permanently) on the Reuters Monitor Money Rates Service or that such Service is no longer functioning (temporarily or permanently) in substantially the same manner as on the date hereof, then the Company and the Bank shall negotiate in good faith towards the aim of agreeing upon a substitute, publicly available reference for the determination of LIBOR. "LIBOR-Based Rate" shall have the meaning assigned thereto in Section 5.1 hereof. "Lien" means any charge, lien, mortgage, pledge, security interest or other encumbrance of any nature whatsoever upon, of or in property or other assets of a Person, whether absolute or conditional, voluntary or involuntary, whether created pursuant to agreement, arising by force of statute, by judicial proceedings or otherwise. "Loan Documents" means this Agreement, the Note, the Company Pledge Agreement, the TRIL Pledge Agreement, and any other instruments, agreements or other documents delivered by the Company, TRIL or HCL to the Bank pursuant to any of the foregoing Loan Documents. "London Interbank Market" means the London interbank market for United States Dollars and/or United States Dollar interest rates. -5- 6 "Maturity Date" means the ninth anniversary of the date of this Agreement. "Net Income" of any Person for any fiscal period means the difference between gross revenues and all costs, expenses and other proper charges (including taxes on income) as determined in accordance with generally accepted accounting principles. "1990 Pledge Agreement" means the Pledge Agreement dated as of December 21, 1990 between the Bank, the Trust Company and the Company. "1990 Pledge Agreement Amendment No. 1" means Amendment No. 1 to the 1990 Pledge Agreement, dated as of November 29, 1993. "1990 Pledge Agreement Amendment No. 2" means Amendment No. 2 to the 1990 Pledge Agreement, dated as of June 28, 1994. "1990 Pledge Agreement Amendment No. 3" means Amendment No. 3 to the 1990 Pledge Agreement, dated as of March 6, 1995. "1990 Pledge Agreement Amendment No. 4" means Amendment No. 4 to the 1990 Pledge Agreement in form and substance satisfactory to the Bank and substantially in the form set forth in Exhibit 1.1-1 annexed hereto. "Note" means the Company's promissory note, substantially in the form of Exhibit 1.1-2 hereto, with appropriate insertions. "Payment Date" means the second day of each January, April, July and October following the date hereof. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" shall include an individual, a partnership, a joint venture, a corporation (including, without limitation, the Company or any Subsidiary), a trust, an estate, an unincorporated organization or association and a Governmental Person. If any Person is a corporation, unless otherwise provided, the use of the term Person to refer to that corporation means that corporation as a single entity and not as consolidated with its Subsidiaries. "Plan" means an employee benefit plan or other plan, including both single-employer and multi-employer plans, maintained for employees of the Company or any Subsidiary thereof or any controlled group of trades or businesses under common control, as defined respectively in Sections 1563 and 414(c) of the Internal Revenue Code of 1986, as -6- 7 amended, of which the Company or any Subsidiary thereof is or becomes a part, and covered by Title IV of ERISA. "Prime-Based Rate" means the Bank's New York Branches' stated prime rate as reflected from time to time in its books and records. The Prime-Based Rate shall change automatically when and as the prime rate shall change. The Bank may make loans to others at rates above or below its prime rate. "Reinvestment Costs" shall have the meaning provided therefor in Section 2.4 hereof. "Reportable Event" shall have the meaning set forth in Section 4043(b) of Title IV of ERISA. "Senior Indebtedness" means (a) the principal of and interest on all Indebtedness of the Company whether short or long-term and whether secured or unsecured (including all Indebtedness evidenced by notes, bonds, debentures or other securities sold by such Person for money), including without limitation all Indebtedness incurred by the Company in the acquisition (whether by way of purchase, merger, consolidation or otherwise and whether by such Person or another Person) of any capital stock, business, real property or other assets (except assets acquired in the ordinary course of the conduct of the acquiror's business), (b) guarantees by the Company of Indebtedness of a Subsidiary of the Company, and (c) renewals, extensions, refundings, deferrals, restructurings, amendments and modifications of any such Indebtedness, obligation or guarantee; provided that Senior Indebtedness shall not include (i) Indebtedness evidenced by the Senior Subordinated Notes or Senior Reset Notes, which is subordinated to the Note; (ii) any other Indebtedness that constitutes Subordinated Debt including Junior Subordinated Debt; or (iii) any Indebtedness of the Company to any of its Subsidiaries. "Senior Reset Note Indenture" means the Indenture dated as of March 1, 1989 between the Company and First Alabama Bank, as Trustee. "Senior Reset Notes Repurchase Event" shall have the meaning set forth in Section 10.9 hereof. "Senior Reset Notes" means the Company's 14 1/2% Senior Subordinated Reset Notes due September 1, 1996, issued under the Senior Reset Note Indenture. "Senior Subordinated Note Indenture" means the Indenture dated as of March 30, 1993 between the Company and First Alabama Bank, as Trustee. "Senior Subordinated Notes" means the Company's 11-7/8% Senior Subordinated Notes due July 1, 2002, issued under the Senior Subordinated Note Indenture. -7- 8 "Senior Subordinated Notes Repurchase Event" shall have the meaning set forth in Section 10.9 hereof. "Significant Subsidiary" means a significant subsidiary of the Company (other than Eddy Potash, Inc.), as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act of 1933, as amended. "Subordinated Debt" means (a) unsecured obligations of the Company as reflected on the Company's books which (i) are not due until the later of (x) the Maturity Date, or (y) the payment in full of the principal of and interest on the Note, and (ii) are subordinated in right of payment to the Note (to at least the same extent as the Senior Subordinated Notes are subordinated to Senior Indebtedness) and shall include an agreement by holders of such obligations and any transferees not to receive any payments with respect to such obligations as long as there exists and is continuing a default in payment of principal or interest on the Note, (b) Junior Subordinated Debt (including any such Junior Subordinated Debt converted to such after the date hereof) and (c) the obligations of the Company evidenced by the Senior Reset Notes and the Senior Subordinated Notes or any other indebtedness that is subordinated in right of payment to the Note (to at least the same extent as the Senior Reset Notes and the Senior Subordinated Notes are subordinated to Senior Indebtedness). "Subsidiary" means, when used with reference to any corporation, any corporation of which at least a majority of the outstanding stock having, by the terms thereof, ordinary voting power to elect a majority of the Board of Directors of such corporation is at the time directly or indirectly owned by such first-mentioned corporation. "Tangible Net Worth" means tangible net worth as determined in accordance with generally accepted accounting principles on an unconsolidated basis but including and excluding specific items in the same manner as is provided in the definition of "Consolidated Tangible Net Worth." "TPR" means TPR Investment Associates, Inc., a Delaware corporation. "Treasury Obligation" means a note, bill or bond issued by the United States Treasury Department as a full faith and credit general obligation of the United States. "TRIL" means Trans-Resources (Israel) Ltd., an Israeli corporation. "TRIL Pledge Agreement" means the Pledge Agreement under which TRIL grants to the Bank a valid perfected first priority lien, charge and security interest in 6.98% of the outstanding HCL Stock and the proceeds thereof under Israeli law (which shall be in form and substance satisfactory to the Bank and substantially in the form set forth in Exhibit 1.1-3 annexed hereto). -8- 9 "Trust Company" means Trust Company of Bank Hapoalim B.M., ([Mem]"[Ayin][Veth] [Mem][Yod][Lamed][Ayin][Vav][Feh][Heh] [Koph][Nun][Veth] [Lamed][Shin] [Thav][Vav][Nun][Mem][Aleph][Nun] [Thav][Resh][Veth][Cheth]) a company duly incorporated and existing under the laws of the State of Israel, having its registered office at 55 Rothschild Boulevard, Tel-Aviv 65124. "United States of America," when used in a geographical sense, means all of the States of the United States of America and the District of Columbia and, so long as they continue as possessions or territories of the United States, Puerto Rico and the Virgin Islands. "Working Capital" of any Person means, as of the date of any determination thereof, the excess of the Current Assets of that Person over the Current Liabilities of that Person. 1.2 Use of Accounting Terms. Accounting terms used herein shall be construed, calculations hereunder shall be made and financial data required hereunder shall be prepared, both as to classification of items and as to amounts, in accordance with generally accepted accounting principles in effect in the United States (except that any reference in this Agreement to generally accepted accounting principles with respect to financial statements of HCL shall be deemed to be references to Israeli generally accepted accounting principles, unless otherwise provided herein) as of the date thereof consistently applied, which principles shall be consistent with those used in the preparation of the most recent reviewed financial statements of such Person delivered to the Bank. All statements relating to earnings and expenses shall set forth separately or otherwise identify all extraordinary and nonrecurring items. 2. COMMITMENT OF THE BANK. 2.1 Loans. Subject to the terms and conditions of this Agreement, the Bank agrees to make loans (collectively called the "Advances" and individually an "Advance") to the Company on any Business Day during the period from the date hereof to, but not including, the Commitment Expiration Date in accordance with Section 2.2 hereof, in such amounts as the Company may from time to time request, but in no event shall the amount of any Advance, when added to the amount of all Advances previously made hereunder, exceed Forty Million Dollars ($40,000,000), less any amount paid or required to be paid to the Bank as a mandatory prepayment pursuant to Section 2.3(c) hereof, and in no event shall the Bank be required to make Advances hereunder more frequently than twice each calendar month. Repayment of the principal amount of each Advance shall be made in equal quarterly annual installments commencing on the first Payment Date following the second anniversary of the date on which such Advance is made and ending on the Maturity Date (it being understood that the number of such installments will range from 16 installments, in the case of an Advance made on the Commitment Expiration Date, to 28 installments, in the case of an Advance made on the date of this Agreement). The last principal installment shall be in the -9- 10 then outstanding unpaid principal balance of the Note and shall be due and payable on the Maturity Date, together with all unpaid interest accrued through that date. 2.2 Borrowing Procedures. The Company shall give the Bank at least three (3) Business Days' prior written notice (which if sent by telecopy shall promptly be confirmed by delivering the original of the written notice to the Bank) of each proposed Advance, specifying in reasonable detail to the Bank the purpose for which the proceeds of such Advance will be used. Upon the satisfaction of each of the conditions specified in Sections 8 and 9 to the extent applicable to such Advance, the Bank shall pay over in immediately available funds to the Company the amount of such proposed Advance, not later than 3:00 P.M., New York time, on the date of such proposed Advance. Each Advance shall be in an aggregate amount of at least $500,000. 