-----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, QEOTaMbVFkOvpUyqIlIH/xtt6Gt/2JG1MTYz0nyMCZDLXsjGUAZ7s3o22rLlB2VE bMtQIFMkySE/eF5UZm1uRg== 0000950123-99-002802.txt : 19990402 0000950123-99-002802.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950123-99-002802 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: SEC FILE NUMBER: 033-11634 FILM NUMBER: 99580523 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 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, 1998 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 of incorporation or organization) (I.R.S. Employer Identification No.) 9 West 57th Street, New York, NY 10019 (Address of principal executive offices) (Zip Code)
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 29, 1999 ----- ----------------------------- 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.................................................................................. 12 Item 3. Legal Proceedings........................................................................... 12 Item 4. Submission of Matters to a Vote of Security Holders......................................... 14 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................................................................... 15 Item 6. Selected Financial Data..................................................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 24 Item 8. Financial Statements and Supplementary Data................................................. 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................... 24 PART III Item 10. Directors and Executive Officers of the Registrant.......................................... 25 Item 11. Executive Compensation...................................................................... 28 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 30 Item 13. Certain Relationships and Related Transactions.............................................. 30 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............................. 31 Signatures ............................................................................................ 32
3 PART I ITEM 1. Business Trans-Resources, Inc., a privately-owned Delaware corporation ("TRI") operating through its independently managed and financed subsidiaries, is a leading global developer, producer and marketer of specialty chemical products. As used herein, the term "the Company" means TRI, together with its direct and indirect subsidiaries. The Company is the world's largest producer and distributor of agricultural grade potassium nitrate, which is a leading specialty plant nutrient. Potassium nitrate is utilized in specialized agricultural applications for the growth of high-value crops such as fruits, vegetables, flowers and tobacco. The Company is also: (i) the largest global and sole U.S. producer of propanil, which is a leading rice herbicide; (ii) the world's largest producer of technical grade potassium nitrate, used in a variety of industrial applications; (iii) the sole supplier to the U.S. Air Force of nitrogen tetroxide, an aerospace fuel additive; and (iv) the only North American producer of 3,4 dichloroanaline ("DCA"), the principal raw material in the production of propanil. The Company also produces a variety of other chemical products used in agricultural, industrial and pharmaceutical markets. In addition, the Company utilizes its production capacity and manufacturing expertise to provide contract manufacturing services for other multinational chemical companies. The Company sells its products through an established global sales, marketing and distribution network to customers in approximately 95 countries. The Company groups its revenues into three general product categories. These product groups are: Specialty Plant Nutrients, Industrial Chemicals and Organic Chemicals, which during 1998 contributed approximately 57.3%, 29.4% and 13.3%, respectively, of the Company's total revenues. Of the Company's total revenues for the year ended December 31, 1998, approximately 34% and 40% were derived from sales in the United States and Europe, respectively, with the remainder derived from sales in many other countries. TRI's direct and indirect wholly-owned subsidiaries include Haifa Chemicals Limited ("HCL"), an Israeli corporation, and HCL's wholly-owned subsidiary, Haifa Chemicals South, Ltd., an Israeli corporation ("HCSL"); Cedar Chemical Corporation, a Delaware corporation ("Cedar"), and Cedar's wholly-owned subsidiary, Vicksburg Chemical Company, a Delaware corporation ("Vicksburg"); Na-Churs Plant Food Company ("Na-Churs"), a Delaware corporation; and Plant Products Co. Ltd. ("Plant Products"), an Ontario corporation. TRI was incorporated in Delaware in 1971 under the name Trans-Pacific Resources, Inc. During 1998, Company subsidiaries completed several small acquisitions. Effective January 1, 1998, the Company acquired a Spanish company engaged in the manufacturing and distribution of specialty plant nutrients; effective May 1, 1998, the Company acquired EMV Kft. ("EMV"), a Hungarian business engaged in the manufacturing and marketing of organic chemicals; effective October 30, 1998, the Company acquired Plant Products, headquartered in Ontario, Canada, which manufactures and markets specialty plant nutrients for commercial horticulture, specialty high value crops and retail markets; and effective December 18, 1998, the Company acquired Alpine Plant Foods, Inc. (including its Canadian subsidiary; together "Alpine"), which manufactures and distributes high purity liquid fertilizers. Each of these acquisitions have been accounted for using the purchase method of accounting. The aggregate purchase price paid for these acquired businesses was approximately $24.6 million and resulted in approximately $11 million in goodwill, with such goodwill generally being amortized over a 20 year period. These acquisitions did not have a significant effect on the Company's consolidated operations subsequent to their respective acquisition dates during 1998. The aggregate consolidated revenues (unaudited) for these companies for the year ended December 31, 1998 (or their most recent fiscal year, as applicable) amounted to approximately $58 million. In addition, effective February 4, 1998, a subsidiary of HCL purchased approximately a 42% equity interest in Lego Irrigation, Ltd. ("Lego"), an Israeli developer, manufacturer and marketer of drip irrigation systems, for a purchase price of approximately $11 million. On March 9, 1999, as contemplated by the terms of the initial purchase of the Lego shares, the subsidiary of HCL purchased, pursuant to an option, an additional 34% equity interest in Lego for approximately $10 million. For information regarding: (1) the conditional settlement of litigation (the "Bogalusa Litigation") arising out of an October 23, 1995 chemical release from a tank car at a Bogalusa, Louisiana plant of a customer of Vicksburg and the resulting $36.2 million charge included in the accompanying December 31, 1998 Consolidated Statement of 1 4 Operations, see Item 3 - "Legal Proceedings;" and (2) the Company's unrealized 1998 loss relating to its investment in the shares of ESC Medical Systems Ltd. ("ESC") included in the accompanying December 31, 1998 Consolidated Balance Sheet, see Part II - Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" - "Investment in Laser/ESC". SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Report are forward-looking statements, including, but not limited to, statements concerning future revenues (e.g., impact of the HCL Labor Dispute (as hereinafter defined) and inflation in Israel); expenses (e.g., labor savings resulting from HCL's new Specific Collective Agreement ("SCA"), future environmental costs and capital expenditures); access to lending sources and Israeli Government entitlements; Year 2000 matters; outcomes of legal proceedings and statements identified or qualified by words such as "likely," "will," "suggests," "may," "would," "could," "should," "expects," "anticipates," "estimates," "plans," "projects," "believes," or similar expressions (and variants of such words or expressions). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors ("Cautionary Factors") include, among others, the following: political stability, inflation and currency rates in those foreign countries (including, without limitation, Israel) in which the Company generates a significant portion of its production, sales and earnings; current or future environmental developments or government regulations which would require the Company to make substantial expenditures, and changes in, or the failure of the Company to comply with, such government regulations; the potentially hazardous nature of certain of the Company's products; the ability to achieve and sustain anticipated labor cost reductions at HCL; the Company's ability to continue to service and refinance its debt; new plant start-up costs; competition; changes in business strategy or expansion plans; raw material costs and availability; the final outcome of the legal proceedings to which the Company is a party and the conditional settlement of the Bogalusa Litigation, including, without limitation, satisfaction by the parties of the terms and numerous conditions of such conditional settlement (see Item 3- "Legal Proceedings"); and other factors referenced in this Report. Given these uncertainties, investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. All subsequent forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the Cautionary Factors. PRODUCTS The Company develops, produces and markets a range of specialty chemical products for a variety of agricultural and industrial end-uses. The Company has grouped its revenues into three general product categories that reflect the different product uses. These product groups are: Specialty Plant Nutrients, Industrial Chemicals and Organic Chemicals. Specialty Plant Nutrients. The Company's Specialty Plant Nutrients consist of high-value nutrients designed for intensive agriculture, including greenhouses, nurseries and orchards. The Company's flagship product is potassium nitrate, which is marketed principally under the brand names K-Power domestically and Multi-K internationally (collectively referred to as "K-Power"). Potassium nitrate provides potassium and nitrogen, two of the three essential plant nutrients, is water soluble and does not contain chlorine or other environmentally harmful chemical residues that are generally found in commodity fertilizers. The unique combination of these performance characteristics allows potassium nitrate to command a price premium over other potassic plant nutrients and fertilizers and has led to a compound annual growth rate in tons shipped of approximately 7% for the industry over the past five years. With current annual production capacity of approximately 755,000 tons, the Company is the world's largest producer of potassium nitrate. The Company is in the process of increasing its annual potassium nitrate capacity to approximately 780,000 tons by the beginning of the year 2000. The Company believes that it currently accounts for approximately 60% of the world's production of potassium nitrate and 100% of North American production of potassium nitrate. 2 5 The Company's other Specialty Plant Nutrients include those designed for highly specialized horticultural applications. These include: (i) Polyfeed, a fully soluble and chlorine-free blend of varying combinations of plant nutrients containing the three essential plant nutrients, nitrogen, phosphorus and potassium; (ii) Magnisal, which acts as a magnesium supplement; (iii) monoammonium phosphate, or Multi-MAP, a fully soluble source of nitrogen and phosphorus; (iv) monopotassium phosphate, or Multi-MKP, a fully soluble, chlorine-free source of potassium and phosphorus; and (v) Multicote, a polymer coated specialty plant nutrient which provides for the controlled release of nutrients over specific periods of time ranging from four to 12 months, which optimizes plant feeding and minimizes labor requirements. The Company, through Na-Churs, is the largest U.S. producer and marketer of high purity liquid fertilizers, which are sold under Na-Churs Alpine Solutions brand names, and are used as a starter nutrient in growing corn and soybeans, in foliar applications and for fertigation in growing high-value crops such as fruits, vegetables and flowers. The Company, through Plant Products, is the leading distributor of various inputs to the horticulture industry in Canada including water soluble fertilizers, agrochemicals and insects for biological control. Specialty Plant Nutrients revenues were approximately $242.7 million in 1998. The following table sets forth the Company's principal Specialty Plant Nutrients products, markets and applications:
Principal Products Primary Markets Applications - ------------------------------------- ------------------------------------ --------------------------------- Potassium Nitrate - Fruits and vegetables, - Fertigation, foliar (K-Power) flowers, cotton and tobacco sprays and soil applications Polyfeed, Plant-Prod - Horticulture - Fertigation and foliar sprays Multi-MAP - Horticulture - Fertigation and foliar sprays Multi-MKP - Horticulture - Fertigation and foliar sprays Magnisal - Vegetables, citrus, - Fertigation and foliar tropical fruits and flowers sprays Multicote - Vegetables, turf, fruit - Time release nutrients trees and potted plants Na-Churs Alpine Solutions - Corn, soybeans, wheat and - Furrow applied high-value crops starter, foliar sprays and fertigation
Industrial Chemicals. The Company's Industrial Chemicals consist of a variety of specialty and other chemicals with applications in multiple end-use markets. The Company's Industrial Chemicals products are generally produced as co-products in the Company's potassium nitrate manufacturing processes. These products provide the Company with the ability to diversify its revenue base while maintaining its leadership position in potassium nitrate and to allocate its fixed costs over a broader base of revenues and products. The Company is the world's largest manufacturer and marketer of technical grade potassium nitrate, a high purity product used for many industrial applications, including the production of television picture tubes, computer screens, other specialty glasses, ceramics, food additives and explosives. The Company is also a manufacturer of potassium carbonate, marketed under the brand name K-Carb. K-Carb is used in the production of television picture tubes, computer screens, ceramics, detergents, in agricultural applications, and in the production of other potassic chemicals. In addition, the Company is the sole supplier to the U.S. Air Force of nitrogen tetroxide, an aerospace fuel ingredient. Additional Industrial Chemicals produced by the Company include phosphoric acid, with approximately 90,000 tons of current annual production capacity, used for metal treatment, industrial cleaning solutions, fermentation and in the food and fertilizer industries; and a variety of phosphate products including: sodium tripolyphosphate ("STPP"), the active ingredient in detergents; monoammonium phosphate ("MAP"), used in fire extinguishers and fire retardants; monopotassium phosphate ("MKP"), used in the fermentation process; monosodium phosphate ("MSP") and 3 6 disodium phosphate ("DSP"), which are used by food processing companies as emulsifiers for cheese processing and as a buffer in foodstuffs; and sodium acid pyrophosphate ("SAPP"), used by food processing companies in baking powders and potato processing. The Company also produces chlorine sold to industrial and chemical manufacturing companies for water purification and production of paper pulp and PVC pipe. Industrial Chemicals revenues were approximately $124.7 million in 1998. The following table sets forth the Company's principal Industrial Chemicals products, markets and applications:
Principal Products Primary Markets Applications - ---------------------------------------- --------------------------------------- ------------------------------- Technical Grade Potassium - Glass, ceramics, explosives, - Oxidation and source for Nitrate metal, petrochemical and heat potassium treatment industries Potassium Nitrate USP Grade - Pharmaceutical and food - Ingredient in certain industries toothpaste Potassium Carbonate (K-Carb) - Glass, detergents and - Oxidation and cleansing fertilizer industries Phosphoric Acid - Industrial chemical - Metal treatment, manufacturing, food and fertilizer industrial cleaning and industries fermentation Sodium Tripolyphosphate Food - Food processing companies - Meat and seafood Grade processing Sodium Tripolyphosphate - Soap and detergent industry - Cleansing ingredient Monoammonium Phosphate - Chemical manufacturers - Fire retardant formulations Monopotassium Phosphate - Food processing companies - Fermentation process Monosodium Phosphate - Food processing companies - Emulsifiers and buffers Disodium Phosphate - Food processing companies - Emulsifiers and buffers 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 ingredient
Organic Chemicals. The Company's Organic Chemicals consist primarily of a variety of herbicides and chemical intermediaries requiring expertise in complex organic synthesis. The Company's Organic Chemicals products include propanil, the world's leading rice herbicide, and diuron, a leading herbicide used on a variety of crops as well as 3,4 -Dichloroanaline ("DCA"), the principal raw material for the production of propanil and diuron. The Company is the sole U.S. producer, and the largest integrated producer of propanil worldwide, and is the sole producer of DCA and diuron in the U.S. Other Organic Chemicals include Butoxone, a leading peanut and soybean herbicide; and ethephon, a cotton, fruit and vegetable growth regulator. The Company significantly increased its ability to supply a variety of crop protection chemicals throughout the world as a result of the purchase of EMV. EMV's products are molinate, diuron, acetochlor, EPTC, alachlor, fluometuron and a number of smaller volume products used on a variety of crops. The Company also produces and sells trishydroxyaminomethane ("THAM"), a proprietary buffering agent used in pharmaceutical applications, including contact lens cleaning solutions. In addition, the Company utilizes its manufacturing expertise and capacity to serve as a contract manufacturer of organic chemicals for other multinational chemical companies. The Company, through Riceco, LLC ("Riceco"), markets propanil, combination rice herbicides and other rice-related products (other than fertilizers) on a worldwide basis (see "Riceco" below). Organic Chemicals revenues were approximately $56.2 million in 1998. 4 7 The following table sets forth the Company's principal Organic Chemicals products, markets and applications:
Principal Products Primary Markets Applications - ---------------------------------------- --------------------------------------- ------------------------------- Propanil - Rice - Broad spectrum herbicide 3,4-Dichloroanaline - Propanil and diuron - Primary raw material Butoxone - Peanuts and soybeans - Weed control Diuron - Food crops, alfalfa and - Broad use herbicide cotton Ethephon - Cotton, fruits and vegetables - Plant growth regulator EPTC - Corn and potatoes - Broad use herbicide Fluometuron - Cotton - Herbicide Acetochlor - Corn, orchards, coffee and - Broad use herbicide soybeans Alachlor - Corn, beans and soybeans - Broad use herbicide Molinate - Rice - Residual herbicide THAM - Pharmaceutical companies - Buffering agent Contract Manufacturing - Numerous multinational - Various organic syntheses companies
SALES AND MARKETING The Company's sales and marketing network consists of a direct sales force of approximately 165 professionals as well as over 150 independent agents, distributors and brokers who market and distribute the Company's products in particular markets in which the Company does not have a significant direct sales and marketing presence. The Company's sales efforts are complemented by its product development and technical support staff, who work with customers to demonstrate the performance of the Company's existing products under specific climatic, soil and growing conditions and to develop new products and markets based on customer needs. At present, the Company maintains resident development and technical support staff in the United States, Israel, Italy, Spain, France, the United Kingdom, Greece, Hungary, Mexico, South Africa, China, Japan, Thailand, India, Canada and the Benelux countries. The Industrial Chemicals produced by the Company are generally marketed through the Company's marketing network and through the Company's subsidiaries throughout the world. Nitrogen tetroxide is primarily sold under a long-term contract to the U.S. Air Force. Contract manufacturing business is generally secured on the basis of reputation for quality, efficiency and speed of execution and promotional activity, such as participation in trade shows. In order to provide prompt and responsive service the Company uses warehouse and distribution facilities which are strategically located throughout the Company's global network. The Company maintains inventories of its products internationally to facilitate prompt deliveries to customers. 5 8 CUSTOMERS AND MARKETS The Company's customers include blenders, distributors, retail dealers, professional growers, agrichemical companies, governmental agencies, and multinational manufacturers in many geographic markets throughout the world. The following chart sets forth the breakdown of the Company's sales by geographic market for the three year period ended December 31, 1998:
1996 1997 1998 ----------------- ----------------- ---------------- Amount % Amount % Amount % ------ - ------ - ------ - (Dollars in Millions) Europe ................. $160 39% $148 39% $168 40% United States .......... 145 35 128 34 145 34 Asia ................... 37 9 29 8 28 7 Canada and Latin America 24 6 22 6 33 8 Israel ................. 23 6 19 5 19 4 Australia .............. 6 1 6 2 8 2 Africa and other ....... 17 4 25 6 23 5 ---- ---- ---- ---- ---- ---- Total .............. $412 100% $377 100% $424 100% ==== ==== ==== ==== ==== ====
The Company's customers are diversified across each of the Company's product groups. Specialty Plant Nutrients are generally sold through the Company's network of representative offices and through its sales, technical support and distribution affiliates who in turn generally sell to blenders, growers or other end-users. The Company sells its Industrial Chemicals principally through its own worldwide network of representative offices and through its sales, support and distribution affiliates to various industrial consumers. The Company's Organic Chemicals Group sells its products through distributors, co-operatives, regional dealers, international brokers and multinationals, as well as to Riceco. In addition, the Company sells its Organic Chemicals directly to some customers domestically and internationally. During the year ended December 31, 1998, no customer accounted for more than 3% of consolidated revenues and the Company's 10 largest customers accounted for less than 15% of consolidated revenues. RESEARCH AND DEVELOPMENT For the years ended December 31, 1996, 1997 and 1998, the Company spent approximately $2.7 million, $2.4 million and $2.7 million, respectively, on the development and evaluation of process technologies, efficiencies and quality control which have been charged to current operations. The Company's extensive agronomic data base, which consists of the results of thousands of experiments under a wide range of soil and climatic conditions, enhances the Company's ability to develop and introduce new products, as 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 also utilizes cooperative agronomic research and development partnerships with universities to further develop new products and applications. RAW MATERIALS The Company's raw materials consist primarily of ammonia, potash and phosphate rock. Other raw materials include orthodichlorobenzene, propionic acid and various other chemicals. In the United States, all of the Company's raw materials are readily available from multiple suppliers. A minimum of approximately 50% of Vicksburg's potash requirements are required to be purchased pursuant to a five year contract entered into in 1996 with the buyer of the potash operations. Under such contract, the supplier has the right to supply Vicksburg's remaining potash requirements if it can meet market prices and specified quality standards. See Part II - Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" - "1996 Sale of Potash Operations". The remainder of Vicksburg's potash requirements are available from multiple suppliers. Ammonia is generally purchased from a supplier under a renewable contract expiring in August, 1999 at negotiated prices and is also available from multiple sources. 6 9 HCL (including HCSL) sources its potash exclusively from Dead Sea Works Ltd. ("DSW") under two long-term contracts which expire on December 31, 1999 and in 2005, and sources its phosphate rock solely from Rotem Amfert Negev Ltd. ("Rotem") according to the terms of a contract which expires in 2001. The potash contracts provide 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. The phosphate rock contract provides for prices to be established quarterly, based on the average price paid to Rotem by its non-affiliated customers during the preceding quarter plus certain adjustments. DSW and Rotem are both subsidiaries of a large Israeli chemical company. While the Company believes that alternative sources of supply for raw materials supplied by Rotem and DSW are available, the loss of supply from DSW or Rotem could have an adverse impact on the Company's financial performance. Ammonia is sourced from a U.S. supplier under a variable price two year contract, renewable for additional two year periods and is available from a number of alternative suppliers. Approximately 40% of HCL's energy requirements and approximately 50% of its steam requirements at its Haifa facility are provided by a co-generation plant owned and operated by a third party under a three year contract expiring in 2001 and renewable for an additional two years. The remainder of HCL's steam requirements in Haifa are supplied by HCL's own steam facility and from Oil Refineries Ltd. ("ORL") according to the terms of a contract which expired in 1998 and is currently being renegotiated. Such third party also operates HCL's steam facility at prices generally below those available from alternative steam sources other than the co-generation plant. The Company has historically experienced fluctuations in the price of ammonia. The Company has not generally passed on ammonia price changes to its customers as price changes have generally been temporary. MANUFACTURING The production of Specialty Plant Nutrients, Organic Chemicals and Industrial Chemicals are each integrated multi-stage processes which in some cases involve chemical synthesis, formulation and mixing. Following these processes, the product is packaged based upon customer requirements. The Company utilizes two unique synthetic manufacturing processes in producing Specialty Plant Nutrients and Industrial Chemicals. HCL utilizes a "solvent extraction" process in Israel and Vicksburg utilizes a "direct reaction" process in the United States. The solvent extraction process is based on reacting potassium chloride with nitric acid in the presence of an aqueous recycled brine and an organic solvent, producing potassium nitrate and hydrochloric acid as co-products. The hydrochloric acid is used on-site to acidulate phosphate rock and produce phosphoric acid, which in turn is used to manufacture a variety of phosphate products. The direct reaction process is based on the reaction of potassium chloride and nitric acid, which produces potassium nitrate, chlorine and nitrogen tetroxide as co-products. In the production of the Company's Organic Chemicals and contract manufacturing products, major processes and chemistries include the complex synthesis of organic chemicals to produce agrichemicals and pharmaceutical chemicals. Propanil is produced at Cedar's West Helena, Arkansas facility by reacting DCA with propionic acid and propionic anhydride to produce propanil technical, the active ingredient in all propanil products. Propanil technical is formulated into emulsifiable concentrate and then sold. Cedar also sells propanil technical in molten form and flake form. Other products follow a similar route, i.e., synthesis and purification, followed by direct sales of technical product or formulation into various packaged products or sale directly into the market. RICECO During August, 1997, Cedar and a subsidiary of Westrade, Inc., a privately-held Cayman Islands corporation ("Westrade"), formed Riceco to market propanil, combination rice herbicides and other rice-related chemicals (other than fertilizers) on a worldwide basis. Westrade's interest in Riceco is now held by a corporation (the "Westrade Member") which is 50% owned by E.I. DuPont de Nemours and Company ("DuPont") and 50% by the private investment group which also owns 50% of Westrade. Westrade produces and markets various agricultural chemicals. The Company and the Westrade Member each have a 50% equity interest in Riceco and each exercises equal voting rights. Riceco's profits and losses are currently allocated 60% to the Company and 40% to the Westrade Member, 7 10 but under specified conditions would be adjusted to 50% to each. Both members contributed product registrations, labels and customer lists to Riceco and subsequently each member provided an interim working capital loan of $1.25 million which was repaid in 1998. Under a long-term supply agreement, the Company produces all of the propanil required by Riceco. INTELLECTUAL PROPERTY The Company seeks to protect the confidentiality of its manufacturing processes by maintaining these processes as trade secrets, and accordingly, has generally not sought patent protection. In addition, the Company has differentiated its products in the marketplace by pursuing a branded strategy. As a result, the Company has developed several brand names, such as K-Power, Magnisal, Polyfeed, Plant-Prod, Multicote, Poni, K-Carb and Na-Churs Alpine Solutions. COMPETITION In Specialty Plant Nutrients, the Company primarily competes with Sociedad Quimica y Minera de Chile, S.A., a Chilean corporation, and to a lesser extent with other producers. Competition among producers of agricultural grade potassium nitrate is primarily driven by customer preferences for quality, reliability, custom specifications and price. In Industrial Chemicals, the Company competes with a wide variety of large and small specialty and commodity chemical companies. The primary competitive factors in the industrial chemicals market are product quality, technical services and specifications and price. In Organic Chemicals, the Company primarily competes with a wide variety of large and small specialty and commodity chemical companies. Competitive factors in the production of organic chemicals primarily consist of manufacturing expertise in specific complex chemical processes, vertical integration, flexible manufacturing facilities and price. FACILITIES The Company's principal operating assets are located in the United States and Israel, the most significant of which are described below. In addition, the Company has operating assets in Spain, France, Hungary and Canada. Vicksburg owns the property, plant and equipment located at its Vicksburg, Mississippi facility and Cedar owns the property, plant and equipment located at its West Helena, Arkansas facility. The Vicksburg plant consists of three manufacturing plants situated on 600 contiguous acres. The West Helena facility is ISO 9002 certified and is located on a 60 acre site. The plants are encumbered by first mortgages and security interests securing long-term bank indebtedness. The Company's corporate office in New York City and administrative office in Memphis, Tennessee are in leased facilities. HCL owns its machinery and equipment and leases the land for its Haifa, Israel operations from ORL, a corporation which is majority-owned by the Israeli Government. The leases expire at various dates, primarily in the years 2015 and 2016. HCSL owns the machinery and equipment and leases the land for its Mishor Rotem, Israel operations from the Israeli Land Administration Authority under a 49 year lease which commenced in 1994. All of such lease payments for the Mishor Rotem land have already been paid and were included in the construction costs for this facility. HCL also owns ammonia terminal facilities located on leased property in the port in Haifa and leases from ORL a pipeline which transports ammonia from the port in Haifa to HCL's plant. Substantially all of these assets are subject to security interests in favor of the State of Israel or banks. Management believes that its facilities are in good operating condition and adequate for its current needs. 8 11 EMPLOYEES As of December 31, 1998, the Company employed approximately 1,500 people. Except for certain employees at the Company's Israeli operations, none of the Company's employees are represented by any collective bargaining unit. During the fourth quarter of 1996 and during 1997, primarily in the first half of such year, the Company's operations were adversely impacted by a labor dispute at HCL commencing in October, 1996 and resulting in work stoppages and an HCL plant shut-down from December 3, 1996 to March 10, 1997 (the "HCL Labor Dispute"). See Part II - Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." Most HCL employees are members of the "Histadrut," the Israeli national labor federation, and are represented by collective bargaining units. Terms of employment of most HCL employees are currently governed predominantly by an SCA negotiated by HCL with the Histadrut, the respective unions representing the employees and representatives of the employees. In 1994, HCL signed an agreement with the unions and representatives of the technicians and engineers for the three year period ended December 31, 1996. In 1995, an SCA was signed with the unions and representatives of the other employees for the two year period ended December 31, 1996. In September, 1996, the Company announced the cancellation of such agreements effective upon their expiration dates and its intention to negotiate a new SCA with basic changes aimed at reducing labor costs and enhancing operating flexibility for the period following December 31, 1996. As a result of the announced cancellation of the labor agreements, HCL suffered several work stoppages and other job actions which adversely affected productivity during October and November 1996, including a period of temporary plant shut-down. On December 3, 1996 the plant was shutdown until March 10, 1997 when a new SCA providing for certain wage freezes and reductions in benefits was signed for the three year period ending December 31, 1999. Subsequent to March 10, 1997, the HCL plant re-opened and gradually began production. By the end of May, 1997 and subsequent thereto through the early part of 1998, the HCL plant was generally operating at approximately full capacity; however, due to the need for increased maintenance for certain equipment resulting from the lengthy period of shut-down, there have been several periods of operations at less than full capacity and production efficiencies were also adversely impacted. Management believes that the new SCA has resulted in cost savings for the Company compared to the costs it would otherwise have incurred during the next few years had HCL merely renewed the terms of the prior SCAs and continued the pattern of increased costs included in recent SCAs. Further, management believes that the aggregate amount of such cost savings over the years subsequent to the settlement of the HCL Labor Dispute will substantially exceed the incremental costs experienced during the HCL Labor Dispute. Following the settlement of the HCL Labor Dispute, HCL achieved the following objectives: (i) a reduction in absenteeism; (ii) greater ability to freely transfer employees between departments and production units; (iii) increased flexibility regarding the ability to promote employees and incentivize them based on performance measures and evaluations developed and implemented by management; (iv) greater ability to dismiss employees on the basis of poor performance; (v) on-going and more effective communication between management and employees; and (vi) increased freedom to use sub-contractors. In addition, following the settlement of the HCL Labor Dispute, HCL restructured its workforce with the result being an approximate 18% reduction in the number of its employees, and a reduction in the average cost per employee. See Part II - Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Special Note Regarding Forward Looking Statements" above. A third party provides operating and management services for HCSL's Mishor Rotem, Israel facility as a subcontractor, and is reimbursed for costs based on an approved budget plus a variable incentive fee designed to increase efficiency, volumes produced and quality of production. 9 12 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. The Federal Environmental Protection Agency ("EPA") notified the Company in 1989 that unspecified corrective action will be required under the Federal Resource Conservation and Recovery Act of 1976, as amended, 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, an agreement was reached 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, a facility investigation work plan was submitted to the EPA. Following its approval, Vicksburg intends to 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 the EPA's 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 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 entered in 1991 (the "Order"). In December, 1997, the ADPCE accepted the final facility investigation report and requested Cedar to initiate a corrective measures study to address eight separate locations on Cedar's West Helena plant site which the ADPCE believes may require remedial action. In addition, the ADPCE requested a plan for interim measures to address groundwater contamination on and adjacent to the West Helena plant. Cedar removed the buried drums from the West Helena site in accordance with a work plan incorporated in the 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 a substantial portion 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. The Company believes that the future costs required to complete the site investigation and corrective measures studies at Vicksburg and any supplemental plant-wide investigation (if required) and the corrective measures studies at West Helena will be between $0.5 million and $1.0 million 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, 1998, the Company has accrued an aggregate of $1.3 million for these matters. Until these investigations are completed, it is not possible to 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 December, 1997, the EPA requested 34 companies, including Cedar, to provide information about their dealings with the previous owners and operators of a drum reclamation and recycling site known as the W&R Drum Superfund Site in Memphis, Tennessee. Cedar could have potential liability to share costs of remediating this site, which is on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. Cedar has agreed to settle its share of liability for such costs for the sum of $10,000, payable upon entry of an Agreed Consent Decree. HCL. As a result of the production of phosphoric acid, HCL generates acid sludge and liquid acid effluents. In accordance with the Plan described below, as of January 1, 1999 HCL is operating a new purifying plant, and disposes of the neutralized sludge in a designated land site approved by the Ministry of Environment (the "Ministry") for an initial experimental period of six months. 10 13 HCL currently disposes of its liquid acid effluents to the Haifa Bay through a local river in accordance with a permit issued pursuant to the Law for the Prevention of Sea Pollution from Land Sources of 1988, which was effective until September 30, 1998. The Ministry has approved a two-year extension for this permit. Both of the foregoing governmental actions contain restrictions on quantities and concentrations, inspection, reporting duties and certain other conditions. During July, 1996 the Ministry approved a proposed comprehensive land solution plan for the handling and disposal of the sludge and effluents produced by HCL's plant (the "Plan"). The Plan was based on the joint work of HCL and representatives of the Ministry. In general, the Plan consists of two objectives: (i) decreasing the quantities and concentrations of the effluents, and (ii) a permanent land solution for the sludge previously disposed of in the Mediterranean Sea, by filtering and purifying it in a purifying plant, and the disposal thereof at a land site to be approved by the Ministry. The overall time schedule for the complete execution of the Plan is four and one-half years, with up to an additional one and one-half year grace period available under certain conditions, with estimated capital expenditures of up to $15.0 million which commenced in 1997. In November, 1996 HCL signed a settlement agreement (the "Agreement") for resolution of a private criminal complaint, alleging violation of specified Israeli environmental laws as a result of HCL's dumping of chemical waste into a local river without adequate permits. The complaint was submitted against HCL and its directors on December 21, 1994 by Man, Nature and Law, an Israeli fellowship for the protection of the environment (the "Society") and six fishing companies (collectively, the "Petitioners") before the Magistrate's Court of Haifa. On November 26, 1996, the court approved the Agreement and the Petitioners withdrew the complaint. While the Agreement is consistent with the Plan, it is more specific regarding prescribed time schedules, concentrations of effluents and the maintenance of such concentrations. It also establishes a Supervising Committee to review and supervise HCL's progress in complying with the Agreement and prescribes enforcement penalty provisions. In addition, HCL compensated the Petitioners and reimbursed the Society for certain legal expenses and agreed to contribute to an educational and monitoring fund to be established under the Agreement. The Society agreed that after implementation of the plans pursuant to the Agreement, it would not make any further demands on HCL or to any judicial or administrative body regarding alleged contamination of water or the sea unless the Agreement is breached. HCSL disposes of liquid effluents in plastic lined evaporation ponds in accordance with a business license issued under the Business Licenses Act of 1968. Based on new regulations for evaporation ponds and the Ministry's requirements, HCSL has submitted an updated strategic plan for the treatment of wastes, which was approved by the Ministry in December, 1998. In general, the plan is based on (i) segregation of streams, (ii) recovery of products and water and (iii) disposal of treated liquid waste to the Dead Sea. The overall time schedule for the complete execution of the plan is through 2002. In accordance with the strategic plan, the Ministry has recently approved the issuance to HCSL of a three-year permit pursuant to the Law for Prevention of Sea Pollution (Disposing of Wastes) of 1983 for the disposal of liquid waste to the Dead Sea. The approval sets forth restrictions on concentrations, provides for inspection, and includes reporting duties and certain other conditions. On March 3, 1998, a criminal proceeding was initiated against HCL and its then Managing Director in the Magistrate's Court of Haifa for alleged 1995 nitrous oxide air emissions beyond prescribed levels. During 1995, HCL adopted additional technical and administrative measures to monitor such emissions and believed that it had resolved this matter with the Ministry in 1995. The defendants have pleaded not guilty. A hearing for submission of evidence is scheduled for May, 1999. The Company believes that even if this proceeding were adversely decided, the penalty would be a fine which would not have a material adverse effect on its operations or financial condition. 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. 11 14 ITEM 2. Properties Reference is made to "Facilities" 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 Beginning in April, 1993 a number of class action lawsuits were filed in several United States District Courts against the major Canadian and United States potash producers, including Eddy Potash, Inc. ("EDP"), a direct subsidiary of the Company whose name was changed to EDP, Inc. upon completion of the sale of its potash business in August, 1996, and New Mexico Potash Corporation ("NMPC"), an indirect subsidiary of the Company whose name was changed to NMPC, Inc. upon completion of the sale of its potash business in August, 1996, and "unnamed co-conspirators." 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 alleged 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 sought 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 were consolidated for pretrial purposes in the United States District Court for Minnesota and captioned In Re Potash Antitrust Litigation. Several additional and/or amended 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 EDP served and filed answers denying all the material allegations thereof on or about July 22, 1994. On or about January 12, 1995 the Court granted plaintiffs' motion to certify the plaintiff class. On or about December 21, 1995, the defendants filed motions for summary judgement. On September 13, 1996 Magistrate Judge Erickson issued a Report and Recommendation recommending that U.S. District Court Judge Kyle grant the motions filed by NMPC, EDP and the other defendants for summary judgment as to all of the plaintiffs' claims. Plaintiffs filed objections to the Report and Recommendation under Rule 72 F.R.Civ.P. On January 2, 1997, after written briefs were submitted by plaintiffs and defendants and after oral argument before Judge Kyle on December 19, 1996, Judge Kyle issued an order accepting and adopting Magistrate Judge Erickson's Report and Recommendation and ordering that the motions filed by NMPC, EDP and the other defendants for summary judgment as to all of the plaintiffs' claims be granted. Plaintiffs, by Notice of Appeal dated January 31, 1997, appealed Judge Kyle's order to the U.S. Court of Appeals for the Eighth Circuit, before which oral argument on the appeal occurred on November 17, 1997. 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 EDP 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. EDP, NMPC, NMPC's parent, Cedar, Cedar's parent corporation, Nine West Corporation ("Nine West"), 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 and the Company have been dismissed from the Neve action, in each case for lack of personal jurisdiction. Cedar, EDP and NMPC have served and filed answers in the Neve action, and EDP 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. By stipulation, this consolidated action has been stayed pending the outcome of the appeal to the Court of Appeals for the Eighth Circuit in the federal action discussed above. 12 15 Management has no knowledge of any conspiracy of the type alleged in these complaints. 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 October 23, 1995 chemical release from a tank car at a Bogalusa, Louisiana plant of a Vicksburg customer. The tank car contained nitrogen tetroxide which had been produced and sold by Vicksburg. Subsequently, approximately 146 suits were filed in the State Court for the 22nd Judicial District, Washington Parish, Louisiana (the "Louisiana Court"). The cases have been consolidated in the Louisiana Court and certified as a class action (the "Louisiana Class Action"). The class is estimated to contain more than 8,000 claimants (the "Class"). Vicksburg, Cedar and the Company are included among the defendants in the Louisiana Class Action. In addition, two later suits, one on behalf of the City of Bogalusa, have been filed in the Louisiana Court naming, among the defendants, Vicksburg, Cedar and the Company. Also, 10 separate suits naming an aggregate of approximately 4,000 plaintiffs (the "Mississippi Plaintiffs") were filed in the Circuit Court of Hinds County, Mississippi naming, among the defendants, Vicksburg, Cedar and the Company. Among other defendants included in the Louisiana Class Action and in the Mississippi suits are Gaylord Chemical Company and its parent corporation, Gaylord Container Corporation; Union Tank Car Company; Illinois Central Railroad Company; and Kansas City Southern Railway Company. The plaintiffs in these suits seek unspecified damages arising out of the alleged exposure to toxic fumes and the City of Bogalusa seeks reimbursement of expenses allegedly resulting from the chemical release. The suits were tendered to the Company's liability insurance carriers for defense and indemnification. Certain of the carriers have denied coverage. Vicksburg and Cedar have commenced an action in the Louisiana Court against their insurance carriers (whose insurance policies also included the Company as an additional named insured) seeking a declaratory judgement that Vicksburg and Cedar are entitled to defense costs and indemnification with respect to these claims. During August, 1998, conditional agreements to settle the claims in the Louisiana Class Action and the claims of the Mississippi Plaintiffs were entered into on behalf of TRI, Vicksburg, Cedar and other affiliates of the Company named as defendants (collectively the "Entities") and on behalf of the plaintiffs. During March, 1999, amended and restated conditional agreements to settle the claims (the "Amended Agreements") were executed by the parties. The Company has recorded a charge of $36.2 million in 1998 (included in the caption "Interest and other income (expense) - net" in the accompanying December 31, 1998 Consolidated Statement of Operations) in connection with the conditional settlement and the related legal expenses. If the numerous conditions to the settlement are satisfied, the Entities' funding obligation under the amended conditional settlement would be an aggregate of approximately $32.4 million plus (i) an amount (estimated to eventually be in excess of $4.5 million) equal to the amount which one of the Settling Insurers (as defined below) shall have paid to the Entities for reimbursement of defense costs (the "Defense Depletion Amount") and (ii) interest payments on $17 million, as described below. The initial $10 million of the funding obligation was deposited in an escrow account on August 31, 1998 and, upon execution of the Amended Agreements, was transferred to another escrow account (the "Preliminary Escrow Account") established to hold the money in escrow until the settlement is finalized or terminated. In addition, two settling insurance carriers (the "Settling Insurers") are to contribute an aggregate of $25 million, less the Defense Depletion Amount, and the Entities will assign to the plaintiffs their rights under another $26 million of insurance coverage. Under the amended conditional settlement, the Entities are to deposit $5 million into the Preliminary Escrow Account on March 31, 1999. On or about April 1, 1999, one of the Settling Insurers is to deposit into the Preliminary Escrow Account an amount equal to the difference between $15 million (the limit of its policy) and the Defense Depletion Amount. On or about April 2, 1999, the other Settling Insurer is to deposit $10 million (the limit of its policy) into the Preliminary Escrow Account. The Entities are to make further deposits into the Preliminary Escrow Account totaling $17 million as follows: (i) $6.8 million on December 31, 2000; (ii) $5.1 million on June 30, 2001; and (iii) $5.1 million on December 31, 2001. The Entities are also to make interest payments on the balance of the $17 million which has not been deposited into escrow. The interest rate is 6.25% per annum commencing on April 1, 1999. The Entities are required to deposit the interest payments into the escrow account on the following dates: (i) September 30, 1999; (ii) January 31, 2000; (iii) June 30, 2000; (iv) September 30, 2000; (v) December 31, 2000; (vi) June 30, 2001; and (vii) December 31, 2001. Within one business day after the Louisiana Court gives its preliminary approval of the Class 13 16 settlement, the Entities are to deposit into the Preliminary Escrow Account an amount equal to (i) the Defense Depletion Amount and (ii) the additional sum of approximately $0.4 million, which is the portion of the anticipated settlement payment from another insurance company that the Entities have agreed to contribute to the Class settlement. After: (a) (i) plaintiffs' counsel has obtained settlements and releases from all plaintiffs who are not in the Class because they have opted out (e.g., the Mississippi Plaintiffs have indicated that they will opt out of the Class) or fall outside of the definition of the Class (the "Opt-Outs") or (ii) the Entities have agreed to go forward with the settlement without such settlements and releases from the Opt-Outs; and (b) the Louisiana Court gives its preliminary approval of the settlement respecting the Class, the funds in the Preliminary Escrow Account (including earned interest), less (x) the sums needed to settle the claims of all Opt-Outs who settle, and (y) the sums to be set aside for the Opt-Outs who do not settle (the "Non-Settling Opt-Outs Escrow") and to cover certain claims (the "Uncovered Claims") which may not be covered by the settlement (the "Uncovered Claims Escrow"), will be transferred to a subaccount of the Preliminary Escrow Account which is to be used to fund the settlement with the Class. If the Entities fail to timely make the required payments and such failure is not cured within a reasonable time (at least 30 days) after notice, the plaintiffs' sole remedy under the settlement agreements is to terminate the settlement. In addition, the Entities can terminate the settlement and the Entities and the Settling Insurers can recover the escrowed amounts plus earned interest (less a fixed amount which is to be paid to a small group of the Mississippi Plaintiffs, who (through their counsel) have advised that they will opt out of the Louisiana Class Action (the "Fixed Mississippi Settlement Amount") ) if any of the following conditions, among numerous others, do not occur: (a) the courts in Mississippi and Louisiana enter orders staying all claims and cross claims against the Entities; (b) all the claims of the Opt-Outs (including the 4,000 Mississippi Plaintiffs that opt-out) are settled by a specified deadline; (c) the Louisiana courts give final approval to the settlement with the Class; and (d) all Class members and all Opt-Outs agree to reduce judgments against non-settling defendants to the extent necessary to eliminate all cross claims and claims for contribution or indemnity against the Entities and to indemnify the Entities against all such claims and cross claims. No money will be disbursed to any plaintiffs from the escrow accounts unless and until all of the conditions have been met or waived by the Entities. If the Entities elect to go forward with the settlement without the releases from all of the Opt-Outs and the Non-Settling Opt-Outs Escrow is insufficient to satisfy the remaining claims of the Opt-Outs and pay for the Entities' defense thereof or the Uncovered Claims Escrow is insufficient to pay the Uncovered Claims, the Entities are responsible for the shortfall. If all the conditions have not been met or waived and the settlement terminates, the parties revert to their respective positions before the settlement was entered into, the litigations will probably resume and the monies deposited in escrow plus earned interest (less escrow fees and authorized charges) will be returned to the Entities and the Settling Insurers, except only that Fixed Mississippi Settlement Amount must be paid within 30 days after the later of the Entities' receipt of a demand for such payment and the return of the escrowed amounts to the Entities and the Settling Insurers. 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 Bogalusa Litigation 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, 1998. 14 17 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 Part III - 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 1996, 1997 and 1998, the Company paid or declared cash dividends on its Common Stock in the amounts of $5.2 million, $3.7 million and $12.6 million, respectively. ITEM 6. Selected Financial Data The following table presents selected consolidated financial data of the Company for the five year period ended December 31, 1998. 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, 1994 1995 1996 1997 1998 --------- --------- --------- --------- --------- (in thousands) Results of Operations: Revenues ......................................... $ 334,107 $ 385,564 $ 412,305 $ 376,531 $ 423,558 Operating costs and expenses: Cost of goods sold ............................. 265,795 323,126 343,930 305,588 336,544 General and administrative ..................... 37,780 43,193 46,419 42,622 51,221 --------- --------- --------- --------- --------- Operating income ................................. 30,532 19,245 21,956 28,321 35,793 Interest expense .................................... (28,369) (34,498) (32,195) (29,475) (37,605) Interest and other income (expense) - net (1) .... 15,056 9,128 25,448 5,550 (8,624) --------- --------- --------- --------- --------- Income (loss) before income taxes, extraordinary item and change in accounting principle ........................... 17,219 (6,125) 15,209 4,396 (10,436) Income tax provision ............................. 14,669 733 4,016 2,952 3,882 --------- --------- --------- --------- --------- Income (loss) before extraordinary item and change in accounting principle ............. 2,550 (6,858) 11,193 1,444 (14,318) Extraordinary item - net ......................... -- (103) (553) -- (11,328) Cumulative effect of change in accounting principle - net ..................... -- -- -- -- (1,253) --------- --------- --------- --------- --------- Net income (loss) ................................ $ 2,550 $ (6,961) $ 10,640 $ 1,444 $ (26,899) ========= ========= ========= ========= ========= Dividends: Preferred stock .................................. $ -- $ 851 $ 851 $ 850 $ 850 Common stock ..................................... 4,466 856 5,208 3,736 13,376
- ---------- (1) Includes (a) gains of $18,100,000 and $1,700,000 in the years ended December 31, 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 ($1,178,000), ($413,000), $341,000, $2,713,000 and $1,948,000 for the years ended December 31, 1994, 1995, 1996, 1997 and 1998, respectively, (c) foreign currency gains (losses) of ($3,800,000), $5,400,000 and ($1,600,000) for the years ended December 31, 1994, 1995 and 1996, respectively, (d) a gain of $22,579,000 in the year ended December 31, 1996 relating to the Company's sale of its potash operations in 1996, and (e) in the year ended December 31, 1998, (i) a gain of $22,946,000 relating to the Company's investment in Laser Industries Limited ("Laser") and its share exchange with ESC, and (ii) a loss of $36,204,000 relating to the Company's settlement of the Bogalusa Litigation. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes A and K of Notes to Consolidated Financial Statements. 15 18
December 31, ------------ 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (in thousands) Financial Position: Cash and cash equivalents................... $ 15,571 $ 32,872 $ 29,112 $ 19,757 $ 12,387 Working capital............................. 66,294 82,011 86,986 73,597 110,134 Total assets................................ 550,954 467,102 426,631 462,016 599,286 Short-term debt, including current maturities of long-term debt.............. 157,986(a) 46,848 32,829 49,660 49,248 Long-term debt, excluding current maturities and subordinated debt.......... 102,059 174,506 152,539 154,726 414,432 Senior subordinated debt - net.............. 140,385 114,074 114,175 114,288 - Junior subordinated debt - net.............. 7,981 - - - - Stockholder's equity........................ 20,550 20,675 26,254 23,607 (38,843)
(a) Was collateralized, in part, by $100.0 million of certificates of deposit, which were included in "Other current assets" in the December 31, 1994 Consolidated Balance Sheet. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations See Part I - Item 1 - "Business" - "Special Note Regarding Forward-Looking Statements". RESULTS OF OPERATIONS The following table sets forth, as a percentage of revenues, certain items appearing in the Consolidated Financial Statements.