2.3 Voluntary and Mandatory Prepayments. (a) The Company may prepay the Note in part or in full at any time, subject to the provisions set forth in the Note, upon not less than seven days prior written notice to the Bank, provided that each such prepayment shall be in the amount of $100,000 or any integral multiple thereof; except that prepayment of the entire outstanding principal amount of the Note need not be in the amount of $100,000 or any integral multiple thereof. (b) Any voluntary or mandatory prepayments of the principal of the Note, whether partial or full, shall be accompanied by the payment of any accrued interest on the principal amount so prepaid and any other payment or charge required by the Note. (c) If any law, regulation, directive or treaty or any change therein or in the interpretation or application thereof shall make it unlawful for the Bank to maintain the Advances evidenced by the Note or to claim or receive any amount otherwise payable under the Note or this Agreement, the Bank shall so notify the Company. In the case of any such notice, the Company shall prepay the outstanding principal amount of the Note in full together with all accrued interest (i) on the last Business Day of the Interest Period which includes the date of such notice, if the Bank may lawfully receive such prepayment on such day, or (ii) on such earlier date on which the Bank may lawfully receive such payment, if payment on such earlier date is reasonably required as a result of such impending illegality. (d) Notwithstanding anything in this Section 2.3 to the contrary, any prepayment, whether voluntary or mandatory, may be applied by the Bank to any principal or interest of the Note, in such amounts and order of priority as the Bank deems appropriate in its sole discretion. The Bank shall have no liability to the Company for any failure to apply prepayments in accordance with any instructions that the Bank may receive from the Company which are inconsistent with the provisions of this Subsection 2.3(d). 2.4 Compensation for Reinvestment Costs. If the Company makes any payment or prepayment of or on account of the outstanding principal amount of the Note at -10- 11 any time other than the last day of an Interest Period, whether after an Event of Default or otherwise, then the Company shall compensate the Bank for the costs (the "Reinvestment Costs") of reinvesting, for the period extending until the last day of the then current Interest Period, the funds received by it upon such payment at a rate or rates which may be less than the LIBOR-Based Rate applicable to the principal portion of such amount paid (the "Accelerated Principal"). The Company and the Bank acknowledge that determining the actual amount of the Reinvestment Costs may be difficult or impossible in any specific instance. Accordingly, the Company and the Bank agree that the Reinvestment Costs shall be the excess, if any, of (i) the product of (A) the Accelerated Principal, times (B) the applicable LIBOR-Based Rate divided by 360, times (C) the remaining number of days from the date of the payment to the last day of the relevant Interest Period, over (ii) that amount of interest which the Bank determines that the holder of a Treasury Obligation selected by the Bank in the amount (or as close to such amount as feasible) of the Accelerated Principal and having a maturity date on (or as soon after as feasible) the last day of the relevant Interest Period, would earn if that Treasury Obligation were purchased in the secondary market on the date the Accelerated Principal is paid to the Bank and were held to maturity. The Company agrees that determination of Reinvestment Costs shall be based on amounts that a holder of a Treasury Obligation could receive under these circumstances, whether or not the Bank actually invests the Accelerated Principal in any Treasury Obligation. The Bank's determination as to Reinvestment Costs pursuant to this Section 2.4 shall be conclusive, final and binding on the Company in the absence of manifest error. 2.5 Increased Costs. If, after the date of this Agreement, the adoption of any applicable Governmental Rule, any change in any applicable Governmental Rule, any change in the interpretation or administration of any applicable Governmental Rule by any Governmental Person charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive (whether or not having the force of law) of any such Governmental Person (a) shall subject the Bank to any tax, duty or other charge with respect to all or any portion of any Advance, or its obligation to make all or any portion of any Advance or shall change the basis of taxation of payments to the Bank of any amounts due under this Agreement, or the Note (except for changes which affect franchise taxes or taxes measured by or imposed on the overall net income of the Bank or any of its offices imposed by the tax laws of any jurisdiction in the world); or -11- 12 (b) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit, capital adequacy requirement, capital equivalency, ratio of assets to liabilities or any other capital substitute or similar requirement against assets of, deposits with or for the account of, credit extended by, letters of credit issued and maintained by, or collateral subject to a lien in favor of the Bank, or shall impose on the Bank any other condition affecting all or any portion of any Advance; and the result of any of the foregoing is to increase the cost to or to impose a cost on the Bank of making or maintaining all or any portion of any Advance, or to reduce the amount of any sum received or receivable by the Bank under this Agreement or the Note, or (in the case of a capital adequacy or similar requirement) to reduce the rate of return on the Bank's capital as a consequence of maintaining all or any portion of any Advance to a level below that which could have been achieved but for the imposition of such requirement (taking into consideration the Bank's capital adequacy policies), then, within 30 days after demand by the Bank, the Company shall pay the Bank for its own account such additional amount or amounts as will compensate the Bank for such increased cost or reduction actually incurred. The Bank will promptly notify the Company of any event of which it has knowledge, occurring after the date of this Agreement, which will entitle the Bank to compensation pursuant to this Section 2.5. A certificate of the Bank claiming compensation for itself under this Section 2.5 and setting forth in reasonable detail the additional amount or amounts to be paid to the Bank shall be conclusive evidence of the amount of such compensation absent manifest error. In determining such amount, the Bank may use any reasonable averaging and attribution methods. 2.6 Net Payments. All payments to the Bank under this Agreement or the Note shall be made without defense, setoff or counterclaim and in such amounts as may be necessary in order that all such payments (after deduction or withholding for or on account of any present or future taxes, levies, imposts, duties, or other charges of whatsoever nature imposed by any government, any political subdivision or any taxing authority, other than any franchise tax or other tax owed and measured by the overall net income of the Bank or any of its offices pursuant to the tax laws of any jurisdiction in the world (collectively, the "Taxes")), shall not be less than the amounts otherwise specified to be paid under this Agreement or the Note. A certificate as to any additional amounts payable to the Bank under this Section 2.6 submitted to the Company by the Bank shall show in reasonable detail the amounts payable and the calculations used to determine in good faith such amounts and shall be conclusive absent manifest error. Any amounts payable by the Company under this Section 2.6 with respect to past payments shall be due within three Business Days following receipt by the Company of such certificate from the Bank; any such amounts payable with respect to future payments shall be due concurrently with such future payments. With respect to each deduction or withholding for or on account of any Taxes, the Company shall promptly furnish to the Bank such certificates, receipts and other documents as may be -12- 13 required (in the reasonable judgment of the Bank) to establish any tax credit to which the Bank may be entitled. 2.7 Security for the Advances. The Advances shall be secured by a first priority lien upon and security interest in approximately 99.99% of the issued and outstanding HCL Stock pursuant to the Company Pledge Agreement and the TRIL Pledge Agreement. 3. USE OF PROCEEDS. The Company covenants and agrees that it shall use the proceeds of each and every Advance made to it by the Bank pursuant hereto (i) to repurchase, or reimburse the Company for purchases after November 15, 1995 of, outstanding Senior Subordinated Notes and/or Senior Reset Notes; provided, that not more than $20,000,000 of such proceeds shall be used for this purpose; and (ii) for general corporate purposes, including the acquisition by the Company of businesses or lines of businesses. 4. NOTE EVIDENCING BORROWINGS. The Advances shall be evidenced by the Note. All Advances made by the Bank to the Company and all repayments of principal by the Company shall be reflected by the Bank in its records or, at the Bank's option, on the schedule attached to the Note, which records or schedule shall be rebuttable presumptive evidence of the entries made therein or thereon. The Bank agrees to provide statements of such amounts to the Company upon the Company's written request; provided, however, that, in the event of any conflict between such statement and the Bank's books and records, the latter shall be controlling absent manifest error. 5. INTEREST AND FEES 5.1 Interest. Subject to Sections 5.2 and 5.3 hereof, the unpaid principal of each Advance shall bear interest prior to maturity for each Interest Period at a rate per year (the "LIBOR-Based Rate") equal to 2.25 percentage points per annum above the LIBOR for that Interest Period. 5.2 Absence of LIBOR Determination; Unenforceability. Notwithstanding anything to the contrary contained in Section 5.1, if the Bank determines, on any Date of Determination, that (i) by reason of circumstances affecting the London Interbank Market generally, adequate and fair means do not exist for ascertaining an applicable LIBOR or it is impractical for the Bank to continue to fund the outstanding principal amount of the Note during the applicable Interest Period, or (ii) London Eurodollar Deposit Rates are no longer being quoted (temporarily or permanently) on the Reuters Monitor Money Rates Service or such Service is no longer functioning (temporarily or permanently) in substantially the same manner as on the date hereof, and, after negotiating in good faith, the Bank has failed to agree with the Company with respect to a substitute, publicly available reference for the determination of LIBOR, or (iii) quotes for funds in United States Dollars in sufficient amounts comparable to the then outstanding principal amount of the Note and for the -13- 14 duration of the applicable Interest Period would not be available to the Bank in the London Interbank Market, or (iv) quotes for funds in United States Dollars in the London Interbank Market will not accurately reflect the cost to the Bank of funding the outstanding principal amount of the Note during the applicable Interest Period, or (v) the making or funding of loans, or charging of interest at rates, based on LIBOR shall be unlawful or unenforceable for any reason, then as long as such circumstance(s) shall continue, interest on the outstanding principal amount of the Note shall be payable at a variable rate per year which shall be equal to the Prime-Based Rate and such interest shall be payable on the last day of each Interest Period until the principal amount of the Note is paid in full. 5.3 Default Rate. Regardless of the applicability of any other interest rate hereunder, whether pursuant to Section 5.1 or 5.2 or otherwise, interest on the outstanding principal amount of the Note shall be payable at the Default Rate (as hereinafter defined), at any date after the entire outstanding principal balance of the Note shall have become due and payable (whether by reason of stated maturity, acceleration or otherwise; provided, however, in the case of acceleration, the Default Rate also shall apply retroactively from the earliest date an Event of Default, by reason of nonpayment or otherwise, first occurred). For the purposes hereof, the "Default Rate" means a variable rate per year which shall at all times be equal to two percent (2%) per year above the Prime-Based Rate, except that in the case of acceleration, the Default Rate applicable to any Advance bearing interest at the LIBOR-Based Rate shall be equal to two percent (2%) per year above the LIBOR-Based Rate during the Interest Period in which such acceleration occurs until the last day of such Interest Period and, thereafter, shall be equal to two percent (2%) per year above the Prime-Based Rate. 5.4 Generally. Interest shall be payable on the unpaid principal balance of each Advance evidenced by the Note on the last day of each Interest Period in respect thereof and at any time that any part of such principal is due or is paid, or any time that the Note is paid in full. Such interest shall be calculated on a daily basis on the outstanding principal balance of each Advance at the applicable LIBOR-Based Rate or the Default Rate, as the case may be, divided by 360 on the actual days elapsed from the date hereof, or from the date the entire principal balance of the Note shall have become due and payable, or from the stated date of maturity, as appropriate, until paid. Any payment by other than immediately available funds shall be subject to collection. Interest shall continue to accrue until the funds by which payment of principal is made are available to the Bank for its use. Interest shall never exceed the maximum lawful rate of interest applicable to the Note. 5.5 Fees. (a) The Company shall pay to the Bank a non-refundable Facility Fee of $200,000 for making this credit facility available to the Company. The Facility Fee shall be payable in three equal installments, of which the first such installment is being paid concurrently with the execution and delivery of this Agreement and the second and third such installments shall be payable, respectively, on the first and second anniversaries of the date -14- 15 of this Agreement, whether or not any Advances have then been made or requested or this Agreement otherwise remains in effect. (b) The Company shall pay the usual and customary fees and charges of the Trust Company for its services in holding, as trustee for the Bank, the certificates representing HCL Stock, in accordance with the Company Pledge Agreement and the TRIL Pledge Agreement. 