Percentage of Revenues Year Ended December 31, 1996 1997 1998 ------ ------ ------ Revenues: Specialty Plant Nutrients .................. 52.5% 58.6% 57.3% Industrial Chemicals ....................... 28.4 28.9 29.4 Organic Chemicals .......................... 10.6 12.5 13.3 Potash ..................................... 8.5 -- -- ------ ------ ------ Total revenues ............................. 100.0% 100.0% 100.0% Operating costs and expenses: Cost of goods sold ......................... 83.4 81.2 79.4 General and administrative ................. 11.3 11.3 12.1 ------ ------ ------ Operating income ................................ 5.3 7.5 8.5 Interest expense ........................... (7.8) (7.8) (8.9) Interest and other income (expense) - net .. 6.2 1.5 (2.1) ------ ------ ------ Income (loss) before income taxes, extraordinary item and change in accounting principle ....................... 3.7 1.2 (2.5) Income tax provision ............................ 1.0 0.8 0.9 ------ ------ ------ Income (loss) before extraordinary item and change in accounting principle ......... 2.7 0.4 (3.4) Extraordinary item - net ........................ (0.1) -- (2.7) Cumulative effect of change in accounting principle - net ............................ -- -- (0.3) ------ ------ ------ Net income (loss) ............................... 2.6% 0.4% (6.4)% ====== ====== ======
16 19 1998 Compared with 1997 Revenues increased by 12.5% to $423.6 million in 1998 from $376.5 million in 1997, an increase of $47.1 million. The increase resulted from (i) increased sales of Specialty Plant Nutrients and Industrial Chemicals of approximately $38.0 million principally due to an increase in quantities sold in 1998 versus the prior year, which year was adversely affected by the HCL Labor Dispute, with such increased sales partially offset by less favorable currency exchange rates in 1998 and (ii) an increase in revenues of Organic Chemicals of approximately $9.1 million. See Part I - Item 1 - "Business" - "Employees" above. Cost of goods sold as a percentage of revenues decreased to 79.4% in 1998 compared with 81.2% in 1997. Gross profit was $87.0 million in 1998, or 20.6% of revenues, compared with $70.9 million in 1997, or 18.8% of revenues, an increase of $16.1 million. The primary factors resulting in the increased gross profit in 1998 were (i) increased Specialty Plant Nutrients and Industrial Chemicals quantities sold as compared to 1997 primarily resulting from the adverse effect of the HCL Labor Dispute, (ii) lower raw material and energy costs and certain selling price increases and (iii) improved margins of Organic Chemicals. These increases were partially offset by less favorable currency exchange rates in 1998 and by certain increased costs relating to production interruptions and inefficiencies at HCL in 1998 resulting from (i) certain unscheduled maintenance to equipment required due to the lengthy period of shut-down during the HCL Labor Dispute and (ii) the impact of power interruptions associated with the installation of a new electrical co-generation facility at HCL's plant. General and administrative expense increased to $51.2 million in 1998 from $42.6 million in 1997, an increase of $8.6 million (12.1% of revenues in 1998 compared to 11.3% of revenues in 1997). This increase was due to (i) increased sales volume in 1998, and (ii) the general and administrative expenses recorded by the businesses acquired by the Company in 1998 (see Part I - Item 1 - - "Business" above). As a result of the matters described above, the Company's operating income increased by $7.5 million to $35.8 million in 1998 as compared with $28.3 million in 1997. As a percentage of revenues operating income increased to 8.5% in 1998 from 7.5% in 1997. Interest expense increased by $8.1 million to $37.6 million in 1998 compared with $29.5 million in 1997 primarily as a result of (i) the March, 1998 issuance by the Company of its 10 3/4% Senior Notes and 12% Senior Discount Notes, partially offset by the Company's repurchase of all of its 11 7/8% Senior Subordinated Notes (see "Refinancing" below) and (ii) certain increased borrowings relating to the Company's investment and capital expenditure program. Interest and other income (expense) - net decreased in 1998 by $14.2 million, principally as the result of the settlement of the Bogalusa Litigation, partially offset by the gain related to the Laser/ESC combination (see Part I - Item 3 - "Legal Proceedings" above and "Investment in Laser/ESC" below). As a result of the above factors, income before income taxes, extraordinary item and cumulative effect of change in accounting principle decreased by $14.8 million in 1998. 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 1998, the Company acquired the total amount outstanding ($115.0 million principal amount) of its 11 7/8% Senior Subordinated Notes, which resulted in a loss of $11.3 million (see "Refinancing" below). Such loss (which has no tax benefit) is classified as an extraordinary item in the accompanying Consolidated Statement of Operations. No such debt was acquired in 1997. In 1998, the Company changed its method of accounting for start-up costs incurred relating to the start-up of newly constructed manufacturing facilities to conform with SOP 98-5. This change in accounting method resulted in a net charge of approximately $1.3 million. 17 20 1997 Compared with 1996 Revenues decreased by 8.7% to $376.5 million in 1997 from $412.3 million in 1996, a decrease of $35.8 million. The decrease resulted from a $35.3 million reduction in sales associated with the Company's sale of its potash operations and a $3.9 million decrease in sales of Specialty Plant Nutrients and Industrial Chemicals primarily as a result of the HCL Labor Dispute and less favorable currency exchange rates in 1997. These decreases in sales were partially offset by higher sales of Organic Chemicals of $3.4 million. See "1996 Sale of Potash Operations" below and Part I Item 1 - "Business" - "Employees" above. Cost of goods sold as a percentage of revenues decreased to 81.2% in 1997 compared with 83.4% in 1996. Gross profit was $70.9 million in 1997, or 18.8% of revenues, compared with $68.4 million in 1996, or 16.6% of revenues, an increase of $2.5 million. The primary factors resulting in the increased gross profit were related to higher Organic Chemicals margins in 1997, lower raw material and energy costs and increased selling prices for the Company's Specialty Plant Nutrients and Industrial Chemicals, with such increases partially offset by less favorable currency exchange rates in 1997 of $15.0 million. Both 1997 and 1996 were adversely affected by the HCL Labor Dispute. The adverse effect of the HCL Labor Dispute related to: (i) a reduction in sales volume; (ii) the increased cost of production resulting from reduced manufacturing during the period which affected the fixed charge component of cost of sales; and (iii) lower gross margins due to inventory shortages which required purchases from third parties at substantially increased costs compared to the Company's costs. These adverse impacts were partially offset by lower labor costs during the HCL Labor Dispute and the net proceeds received from the Israeli manufacturers association under HCL's claim for damages, amounting to $3.1 million and $2.0 million in 1997 and 1996, respectively, applied for partial contribution towards the costs suffered during the period of the labor disruption. General and administrative expense decreased by $3.8 million to $42.6 million in 1997, from $46.4 million in 1996, but remained the same as a percentage of revenues at 11.3%. Most of the decreased expense related to the Company's potash operations, which were sold in 1996. In addition, during 1997, certain HCL general and administrative expenses declined as a result of lower wages. As a result of the matters described above, the Company's operating income increased by $6.3 million to $28.3 million in 1997 as compared with $22.0 million in 1996. As a percentage of revenues, operating income increased to 7.5% in 1997 from 5.3% in 1996. Interest expense decreased by $2.7 million to $29.5 million in 1997 compared with $32.2 million in 1996 primarily as a result of: (i) the maturity of the Company's Senior Subordinated Reset Notes in September 1996 and (ii) the prepayment of senior bank debt with a portion of the proceeds from the sale of the Company's potash operations. Interest and other income (expense) - net decreased in 1997 by $19.9 million, principally as the result of the gain on the sale of the Company's potash operations of $22.6 million in 1996, partially offset by increased realized gains on sales of marketable securities in 1997. As a result of the above factors, income before income taxes and extraordinary item decreased by $10.8 million in 1997. 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 1996, the Company acquired $19.1 million principal amount of its Senior Subordinated Reset Notes, which resulted in a loss of $0.6 million. Such loss (which has no current tax benefit) is classified as an extraordinary item in the accompanying Consolidated Statement of Operations. No such debt was acquired in 1997. 18 21 1996 SALE OF POTASH OPERATIONS On August 16, 1996, Cedar's wholly-owned subsidiary, NMPC, and EDP sold substantially all of their assets for an aggregate consideration of $56.2 million, including a payment for working capital of $11.2 million and the assumption of specified liabilities (but excluding, among other things, certain antitrust litigation - see Part I - Item 3 - "Legal Proceedings"). NMPC and EDP had conducted the Company's potash mining and production operations. The sale of the Company's potash operations resulted in a pre-tax gain, after considering certain costs relating thereto, of $22.6 million. Such gain is included in "Interest and other income (expense) - net" in the Consolidated Statement of Operations for 1996. During the year ended December 31, 1996, the potash operations contributed approximately $35.0 million (9%) to the Company's consolidated revenues, after eliminating intercompany sales. Approximately 50% of the aggregate sales proceeds received from the buyers were applied to partially prepay debt secured in part by the assets of NMPC or EDP. In connection with the sale, Vicksburg entered into a five year potash supply agreement at prevailing market rates during the period (subject to certain adjustments) with the buyer. INVESTMENT IN LASER/ESC On November 9, 1997, Laser, a publicly traded manufacturer of lasers for medical use in which the Company had an ownership interest accounted for by the equity method, and ESC signed a definitive agreement (the "Agreement") to combine the two companies through an exchange of shares. The transaction closed on February 23, 1998. ESC develops, manufactures, and markets medical devices utilizing both state-of-the-art lasers and proprietary intense pulsed light source technology for non-invasive treatment of varicose veins and other benign vascular lesions, as well as for hair removal, skin cancer, skin rejuvenation and other clinical applications. ESC shares are traded in the United States on the NASDAQ National Market System. The Company's investment in ESC is accounted for pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Security" ("SFAS 115"). As of December 31, 1997, the Company carried its investment in the Laser shares at approximately $9.1 million, which amount is included in the caption "Other assets" in the accompanying December 31, 1997 Consolidated Balance Sheet. Based on the quoted market value of the ESC shares ($35.00 per share), as of February 20, 1998, the last day of trading before the combination, the Company recognized a pre-tax gain of approximately $22.9 million during the first quarter of 1998, which gain is included in the caption "Interest and other income (expense) - net" in the accompanying December 31, 1998 Consolidated Statement of Operations. Subsequent to the exchange of shares, the Company carries its investment in the ESC shares in "Other current assets" in the accompanying December 31, 1998 Consolidated Balance Sheet. As of December 31, 1998, the quoted market value of the ESC shares declined to approximately $10.50 per share, resulting in the Company recording an unrealized loss of approximately $18.3 million. Most of this decline occurred in the latter part of September, 1998 and resulted from ESC's pre-announcement of third quarter 1998 operating results, which ESC indicated would show a decline when compared to operating results for its second quarter of 1998. The unrealized loss relating to ESC is included in the caption "Unrealized gains (losses) on marketable securities" in the accompanying December 31, 1998 Consolidated Balance Sheet. With respect to the Company's investment in ESC, Management of the Company is not aware of any events that have occurred regarding ESC that would indicate an other than temporary impairment of the Company's investment in ESC. In addition to the ownership of the Laser shares described above, the Company also owned a warrant (the "Laser Warrant") which enabled the Company to purchase 250,000 Laser shares. The Laser Warrant, which had a carrying value of $0.75 million, was distributed as a dividend in February, 1998. CAPITAL RESOURCES AND LIQUIDITY The Company's consolidated working capital at December 31, 1998 and 1997 was $110.1 million and $73.6 million, respectively. Operations for the years ended December 31, 1998, 1997 and 1996, after adding back non-cash items, provided cash of approximately $31.0 million, $22.8 million and $11.1 million, respectively. During such years, other changes in working capital used cash of approximately $38.7 million, $13.1 million and $7.7 million, respectively, resulting in 19 22 net cash being provided (used) from operating activities and working capital management of approximately ($7.7) million, $9.7 million and $3.4 million, respectively. Investment activities during the years ended December 31, 1998, 1997 and 1996 provided (used) cash of approximately ($95.5) million, ($33.5) million and $35.3 million, respectively. These amounts include: (i) additions to property in 1998, 1997 and 1996 of $63.4 million, $26.9 million and $13.6 million, respectively; (ii) purchases of marketable securities and other short-term investments in 1998, 1997 and 1996 of $33.6 million, $7.7 million and $9.4 million, respectively; (iii) sales of marketable securities and other short-term investments in 1998, 1997 and 1996 of $22.2 million, $8.0 million and $2.0 million, respectively; (iv) net assets acquired of operating businesses in 1998 of $9.3 million and (v) other items providing (using) cash in 1998, 1997 and 1996 of ($11.4) million, ($6.9) million and $56.4 million, respectively, including (a) in 1998, approximately $11.0 million relating to the purchase of approximately 42% of the equity of Lego and (b) in 1996, the gross proceeds relating to the Company's sale of its potash operations. The property additions in the 1998 period relate primarily to the Company's expansion of its potassium nitrate and food grade phosphates capacity in the United States and Israel and the construction of a plant in the United States to produce MAP and MKP. Financing activities during the years ended December 31, 1998, 1997 and 1996 provided (used) cash of approximately $95.8 million, $14.4 million and ($42.5) million, respectively. These amounts include: (i) in 1998, the Refinancing described below and certain borrowings relating to the Company's investment and capital expenditure program, and (ii) in 1996, the Company's acquisition of a portion of its Senior Subordinated Reset Notes and the prepayment of certain bank debt with a portion of the proceeds from the sale of the Company's potash operations. As of December 31, 1998, the Company had outstanding long-term debt (excluding current maturities) of $414.4 million. The Company's primary sources of liquidity are cash flows generated from operations and the unused credit lines described in Note E of Notes to Consolidated Financial Statements. REFINANCING On March 11, 1998, the Company commenced a private placement of $100.0 million principal amount of 10 3/4% Senior Notes due 2008 (the "Senior Notes") and $135.0 million principal amount at maturity of 12% Senior Discount Notes due 2008 (the "Senior Discount Notes"). The Senior Discount Notes provided gross proceeds to the Company of approximately $75.4 million. The sale of the Senior Notes and the Senior Discount Notes closed on March 16, 1998. A substantial portion (approximately $118.0 million) of the net proceeds from the sale was used in March, 1998 to purchase (pursuant to a tender offer and consent solicitation) approximately $110.0 million principal amount of the Company's 11 7/8% Senior Subordinated Notes (the "11 7/8 % Notes") (the "Refinancing"). In addition, in the four month period ended July, 1998, the Company repurchased or redeemed the remaining $5.0 million principal amount of its 11 7/8% Notes. As a result of the Refinancing and the subsequent repurchases or redemptions of the 11 7/8% Notes, combined with the write-off of certain unamortized issuance costs associated with the 11 7/8% Notes, the Company recognized an extraordinary charge for the early extinguishment of debt of approximately $11.3 million which is classified as an extraordinary item in the accompanying Consolidated Statement of Operations. The Senior Notes and the Senior Discount Notes are unsecured obligations of the Company and are pari passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Company and senior in right to payment to all subordinated indebtedness of the Company. Interest on the Senior Notes is payable semi-annually. Interest on the Senior Discount Notes accretes and compounds semi-annually but is not payable until 2003, after which interest will be payable semi-annually. See Note G of Notes to Consolidated Financial Statements. 20 23 FORWARD-LOOKING LIQUIDITY AND CAPITAL RESOURCES Interest payments on the Senior Notes and interest and principal repayments under other indebtedness represent significant obligations of the Company and its subsidiaries. For a description of the amortization required on the Company's other indebtedness see Note G of Notes to Consolidated Financial Statements. During the years ended December 31, 1998 and 1997, the Company spent approximately $63.4 million and $26.9 million, respectively, on capital projects, of which approximately $38.0 million and $10.8 million, respectively, relates to the Company's capital expenditures pursuant to its plan to increase capacity for potassium nitrate, food grade phosphates and the construction of a plant to manufacture MAP and MKP (the "Plan"). The Company plans to complete the Plan by spending approximately $25.0 million during 1999. Ongoing maintenance capital expenditures are expected to be approximately $16.0 million per year. The Company's primary sources of liquidity are cash flows from operations and borrowings under the credit facilities of the Company. As of December 31, 1998, the Company had approximately $73.0 million of borrowing availability, consisting of $26.0 million of borrowing availability of the Company and the remainder at the Company's subsidiaries. In addition, during 1998 HCL entered into an $80.0 million credit facility which is being used to finance its planned capacity expansion at its Mishor Rotem, Israel facility. Dividends and other distributions from the Company's subsidiaries are, in part, a source of cash flow available to the Company. The Company believes that, based on current and anticipated financial performance, cash flow from operations, borrowings under the Company's credit facilities and dividends and other distributions available from the Company's subsidiaries will be adequate to meet anticipated requirements for capital expenditures, working capital and scheduled interest payments. However, the Company's capital requirements may change, particularly if the Company would complete any material acquisitions. The ability of the Company to satisfy its capital requirements and to repay or refinance its indebtedness will be dependent upon the future financial performance of the Company, which in turn will be subject to general economic conditions and to financial, business and other factors, including factors beyond the Company's control. See Part I - Item 1 - "Business" - "Special Note Regarding Forward-Looking Statements". FOREIGN CURRENCIES The Company has no significant foreign currency denominated revenues except at HCL. Approximately $167 million of HCL's total sales for the year ending December 31, 1998 are estimated to be made outside of Israel in currencies other than the U.S. dollar (principally Western European currencies). Accordingly, to the extent that the U.S. dollar weakens or strengthens versus the applicable corresponding foreign currency, HCL's results are favorably or unfavorably affected. 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, applicable 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, 1998, 1997 and 1996 would have decreased by approximately $1.4 million, $7.0 million and $5.3 million, respectively. The Company determines when to enter into hedging transactions based on its ongoing review of the currency markets. 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. On January 1, 1999, eleven of fifteen member countries of the European Union established fixed conversion rates between their existing currencies ("legacy currencies") and one common currency - the Euro. On January 1, 1999 the Euro began trading on currency exchanges and may be used in business transactions. The conversion to the Euro will eliminate currency exchange rate risk between the member countries. Beginning in January, 2002, new Euro-denominated bills and coins will be issued, and legacy currencies will be withdrawn from circulation. HCL, the 21 24 principal subsidiary of TRI that will be affected by the Euro conversion, has established plans to address the issues raised by the Euro currency conversion. These issues include, among others, the need to adapt computer and financial systems, the competitive impact of cross-border price transparency which may make it more difficult for businesses to charge different prices for the same products on a country-by-country basis, recalculating currency risk and recalibrating derivatives and other financial instruments. The Company does not expect any required system conversion costs to be material. Due to numerous uncertainties, the Company cannot reasonably estimate the effects one common currency will have on pricing and the resulting impact, if any, on the Company's financial condition or its results of operations. INFLATION Inasmuch as only approximately $65.0 million 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, 1998, 1997 and 1996, the inflation rate of the NIS as compared to the U.S. dollar was greater (less) than the devaluation rate in Israel by (9.0%), (1.8%) and 6.9%, respectively. ENVIRONMENTAL MATTERS See Part I - 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. YEAR 2000 ISSUE The term "Year 2000 ("Y2K") Issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000's" from dates in the "1900's." These problems may also arise from other sources as well, such as the use of special codes and conventions in software that make use of the date field. The Y2K computer software compliance issues affect the Company and most companies in the world. In 1997, the Company created project teams to coordinate its activities relating to becoming Y2K compliant (the "Y2K Project"). The Y2K Project for the Company's internal systems and equipment covers both traditional computer systems and infrastructure ("IT Systems") and computer-based manufacturing, logistical and related systems ("Non-IT Systems"). The Y2K Project generally has four phases - (i) an identification and inventory of all systems and devices with potential Y2K problems; (ii) assessment (including prioritization); (iii) remediation (including modification, upgrading and replacement) and testing; and (iv) contingency planning. The Company operates on a decentralized independent operating company basis; consequently, the Y2K Project status may vary across TRI's various direct and indirect subsidiaries. As of December 31, 1998, for both IT Systems and Non-IT Systems, phases (i) and (ii) are generally complete and phase (iii) is in process. Based on its assessment of its major IT systems, the Company expects that all necessary modifications and/or replacements required in phase (iii) will be completed in a timely manner to ensure that all of TRI's various direct and indirect subsidiaries are Y2K compliant. The Y2K Project also considers the readiness of significant customers, suppliers and other third party providers. Each of TRI's various direct and indirect subsidiaries are currently assessing the status of its significant customers, suppliers and other third party providers with respect to their becoming Y2K compliant. The Company is revising its existing business interruption contingency plans to address internal and external issues specific to the Y2K problem, to the extent practicable. Such revisions are expected to be completed by mid 1999. These plans, which are intended to enable the Company to continue to operate on January 1, 2000 and beyond, include 22 25 performing certain processes manually; repairing or obtaining replacement systems; changing suppliers; and reducing or suspending operations. These plans are intended to mitigate both internal risks as well as potential risks in the supply chain of the Company's suppliers and customers. The Company believes, however, that due to the widespread nature of potential Y2K issues, the contingency planning process is an ongoing one which will require further modifications as the Company obtains additional information regarding the Company's internal systems and equipment during the completion of the Y2K Project and regarding the status of its suppliers, customers, and other third party providers in becoming Y2K compliant. Through December 31, 1998 the Company estimates that it has spent approximately $0.5 million in its efforts to achieve Y2K compliance, all of which has been recognized as an expense in the Company's Consolidated Statements of Operations. The Company estimates that the costs to be incurred subsequent to December 31, 1998 in its efforts to achieve Y2K compliance will aggregate approximately $1.0 million. The Company intends to fund from operations the costs of becoming Y2K compliant. The failure to correct a material Y2K problem could result in an interruption in, or failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K readiness of the Company's customers, suppliers, and other third-party providers, the Company is unable to determine at this time whether the consequences of any Y2K failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Y2K Project is expected to significantly reduce the Company's level of uncertainty about the Y2K problem. The Company believes that, with the implementation of new business systems and completion of the Company's Y2K Project, the possibility of significant interruptions of normal operations should be reduced. The preceding "Y2K problem" discussion contains various forward-looking statements which represent the Company's beliefs or expectations regarding future events. When used in the "Y2K problem" discussion, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, without limitation, the Company's expectations as to when it will complete the remediation and testing phases of its Y2K Project as well as its Y2K contingency plans; its estimated cost of becoming Y2K compliant; and the Company's belief that its internal systems and equipment will be Y2K compliant in a timely manner. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results, including problems that may arise on the part of third parties. Factors that may cause these differences include, but are not limited to, the availability of qualified personnel and other information technology resources; the ability to identify and remediate all date sensitive lines of computer code or to replace embedded computer chips in affected systems or equipment; and the actions of governmental agencies or other third parties with respect to Y2K problems. If the modifications and conversions required to make the Company Y2K compliant are not made or are not completed on a timely basis, the resulting problems could have a material impact on the operations of the Company. This impact could, in turn, have a material adverse effect on the Company's results of operations and financial condition. OTHER MATTERS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for reporting financial and descriptive information for reportable segments on the same basis that is used internally for evaluating segment performance and the allocation of resources to segments. The adoption of SFAS 131 did not have a material effect on the Company's reporting disclosures. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Depending on the intended use of the derivative, changes in derivative fair values may be charged to operations unless the derivative qualifies as a hedge under certain requirements. SFAS 133 is effective for all quarters of fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). The Company is evaluating the impact, if any, of SFAS 133 on its consolidated financial statements. 23 26 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to certain market risks which are inherent in the Company's normal course of business. The Company may enter into derivative financial instrument transactions in order to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for speculative purposes. A discussion and sensitivity analysis of the Company's primary market risk exposures is presented below. INTEREST RATE RISK Since approximately $240 million of the Company's long-term debt at December 31, 1998 is at variable interest rates, the Company is exposed to changes in interest rates. Accordingly, based on the amount of variable rate debt outstanding at December 31, 1998, every one percent change in interest rates would impact the Company by approximately $2.4 million on an annualized basis. From time-to-time, the Company has entered into financial instruments to convert a portion of its variable rate debt to fixed, thereby managing, to such extent, its credit risk. See Note M of Notes to Consolidated Financial Statements. FOREIGN CURRENCY EXCHANGE RATE RISK The Company has no significant foreign currency denominated revenues except at HCL. Approximately $167 million of HCL's total sales for the year ended December 31, 1998 were made outside of Israel in currencies other than the U.S. dollar (principally in Western European currencies). Accordingly, to the extent the U.S. dollar instantaneously weakens or strengthens by one percent from its level of December 31, 1998 versus all foreign currencies as a group, (with all other variables, including interest rates, held constant) HCL's results would be favorably or unfavorably affected by approximately $1.7 million on an annualized basis for each such one percent change. In order to mitigate the impact of currency fluctuations against the U.S. dollar the Company has a general policy of hedging a portion of its next twelve month's foreign sales denominated in Western European currencies by entering into foreign exchange contracts. See Note A of Notes to Consolidated Financial Statements. Since the Company does not plan to repatriate foreign assets and considers foreign earnings to be permanently invested overseas, the exposure to changes in foreign currency exchange rates with respect to such assets is primarily limited to cumulative translation adjustments, which have been reported in Comprehensive Income. MARKETABLE EQUITY SECURITIES At December 31, 1998 the Company's portfolio of marketable equity securities was recorded at $28.0 million and included net unrealized losses of $19.1 million. Accordingly, to the extent quoted market values relating to the Company's portfolio of marketable equity securities at December 31, 1998 change by one percent, the Company's valuation of such portfolio would be impacted by approximately $0.3 million for each such one percent change. ITEM 8. Financial Statements and Supplementary Data See Index to Consolidated Financial Statements and Schedule on page F-1. ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None. 24 27 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 53 Chairman of the Board and Chief Executive Officer Thomas G. Hardy 53 President and Chief Operating Officer; Director Gabriel Politzer 49 Senior Vice President Lester W. Youner 53 Vice President, Treasurer and Chief Financial Officer and Secretary John J. Lewandowski 43 Vice President-Corporate Development Michael P. Oravec 47 Vice President-Corporate Taxation Elan Yaish 29 Controller Avi D. Pelossof 52 Director and Chairman of the Board of HCL Martin A. Coleman 68 Director Sash A. Spencer 67 Director
In addition, the following are key employees of the Company's subsidiaries:
NAME AGE POSITION ---- --- -------- Esther Eldan 44 Managing Director of HCL J. Randal Tomblin 56 Senior Vice President of Cedar and President of the Organic Chemicals Division John D. Kelly 57 President of Vicksburg
The Financial Advisory Committee advises the Board of Directors regarding financial matters and, when the Committee deems appropriate, makes recommendations to the Board of Directors. The members of the Financial Advisory Committee are Mr. Lawrence M. Small and Messrs. Hardy and Spencer. The following are descriptions of the directors, executive officers and key employees of the Company. 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 was a director of Laser from January, 1990 until February, 25 28 1998 and has been a director of ESC since February, 1998 (see Part II - Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" "Investment in Laser/ESC"). Gabriel Politzer has been a Senior Vice President of the Company since January 1, 1998, with responsibilities for the Company's worldwide Specialty Plant Nutrients products. He was Executive Vice President of Vicksburg from September, 1993 to January, 1998. From January, 1989 through September, 1993, he was Vice President of Sales and Marketing at HCL. From 1983 to 1989 he was Chief Financial Officer of Negev Phosphates (a major subsidiary of Israel Chemicals Ltd.). Lester W. Youner has been Vice President, Treasurer and Chief Financial Officer of the Company since October, 1987 and has been Secretary since December 31, 1996. From June, 1979 until October, 1987 he was a Partner of Deloitte & Touche LLP, a public accounting firm. He was a director of Laser from November, 1996 to February, 1998. John J. Lewandowski has been Vice President-Corporate Development of the Company since September, 1996. From September, 1995 until August, 1996 he served as the President of the Company's Potash Group. From January, 1995 (when he accepted a position with the Company) until September, 1995 he served as the Company's Director of Business Development. From 1991 through 1994 he served in a variety of consulting and business advisory roles for several chemical producers in the United States and Eastern Europe. From 1983 to 1990 he was employed by Arcadian Corporation in positions of increasing responsibility, his last position being Director-Nitrogen Products. Michael P. Oravec has been Vice President-Corporate Taxation of the Company since January, 1997. From December, 1994 (when he accepted a position with the Company) until December, 1996 he served as the Company's Director of Taxes. From 1980 to 1994 he was employed by The Mennen Company, in positions of increasing responsibility, his last position being Director of Taxes. Elan Yaish has been Controller of the Company since January 1, 1999. From June, 1996 (when he accepted a position with the Company) until December, 1998 he served as the Company's Director of Corporate Reporting. From 1992 to 1996 he was employed by Deloitte & Touche LLP, a public accounting firm, in positions of increasing responsibility. Avi D. Pelossof has been a director of the Company since February 26, 1999. In addition, he has been the Chairman of the Board of Directors of HCL since April, 1998, was Active Co-Chairman of the Board of HCL from November, 1997 to April, 1998, was Deputy Chairman of the Board of HCL from May, 1997 to November, 1997 and has been a director of HCL since March, 1997. He has been a member of the law firm of Zellermayer & Pelossof, general counsel to HCL, since 1987. He was a director of Laser from 1996 to February, 1998 and has been a director of Nilit Ltd., a nylon yarn producer, since 1995. From 1980 to 1986 he was Managing Director and Chief Executive Officer of Elite Food Industries Ltd. He was a member of the Israeli Securities Authority in the 1970's, a director of the Tel Aviv Stock Exchange Ltd. in the 1980's and was Acting Chairman of the Board in 1996. He was a director of Israel Aircraft Industries Ltd. from 1984 and was Chairman of the Board in 1987. 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 and is on the board of directors of several private companies. Esther Eldan has been Managing Director of HCL since April 1, 1998. From January, 1996 until March 31, 1998 she served as the general manager of HCL's Specialty Fertilizer Division. Previously, she was the Chief Financial Officer of HCL for more than five years. Ms. Eldan joined HCL in 1981. 26 29 J. Randal Tomblin has been Senior Vice President of Cedar and President of its Organics Division since 1989. He was Vice President of NMPC from 1985 to 1986, President and Chief Executive Officer of Vertac Chemical Corporation from 1986 to 1987 and was in private business for a period between 1987 and 1989. Prior to joining NMPC, he served for 20 years with Hoechst Celanese Corporation, most recently as a Director of Manufacturing with Hoechst Celanese Chemical Company, and Director of Strategic Planning and Director of New Business Development with Hoechst Celanese Fibers Division. John D. Kelly has been President of Vicksburg since March 1, 1999. From 1998 until February, 1999 he served as President of TRI Pro, Inc. an indirect subsidiary of the Company and as a Vice President of Vicksburg. From 1976 to 1997, he served in various executive officer capacities at Na-Churs, his last position being President. Lawrence M. Small, 57, 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, 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 1991 when Mr. Small joined Fannie Mae, he had served as Vice Chairman and Chairman of the Executive Committee of the Boards of Directors of Citicorp and Citibank, N.A. since January, 1990. Prior to assuming that position, Mr. Small had been Sector Executive since 1985, responsible for Citicorp and Citibank's Institutional Bank. He had been associated with Citibank since 1964. Mr. Small is also a director of Fannie Mae, the Chubb Corporation, Marriott International, Inc., the Fannie Mae Foundation, the National Building Museum and New York City's Spanish Repertory Theatre. He is a Trustee Emeritus of Brown University and of Morehouse College; he is also a trustee of Mt. Sinai-New York University Medical Center and Health System. 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, executive officers or key employees of the Company. 27 30 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 its next four most highly compensated executive officers serving as such at the end of the 1998 fiscal year:
ANNUAL COMPENSATION(a) ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(b) - --------------------------- ---- ------ ----- --------------- Arie Genger................................. 1998 $750,000 $ - $802,000 Chairman of the Board and Chief Executive 1997 750,000 400,000 797,000 Officer 1996 750,000 750,000 682,000 Thomas G. Hardy............................. 1998 450,000 - 7,000 President and Chief Operating Officer and 1997 425,000 150,000 5,000 Director 1996 400,000 175,000 1,405,000 Gabriel Politzer............................ 1998 300,000 100,000 6,000 Senior Vice President Lester W. Youner............................ 1998 276,000 75,000 7,000 Vice President, Treasurer and Chief 1997 263,000 75,000 5,000 Financial Officer and Secretary 1996 251,000 100,000 5,000 John J. Lewandowski......................... 1998 130,000 35,000 6,000 Vice President-Corporate Development 1997 125,000 35,000 4,000 1996 120,000 105,000 4,000
- ---------- (a) 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. (b) For 1998 includes in the case of Mr. Genger the cost to the Company of split-dollar life insurance policies on the life of Mr. Genger (the "Split-Dollar Policies"). The Company paid premiums on the Split-Dollar Policies of $289,000 in 1998. Additionally, for 1998, includes: (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, $6,000 for the Company's matching contribution to a profit sharing thrift plan, and $7,000 for the premium on term life insurance; (ii) in the case of Messrs. Hardy, Politzer, Youner and Lewandowski, $6,000 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 and disability insurance. For 1997 includes in the case of Mr. Genger the cost to the Company of the Split-Dollar Policies. The Company paid premiums on the Split-Dollar Policies of $286,000 in 1997. Additionally, for 1997, includes: (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 $7,000 for the premium on term life insurance; (ii) in the case of Messrs. Hardy, Youner and Lewandowski, $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 and disability insurance. For 1996 includes in the case of Mr. Genger the cost to the Company of the Split-Dollar Policies. The Company paid premiums on the Split-Dollar Policies of $171,000 in 1996. Additionally, for 1996, includes: (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 $7,000 for the premium on term life 28 31 insurance; (ii) in the case of Messrs. Hardy, Youner and Lewandowski, $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. In the case of Mr. Hardy, also includes $1,400,000 deposited in trust for Mr. Hardy. See "Compensation Agreements". The Company is entitled to a refund of the cumulative annual premiums paid by it to the insurers pursuant to the Split-Dollar Policies before any benefits are paid by the insurers to the owner or beneficiaries of the policies. 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 was 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 received 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 (the "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 became 35% vested in the Allowance on December 31, 1998 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 100% vested. The Company is also a party to certain agreements relating to the Split-Dollar Policies on the life of Mr. Genger as described above. 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 five 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 29 32 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. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information, as of March 29, 1999, as to the beneficial ownership of the Common Stock of the Company, which is the only outstanding class of voting security of the Company:
NAME AND ADDRESS SHARES OWNED PERCENT OF CLASS - ---------------- ------------ ---------------- Common Stock, $.01 par value(a): TPR(b) 9 West 57th Street New York, NY 10019................................... 3,000 100% All executive officers and directors as a group (ten persons)(b).......................... 3,000 100%
- ---------- (a) All of the shares of the Common Stock of the Company are pledged by TPR to secure a TPR note in the principal amount of $7,000,000 issued to a former indirect stockholder and director of the Company. TPR also owns all outstanding shares of a non-voting preferred stock of the Company. See Note L of Notes to Consolidated Financial Statements. (b) 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, EDP, Cedar, Na-Churs 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. During 1994, as a result of the settlement of certain litigation with a former indirect stockholder and director of the Company, TPR (in addition to acquiring certain financial assets) 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. 30 33 PART IV ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K (a) (1)-(2) See Index to Consolidated Financial Statements and Schedule 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, 1998. 31 34 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 and Secretary Dated: March 29, 1999 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 and Secretary By Lester W. Youner ---------------------------------- Lester W. Youner For Himself and As Attorney-In-Fact Directors: Arie Genger Dated: March 29, 1999 Thomas G. Hardy Avi D. Pelosoff 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 10 3/4% Senior Notes and 12% Senior Discount Notes. 32 35 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS Page Independent Auditors' Report.................................................................... F-2 Report of Independent Accountants............................................................... F-3 Consolidated Balance Sheets, December 31, 1997 and 1998......................................... F-4 Consolidated Statements of Operations, for the Years Ended December 31, 1996, 1997 and 1998........................................ F-5 Consolidated Statements of Stockholder's Equity and Comprehensive Income for the Years Ended December 31, 1996, 1997 and 1998........................................ F-6 Consolidated Statements of Cash Flows, for the Years Ended December 31, 1996, 1997 and 1998........................................ F-7 Notes to Consolidated Financial Statements...................................................... F-8 SCHEDULE Schedule I - Condensed Financial Information of Registrant, for the Years Ended December 31, 1996, 1997 and 1998........................................ S-1
F-1 36 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 Trans-Resources, Inc. (a wholly-owned subsidiary of TPR Investment Associates, Inc.) and Subsidiaries (the "Company") 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 19 percent and 22 percent of consolidated total assets as of December 31, 1998 and 1997, respectively, and total revenues constituting 28 percent, 31 percent and 33 percent of consolidated total revenues for the years ended December 31, 1998, 1997 and 1996, 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and (as to the amounts included for Cedar Chemical Corporation) 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. As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for the costs of start-up activities in 1998. Deloitte & Touche LLP New York, New York March 25, 1999 F-2 37 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, 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 audits 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. PricewaterhouseCoopers LLP Memphis, Tennessee February 12, 1999, except as to Note 12, which is as of March 25, 1999 F-3 38 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ------------ 1997 1998 ---- ---- (in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents ................................................. $ 19,757 $ 12,387 Accounts receivable ....................................................... 82,551 90,998 Inventories ............................................................... 60,126 95,442 Other current assets ...................................................... 33,578 63,608 Prepaid expenses .......................................................... 16,122 16,477 --------- --------- Total Current Assets .................................................. 212,134 278,912 PROPERTY, PLANT AND EQUIPMENT - net ............................................ 207,487 260,585 OTHER ASSETS ................................................................... 42,395 59,789 --------- --------- Total ................................................................. $ 462,016 $ 599,286 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current maturities of long-term debt ...................................... $ 13,080 $ 10,183 Short-term debt ........................................................... 36,580 39,065 Accounts payable .......................................................... 58,662 76,306 Accrued expenses and other current liabilities ............................ 30,215 43,224 --------- --------- Total Current Liabilities ............................................. 138,537 168,778 --------- --------- LONG-TERM DEBT - net: Senior indebtedness, notes payable and other obligations .................. 154,726 414,432 Senior subordinated debt - net ............................................ 114,288 -- --------- --------- Long-Term Debt - net .................................................. 269,014 414,432 --------- --------- OTHER LIABILITIES .............................................................. 30,858 54,919 --------- --------- 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 ................................................ 8,682 8,682 Retained earnings ......................................................... 6,203 (34,922) Cumulative translation adjustment ......................................... (67) (1,462) Unrealized gains (losses) on marketable securities ........................ 829 (19,101) --------- --------- Total Stockholder's Equity ............................................ 23,607 (38,843) --------- --------- Total ............................................................ $ 462,016 $ 599,286 ========= =========
See notes to consolidated financial statements. F-4 39 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1996, 1997 and 1998
1996 1997 1998 ---- ---- ---- (in thousands) REVENUES ......................................... $ 412,305 $ 376,531 $ 423,558 OPERATING COSTS AND EXPENSES: Cost of goods sold ............................ 343,930 305,588 336,544 General and administrative .................... 46,419 42,622 51,221 --------- --------- --------- OPERATING INCOME ................................. 21,956 28,321 35,793 Interest expense .............................. (32,195) (29,475) (37,605) Interest and other income (expense) - net ..... 25,448 5,550 (8,624) --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CHANGE IN ACCOUNTING PRINCIPLE .......................... 15,209 4,396 (10,436) INCOME TAX PROVISION ............................. 4,016 2,952 3,882 --------- --------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CHANGE IN ACCOUNTING PRINCIPLE ............ 11,193 1,444 (14,318) EXTRAORDINARY ITEM - Loss on repurchase of debt (no income tax benefit) ............... (553) -- (11,328) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, net of income tax benefit of $80,000 -- -- (1,253) --------- --------- --------- NET INCOME (LOSS) ................................ $ 10,640 $ 1,444 $ (26,899) ========= ========= =========
See notes to consolidated financial statements. F-5 40 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME For the Years Ended December 31, 1996, 1997 and 1998
ADDITIONAL CUMULATIVE UNREALIZED PREFERRED COMMON PAID-IN RETAINED TRANSLATION GAINS (LOSSES) STOCK STOCK CAPITAL EARNINGS ADJUSTMENT ON SECURITIES ----- ----- ------- -------- ---------- ----------- (in thousands) BALANCE, JANUARY 1, 1996.................. $ 7,960 $ - $ 8,682 $ 4,764 $ (594) $ (137) Net income.............................. 10,640 Dividends: Common stock......................... (5,208) Preferred stock...................... (851) Net change during year.................. 227 771 -------- ------ ------- --------- --------- -------- BALANCE, DECEMBER 31, 1996................ 7,960 - 8,682 9,345 (367) 634 Net income.............................. 1,444 Dividends: Common stock......................... (3,736) Preferred stock...................... (850) Net change during year.................. 300 195 -------- ------ ------- --------- --------- -------- BALANCE, DECEMBER 31, 1997................ 7,960 - 8,682 6,203 (67) 829 Net loss................................ (26,899) Dividends: Common stock, including non-cash dividend of $750,000... (13,376) Preferred stock...................... (850) Net change during year................ (1,395) (19,930) -------- ------ ------- --------- --------- -------- BALANCE, DECEMBER 31, 1998................ $ 7,960 $ - $ 8,682 $ (34,922) $ (1,462) $(19,101) ======== ====== ======= ========= ========= ========
COMPREHENSIVE TOTAL INCOME ----- ------ BALANCE, JANUARY 1, 1996.................. $20,675 Net income.............................. 10,640 $ 10,640 Dividends: Common stock......................... (5,208) Preferred stock...................... (851) Net change during year.................. 998 998 --------- -------- BALANCE, DECEMBER 31, 1996................ 26,254 $ 11,638 ======== Net income.............................. 1,444 $ 1,444 Dividends: Common stock......................... (3,736) Preferred stock...................... (850) Net change during year.................. 495 495 --------- -------- BALANCE, DECEMBER 31, 1997................ 23,607 $ 1,939 ======== Net loss................................ (26,899) $(26,899) Dividends: Common stock, including non-cash dividend of $750,000... (13,376) Preferred stock...................... (850) Net change during year................ (21,325) (21,325) --------- -------- BALANCE, DECEMBER 31, 1998................ $ (38,843) $(48,224) ========= ========
See notes to consolidated financial statements. F-6 41 TRANS-RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1997 and 1998
1996 1997 1998 ---- ---- ---- (in thousands) OPERATING ACTIVITIES AND WORKING CAPITAL MANAGEMENT: Operations: Net income (loss) ...................................................... $ 10,640 $ 1,444 $ (26,899) Items not requiring (providing) cash: Depreciation and amortization of property, plant and equipment and other assets .................................... 21,499 21,208 22,086 Amortization of deferred financing costs and accretion of interest expense ........................................... 1,190 891 8,618 Gain on sale of potash operations (1996) and gain on Laser/ESC share exchange (1998) ............................. (22,579) -- (22,946) Extraordinary item - loss on repurchase of debt .................... 553 -- 11,328 Cumulative effect of change in accounting principle ................ -- -- 1,253 Provision for loss on settlement of Bogalusa Litigation ............ -- -- 36,204 Deferred taxes and other - net ..................................... (226) (762) 1,400 --------- --------- --------- Total .............................................................. 11,077 22,781 31,044 Working capital management: Accounts receivable and other current assets ....................... (3,912) (20,153) (8,274) Inventories ........................................................ 5,603 (8,919) (28,896) Prepaid expenses ................................................... 469 (1,487) (650) Accounts payable ................................................... (11,239) 20,629 10,826 Accrued expenses and other current liabilities ..................... 1,360 (3,106) (11,759) --------- --------- --------- Cash provided by (used in) operations and working capital management ................................................ 3,358 9,745 (7,709) --------- --------- --------- INVESTMENT ACTIVITIES: Additions to property, plant and equipment ............................... (13,570) (26,862) (63,425) Sales of marketable securities and short-term investments ................ 1,965 7,982 22,195 Purchases of marketable securities and short-term investments ............ (9,432) (7,743) (33,572) Net assets acquired (excluding cash and cash equivalents) ................ -- -- (9,265) Other - net, including proceeds from sale of potash operations (1996) and purchase of an equity investment in Lego (1998) .................... 56,376 (6,909) (11,439) --------- --------- --------- Cash provided by (used in) investment activities .............. 35,339 (33,532) (95,506) --------- --------- --------- FINANCING ACTIVITIES: Increase in long-term debt ............................................... 44,168 12,000 258,862 Repurchases, payments and current maturities of long-term debt ........... (89,769) (14,214) (151,470) Increase in short-term debt .............................................. 9,203 21,232 1,929 Dividends to stockholder ................................................. (6,059) (4,586) (13,476) --------- --------- --------- Cash provided by (used in) financing activities ............... (42,457) 14,432 95,845 --------- --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS ...................................... (3,760) (9,355) (7,370) CASH AND CASH EQUIVALENTS: Beginning of year ........................................................ 32,872 29,112 19,757 --------- --------- --------- End of year .............................................................. $ 29,112 $ 19,757 $ 12,387 ========= ========= =========
See notes to consolidated financial statements. F-7 42 TRANS-RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS Principles of Consolidation and Basis of Presentation The consolidated financial statements of Trans-Resources, Inc. ("TRI"), include TRI and its direct and indirect independently managed and financed subsidiaries, after elimination of intercompany accounts and transactions. TRI's principal subsidiaries are Cedar Chemical Corporation ("Cedar"), and Cedar's wholly-owned subsidiary, Vicksburg Chemical Company ("Vicksburg"); Na-Churs Plant Food Company ("Na-Churs"); Haifa Chemicals Ltd. ("HCL") and HCL's wholly-owned subsidiary, Haifa Chemicals South, Ltd. ("HCSL"); and Plant Products Co. Ltd. ("Plant Products"). TRI is a wholly-owned subsidiary of TPR Investment Associates, Inc. ("TPR"). As used herein, the term "the Company" means TRI together with its direct and indirect subsidiaries. On August 16, 1996 NMPC, Inc. (name changed from New Mexico Potash Corporation upon completion of the sale of its potash operations in August, 1996) and EDP, Inc. (name changed from Eddy Potash, Inc. upon completion of the sale of its potash operations in August, 1996) sold their potash producing assets for an aggregate consideration of $56,154,000, including a payment for working capital of $11,154,000, and the assumption of specified liabilities (but excluding, among other things, certain antitrust litigation - see Part I - Item 3 - "Legal Proceedings"). The sale of the Company's potash operations resulted in a pre-tax gain, after considering certain costs relating thereto, of $22,579,000. Such gain is included in "Interest and other income (expense) - net" in the accompanying Consolidated Statement of Operations for 1996 (see Note K). During the year ended December 31, 1996, the potash operations contributed approximately $35,000,000 (9%) to the Company's consolidated revenues, after eliminating intercompany sales. Approximately 50% of the aggregate sales proceeds were applied to prepay debt secured by the assets of NMPC or EDP. In connection with the sale, Vicksburg entered into a five year potash supply agreement, at prevailing market rates during the period (subject to certain adjustments), with the buyer. Investment in Laser/ESC On November 9, 1997, Laser Industries Limited ("Laser"), a publicly traded manufacturer of lasers for medical use in which the Company had an ownership interest accounted for by the equity method, and ESC Medical Systems Ltd. ("ESC"), signed a definitive agreement (the "Agreement") to combine the two companies through an exchange of shares. The transaction closed on February 23, 1998. ESC develops, manufactures, and markets medical devices utilizing both state-of-the-art lasers and proprietary intense pulsed light source technology for non-invasive treatment of varicose veins and other benign vascular lesions, as well as for hair removal, skin cancer, skin rejuvenation and other clinical applications. ESC shares are traded in the United States on the NASDAQ National Market System. The Company's investment in ESC is accounted for pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). As of December 31, 1997, the Company carried its investment in the Laser shares at approximately $9,100,000, which amount is included in the caption "Other assets" in the accompanying December 31, 1997 Consolidated Balance Sheet. Based on the quoted market value of the ESC shares ($35.00 per share), as of February 20, 1998, the last day of trading before the combination, the Company recognized a pre-tax gain of approximately $22,900,000 during the first quarter of 1998, which gain is included in the caption "Interest and other income (expense) - net" in the accompanying December 31, 1998 Consolidated Statement of Operations (see Note K). Subsequent to the exchange of shares, the Company carries its investment in the ESC shares in "Other current assets" in the accompanying December 31, 1998 Consolidated Balance Sheet. As of December 31, 1998, the quoted market value of the ESC shares F-8 43 declined to approximately $10.50 per share, resulting in the Company recording an unrealized loss of approximately $18,328,000. Most of this decline occurred in the latter part of September, 1998 and resulted from ESC's pre-announcement of third quarter 1998 operating results, which ESC indicated would show a decline when compared to operating results for its second quarter of 1998. The unrealized loss relating to ESC is included in the caption "Unrealized gains (losses) on marketable securities" in the accompanying December 31, 1998 Consolidated Balance Sheet. With respect to the Company's investment in ESC, Management of the Company is not aware of any events that have occurred regarding ESC that would indicate an other than temporary impairment of the Company's investment in ESC. In addition to the ownership of the Laser shares described above, the Company also owned a warrant (the "Laser Warrant") which enabled the Company to purchase 250,000 Laser shares. The Laser Warrant, which had a carrying value of $750,000, was distributed as a dividend in February, 1998. During the years ended December 31, 1996 and 1997, the Company recorded equity in Laser's earnings, inclusive of goodwill amortization, of $2,280,000 and $1,558,000, respectively. Such amounts are included in "Interest and other income (expense) - net" in the accompanying Consolidated Statements of Operations (see Note K). Acquisitions During 1998, Company subsidiaries completed several small acquisitions. Effective January 1, 1998, the Company acquired a Spanish company engaged in the manufacturing and distribution of specialty plant nutrients; effective May 1, 1998, the Company acquired EMV Kft. ("EMV"), a Hungarian business engaged in the manufacturing and marketing of organic chemicals; effective October 30, 1998, the Company acquired Plant Products, headquartered in Ontario, Canada, which manufactures and markets specialty plant nutrients for commercial horticulture, specialty high value crops and retail markets; and effective December 18, 1998, the Company acquired Alpine Plant Foods, Inc. (including its Canadian subsidiary; together "Alpine"), which manufactures and distributes high purity liquid fertilizers. Each of these acquisitions have been accounted for using the purchase method of accounting. The aggregate purchase price paid for these acquired businesses was approximately $24,600,000 and resulted in approximately $11,000,000 in goodwill, with such goodwill generally being amortized over a 20 year period. These acquisitions did not have a significant effect on the Company's consolidated operations subsequent to their respective acquisition dates during 1998. The aggregate consolidated revenues (unaudited) for these companies for the year ended December 31, 1998 (or their most recent fiscal year, as applicable) amounted to approximately $58,000,000. In addition, effective February 4, 1998, a subsidiary of HCL purchased approximately a 42% equity interest in Lego Irrigation, Ltd ("Lego"), an Israeli developer, manufacturer and marketer of drip irrigation systems, for a purchase price of approximately $11,000,000. On March 9, 1999, as contemplated by the terms of the initial purchase of the Lego shares, the subsidiary of HCL purchased, pursuant to an option, an additional 34% equity interest in Lego for approximately $10,000,000. 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. F-9 44 Operating Data Substantially all of the companies' revenues, operating profits and identifiable assets are related to the chemical industry. The Company is a global developer, producer and marketer of specialty plant nutrients and specialty industrial and agricultural chemicals and distributes its products internationally. The Company's revenues by region for the years ended December 31, 1996, 1997 and 1998 are set forth below:
1996 1997 1998 ---- ---- ---- (in millions) Europe ....................................................................... $160 $148 $168 United States ................................................................ 145 128 145 Asia ......................................................................... 37 29 28 Canada and Latin America ..................................................... 24 22 33 Israel ....................................................................... 23 19 19 Australia .................................................................... 6 6 8 Africa and other ............................................................. 17 25 23 ---- ---- ---- Total ................................................................. $412 $377 $424 ==== ==== ====
The Company has grouped its revenues into general product categories that reflect the different product uses. These product groups are: Specialty Plant Nutrients, Industrial Chemicals and Organic Chemicals, which contributed the following revenues for the years ended December 31, 1997 and 1998:
1997 1998 ---- ---- (in millions) Specialty Plant Nutrients .......................................... $221 $243 Industrial Chemicals ............................................... 109 125 Organic Chemicals .................................................. 47 56 ---- ---- Total .................................................... $377 $424 ==== ====
As of December 31, 1997 and 1998, the Company's assets were located in the United States (37% and 34%, respectively) and abroad (principally Israel) (63% and 66%, respectively). The Company has no single customer accounting for more than 10% of its revenues. Functional Currency and Transaction Gains and Losses The Company has no significant foreign currency denominated revenues except at HCL. Approximately $167,000,000 of HCL's total sales for the year ended December 31, 1998 were made outside of Israel in currencies other than the U.S. dollar (principally in Western European currencies). Accordingly, to the extent the U.S. dollar weakens or strengthens versus the applicable corresponding currency, HCL's results are favorably or unfavorably affected. 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, 1997 and 1998, there were outstanding contracts to purchase $27,000,000 and $24,100,000, respectively, in various European currencies, principally British Pounds and Spanish Pesetas in 1997 and Deutsche Marks and Spanish Pesetas in 1998. F-10 45 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, 1996, 1997 and 1998 would have decreased by $6,900,000, $7,000,000 and $1,400,000, respectively, and income before income taxes would have decreased by approximately $5,300,000, $7,000,000 and $1,400,000, respectively. The Company determines when to enter into hedging transactions based on its ongoing review of the currency markets. 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 certain subsidiaries included in the following paragraph) are maintained, in U.S. dollars. The assets, liabilities and operations of certain foreign subsidiaries of the Company are measured using the currency of the primary economic environment in which the respective 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 subsidiarys' financial statements from their respective currencies into U.S. dollars, are recorded as a separate component of stockholder's equity. 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, less accumulated depreciation and amortization. Depreciation is recorded under the straight-line method at generally the following annual rates: Buildings............................................ 3 - 8% Machinery, plant and equipment....................... 5 - 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 amortized over the estimated useful life of the respective asset. HCL recorded investment grants for the years ended December 31, 1996, 1997 and 1998 amounting to $248,000, $1,646,000 and $16,692,000, respectively. Investments In Marketable Securities and Other Short-Term Investments In accordance with SFAS 115, the Company classifies its equity and fixed maturity securities as available-for-sale and reports such securities at fair value, with unrealized gains and losses recorded as a separate component of stockholder's equity. F-11 46 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, 1998, 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 that are expected to be in effect when the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities are expected to reverse. 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 1996, 1997 and 1998 the Company incurred environmental clean-up costs of approximately $300,000, $400,000 and $900,000, respectively. In addition, at December 31, 1997 and 1998, the Company has accrued approximately $1,600,000 and $2,700,000, respectively, 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 $2,693,000, $2,421,000 and $2,661,000 for the years ended December 31, 1996, 1997 and 1998, respectively. Risk Management Derivatives Amounts receivable or payable under interest rate swap agreements are recognized as interest expense. F-12 47 Long-Lived Assets Management evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that a recorded asset might not be recoverable by taking into consideration such factors as recent operating results, projected undiscounted cash flows and plans for future operations. At December 31, 1997 and 1998 there were no impairments of the Company's assets. Cash and Cash Equivalents Investments with original maturities of three months or less are classified as cash equivalents by the Company. Concentration of Credit Risk The Company believes no significant concentration of credit risk exists with respect to investments and accounts receivable. The Company places its cash investments with high quality financial institutions, and the Company's receivables are diversified across a diverse customer base and geographical regions. Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and disclosing comprehensive income and its components. The adoption of SFAS 130 did not have a material effect on the Company's reporting disclosures. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for reporting financial and descriptive information for reportable segments on the same basis that is used internally for evaluating segment performance and the allocation of resources to segments. The adoption of SFAS 131 did not have a material effect on the Company's reporting disclosures. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Depending on the intended use of the derivative, changes in derivative fair values may be charged to operations unless the derivative qualifies as a hedge under certain requirements. SFAS 133 is effective for all quarters of fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). The Company is evaluating the impact, if any, of SFAS 133 on its consolidated financial statements. Bogalusa Litigation The Company is a party to litigation arising out of an October 23, 1995 release of nitrogen tetroxide at a Bogalusa, Louisiana plant of a customer of Vicksburg. The nitrogen tetroxide had been produced and sold by Vicksburg. The plaintiffs in these suits seek unspecified damages arising out of the alleged exposure to toxic fumes. The Louisiana class action and the Mississippi suits (collectively referred to herein as the "Bogalusa Litigation") named a number of other defendants, in addition to TRI and certain of its subsidiaries. During August, 1998 the Company entered into conditional agreements to settle the claims in the Bogalusa Litigation. During March, 1999, amended and restated conditional agreements to settle the claims were executed by the parties. If the conditions to the settlement are satisfied, the Company's funding obligation would be an aggregate of approximately $32,400,000 plus (i) an amount (estimated to eventually be in excess of $4,500,000) equal to the amount which one of the settling insurance companies shall have paid to the Company for reimbursement of defense costs (the "Defense Depletion Amount") and (ii) interest payments at 6.25% per annum beginning on April 1, 1999 on the not as yet escrowed portion of $17,000,000, as described below. The initial $10,000,000 of the funding obligation was F-13 48 deposited in escrow on August 31, 1998. In addition, two settling insurance companies are to contribute an aggregate of $25,000,000, less the Defense Depletion Amount, and the Company will assign to the plaintiffs its rights under another $26,000,000 of insurance coverage. The Company is scheduled to escrow an additional $5,000,000 on March 31, 1999, $6,800,000 on December 31, 2000, $5,100,000 on June 30, 2001 and $5,100,000 on December 31, 2001. The Company recorded a charge of approximately $36,200,000 (included in the caption "Interest and other income (expense) net" in the accompanying December 31, 1998 Consolidated Statements of Operations - See Note K) to cover the cost of the conditional settlement and the related legal expenses. For further information regarding the Bogalusa Litigation and the conditional settlement relating thereto see Part I - Item 3 - "Legal Proceedings". Reclassifications Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year. Change in Accounting Principle Effective January 1, 1998, the Company changed its method of accounting for start-up costs incurred relating to the start-up of newly constructed manufacturing facilities to conform with AICPA Statement of Position No. 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities", which requires that such costs be currently charged to operations. As of January 1, 1998, the Company has reported the cumulative effect of the change in the method of accounting for start-up costs in the Consolidated Statement of Operations. The effect of adopting SOP 98-5 in 1998 was the write-off of unamortized start-up costs of $1,333,000 and a reduction in net income for the cumulative effect of the change in accounting principle of $1,253,000 (net of income taxes). B. OTHER CURRENT ASSETS Other current assets consist of the following at December 31, 1997 and 1998:
1997 1998 ---- ---- (in thousands) Marketable securities (carried at market) .................................................... $ 6,523 $28,009 Miscellaneous receivables, other securities, deferred income taxes, etc .............................................................. 27,055 35,599 ------- ------- Total .............................................................................. $33,578 $63,608 ======= =======
F-14 49 The Company classifies all of its marketable securities (including U.S. Government obligations) as available-for-sale securities as of December 31, 1997 and 1998:
Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- (in thousands) December 31, 1997 - ----------------- Foreign Government obligations $ 866 $ -- $ 17 $ 849 Other debt securities ........ 492 29 -- 521 ------- ------- ------- ------- Total debt securities ... 1,358 29 17 1,370 ------- ------- ------- ------- Common stocks and mutual funds investing primarily therein 4,383 1,009 239 5,153 Preferred stocks ............. -- -- -- -- ------- ------- ------- ------- Total equity securities . 4,383 1,009 239 5,153 ------- ------- ------- ------- Total ................... $ 5,741 $ 1,038 $ 256 $ 6,523 ======= ======= ======= ======= December 31, 1998 - ----------------- Foreign Government obligations $ -- $ -- $ -- $ -- Other debt securities ........ -- -- -- -- ------- ------- ------- ------- Total debt securities ... -- -- -- -- ------- ------- ------- ------- Common stocks and mutual funds investing primarily therein 47,110 297 19,398 28,009 Preferred stocks ............. -- -- -- -- ------- ------- ------- ------- Total equity securities . 47,110 297 19,398 28,009 ------- ------- ------- ------- Total ................... $47,110 $ 297 $19,398 $28,009 ======= ======= ======= =======
Gross realized gains and gross realized losses on sales of securities are set forth below for the years ended December 31, 1996, 1997 and 1998 (see Note K):
Gains Losses ----- ------ 1996........................................... $ 411,000 $ 70,000 1997........................................... $3,052,000 $ 339,000 1998........................................... $3,365,000 $1,417,000
F-15 50 C. INVENTORIES Inventories consist of the following at December 31, 1997 and 1998:
1997 1998 ---- ---- (in thousands) Raw materials........................................ $ 13,362 $ 21,301 Finished goods....................................... 46,764 74,141 ---------- ----------- Total.......................................... $ 60,126 $ 95,442 ========= ==========
D. PROPERTY, PLANT AND EQUIPMENT - NET Property, plant and equipment at December 31, 1997 and 1998 consists of the following:
1997 1998 ---- ---- (in thousands) Land................................................. $ 4,272 $ 5,186 Buildings............................................ 22,416 28,157 Machinery, plant and equipment....................... 279,734 316,379 Office furniture, equipment and water rights......... 9,714 10,310 Construction-in-progress............................. 20,339 51,502 ---------- ---------- Total, at cost................................. 336,475 411,534 Less accumulated depreciation and amortization....... 128,988 150,949 ---------- ---------- Property, plant and equipment - net............ $ 207,487 $ 260,585 ========== ==========
The Company capitalized interest costs aggregating $0, $35,000 and $896,000 during the years ended December 31, 1996, 1997 and 1998, respectively, with respect to several construction projects. Certain property, plant and equipment has been pledged as collateral for long-term debt (see Note G). E. SHORT-TERM DEBT AND UNUSED CREDIT LINES The weighted average interest rates for short-term debt outstanding at December 31, 1997 and 1998 were 6.4% and 5.7%, respectively. As of December 31, 1998, the Company and its subsidiaries have unused revolving loan commitments and other credit lines from banks aggregating approximately $73,000,000. F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following at December 31, 1997 and 1998:
1997 1998 ---- ---- (in thousands) Compensation and payroll taxes....................... $ 7,104 $ 9,123 Interest............................................. 10,455 6,645 Income taxes......................................... 607 1,856 Other, including $5,000,000 relating to the Bogalusa Litigation in 1998.............................. 12,049 25,600 --------- --------- Total.......................................... $ 30,215 $ 43,224 ========= =========
F-16 51 G. LONG-TERM DEBT - NET Long-term debt consists of the following at December 31, 1997 and 1998:
Payable Description Interest Rate * Through 1997 1998 ----------- --------------- ------- ---- ---- (in thousands) TRI: Bank loans (1)....................................... Various 2007 $ 3,000 $ 14,000 $100,000,000 principal amount of 10.75% Senior Notes (effective interest rate of 10.75%) (2)................................. 10.75% 2008 - 100,000 $135,000,000 principal amount of 12% Senior Discount Notes, net of unamortized debt discount of $52,296,000 (effective interest rate of 12.0%) (2)........... 12.0% 2008 - 82,704 $115,000,000 principal amount of 11.875% Senior Subordinated Notes, net of unamortized debt discount of $712,000 in 1997 (effective interest rate of 12.1%) (2)........... 11.875% 2002 114,288 - Subsidiaries: Bank loans and other financing....................... Various 2020 164,806 227,911 --------- --------- Total............................................ 282,094 424,615 Less current portion............................. 13,080 10,183 --------- --------- Long-term debt - net............................. $ 269,014 $ 414,432 ========= =========
* As prevailing on respective balance sheet dates. Such rates (other than the senior, senior discount and subordinated debt) generally "float" according to changes in the Prime or LIBOR rates. At December 31, 1998 such rates were approximately 7.3% and 5.4%, respectively. 1. As of December 29, 1995 and as amended, the Company entered into a Loan Agreement with a bank for borrowings upon the Company's request prior to June 30, 2000 in the aggregate principal amount not to exceed $40,000,000. The loan matures on June 30, 2007. The Company pledged all of the capital stock of HCL to secure its obligations under the Loan Agreement. 2. The 11 7/8% senior subordinated notes (the "11 7/8% Notes") were scheduled to mature on July 1, 2002. On March 11, 1998, the Company commenced the sale in a private placement of $100,000,000 principal amount of 10 3/4% Senior Notes due 2008 (the "Senior Notes") and $135,000,000 principal amount of 12% Senior Discount Notes due 2008 (the "Senior Discount Notes"). The Senior Discount Notes provided gross proceeds to the Company of approximately $75,400,000. The sale of the Senior Notes and the Senior Discount Notes closed on March 16, 1998. A substantial portion (approximately $118,000,000) of the net proceeds from the sale was used in March, 1998 to purchase (pursuant to a tender offer and consent solicitation) approximately $110,000,000 principal amount of the 11 7/8% Notes (the "Refinancing"). In addition, in the four month period ended July, 1998 the Company repurchased or redeemed the remaining $5,000,000 principal amount of its 11 7/8% Notes. As a result of the Refinancing and the subsequent repurchases or redemptions of the 11 7/8% Notes, combined with the write-off of certain unamortized issuance costs relating to the 11 7/8% Notes, the Company recognized an extraordinary charge for the early extinguishment of debt of approximately $11,328,000 (no tax effect) which is classified as an extraordinary item in the accompanying December 31, 1998 Consolidated Statement of Operations. F-17 52 The Senior Notes and the Senior Discount Notes are unsecured obligations of the Company and are pari passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Company and senior in right to payment to all subordinated indebtedness of the Company. Interest on the Senior Notes is payable semi-annually. Interest on the Senior Discount Notes accretes and compounds semi-annually but is not payable until 2003, after which interest will be payable semi-annually. Certain of the Company's and its subsidiaries' loan agreements and its 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 to make certain Restricted Payments and Restricted Investments (each as defined), etc. In the event of a Change in Control (as defined), the Company is required to offer to purchase all the Senior Notes and Senior Discount 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 by both the Company and its subsidiaries. As of December 31, 1998, the Company and its subsidiaries are in compliance with the covenants of each of the respective loan agreements and the Indentures then in effect. The aggregate maturities of long-term debt at December 31, 1998 are set forth below.
Years Ending December 31, (in thousands) ------------ -------------- 1999......................... $ 10,183 2000......................... 9,749 2001......................... 39,380 2002......................... 46,765 2003......................... 54,797 Thereafter................... 263,741 ---------- Total.................. $ 424,615 ==========
Substantially all of the assets of HCL and HCSL 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, Cedar and Plant Products 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 $31,672,000, $28,193,000 and $33,034,000 for the years ended December 31, 1996, 1997 and 1998, 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, 1997 and 1998 include accruals of $1,653,000 and $1,330,000, respectively, for the estimated unfunded liability of complete severance of all HCL employees. Costs incurred were approximately $2,629,000, $1,912,000 and $2,100,000 for the years ended December 31, 1996, 1997 and 1998, respectively. No information is available regarding the 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. F-18 53 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"). The change in the benefit obligation based on an actuarial valuation for Cedar's defined benefit pension plan is as follows:
For the Years Ended December 31, ------------ 1997 1998 -------- -------- (in thousands) Benefit obligation, beginning of year ................................... $ 15,140 $ 18,215 Service cost ............................................................ 819 904 Interest cost ........................................................... 1,133 1,287 Amendments .............................................................. -- 64 Actuarial (gain)/loss ................................................... 1,591 1,254 Benefits paid ........................................................... (402) (448) Expenses paid ........................................................... (66) (81) -------- -------- Benefit obligation, end of year ......................................... $ 18,215 $ 21,195 ======== ========
The following details the change in plan assets for Cedar's defined benefit pension plan:
December 31, ------------ 1997 1998 ---- ---- (in thousands) Fair value of plan assets, beginning of year .................... $ 12,157 $ 14,239 Actual return ................................................... 2,017 1,890 Employer contribution ........................................... 533 709 Benefits paid ................................................... (402) (448) Expenses paid ................................................... (66) (81) -------- -------- Fair value of plan assets, end of year .......................... $ 14,239 $ 16,309 ======== ========
The reconciliation of the funded status for Cedar's benefit plan is as follows:
December 31, ------------ 1997 1998 ---- ---- (in thousands) Vested benefit obligation .................................. $(12,866) $(15,097) Accumulated benefit obligation ............................. (13,614) (15,977) Projected benefit obligation ............................... $(18,215) $(21,195) Plan assets at fair value .................................. 14,239 16,309 -------- -------- (3,976) (4,886) Unrecognized net loss/(gain) ............................... 2,419 2,991 Prior service costs not yet recognized ..................... 733 684 Unrecognized net transition obligation ..................... 234 176 -------- -------- Prepaid/(accrued) benefit cost ............................. $ (590) $ (1,035) ======== ========
F-19 54 Cedar's net periodic benefit cost for the years ended 1996, 1997 and 1998 was as follows:
1996 1997 1998 ------- ------- ------- (in thousands) Service cost ........................................... $ 796 $ 819 $ 904 Interest cost .......................................... 1,014 1,133 1,287 Expected return on plan assets ......................... (1,174) (1,119) (1,276) Transition obligation recognition ...................... 59 59 59 Prior service cost amortization ........................ 109 109 114 Net loss recognition ................................... 37 29 65 Asset gain deferral .................................... 233 -- -- ------- ------- ------- Net periodic benefit cost .............................. $ 1,074 $ 1,030 $ 1,153 ======= ======= =======
Actuarial assumptions used at December 31, 1996, 1997 and 1998 were as follows:
1996 1997 1998 ---- ---- ---- Discount rate - projected benefit obligation.... 7.5% 7.0% 6.8% Rate of increase in compensation levels......... 5.0% 5.0% 5.0% Expected long-term rate of return on assets..... 9.0% 9.0% 9.0%
Certain of 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. In addition, certain of the Company's Canadian subsidiaries have contributory pension plans designed to conform with Canadian regulatory requirements. These 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 respective Boards of Directors. The Company's contribution expense relating to these plans totaled $505,000, $202,000 and $298,000 for the years ended December 31, 1996, 1997 and 1998, respectively. I. OPERATING LEASES The Company and its subsidiaries are obligated under non-cancelable operating leases covering principally land, office facilities and equipment. At December 31, 1998, minimum annual rental commitments under these leases are:
Years Ending December 31, (in thousands) ------------ -------------- 1999....................... $ 4,111 2000....................... 3,262 2001....................... 1,964 2002....................... 1,540 2003....................... 1,257 Thereafter................. 7,285 -------- Total.................. $ 19,419 ========
F-20 55 Rent expense for 1996, 1997 and 1998 was $4,683,000, $4,489,000 and $6,016,000, respectively, covering land, office facilities and equipment. J. INCOME TAXES The Company's income tax provision for the years ended December 31, 1996, 1997 and 1998 consist of the following:
1996 1997 1998 ----- ----- ----- (in thousands) Current expense (benefit): Federal ........................................................ $ -- $ -- $ -- Foreign ........................................................ 3,146 652 904 State .......................................................... (121) 570 394 ------- ------- ------- Total current ............................................ 3,025 1,222 1,298 ------- ------- ------- Deferred expense: Foreign ........................................................ 385 1,647 2,466 State .......................................................... 606 83 118 ------- ------- ------- Total deferred ........................................... 991 1,730 2,584 ------- ------- ------- Total .................................................... $ 4,016 $ 2,952 $ 3,882 ======= ======= =======
The provision for income taxes for the years ended December 31, 1996, 1997 and 1998 amounted to $4,016,000, $2,952,000 and $3,882,000, respectively, representing effective income tax rates of 26.4%, 67.2% and 37.2%, respectively. These amounts differ from the amounts of $5,323,000, $1,539,000 and $(3,653,000), respectively, computed by applying the statutory Federal income tax rates to income (loss) before income taxes, extraordinary item and change in accounting principle. The reasons for such variances from statutory rates were as follows:
1996 1997 1998 ------ ------ ------ Statutory Federal rates ........................... 35.0% 35.0% (35.0)% Increase (decrease) in income tax rate resulting from: Foreign operations - net impact of foreign statutory rates, effects of Israeli "inflation allowances", withholding taxes, etc ............ 0.5 (33.9) (74.7) Net losses without current tax benefit and other 13.4 56.5 143.7 Utilization of capital loss carryforwards ...... (22.6) -- -- Additional depletion expense ................... (2.0) -- -- State and local income taxes - net ............. 2.1 9.6 3.2 ---- ---- ---- Effective income tax rates ........................ 26.4% 67.2% 37.2% ==== ==== ====
F-21 56 At December 31, 1997 and 1998, deferred tax assets (liabilities) consisted of the following:
1997 1998 -------- -------- (in thousands) Depreciation and property and equipment basis differences ......... $(33,534) $(39,873) Nondeductible reserves ............................................ 4,582 5,565 Net operating loss carryforwards .................................. 28,744 37,916 Foreign tax credit carryovers ..................................... 5,427 3,865 Alternative minimum tax credit carryovers ......................... 5,401 5,401 Investment tax credit carryovers .................................. 200 200 Provision for settlement of lawsuit ............................... -- 12,147 Deferred interest ................................................. -- 3,061 Other ............................................................. 392 2,862 -------- -------- Deferred taxes - net, exclusive of valuation allowance ............ 11,212 31,144 Valuation allowance ............................................... (33,694) (56,656) -------- -------- Deferred taxes - net .............................................. $(22,482) $(25,512) ======== ========
At December 31, 1997, deferred tax assets of $3,325,000 are classified as "other current assets" and deferred tax liabilities of $25,807,000 are classified as "other liabilities". At December 31, 1998, deferred tax assets of $5,320,000 are classified as "other current assets" and deferred tax liabilities of $30,832,000 are classified as "other liabilities". Deferred tax liabilities were increased in 1998 by approximately $446,000 as a result of deferred tax liabilities of subsidiaries acquired in 1998 and purchase accounting adjustments. At December 31, 1998, the Company had various tax loss and credit carryovers which expire as follows:
U.S. Federal ----------------------------------------------------- Net Alternative State Net Foreign Net Foreign Investment Operating Minimum Operating Operating Expiration Tax Credit Tax Credit Loss Tax Credit Loss Loss ---------- ---------- ---------- ---- ---------- ---- ---- (in thousands) 1999.............. $ 3,701 2000.............. 41 2001.............. 32 $200 2002.............. 36 2003.............. 55 $ 4,165 2010.............. $22,208 $15,600 2011.............. 17,442 11,200 2012.............. 10,501 9,600 2013.............. 13,920 2018.............. 17,344 Unlimited......... $ 5,401 31,839 ------- ---- ------- ------- ------- ------- Total $ 3,865 $200 $67,495 $ 5,401 $50,320 $36,004 ======= ==== ======= ======= ======= =======
Income taxes paid, including prepaid amounts, totaled approximately $3,100,000, $3,800,000 and $425,000, respectively, during the years ended December 31, 1996, 1997 and 1998. No taxes on income have been provided on approximately $66,000,000 of undistributed earnings of foreign subsidiaries as of December 31, 1998, since management believes these amounts to be permanently invested. F-22 57 K. INTEREST AND OTHER INCOME (EXPENSE) - NET Interest and other income (expense) - net for the years ended December 31, 1996, 1997 and 1998 consists of the following:
1996 1997 1998 ---- ---- ---- (in thousands) Interest and dividend income ........................................ $ 1,408 $ 1,131 $ 2,201 Security gains - net (see Note B) ................................... 341 2,713 1,948 Gain on Laser/ESC share exchange (see Note A) ....................... -- -- 22,946 Gain on sale of potash operations (see Note A) ...................... 22,579 -- -- Loss on Bogalusa legal settlement (see Note A) ...................... -- -- (36,204) Equity in earnings of Laser - net (see Note A) ..................... 2,280 1,558 -- Other, including losses of $1,600,000 in 1996 relating to foreign currencies (see Note A) ................. (1,160) 148 485 -------- -------- -------- Total ....................................................... $ 25,448 $ 5,550 $ (8,624) ======== ======== ========
L. PREFERRED STOCK The preferred shares are non-voting and have a cumulative dividend, at the rate of $8.50 per share per annum. 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 two 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 these transactions, but the amounts potentially subject to credit risk are much smaller. Cedar's credit risk involves the possible default of the counter party (the bank). No collateral requirements are imposed. 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, 1998:
Variable Nominal Fixed Rate Rate Maturity Amount Paid Received Date ------ ---- -------- ---- $ 5,000 5.27% 5.40% 2/99 15,000 6.70% 4.97% 10/01
The variable rate received is tied to the three-month LIBOR rate. F-23 58 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, 1997 December 31, 1998 ----------------- ----------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- (in thousands) Assets: Marketable securities (included within "Other current assets") ............... $ 6,523 $ 6,523 $ 28,009 $ 28,009 Investments in certain securities (included within "Other assets" and accounted for by the equity method) 9,848 38,824 9,262 7,901 Liabilities: Long-term debt ............................. 282,094 288,556 424,615 412,961 Off-balance sheet financial instruments: Foreign currency contracts ................. 503 503 172 172 Risk management derivatives ................ -- (317) -- (685)
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. 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 $27,000,000 and $24,100,000 as of December 31, 1997 and 1998, 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, 1997 and 1998. 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. F-24 59 O. CONTINGENT LIABILITIES AND OTHER MATTERS For a description of certain pending legal proceedings, see Part I - 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 Bogalusa Litigation matters described in Part I - Item 3 - "Legal Proceedings". 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 and other foreign jurisdictions 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 Part I - Item 1 - "Business" - "Environmental Matters". 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. 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 the years 2015 and 2016. HCL also has a lease from ORL of a pipeline which transports ammonia from the port in Haifa to HCL's plant. HCSL 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 two supply contracts which expire on December 31, 1999 and 2005. HCL currently sources phosphate rock from Rotem Amfert Negev Ltd. ("Rotem") according to the terms of a contract which expires in 2001. DSW and Rotem are subsidiaries of Israel Chemicals Ltd., a large Israeli chemical company, and are the sole suppliers in Israel of potash and phosphate rock, respectively. While management views its current relationships with both of its principal suppliers to be good, the loss of supply from either of these sources could have a material adverse effect on the Company. During the fourth quarter of 1996 and during 1997, primarily in the first half of such year, the Company's operations were adversely impacted by a labor dispute at HCL (the "Haifa Labor Dispute") - see Part I - Item 1 - "Business" - "Employees". F-25 60 Most employees at HCL's manufacturing facility (the "Haifa Facility") are members of the "Histradrut," the Israeli national labor federation, and are represented by collective bargaining units. Terms of employment of most employees at the Haifa Facility are currently governed predominantly by a Specific Collective Agreement ("SCA") negotiated by HCL with the Histadrut, the respective unions representing the employees and representatives of the employees. In 1994, an agreement was signed with the unions and the representatives of the technicians and engineers at the Haifa Facility for the three year period ended December 31, 1996. In 1995, an SCA was signed with the unions and representatives of the other employees for the two year period ended December 31, 1996. In September, 1996, the Company announced the cancellation of such agreements effective upon their expiration dates and its intention to negotiate a new SCA with basic changes aimed at reducing labor costs and enhancing operating flexibility for the period following December 31, 1996. As a result of the announced cancellation of the labor agreements, HCL suffered several work stoppages and other job actions which adversely affected productivity at the Haifa Facility during October and November 1996, including a period of temporary plant shut-down. On December 3, 1996 the plant was shut down until March 10, 1997 when a new SCA providing for certain wage freezes and reductions in benefits was signed for the three year period ending December 31, 1999. Subsequent to March 10, 1997, the Haifa Facility re-opened and gradually began production. By the end of May, 1997 and subsequent thereto through the early part of 1998, the Haifa Facility was generally operating at approximately full capacity; however, due to the need for increased maintenance for certain equipment resulting from the lengthy period of shut-down, there have been several periods of operations at less than full capacity and production efficiencies were also adversely impacted. The Company's financial results subsequent to the commencement of the Haifa Labor Dispute have been adversely affected (particularly in the fourth quarter of 1996 and the first quarter of 1997) as a result of several factors, including: (i) the increased cost of production resulting from reduced manufacturing during the periods which affected the fixed charge component of cost of sales; (ii) the cost of raw materials destroyed in the production process during work stoppages and job actions; (iii) lower gross margins due to inventory shortages which required purchases from third parties at substantially increased costs compared to the Company's costs; and (iv) increased general and administrative expenses arising from higher security and other costs. These adverse impacts were partially offset by lower labor costs during the Haifa Labor Dispute. Following the settlement of the HCL Labor Dispute, HCL achieved the following objectives: (i) a reduction in absenteeism; (ii) greater ability to freely transfer employees between departments and production units; (iii) increased flexibility regarding the ability to promote employees and incentivize them based on performance measures and evaluations developed and implemented by management; (iv) greater ability to dismiss employees on the basis of poor performance; (v) on-going and more effective communication between management and employees; and (vi) increased freedom to use sub-contractors. In addition, following the settlement of the HCL Labor Dispute, HCL restructured its workforce with the result being an approximate 18% reduction in the number of its employees, and a reduction in the average cost per employee. See Part I - Item 1 - "Business" - "Special Note Regarding Forward-Looking Statements" above. F-26 61 CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I TRANS-RESOURCES, INC. BALANCE SHEETS
December 31, ------------ 1997 1998 ---- ---- (in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents ............................................... $ 12,924 $ 5,826 Receivables and other assets ............................................ 8,854 26,712 Prepaid expenses ........................................................ 2,741 2,408 --------- --------- Total Current Assets ................................................ 24,519 34,946 INVESTMENTS IN SUBSIDIARIES ................................................. 93,363 98,434 DUE FROM SUBSIDIARIES - net ................................................. 4,894 2,887 OTHER ASSETS ................................................................ 28,393 30,583 --------- --------- Total ............................................................... $ 151,169 $ 166,850 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES - Accrued expenses and other current liabilities .......................... $ 7,203 $ 5,881 --------- --------- LONG-TERM DEBT - net: Senior indebtedness, notes payable and other obligations ................ 3,000 196,704 Senior subordinated debt - net .......................................... 114,288 -- --------- --------- Long-Term Debt - net (Note) ......................................... 117,288 196,704 --------- --------- OTHER LIABILITIES ........................................................... 3,071 3,108 --------- --------- 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 .............................................. 8,682 8,682 Retained earnings ....................................................... 6,203 (34,922) Cumulative translation adjustment ....................................... (67) (1,462) Unrealized gains (losses) on marketable securities ...................... 829 (19,101) --------- --------- Total Stockholder's Equity .......................................... 23,607 (38,843) --------- --------- Total .......................................................... $ 151,169 $ 166,850 ========= =========
- ---------- Note - The aggregate maturities of long-term debt during the next five years is approximately as follows: 1999 - $0; 2000 - $700,000; 2001 - $700,000; 2002 - $700,000 and 2003 - $700,000. S-1 62 CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I (continued) TRANS-RESOURCES, INC. STATEMENTS OF OPERATIONS For the Years Ended December 31, 1996, 1997 and 1998
1996 1997 1998 ---- ---- ---- (in thousands) REVENUES - EQUITY IN NET EARNINGS (LOSSES) OF SUBSIDIARIES: Dividends received from subsidiaries ................................. $ 76,556 $ 13,400 $ 14,650 Undistributed (dividends in excess of) earnings of subsidiaries .......................................... (55,685) 1,693 (11,160) -------- -------- -------- Total ................................................................ 20,871 15,093 3,490 COSTS AND EXPENSES ....................................................... (4,559) (6,142) (7,451) INTEREST EXPENSE ......................................................... (15,568) (14,324) (19,894) INTEREST AND OTHER INCOME - Net .......................................... 2,024 3,666 7,823 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM, AND CHANGE IN ACCOUNTING PRINCIPLE ......................................... 2,768 (1,707) (16,032) INCOME TAX BENEFIT ....................................................... 8,425 3,151 1,714 -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CHANGE IN ACCOUNTING PRINCIPLE ................................ 11,193 1,444 (14,318) EXTRAORDINARY ITEM - Loss on repurchase of debt (no income tax benefit) ...................................... (553) -- (11,328) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - Net of income tax benefit of $80,000 ..................... -- -- (1,253) -------- -------- -------- NET INCOME (LOSS)......................................................... $ 10,640 $ 1,444 $(26,899) ======== ======== ========
S-2 63 CONDENSED FINANCIAL INFORMATION OF REGISTRANT SCHEDULE I TRANS-RESOURCES, INC. (CONCLUDED) STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1997 and 1998
1996 1997 1998 ---- ---- ---- (in thousands) OPERATING ACTIVITIES AND WORKING CAPITAL MANAGEMENT: Operations: Net income (loss) ............................... $ 10,640 $ 1,444 $ (26,899) Items not requiring (providing) cash: Unremitted earnings of subsidiaries ........... 55,685 (1,693) 11,160 Depreciation and amortization of property, plant and equipment ................ (325) 710 778 Amortization of deferred financing costs and accretion of interest expense ... 803 653 8,291 Gain on Laser/ESC share exchange .............. -- -- (4,738) Extraordinary item - loss or repurchase of debt 553 -- 11,328 Cumulative effect of change in accounting principle ................................. -- -- 1,253 Deferred taxes and other - net ................ (4,834) (1,113) (235) --------- --------- --------- Total ......................................... 62,522 1 938 Working capital management: Receivables and other current assets .......... (546) (312) 237 Prepaid expenses .............................. (175) (2,275) 333 Accrued expenses and other current liabilities (1,066) (2,696) (1,697) --------- --------- --------- Cash provided by (used in) operations and working capital management .................. 60,735 (5,282) (189) --------- --------- --------- INVESTMENT ACTIVITIES: Additions to property, plant and equipment ...... (21) (29) (59) Sales of marketable securities and short-term investments ........................ 1,987 8,035 20,481 Purchases of marketable securities and short- term investments .............................. (9,354) (7,652) (33,572) Other - net, principally additional investment in subsidiaries in 1998 .................. 6,213 (823) (37,280) --------- --------- --------- Cash provided by (used in) investment activities .................................. (1,175) (469) (50,430) --------- --------- --------- FINANCING ACTIVITIES: Increase in long-term debt ...................... -- 3,000 193,997 Repurchases, payments and current maturities of long-term debt ............................... (51,000) -- (137,000) Dividends to stockholder ........................ (6,059) (4,586) (13,476) --------- --------- --------- Cash provided by (used in) financing activities .................................. (57,059) (1,586) 43,521 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................................. 2,501 (7,337) (7,098) CASH AND CASH EQUIVALENTS: Beginning of year ................................. 17,760 20,261 12,924 --------- --------- --------- End of year ....................................... $ 20,261 $ 12,924 $ 5,826 ========= ========= ========= Interest paid ....................................... $ 16,446 $ 13,666 $ 15,846 ========= ========= ========= Income taxes paid ................................... $ 2,268 $ 3,339 $ -- ========= ========= =========
S-3 64 TRANS-RESOURCES, INC. INDEX TO EXHIBITS
Exhibit Description Page No. - ------- ----------- -------- 2.1 Asset Purchase Agreement dated as of May 21, 1996, by and among Mississippi Chemical Corporation, Mississippi Acquisition I, Inc., Mississippi Acquisition II, Inc., New Mexico Potash Corporation and Eddy Potash, Inc., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K for August 16, 1996 (the "Form 8-K"), which is incorporated herein by reference. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted schedule or exhibit, all of which are listed at the end of the Table of Contents to the Asset Purchase Agreement. * 2.2 Amendment to Asset Purchase Agreement, dated August 16, 1996, filed as Exhibit 2.2 to the Form 8-K, which is incorporated herein by reference. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted exhibit, all of which are * referenced on the first page of the Amendment. 3.1 Certificate of Incorporation of the Company, as amended (in restated from), 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 16, 1998, between the Company and State Street Bank and Trust Company ("State Street"), as Trustee, relating to the 10 3/4% Senior Notes due 2008 (the "10 3/4% Notes"), filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form * 10-K"), which is incorporated herein by reference. 4.2 Form of 10 3/4% Senior Notes due 2008, Series B (contained in Exhibit 4.1 as Exhibit B thereto). * 4.3 Indenture, dated as of March 16, 1998, between the Company and State Street as Trustee, relating to the 12% Senior Discount Notes due 2008 (the "12% Notes"), filed as Exhibit 4.6 to the 1997 Form 10-K, which is incorporated herein by reference. * 4.4 Form of 12% Senior Discount Notes due 2008, Series B (contained in Exhibit 4.3 as Exhibit B thereto). *
E-1 65
Exhibit Description Page No. - ------- ----------- -------- 4.5 Credit Agreement, dated as of November 3, 1995 and Amended and Restated as of July 31, 1997 (the "Cedar Credit Agreement"), among Cedar Chemical Corporation, the Lenders listed on the signature pages thereof and The Chase Manhattan Bank, as Administrative Agent (exhibits and schedules omitted), filed as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, which is incorporated herein by reference. * 4.6 Amendment No. 1, dated as of February 26, 1998, to the Cedar Credit Agreement, filed as Exhibit 4.11 to the 1997 Form 10-K, which is incorporated herein by reference. * Certain instruments which define the rights of holders of long-term debt of the Company and its consolidated subsidiaries have not been filed as Exhibits to this Report since the total amount of securities authorized under any such instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis, as of December 31, 1998. For a description of such indebtedness see Note G of Notes to Consolidated Financial Statements. The Company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon its request. 10.1 Potash Sales Agreement between Haifa Chemicals Ltd. and Dead Sea Works Limited, dated as of January 1, 1990 concerning the supply of potash, filed as Exhibit 10.1 to the 1997 Form 10-K, which * is incorporated herein by reference. 10.2 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 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. 10.3 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. 10.4 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. * 10.5 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. * 10.6 Lease between Haifa Chemicals 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. * 10.7 Lease between Haifa Chemicals Ltd. and Oil Refineries Ltd., dated September 25, 1986, concerning real property, filed as Exhibit 10.13 to the 1987 For S-1, which is incorporated herein by reference. *
E-2 66 10.8 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) * 10.9 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) * 10.10 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) * 10.11 Tax Sharing Agreement, dated as of December 30, 1991, among TPR Investment Associates, Inc., the Company, EDP, 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. * 10.12 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) * 10.13 Split Dollar Agreement and Collateral Assignment, made as of December 31, 1996, between the Company and the trustees of the Arie Genger 1995 Life Insurance Trust, filed as Exhibit 10.13 to the 1997 Form 10-K, which is incorporated herein by reference.(1) * 10.14 Lease contract between Haifa Chemicals South, Ltd. ("HCSL") and Israel Land Administration Authority, dated as of March 6, 1995, concerning real property, filed as Exhibit 10.14 to the 1997 Form 10-K, which is incorporated herein by reference. * 10.15 Potash Sales Agreement between HCSL and Dead Sea Works Limited, dated April 24, 1995, concerning the supply of potash, filed as Exhibit 10.15 to the 1997 Form 10-K, which is incorporated herein by reference. * 10.16 Supply Agreement, dated as of January 3, 1999, between Haifa Chemicals Ltd., HCSL and Rotem Amfert Negev Ltd. E-5 10.17 Amended and Restated Conditional Agreement to Settle the Louisiana Class Action, dated as of August 21, 1998, relating to the Bogalusa Litigation. E-6 10.18 Amended and Restated Conditional Agreement to Settle the Claims by the Mississippi Plaintiffs, dated as of August 20, 1998, relating to the Bogalusa Litigation. E-7
E-3 67 21 Subsidiaries of the Company. E-8 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-9 27 Financial Data Schedule. E-10
---------------- * Incorporated by reference (1) Management contract or compensatory plan or arrangement E-4 EX-10.16 2 SUPPLY AGREEMENT 1 Exhibit 10.16 SUPPLY AGREEMENT Drawn up and signed in Ashdod on January 3, 1999 B e t w e e n HAIFA CHEMICALS LTD., CORPORATE NO. 520039454, AND HAIFA CHEMICALS SOUTH LTD., CORPORATE NO. 511010589, Whose common address for the purposes of this Agreement is POB 10809, Haifa 26120, fax 04-8469896 (hereinafter jointly HAIFA CHEMICALS LTD. and HAIFA CHEMICALS SOUTH LTD., jointly and severally "HCS" As the first party; A n d ROTEM AMFERT NEGEV LTD., CORPORATE NO. 520030883, POB 15292 Ashdod 77501, fax 08-8560219 (hereinafter: "ROTEM") As the second party; WHEREAS Rotem is engaged, inter alia, in the mining, production and processing of phosphates, including the production of roast phosphate according to a specification enclosed herewith as Appendix A (hereinafter: the Product); WHEREAS HCS consumes quantities of the Product for its plants in a regular and continuous manner; WHEREAS HCS has made examinations and has found that the Product produced and/or processed by Rotem in accordance with the specification enclosed herewith as Appendix A, meets the needs of HCS; WHEREAS HCS is interested in a further purchasing of the Product from Rotem, and Rotem is interested in a further sale of the Product to HCS, everything in accordance with and subject to the provisions of this Agreement; WHEREAS Rotem hereby declares that it is interested in and capable of supplying the Product to HCS, and HCS is interested in a capable of purchasing the Product from Rotem during the entire Agreement Period as defined in clause 10 hereinbelow, everything in accordance with and subject to the conditions of this Agreement; E-5 2 The Parties Do Therefore Declare, Provide and Agree as follows: 1. Preamble, Appendices, Headings 1.1 The Preamble to this Agreement and the Appendices enclosed herewith constitute an integral part hereof. 1.2 The headings of the clauses hereof are intended strictly for convenience and orientation, and they shall not serve for any interpretation of this Agreement. 2. Definitions The following definitions shall apply to this Agreement: 2.1 Minimum Quantity or Minimum Annual Quantity A total annual quantity of the Product equal to 180,000 tons per Agreement Year" (as defined in subclause 2.3 hereinbelow). 2.2 Maximum Quantity or Maximum Annual Quantity A total annual quantity of the Product equal to 260,000 tons per Agreement Year (as defined in subclause 2.3 hereinbelow). 2.3 Agreement Year Every calendar year during the Agreement Period (as defined in clause 10 hereinbelow), with the exception of the "First Agreement Period" as defined in subclause 2.4 hereinbelow), starting on January 1 and ending on December 31 of the same year. 2.4 First Agreement Period The period that begins on July 1, 1998 and ends on December 31, 1998. 2.5 Second Agreement Year The calendar year that begins on January 1, 1999 and ends on December 31, 1999. 2.6 Product Delivery Point The gate of the Rotem plant at Zim, or the gate of the Rotem plant at Oron, as arranged in advance between the parties from time to time (in accordance with the procedure set out in the Logistics Appendix enclosed herewith as Appendix B). 2.7 Quarter, or Calendar Quarter A period of three consecutive calendar months starting on January 1 or April 1 or July 1 or October 1, of every Agreement Year. 3 2.8 Product Price The average price, for the preceding quarter, of the sum total of prices at which Rotem shall have actually manufactured and delivered one (1) ton of Rotem Zin rock to "External Customers" as defined in subclause 2.9 hereinbelow, less the average variable costs of land and marine transport for the preceding quarter for the transport of the rock from the Rotem plant gate at Zin with regard to Rotem customers located abroad and less the variable port costs in terms of average for the preceding quarter, plus the "Price Supplement" (as defined in subclause 2.10 below). It is stipulated for the sake of clarity that there shall be a particular Product Price for every quarter during the entire "Agreement Period" (as defined in clause 10 hereinbelow). Rotem shall deduct from the above price a "quality discount" at the following rates: $2 per ton for the period between July 1, 1998 and December 31, 1998; and $1.50 per ton for the period from January 1, 1999, onward. An example of the calculation of the Product Price of one (1) ton of Product as stipulated in this subclause 2,8 is given in Appendix D to this Agreement. 2.9 External Customers Rotem customers who buy Zin rock from Rotem, including both customers holding long term purchase agreements with Rotem and those who hold no such agreements; provided that Rotem subsidiaries and/or companies directly or indirectly affiliated or related to Rotem and/or other corporations owned by Rotem and/or by Israel Chemicals Ltd. directly or indirectly and/or through concatenation shall not be considered as External Customers. 2.10 Price Supplement The difference, in money terms, according to the pricing as applied by Rotem from time to time, between the full average cost involved in the manufacture of one (1) ton of Product and the full average cost of one (1) ton of Zin rock intended by Rotem for export. The Price Supplement shall be determined with regard to every quarter of the entire "Contract Period" (as defined in clause 10 below) and shall be included in the formula for the calculation of the Product Price as stipulated in the foregoing subclause 2.8 . 2.11 Subsidiaries, Related Companies, Affiliated Companies As defined in section 1 of the Securities Law, 1968. 4 3. Mutual Undertaking for Sale and Purchase 3.1 During the period of this Agreement, HCS undertakes to buy the Product from Rotem as defined in the specification enclosed herewith as Appendix A, and Rotem undertakes to sell the Product as defined in the Specification enclosed herewith as Appendix A, at a total annual quantity per Agreement Year that shall not be less than the Minimum Quantity or more than the Maximum Quantity. 3.2 The annual consumption quantity per Agreement Year shall be divided and delivered by Rotem to HCS in roughly equal parts over the twelve months of the respective Agreement Year. 4. Quantities of Delivery and Purchase of the Product Annual Consumption Report 4.1 Notwithstanding the provisions of this Agreement with regard to the HCS annual consumption quantities, the total annual consumption quantity of the Product by HCS from Rotem during the First Agreement Period (and only during the First Agreement Period) shall be 100,000 tons 4.2 Not later than 90 days prior to the beginning of each Agreement Year, except the First Agreement Period, HCS shall submit an Annual Consumption Report to Rotem, indicating the annual quantity of the Product within a range of +/- 10% that HCS intends to buy during the next year of the Agreement, on the condition that the so arranged purchase quantity (hereinafter: the Arranged Quantity) shall not be less than the Minimum Quantity and shall not exceed the Maximum Quantity. Rotem undertakes hereby to provide the Arranged Quantity to HCS, and HCS hereby undertakes to buy the Arranged Quantity from Rotem, during each Agreement Year. 5 4.3 If it shall have become evident during the last quarter of a given Agreement Year that even if HCS shall withdraw the Maximum Quantity of the Product as allowed (pursuant to subclause 4.4 hereinbelow) for the same quarter, then subject to the other provisions hereof Rotem shall enable HCS during the last quarter of the same Agreement Year to withdraw an additional quantity of Product that shall complement the annual quantity of Product supplied by Rotem to HCS during the same Agreement Year to the Minimum Quantity (as defined in subclause 2.1 hereinabove) (hereinafter: the Complementary Quantity); this even if as a result of the delivery of the Complementary Quantity by Rotem to HCS as aforesaid the quantity of consumption of Product by HCS during the same quarter shall exceed the allowed variation per quarter (as provided in subclause 4.4 hereinbelow), ON THE CONDITION THAT as a result of the consumption by HCS of the Complementary Quantity HCS shall not deviate by 40% from the portion obtained by dividing the adjusted annual quantity for the same Agreement Year (as stated in the Annual Consumption Report for the respective Agreement Year) by four (4), and also ON THE CONDITION THAT such deviation shall not in any case exceed 18,000 tons. Quarterly Consumption Report 4.4 Without prejudice to the generality of the foregoing clauses 4.3 and 4.4, not later than 45 days before the beginning of every calendar quarter, starting from the Second Agreement Year, HCS shall submit a Quarterly Consumption Report in writing to Rotem, notifying Rotem of the quarterly quantity of Product HCS desires to buy during the next calendar quarter, including the requested quantity for every month of the said quarter, on the condition that the total quantity of purchase for the said quarter shall not be by 20% more or less than the portion obtained by dividing the annual quantity by for the same Agreement Year (as stated in the Annual Consumption Report) for the same Agreement Year) by four (4), and on the condition that such increase or decrease shall be by a maximum of 9,000 tons, as the case may be. Purchases Beyond the Adjusted Quantity in the Annual Consumption Report 4.5 Notwithstanding anything herein, Rotem shall be under no obligation to supply to HCS a quantity of Product in excess of the Adjusted Quantity stated in the Annual Consumption Report by HCS for the same Agreement Year; this even if such quantity is less than the Maximum Quantity. However, if with regard to any Agreement Year Rotem shall have agreed retroactively to allow HCS to buy from Rotem a total quantity of Product that exceeds the Adjusted Quantity stated by HCS in the Annual Consumption Report, then HCS shall be bound to pay Rotem for the total annual quantity of Product actually bought by HCS. 6 Noncompliance with the Purchase Quantities 4.6 If it shall have become evident at the end of any Agreement Year that the quantity of Product actually bought by HCS from Rotem is less than the Adjusted Quantity indicated in the Annual Consumption Report and/or less than the Minimum Quantity, HCS shall pay to Rotem, on first demand in writing by Rotem and with Rotem being under no obligation to prove any incurred losses, the full price that HCS would have been bound to pay to Rotem under this Agreement for the outstanding balance of quantities of Product that would have been delivered to HCS in accordance with the Adjusted Quantity in the Annual Consumption Report with respect to the same Agreement Year if HCS were in compliance with its purchasing obligations with regard to the same Agreement Year. 4.7 The foregoing subclause 4.7 shall apply also in case of any amendment of environmental laws. Without prejudice to the content of the foregoing subclause, however, if any change has to be made in the content of contaminants in the Product as a result of amendments of environmental laws, the parties shall discuss the prospects of altering the specification of the Product (Appendix A). Purchase of Product Beyond the Maximum Quantity 4.8 Notwithstanding the content of the foregoing clause 4, in the event of HCS having requested during a given Agreement Year to buy an annual quantity of Product in excess of the Maximum Quantity as defined in the foregoing subclause 2.2 (hereinafter: the Surplus Quantity), Rotem shall have absolute and sole discretion as to whether to supply the Surplus Quantity to HCS, and if affirmative, at what price and on what terms. 4.9 It is agreed and stipulated for the sake of clarity that no refusal by Rotem to deliver the Surplus Quantity as aforesaid shall be construed as breach of the contract, nor shall such refusal impair any of the obligations assumed by HCS under this Agreement and/or pursuant to any law. 5. Transport and Unloading of the Product 5.1 The provisions concerning the Product delivery times shall be as stated in the Logistic Appendix, i.e. Appendix B, to this Agreement. 7 5.2 Rotem shall deliver the Product to HCS at the Product Delivery Site (as defined in the foregoing subclause 2.6). The payment to Rotem for the transport of the Product from the Rotem plant at Zim to the Rotem plant at Oron, in a sum equal to the transport cost difference for HCS from Zin to Oron according to the transport tariffs payable by HCS to its carriers, shall be borne by HCS. Without prejudice to the foregoing, the expenses for transport of the Product from the Product Delivery Site to any other site or destination shall be under the sole responsibility of HCS and at the expense of HCS. The parties shall act in concert to cause that the main delivery site of the Product be at the Rotem plant at Zin, insofar as feasible. 