5.6 Conclusive Determination. The Bank's determination (i) as to the occurrence or continuation of any of the events referred to in Section 5.2, and (ii) of LIBOR and the applicable interest rate and the amount of interest accrued under the Note, shall be conclusive, final and binding on the Company in the absence of manifest error. 6. PAYMENTS, OFFSETS AND REDUCTION OR TERMINATION OF THE CREDIT 6.1 Place of Payment. All payments hereunder (including payments with respect to the Note) shall be made without set-off, counterclaim or deduction and shall be made in immediately available funds by the Company to the Bank, prior to 3:00 p.m., New York time, at its offices at 1177 Avenue of the Americas, New York, New York 10036 or at such other place as may be designated by the Bank to the Company in writing. Any payment received after 3:00 p.m., New York time, shall be deemed received on the next Business Day. If any payment of principal of or interest on the Note or any other amount under the Note or this Agreement falls due on a day that is not a Business Day, it shall be payable on the next succeeding Business Day (unless such day would be a day in the next calendar month, and in such case payment shall be due on the immediately preceding Business Day), and the resulting additional or decreased time (if any) shall be included in or deducted from the computation of interest. 6.2 Set-Off. In addition to and not in limitation of all rights of set-off that the Bank may have under applicable law, any and all balances, credits, deposits, accounts or moneys of the Company then or thereafter maintained or held at any of the Bank's offices worldwide and in any currency, shall be subject to being set off against any obligations of the Company to the Bank arising under this Agreement or the other Loan Documents, and in furtherance thereof, the Bank may at any time and from time to time after an Event of Default shall have occurred and be continuing at its option and without notice to the Company, except as may be required by law, appropriate and apply toward the payment of any of such obligations of the Company to the Bank all or any part of the balances of each such balance, credit, deposit, account, or money with the Bank. 7. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this Agreement and to make Advances hereunder, the Company represents, warrants and covenants to the Bank that: -15- 16 7.1 Corporate Existence. The Company is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and has the corporate power and authority to own its properties and other assets and to transact the business in which it is now engaged or proposes to engage. Each of TRIL and HCL is a duly organized and validly existing corporation under the laws of the State of Israel and has the corporate power and authority to own its properties and other assets and to transact the business in which it is now engaged or proposes to engage. Each of the Company and HCL is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the failure to qualify would have a material adverse effect on its business. 7.2 Holdings. TPR owns both beneficially and of record all of the issued and outstanding capital stock of the Company. The Company owns beneficially (including 3,662,830 shares owned of record by TRIL) 52,480,013 shares of HCL Stock, which represents approximately 99.999% of the issued and outstanding HCL Stock, of which 48,817,183 shares, representing approximately 93.02%, are owned of record by the Company. HCL owns beneficially and of record all 2,640 of the issued and outstanding shares of capital stock of TRIL, except for one share owned of record by a subsidiary of HCL. As of the date hereof, (i) the shareholders of TPR and their respective interests therein, and (ii) the identity of the principal stockholder of the Company and its interest therein, are as set forth in the Company's Form 10-K for the fiscal year ended December 31, 1994. As of the date hereof, the Company has no Subsidiaries other than those listed on Exhibit 21 to such Form 10-K, and certain other Subsidiaries which, if considered in the aggregate as a single Subsidiary, would not constitute a Significant Subsidiary. 7.3 Authorization and Execution. (a) The Company has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Loan Documents executed by it. The execution, delivery and performance by the Company of such Loan Documents and the borrowing hereunder have been duly authorized by all requisite corporate action. This Agreement, the 1990 Pledge Agreement, the 1990 Pledge Agreement Amendment No. 1, the 1990 Pledge Agreement Amendment No. 2 and the 1990 Pledge Agreement Amendment No. 3, are, and the Note and the 1990 Pledge Agreement Amendment No. 4, when executed and delivered by the Company pursuant hereto, will be legal, valid and binding obligations of the Company, enforceable against the Company, in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by the application by a court of equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). The 1990 Pledge Agreement, the 1990 Pledge Agreement Amendment No. 1, the 1990 Pledge Agreement Amendment No. 2 and the 1990 Pledge Agreement Amendment No. 3 remain in full force and effect and upon the execution and delivery of the 1990 Pledge Amendment No. 4 they shall constitute a valid, binding and enforceable pledge of 48,817,183 shares of HCL Stock, as security for the obligation of the Company to the Bank under the Note. Since the 1990 Pledge Agreement was entered into, neither the Company nor, to the best knowledge of the Company, any other party to the Company Pledge Agreement has in any manner violated or caused the violation of any of the terms and conditions of the 1990 Pledge Agreement, the 1990 Pledge Agreement Amendment No. 1, -16- 17 the 1990 Pledge Agreement Amendment No. 2 or the 1990 Pledge Agreement Amendment No. 3, nor failed to perform or fulfill any of its obligations thereunder. (b) TRIL has the corporate power and authority to execute, deliver and carry out the terms and provisions of the TRIL Pledge Agreement and any other Loan Documents executed by it. The execution, delivery and performance by TRIL of such Loan Documents has been duly authorized by all requisite corporate action. The TRIL Pledge Agreement, when executed and delivered by TRIL pursuant hereto, will be a legal, valid and binding obligation of TRIL, enforceable against TRIL, in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by the application by a court of equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). The TRIL Pledge Agreement, when executed and delivered by TRIL, shall constitute a valid, binding and enforceable pledge of 3,662,830 shares of HCL Stock, as security for the obligation of the Company to the Bank under the Note. 7.4 Compliance with Other Instruments. Neither the Company nor HCL is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any evidence of Indebtedness of the Company or HCL, or contained in any instrument under or pursuant to which any such evidence of Indebtedness has been issued or made and delivered. Neither the execution and delivery of the Loan Documents, nor the consummation of the transactions herein contemplated, including but not limited to the use of the proceeds of any Advance for the funding of any acquisition or for any other purpose, will conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or By- laws or other organizational charter and instruments of the Company, or of any agreement or instrument to which the Company is now a party or otherwise bound or to which any of the Company's properties or other assets is subject, or of any law, statute, rule or regulation or any order or decree of any court or governmental instrumentality, or of any arbitration award, franchise or permit, or constitute a default thereunder, or result in the creation or imposition of any Lien upon any of the properties or other assets of the Company, except as herein contemplated. 7.5 Consents. No consent or approval of, or exemption by, any Person (including, without limitation, the shareholders of the Company), and no waiver of any right by any Person is required to authorize or permit, or is otherwise required in connection with, the execution, delivery and performance of the Loan Documents, or with respect to the required use by the Company of the proceeds of any Loan, except those which shall have been obtained on or prior to the date hereof. 7.6 Financial Statements. The Company has heretofore furnished to the Bank copies of the unqualified audited consolidated financial statements of the Company as of December 31, 1994 and for the year then ended, the unaudited consolidated financial statements of the Company as of September 30, 1995 and for the nine-month period then ended, and the unqualified audited consolidated financial statements of HCL as of December 31, 1994 and for the year then ended and the unaudited consolidated financial statements of HCL as of September 30, 1995 and for the nine-month period then ended -17- 18 (collectively, the "Financial Statements"). All of the Financial Statements present fairly the financial position of the Company or HCL, as the case may be, on the date of the balance sheet included therein and the results of the operations of the Company or HCL, as the case may be, for the period involved, and have been prepared in accordance with, in the case of the Company, generally accepted accounting principles in effect in the United States and in the case of HCL, generally accepted accounting principles in effect in Israel, applied on a consistent basis throughout the periods involved (subject to, in the case of the interim financial statements, normal year-end audit adjustments not material in amount). 7.7 No Material Changes. There has been no material adverse change in the business, properties or other assets or in the condition, financial or otherwise, of the Company or HCL since the date of the most recent balance sheets included in their respective Financial Statements. 7.8 Litigation. Except as set forth on Schedule A, there are no actions, suits, investigations or proceedings (whether or not purportedly on behalf of the Company or HCL) pending or, to the knowledge of the Company threatened against or affecting the Company or HCL, at law or in equity or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which involve the possibility of any material liability or of any material adverse effect on the business, operations, prospects, properties or other assets or in the condition, financial or otherwise, of the Company or HCL. 7.9 Compliance with Law. Each of the Company and HCL is in compliance, in all material respects, with all applicable requirements of law and all applicable rules and regulations of each Federal, state, municipal or other governmental department, agency or authority, domestic or foreign, the noncompliance with which would have a material adverse effect on the business, affairs, or financial condition of the Company or HCL, as the case may be. 7.10 Investment Company. The Company is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, or the regulations under such act. 7.11 Residency and Citizenship Status of Company. The Company (i) is not an "Israel resident" for purposes of Israeli Exchange Control Law, 5738-1978, (ii) maintains its chief executive offices and principal place of business in the State of New York, (iii) is not registered in Israel as a foreign company and does not have a registered office in Israel, and (iv) is not a representative, branch or agency in Israel for any other Person. 7.12 Ownership of Company. As of the date of this Agreement, none of the issued and outstanding shares of each class of the Company's capital stock are owned, directly or indirectly, of record and/or beneficially, by Israeli Residents. 7.13 Regulation U, Etc. None of the proceeds of any Advance will be used, directly or indirectly, for any purpose that will violate, or cause the Bank to be in violation of, or that will require the Bank to file or obtain any forms or notices or applications of any -18- 19 kind so as not to be in violation of, Regulation U (12 CFR, Part 221) of the Board of Governors of the Federal Reserve System. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Note or the making of any Advance to violate Regulation U or any other regulation of the Board of Governors of the Federal Reserve System. 