5.3 HCS shall submit the relevant freight differences of its carriers to Rotem in a regular and updated manner and/or on demand by Rotem, together with any changes in these tariffs. 6. Product Quality 6.1 Rotem undertakes that the Product quality shall be as stated in the specification enclosed herewith as Appendix A. Any change of the specification shall be subject to the written consent of Rotem and HCS. 6.2 Any manipulation and/or change of the Product, of any kind whatsoever, regardless of whether for adjusting the Product to the needs of HCS or for any other purpose, shall be carried out at installations of HCS, under the sole responsibility of HCS and at the expense of HCS only. After the performance of such manipulation and/or change of the product, HCS shall not be entitled to make any claim whatsoever about unsuitability of the Product as delivered [in accordance with] the specification (Appendix A to this Agreement). 6.3 The site of performance of the sample quality analyses of the Product and the manner and method of sampling, including the process and procedure of sampling and replacement of analyses, shall be as defined in the appendix entitled Quality Testing Analysis and enclosed herewith as Appendix C to this Agreement. 6.4 No claim by HCS about the Product quality shall be considered unless submitted to Rotem in writing in a motivated form forthwith, and at any rate not later than seven days from receipt of the respective analysis by HCS. 8 7. The Price General 7.1 It is agreed and declared between the parties that HCS shall pay the Product Price (as defined in the foregoing subclause 2.8) to Rotem for the quantity of Product delivered by Rotem to HCS during a given month of the Agreement Period (as defined in clause 10 hereinbelow), times the quantity of Product delivered to HCS during the same month. 7.2 Within a maximum of 25 days from the end of each quarter, Rotem shall notify HCS in writing of the Product Price for quantities of Product to be delivered to HCS during the current quarter. Upon a written request by HCS and on the condition that such request is submitted to Rotem not more than once per Agreement Year, Rotem shall provide HCS with a certificate in writing by the certified public accountant of Rotem, certifying that the calculation of the Product Price for every quarter during the respective Agreement Year was done in a proper manner in accordance with the price formula given in subclause 2.8 above. 8. Terms of Payment 8.1 The Product Price shall be determined by Rotem in US dollars and shall be payable by HCS in NIS at the representative exchange rate of the US dollar as of the time of the actual payment. 8.2 The payment by HCS for the quantities of Product delivered (or scheduled to be delivered as provided in the foregoing subclause 4.6) by Rotem shall be based on the Product Price as determined by Rotem for the respective quarter, within a maximum of 30 days from the end of the calendar month during which the product is supplied by Rotem to HCS ("current plus 30"). 8.3 Money owed by one of the parties to the other party for any reason whatsoever shall not be offsettable. 9. Weighing 9.1 The consignments shall be weighed on scales installed at Rotem and scales installed at HCS. In the event of monthly deviations within 0.5% (half of one percent) between the weighing at the Rotem scale and the weighing at the HCS scale, the reading obtained from the Rotem scale shall be binding on the parties. 9 9.2 If the monthly deviation referred to in the foregoing subclause 9.1 exceeds 0.5%, the parties shall cooperate for testing the calibration of the scales by a method acceptable to both parties. If it becomes evident that the Rotem scale is not calibrated, the readings from the HCS scale shall be binding on the parties. If it becomes evident that the HCS scale is not calibrated, the readings from the Rotem scale shall be binding on the parties. If both scales are calibrated or of neither of them is calibrated, the mean value of the two readings shall be taken as the monthly quantity of Product supplied by Rotem to HCS, for the purposes of mutual accounting between the parties. 10. Period of the Agreement 10.1 This Agreement is made for a period starting on July 1, 1998, and it shall remain in force until December 31, 2001 (hereinafter: the Period of the Agreement). Upon a written request by one of the parties to the other party, the parties shall, during the last six months of the Period of the Agreement and without any obligation, examine the prospects for extending the Period of the Agreement (hereinafter: the Additional Period, or Additional Periods), which shall be regarded for all intents and purposes as part of the original Period of the Agreement; alternatively, the parties may execute a new agreement for the delivery of the Product. 10.2 It is stipulated for the sake of clarity that nothing in the foregoing subclause 10.1 shall be construed as any undertaking by one of the parties to extend the Agreement or to enter into negotiation prior to and/or after the expiry of the Period of the Agreement for discussing an extension hereof. 11. Breach 11.1 The party that breaches this Agreement and/or any of the provisions hereof (hereinafter: the Breaching Party) shall compensate the other party (hereinafter: the Complying Party) for any damage and loss incurred by the Complying Party as a result of the breach hereof by the Breaching Party. This without prejudice to the rights of the Complying Party to seek and obtain any other relief available under law in addition to and/or in lieu of the payment of damages. 11.2 It is stipulated for the sake of clarity that notwithstanding the provisions of the foregoing subclause 11.1, no party hereto shall be deemed to be in breach hereof if prevented from discharging its obligations hereunder by a force majeure as defined in clause 15 below. 10 12. Termination of the Agreement General 12.1 A party to this Agreement may terminate it forthwith by notice to the other party in one or more of the following cases: 12.1.1 Issuance of a liquidation or receivership order, temporary or permanent, against the other party hereto, unless the order is rescinded within 120 days from issuance. 12.1.2 Imposition of provisional or permanent attachment on the majority of assets of the other party to this Agreement, unless the attachment is rescinded within 120 days from issuance. Default of Payment 12.2 Without prejudice to the other provisions of this Agreement, in the event of HCS having failed to make any payment hereunder on time, Rotem shall submit to HCS a notice in writing to this effect (hereinafter: the Default Warning). 12.3 In the event of HCS having failed to pay the due amount in full within seven (7) days from receipt of the Default Warning (hereinafter: the Payment Deadline), the matter shall constitute a fundamental breach of this Agreement and Rotem may, at its sole discretion, without prejudice to any of its other rights hereunder or pursuant to any law and without placing itself in breach hereof, to discontinue the delivery of the Product to HCS forthwith on expiry of the Payment Deadline, or exercise any of its rights pursuant to any law for the fundamental breach hereof by HCS. After payment by HCS of the debt including arrears interest as stipulated in subclause 12.4 hereinbelow, Rotem shall resume the delivery of the Product in accordance with this Agreement on the condition that HCS shall have provided guarantees to the satisfaction of Rotem for the full payment of all subsequent moneys due to Rotem for future deliveries of the Product to HCS as provided in this Agreement. 12.4 Any amount payable by one of the parties hereto to the other party hereunder and remaining in arrears shall bear arrears interest as follows: 12.4.1 An arrears of payment by up to one week shall be charged with regular drawing account interest as applied at Bank Hapoalim BM at the time; 12.4.2 An arrears of payment by more than one week or a recurring arrears in payment shall be charged with excess drawing account interest as applied at Bank Hapoalim BM at the time. 11 It is stipulated for the sake of clarity that amounts in dispute between the parties, for whatever reason, shall be paid to Rotem at the times established herein, with the provision that any amount owed by Rotem to HCS after the settling of the dispute shall be repaid to HCS with interest as provided in the foregoing subclause 12.4, for the period from the actual payment to Rotem till the actual payment to HCS. 13. Liability and Indemnification 13.1 It is agreed that Rotem shall not be liable in any way toward any customers of HCS and/or toward other third parties of any kind. 13.2 HCS undertakes to indemnify Rotem and keep it harmless in full, including fees for legal advice, forthwith on first demand by Rotem in writing upon the handing down of any court ruling, order, or other decision by a competent judicial or quasi-judicial authority, including an arbitrator, ordering Rotem to pay compensation or any other sum to customers of HCS and/or to any other third parties in connection with any demand and/or claim related to the Product contemplated herein, delivered or intended to be delivered by Rotem to HCS, including, inter alia, in connection with the quality or delivery of the Product or the time of its delivery. The foregoing provisions of this subclause shall apply on the condition that Rotem shall notify HCS without delay of any such claim and/or demand and shall assist HCS as reasonably requested for the defense against such claim and/or demand. 13.3 Notwithstanding anything herein, it is agreed that Rotem shall not be liable for any indirect or constructive losses incurred by HCS and/or by any entity related to HCS; this even if it shall have been proven by or on behalf of HCS in the course of a legal process or in any other manner that Rotem shall have breached one or more of its undertakings hereunder. 13.4 The liability of Rotem shall be limited as aforesaid to the amount of proceeds due to Rotem under this Agreement, with regard to the specific quantity of the Product subject to a demand for damages by HCS. 14. Settling of Disputes 14.1 Any disputes between the parties in connection with this Agreement, its implementation or interpretation, shall be resolved by arbitration to be held before a single arbitrator to be appointed by joint agreement between the parties. 14.2 In the absence of agreement between the parties about the identity of the arbitrator within 14 days from written request by one of the parties to the other party about the identity of the arbitrator, either party may approach the President of the Israel Bar with a request that he appoint a single arbitrator for resolving the dispute. 12 14.3 The arbitrator shall be bound to hand down his award according to substantive law and to present grounds for his ruling; however, he shall be exempt from the obligation to proceed in accordance with the law of evidence and the rules of court procedure. 14.4 The award shall be final and binding. The losing party shall pay the arbitration costs, including the fees of the arbitrator. 15. Force Majeure 15.1 The parties hereto shall be temporarily released from their obligations hereunder upon the occurrence of unforeseeable circumstances caused by a force majeure; this for the duration of such circumstances that preclude the discharge hereof by one of the parties. The term force majeure is defined for the present purposes as the occurrence of circumstances that are beyond the control of the party claiming force majeure, and shall have been unknown to the said party at the time of signing this Agreement and could not have been prevented by the said party by reasonable means - including natural disaster, war, fire, partial or total strike or lockout, and other events that are beyond the control of the party prevented from discharging its obligations as aforesaid and preclude the discharge of the obligations by such party for the duration of the said circumstances. 15.2 On being prevented from discharging its obligations hereunder under the circumstances referred to in the foregoing subclause, the party shall notify the other party thereof without delay; the said party shall also notify the other party upon the lifting of the said circumstances. 15.3 Subject to the provisions of subclauses 15.4 and 15.5 hereinbelow, the parties shall resume their discharge of this Agreement upon the lifting of the circumstances of force majeure. 15.4 It is agreed and stipulated for the sake of clarity that the quantities of Product remaining undelivered during the period of force majeure shall be deducted from the Minimum Annual Quantity and Rotem shall be under no obligation to complete or deliver them; nor shall HCS be under any obligation to buy them after the end of the period of force majeure as aforesaid. 15.5 In the event of the circumstances of force majeure lasting for a consecutive period of more than five months, each party hereto shall be entitled to terminate this Agreement forthwith by a written notice to the other party. 15.6 It is agreed and stipulated for the sake of clarity that notwithstanding anything herein, cash shortage and/or financial difficulties of any kind, including cash flow difficulties, regardless of whether temporary or permanent, of either party, shall not be deemed to constitute force majeure. 13 16. Jurisdiction Subject to the provisions of the foregoing clause 14 hereof, the competent courts of law of Tel-Aviv-Jaffa shall have sole jurisdiction over any matter related to and/or arising from this Agreement. 17 Miscellaneous 17.1 This Agreement voids any previous agreement made between the parties orally or in writing or through their demeanor. 17.2 No waiver, extension or amendment whatsoever in this Agreement or in the Appendices hereto or in any part hereof shall be valid unless made in writing and signed by the parties, everything in accordance with the law. No delay in the exercise of the rights of any party hereto shall be deemed as waiver, and the said party shall be entitled to exercise all or any part of its rights hereunder or according to law at any time it deems fit. 17.3 The parties declare that the undersigned persons are competent to sign on behalf of Rotem and HCS respectively. 17.4 Notices sent by one of the parties to the other party shall be deemed to have reached their destination as follows: (a) 72 hours from the time of mailing by registered mail to the address indicated in the Preamble hereto, unless actually received before that; (b) forthwith if delivered in person at the address indicated in the Preamble hereto or if transmitted by fax to a number indicated in the preamble hereto (with certified receipt) not later than 16:00 hrs on a business day; if transmitted by fax after 16:00 hrs or on a nonbusiness day - the notice shall be deemed to have been received on the next business day. In witness thereof the parties have set their hand: Haifa Chemicals Ltd Haifa Chemicals South Ltd. Rotem Amfert Negev Ltd. By: /s/ Ester Eldan By: /s/ Yacov Saban By: /s/ Joseph Lastigzon and: and: and: /s/ Itzhak Goldstein 14 Appendix A - Quality Specification
- -------------------------------------------------------------------------------- ANALYTE TYPICAL MIN MAX UNITS - -------------------------------------------------------------------------------- P(2)O(5) 32.5 32.0 33 % - -------------------------------------------------------------------------------- CaO 55.5 53.0 67.0 unit - -------------------------------------------------------------------------------- CaO / P(2)O(5) 1.68 1.65 1.70 % - -------------------------------------------------------------------------------- H(2)O 0.20 0.50 % - -------------------------------------------------------------------------------- Organic material 0.12 0.18 % - -------------------------------------------------------------------------------- CO(2) 3.0 5.0 % - -------------------------------------------------------------------------------- F 3.50 4.00 % - -------------------------------------------------------------------------------- Fe(2)O(3) 0.10 0.14 % - -------------------------------------------------------------------------------- Al(2)O(3) 0.14 0.25 % - -------------------------------------------------------------------------------- SiO(2) 2.00 2.50 % - -------------------------------------------------------------------------------- SO(3) 2.00 3.00 % - -------------------------------------------------------------------------------- MgO 0.30 0.50 % - -------------------------------------------------------------------------------- Cl 0.05 0.50 % - -------------------------------------------------------------------------------- Cd 23 30 ppm - -------------------------------------------------------------------------------- As 4 10 ppm - -------------------------------------------------------------------------------- Pb 2 7 ppm - -------------------------------------------------------------------------------- Cu 30 40 ppm - -------------------------------------------------------------------------------- Zn 400 500 ppm - -------------------------------------------------------------------------------- Mo 20 25 ppm - -------------------------------------------------------------------------------- V 130 160 ppm - -------------------------------------------------------------------------------- Mn 6 10 ppm - -------------------------------------------------------------------------------- Ni 35 60 ppm - -------------------------------------------------------------------------------- Cr 60 70 ppm - -------------------------------------------------------------------------------- Ti 15 25 ppm - -------------------------------------------------------------------------------- Hg 500 600 ppb - -------------------------------------------------------------------------------- Sr 0.25 0.40 % - --------------------------------------------------------------------------------
Particle size distribution, percent by weight
- ----------------------------------------------------------------------------------------- + 10 # + 20 # + 35 # + 60 # + 100 # + 150 # + 200 # + 450 # . 450 # - ----------------------------------------------------------------------------------------- Avg 5.7 14 22 30 13 7 6.5 1.5 - ----------------------------------------------------------------------------------------- Std 0.09 1.2 6 3 3 6 3 2 0.3 - -----------------------------------------------------------------------------------------
15 Appendix B - Logistics 1. The Product shall be loaded on trucks and/or wagons from the Rotem loading facilities at Zafir - Zin and Oron. 2. For the purpose of loading the Product at Zin only: 2.1 HCS shall submit a daily notice in writing about the total quantity HCS wants to load with details on loading to Haifa and to HC South on wagons and trucks. The notice shall be transmitted by fax. 2.2 HCS shall coordinate the arrival in a mutually arranged manner to the loading point of the wagons, and all the trucks shall be loaded within the same time interval on the same day. 3. HCS shall hand over to the Rotem liaison persons a detailed weekly delivery plan in writing three weeks in advance, to fax No. 07 6564717. 4. Loading of wagons on Sunday through Friday (and loading of trucks at Zin) once a day during the first shift between 0700 hrs and 1500 hrs, according to a timetable to be established by the Rail. Changes are to be submitted a week in advance. 5. Loading of trucks not in accordance with the above shall only be allowed with the approval of the liaison persons at the loading site, in accordance with a special tariff, subject to prior coordination and without safety screening (the loading shall be done by means of a loader directly from the open storage heaps). Loading during the second or third shift shall be subject to the payment of a price supplement at the rate of $ 0.20 and $ 0.30 per ton respectively. 6. The quantity of Product for loading of wagons shall be subject to approval by Israel Rail as held by the dispatcher. 7. Wagons loaded beyond the allowed weight shall be handled by Rotem at the expense of Rotem. 8. Rotem shall report to HCS on any technical fault that may impair the loading of wagons and/or trucks, on learning thereof. In the event of a fault in the locomotive, Rotem shall report to HCS in advance insofar as possible, in order to load trucks instead of wagons. 9. Telephone / fax numbers of liaison persons for communication, regular reports and reports on faults: Yossi Gilad 07 6566623 Yoel Bitan 07 6566641 Jack Elkayam 07 6566673 Fax 07 6566647 (production office) Fax 07 6566674 (loading control room) 16 Appendix C - Quality Testing 1. A sample shall be taken from every shipment by means of an automatic sampler installed on the silo. 2. Daily Analysis 2.1 The following parameters shall be determined: % . . . dry basis % moisture % CO(2) 2.2 Submission of information by fax on the analysis: shipments until 11:30 hrs - on the same day till 16:00 hrs; shipments after 11:30 hrs - on the following day till 13:00 hrs. 2.3 Sample of 500 gr shall be preserved for two weeks. 3. Average weekly analysis To be done with regard to the following parameters (in addition to the daily analysis according to (2.1)) % C(2)O % O. M. Granulometric distribution within the ranges of the specification. 4. Monthly analysis representative of the monthly quality 4.1 A representative quantity shall be withdrawn from every daily sample for the preparation of a binding monthly sample for determining the quality of the delivered Product. 4.2 The monthly analysis shall include all the elements of the specification (except arsenic and lead, which shall be tested for once in three months). 5. The following rules shall apply in case of discrepancies between the results of analysis between the two companies: 5.1 Discrepancy of up to % ... 0.5 % %CaO 2.0 % % CO(2) 1.0 % Granulometric distribution - up to one standard deviation as indicated in the specification 17 The results of the Rotem laboratory shall govern. 5.2 With regard to discrepancies in excess of the foregoing ranges, the samples of each of the two companies for a decision on a repeated sampling shall be handed over to a neutral laboratory acceptable to both parties. 5.3 The implementation of this clause is subject to a sampling method at HCS that is acceptable to Rotem. Alternatively, HCS shall carry out a periodic inspection of the testing and calibration procedures at the Rotem laboratory and the results of the latter laboratory shall be acceptable to HCS. 6. In case of a substantial deviation from the specification, HCS shall be entitled to return the defective Product to Rotem on trucks. The freight for the returned Product in both ways shall be at the expense of Rotem. A substantial deviation from the specification means a deviation persisting for at least three consecutive delivery days with regard to critical items of the Product specification, so that even a corrective action by Rotem with regard to the regular shipments shall not have allowed compliance with the specification in terms of a monthly average. 18 Appendix D Price per Ton of Roasted Phosphate Rock Haifa Chemicals Pricelist for Qt 199T
- ------------------------------------------------------------------------- D E T A I L S $ / TON - ------------------------------------------------------------------------- FOB price, Zin rock, quarter Qt-1 $ xx.x - ------------------------------------------------------------------------- Price supplement based on costs during quarter $ xx.x Qt-1 - ------------------------------------------------------------------------- T o t a l $ xx.x - ------------------------------------------------------------------------- Less: Port variables in Qt-1 quarter $ xx.x Land transport variables, Qt-1 $ xx.x - ------------------------------------------------------------------------- Total price of roasted phosphate at Zin gate $ xx.x - -------------------------------------------------------------------------
Qt The current quarter Qt-1 The preceding quarter 1. The above price is based on 32% pro rata 2. HCS shall be given a quality discount on the above price at the following per-ton rates: 2.1 $2.00 per ton for the period between July 1, 1998 and December 31, 1998 2.2 $1.50 per ton after January 1, 1999 EX-10.17 3 AMENDED AND RESTATED CONDITIONAL AGREEMENT 1 Ex. 10.17 22nd JUDICIAL DISTRICT COURT PARISH OF WASHINGTON STATE OF LOUISIANA IN RE: CHEMICAL RELEASE AT CASE NUMBER: 73,341 BOGALUSA DIVISION: "C" ALL CASES Reference is made to a Conditional Agreement to Settle executed on or about August 21, 1998 by the Plaintiffs' Liaison Committee, on behalf of the Class, appearing through the Executive Committee, and the Compromising Parties appearing through their respective counsel of record. Said Conditional Agreement to Settle is hereby amended and restated in its entirety to read as follows: CONDITIONAL AGREEMENT TO SETTLE This Conditional Agreement to Settle, is made as of August 21, 1998, by and among the Plaintiffs' Liaison Committee, on behalf of the Class, appearing herein through the Executive Committee, and the Compromising Parties, appearing through their respective counsel of record, and the Settling Insurers. This Conditional Agreement to Settle sets forth the terms, conditions and provisions of a conditional agreement to settle all claims against the Compromising Parties, the Related Parties, and the Settling Insurers Related to the Incident. This Conditional Agreement to Settle, although not itself subject to Court approval, may be attached to the Joint Motion for Stay, seeking the stay of actions against the Compromising Parties, the Related Parties, and the Settling Insurers as described in Section 4.1 below, all of which are subject to the recitals, definitions, terms and conditions set forth herein: E-6 2 1. DEFINITIONS OF TERMS OF GENERAL APPLICATION Unless otherwise expressly stated herein, the following terms shall have the meanings and definitions expressed as follows: 1.1 The term "Agreement" shall mean and include this Conditional Agreement to Settle, all exhibits and attachments to this Conditional Agreement to Settle, and all judgments or orders of the Court related to this Conditional Agreement to Settle. 1.2 The term "Certification Judgment" shall mean and refer to the judgment of the Louisiana First Circuit Court of Appeal affirming in all material respects (as determined by the mutual agreement of the Compromising Parties and the PLC) the Court's order dated November 10, 1997 certifying the Class Action as a class action and defining the class as the Class Definition. 1.3 The term "CIGNA" shall mean and refer to CIGNA Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.4 The term "Claims for Contribution, Indemnity, and/or Subrogation" shall mean and refer to (a) any cross claims now or hereafter asserted in any court or tribunal (or any judgment entered on such a claim) by any Nonsettling Party or any person or entity claiming by, through, or on behalf of such Nonsettling Party against any of the Compromising Parties, the Related Parties, or the Settling Insurers or Hartford Related to the Incident, and (b) any claim now or hereafter asserted in any court or tribunal (or any judgment entered on such a claim) by any Nonsettling Party or other third party alleging that any of the Compromising Parties, the Related Parties, or the Settling Insurers or Hartford is or may be liable to such Nonsettling Party or other third party for all or part of a claim for damages or other relief asserted against said Nonsettling Party or other third party in connection with or with respect to any claim Related to the Incident, whether under contract, tort, or otherwise, including, but not limited to, claims for personal injury -2- 3 or death, property damage, damages of any other kind, payment of medical expenses and/or lost income, medical monitoring, injunctive or equitable relief, payment of attorneys' fees, and specifically including subrogation claims by workers' compensation insurers, employers, and/or health care insurers or providers. The only claims for contractual indemnity against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers of which the parties are presently aware are those asserted in the pleadings filed by Gaylord Chemical Corporation, Gaylord Container Corporation, Kansas City Southern Railway, and/or Illinois Central Railroad in the Class Action and/or the Mississippi Action. 1.5 The term "Class Action" shall mean and refer to "In Re: Chemical Release at Bogalusa," No. 73,341--Div. "C"--ALL CASES, on the docket of the 22nd Judicial District Court in and for the Parish of Washington, Louisiana. 1.6 The term "Class Definition" or "Class as defined" shall mean and refer to the class and subclasses defined by the Court by order dated November 10, 1997. By that order, the Court defined the class as follows: All persons and legal entities located or residing in, owning places of business or property in, operating businesses in, attending school or working in, and/or who were present within the geographic area specified herein, who sustained bodily and/or personal injury, loss, property damage, and/or other damage, as the result of an explosion, rupture, escape and/or leak or leaks of nitrogen tetroxide (N204) and their derivatives from a railroad tank car, mobile truck tanker-trailers, and/or related loading/unloading piping or other structures located on the premises of Gaylord Chemical Corporation in Bogalusa, Louisiana, occurring in and during October 1995, as well as those family members of such persons who may themselves have claims arising out of injury to such persons. The geographic boundaries of the class are defined below. The definition includes a reference to the "City Rectangle" which will be defined as the area within the smallest rectangle which will encompass all of the City Limits of Bogalusa. The class boundaries will be the area within the following truncated wedge-shaped region: 1) begin at the southeast corner of the City Rectangle, and extend the line comprising the southern side of the City Rectangle until the point at which it reaches the Pearl River; 2) then follow the western bank of the Pearl River northward until reaching the northeastern most point of the -3- 4 boot of Louisiana; 3) from that point, draw a straight line to the confluence of Gully Creek, Upper Little Creek, and Kellers Creek in Marion County, Mississippi; 4) from the confluence of those three creeks in Marion County, Mississippi, draw a straight line in a westerly direction to the intersection of State Highway 570 and U.S. Highway 51 in Pike County, Mississippi; 5) then from the intersection of State Highway 570 and U.S. Highway 51 draw a straight line to the southwestern corner of the City Rectangle, in Washington Parish, Louisiana; 6) continue east along the southern boundary of the City Rectangle until reaching the point of beginning at the southeastern corner of the City Rectangle. The Class as defined was subdivided by the Court by said order into the following subclasses: (1) bodily/personal injury claims (including loss of consortium); (2) property damage claims (both real and personal property); (3) economic losses (including, but not limited to, lost profits, lost wages, or business interruption); (4) evacuation damages; (5) fear and fright claims; and (6) punitive/exemplary damages. 1.7 The "Class" or "Class Members" or "members of the Class" shall mean and refer to those persons and/or entities within the Class Definition who do not timely opt out of the Class as defined. 1.8 The term "Class Settlement Fund" shall mean and refer to the total amount of settlement funds deposited in the Preliminary Escrow Account under this Agreement, together with all interest earned or accrued thereon, and less (a) the charges specified in the Preliminary Escrow Agreement, (b) any distributions made, or to be made, with respect to Independent Claims (including, without limitation, Mississippi Claims), as provided in Section 5 below, (c) any Independent Claims Contingency Escrow, and (d) any Other Claims Contingency Escrow. 1.9 The term "Compensatory Damage Claims" shall mean and refer to all claims Related to the Incident other than Exemplary Damage Claims. -4- 5 1.10 The term "Compromising Parties" shall mean and refer to Vicksburg Chemical Company, Cedar Chemical Corporation, Nine West Corporation, Trans-Resources, Inc., and TPR Investment Associates, Inc., both individually and collectively. 1.11 The term "Conditional Agreement to Settle" shall mean and refer to the conditional agreement to settle contained herein executed by or on behalf of the Compromising Parties, the PLC, the Class, and the Settling Insurers, and all exhibits and attachments made part of such agreement to settle. 1.12 The term "Court" shall mean and refer to the 22nd Judicial District Court in and for the Parish of Washington, Louisiana and the Honorable Patricia T. Hedges (as of August 21, 1998) or her successor. 1.13 The "Effective Date" of the settlement contemplated by this Agreement shall mean and refer to the day following the last of the following occurrences: 1.13.1 entry by the Court of the Final Order and Judgment; and 1.13.2 the Final Order and Judgment becomes Final; and 1.13.3 expiration of the Prescriptive Period, as defined in Section 1.47; and 1.13.4 the release of all claims asserted in actions listed in Exhibit 1 insofar as they affect the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers (except for those matters, if any, to be resolved through the Independent Claims Contingency Escrow and/or the Other Claims Contingency Escrow) and the binding obligation for the dismissal, with prejudice and with each party to bear its own costs, of all such actions; and 1.13.5 entry of an order by the appropriate authority approving the Preliminary Settlement Agreement in accordance with the Louisiana Workers' Compensation Act, La. R.S. 23:1101 and 1102, where applicable for a Participating Class Member, which order is upheld through all appeal and writ -5- 6 proceedings, if any, and procurement of a waiver of all subrogation rights from any workers' compensation insurance carriers for the Compromising Parties and/or the Related Parties. 1.14 The term "Executive Committee" shall mean and refer to the committee of attorneys appointed by the PLC to represent the PLC, including: James S. Farmer Ronnie G. Penton Gerald E. Meunier Reginald J. Laurent Daniel E. Becnel, Jr. Wendell H. Gauthier Stephen B. Murray. 1.15 The term "Exemplary Damage Claims" shall mean and refer to all claims for punitive and/or exemplary damages pursuant to former LSA-C.C. art. 2315.3, Mississippi Code Annotated Section 11-1-65, or any other statute, rule, regulation, judicial decision or legal doctrine Related to the Incident. 1.16 The term "Exhibit 1" shall mean and refer to the Exhibit 1 attached hereto, consisting of a listing of plaintiffs (including, without limitation, putative Class Members) in actions believed by the PLC and the Compromising Parties to be pending in federal or state court as of August 13, 1998, who are believed by the PLC and the Compromising Parties to have claims against the Compromising Parties, the Related Parties, and/or the Settling Insurers Related to the Incident. Exhibit 1 also provides a full description of the relevant federal or state court actions involved. Exhibit 1 shall be amended as further information becomes available to the PLC and the Compromising Parties. All references to Exhibit 1 in this Agreement shall mean Exhibit 1 as it is amended from time to time. Whether any person or entity listed in Exhibit 1 is a Class Member shall be determined by whether such person or entity (i) is included within the Class as defined, and (ii) if so, whether such person or entity has opted out of the Class as defined. -6- 7 1.17 The term "Final" shall mean that no timely appeals, collateral attacks, writs, petitions, or requests for review or extraordinary relief have been taken from or with respect to a judgment, order, ruling, or decision and that if any such appeal, collateral attack, writ, petition, or request for review or extraordinary relief has been taken from or with respect to the judgment, order, ruling, or decision, the relevant judgment, order, ruling, or decision has been affirmed without revision and there is no further right to appeal, petition, collaterally attack, bring a writ or request review or extraordinary relief from or with respect to such judgment, order, ruling, or decision. 1.18 The term "Final Order and Judgment" shall mean and refer to the order to be entered by the Court, following the fairness hearing, which shall: 1.18.1 Confirm the certification of the Class as defined under former article 593.1 of the Louisiana Code of Civil Procedure; 1.18.2 Approve the Preliminary Settlement Agreement, as proposed, and specifically decree that all of the terms and conditions of the Preliminary Settlement Agreement are adopted in the Final Order and Judgment by reference; 1.18.3 Dismiss the Class Action upon the Effective Date, with prejudice and with each party to bear its own costs, insofar as affecting the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers and all other actions now existing or hereafter brought upon the Released Claims by the Class or any Class Member; 1.18.4 Finally and permanently bar and enjoin all Class Members (including, without limitation, all persons and entities claiming by, through, or on behalf of a Class Member) from asserting any and all Released Claims; -7- 8 1.18.5 Finally release the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from any and all Released Claims by, through or on behalf of a Class Member; 1.18.6 Finally and permanently bar and enjoin the commencement and/or prosecution by any Nonsettling Parties or other third parties of any and all Claims for Contribution, Indemnity, and/or Subrogation against any Compromising Party, Related Party, Settling Insurer or Hartford; 1.18.7 Require that each member of the Class defend, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from and against any and all past, present, or future claims, demands, suits, causes of action, rights of action, liabilities, liens, or judgments of any kind whatsoever by, on behalf of, through, or deriving from the claims of that member of the Class, or by, on behalf of, through, or deriving from his, her, its, or their heirs, executors, representatives, attorneys or former attorneys, successors, employers, insurers, employers' insurers, health insurers, health care providers, assignees, subrogees, predecessors in interest, successors in interest, beneficiaries or survivors, arising out of or in any way Related to the Incident, all as more fully set forth in the Preliminary Settlement Agreement; 1.18.8 Require that each member of the Class defend, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from and against any Claims for Contribution, Indemnity, and/or Subrogation, whether arising under tort, contract or otherwise, related to or connected in any way with the Released Claims of that Class Member; 1.18.9 Require that the Class and each of the Class Members not attempt to execute or to collect any judgment or any portion of any judgment obtained against one or more of the Nonsettling Parties or other third parties to the extent or in a manner that the execution or collection of the judgment or any portion thereof would create in the judgment debtor any right to recover from any of the -8- 9 Compromising Parties, the Related Parties, Hartford, or the Settling Insurers any sums based on Claims for Contribution, Indemnity, and/or Subrogation; 1.18.10 Require that the Class and each of the Class Members reduce or satisfy any judgment that it or they may obtain against a Nonsettling Party or other third party to the extent necessary to extinguish any Claims for Contribution, Indemnity, and/or Subrogation by such Nonsettling Party or other third party against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers arising from such judgment; 1.18.11 Provide that under applicable law, including former article 594 of the Louisiana Code of Civil Procedure, the Preliminary Settlement Agreement is entered into in good faith, is reasonable, fair, and adequate, and in the best interests of the Class, and is non-collusive; 1.18.12 Require each Class Member who receives any payment from the Class Settlement Fund to execute and deliver to the Compromising Parties a written release of all the Released Claims by, through or on behalf of that Class Member, as more fully set forth in the Preliminary Settlement Agreement; 1.18.13 Provide that, upon the submission to the Court of evidence that the escrow agent for the Preliminary Escrow Account has, pursuant to Section 7.3, placed the amount calculated to be the Class Settlement Fund into a subaccount within the Preliminary Escrow Account established pursuant to the Preliminary Escrow Agreement to hold the Class Settlement Fund (hereinafter the "Class Settlement Fund Subaccount"), the Court will enter a final order of satisfaction of judgment upon the Effective Date; and 1.18.14 Reserve unto the Court exclusive jurisdiction over the parties to the Preliminary Settlement Agreement solely for the purpose of administering, supervising, construing, and enforcing the Preliminary Settlement Agreement and the Final Order and Judgment and supervising the management and -9- 10 disbursement of the Class Settlement Fund, without prejudice to the rights of any party to contest personal jurisdiction for any other purpose. 1.19 The term "Gaylord Plant" shall mean and refer to the Gaylord Chemical Corporation plant in Bogalusa, Louisiana 1.20 The term "Hartford" shall mean and refer to The Hartford Fire Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.21 The term "Incident" shall mean and refer to and include each and every event upon which allegations have been made or could have been made against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers for recovery of damages or other relief or remedy, arising out of, related to or connected in any way to the explosion(s) and/or rupture(s) of, and/or the release(s), discharge(s), escape(s) and/or leak(s) of nitrogen tetroxide (N2O4) or derivatives thereof or other substances from, a railroad tank car, mobile truck tanker-trailers and/or related loading/unloading piping or other structures located on the premises of the Gaylord Plant during October 1995. Without limiting the generality of the foregoing, the term "Incident" shall include any other consequence of such explosion(s), rupture(s), release(s), discharges(s), escape(s) and/or leak(s) and the conduct of the Compromising Parties, the Related Parties, Hartford, the Settling Insurers, and/or the Nonsettling Parties with respect thereto. 1.22 The term "Independent Claims" shall mean and refer to any and all of those claims Related to the Incident, including, without limitation, those claims defined below as Released Claims, asserted by Opt-Out Parties and/or other persons and/or entities who are not putative Class Members in actions instituted against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers on or before the last day of the Prescriptive Period. The term "Independent Claims" includes the Mississippi Claims. -10- 11 1.23 The term "Independent Claims Contingency Escrow" shall mean and refer to the escrow account for the sum which may be set aside within the Preliminary Escrow Account (i.e., by being placed in the subaccount within the Preliminary Escrow Account established pursuant to the Preliminary Escrow Agreement to hold the Independent Claims Contingency Escrow), pursuant to Section 5.10 of this Conditional Agreement to Settle to satisfy Independent Claims after the Preliminary Settlement Date. 1.24 The term "Independent Claims Period" shall mean and refer to a period of fifteen (15) months commencing on the day following the date that the opt-out period expires or such other period as the parties may mutually agree upon. 1.25 The term "Independent Claims Plaintiff" or "Independent Claims Plaintiffs" shall mean and refer to those persons and/or entities with Independent Claims. 1.26 The term "Initial Twenty Plaintiffs" shall mean and refer to those twenty Mississippi Plaintiffs selected by the Mississippi Court in its order dated June 18, 1998, to participate in the Initial Twenty Trial. The Initial Twenty Plaintiffs are listed in an exhibit to the Mississippi Conditional Agreement to Settle. 