7.14 ERISA. (i) Each single-employer Plan has been maintained and funded, in all material respects, in accordance with its terms and with all provisions of ERISA applicable thereto, and the Company and its Subsidiaries have each taken all actions required to be taken by them to cause each multi-employer Plan to be maintained and funded, in all material respects, in accordance with its terms and with all provisions of ERISA applicable thereto; (ii) no Reportable Event has occurred and is continuing with respect to any single-employer Plan or, to the Company's knowledge, any multi-employer Plan; and (iii) no liability to PBGC has been incurred by the Company or any Subsidiary thereof with respect to any single-employer Plan or, to the Company's knowledge, any multi-employer Plan, other than for premiums due and payable. 7.15 Control of the Company. TPR (i) is a Delaware corporation, the economic equity interest of which is 100% owned by Arie Genger and members of his family, and (ii) owns all of the issued and outstanding common stock of the Company and Controls the Company. 7.16 Senior Subordinated Note Indenture. The Company has delivered to the Bank a true and correct copy of the Senior Subordinated Note Indenture and all amendments and supplements thereto as in effect on the date hereof. 7.17 Senior Reset Note Indenture. The Company has delivered to the Bank a true and correct copy of the Senior Reset Note Indenture and all amendments and supplements thereto as in effect on the date hereof. 7.18 Priority of Loans. All indebtedness of the Company to the Bank arising from the Loan Documents, including but not limited to the Company's obligations to pay the principal of and interest on the Note, is and at all times will be senior in right of payment to the Senior Subordinated Notes and the Senior Reset Notes, as provided in the Senior Reset Note Indenture and Senior Subordinated Note Indenture, respectively. 7.19 No Bank of Israel Approval Needed. No exchange control specific permit issued by the Bank of Israel is required in connection with the transactions contemplated in this Agreement, other than the specific permit for the TRIL Pledge Agreement, which was issued prior to the date hereof. 7.20 Refinancing Commitment for Senior Reset Notes. The Company or its Subsidiary has obtained a firm written commitment to provide it with funds sufficient to refinance or otherwise repay the Senior Reset Notes, a true and complete copy of which commitment has been furnished to the Bank. -19- 20 8. CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of the Bank to make the initial Advance to the Company hereunder is subject to the satisfaction, on or before the date of the making of such Advance, of each of the following conditions precedent which are solely for the benefit of the Bank: 8.1 Repayment of Previous Company Loan. The Company (i) shall have repaid in full the loan in the principal amount of $27,500,000 previously made by the Bank to the Company pursuant to the Loan Agreement dated as of June 30, 1994 between the Bank and the Company and (ii) shall have delivered to the Bank a duly executed guarantee of the loan from the Bank to HCL referred to in Section 11.19(i) hereof, which guarantee shall be in form and substance satisfactory to the Bank. 8.2 Note. The Note shall have been duly executed and delivered to the Bank. 8.3 Pledge and Security Agreements. (i) The Company shall have delivered to the Bank (A) a duly executed copy of the Company Pledge Agreement, together with certificates representing 48,817,183 shares of HCL Stock, registered in the name of the Trust Company, and a certificate from the Secretary of HCL certifying that such shares are so registered (in form and substance acceptable to the Bank), (B) a certificate from the Registrar of Pledges in Jerusalem, Israel to the effect that the pledge of such shares has been duly filed therewith in accordance with applicable law (in form and substance acceptable to the Bank), (C) a duly executed copy of the 1990 Pledge Agreement Amendment No. 4, and (D) any other instruments and documents as the Bank may reasonably require to perfect its lien on such collateral under both United States and Israeli law, as appropriate, including UCC-1 financing statements, and the Bank shall have a valid and enforceable first priority lien and security interest in all of such collateral. (ii) TRIL shall have delivered to the Bank (A) a duly executed copy of the TRIL Pledge Agreement, together with certificates representing 3,662,830 shares of HCL Stock, registered in the name of the Trust Company, and a certificate from the Secretary of HCL certifying that such shares are so registered (in form and substance acceptable to the Bank), (B) a certificate from the Registrar of Companies to the effect that the pledge of such shares has been duly filed therewith in accordance with applicable law (in form and substance acceptable to the Bank), and (C) any other instruments and documents as the Bank may reasonably require to perfect its lien on such collateral under both United States and Israeli law, as appropriate, including UCC-1 financing statements, and the Bank shall have a valid and enforceable first priority lien and security interest in all of such collateral. 8.4 Opinions of Counsel. The Bank shall have received (i) from United States counsel for the Company a favorable written opinion addressed to the Bank and dated the date of the initial Advance hereunder, satisfactory to the Bank and substantially in the form set forth in Exhibit 8.4-1 annexed hereto, and (ii) from Israeli counsel to the Company and HCL, a favorable written opinion addressed to the Bank and dated the date of the initial Advance hereunder, satisfactory to the Bank and substantially in the form set forth in Exhibit 8.4-2. -20- 21 8.5 Supporting Documents. The Bank shall have received the following from each of the Company and TRIL: (i) a certificate of its Secretary or an Assistant Secretary, dated the date of the initial Advance hereunder, certifying as to (A) its By-laws, in the case of the Company, and its Memorandum of Association, in the case of TRIL; (B) resolutions of its Board of Directors authorizing the execution, delivery and performance of this Agreement, the Note and any other Loan Documents executed by it, in the case of the Company and the TRIL Pledge Agreement, in the case of TRIL; (C) the full force and effect of such resolutions on the date of such Advance; and (D) the incumbency and signature of each of the officers of the Company who sign the Loan Documents and all other closing papers hereunder; (ii) certified copies of its Certificate of Incorporation, in the case of the Company, and its Articles of Association, in the case of TRIL, listing all charter papers on file, as amended through the date hereof; (iii) a good standing certificate from the Secretary of State of the State of Delaware, in the case of the Company; and (iv) such additional supporting documents as the Bank may reasonably request. 8.6 Fees. All applicable fees and charges payable by the Company to the Bank or with respect to the transactions described in this Agreement shall have been paid. 8.7 Proceedings. All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement shall be satisfactory in form, scope and substance to the Bank and its counsel, and the Bank and such counsel shall have received all information and copies of all documents, including records of corporate proceedings, which the Bank or its counsel may reasonably have requested in connection therewith, such documents where appropriate to be certified by proper corporate and governmental authorities. 9. CONDITIONS PRECEDENT TO ALL ADVANCES INCLUDING THE INITIAL ADVANCE. The obligation of the Bank to make each Advance (including the initial Advance) is subject to the satisfaction, on or before the date of the making of such Advance, of each of the following conditions precedent which are solely for the benefit of the Bank: 9.1 Borrowing Request. Written request for the borrowing shall have been received by the Bank at least three (3) Business Days before the proposed borrowing pursuant to Section 2.2 hereof. 9.2 No Default. Both before and after giving effect to the Advance (including upon application of the proceeds thereof), there shall exist no Default or Event of Default. 9.3 Representations. Both before and after giving effect to the Advance (including upon application of the proceeds thereof), all representations and warranties by the Company contained herein and all representations and warranties contained in the other Loan Documents shall be true and correct, with the same force and effect as if made on and as of the date of the Advance. -21- 22 9.4 Officers' Certificate. The Company shall have delivered to the Bank a certificate signed by the chief financial officer and the Chairman, President or any Vice President (other than the chief financial officer) of the Company dated the date of the Advance, certifying and confirming that (i) no Default or Event of Default exists as set forth in Section 9.2 hereof, and (ii) the representations and warranties referred to in Section 9.3 hereof are true and correct and, in furtherance of and without limiting the generality of the foregoing, the Company is not "insolvent" within the meaning of the Federal Bankruptcy Code Section 101(32). 9.5 Pledge Agreements. The Company Pledge Agreement and the TRIL Pledge Agreement shall remain in full force and effect and all filings necessary to perfect and protect the Bank's interest in the HCL Stock subject to the Company Pledge Agreement and the TRIL Pledge Agreement shall have been filed and kept current in the appropriate offices of all applicable jurisdictions. 9.6 Fees. All applicable fees and charges payable by the Company to the Bank or with respect to the transactions described in this Agreement shall have been paid. 9.7 Proceedings. All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement shall be satisfactory in form, scope and substance to the Bank and its counsel, and the Bank and such counsel shall have received all information and copies of all documents, including records of corporate proceedings, which the Bank or its counsel may reasonably have requested in connection therewith, such documents where appropriate to be certified by proper corporate and governmental authorities. 10. AFFIRMATIVE COVENANTS. The Company covenants and agrees that from and after the date hereof until the expiration or termination of the commitment of the Bank to make Advances under the terms of this Agreement and all sums due and to become due hereunder or under any other Loan Document have been paid or repaid in full, unless the Bank shall otherwise consent in a writing delivered to the Company: 10.1 Pay Principal and Interest. The Company will punctually pay or cause to be paid the principal and interest to become due in respect of the Note according to the terms hereof and thereof. 10.2 Maintenance of Company Office. The Company will maintain an office in New York, New York (or such other place in the United States of America as the Company may designate in writing to the Bank or to any subsequent holder of the Note), where notices and demands to or upon the Company in respect of the Note may be given or made. 10.3 Keep Books. The Company will keep proper books of record and account in which true, correct and complete entries will be made of its transactions in accordance with generally accepted accounting principles. -22- 23 10.4 Payment of Taxes; Corporate Existence; Maintenance of Properties. The Company will, as to itself, and will cause HCL to: (a) Pay and discharge promptly all taxes (including, without limitation, all payroll withholdings), assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of its property, real, personal or mixed, or upon any part thereof, before the same shall become in default, as well as all claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon its property; provided, however, that it shall not be required to pay any such tax, assessment, charge, levy or claim or discharge any such Lien if the validity thereof shall be contested in good faith by appropriate proceedings and if it shall have set aside on its books such reserves, if any, as may be required in accordance with generally accepted accounting principles with respect to the tax, assessment, charge, levy or claim so contested; (b) (i) Conduct its business according to good business practices; (ii) keep in full force and effect its corporate existence, and material rights, licenses, permits and franchises (except those the Company determines to be no longer material) and comply in all material respects with all of the laws, rules and regulations governing its business (except such non-compliance as does not have a material adverse effect on the Company or HCL); and (iii) make all such reports and pay all such franchise and other taxes and license fees and do all such other things as may be lawfully required, to maintain its material rights, licenses, powers and franchises under the laws of the United States of America and of the States or jurisdictions in which it is organized or does business; and (c) Maintain and keep, or cause to be maintained and kept, its properties in good repair, working order and condition, and from time to time make or cause to be made all needful repairs, renewals, replacements and improvements so that the business carried on in connection therewith may be properly conducted at all times. 10.5 Financial Statements and Reports. The Company will furnish to the Bank, in duplicate: (a) As soon as practicable, and in any event within 90 days after the end of each fiscal year of the Company, annual unqualified audited consolidated balance sheets of the Company and its Subsidiaries as at the end of such year and related consolidated statements of income, retained earnings and cash flows of the Company and its Subsidiaries for such year, setting forth in comparative form the corresponding figures for the preceding fiscal year, audited by independent certified public accountants of recognized standing selected by the Company and acceptable to the Bank; (b) As soon as practicable, and in any event within 105 days after the end of each fiscal year of the Company, annual unaudited consolidating balance sheets of the Company and its Subsidiaries as at the end of such year and related consolidating statement of income of the Company and its Subsidiaries for such year, certified by the chief financial officer of the Company as to (i) fair presentation of the financial position and the results of operations of the Company and (ii) having been prepared in accordance with generally accepted accounting principles consistently applied; -23- 24 (c) As soon as practicable, and in any event within 60 days after the end of each fiscal quarter of the Company, a consolidated balance sheet, related consolidated statements of income, retained earnings and cash flows of the Company showing its financial condition as of the last day of such fiscal quarter and the results of operations for such fiscal quarter, certified by the chief financial officer of the Company as to (i) fair presentation of the financial position and the results of operations of the Company and (ii) having been prepared in accordance with generally accepted accounting principles consistently applied; (d) As soon as practicable, and in any event within 60 days after the end of each fiscal quarter of the Company, a consolidating balance sheet and related consolidating statement of income of the Company showing its financial condition as of the last day of such fiscal quarter and the results of operations for the fiscal year to date, certified by the chief financial officer of the Company as to (i) fair presentation of the financial position and of the Company and the results of operations (ii) having been prepared in accordance with generally accepted accounting principles consistently applied; (e) As soon as practicable, and in any event within 180 days after the end of each fiscal year of HCL, unqualified audited consolidated balance sheets, related statements of income, retained earnings and cash flows showing HCL's financial condition, as of the close of such fiscal year and its results of operations during such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, audited by independent certified public accountants of recognized standing selected by the Company or HCL and acceptable to the Bank; (f) Promptly upon filing with the United States Securities and Exchange Commission, copies of the Company's Forms 10-K and 10-Q as well as all other reports required of the Company under Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended; (g) Promptly following the occurrence thereof, notice of any material adverse change in the business, affairs or financial condition of the Company or HCL; (h) Promptly following the occurrence thereof, notice that the operations of Eddy Potash, Inc. have been put on a standby basis or discontinued; (i) Promptly following the occurrence thereof, notice of any Default hereunder or of any default under any other Loan Document, the Senior Subordinated Note Indenture, the Senior Reset Note Indenture, any Senior Indebtedness, any Junior Indenture, or any Indebtedness to any institutional lender; (j) When any quarterly or annual financial statements are required under this Section 10.5, or more often at the Bank's request, a certificate signed by the chief executive officer or chief financial officer of the Company (or, if requested by the Bank, by the Company's independent certified public accountants) certifying that no Default has occurred and is continuing; and -24- 25 (k) Such other information as to the financial condition, operations, business, properties and other assets of the Company or HCL as the Bank may from time to time reasonably request. The Company shall cause all audited financial statements required to be delivered to the Bank pursuant to this Section 10.5 to be addressed to the Bank by the independent certified public accountant who performed the audit. 10.6 Application of Proceeds. The Company will apply all proceeds of each Advance as provided in Section 3 hereof. In furtherance of the foregoing, the Company shall give notice to the Bank promptly and in no event less than five Business Days following any acquisition for which the proceeds of any Advance are used. 10.7 ERISA Compliance. The Company will comply, in all material respects, and cause each of its Subsidiaries to comply, in all material respects, with the provisions of ERISA, if applicable, with respect to each of its or their respective Plans and as soon as possible after the Company knows or has reason to know that any Reportable Event with respect to any Plan has occurred, furnish to the Bank a statement signed by its chief executive officer or its chief financial officer setting forth details as to such Reportable Event and the action, if any, which the Company or its Subsidiary proposes to take with respect thereto, together with a copy of the notice of such Reportable Event furnished to PBGC. 10.8 HCL Dividends. If the Company is unable to make any payment when due under the Note, the Company shall cause HCL to declare and pay cash dividends to the Company in amounts sufficient so that the Company may make such payments, and the Company shall use such dividends for such purpose; provided, however, that if the declaration and payment of such dividends would be prohibited by any applicable Governmental Rule, the Company shall not be required to cause such declaration and payment, but shall use its best efforts to obtain any necessary approvals and permits so that such declaration and payment can be made in compliance with applicable Governmental Rules. 10.9 Senior Subordinated Notes Repurchase Event or Senior Reset Notes Repurchase Event. In the event of either (i) a "Change of Control," as defined in the Senior Subordinated Note Indenture, of the Company giving rise to an offer by the Company to purchase Senior Subordinated Notes pursuant to Section 4.18 of the Senior Subordinated Note Indenture (a "Senior Subordinated Notes Repurchase Event") or (ii) a "Change of Control," as defined in the Senior Reset Note Indenture, of the Company giving rise to an offer by the Company to purchase Senior Reset Notes pursuant to Section 4.17 of the Senior Reset Note Indenture (a "Senior Reset Notes Repurchase Event"), the Company shall give the Bank notice of such event not more than five Business Days thereafter. 10.10 Senior Reset Note Indenture Covenants. So long as the Senior Reset Note Indenture is in force and effect, the Company agrees to do and perform, in favor of and for the benefit of the Bank, all things set forth in Sections 4.02, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.19 and 4.20 of the Senior Reset Note Indenture, as in -25- 26 effect on the date hereof (notwithstanding any amendment thereof), and such sections are incorporated herein by reference, as if set out herein in full, with such modifications as may be appropriate, mutatis mutandis. 10.11 Senior Subordinated Note Indenture. The Company agrees to do and perform, in favor of and for the benefit of the Bank, all things set forth in Section 4.02, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.16 of the Senior Subordinated Note Indenture, as in effect on the date hereof (notwithstanding any amendment or termination thereof), and such sections are incorporated herein by reference, as if set out herein in full, with such modifications as may be appropriate, mutatis mutandis, provided that, for the purposes of this Section 10.11, the term "Event of Default" as used in such Sections shall be deemed to mean an Event of Default as defined in this Agreement, and any notice required to be furnished to the trustee under the Senior Subordinated Note Indenture pursuant to the provisions of Sections 4.12 and 4.15 shall be furnished to the Bank. 11. NEGATIVE COVENANTS. The Company covenants and agrees that from and after the date hereof until the expiration or termination of the commitment of the Bank to make Advances under the terms of this Agreement and all sums due and to become due hereunder or under any other Loan Document have been paid or repaid in full, unless the Bank shall otherwise consent in a writing delivered to the Company, the Company, after giving effect to any Advance hereunder, will not: 11.1 Indebtedness to Adjusted Net Worth Ratio of the Company. Permit the ratio of the Company's total Indebtedness to the Company's Adjusted Net Worth to exceed, at any time, (a) 3 to 1, or (b) on a consolidated basis, 5 to 1. 11.2 Maintenance of Adjusted Net Worth of the Company. Permit the Company's Adjusted Net Worth to be less than $100,000,000. 11.3 Maintenance of Tangible Net Worth of the Company. Permit (a) the Company's Tangible Net Worth to be $0 or less at any time, or (b) the Company's Tangible Net Worth, on a consolidated basis, to be $0 or less at any time. 11.4 Maintenance of Tangible Net Worth of HCL. Permit HCL's Tangible Net Worth on a consolidated basis, as calculated according to Israeli generally accepted accounting principles, to be less than $65,000,000. 11.5 Maintaining Current Ratios. Permit (a) the Company's Current Ratio to be less than 1.5 to 1 at any time, or (b) the Company's Current Ratio, on a consolidated basis, to be less than (i) 1.35 to 1 at any time prior to March 31, 1996 or (ii) 1.5 to 1 at any time on or subsequent to March 31, 1996, or (c) HCL's Current Ratio, on a consolidated basis, to be less than 1.5 to 1 at any time. 11.6 Maintenance of Working Capital. Permit the Company's Working Capital, on a consolidated basis, to be less than (i) $60,000,000 at any time prior to March -26- 27 31, 1996, (ii) $70,000,000 at any time on or subsequent to March 31, 1996 and prior to June 30, 1996, and (iii) $75,000,000 at any time on or subsequent to June 30, 1996. 11.7 No Net Losses. Permit the Company to have, on a consolidated basis, a net loss at the end of any fiscal year (other than the fiscal year ending December 31, 1995), or HCL to have a net loss at the end of any fiscal year (including the year ending December 31, 1995). 11.8 Restrictions on Dividends. Pay dividends during the period beginning on January 1, 1995 and ending on the Maturity Date (or, if later, the date on which all principal of and interest on the Note has been paid in full) that exceed, in the aggregate, (i) $4,000,000 plus (ii) an additional amount of $4,000,000 for each calendar year, beginning with the 1996 calendar year, on a cumulative basis, plus (iii) an additional amount of $500,000 for every three calendar month period beginning January 1, 1996, on a cumulative basis, provided, that no dividends may be paid upon the occurrence and during the continuance of an Event of Default or if, immediately after the payment thereof, a Default or Event of Default would exist. 11.9 Maintenance of Average Net Income. Permit the average of the Consolidated Net Income of HCL for the most recently completed fiscal year and for the next preceding fiscal year to be less than $8,000,000 per year. 11.10 Amendment of Subordinated Debt. Amend or otherwise change the terms of any Subordinated Debt, or make any payment consistent with an amendment or change thereto, if the effect of such amendment or change is to increase the interest rate or the liquidation preference of such debt securities, accelerate the dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect to such indenture or agreement, change the redemption provisions thereof or change the subordination provisions thereof, or which, together with all such other amendments or changes made, increase the obligations of the obligor or confer additional rights on the holder of such debt securities. 11.11 Amendments of Junior Subordinated Capital. Amend or otherwise change the terms of any Junior Subordinated Capital, or make any payment consistent with an amendment or change thereto, if the effect of such amendment or change is to increase the interest rate, the dividend rate or the liquidation preference on such Junior Subordinated Capital, accelerate the dates upon which payments of principal, dividends or interest are due thereon, change any event of default or condition to an event of default with respect to such Junior Subordinated Capital, change the redemption provisions thereof or change the subordination provisions thereof, or which, together with all other amendments or changes made, increase the obligations of the obligor or confer additional rights on the holder of such Junior Subordinated Capital. 