1.27 The term "Initial Twenty Trial" shall mean and refer to the trial of the claims of the Initial Twenty Plaintiffs, which the Mississippi Court selected to be the initial trial in the Mississippi Action. 1.28 The term "Insurance Companies" shall mean and refer to CIGNA, Hartford, National Union, Reliance, Steadfast, and Westchester in their capacities as insurers of any of the Compromising Parties and/or the Related Parties. 1.29 The term "Letter Agreement" shall mean and refer to that letter agreement dated and executed on August 14, 1998 by or on behalf of the Mississippi Plaintiffs and the Compromising Parties regarding settlement of the claims of the Initial Twenty Plaintiffs. -11- 12 1.30 The term "Mississippi Action" shall mean and refer to those consolidated actions more particularly referred to as "In Re: Bogalusa Chemical Release," Civil Action Number 251-96-493CIV ALL CASES, on the docket of the Circuit Court of Hinds County, Mississippi, First Judicial District, including the following numbered civil actions: No. 251-96-493-CIV No. 251-96-956-CIV No. 251-96-976-CIV No. 251-96-1051-CIV No. 251-96-1052-CIV No. 251-96-1053-CIV No. 251-96-1054-CIV No. 251-96-1063-CIV No. 251-97-385-CIV No. 251-97-1494-CIV. 1.31 The term "Mississippi Claims" shall mean and refer to any and all of those claims Related to the Incident asserted by plaintiffs in the Mississippi Action against the Compromising Parties, the Related Parties, and/or the Settling Insurers. 1.32 The term "Mississippi Conditional Agreement to Settle" shall mean and refer to the conditional agreement to settle executed by or on behalf of the Compromising Parties, the MPC and the Mississippi Plaintiffs on or about August 20, 1998, as such agreement has been amended and restated in its entirety and executed by or on behalf of the Compromising Parties, the MPC, the Mississippi Plaintiffs and the Settling Insurers, together with all exhibits and attachments made part of such agreement to settle. 1.33 The term "Mississippi Court" shall mean and refer to the Circuit Court of Hinds County, Mississippi, First Judicial District and the Honorable James E. Graves, Jr. or his successor. 1.34 The term "Mississippi Plaintiff" or "Mississippi Plaintiffs" shall mean and refer to those persons or entities with Mississippi Claims. -12- 13 1.35 The term "Mississippi Plaintiffs' Counsel" or "MPC" shall mean and refer to the attorneys who represent one or more of the Mississippi Plaintiffs. 1.36 The term "Mississippi Stay Order" shall mean and refer to the rulings or orders of the Mississippi Court fully granting the joint motions or requests of the MPC and one or more of the Compromising Parties as described in Sections 4.2, 4.3, and 4.4 below. 1.37 The term "National Union" shall mean and refer to National Union Fire Insurance Company of Pittsburgh, Pennsylvania in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.38 The term "Nonsettling Party" or "Nonsettling Parties" shall mean and refer to any and all persons and/or entities against whom the Class and/or any members of the Class and/or any Independent Claims Plaintiffs (including, without limitation, the Mississippi Plaintiffs) and/or any other persons and/or entities have, may have had, or may assert in the future, any claim or action Related to the Incident, whether or not presently named or identified in the Class Action or Exhibit 1, other than the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers. A list of all currently identified Nonsettling Parties is attached as Exhibit 2. 1.39 The term "Opt-Out Parties," also referred to hereinafter as "Opt-Out Party," shall mean and refer to those persons and/or entities who or which timely opt out of the Class as defined. Unless otherwise ordered by the Court or another court of competent jurisdiction, to opt out of the Class as defined, a putative Class Member will have to take affirmative action pursuant to the procedure to be approved by the Court, even if the putative Class Member desiring to opt out of the Class as defined files or has filed a separate action against the Compromising Parties, the Related Parties, and/or the Settling Insurers to assert claims Related to the Incident. -13- 14 1.40 The term "Other Claims Contingency Escrow" shall mean and refer to the escrow account for the sum which may be set aside within the Preliminary Escrow Account (i.e., by being placed in the subaccount within the Preliminary Escrow Account established pursuant to the Preliminary Escrow Agreement to hold the Other Claims Contingency Escrow), pursuant to Section 5.13 of this Conditional Agreement to Settle, to satisfy certain claims Related to the Incident. 1.41 The term "Participating Class Member" shall mean and refer to any Class Member who has complied with all orders of the Court in the Class Action and the requirements of the Preliminary Settlement Agreement necessary in order to receive payment from the Class Settlement Fund. 1.42 The "Plaintiffs' Liaison Committee," hereinafter referred to as the "PLC" or "Class Counsel," shall mean and refer to the committee of attorneys appointed by the Court to represent the Class in the Class Action, including: James S. Farmer Ronnie G. Penton Gerald E. Meunier Reginald J. Laurent Daniel E. Becnel, Jr. Joseph M. Bruno Roy K. Burns, Jr. Sandra A. Cheek Thomas M. Discon Walter C. Dumas Calvin Fayard Wendell H. Gauthier Donna Unkel Grodner Stephen B. Murray Michael J. Paduda, Jr. Suzette Peychaud-Bagneris Dr. Edward A. Robinson III W. Hugh Sibley Vernon P. Thomas Raymond Charles Vinet, Sr. -14- 15 Jesse L. Wimberly, III The PLC shall also include any other attorneys or committee of attorneys appointed by the Court to represent the Class in the Class Action. 1.43 The term "Preliminary Escrow Account" shall mean and refer to the escrow account (including all subaccounts thereof) to be established and administered in accordance with the Conditional Agreement to Settle, the Preliminary Settlement Agreement, and the Preliminary Escrow Agreement. 1.44 The term "Preliminary Escrow Agreement" shall mean and refer to an agreement substantially in the form attached hereto as Exhibit 3. 1.45 The term "Preliminary Settlement Agreement" shall mean and refer to an agreement substantially in the form attached hereto as Exhibit 4. The form of the Preliminary Settlement Agreement may be modified by mutual agreement of the parties. 1.46 The "Preliminary Settlement Date" shall mean and refer to the day following the last of the following occurrences: 1.46.1 entry by the Court of the Stay Order; and 1.46.2 the Stay Order becomes Final; and 1.46.3 entry by the Louisiana First Circuit Court of Appeal of the Certification Judgment; and 1.46.4 the Certification Judgment becomes Final; and 1.46.5 entry by the Mississippi Court of the Mississippi Stay Order; and 1.46.6 the Mississippi Stay Order becomes Final; and 1.46.7 expiration of the Prescriptive Period; and -15- 16 1.46.8 either (i) binding commitments are obtained for the release and dismissal with prejudice, with each party to bear its own costs, in form and content acceptable to the Compromising Parties in their sole discretion, of all Independent Claims, as acknowledged and accepted in writing by the Compromising Parties, or (ii) written approval from the Compromising Parties, pursuant to Section 5.10 below, to conclude the settlement set forth in this Conditional Agreement to Settle and the Mississippi Conditional Agreement to Settle; and 1.46.9 the placement of a sum mutually acceptable to the Compromising Parties and the PLC, in the Other Claims Contingency Escrow within the Preliminary Escrow Account to pay claims Related to the Incident other than Independent Claims. 1.47 The term "Prescriptive Period" shall mean and refer to a period of one year commencing on the day following the last day for putative Class Members to opt out of the Class as defined. 1.48 The term "Related Parties" shall mean and refer to, individually and collectively, (i) any and all of the present and former employees, officers, shareholders, directors, managers, representatives, adjusters, attorneys, agents, and contractors of any of the Compromising Parties, (ii) any and all parent or subsidiary companies or corporations, affiliated companies or corporations as defined in 15 U.S.C. 80(a)-2, brother or sister corporations (that is, all such entities that share a common parent with a Compromising Party), predecessors in interest, and successors in interest of any of the Compromising Parties, and all of their present and former employees, officers, shareholders, directors, managers, representatives, adjusters, attorneys, agents, and contractors, and (iii) any other person, firm, partnership, joint venture, corporation, limited liability company, or entity for which any of the Compromising Parties may be liable as a result of the Incident. The term "Related Parties" shall include, without limitation, Arie Genger, a natural person, and shall not include any Nonsettling Party or the insurer or insurers of any -16- 17 Nonsettling Party in their capacities as insurers of such Nonsettling Party. The rights of the Compromising Parties under this Agreement also extend to the Related Parties. 1.49 The term "Related to the Incident" shall mean directly or indirectly arising from, related to, caused by, involved with, connected with, pertaining to, derived from and/or resulting from the Incident. 1.50 "Released Claims" or "Released Claim". 1.50.1 The term "Released Claims" or "Released Claim" shall mean and refer to any and all Compensatory Damage Claims, Exemplary Damage Claims or other claims (including, without limitation, all judgments and/or liabilities of any nature arising therefrom) Related to the Incident against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers that the Class and/or any member of the Class and/or any Independent Claims Plaintiffs (including, without limitation, any Mississippi Plaintiffs), and/or any person and/or entity entitled to assert any such claim on behalf of any of them, and/or any person and/or entity who or which derives or obtains any right or claim from or through any of them (e.g., subrogation claims by workers' compensation insurers, employers, and/or health care insurers or providers) have, may have had, or may assert in the future, regardless of whether the claimed injuries and/or damages are not yet known or manifest or whether such claim is known or unknown, filed or unfiled, asserted or not asserted, or existing or contingent, and regardless of the legal theory involved. The term "Released Claims" or "Released Claim" expressly includes, without limitation, any and all such liabilities and claims against any of the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers. The term "Released Claims" or "Released Claim" shall include, but shall not be limited to, claims against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers for: (1) any and all claims of injury, loss or damage or any element of damages Related to the Incident, including, without limitation, claims for all known and unknown present and future injuries and/or damages; any and all claims for past, present -17- 18 and future mental, nervous, emotional and physical, partial and total, temporary and permanent disabilities; any and all claims for any form of injury to any part of the person, mind and body, including without limitation, injuries from fear, fright, and mental anguish; any and all claims for pain and suffering; any and all claims for pecuniary loss or loss of earnings or impairment of earnings capacity; any and all claims for loss of enjoyment of life, society, support, love, affection, comfort, association, care, sexual relations, consortium; any and all claims for medical monitoring, wrongful death, survival actions, punitive or exemplary damages, attorneys' fees, costs or expenses Related to the Incident; (2) any and all claims for damages or any element of damages, including property damages, personal injuries and/or wrongful death, survival damages, and punitive and exemplary damages presently existing, not yet arisen, unknown or known, Related to the Incident; (3) any and all claims, demands, damages (including property damages or diminution of property value, personal injuries and/or wrongful death, survival damages, and punitive and exemplary damages), expenses, losses, and causes of action of whatever nature arising out of, related to, caused by or connected in any way with any escape, release, leak or discharge of any alleged toxic materials or hazardous, toxic, dangerous or harmful substances Related to the Incident; (4) any and all claims for or based upon past, present or future illness, disease, condition or death, whether or not such illness, disease, condition or death exists at present or has manifested itself as of the date of this settlement Related to the Incident; (5) any and all claims for alleged or actual or risk or possibility or fear of suffering in the future from any disease, injury, illness or condition, or death therefrom Related to the Incident; (6) any and all claims for attorneys' fees or costs incurred in connection with any action Related to the Incident; (7) any and all claims for currently unpaid or future bills presented by any physician, health care provider, medical facility or pharmacy for treatment or examination Related to the Incident; (8) any and all claims for any other injury or damage, known or unknown, including, but not limited to, business interruption loss, loss of business opportunity, loss of profits, loss of income or other economic loss Related to the Incident; -18- 19 (9) any and all claims for nuisance or inconvenience, known or unknown, Related to the Incident; (10) any and all claims for expenses for evacuation, known or unknown, Related to the Incident; (11) any and all claims for expenses for the cleanup of any personal or real property, known or unknown, Related to the Incident; (12) any and all claims for any type of exemplary damage, known or unknown, under former article 2315.3 of the Louisiana Civil Code, Mississippi Code Annotated Section 11-1-65, or any other statute, rule, regulation, judicial decision or legal doctrine, current or unknown, whether enumerated or not, Related to the Incident; (13) any and all claims for alleged exposure of any person and/or property to any allegedly hazardous, toxic, dangerous, or harmful substance which escaped, emanated, migrated, or which was discharged or released, under or from the Gaylord Plant or the surrounding area or vicinity in or as a result of the Incident; (14) any and all claims for any damage whatsoever arising out of, related to or connected in any way with any cleanup, response or removal action, or remediation of the Gaylord Plant and/or the surrounding area or vicinity under any body of law whatsoever, or attorneys' fees, costs, or expenses Related to the Incident; (15) any and all claims under any body of law whatsoever, including, but not limited to, statutory or case law, whether federal, state, or local, Related to the Incident; (16) any and all claims under any legal theory whatsoever, whether for negligence, strict liability, liability for ultrahazardous activities or conduct, absolute liability, liability for punitive/exemplary damages, liability for any wanton or reckless conduct, liability for intentional or deliberate acts, liability that is derivative or vicarious arising out of the conduct or fault of others for which the Compromising Parties, the Related Parties, Hartford or the Settling Insurers may be legally responsible, liability for nuisance, liability for the servitude or obligation of vicinage, liability for abuse of right, or any liability legally asserted or assertable under any federal, state, or local statute, directive, or regulation Related to the Incident; (17) any and all claims for any right legally assertable by any person and/or entity now or in the future, whether the claim is personal to such person and/or entity, derivative of the claim of any other person and/or entity, or as an assignee, successor, executor, survivor, beneficiary, heir, or representative of any person and/or entity to the extent Related to the Incident; -19- 20 (18) any and all claims whether the injuries and/or damages are past, present or future, whether known or unknown, foreseen or unforeseen, contingent, nascent, mature or otherwise, arising at law, in equity or otherwise Related to the Incident; (19) any claims Related to the Incident asserted or assertable against the Settling Insurers under LSA-R.S. 22:1220, LSA-R.S. 22:655, LSA-R.S. 22:658 or Mississippi law concerning an insurance company's (a) breach of a duty of good faith and fair dealing and/or (b) improper claims handling practices; (20) any and all claims for conspiracy or concert of action Related to the Incident; (21) any and all claims for statutory damages under any state or federal law Related to the Incident; and (22) any and all liens, assigned claims, subrogation interests or claims, or other encumbrances of any third parties Related to the Incident, including, but not limited to, federal, state or other health care providers, insurance carriers, health maintenance organizations, employers, or attorneys or associated counsel, notwithstanding whether such claims have been timely and properly asserted or whether the parties have notice of said claims as of the date of the Effective Date. 1.50.2 The term "Released Claims" or "Released Claim" shall not include, and shall not be construed to include, the rights of the Class or any member of the Class or any Independent Claims Plaintiff (including, without limitation, any Mississippi Plaintiff) against any Nonsettling Party, such rights of the Class Members and the Independent Claims Plaintiffs being expressly reserved, except to the extent subject to a reduction or set-off by such Class Members or Independent Claims Plaintiffs by virtue of any contribution and/or indemnity owed by the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers to any of the Nonsettling Parties. 1.51 The term "Reliance" shall mean and refer to Reliance Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.52 The term "Settlement Sum" shall mean and refer to the "Settlement Sum" as defined in the Letter Agreement. -20- 21 1.53 The term "Settling Insurers" shall mean and refer to, individually and collectively, Steadfast and National Union in each one's capacity as an insurer of the Compromising Parties and/or the Related Parties. 1.54 The term "Stay Order" shall mean and refer to the order to be entered by the Court pursuant to Section 4.1 below. 1.55 The term "Steadfast" shall mean and refer to Steadfast Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.56 The term "Temporary Escrow Account" shall mean and refer to the escrow account to be established and administered in accordance with this Conditional Agreement to Settle and the Temporary Escrow Agreement. 1.57 The term "Temporary Escrow Agreement" shall mean and refer to an agreement substantially in the form attached hereto as Exhibit 5. 1.58 The term "Westchester" shall mean and refer to Westchester Fire Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 2. NATURE AND STATUS OF THE ACTION 2.1 Stated generally, the Class Action and other actions have arisen from the Incident and involve claims in the hundreds of millions of dollars for injuries and damages allegedly sustained as a result of the Incident. 2.2 Stated generally, the Class and the plaintiffs in such other actions allege (and defendants deny) that the Incident was caused by the fault of the parties named as defendants therein, including the Compromising Parties. -21- 22 2.3 Substantial discovery has been completed in the Class Action and/or related court actions in Louisiana and Mississippi and motion practice has been undertaken under a series of comprehensive case management and scheduling orders promulgated or to be promulgated by the Court in the course of further proceedings, such that the parties thereto are in a reasonable position to assess the merits and weaknesses of their respective claims and defenses. 2.4 Substantial time and effort has been expended by the parties and their counsel in negotiating this Conditional Agreement to Settle and the settlement contemplated thereby. 3. GENERAL PROVISIONS AND PURPOSES OF THIS SETTLEMENT 3.1 In entering into this Conditional Agreement to Settle, each party has taken into account the uncertainties, delays, expenses and exigencies of the litigation process, including the extensive depositions, document production, and other discovery taken to date in the Class Action and related court actions in Louisiana and Mississippi. The Compromising Parties and the Related Parties have each denied, and continue to deny, any liability, wrongdoing or responsibility for the claims asserted in the Class Action and in any other actions Related to the Incident and believe that the Released Claims are without merit and that such claims are barred in whole or in part. 3.2 The PLC and the Compromising Parties have evaluated the claims asserted against the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers Related to the Incident from a settlement perspective, considering the nature and extent of the alleged injury and the alleged liability of the Compromising Parties and the Related Parties. 3.3 The PLC and the Compromising Parties have evaluated the financial resources of the Compromising Parties, particularly with reference to their ability to defend and/or satisfy the Released Claims. -22- 23 3.4 It is the intention of this Conditional Agreement to Settle, and the parties agree, that the Class and the Independent Claims Plaintiffs reserve all rights, not otherwise to be adjudicated or compromised hereunder, against all Nonsettling Parties. 3.5 The PLC is entering into this Conditional Agreement to Settle to terminate and settle all controversies and all claims of the Class, each of the Class Members, and each of the Independent Claims Plaintiffs Related to the Incident against the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers in recognition of (a) the existence of complex and contested issues of law and fact, (b) the risk, difficulty, and uncertainty of success associated with endeavoring to pierce the corporate veils between any of the Compromising Parties and/or between any of the Compromising Parties and any of the Related Parties, (c) the comparative degree of the alleged liability or culpability of the Compromising Parties and the Nonsettling Parties, (d) the risks inherent in litigation, (e) the likelihood that future proceedings will be unduly protracted and expensive if the proceeding is not settled by voluntary agreement with some of the parties, (f) the magnitude of the benefits derived from the contemplated settlement in light of both the maximum potential and likely range of recovery to be obtained through further litigation and the expense thereof and the exposure associated therewith, and (g) the determination by the Class Representatives and their counsel that the settlement is fair, reasonable, adequate, and in the best interests of, and will substantially benefit, the members of the Class. 3.6 The Compromising Parties enter into this Conditional Agreement to Settle, notwithstanding their continuing denial of liability for injuries (including death) and/or compensatory damages and/or exemplary or punitive damages allegedly sustained or incurred as a result of or Related to the Incident, and notwithstanding their denials concerning causation of any alleged injuries (including death) and/or damages, to terminate all controversy and to put to rest finally all claims against the Compromising Parties, the -23- 24 Related Parties, Hartford, and/or the Settling Insurers Related to the Incident, and to avoid further litigation, without any admission on the part of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers of any liability whatsoever for injuries (including death) and/or compensatory damages, exemplary or punitive damages, or any other right of recovery under Louisiana, Mississippi, or any other law, or causation or quantum of any alleged injuries (including death) and/or damages. 3.7 It is the intention of this Conditional Agreement to Settle, and the parties agree, that the settlement contemplated hereby, any provision herein, and any proceedings in connection herewith shall not be construed as an admission of any facts or of liability nor shall they be construed by anyone for any purpose whatsoever as an admission or presumption of any wrongdoing by any of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers or an admission of any fact or presumption on the part of the Class. 3.8 It is the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that by the Effective Date, the Agreement will fully and completely settle any and all claims against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers Related to the Incident, including any liens, subrogated interests, or other encumbrances of any third parties, including, but not limited to, federal or state or other health care providers, insurance carriers, health maintenance organizations, attorneys and associated counsel. Without limiting the forgoing, it is also the intention and a condition of this Conditional Agreement to Settle, and the parties hereto agree, that prior to the Effective Date, all Compensatory Damage Claims, Exemplary Damage Claims and other claims of whatever nature of the Class Members against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers Related to the Incident (including, without limitation, the claims set forth in the petition in the Class Action) will have been dismissed on the merits, with prejudice and with each party to bear its own costs, -24- 25 and each and every Class Member will be forever barred from instituting or maintaining any action against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers with respect to the Released Claims, and that as against any of the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers, the claims of Class Members against the Class Settlement Fund shall be the exclusive remedy of all Class Members with respect to such claims. It is also the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers are not, and in the future will not be, subject to any liability or expense of any kind to any Class Member or any person and/or entity claiming by, through, or under any Class Member with regard to such claims, except that each of the parties shall bear his/her/its own costs. 3.9 It is the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that by the Effective Date, the Agreement will fully and completely settle any and all Independent Claims (including, without limitation, all Mississippi Claims). It is also the intention and a condition of this Conditional Agreement to Settle, and the parties hereto agree, that, unless otherwise agreed in writing by the Compromising Parties, prior to the Effective Date, all Independent Claims (including, without limitation, all Mississippi Claims) will be released and dismissed on the merits, with prejudice and with each party to bear its own costs, and each and every Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) will be forever barred from instituting or maintaining any action against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers with respect to the Independent Claims (including, without limitation, all Mississippi Claims), and that as against any of the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers, the claims of Independent Claims Plaintiffs (including, without limitation, each and every Mississippi Plaintiff) against the Preliminary Escrow Account shall be the exclusive remedy of all Independent Claims Plaintiffs (including, without -25- 26 limitation, each and every Mississippi Plaintiff) with respect to such claims. It is also the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers are not, and in the future will not be, subject to any liability or expense of any kind to any Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) or any person and/or entity claiming by, through, or under any Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) with regard to such claims, except that each of the parties shall bear his/her/its own costs. It is also the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that no Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) shall receive any funds from the Preliminary Escrow Account prior to the Effective Date without the prior written approval of the Compromising Parties and the Settling Insurers, except that within thirty (30) days after the date on which, pursuant to Section 7.3 below, the amount calculated to be the Class Settlement Fund is placed into the Class Settlement Fund Subaccount, the Settlement Sum shall, upon the written request of the MPC, be paid to the Initial Twenty Plaintiffs in accordance with the Letter Agreement. 3.10 It is the intention and a condition of this Conditional Agreement to Settle that the Stay Order be entered by October 9, 1998 and become Final. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.11 It is the intention and a condition of this Conditional Agreement to Settle that the Certification Judgment be entered and become Final. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.12 It is the intention and a condition of this Conditional Agreement to Settle that the Mississippi Stay Order be entered by August 28, 1998, or such later date as is acceptable to the Compromising -26- 27 Parties, and become Final. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.13 It is the intention and a condition of this Conditional Agreement to Settle that the Preliminary Settlement Date occur, the Preliminary Settlement Agreement be executed by the parties thereto, and the Final Order and Judgment be entered and become Final. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.14 It is the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers shall never again face litigation or liability with regard to any of the Released Claims. 3.15 It is the intention and a condition of this Conditional Agreement to Settle that the commencement and prosecution of any and all claims of the Class as a whole and the Class Members individually against the Compromising Parties, the Related Parties, and/or the Settling Insurers (including, without limitation, subrogation claims derived from or through the Class or Class Members) Related to the Incident (including, without limitation, all of the claims set forth in the actions listed in Exhibit 1) be immediately enjoined and stayed during the pendency of the settlement proceedings referred to herein and that they be permanently barred and enjoined and dismissed with prejudice upon the entry of the Final Order and Judgment. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.16 It is the intention and a condition of this Conditional Agreement to Settle that the commencement and prosecution of any and all claims of the Independent Claims Plaintiffs against the Compromising Parties, the Related Parties, and/or the Settling Insurers (including, without limitation, subrogation claims derived from or through the Independent Claims Plaintiffs, including, without limitation, -27- 28 Mississippi Plaintiffs) Related to the Incident (including, without limitation, all of the claims set forth in the actions listed in Exhibit 1) be immediately enjoined and stayed during the pendency of the settlement proceedings referred to herein. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.17 It is the intention and a condition of this Conditional Agreement to Settle that the commencement and/or prosecution by the Nonsettling Parties of any and all Claims for Contribution, Indemnity, and/or Subrogation against the Compromising Parties, the Related Parties, and/or the Settling Insurers be immediately enjoined and stayed during the pendency of the settlement proceedings referred to herein. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.18 It is the intention and a condition of this Conditional Agreement to Settle that no Class Member or Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) shall recover, directly or indirectly, any sums from any Compromising Party, Related Party, Hartford, or Settling Insurer other than those received from the Preliminary Escrow Account (or a subaccount thereof) under the terms of the Preliminary Settlement Agreement, the Mississippi Conditional Agreement to Settle, or this Conditional Agreement to Settle, as applicable. 3.19 It is the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that the Class Members and Independent Claims Plaintiffs (including, without limitation, Mississippi Plaintiffs) will reduce any judgments against Nonsettling Parties to the extent necessary to relieve the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers of all liability for Claims for Contribution, Indemnity, and/or Subrogation. -28- 29 3.20 It is a condition of this Conditional Agreement to Settle that an order or stipulation of dismissal without prejudice of the claims of the Initial Twenty Plaintiffs be filed by August 28, 1998, or such later date as is acceptable to the Compromising Parties. 3.21 It is a condition of this Conditional Agreement to Settle that on or before August 28, 1998, or such later date as is acceptable to the Compromising Parties, the Mississippi Court enter an order that any judgment or order rendered in the trial of the claims of the Initial Twenty Plaintiffs shall have no precedential or binding effect on the Compromising Parties, the Related Parties, or the Settling Insurers. 3.22 It is a condition of this Conditional Agreement to Settle that the Mississippi Court shall enjoin and stay the depositions of Trans-Resources, Inc., TPR Investment Associates, Inc., Nine West Corporation, and Arie Genger. 3.23 Anything in this Conditional Agreement to Settle to the contrary notwithstanding, the Compromising Parties, with the approval of the Settling Insurers, shall have the unilateral right in their sole discretion, to waive, in whole or in part, the conditions set forth in Sections 3.8 through 3.22, inclusive, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 6.1, 6.2, 8.1 (i) through (vii), inclusive, and 8.1(ix) and (x) of this Conditional Agreement to Settle, which waiver shall be binding upon the PLC and the Class. The Settling Insurers shall not withhold or delay such approval unless such waiver will have a material, detrimental effect upon the interests of the Settling Insurers. 3.24 The PLC and the Compromising Parties acknowledge and agree that the PLC has received or will receive from the Compromising Parties all information deemed reasonably necessary to an examination of the insurance coverage provided to the Compromising Parties by CIGNA, Reliance, and Westchester in connection with this Agreement. The PLC and the Compromising Parties further agree to cooperate in good faith with respect to any additional document discovery and/or testimony relating to -29- 30 CIGNA, Reliance, and Westchester that may be necessary on this issue in connection with the Agreement. All information provided by the Compromising Parties shall remain confidential and be used only as necessary to effect the insurance-related provisions of this Conditional Agreement to Settle. 3.25 In the event that any Nonsettling Party or other third party executes a written agreement compromising, settling, releasing, waiving, forfeiting, surrendering, acquitting, and forever discharging any and all Claims for Contribution, Indemnity, and/or Subrogation that it may have against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers Related to the Incident, the Compromising Parties and the Related Parties shall release their claims for contribution, indemnity, and/or subrogation Related to the Incident against such Nonsettling Party or other third party in the manner and with the effect provided in the Preliminary Settlement Agreement. 4. STAY ORDERS 4.1 The parties shall submit to the Court a Joint Motion for Stay signed by or on behalf of the Class, the PLC, one or more of the Compromising Parties, and the Settling Insurers, with a proposed form of Stay Order attached thereto, pursuant to which Stay Order, the Court shall enjoin and stay, during the pendency of the settlement proceedings contemplated by this Agreement, the commencement and/or prosecution of any and all actions and proceedings (including discovery) by Class Members, Opt-Out Parties, and Nonsettling Parties against any of the Compromising Parties, the Related Parties, and/or the Settling Insurers Related to the Incident, including any and all Claims for Contribution, Indemnity, and/or Subrogation, by, on behalf of or through any Class Members and/or Opt-Out Parties and/or Nonsettling Parties, such stay and injunction to remain effective during the pendency of such settlement proceedings unless modified by further order of the Court. The parties shall use their best efforts to obtain the Stay Order. -30- 31 4.2 Pursuant to the Mississippi Conditional Agreement to Settle, the MPC and one or more of the Compromising Parties will jointly move the Mississippi Court to sever all claims (including any claims of Nonsettling Parties) against the Compromising Parties, the Related Parties, and/or the Settling Insurers from the Initial Twenty Trial. 4.3 Pursuant to the Mississippi Conditional Agreement to Settle, the MPC and one or more of the Compromising Parties will take such actions as necessary to have the Mississippi Court determine, rule, and order that any judgment or order rendered in the Initial Twenty Trial shall have no precedential or binding effect on the Compromising Parties, the Related Parties, and/or the Settling Insurers, so that none of the Compromising Parties, the Related Parties, and/or the Settling Insurers need participate in the Initial Twenty Trial in order to protect their interests. 4.4 Pursuant to the Mississippi Conditional Agreement to Settle, the MPC and one or more of the Compromising Parties will jointly move the Mississippi Court to enjoin and stay, during the pendency of the settlement proceedings contemplated by this Agreement, the Mississippi Action (including all discovery therein or related thereto and any and all Claims for Contribution, Indemnity, and/or Subrogation) insofar as affecting the Compromising Parties, the Related Parties and/or the Settling Insurers, such stay and injunction to remain effective during the pendency of such settlement proceedings unless modified by further order of the Court. 4.5 Within twenty (20) days after the execution of this Conditional Agreement to Settle by or on behalf of all parties, any member of the PLC who represents plaintiffs in federal or state court actions, other than the Class Action, Related to the Incident shall move to stay all such federal and state court actions as against the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers. The PLC will use its best efforts to cause all the plaintiffs in the actions listed in Exhibit 1 to move to stay all such -31- 32 actions as against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers within said twenty (20) day period. 4.6 If the Court enters the Stay Order, the Mississippi Court enters the Mississippi Stay Order, and the Louisiana First Circuit Court of Appeal enters the Certification Judgment, the parties shall use their best efforts to proceed with the settlement contemplated in this Agreement as promptly as practicable. 5. INDEPENDENT CLAIMS/CONTINGENCY ESCROWS 5.1 Within twenty-one (21) days after the expiration of the Prescriptive Period, the PLC and counsel for the Compromising Parties shall jointly prepare a list identifying all Independent Claims Plaintiffs, the actions in which the Independent Claims Plaintiffs have asserted Independent Claims, and the types of claims asserted by the Independent Claims Plaintiffs. 5.2 The PLC shall use its best efforts to obtain binding commitments for the releases and dismissals with prejudice, in form and content acceptable to the Compromising Parties in their good faith sole discretion, of all Independent Claims within the Independent Claims Period. 5.3 It is a condition of this Agreement that the release to be executed by each Independent Claims Plaintiff who receives settlement funds from the Preliminary Escrow Account shall require each such Independent Claims Plaintiff to defend, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers: 5.3.1 From and against any and all past, present, or future claims, Released Claims, demands, suits, causes of action, rights of action, liabilities, liens, or judgments of any kind whatsoever by, on behalf of, or deriving from that Independent Claims Plaintiff, or by, on behalf of, or deriving from his, her, its, or their heirs, executors, representatives, attorneys or former attorneys, successors, employers, insurers, employers' insurers, health insurers, health care providers, assignees, subrogees, predecessors -32- 33 in interest, successors in interest, beneficiaries or survivors, arising out of or in any way Related to the Incident; and 5.3.2 From and against (a) any subrogation claims arising or derived from any claim of that Independent Claims Plaintiff and (b) all Claims for Contribution, Indemnity, and/or Subrogation, whether under contract, tort, or otherwise, related to or connected in any way with the Released Claims of that Independent Claims Plaintiff. 5.4 The indemnity and defense obligations of Sections 5.3 shall include any and all claims, demands, suits, causes of action, rights of action, liabilities, liens, or judgments of any kind whatsoever (including any claims of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers for reasonable attorneys' fees and costs) related, directly or indirectly, to the disbursement of or from, or the failure to make disbursement of or from, the Preliminary Escrow Account. To the extent that claims for wrongful death or any other claims of any Independent Claims Plaintiff have not been released effectively, that Independent Claims Plaintiff binds himself or herself, and his or her succession or estate, executors, heirs, successors, beneficiaries, assignees, and subrogees, to defend, protect, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from and against any and all claims, demands, suits, liabilities, liens, judgments, rights of action, or causes of action of any kind whatsoever, whether arising under tort, contract or otherwise, brought by any person, succession, or estate Related to the Incident for the wrongful death or any other claims of that Independent Claims Plaintiff. This defense and indemnity obligation is intended to apply to any and all claims for wrongful death, whether arising under Louisiana law (including Louisiana Civil Code art. 2315.2), Mississippi law, or the law of any other state, and whether presently existing or in existence at the time of the death of the Independent Claims Plaintiff. -33- 34 5.5 It is also a condition of this Agreement that the release to be executed by each Independent Claims Plaintiff who receives settlement funds from the Preliminary Escrow Account shall also require that each such Independent Claims Plaintiff: 5.5.1 Will not attempt to execute or to collect any judgment or any portion of any judgment obtained against one or more Nonsettling Parties or other third parties to the extent or in a manner that the execution or collection of the judgment or any portion thereof would create in the judgment debtor any right to recover from any of the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers any sums based on Claims for Contribution, Indemnity, and/or Subrogation; and 5.5.2 Shall reduce or satisfy any judgment that such Independent Claims Plaintiff may obtain against a Nonsettling Party or other third party to the extent necessary to extinguish any Claims for Contribution, Indemnity, and/or Subrogation by such Nonsettling Party or other third party against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers arising from such judgment. 