11.12 Use of Proceeds of Advances. Use any part of the proceeds of any Advance hereunder for any purpose other than those specified in Section 3 hereof. -27- 28 11.13 Disposal of Property; Merger. (i) Wind up, liquidate or dissolve; (ii) sell, exchange, lease, transfer or otherwise dispose of all or substantially all of (or agree to do any of the foregoing) its properties or other assets (unless the net proceeds are applied to prepay the Note in accordance with Section 2.3 hereof) other than in transactions with Subsidiaries of the Company; or (iii) consolidate with or merge with or into any other corporation, firm or entity. 11.14 HCL Disposal of Property; Merger. (a) Permit HCL to sell, exchange, lease, transfer or otherwise dispose of all or substantially all of its assets, except in the ordinary course of business. (b) Permit HCL to sell, exchange or otherwise transfer the shares of any of HCL's controlled Subsidiaries except to another HCL-controlled Subsidiary. (c) Permit HCL to consolidate with or merge with or into any other corporation, firm or entity. 11.15 Release of Obligations. Discharge or release HCL from, or extend or otherwise modify in any material way any or all of HCL's material obligations to the Company, now or hereafter incurred. 11.16 Certain Liens. Contract, create, assume, incur or suffer to be created, assumed or incurred any Lien upon, or pledge of, any property or other assets of the Company or any of its Subsidiaries which will secure any other Senior Indebtedness, Senior Subordinated Notes, Senior Reset Notes, any Junior Subordinated Debt or any Subordinated Debt other than (i) Liens created pursuant hereto, (ii) Liens securing the purchase price of goods acquired in the ordinary course of business, not exceeding, in aggregate amount, $1,000,000 and (iii) Liens existing on the date hereof upon the Company's stock ownership of certain of its Subsidiaries, other than HCL, securing loans made to such Subsidiaries by Persons unaffiliated with TPR, the Company or any Subsidiary, and Liens which may arise hereafter upon such stock ownership in connection with the refinancing of such loans. 11.17 Maintenance of Priority. Permit or cause the Indebtedness of the Company to the Bank arising under the Loan Documents, including but not limited to the Company's obligations to pay the principal of and interest on the Note, to not be fully senior in right of payment in all respects to the Senior Subordinated Notes, the Senior Reset Notes, any Junior Subordinated Debt and all other Subordinated Debt. 11.18 HCL Stock. Permit HCL to issue any additional shares of capital stock or sell, assign or transfer or permit HCL to sell, assign or transfer, any of the HCL Stock owned by the Company or TRIL or, anything herein to the contrary notwithstanding, permit the creation of any liens or encumbrances on any of the HCL Stock, whether or not pledged pursuant to the Company Pledge Agreement or the TRIL Pledge Agreement, except pursuant to the Company Pledge Agreement and the TRIL Pledge Agreement. Nothing in this Section 11.18 shall prohibit HCL from issuing additional shares of HCL Stock if required to do so -28- 29 pursuant to a Governmental Rule, provided that such additional shares are expressly pledged and made subject to a first priority security interest in favor of the Bank. 11.19 Contingent Obligations. Assume, guarantee, endorse or otherwise become directly or contingently liable for the obligations of any other Person or Persons in excess of $40 million in the aggregate, except for (i) the endorsement of negotiable instruments for deposit or collection in the ordinary course of business, and (ii) the guarantee by the Company of a loan that may be granted by one of the Bank's Israeli branches to HCL, the proceeds of which will be used, directly or indirectly, to repay the loan referred to in Section 8.1 hereof. 11.20 Issuance of Securities. The Company shall not issue any shares of capital stock or securities convertible into shares of capital stock, or grant any options or rights to acquire any shares of capital stock, to any Israeli Resident, if, upon such issuance or upon the conversion of all outstanding convertible securities of the Company or upon the exercise of all existing options or rights, 25% or more of the issued and outstanding shares of any class of the Company's capital stock would be owned, directly or indirectly, beneficially and/or of record by Israeli Residents. 12. DEFAULTS AND REMEDIES. 12.1 Events of Default. In the case of the occurrence of any of the following events for any reason whatsoever, and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any governmental body or otherwise (each herein sometimes called an "Event of Default"): (a) Any representation or warranty made herein or in any certificate hereafter delivered to the Bank pursuant to this Agreement, the Note or any other Loan Document shall prove to have been false or misleading in any material respect when made; or (b) Any default shall occur in the payment of principal of or interest on the Note, as and when the same shall become due and payable, whether at the due date thereof, by acceleration, mandatory prepayment or otherwise; or (c) (i) Any default shall occur in the due observance or performance by the Company of any other covenant, agreement or condition contained herein (other than pursuant to Section 10.10 or 10.11 hereof) or in the Note, the Company Pledge Agreement, the TRIL Pledge Agreement or any other Loan Document to be performed by the Company; or (ii) any default shall occur in the due observance or performance by the Company of any covenant, agreement or condition contained in Section 10.10 or 10.11 hereof and, in the case of this clause (ii), such default shall continue for 30 days after receipt of notice thereof from the Bank or of a "Notice of Default" pursuant to Section 6.01 of the Senior Subordinated Note Indenture or the Senior Reset Note Indenture, as applicable; or -29- 30 (d) (i) TPR, the Company, HCL, or any Significant Subsidiary shall suspend or discontinue its business, or (ii) TPR, the Company, HCL, Eddy Potash, Inc. or any Significant Subsidiary shall call a meeting of its creditors for the purpose of postponing or adjusting its liabilities or seeking an arrangement with its creditors, shall make an assignment for the benefit of creditors or a composition with creditors, shall be unable or admit in writing its inability to pay its debts generally as they mature, shall generally not pay its debts when they are due, shall file a petition in bankruptcy, shall become insolvent (howsoever such insolvency may be evidenced), shall suffer an order for relief to be entered against it under any bankruptcy law which shall remain undismissed or unstayed for a period of 45 days or more, shall petition or apply to any tribunal for the appointment of any receiver, custodian, liquidator or trustee of or for it or any substantial part of its property or other assets or shall commence any proceeding relating to it under any bankruptcy, reorganization, arrangement, readjustment of debt, receivership, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or there shall be commenced against TPR, the Company, HCL, Eddy Potash, Inc. or any Significant Subsidiary any such proceeding which shall remain undismissed or unstayed for a period of 45 days or more; or TPR, the Company, HCL, Eddy Potash, Inc., or any Significant Subsidiary shall take any action for the purpose of effecting any of the foregoing; or (e) Any order, judgment or decree shall be entered in any proceeding against TPR, the Company, HCL, Eddy Potash, Inc. or any Significant Subsidiary decreeing the dissolution of TPR, the Company, HCL, Eddy Potash, Inc. or any Significant Subsidiary and such order, judgment or decree shall remain undischarged or unstayed for a period in excess of 30 days; or (f) Any Loan Document shall become invalid or unenforceable, in whole or in part, or any default or event of default shall have occurred thereunder; or the Bank shall not have a valid perfected first priority lien, pledge and charge with respect to the HCL Stock under the laws of the State of Israel; or (g) Any default (unless duly waived in writing by the obligee) shall occur with respect to any Indebtedness (other than the Indebtedness evidenced by the Note) of the Company aggregating more than $250,000, any of its Subsidiaries for or relating to borrowed money (including, without limitation, for the deferred purchase price of property or for the payment of rent under any lease), aggregating more than $250,000, or under any agreement under which any evidence of Indebtedness may be issued by the Company or any of its Subsidiaries and such default shall continue for more than the period of grace, if any, specified therein, if the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder thereof, or any trustee, to cause the same to become due prior to its stated maturity or if any such Indebtedness shall not be paid when due; or (h) Final judgment for the payment of money in excess of $250,000 shall be rendered by a court of record against the Company or any of its Subsidiaries, and the Company or any of its Subsidiaries shall not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within 30 days from the date of entry thereof and within such period of 30 days, or such longer period -30- 31 during which execution of such judgment shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) Any Reportable Event which the Bank determines in good faith might constitute grounds for the termination of any Plan or for the appointment by the appropriate United States District Court of a trustee to administer any Plan shall have occurred and be continuing 30 days after notice to such effect shall be given to the Company by the Bank, or any Plan shall be terminated (with the exception of any Plan covering employees at Eddy Potash, Inc.), or a trustee shall be appointed by an appropriate United States District Court to administer any Plan, or PBGC shall institute proceedings to terminate any Plan or appoint a trustee to administer any Plan, or the Company or any of its Subsidiaries shall completely or partially withdraw from any multi-employer Plan (with the exception of any Plan covering employees at Eddy Potash, Inc.) or appoint a trustee to administer any such Plan or shall cease operation at any facility where such cessation could reasonably be expected to result in a separation from employment of more than 20% of the total number of employees who are participants under a Plan (with the exception of any Plan covering employees at Eddy Potash, Inc.); and in each case such event or condition, together with all such other events or conditions, if any, would subject the Company or any of its Subsidiaries to any tax, penalty or other liability aggregating in excess of $250,000, provided, however, that in determining whether such taxes, penalties or other liabilities exceed such limitation, there shall be excluded therefrom any tax, penalty or other liability which (i) within 30 days of being imposed, is paid or satisfied, or (ii) is being contested in good faith and by appropriate proceedings, with respect to which adequate reserves have been set aside by the Company and its Subsidiaries in conformity with generally accepted accounting principles and with respect to which none of the property or assets of the Company or any of its Subsidiaries has become or is about to become subject to any Lien; or (j) An Event of Default as defined under the Senior Subordinated Note Indenture or the Senior Reset Note Indenture shall occur; or (k) The Company shall be in default under any other obligation to Bank Hapoalim B.M. for the payment of money; or (l) TPR shall no longer Control the Company, or shall cease to own a majority of the issued and outstanding common stock of the Company, or Arie Genger and members of his immediate family shall cease to own, in the aggregate, directly or indirectly, more than a majority of the equity and voting interests in TPR, unless any such change constitutes an Approved Change, or Arie Genger shall at any time for a reason other than death or serious disability, fail to maintain beneficial ownership, directly or indirectly, of at least 20% of the voting stock of the Company; or (m) The Company or any Subsidiary thereof shall become an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, or the regulations under such Act; or (n) a Senior Subordinated Notes Repurchase Event or Senior Reset Notes Repurchase Event shall occur; -31- 32 then, if any Event of Default described in subsection (d) above shall have occurred the Note shall immediately become due and payable, and if any Event of Default described in any other subsection of this Section 12.1 shall have occurred, and at any time thereafter, if any such event shall then be continuing, the Bank may, by written notice to the Company, declare the principal of and accrued interest on the Note, and any other amounts owed under this Agreement, the Note or any Loan Document, to be due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. 12.2 Suits for Enforcement. If any one or more of such Events of Default shall occur and be continuing, the holder of the Note may proceed, to the extent permitted by law, to protect and enforce such holder's rights either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, condition or agreement contained in the Loan Documents or in aid of the exercise of any power granted in the Loan Documents, or proceed to enforce the payment of the Note or to enforce any other legal or equitable right of the holder of the Note. 12.3 Remedies Cumulative. No right or remedy herein or in any other agreement or instrument conferred upon the Bank or the holder of the Note is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to every other right and remedy given hereunder or under any Loan Document or now or hereafter existing at law or in equity or by statute or otherwise. Without limiting the generality of the foregoing, if the Note or any of the other obligations of the Company to the Bank shall not be paid when due, whether at the stated maturity thereof, by acceleration or otherwise, the Bank shall not be required to resort to any particular security, right or remedy or to proceed in any particular order of priority, and the Bank shall have the right at any time and from time to time, in any manner and in any order, to enforce its security interests, liens, rights and remedies, or any of them, as it deems appropriate in the circumstances and apply the proceeds of its collateral to such obligations of the Company as it determines in its sole discretion. 13. MISCELLANEOUS. 13.1 Notices. All notices, requests and other communications to any party under this Agreement and the other Loan Documents shall be in writing and shall be given to such party, by mail, telecopy, telex, personal delivery or other customary means of delivery, addressed to it as set forth below or such other address or telex number as such party may in the future specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified below and the appropriate answerback is received, (ii) if given by mail, two days after such communication is deposited in the United States mails and sent by certified or registered mail, return receipt requested, with first class postage prepaid, addressed as aforesaid or (iii) if given by telecopy, personal delivery or any other means, when received at the address specified below. -32- 33 Party Address If to the Company: Trans-Resources, Inc. 9 West 57th Street Suite 3900 New York, New York 10019 Attention: President Telephone: (212) 888-3044 Telecopier: (212) 888-3708 with a copy to: Lester W. Youner Vice President, Treasurer and Chief Financial Officer Trans-Resources, Inc. 9 West 57th Street New York, New York 10019 Telephone: (212) 888-3044 Telecopier: (212) 888-3708 and with a copy to: Rubin Baum Levin Constant & Friedman 30 Rockefeller Plaza New York, New York 10112 Attention: Edward Klimerman, Esq. Telephone: (212) 698-7700 Telex: 147264 Answerback: RBLNYK Telecopier: (212) 698-7825 If to the Bank: Bank Hapoalim B.M. New York Branches 1177 Avenue of the Americas New York, New York 10036 Attention: Mordechai Kremer First Vice President Telephone: (212) 782-2165 Telecopier: (212) 782-2222 with a copy to: Bank Hapoalim B.M. New York Branches 1177 Avenue of the Americas New York, New York 10036 Attention: Lawrence Lefkowitz, Esq. Telephone: (212) 782-2130 Telecopier: (212) 782-2141 -33- 34 and with a copy to: Kronish, Lieb, Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036-7798 Attention: Steven K. Weinberg, Esq. Telephone: (212) 479-6240 Telecopier: (212) 479-6275 13.2 Survival of Representations; Successors and Assigns. All covenants, agreements, representations and warranties made herein and in any certificate delivered pursuant hereto shall survive the making by the Bank of the Advances contemplated herein and the execution and delivery to the Bank of the Note evidencing the Advances regardless of any investigation made by the Bank and of the Bank's access to any information and shall continue in full force and effect until the expiration or termination of the commitment of the Bank to make Advances under the terms of this Agreement and all sums due and to become due hereunder or under any other Loan Document have been paid or repaid in full. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, subject to the provisions hereof. All covenants, agreements, representations and warranties by the Company which are contained or incorporated in this Agreement or in any other Loan Document shall inure to the benefit of the successors and assigns of the Bank and any holder of the Note. Except for the parties hereto and their respective successors and assigns, no other Person shall be entitled to the benefits of this Agreement or to rely thereon. 13.3 Effect of Delay. No failure or delay on the part of the Bank in exercising any right, power or privilege hereunder or under the Note, nor any course of dealing between the Company and the Bank, shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege. 13.4 Expenses. The Company agrees to pay all out-of-pocket costs and expenses (including the reasonable fees and disbursements of special counsel) incurred by the Bank in connection with (i) the preparation and execution of the commitment letter and this Agreement and the other Loan Documents and the making of the Advances hereunder; provided, however, that whether or not the Advances are ever made, the Company agrees to pay the Bank all of its costs and expenses, including the reasonable fees and disbursements of the Bank's counsel, incurred in connection with the preparation and negotiation of the commitment letter and the Loan Documents, and in addition the Company shall pay the reasonable fees and disbursements of Israeli counsel to the Bank, (ii) any modifications or waivers of this Agreement or any other Loan Document requested by the Company, and (iii) the enforcement and preservation of the rights of the Bank under or in connection with the Loan Documents. All of such expenses shall be paid by the Company on demand as incurred. The provisions of this Section 13.4 shall survive any termination of this Agreement, whether by reason of bankruptcy of the Company or otherwise. 13.5 Modifications and Waivers. No modification or waiver of any provisions of this Agreement or of any other agreement or instrument made or issued pursuant hereto or contemplated hereby, nor consent to any departure by the Company -34- 35 therefrom, shall in any event be effective, irrespective of any course of dealing between the parties, unless the same shall be in a writing executed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Company in any case shall thereby entitle the Company to any other or further notice or demand in the same, similar or other circumstances. Any transaction or matter excepted from the operation of any Section of this Agreement shall nevertheless be subject to the prohibitions and limitations contained elsewhere in this Agreement, unless expressly stated otherwise. 13.6 Set-Off of Accounts. The balance of every account of the Company with the Bank existing from time to time at any of the Bank's offices worldwide and in any currency, shall be subject to being setoff against any obligations of the Company to the Bank arising under this Agreement or other Loan Documents, and the Bank may at any time and from time to time after an Event of Default shall have occurred and be continuing at its option and without notice to the Company, except as may be required by law, appropriate and apply toward the payment of any of such obligations of the Company to the Bank all or any part of the balance of each such account with the Bank. 13.7 Counterparts. This Agreement may be executed in any number of counterparts and by telecopier, each of which shall constitute an original, and all of which taken together shall constitute one and the same agreement. 13.8 Construction and Jurisdiction. This Agreement, the Note and the other Loan Documents, except the Company Pledge Agreement and the TRIL Pledge Agreement, shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly within such State. The Company Pledge Agreement and the TRIL Pledge Agreement shall be governed by the laws of Israel applicable to contracts made and to be performed wholly within such nation. Any action or proceeding in connection with this Agreement or the Note may be brought in a court of record of the State of New York, County of New York or any federal court located therein, the parties hereby consenting to the jurisdiction thereof, and service of process may be made upon any party by mailing a copy thereof to such party, by registered mail, at its address to be used for the giving of notices under this Agreement. IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, THE PARTIES MUTUALLY WAIVE TRIAL BY JURY AND ANY CLAIM THAT NEW YORK COUNTY IS AN INCONVENIENT FORUM. The Company hereby irrevocably appoints Rubin Baum Levin Constant & Friedman, and any successor firm or professional corporation, as its agent for service of process for any and all matters related to or arising out of any of the Loan Documents or any transactions contemplated thereby. 13.9 Headings. Section headings are for convenience only and shall not affect the interpretation or construction of this Agreement or the Note. 13.10 Scope of Pledge Agreements; Termination. It is hereby agreed as follows: -35- 36 (a) The security interest created in favor of the Bank under the TRIL Pledge Agreement shall secure payment of all amounts due or that may become due under this Agreement and the Note. Upon the expiration or termination of the commitment of the Bank to make Advances under the terms of this Agreement and the payment in full of any amount due or that may become the due under this Agreement or the Note, TRIL shall be entitled to the return to it of all of the Pledged Shares (as defined in the TRIL Pledge Agreement) or the unrealized remainder thereof and the TRIL Pledge Agreement shall thereupon be terminated in accordance with Clause 13 thereof. (b) Subject to Section 13.10(c) hereof, the security interest created in favor of the Bank under the Company Pledge Agreement only shall secure payment of all amounts due or that may become due under this Agreement and the other Loan Documents and, upon the expiration or termination of the commitment of the Bank to make Advances under the terms of this Agreement and the payment in full of any amount due or that may become due under this Agreement or any other Loan Document, the Company shall be entitled to the return to it of all of the Pledged Shares (as defined in the Company Pledge Agreement) or the unrealized remainder thereof and the Company Pledge Agreement shall thereupon be terminated in accordance with Clause 13 thereof. For the removal of doubt it is specifically acknowledged that the guarantee of the Company to be delivered in accordance with Section 8.1(ii) hereof shall not be secured by the TRIL Pledge Agreement or the Company Pledge Agreement. (c) The limitation as to the applicability of the security interest created in favor of the Bank under the Company Pledge Agreement set forth in Section 13.10(b) above shall be of no force or effect and shall not be effective unless and until the Company shall have repaid in full the loan in the outstanding principal amount of $27,500,000 previously made by the Bank to the Company pursuant to the Loan Agreement dated as of June 30, 1994 between the Bank and the Company. 