5.6 It is also a condition of this Agreement that the release to be executed by each Independent Claims Plaintiff who receives settlement funds from the Preliminary Escrow Account shall also require that if such Independent Claims Plaintiff settles with or dismisses any Nonsettling Party or other third party, the Independent Claims Plaintiff agrees not to compromise, settle, release, waive, forfeit, surrender, acquit, or discharge any claim against such Nonsettling Party or other third party, without first obtaining an express, written agreement by which such Nonsettling Party or other third party compromises, settles, releases, waives, forfeits, surrenders, acquits and forever discharges, or extinguishes, by release, assignment, or otherwise, any Claims for Contribution, Indemnity, and/or Subrogation that it may have against any of the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers related to or connected -34- 35 in any way with the Released Claims of that Independent Claims Plaintiff. The Compromising Parties agree that, once the Independent Claims Plaintiff has obtained such an express, written agreement from such Nonsettling Party or other third party, the Compromising Parties and the Related Parties shall be deemed to have released their claims for contribution, indemnity, and/or subrogation Related to the Incident against such Nonsettling Party or other third party, to the same extent as the Compromising Parties and the Related Parties have been released by such Nonsettling Party or other third party. 5.7 It is expressly understood and agreed that the indemnity, defense and judgment reduction obligations detailed above shall exist regardless of the legal basis for the claim, demand, cause of action, right of action, liability, lien, or judgment demand asserted by any person and/or entity Related to the Incident. In particular, it is a condition of this Agreement that each Independent Claims Plaintiff who receives funds from the Preliminary Escrow Account must expressly agree to the foregoing indemnity, defense and judgment reduction obligations regardless of whether the claim, demand, suit, liability, lien, judgment, cause of action, or right of action is based on or related to (a) the negligence of any of the Compromising Parties or the Related Parties, sole or concurrent; or (b) the strict liability of any of the Compromising Parties or the Related Parties under any theory whatsoever; or (c) the participation in or maintenance of an ultrahazardous activity or condition by any of the Compromising Parties or the Related Parties; or (d) the absolute liability of any of the Compromising Parties or the Related Parties; or (e) the wanton, reckless, or wilful misconduct of any of the Compromising Parties or the Related Parties; or (f) the liability of any of the Compromising Parties or the Related Parties for exemplary or punitive damages; or (g) the breach of any express or implied warranty of any of the Compromising Parties or the Related Parties with respect to products liability tort claims; or (h) the manufacture, design, or sale of any product or material by any of the Compromising Parties or the Related Parties; or (i) the vicarious liability of any -35- 36 of the Compromising Parties or the Related Parties for the conduct of others; or (j) a conspiracy or concerted action by any of the Compromising Parties or Related Parties with any other person and/or entity; or (k) any actual, alleged or purported right, asserted by any Compromising Party, Related Party, Class Member, Independent Claims Plaintiff, Initial Twenty Plaintiff, or Mississippi Plaintiff, under a policy of insurance issued to one or more of the Compromising Parties by a Settling Insurer or Hartford; or (l) any other basis whatsoever, including by contract, course of dealing or other conduct, Related to the Incident. 5.8 It is also a condition of this Agreement that each Independent Claims Plaintiff who receives funds from the Preliminary Escrow Account also expressly agrees that if any person and/or entity should hereafter commence, join in or in any manner seek relief through any suit or claim arising out of, based upon or relating to that Independent Claims Plaintiff's Released Claims, for the enforcement of assignments, liens, privileges or otherwise, that Independent Claims Plaintiff shall defend, indemnify and hold the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers and each of them, harmless from and against any such suit or claim (including any claims of the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers for reasonable attorneys' fees and costs). 5.9 The PLC may enter into agreements with Independent Claims Plaintiffs, or their counsel, in order to obtain the necessary binding commitments for releases and dismissals with prejudice referred to in Section 5.2, provided (and it is a condition of this Conditional Agreement to Settle) that such agreements do not conflict with any of the provisions of this Agreement, the Mississippi Conditional Agreement to Settle, or the Preliminary Settlement Agreement. Such agreements may provide for the distribution to Independent Claims Plaintiffs of sums from the Preliminary Escrow Account, provided (and it is a condition of this Conditional Agreement to Settle) that no such distributions may occur prior to the -36- 37 Effective Date or without the prior written approval of the Compromising Parties, except that within thirty (30) days after the date on which, pursuant to Section 7.3 below, the amount calculated to be the Class Settlement Fund is placed into the Class Settlement Fund Subaccount, the Settlement Sum shall, upon the written request of the MPC, be paid to the Initial Twenty Plaintiffs in accordance with the Letter Agreement. 5.10 If by the expiration of the Independent Claims Period, the PLC and/or the MPC have not obtained binding commitments for the releases and dismissals with prejudice, in form and content acceptable to the Compromising Parties in their good faith, sole discretion, of all Independent Claims (including, without limitation, all Mississippi Claims), the Compromising Parties may (i) terminate this Agreement by written notice to the PLC, or (ii) by written notice to the PLC, elect to go forward with the settlement embodied in the Agreement, provided that a sum mutually acceptable to the Compromising Parties and the PLC is placed in the Independent Claims Contingency Escrow within the Preliminary Escrow Account to pay Independent Claims. 5.11 The Compromising Parties and/or the Settling Insurers may apply to the escrow agent for the Preliminary Escrow Account for disbursements from the Independent Claims Contingency Escrow and shall be permitted to withdraw amounts from the Independent Claims Contingency Escrow necessary to obtain the release and dismissal with prejudice of Independent Claims (including, without limitation, Mississippi Claims) and to recover all legal fees, costs, and expenses incurred by the Compromising Parties, Related Parties, Hartford, and/or the Settling Insurers, as applicable, in defending any such Independent Claims after the Preliminary Settlement Date. 5.12 If applicable, the Independent Claims Contingency Escrow shall continue in full force and effect until the earliest of the following occurs: (i) the date when all Independent Claims (including, without -37- 38 limitation, all Mississippi Claims) are released and dismissed with prejudice, or (ii) the expiration of ten years from the date of initial funding of the Independent Claims Contingency Escrow, or (iii) the date when the amount held in the Independent Claims Contingency Escrow is reduced to zero. Upon the termination of the Independent Claims Contingency Escrow and the payment of all valid claims made against the Independent Claims Contingency Escrow, any funds then remaining in the Independent Claims Contingency Escrow shall be distributed for the benefit of the Class at the discretion of the Court. 5.13 Within five (5) business days after the expiration of the Independent Claims Period, a sum mutually acceptable to the Compromising Parties and the PLC shall be placed in the Other Claims Contingency Escrow within the Preliminary Escrow Account. 5.14 The Compromising Parties and/or the Settling Insurers may apply to the escrow agent for the Preliminary Escrow Account for disbursements from the Other Claims Contingency Escrow and shall be permitted to withdraw amounts from the Other Claims Contingency Escrow necessary to obtain the release and dismissal with prejudice of claims Related to the Incident other than Independent Claims and to recover all legal fees, costs, and expenses incurred by the Compromising Parties, Related Parties, Hartford, and/or the Settling Insurers, as applicable, in defending any such claims after the Preliminary Settlement Date. 5.15 The Other Claims Contingency Escrow shall continue in full force and effect until the earlier to occur of: (i) the expiration of ten years from the date of initial funding of the Other Claims Contingency Escrow, or (ii) the date when the amount held in the Other Claims Contingency Escrow is reduced to zero. Upon the termination of the Other Claims Contingency Escrow and the payment of all valid claims made against the Other Claims Contingency Escrow, any funds then remaining in the Other Claims Contingency Escrow shall be distributed for the benefit of the Class at the discretion of the Court. -38- 39 6. MISSISSIPPI CONDITIONAL AGREEMENT TO SETTLE /PRELIMINARY SETTLEMENT AGREEMENT 6.1 It is a condition of this Conditional Agreement to Settle that the Mississippi Conditional Agreement to Settle as amended and restated be executed by or on behalf of the Compromising Parties, the MPC, the Mississippi Plaintiffs and the Settling Insurers on or before March 22, 1999. 6.2 It is a condition of this Conditional Agreement to Settle that within twenty (20) business days after the Preliminary Settlement Date, the parties shall execute the Preliminary Settlement Agreement and submit the Preliminary Settlement Agreement to the Court for preliminary approval pursuant to the Preliminary Settlement Agreement. 7. CONTRIBUTIONS 7.1 The Compromising Parties shall pay into the Temporary Escrow Account or the Preliminary Escrow Account, as applicable, the following amounts at the following times: 7.1.1 On or before August 31, 1998, the Compromising Parties shall pay into the Temporary Escrow Account, which was created pursuant to the Temporary Escrow Agreement, the sum of Ten Million and No/100 ($10,000,000.00) Dollars. (The PLC hereby acknowledges that said payment has been timely made.) 7.1.2 Within two (2) business days after this Conditional Agreement to Settle, the Mississippi Conditional Agreement to Settle, and the Preliminary Escrow Agreement are signed by all of the parties to each of these agreements, the Compromising Parties shall so notify the escrow agent for the Temporary Escrow Account, who upon receipt of such notice, shall forthwith transfer the Ten Million and No/100 ($10,000,000.00) Dollars placed in the Temporary Escrow Account, pursuant to Section 7.1.1 above, into the Preliminary Escrow Account, to be held pursuant to the Preliminary Escrow Agreement, -39- 40 together with all interest earned or accrued thereon, less any charges or expense authorized under the Temporary Escrow Agreement. 7.1.3(a) The Compromising Parties shall pay into the Preliminary Escrow Account additional sums, as follows: (i) on March 31, 1999, Five Million and No/100 ($5,000,000.00) Dollars; (ii) on September 30, 1999, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the rate of Six and One Quarter Percent (6.25%) per year (the "Interest Rate") from April 1, 1999 through September 30, 1999; (iii) on January 31, 2000, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from October 1, 1999 through January 31, 2000; (iv) on June 30, 2000, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from February 1, 2000 through June 30, 2000; (v) on September 30, 2000, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from July 1, 2000 through September 30, 2000; (vi) on December 31, 2000, Six Million Eight Hundred Thousand and No/100 ($6,800,000.00) Dollars (the "12/31/00 Base Amount") plus an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from the October 1, 2000 through December 31, 2000; -40- 41 (vii) on June 30, 2001, Five Million One Hundred Thousand and No/100 ($5,100,000.00) Dollars (the "6/30/01 Base Amount") plus an amount equal to the interest that would have been due on Ten Million Two Hundred Thousand and No/100 ($10,200,000.00) Dollars computed at the Interest Rate from January 1, 2001 through June 30, 2001; and (viii) on December 31, 2001, Five Million One Hundred Thousand and No/100 ($5,100,000.00) Dollars (the "12/31/01 Base Amount") plus an amount equal to the interest that would have been due on Five Million One Hundred Thousand and No/100 ($5,100,000.00) Dollars computed at the Interest Rate from July 1, 2001 through December 31, 2001. 7.1.3(b) Notwithstanding anything in Section 7.1.3(a) to the contrary, the Compromising Parties may prepay all or any part of the 12/31/00, the 6/30/01 and the 12/31/01 Base Amounts without penalty or premium, and may specify the Base Amount against which such prepayment shall be applied. The amount of any prepayment of any Base Amount shall reduce the $17,000,000 figure in Section 7.1.3 (a) (ii) (iii), (iv), (v) and (vi), the $10,200,000 figure in Section 7.1.3 (a)(vii) and the $5,100,000 figure in Section 7.1.3 (a)(viii), pro tanto, as applicable, from and after the date of prepayment. 7.2 The Insurance Companies have issued policies of insurance to the Compromising Parties of up to Fifty-two Million and No/100 ($52,000,000.00) Dollars. The Compromising Parties believe, but do not represent or warrant, that these insurance policies afford coverage up to that amount for claims Related to the Incident. The relevant insurance policies issued by the Insurance Companies to the Compromising Parties are identified in Exhibit 6 attached hereto. 7.2.1 The PLC and the Class expressly acknowledge that CIGNA, Hartford, Reliance, and Westchester have each denied that their policies afford coverage for claims Related to the Incident. Notwithstanding Hartford's denial of coverage, Hartford, the PLC, the MPC and the Compromising -41- 42 Parties have agreed to finally settle and resolve all of the claims Related to the Incident arising from or related to the Hartford policy of insurance identified in Exhibit 6 (the "Hartford Policy"), including all claims for liability, indemnity and the "duty to defend." As part of such settlement, (a) on a date agreed to by Hartford and the Compromising Parties, Hartford will pay to the Compromising Parties the sum of Two Million Eight Hundred Seventy-Five Thousand and No/100 ($2,875,000.00) Dollars, which amount exhausts the applicable indemnity limits, and shall be deemed to fully discharge Hartford's defense obligations, for claims Related to the Incident under the Hartford Policy, (b) the Compromising Parties will, and hereby do agree to, pay into the Preliminary Escrow Account the sum of Four Hundred Forty-Two Thousand, Three Hundred Fifty and No/100 ($442,350.00) Dollars one (1) business day after the Court's entry of the Order of Preliminary Approval as provided in the Preliminary Settlement Agreement (in addition to the amount to be paid into the Preliminary Escrow Account on said date under Section 7.2.3 below), (c) the PLC will cause, on or before the Effective Date, the release and dismissal, with prejudice, of all actions and claims (whether they be claims or actions of Class Members or others) Related to the Incident against Hartford, the Compromising Parties and/or the Related Parties arising from or related to said Hartford Policy, (d) the PLC will cause any and all such actions or claims to be forthwith stayed during the pending of the settlement proceedings contemplated by this Agreement (the "Hartford Stay"), and (e) the PLC will, promptly upon the request of the Compromising Parties or Hartford, execute and deliver to the Compromising Parties and Hartford all documents necessary to effectuate, confirm or perfect such release and dismissal and the Hartford Stay. 7.2.2 The PLC and the Class expressly acknowledge that the Compromising Parties have been informed by the Settling Insurers that their policies will respond to the bodily injury and property -42- 43 damage claims Related to the Incident, but that Steadfast's policy will respond only with respect to post-explosion claims. 7.2.3 On April 1, 1999, National Union, which provides Fifteen Million and No/100 ($15,000,000.00) Dollars of insurance coverage to the Compromising Parties, shall pay into the Preliminary Escrow Account the sum of Fifteen Million and No/100 ($15,000,000.00) Dollars, less the amount of any payments previously made by National Union to or on behalf of the Compromising Parties or the Related Parties in connection with the defense of claims Related to the Incident. To the extent that any of the proceeds of the National Union policy are depleted by payments made to or on behalf of the Compromising Parties or the Related Parties in connection with the defense of claims Related to the Incident, the Compromising Parties shall, within one (1) business day after the Court's entry of the Order of Preliminary Approval as provided in the Preliminary Settlement Agreement, pay into the Preliminary Escrow Account, in addition to the amounts payable under Sections 7.1.1 through 7.1.3 above, a sum equal to one hundred (100%) percent of the amount of any such depletion. 7.2.4 Within twenty-four (24) hours after the receipt by Steadfast's Environmental Claims Division's Vice President of proof that the Compromising Parties have paid or caused to be paid into the Preliminary Escrow Account the total sum of Fifteen Million and No/100 ($15,000,000) Dollars as set forth in Sections 7.1.2 and 7.1.3(a)(i) above and that National Union has made its payment as set forth in Section 7.2.3 above, Steadfast, which provides Ten Million and No/100 ($10,000,000.00) Dollars of insurance coverage to the Compromising Parties, shall pay into the Preliminary Escrow Account the sum of Ten Million and No/100 ($10,000,000.00) Dollars. 7.3 Within two (2) business days after the Court's entry of the Order of Preliminary Approval as provided in the Preliminary Settlement Agreement, and pursuant to the Court's order, the Preliminary -43- 44 Escrow Agreement, and the Preliminary Settlement Agreement, the escrow agent for the Preliminary Escrow Account shall calculate the amount of the Class Settlement Fund (recognizing that, depending on the date of the entry of the Order of Preliminary Approval, further payments may be made into the Preliminary Escrow Account in accordance with Section 7.1 above) and place said amount in the Class Settlement Fund Subaccount. 7.4 Except as otherwise provided in this Conditional Agreement to Settle, on the Effective Date, the Compromising Parties shall be deemed to have assigned to the Class any and all right to insurance coverage afforded by CIGNA, Reliance, and Westchester under the policies identified in Exhibit 6 attached hereto, for the claims Related to the Incident. The Compromising Parties have agreed to this assignment in good faith and will do all things reasonably necessary and appropriate to cooperate in its implementation and to obtain its enforcement. The Compromising Parties also agree to participate nominally in any coverage litigation under this assignment of rights. To the extent that the Compromising Parties agree to cooperate in the implementation of the assignment of insurance proceeds, this assignment is conditional pursuant to article 698(1) of the Louisiana Code of Civil Procedure. However, the Compromising Parties make no representations, warranties, or guarantees about the validity, enforceability, or value of the assignment or any of the assigned rights or about what amounts, if any, are recoverable from CIGNA, Reliance and/or Westchester. To the extent that any such claims are not assignable under applicable law, the assignment shall be null and void as to such claims but shall remain operative as to the remaining claims. The Compromising Parties and the PLC agree to work in good faith to maximize the payments to be made by CIGNA, Reliance, and Westchester. 7.4.1 The PLC and the Class expressly acknowledge and agree that CIGNA, Reliance, and Westchester have denied that their policies cover the claims against the Compromising Parties and/or -44- 45 the Related Parties Related to the Incident and agree that the Class shall bear the entire risk of not recovering all or any portion of the proceeds of such policies. The Compromising Parties and the Related Parties shall have no financial or other obligation in the event that all or any portion of the Twenty-Six Million and No/100 ($26,000,000.00) Dollars in insurance coverage believed to be afforded by the CIGNA, Reliance, and Westchester insurance policies for claims Related to the Incident is not recovered, and in such event, the Agreement shall not be affected and shall remain binding and in full force and effect pursuant to its terms. 7.4.2 The assignment by the Compromising Parties of rights to the insurance coverage afforded by CIGNA, Reliance and Westchester, as described herein, shall not in any way affect, replace, or diminish the right of the Class to proceed against CIGNA, Reliance and Westchester pursuant to LSA-R.S. 22:655 and LSA-R.S. 22:1220 or Mississippi law, which rights are expressly reserved to the Class. 7.5 All contributions into the Temporary Escrow Account and/or the Preliminary Escrow Account shall be held in an interest-bearing trust account, pursuant to the terms of the Temporary Escrow Agreement or the Preliminary Escrow Agreement, as applicable. 7.6 The obligations of the Compromising Parties under the Agreement are not intended to and shall not create or be deemed to create any joint or joint and several or in solido obligations on the part of any person and/or entity, including the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers. 7.7 If the Compromising Parties fail to make a payment they are obligated to make under this Agreement, the PLC shall so notify the Compromising Parties. The Compromising Parties shall then have a reasonable opportunity (at least thirty (30) days) to "cure" the default; any such cure shall require the -45- 46 Compromising Parties to pay simple interest at the prime rate, accruing as of the date the payment was due under the terms of the Agreement and terminating on the date the payment is made. If the Compromising Parties do not "cure" the default as provided above, the sole remedy is to terminate the Agreement. 7.8 If National Union and/or Steadfast fail to make the payments they are obligated to make under this Agreement, the PLC shall so notify the Compromising Parties and the Settling Insurers. National Union and/or Steadfast, as the case may be, shall then have a reasonable opportunity (at least thirty (30) days) to "cure" the default; any such cure shall require National Union and/or Steadfast to pay simple interest at the prime rate, accruing as of the date the payment was due under the terms of the Agreement and terminating on the date the payment is made. If National Union and/or Steadfast do not "cure" the default as provided above, the sole remedy is to terminate the Agreement. The Compromising Parties in their sole discretion, and in order to cure the default of National Union and/or Steadfast and avoid termination of the Agreement, may make the payments, including the interest earned on the overdue amounts, to the Preliminary Escrow Account that should have been paid by National Union and/or Steadfast, but have no obligation whatsoever to do so. 8. TERMINATION OF AGREEMENT 8.1 In the event that: (i) any of the conditions of this Conditional Agreement to Settle set forth in Sections 3.8 through 3.22, inclusive, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 6.1, and 6.2 are not fulfilled, and not waived by the Compromising Parties, and the Compromising Parties give the PLC written notice of termination of this Agreement for such reason; (ii) the Compromising Parties give the MPC written notice of the termination of the Letter Agreement pursuant to Paragraph 9 thereof; -46- 47 (iii) this Conditional Agreement to Settle, the Mississippi Conditional Agreement to Settle, the Temporary Escrow Agreement, and the Preliminary Escrow Agreement, or any of them, are not signed by all of the respective parties thereto on or before March 22, 1999 and the Compromising Parties give the PLC written notice of termination of this Agreement for such reason; (iv) binding commitments for releases and dismissals with prejudice of all Independent Claims (including, without limitation, Mississippi Claims) are not obtained by the MPC and/or the PLC within the Independent Claims Period and the Compromising Parties give the PLC written notice of the termination of this Agreement pursuant to Section 5.10 above; (v) the Preliminary Settlement Agreement is terminated; (vi) the Mississippi Conditional Agreement to Settle is terminated; (vii) within five (5) business days after the expiration of the Independent Claims Period, a sum mutually acceptable to the Compromising Parties and the PLC is not placed in the Other Claims Contingency Escrow within the Preliminary Escrow Account to pay claims Related to the Incident other than Independent Claims; (viii) contributions to the Temporary Escrow Account or the Preliminary Escrow Account are not made timely in accordance with the provisions of this Agreement and such failure is not cured pursuant to Sections 7.7 and/or 7.8 above; (ix) any of the Independent Claims Plaintiffs or any other person and/or entity (including, without limitation, the Nonsettling Parties) with a claim Related to the Incident obtains a money judgment on his/her/its claim against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers prior to the Effective Date and such judgment is not fully discharged -47- 48 prior to the Effective Date by the PLC or the MPC before such Independent Claims Plaintiff or other person executes upon or otherwise takes steps to enforce or collect such judgment and the Compromising Parties give the PLC and the MPC written notice of termination of this Agreement for such reason; or (x) the PLC fails to fulfill any of its obligations under Section 7.2.2 above and the Compromising Parties give the PLC written notice of termination of this Agreement for such reason, this Agreement may be terminated by the Compromising Parties or the PLC upon written notice to the other, provided, however, that a party whose willful conduct causes the event giving rise to the right to terminate shall not have a right to terminate this Agreement by reason of such event. 8.2 In the event of termination of the Agreement, (i) all parties shall be restored to their respective positions immediately before execution of this Conditional Agreement to Settle; (ii) any and all monies or other contributions paid by the Compromising Parties and/or the Settling Insurers into the Temporary Escrow Account or the Preliminary Escrow Account, plus all earnings (actual and accrued) thereon, less taxes and other expenses authorized under this Conditional Agreement to Settle or the Preliminary Settlement Agreement or the Temporary Escrow Agreement or the Preliminary Escrow Agreement and other expenses incurred with the specific authorization of the Court, shall be returned to the Compromising Parties or the Settling Insurers, as applicable; and (iii) the litigation Related to the Incident against the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers shall revert to its status before the execution of this Conditional Agreement to Settle as if related orders and papers and the efforts leading to the Agreement had not been entered, prepared, or taken. Further, in the event of such termination, the Compromising Parties and the Settling Insurers shall have full authority to -48- 49 immediately withdraw from the Temporary Escrow Account and/or the Preliminary Escrow Account, as applicable, their respective contributions and payments, and the earnings (actual and accrued) thereon, without further proceedings or approval of any court, subject to and in accordance with the Temporary Escrow Agreement and/or the Preliminary Escrow Agreement, as applicable. 9. ADDITIONAL OBLIGATIONS OF THE PLC AND THE COMPROMISING PARTIES 9.1 The PLC covenants, represents and warrants to the Compromising Parities that: 9.1.1 The PLC is unaware of and has not been notified of any lawsuit, claim, or legal action Related to the Incident brought or made by or on behalf of any putative Class Member other than the Class Action and the actions listed in Exhibit 1; 9.1.2 The PLC is unaware of and has not been notified of any lawsuit, claim, or legal action Related to the Incident brought or made by or on behalf of any person and/or entity who is not a putative Class Member, other than those actions listed in Exhibit 7. 9.1.3 The PLC has exercised due diligence in ascertaining that the representations contained in this Conditional Agreement to Settle on the part of the PLC and/or Class Members are true and accurate, and the PLC shall have, until the Effective Date, a continuing obligation to ensure that these representations are accurate, and the PLC shall notify the Compromising Parties within a reasonable time after learning that any of the representations are or become inaccurate; 9.1.4 All liens or other encumbrances attaching to the proceeds of this settlement, or the interest of any individual Class Member or Independent Claims Plaintiff therein, of which the PLC has been placed on notice are set forth in Exhibit 8, and as additional liens and other encumbrances become known to the PLC, the PLC will supplement this exhibit accordingly; -49- 50 9.1.5 The PLC has the full authority to provide any and all of the representations and warranties it makes for itself or on behalf of the Class that are contained in the Agreement and has full authority to enter into the Agreement on behalf of and bind all of the plaintiffs in the cases listed in Exhibit 9 hereto; 9.1.6 The PLC will diligently endeavor to obtain the written concurrence of any attorney or lawyer representing any putative member of the Class individually to the terms of the Agreement and the dismissal, with prejudice and with each party to bear its own costs, of the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers in the Class Action and any other actions Related to the Incident. 9.2 The Executive Committee warrants that it has full authority to enter into and execute this Conditional Agreement to Settle for and on behalf of the PLC. 9.3 Each of the Compromising Parties and the Settling Insurers covenants, represents and warrants to the PLC that, except as set forth in Exhibit 8, there are no liens or other encumbrances of which it has been placed on notice which must be satisfied as a condition of its performance of its obligations under this Agreement and that it will promptly notify the PLC in the event that it becomes aware of any such lien or encumbrance, including a notice or letter that could result in a lien or encumbrance, in the future. 10. GENERAL PROVISIONS 10.1 The Preliminary Escrow Agreement shall provide that at least once each calendar quarter, the escrow agent of the Preliminary Escrow Account will provide the PLC, the MPC, the Compromising Parties and the Settling Insurers with an accounting for the Preliminary Escrow Account. 10.2 Neither the Compromising Parties nor the Related Parties nor the Settling Insurers guarantee or make any representation that the Temporary Escrow Account and/or the Preliminary Escrow -50- 51 Account and/or any earnings therefrom will be sufficient to satisfy the claims of the Class Members, the Independent Claims Plaintiffs, or any other person and/or entity with a claim Related to the Incident. 10.3 If any Independent Claims Plaintiff is a minor, ward, incompetent, succession or absentee under the laws of the state of Louisiana or the state where that Independent Claims Plaintiff resides, the PLC shall use its best efforts to cause all necessary steps to be taken to satisfy any and all legal and equitable requirements of the applicable jurisdiction with respect to settlement approval; establishment of a guardianship, conservatorship, or the like; and/or any other action that is or may be required under the laws of the applicable jurisdiction to make the settlement of such Independent Claims Plaintiff's claim final and binding. Furthermore, a certified copy of the order or decree approving the settlement and compromise of the claims of such person must be forwarded to the Compromising Parties in order for any funds to be distributed with regard to such Independent Claim. 10.4 In any case where a party has assumed a defense obligation under this Agreement, such party has the right to select counsel of its choice to assume any necessary defense, and such defense counsel shall be experienced and competent in the legal area being defended. If the party to be defended chooses different counsel to assume its defense or to associate with counsel selected by the party who has the defense obligation, the counsel so selected by the party to be defended and the legal costs incurred by such counsel shall be at the expense of the party to be defended. At the option of the Settling Insurers, in any filing or appearance in any proceeding in which a party defends as provided in this Agreement, the Settling Insurers may require the party to include the following disclaimer: Although [the party] is authorized to defend [the Settling Insurer(s)] and to resolve this litigation as [the party] deems appropriate, [the Settling Insurer(s)] take no position with respect to the policy of insurance issued by [the Settling Insurer(s)]. All statements and positions are -51- 52 solely those of [the party] and shall not constitute any representation or admission by [the Settling Insurer(s)]. 10.5 Anything contained in this Conditional Agreement to Settle and/or the Preliminary Settlement Agreement to the contrary notwithstanding, the parties agree that the indemnity obligations of Class Members and Independent Claims Plaintiffs shall not extend to claims asserted by third parties against the Compromising Parties, the Related Parties, and/or the Settling Insurers under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601, et seq. Related to the Incident. 10.6 Neither this Conditional Agreement to Settle nor the Agreement nor any proceeding taken hereunder shall be construed as or deemed to be evidence or an admission or concession by the Compromising Parties, the Related Parties, or the Settling Insurers of any liability or wrongdoing whatsoever, which is expressly denied by the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers, or, on the part of the Participating Class Members, of any lack of merit in their claims. None of the provisions of this Conditional Agreement to Settle or the Agreement nor evidence of any negotiations or proceedings in pursuance of the compromise and settlement herein, shall be offered or received in evidence in this action or any other action or proceeding as an admission or concession of liability or wrongdoing of any nature on the part of the Compromising Parties, the Related Parties, Hartford or the Settling Insurers, or to establish jurisdiction or venue or to create a waiver of any affirmative defense. The provisions of the Conditional Agreement to Settle and/or the Agreement may be offered or received in evidence solely to enforce the terms and provisions hereof. The PLC, the Class, Settling Insurers, and the Compromising Parties specifically acknowledge, agree and admit that this Conditional Agreement to Settle and the Agreement along with all related motions and pleadings shall be considered -52- 53 an offer to compromise and a compromise within the meaning of article 408 of the Louisiana Code of Evidence and any equivalent rule of evidence of any state or federal court, and shall not be offered or received into evidence as an admission of liability or wrongdoing on the part of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers or as a concession of liability or wrongdoing on the part of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers. The financial terms and provisions of the settlement of the claims of the Initial Twenty Plaintiffs shall be kept in strict confidence by the parties and their counsel. This Section 10.6 shall survive the termination of the Agreement. 10.7 This Agreement, including the exhibits attached hereto, constitutes the entire agreement among the parties and may not be modified, amended, or waived except by a written instrument duly executed by all the parties or their authorized representatives. This Agreement supersedes any previous agreements or understandings between the parties, or any of them, on the subject matter of this Agreement. 10.8 All of the undersigned attorneys who appear on behalf of designated law firms severally represent that they have been duly authorized by their designated law firms to enter into the Agreement. Likewise, the undersigned attorneys who appear on behalf of the Compromising Parties severally represent that they have been duly authorized to enter into the Agreement on behalf of their clients and the undersigned signatories who appear for or on behalf of the Settling Insurers severally represent that they have been duly authorized to enter into the Agreement for or on behalf of the Settling Insurer for whom or on whose behalf they appear. 10.9 This Conditional Agreement to Settle may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. -53- 54 10.10 The terms and conditions of this Agreement shall bind and inure to the benefit of the heirs, executors, administrators, predecessors in interest, successors in interest, legal representatives (as defined in article 5251 of the Louisiana Code of Civil Procedure), and assigns of all parties hereto. 10.11 The waiver by a party of any term, condition, covenant, or breach of the Agreement shall not be deemed to be a continuing waiver of same. 10.12 The parties agree that the terms and conditions of the Agreement are the result of negotiations between the parties or their counsel and that the Conditional Agreement to Settle shall not be construed in favor of or against any party by reason of the extent to which the parties or their counsel of record participated in the drafting of the same. 10.13 For purposes of this Agreement, the use of singular form of any word includes the plural and vice versa. 10.14 The parties to the Agreement have agreed that the validity and interpretation of the Agreement and any of the terms or provisions hereof, as well as the rights and duties of the parties thereunder, shall be governed solely by the laws of the State of Louisiana without giving effect to any conflict of laws principles and that the exclusive forum for any claim related to the interpretation or enforcement of the Agreement shall be the 22nd Judicial District Court in and for the Parish of Washington, Louisiana. 10.15 Any notice, request, instruction, or other document to be given by any party to this Agreement to any other party to this Agreement (other than class notification) shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, as follows: (i) If to the Compromising Parties or the Related Parties, to: Stephen A. Marshall -54- 55 RUBIN BAUM LEVIN CONSTANT & FRIEDMAN 30 Rockefeller Plaza New York, New York 10112 and Leonard L. Kilgore, III KEAN, MILLER, HAWTHORNE, D'ARMOND, MCCOWAN & JARMAN, L.L.P. One American Place, 22nd Floor (70825) Post Office Box 3513 Baton Rouge, Louisiana 70821 and Thomas Hardy TRANS-RESOURCES, INC. Nine W. 57th Street New York, New York 10019 and President VICKSBURG CHEMICAL COMPANY Rifle Range Road Vicksburg, Mississippi 39108 (ii) If to the Settling Insurers, To National Union Fire Insurance Company of Pittsburgh, Pa: Dayva Zaccaria Manager, Environmental Claims AIG Technical Services, Inc. 80 Pine Street, 6th Floor New York, NY 10005 and To Steadfast Insurance Company: -55- 56 Thomas Lysaught Vice President of Environmental Claims STEADFAST INSURANCE COMPANY 1400 American Lane Schaumburg, IL 60196 (iii) If to the PLC, to James S. Farmer Gerald E. Meunier Reginald J. Laurent FARMER AND GAINSBURGH, Attorney at Law CHEATHAM BENJAMIN, DAVID, 2767 Sgt. Alfred Dr. #301 726 Louisiana Ave. MEUNIER & WARSHAUER Slidell, LA 70458 Bogalusa, LA 70427 2800 Energy Centre 1100 Poydras Street New Orleans, LA 70163 Ronnie G. Penton Daniel E. Becnel, Jr. Wendell H. Gauthier Attorney at Law Attorney at Law GAUTHIER, DOWNING, 209 Hoppen Place P.O. Drawer H LABARRE, BEISER & Bogalusa, LA 70427 Reserve, LA 70084 DEAN 3500 N. Hullen St. Metairie, LA 70002 Stephen B. Murray Attorneys at Law 909 Poydras, Suite 2550 New Orleans, LA 70112 -56- 57 The parties may change their respective recipients and addresses for notice by giving notice of such change to the other parties pursuant to this Section 10.15. As of August 21, 1998 /s/ Leonard L. Kilgore, III - ---------------------------- ------------------------------------- Date Leonard L. Kilgore, III (#7372) Sandra L. Edwards (#14248) Esteban Herrera, Jr. (#20859) KEAN, MILLER, HAWTHORNE, D'ARMOND, MCCOWAN & JARMAN, L.L.P. One American Place, 22nd Floor Post Office Box 3513 Baton Rouge, Louisiana 70821 Telephone: (504) 387-0999 and John E. Wade T. Michael Cronin BRUNINI, GRANTHAM, GROWER & HEWES 1400 Trustmark Building 248 East Capitol St. Jackson, MS 39201 Telephone: (601) 948-3101 ATTORNEYS FOR VICKSBURG CHEMICAL COMPANY AND CEDAR CHEMICAL CORPORATION As of August 21, 1998 /s/ Stephen A. Marshall - ---------------------------- ------------------------------------- Date Stephen A. Marshall Martin P. Michael Martin J. Schwartz RUBIN BAUM LEVIN CONSTANT & FRIEDMAN 30 Rockefeller Plaza - 29th Floor New York, NY 10112 Telephone: (212) 698-7700 ATTORNEYS FOR TRANS-RESOURCES, INC. TPR INVESTMENT ASSOCIATES, INC. AND NINE WEST CORPORATION -57- 58 National Union Fire Insurance Company of Pittsburgh, Pa. As of August 21, 1998 /s/ Dayva Zaccaria - ---------------------------- ------------------------------------- Date Dayva Zaccaria, Manager Environmental Claims Dept. AIG Technical Services, Inc., as authorized agent for: National Union Fire Insurance Company of Pittsburgh, Pa. 80 Pine Street New York, NY 10005 Telephone: (212) 770-7000 FOR NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA As of August 21, 1998 /s/ Thomas Lysaught - ---------------------------- ------------------------------------- Date Thomas Lysaught Vice President of Environment Claims STEADFAST INSURANCE COMPANY 1400 American Lane Schaumburg, IL 60196 Telephone: (847) 605-6049 FOR STEADFAST INSURANCE COMPANY As of August 21, 1998 /s/ James S. Farmer - ---------------------------- ------------------------------------- Date James S. Farmer (5448) FARMER AND CHEATHAM 726 Louisiana Ave. Bogalusa, LA 70427 Telephone: (504) 732-3600 -58- 59 As of August 21, 1998 /s/ Ronnie G. Penton - ---------------------------- ------------------------------------- Date Ronnie G. Penton (10462) Attorney at Law 209 Hoppen Place Bogalusa, LA 70427 Telephone: (504) 732-5651 As of August 21, 1998 /s/ Gerald E. Meunier - ---------------------------- ------------------------------------- Date Gerald E. Meunier (9471) GAINSBURGH, BENJAMIN, DAVID, MEUNIER & WARSHAUER 2800 Energy Centre 1100 Poydras Street New Orleans, LA 70163 Telephone: (504) 522-2304 As of August 21, 1998 /s/ Reginald J. Laurent - ---------------------------- ------------------------------------- Date Reginald J. Laurent (17683) Attorney at Law 2767 Sgt. Alfred Dr. #301 Slidell, LA 70458 Telephone: (504) 649-3330 As of August 21, 1998 /s/ Daniel E. Becnel, Jr. - ---------------------------- ------------------------------------- Date Daniel E. Becnel, Jr. (2926) Attorney at Law P.O. Drawer H Reserve, LA 70084 Telephone: (504) 536-1186 As of August 21, 1998 /s/ Wendell H. Gauthier - ---------------------------- ------------------------------------- Date Wendell H. Gauthier (5984) GAUTHIER, DOWNING, LaBARRE, BEISER & DEAN 3500 N. Hullen St. Metairie, LA 70002 Telephone: (504) 456-8600 -59- 60 As of August 21, 1998 /s/ Stephen B. Murray - ---------------------------- ------------------------------------- Date Stephen B. Murray (5858) Attorneys at Law 909 Poydras, Suite 2550 New Orleans, LA 70112 Telephone: (504) 525-8100 REPRESENTING THE PLAINTIFFS' LIAISON COMMITTEE, ATTORNEYS FOR THE CLASS -60- EX-10.18 4 AMENDED AND RESTATED CONDITIONAL AGREEMENT 1 Ex. 10.18 IN THE CIRCUIT COURT OF HINDS COUNTY, MISSISSIPPI FIRST JUDICIAL DISTRICT IN RE: BOGALUSA CHEMICAL CASE NUMBER: 251-96-493CIV RELEASE ALL CASES Reference is made to a Conditional Agreement to Settle executed on or about August 20, 1998 by the Mississippi Plaintiffs' Counsel, on behalf of the Mississippi Plaintiffs, and the Compromising Parties, appearing through their respective counsel of record. Said Conditional Agreement to Settle is hereby amended and restated in its entirety to read as follows: CONDITIONAL AGREEMENT TO SETTLE This Conditional Agreement to Settle, is made as of August 20, 1998, by and among the Mississippi Plaintiffs' Counsel, on behalf of the Mississippi Plaintiffs, and the Compromising Parties, appearing through their respective counsel of record, and the Settling Insurers. This Conditional Agreement to Settle sets forth the terms, conditions and provisions of a conditional agreement to settle all claims of the Mississippi Plaintiffs against the Compromising Parties, the Related Parties, and the Settling Insurers Related to the Incident. This Conditional Agreement to Settle, although not itself subject to Court approval, may be attached to the Joint Motion for Stay, seeking the stay of actions against the Compromising Parties, the Related Parties, and the Settling Insurers as described in Section 4.4 below, all of which are subject to the recitals, definitions, terms and conditions set forth herein: E-7 2 1. DEFINITIONS OF TERMS OF GENERAL APPLICATION Unless otherwise expressly stated herein, the following terms shall have the meanings and definitions expressed as follows: 1.1 The term "Agreement" shall mean and include this Conditional Agreement to Settle, all exhibits and attachments to this Conditional Agreement to Settle, and all judgments or orders of the Court related to this Conditional Agreement to Settle. 