13.11 Transfers and Booking of Advances. (a) Without limiting any of the Bank's rights hereunder, the Bank may, after any Advance is made hereunder, book any of the Advances in any of its branches anywhere in the world, or negotiate, assign, grant security interests in, delegate or otherwise transfer (each of the foregoing acts, a "Transfer") all of, or sell one or more participations in any portion of, any or all of the following: (i) the Note, and (ii) the Bank's rights and related obligations under this Agreement and the other Loan Documents (any of the foregoing which is subject to a Transfer, a "Transferred Item"); provided, however, that at no time shall the Company be required, as a result of any such Transfer or participation, to (x) to give notices required by this Agreement to more than one Person and that one Person's designated department, employees and/or counsel, or (y) to obtain any consent or approval required under this Agreement from more than one Person, or (z) be subject to any additional taxes, fees, costs or expenses (including withholding taxes). (b) In the event the Bank Transfers any Transferred Item, then to the extent provided by the Bank with respect to such Transfer, the Person to whom such Transfer is made (the "Transferee") shall have, and may exercise and enjoy, the rights, powers, privileges and remedies of the Bank with respect to such Transferred Item. The -36- 37 Bank shall, after any Transfer, and to the extent of such Transfer, be forever relieved and fully discharged from all liability and responsibility, if any, that it may thereafter have to the Company with respect thereto, but not with respect to matters occurring prior to such Transfer. The Bank shall retain all its rights and powers with respect to any Transferred Item to the extent not so Transferred. (c) The provisions of Section 13.6 (regarding setoff rights) shall apply to any account of the Company with, and any claim of the Company against, any Transferee to the extent of such Transfer which shall have purchased the loan representing the Advance or any portion thereof and shall become a "Bank" hereunder. This subsection (c) of Section 13.11 shall not limit any other rights of the Bank or such Transferee whether arising under this Section 13.11, or otherwise hereunder or under applicable law. [Remainder of page intentionally left blank.] -37- 38 (d) The Bank is authorized to disclose any information it may have or acquire about the Company and its Subsidiaries to any prospective or actual Transferee. IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement to be duly executed and delivered in the City of New York by their duly authorized officers, all as of the date first above written. TRANS-RESOURCES, INC. By: Lester Youner -------------------------------- Title: Vice President BANK HAPOALIM B.M. AN ISRAELI BANK ACTING THROUGH ITS NEW YORK BRANCHES By: Barry Ben-Zeev -------------------------------- Title: Senior Vice President By: Mordechai Kremer -------------------------------- Title: First Vice President 39 EXHIBIT 1.1-1 -- Form of 1990 Pledge Agreement Amendment No. 4 EXHIBIT 1.1-2 -- Form of Note EXHIBIT 1.1-3 -- Form of TRIL Pledge Agreement EXHIBIT 8.4-1 -- Form of Opinion of United States Counsel to the Company EXHIBIT 8.4-1 -- Form of Opinion of Israeli Counsel to the Company SCHEDULE A -- Litigation 40 EXHIBIT 1.1-2 SECURED PROMISSORY NOTE U.S. $40,000,000.00 December ___, 1995 New York, New York 1. Obligation and Repayment: FOR VALUE RECEIVED, TRANS-RESOURCES, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of BANK HAPOALIM B.M. (the "Bank") at the Bank's office at 1177 Avenue of the Americas, New York, New York 10036 or at such other place in the United States as the Bank may specify by notice (the "Office"), the principal amount of FORTY MILLION DOLLARS ($40,000,000.00) or, if less, the aggregate unpaid principal amount of all Advances made by the Bank to the Borrower under the Loan Agreement dated as of December 29, 1995 (the "Loan Agreement") between the Borrower and the Bank, in lawful money of the United States, in immediately available funds. Repayment of the principal amount of each Advance shall be made, as provided in the Loan Agreement, in equal quarterly annual installments commencing on the first Payment Date following the second anniversary of the date on which such Advance is made and ending on the Maturity Date (it being understood that the number of such installments will range from 16 installments, in the case of an Advance made on the Commitment Expiration Date, to 28 installments, in the case of an Advance made on the date of the Loan Agreement). The last principal installment shall be in the then outstanding unpaid principal balance of this Note and shall be due and payable on the Maturity Date (i.e., the ninth anniversary of the date of the Loan Agreement), together with all unpaid interest accrued through the Maturity Date. All capitalized terms not otherwise defined herein shall have the respective meanings assigned to them in the Loan Agreement. 2. Interest and Fees: The Borrower further agrees to pay interest on the unpaid principal of each Advance from time to time from the date hereof to the date such Advance is paid in full in lawful money of the United States, as specified in the Loan Agreement, at the Office at the respective rates and on the respective dates specified in the Loan Agreement. The Borrower also further agrees to pay all such other fees as are specified in the Loan Agreement. 41 3. Schedule: All Advances made by the Bank to the Borrower and all repayments of principal by the Borrower shall be reflected by the Bank in its records or, at the Bank's option, on the Schedule attached to this Note (the "Schedule"), which records or Schedule shall be rebuttable presumptive evidence of the entries made therein or thereon. The Borrower hereby unconditionally and irrevocably authorizes the Bank to make such notations on the Schedule. Notwithstanding anything to the contrary contained herein, the failure of the Bank to make any appropriate notation on the Schedule shall not prevent or hinder the Bank from collecting, or affect the Bank's right to payment of the principal of and interest on this Note. 4. Voluntary and Mandatory Prepayment: The Borrower shall be entitled to prepay the outstanding principal amount of this Note in part or in full on any Business Day, upon not less than seven days prior written notice to the Bank, provided that each such prepayment shall be in the amount of $100,000 or any integral multiple thereof; except that prepayment of the entire outstanding principal amount of the Note need not be in the amount of $100,000 or any integral multiple thereof. The Borrower shall be required to prepay the outstanding principal of this Note in whole or in part as set forth in Section 2.3 of the Loan Agreement. Any such prepayment, whether voluntary or mandatory, shall be together with all interest due on the principal amount prepaid to the date of payment. Any prepayment shall be applied by the Bank in accordance with Section 2.3 of the Loan Agreement. 5. Certain Definitions: a. Liabilities shall include all amounts from time to time payable by the Borrower under this Note or the Loan Agreement and any and all other obligations or liabilities of the Borrower arising under this Note or the Loan Agreement. b. Person shall mean "Person" as defined in the Loan Agreement. c. Transfer shall mean any negotiation, assignment, granting of a security interest in, delegation or other transfer of, a complete or partial interest or obligation; such term shall also mean to make a Transfer. 2 42 6. Waiver: Notice, presentment, protest, notice of dishonor and demand for payment are hereby waived as to all of the Liabilities. 7. Costs and Expenses: The Borrower shall pay all costs and expenses of every kind incurred by the Bank in connection with any proceedings to collect any Liabilities, including reasonable attorneys fees and disbursements, as provided in the Loan Agreement. 8. Maturity on Business Day: If any payment of principal of or interest on this Note or any other amount under this Note falls due on a day that is not a Business Day, it shall be payable on the next succeeding Business Day (unless such day would be a day in the next calendar month, and in such case payment shall be due on the immediately preceding Business Day), and the resulting additional or decreased time (if any) shall be included in or deducted from the computation of interest. 9. Parties; No Transfers by the Borrower: a. Without the Bank's written consent, the Borrower shall have no right to Transfer any of its obligations hereunder and any such purported Transfer shall be void. Subject to the foregoing, this Note is binding upon the Borrower and upon the Borrower's successors and assigns. b. If this Note is not a negotiable instrument, then the Borrower hereby waives all defenses (except such defenses as may be asserted against a holder in due course of a negotiable instrument) which the Borrower may have or acquire against any Transferee who takes this Note, or any complete or partial interest in it, for value, in good faith and without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any Person. 10. Reference to Loan Agreement, Company Pledge Agreement and TRIL Pledge Agreement, Acceleration, Remedies: This Note is entitled to the security and benefits provided in the Loan Agreement, the Company Pledge Agreement and the TRIL Pledge Agreement and is subject to the terms and conditions thereof. This Note is subject to mandatory prepayment in whole or in part as specified in Section 2.3 of the Loan Agreement and upon the occurrence of an Event of Default, the principal of and accrued interest hereon may automatically become, or may be declared to be, forthwith due and payable, as provided in the Loan 3 43 Agreement, the Company Pledge Agreement and the TRIL Pledge Agreement, and the Bank shall be entitled to each and every one of the remedies set forth therein. 11. No Oral Changes; No Waiver; Other Rights: This Note may not be changed orally. Neither a waiver by the Bank of any of its options, powers or rights in one or more instances, nor any delay on the part of the Bank in exercising any of its options, powers or rights, nor any partial or single exercise thereof, shall constitute a waiver thereof in any other instance. The options, powers and rights of the Bank specified herein are in addition to those otherwise created in the Loan Agreement and other Loan Documents. 12. Partial Unenforceability: Any provision of this Note which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization, without invalidating the remaining provisions of this Note in that or any other jurisdiction and without affecting the validity, enforceability or legality of such provision in any other jurisdiction. 13. Governing Law, Jurisdiction, Litigation and Waiver of Jury Trial: This Note shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and to be performed wholly within such State. Any action or proceeding in connection with this Note may be brought in a court of record of the State of New York, County of New York or any federal court located therein, the parties hereby consenting to the jurisdiction thereof, and service of process may be made upon any party by mailing a copy thereof to such party, by registered mail, at its address to be used for the giving of notices under the Loan Agreement. IN ANY ACTION OR ANY JUDICIAL PROCEEDING RELATING TO THIS NOTE THE BORROWER AND THE BANK MUTUALLY WAIVE TRIAL BY JURY. TRANS-RESOURCES, INC. By:__________________________ Name: Title: 4 44 SCHEDULE A OF ADVANCES AND PAYMENTS TO SECURED PROMISSORY NOTE DATED DECEMBER ___, 1995 MADE BY TRANS-RESOURCES, INC. ADVANCES AND PRINCIPAL PAYMENTS
Amount of Notation Date Advance Made Amount of Advance Repaid made by - -------------------------------------------------------------
5 EX-21 3 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 The following table sets forth certain information, as of March 25, 1996, with respect to the subsidiaries of the Company, other than certain subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
Percentage Of Voting Securities State Or Other Owned By Its Jurisdiction In Immediate Parent Which Incorporated ----------------- ------------------ Subsidiaries of the Company: Haifa Chemicals Ltd. 100%(1) Israel Haifa Chemicals South, Ltd. 100% Israel Hi-Chem (UK) Ltd. 100% United Kingdom Hi-Chem S.A. 100% Belgium Hi-Chem Holdings B.V. 100% Netherlands Fertilizantes Quimicos, S.A. 100% Spain Hi-Agri S.R.L. 100%(2) Italy Haifa Quimica De Mexico 80% Mexico Duclos International S.A. 80% France Eddy Potash, Inc. 100% Delaware Na-Churs Plant Food Company 100% Delaware Nine West Corporation 100% Delaware Cedar Chemical Corporation 100% Delaware New Mexico Potash Corporation 100% New Mexico Vicksburg Chemical Company 100% Delaware
(1) Including approximately 7% owned by Trans-Resources (Israel) Ltd. (2) Including approximately 5% owned by Haifa Chemicals South, Ltd. E - 5 EX-24 4 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY Each of the undersigned officers and directors of Trans-Resources, Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint Arie Genger and Lester W. Youner, and each of them, as the undersigned's true and lawful attorney-in-fact, with full power to each of them to act without the other, to execute in the name and on behalf of the undersigned, individually and in the capacity stated below, the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1995 and any and all amendments thereto, which amendments may make such changes in such Form 10-K as either such attorney-in-fact may deem appropriate. Each of the undersigned does further hereby ratify and confirm all that either said attorney-in-fact may do or cause to be done pursuant to the power granted hereby. Dated: March 25, 1996 /s/ Arie Genger ---------------------------------------- Arie Genger Director, Chairman of the Board and Chief Executive Officer (principal executive officer) /s/ Lester W. Youner ---------------------------------------- Lester W. Youner Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) /s/ Thomas G. Hardy ---------------------------------------- Thomas G. Hardy Director /s/ Martin A. Coleman ---------------------------------------- Martin A. Coleman Director /s/ Sash A. Spencer ---------------------------------------- Sash A. Spencer E-6 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 DEC-31-1995 32,872 0 75,630 0 66,474 213,656 356,747 136,556 467,102 131,645 288,580 0 7,960 0 12,715 467,102 385,564 385,564 323,126 323,126 43,193 0 34,498 (6,125) 733 (6,858) 0 (103) 0 (6,961) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----