1.2 The term "Certification Judgment" shall mean and refer to the judgment of the Louisiana First Circuit Court of Appeal affirming in all material respects (as determined by the mutual agreement of the Compromising Parties and the PLC) the Louisiana Court's order dated November 10, 1997 certifying the Class Action as a class action and defining the class as the Class Definition. 1.3 The term "CIGNA" shall mean and refer to CIGNA Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.4 The term "Claims for Contribution, Indemnity, and/or Subrogation" shall mean and refer to (a) any cross claims now or hereafter asserted in any court or tribunal (or any judgment entered on such a claim) by any Nonsettling Party or any person or entity claiming by, through, or on behalf of such Nonsettling Party against any of the Compromising Parties, the Related Parties, or the Settling Insurers or Hartford Related to the Incident, and (b) any claim now or hereafter asserted in any court or tribunal (or any judgment entered on such a claim) by any Nonsettling Party or other third party alleging that any of the Compromising Parties, the Related Parties, or the Settling Insurers or Hartford is or may be liable to such Nonsettling Party or other third party for all or part of a claim for damages or other relief asserted against said Nonsettling Party or other third party in connection with or with respect to any claim Related to the Incident, whether under contract, tort, or otherwise, including, but not limited to, claims for personal injury -2- 3 or death, property damage, damages of any other kind, payment of medical expenses and/or lost income, medical monitoring, injunctive or equitable relief, payment of attorneys' fees, and specifically including subrogation claims by workers' compensation insurers, employers, and/or health care insurers or providers. The only claims for contractual indemnity against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers of which the parties are presently aware are those asserted in the pleadings filed by Gaylord Chemical Corporation, Gaylord Container Corporation, Kansas City Southern Railway, and/or Illinois Central Railroad in the Class Action and/or the Mississippi Action. 1.5 The term "Class Action" shall mean and refer to "In Re: Chemical Release at Bogalusa," No. 73,341--Div. "C"--ALL CASES, on the docket of the 22nd Judicial District Court in and for the Parish of Washington, Louisiana. 1.6 The term "Class Definition" or "Class as defined" shall mean and refer to the class and subclasses defined by the Louisiana Court by order dated November 10, 1997. By that order, the Louisiana Court defined the class as follows: All persons and legal entities located or residing in, owning places of business or property in, operating businesses in, attending school or working in, and/or who were present within the geographic area specified herein, who sustained bodily and/or personal injury, loss, property damage, and/or other damage, as the result of an explosion, rupture, escape and/or leak or leaks of nitrogen tetroxide (N204) and their derivatives from a railroad tank car, mobile truck tanker-trailers, and/or related loading/unloading piping or other structures located on the premises of Gaylord Chemical Corporation in Bogalusa, Louisiana, occurring in and during October 1995, as well as those family members of such persons who may themselves have claims arising out of injury to such persons. The geographic boundaries of the class are defined below. The definition includes a reference to the "City Rectangle" which will be defined as the area within the smallest rectangle which will encompass all of the City Limits of Bogalusa. The class boundaries will be the area within the following truncated wedge-shaped region: 1) begin at the southeast corner of the City Rectangle, and extend the line comprising the southern side of the City Rectangle until the point at which it reaches the Pearl River; 2) then follow the western bank of the Pearl River northward until reaching the northeastern most point of the boot of Louisiana; 3) from that point, draw a straight line to the confluence of Gully Creek, -3- 4 Upper Little Creek, and Kellers Creek in Marion County, Mississippi; 4) from the confluence of those three creeks in Marion County, Mississippi, draw a straight line in a westerly direction to the intersection of State Highway 570 and U.S. Highway 51 in Pike County, Mississippi; 5) then from the intersection of State Highway 570 and U.S. Highway 51 draw a straight line to the southwestern corner of the City Rectangle, in Washington Parish, Louisiana; 6) continue east along the southern boundary of the City Rectangle until reaching the point of beginning at the southeastern corner of the City Rectangle. The Class as defined was subdivided by the Louisiana Court by said order into the following subclasses: (1) bodily/personal injury claims (including loss of consortium); (2) property damage claims (both real and personal property); (3) economic losses (including, but not limited to, lost profits, lost wages, or business interruption); (4) evacuation damages; (5) fear and fright claims; and (6) punitive/exemplary damages. 1.7 The "Class" or "Class Members" or "members of the Class" shall mean and refer to those persons and/or entities within the Class Definition who do not timely opt out of the Class as defined. 1.8 The term "Class Settlement Fund" shall mean and refer to the total amount of settlement funds deposited in the Preliminary Escrow Account under the Louisiana Conditional Agreement to Settle, together with all interest earned or accrued thereon, and less (a) the charges specified in the Preliminary Escrow Agreement, (b) any distributions made, or to be made, with respect to Independent Claims (including, without limitation, Mississippi Claims), as provided in Section 5 below, (c) any Independent Claims Contingency Escrow, and (d) any Other Claims Contingency Escrow. 1.9 The term "Compensatory Damage Claims" shall mean and refer to all claims Related to the Incident other than Exemplary Damage Claims. 1.10 The term "Compromising Parties" shall mean and refer to Vicksburg Chemical Company, Cedar Chemical Corporation, Nine West Corporation, Trans-Resources, Inc., and TPR Investment Associates, Inc., both individually and collectively. -4- 5 1.11 The term "Conditional Agreement to Settle" shall mean and refer to the conditional agreement to settle contained herein executed by or on behalf of the Compromising Parties, the MPC, the Mississippi Plaintiffs, and the Settling Insurers, and all exhibits and attachments made part of such agreement to settle. 1.12 The term "Court" shall mean and refer to the Circuit Court of Hinds County, Mississippi, First Judicial District and the Honorable James E. Graves Jr., or his successor. 1.13 The "Effective Date" of the settlement contemplated by this Agreement shall mean and refer to the day following the last of the following occurrences: 1.13.1 entry by the Louisiana Court of the Final Order and Judgment; and 1.13.2 the Final Order and Judgment becomes Final; and 1.13.3 expiration of the Prescriptive Period, as defined in Section 1.46; and 1.13.4 the release of all claims asserted in actions listed in Exhibit 1 insofar as they affect the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers (except for those matters, if any, to be resolved through the Independent Claims Contingency Escrow and/or the Other Claims Contingency Escrow) and the binding obligation for the dismissal, with prejudice and with each party to bear its own costs, of all such actions; and 1.13.5 entry of an order by the appropriate authority approving the Preliminary Settlement Agreement in accordance with the Louisiana Workers' Compensation Act, La. R.S. 23:1101 and 1102, where applicable for a Participating Class Member, which order is upheld through all appeal and writ proceedings, if any, and procurement of a waiver of all subrogation rights from any workers' compensation insurance carriers for the Compromising Parties and/or the Related Parties. -5- 6 1.14 The term "Exemplary Damage Claims" shall mean and refer to all claims for punitive and/or exemplary damages pursuant to Mississippi Code Annotated Section 11-1-65, former LSA-C.C. art. 2315.3, or any other statute, rule, regulation, judicial decision or legal doctrine Related to the Incident. 1.15 The term "Exhibit 1" shall mean and refer to the Exhibit 1 attached hereto, consisting of a listing of plaintiffs (including, without limitation, putative Class Members) in actions believed by the MPC and the Compromising Parties to be pending in federal or state court as of August 13, 1998, who are believed by the MPC and the Compromising Parties to have claims against the Compromising Parties, the Related Parties, and/or the Settling Insurers Related to the Incident. Exhibit 1 also provides a full description of the relevant federal or state court actions involved. Exhibit 1 shall be amended as further information becomes available to the MPC and the Compromising Parties. All references to Exhibit 1 in this Agreement shall mean Exhibit 1 as it is amended from time to time. Whether any person or entity listed in Exhibit 1 is a Class Member shall be determined by whether such person or entity (i) is included within the Class as defined, and (ii) if so, whether such person or entity has opted out of the Class as defined. 1.16 The term "Final" shall mean that no timely appeals, collateral attacks, writs, petitions, or requests for review or extraordinary relief have been taken from or with respect to a judgment, order, ruling, or decision and that if any such appeal, collateral attack, writ, petition, or request for review or extraordinary relief has been taken from or with respect to the judgment, order, ruling, or decision, the relevant judgment, order, ruling, or decision has been affirmed without revision and there is no further right to appeal, petition, collaterally attack, bring a writ or request review or extraordinary relief from or with respect to such judgment, order, ruling, or decision. 1.17 The term "Final Order and Judgment" shall mean and refer to the order to be entered by the Louisiana Court, following the fairness hearing, which shall: -6- 7 1.17.1 Confirm the certification of the Class as defined under former article 593.1 of the Louisiana Code of Civil Procedure; 1.17.2 Approve the Preliminary Settlement Agreement, as proposed, and specifically decree that all of the terms and conditions of the Preliminary Settlement Agreement are adopted in the Final Order and Judgment by reference; 1.17.3 Dismiss the Class Action upon the Effective Date, with prejudice and with each party to bear its own costs, insofar as affecting the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers and all other actions now existing or hereafter brought upon the Released Claims by the Class or any Class Member; 1.17.4 Finally and permanently bar and enjoin all Class Members (including, without limitation, all persons and entities claiming by, through, or on behalf of a Class Member) from asserting any and all Released Claims; 1.17.5 Finally release the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from any and all Released Claims by, through or on behalf of a Class Member; 1.17.6 Finally and permanently bar and enjoin the commencement and/or prosecution by any Nonsettling Parties or other third parties of any and all Claims for Contribution, Indemnity, and/or Subrogation against any Compromising Party, Related Party, Settling Insurer or Hartford; 1.17.7 Require that each member of the Class defend, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from and against any and all past, present, or future claims, demands, suits, causes of action, rights of action, liabilities, liens, or judgments of any kind whatsoever by, on behalf of, through, or deriving from the claims of that member of the Class, or by, on behalf of, through, or deriving from his, her, its, or their heirs, executors, -7- 8 representatives, attorneys or former attorneys, successors, employers, insurers, employers' insurers, health insurers, health care providers, assignees, subrogees, predecessors in interest, successors in interest, beneficiaries or survivors, arising out of or in any way Related to the Incident, all as more fully set forth in the Preliminary Settlement Agreement; 1.17.8 Require that each member of the Class defend, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from and against any Claims for Contribution, Indemnity, and/or Subrogation, whether arising under tort, contract or otherwise, related to or connected in any way with the Released Claims of that Class Member; 1.17.9 Require that the Class and each of the Class Members not attempt to execute or to collect any judgment or any portion of any judgment obtained against one or more of the Nonsettling Parties or other third parties to the extent or in a manner that the execution or collection of the judgment or any portion thereof would create in the judgment debtor any right to recover from any of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers any sums based on Claims for Contribution, Indemnity, and/or Subrogation; 1.17.10 Require that the Class and each of the Class Members reduce or satisfy any judgment that it or they may obtain against a Nonsettling Party or other third party to the extent necessary to extinguish any Claims for Contribution, Indemnity, and/or Subrogation by such Nonsettling Party or other third party against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers arising from such judgment; 1.17.11 Provide that under applicable law, including former article 594 of the Louisiana Code of Civil Procedure, the Preliminary Settlement Agreement is entered into in good faith, is reasonable, fair, and adequate, and in the best interests of the Class, and is non-collusive; -8- 9 1.17.12 Require each Class Member who receives any payment from the Class Settlement Fund to execute and deliver to the Compromising Parties a written release of all the Released Claims by, through or on behalf of that Class Member, as more fully set forth in the Preliminary Settlement Agreement; 1.17.13 Provide that, upon the submission to the Louisiana Court of evidence that the escrow agent for the Preliminary Escrow Account has, pursuant to Section 7.3 of the Louisiana Conditional Agreement to Settle, placed the amount calculated to be the Class Settlement Fund into a subaccount within the Preliminary Escrow Account established pursuant to the Preliminary Escrow Agreement to hold the Class Settlement Fund (hereinafter the "Class Settlement Fund Subaccount"), the Louisiana Court will enter a final order of satisfaction of judgment upon the Effective Date; and 1.17.14 Reserve unto the Louisiana Court exclusive jurisdiction over the parties to the Preliminary Settlement Agreement solely for the purpose of administering, supervising, construing, and enforcing the Preliminary Settlement Agreement and the Final Order and Judgment and supervising the management and disbursement of the Class Settlement Fund, without prejudice to the rights of any party to contest personal jurisdiction for any other purpose. 1.18 The term "Gaylord Plant" shall mean and refer to the Gaylord Chemical Corporation plant in Bogalusa, Louisiana 1.19 The term "Hartford" shall mean and refer to The Hartford Fire Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.20 The term "Incident" shall mean and refer to and include each and every event upon which allegations have been made or could have been made against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers for recovery of damages or other relief or remedy, arising -9- 10 out of, related to or connected in any way to the explosion(s) and/or rupture(s) of, and/or the release(s), discharge(s), escape(s) and/or leak(s) of nitrogen tetroxide (N2O4) or derivatives thereof or other substances from, a railroad tank car, mobile truck tanker-trailers and/or related loading/unloading piping or other structures located on the premises of the Gaylord Plant during October 1995. Without limiting the generality of the foregoing, the term "Incident" shall include any other consequence of such explosion(s), rupture(s), release(s), discharges(s), escape(s) and/or leak(s) and the conduct of the Compromising Parties, the Related Parties, Hartford, the Settling Insurers, and/or the Nonsettling Parties with respect thereto. 1.21 The term "Independent Claims" shall mean and refer to any and all of those claims Related to the Incident, including, without limitation, those claims defined below as Released Claims, asserted by Opt-Out Parties and/or other persons and/or entities who are not putative Class Members in actions instituted against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers on or before the last day of the Prescriptive Period. The term "Independent Claims" includes the Mississippi Claims. 1.22 The term "Independent Claims Contingency Escrow" shall mean and refer to the escrow account for the sum which may be set aside within the Preliminary Escrow Account (i.e., by being placed in the subaccount within the Preliminary Escrow Account established pursuant to the Preliminary Escrow Agreement to hold the Independent Claims Contingency Escrow), pursuant to Section 5.10 of the Louisiana Conditional Agreement to Settle to satisfy Independent Claims after the Preliminary Settlement Date. 1.23 The term "Independent Claims Period" shall mean and refer to a period of fifteen (15) months commencing on the day following the date that the opt-out period expires or such other period as the parties may mutually agree upon. -10- 11 1.24 The term "Independent Claims Plaintiff" or "Independent Claims Plaintiffs" shall mean and refer to those persons and/or entities with Independent Claims. 1.25 The term "Initial Twenty Plaintiffs" shall mean and refer to those twenty Mississippi Plaintiffs selected by the Court in its order dated June 18, 1998, to participate in the Initial Twenty Trial. The Initial Twenty Plaintiffs are listed in Exhibit 2 attached hereto. 1.26 The term "Initial Twenty Trial" shall mean and refer to the trial of the claims of the Initial Twenty Plaintiffs, which the Court has selected to be the initial trial in the Mississippi Action. 1.27 The term "Insurance Companies" shall mean and refer to CIGNA, Hartford, National Union, Reliance, Steadfast, and Westchester in their capacities as insurers of any of the Compromising Parties and/or the Related Parties. 1.28 The term "Letter Agreement" shall mean and refer to that letter agreement dated and executed on August 14, 1998 by or on behalf of the Mississippi Plaintiffs and the Compromising Parties regarding settlement of the claims of the Initial Twenty Plaintiffs. 1.29 The term "Louisiana Conditional Agreement to Settle" shall mean and refer to the conditional agreement to settle executed by or on behalf of the Compromising Parties, the PLC and the Class on or about August 21, 1998, as such agreement has been amended and restated in its entirety and executed by or on behalf of the Compromising Parties, the PLC, the Class and the Settling Insurers, together with all exhibits and attachments made part of such agreement to settle. 1.30 The term "Louisiana Court" shall mean and refer to the 22nd Judicial District Court in and for the Parish of Washington, Louisiana and the Honorable Patricia T. Hedges (as of August 20, 1998) or her successor. -11- 12 1.31 The term "Mississippi Action" shall mean and refer to those consolidated actions more particularly referred to as "In Re: Bogalusa Chemical Release," Civil Action Number 251-96-493CIV ALL CASES, on the docket of the Circuit Court of Hinds County, Mississippi, First Judicial District, including the following numbered civil actions: No. 251-96-493-CIV No. 251-96-956-CIV No. 251-96-976-CIV No. 251-96-1051-CIV No. 251-96-1052-CIV No. 251-96-1053-CIV No. 251-96-1054-CIV No. 251-96-1063-CIV No. 251-97-385-CIV No. 251-97-1494-CIV. 1.32 The term "Mississippi Claims" shall mean and refer to any and all of those claims Related to the Incident asserted by plaintiffs in the Mississippi Action against the Compromising Parties, the Related Parties, and/or the Settling Insurers. 1.33 The term "Mississippi Plaintiff" or "Mississippi Plaintiffs" shall mean and refer to those persons or entities with Mississippi Claims. 1.34 The term "Mississippi Plaintiffs' Counsel" or "MPC" shall mean and refer to the following attorneys who represent one or more of the Mississippi Plaintiffs: David T. Cobb Frank J. D'Amico Henry A. Dart Frank C. Dudenhefer, Jr. Val P. Exnicios Linnes Finney, Jr. John Lee Grayson Jack W. Harang Robert L. Johnson, III Gladstone N. Jones, III -12- 13 Stuart H. Smith John L. Young 1.35 The term "Mississippi Stay Order" shall mean and refer to the rulings or orders of the Court fully granting the joint motions or requests of the MPC and one or more of the Compromising Parties as described in Sections 4.2, 4.3, and 4.4 below. 1.36 The term "National Union" shall mean and refer to National Union Fire Insurance Company of Pittsburgh, Pennsylvania in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.37 The term "Nonsettling Party" or "Nonsettling Parties" shall mean and refer to any and all persons and/or entities against whom the Class and/or any members of the Class and/or any Independent Claims Plaintiffs (including, without limitation, the Mississippi Plaintiffs) and/or any other persons and/or entities have, may have had, or may assert in the future, any claim or action Related to the Incident, whether or not presently named or identified in the Mississippi Action or Exhibit 1, other than the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers. A list of all currently identified Nonsettling Parties is attached as Exhibit 3. 1.38 The term "Opt-Out Parties," also referred to hereinafter as "Opt-Out Party," shall mean and refer to those persons and/or entities who or which timely opt out of the Class as defined. Unless otherwise ordered by the Court or another court of competent jurisdiction, to opt out of the Class as defined, a putative Class Member will have to take affirmative action pursuant to the procedure to be approved by the Louisiana Court, even if the putative Class Member desiring to opt out of the Class as defined files or has filed a separate action against the Compromising Parties, the Related Parties, and/or the Settling Insurers to assert claims Related to the Incident. -13- 14 1.39 The term "Other Claims Contingency Escrow" shall mean and refer to the escrow account for the sum which may be set aside within the Preliminary Escrow Account (i.e., by being placed in the subaccount within the Preliminary Escrow Account established pursuant to the Preliminary Escrow Agreement to hold the Other Claims Contingency Escrow), pursuant to Section 5.13 of the Louisiana Conditional Agreement to Settle, to satisfy certain claims Related to the Incident. 1.40 The term "Participating Class Member" shall mean and refer to any Class Member who has complied with all orders of the Louisiana Court in the Class Action and the requirements of the Preliminary Settlement Agreement necessary in order to receive payment from the Class Settlement Fund. 1.41 The "Plaintiffs' Liaison Committee," hereinafter referred to as the "PLC" or "Class Counsel," shall mean and refer to the committee of attorneys appointed by the Louisiana Court to represent the Class in the Class Action, including: James S. Farmer Ronnie G. Penton Gerald E. Meunier Reginald J. Laurent Daniel E. Becnel, Jr. Joseph M. Bruno Roy K. Burns, Jr. Sandra A. Cheek Thomas M. Discon Walter C. Dumas Calvin Fayard Wendell H. Gauthier Donna Unkel Grodner Stephen B. Murray Michael J. Paduda, Jr. Suzette Peychaud-Bagneris Dr. Edward A. Robinson III W. Hugh Sibley Vernon P. Thomas Raymond Charles Vinet, Sr. Jesse L. Wimberly, III -14- 15 The PLC shall also include any other attorneys or committee of attorneys appointed by the Louisiana Court to represent the Class in the Class Action. 1.42 The term "Preliminary Escrow Account" shall mean and refer to the escrow account (including all subaccounts thereof) to be established and administered in accordance with the Louisiana Conditional Agreement to Settle, the Preliminary Settlement Agreement and the Preliminary Escrow Agreement. 1.43 The term "Preliminary Escrow Agreement" shall mean and refer to an agreement substantially in the form attached to the Louisiana Conditional Agreement to Settle as Exhibit 3. 1.44 The term "Preliminary Settlement Agreement" shall mean and refer to an agreement substantially in the form attached as Exhibit 4 to the Louisiana Conditional Agreement to Settle. The form of the Preliminary Settlement Agreement may be modified by mutual agreement of the Compromising Parties, the Settling Insurers, and the PLC. 1.45 The "Preliminary Settlement Date" shall mean and refer to the day following the last of the following occurrences: 1.45.1 entry by the Louisiana Court of the Stay Order; and 1.45.2 the Stay Order becomes Final; and 1.45.3 entry by the Louisiana First Circuit Court of Appeal of the Certification Judgment; and 1.45.4 the Certification Judgment becomes Final; and 1.45.5 entry by the Court of the Mississippi Stay Order; and 1.45.6 the Mississippi Stay Order becomes Final; and -15- 16 1.45.7 expiration of the Prescriptive Period; and 1.45.8 either (i) binding commitments are obtained for the release and dismissal with prejudice, with each party to bear its own costs, in form and content acceptable to the Compromising Parties in their sole discretion, of all Independent Claims, as acknowledged and accepted in writing by the Compromising Parties, or (ii) written approval from the Compromising Parties, pursuant to Section 5.11 below, to conclude the settlement set forth in this Conditional Agreement to Settle and the Louisiana Conditional Agreement to Settle; and 1.45.9 the placement of a sum mutually acceptable to the Compromising Parties and the PLC, in the Other Claims Contingency Escrow within the Preliminary Escrow Account to pay claims Related to the Incident other than Independent Claims. 1.46 The term "Prescriptive Period" shall mean and refer to a period of one year commencing on the day following the last day for putative Class Members to opt out of the Class as defined. 1.47 The term "Related Parties" shall mean and refer to, individually and collectively, (i) any and all of the present and former employees, officers, shareholders, directors, managers, representatives, adjusters, attorneys, agents, and contractors of any of the Compromising Parties, (ii) any and all parent or subsidiary companies or corporations, affiliated companies or corporations as defined in 15 U.S.C. 80(a)-2, brother or sister corporations (that is, all such entities that share a common parent with a Compromising Party), predecessors in interest, and successors in interest of any of the Compromising Parties, and all of their present and former employees, officers, shareholders, directors, managers, representatives, adjusters, attorneys, agents, and contractors, and (iii) any other person, firm, partnership, joint venture, corporation, limited liability company, or entity for which any of the Compromising Parties may be liable as a result of the Incident. The term "Related Parties" shall include, without limitation, Arie -16- 17 Genger, a natural person, and shall not include any Nonsettling Party or the insurer or insurers of any Nonsettling Party in their capacities as insurers of such Nonsettling Party. The rights of the Compromising Parties under this Agreement also extend to the Related Parties. 1.48 The term "Related to the Incident" shall mean directly or indirectly arising from, related to, caused by, involved with, connected with, pertaining to, derived from and/or resulting from the Incident. 1.49 "Released Claims" or "Released Claim". 1.49.1 The term "Released Claims" or "Released Claim" shall mean and refer to any and all Compensatory Damage Claims, Exemplary Damage Claims or other claims (including, without limitation, all judgments and/or liabilities of any nature arising therefrom) Related to the Incident against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers that the Class and/or any member of the Class and/or any Independent Claims Plaintiffs (including, without limitation, any Mississippi Plaintiffs), and/or any person and/or entity entitled to assert any such claim on behalf of any of them, and/or any person and/or entity who or which derives or obtains any right or claim from or through any of them (e.g., subrogation claims by workers' compensation insurers, employers, and/or health care insurers or providers) have, may have had, or may assert in the future, regardless of whether the claimed injuries and/or damages are not yet known or manifest or whether such claim is known or unknown, filed or unfiled, asserted or not asserted, or existing or contingent, and regardless of the legal theory involved. The term "Released Claims" or "Released Claim" expressly includes, without limitation, any and all such liabilities and claims against any of the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers. The term "Released Claims" or "Released Claim" shall include, but shall not be limited to, claims against the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers for: (1) any and all claims of injury, loss or damage or any element of damages Related to the Incident, including, without limitation, claims for all known and unknown -17- 18 present and future injuries and/or damages; any and all claims for past, present and future mental, nervous, emotional and physical, partial and total, temporary and permanent disabilities; any and all claims for any form of injury to any part of the person, mind and body, including without limitation, injuries from fear, fright, and mental anguish; any and all claims for pain and suffering; any and all claims for pecuniary loss or loss of earnings or impairment of earnings capacity; any and all claims for loss of enjoyment of life, society, support, love, affection, comfort, association, care, sexual relations, consortium; any and all claims for medical monitoring, wrongful death, survival actions, punitive or exemplary damages, attorneys' fees, costs or expenses Related to the Incident; (2) any and all claims for damages or any element of damages, including property damages, personal injuries and/or wrongful death, survival damages, and punitive and exemplary damages presently existing, not yet arisen, unknown or known, Related to the Incident; (3) any and all claims, demands, damages (including property damages or diminution of property value, personal injuries and/or wrongful death, survival damages, and punitive and exemplary damages), expenses, losses, and causes of action of whatever nature arising out of, related to, caused by or connected in any way with any escape, release, leak or discharge of any alleged toxic materials or hazardous, toxic, dangerous or harmful substances Related to the Incident; (4) any and all claims for or based upon past, present or future illness, disease, condition or death, whether or not such illness, disease, condition or death exists at present or has manifested itself as of the date of this settlement Related to the Incident; (5) any and all claims for alleged or actual or risk or possibility or fear of suffering in the future from any disease, injury, illness or condition, or death therefrom Related to the Incident; (6) any and all claims for attorneys' fees or costs incurred in connection with any action Related to the Incident; (7) any and all claims for currently unpaid or future bills presented by any physician, health care provider, medical facility or pharmacy for treatment or examination Related to the Incident; (8) any and all claims for any other injury or damage, known or unknown, including, but not limited to, business interruption loss, loss of business opportunity, loss of profits, loss of income or other economic loss Related to the Incident; -18- 19 (9) any and all claims for nuisance or inconvenience, known or unknown, Related to the Incident; (10) any and all claims for expenses for evacuation, known or unknown, Related to the Incident; (11) any and all claims for expenses for the cleanup of any personal or real property, known or unknown, Related to the Incident; (12) any and all claims for any type of exemplary damage, known or unknown, under Section 11-1-65 of the Mississippi Code Annotated, former article 2315.3 of the Louisiana Civil Code, or any other statute, rule, regulation, judicial decision or legal doctrine, current or unknown, whether enumerated or not, Related to the Incident; (13) any and all claims for alleged exposure of any person and/or property to any allegedly hazardous, toxic, dangerous, or harmful substance which escaped, emanated, migrated, or which was discharged or released, under or from the Gaylord Plant or the surrounding area or vicinity in or as a result of the Incident; (14) any and all claims for any damage whatsoever arising out of, related to or connected in any way with any cleanup, response or removal action, or remediation of the Gaylord Plant and/or the surrounding area or vicinity under any body of law whatsoever, or attorneys' fees, costs, or expenses Related to the Incident; (15) any and all claims under any body of law whatsoever, including, but not limited to, statutory or case law, whether federal, state, or local, Related to the Incident; (16) any and all claims under any legal theory whatsoever, whether for negligence, strict liability, liability for ultrahazardous activities or conduct, absolute liability, liability for punitive/exemplary damages, liability for any wanton or reckless conduct, liability for intentional or deliberate acts, liability that is derivative or vicarious arising out of the conduct or fault of others for which the Compromising Parties, the Related Parties, Hartford or the Settling Insurers may be legally responsible, liability for nuisance, liability for the servitude or obligation of vicinage, liability for abuse of right, or any liability legally asserted or assertable under any federal, state, or local statute, directive, or regulation Related to the Incident; (17) any and all claims for any right legally assertable by any person and/or entity now or in the future, whether the claim is personal to such person and/or entity, derivative of the claim of any other person and/or entity, or as an assignee, successor, executor, survivor, beneficiary, heir, or representative of any person and/or entity to the extent Related to the Incident; -19- 20 (18) any and all claims whether the injuries and/or damages are past, present or future, whether known or unknown, foreseen or unforeseen, contingent, nascent, mature or otherwise, arising at law, in equity or otherwise Related to the Incident; (19) any claims Related to the Incident asserted or assertable against the Settling Insurers under LSA-R.S. 22:1220, LSA-R.S. 22:655, LSA-R.S. 22:658 or Mississippi law concerning an insurance company's (a) breach of a duty of good faith and fair dealing and/or (b) improper claims handling practices; (20) any and all claims for conspiracy or concert of action Related to the Incident; (21) any and all claims for statutory damages under any state or federal law Related to the Incident; and (22) any and all liens, assigned claims, subrogation interests or claims, or other encumbrances of any third parties Related to the Incident, including, but not limited to, federal, state or other health care providers, insurance carriers, health maintenance organizations, employers, or attorneys or associated counsel, notwithstanding whether such claims have been timely and properly asserted or whether the parties have notice of said claims as of the date of the Effective Date. 1.49.2 The term "Released Claims" or "Released Claim" shall not include, and shall not be construed to include, the rights of the Class or any member of the Class or any Independent Claims Plaintiff (including, without limitation, any Mississippi Plaintiff) against any Nonsettling Party, such rights of the Class Members and the Independent Claims Plaintiffs being expressly reserved, except to the extent subject to a reduction or set-off by such Class Members or Independent Claims Plaintiffs by virtue of any contribution and/or indemnity owed by the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers to any of the Nonsettling Parties. 1.50 The term "Reliance" shall mean and refer to Reliance Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.51 The term "Settlement Sum" shall mean and refer to the "Settlement Sum" as defined in the Letter Agreement. -20- 21 1.52 The term "Settling Insurers" shall mean and refer to, individually and collectively, Steadfast and National Union in each one's capacity as an insurer of the Compromising Parties and/or the Related Parties. 1.53 The term "Stay Order" shall mean and refer to the order to be entered by the Louisiana Court pursuant to Section 4.1 below. 1.54 The term "Steadfast" shall mean and refer to Steadfast Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 1.55 The term "Temporary Escrow Account" shall mean and refer to the escrow account to be established and administered in accordance with the Louisiana Conditional Agreement to Settle and the Temporary Escrow Agreement. 1.56 The term "Temporary Escrow Agreement" shall mean and refer to an agreement substantially in the form attached to the Louisiana Conditional Agreement to Settle as Exhibit 5. 1.57 The term "Westchester" shall mean and refer to Westchester Fire Insurance Company in its capacity as an insurer of any of the Compromising Parties and/or the Related Parties. 2. NATURE AND STATUS OF THE ACTION 2.1 Stated generally, the Mississippi Action, the Class Action, and other actions have arisen from the Incident and involve claims in the hundreds of millions of dollars for injuries and damages allegedly sustained as a result of the Incident. 2.2 Stated generally, the Mississippi Plaintiffs and the plaintiffs in such other actions allege (and defendants deny) that the Incident was caused by the fault of the parties named as defendants therein, including the Compromising Parties. -21- 22 2.3 Substantial discovery has been completed in the Mississippi Action and/or related court actions in Louisiana and motion practice has been undertaken under a series of comprehensive case management and scheduling orders promulgated or to be promulgated by the Court in the course of further proceedings, such that the parties thereto are in a reasonable position to assess the merits and weaknesses of their respective claims and defenses. 2.4 Substantial time and effort has been expended by the parties and their counsel in negotiating this Conditional Agreement to Settle and the settlement contemplated thereby. 3. GENERAL PROVISIONS AND PURPOSES OF THIS SETTLEMENT 3.1 In entering into this Conditional Agreement to Settle, each party has taken into account the uncertainties, delays, expenses and exigencies of the litigation process, including the extensive depositions, document production, and other discovery taken to date in the Mississippi Action and related court actions in Louisiana. The Compromising Parties and the Related Parties have each denied, and continue to deny, any liability, wrongdoing or responsibility for the claims asserted in the Mississippi Action and in any other actions Related to the Incident and believe that the Released Claims are without merit and that such claims are barred in whole or in part. 3.2 The MPC and the Compromising Parties have evaluated the claims asserted against the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers Related to the Incident from a settlement perspective, considering the nature and extent of the alleged injury and the alleged liability of the Compromising Parties and the Related Parties. 3.3 The MPC and the Compromising Parties have evaluated the financial resources of the Compromising Parties, particularly with reference to their ability to defend and/or satisfy the Released Claims. -22- 23 3.4 It is the intention of this Conditional Agreement to Settle, and the parties agree, that the Mississippi Plaintiffs reserve all rights, not otherwise to be adjudicated or compromised hereunder, against all Nonsettling Parties. 3.5 The MPC is entering into this Conditional Agreement to Settle on behalf of the Mississippi Plaintiffs and each Mississippi Plaintiff to terminate and settle all controversies and all claims of the Mississippi Plaintiffs and each Mississippi Plaintiff Related to the Incident against the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers in recognition of (a) the existence of complex and contested issues of law and fact, (b) the risk, difficulty, and uncertainty of success associated with endeavoring to pierce the corporate veils between any of the Compromising Parties and/or between any of the Compromising Parties and any of the Related Parties, (c) the comparative degree of the alleged liability or culpability of the Compromising Parties and the Nonsettling Parties, (d) the risks inherent in litigation, (e) the likelihood that future proceedings will be unduly protracted and expensive if the proceeding is not settled by voluntary agreement with some of the parties, (f) the magnitude of the benefits derived from the contemplated settlement in light of both the maximum potential and likely range of recovery to be obtained through further litigation and the expense thereof and the exposure associated therewith, and (g) the determination by the MPC that the settlement is fair, reasonable, adequate, and in the best interests of, and will substantially benefit, the Mississippi Plaintiffs. 3.6 The Compromising Parties enter into this Conditional Agreement to Settle, notwithstanding their continuing denial of liability for injuries (including death) and/or compensatory damages and/or exemplary or punitive damages allegedly sustained or incurred as a result of or Related to the Incident, and notwithstanding their denials concerning causation of any alleged injuries (including death) and/or damages, to terminate all controversy and to put to rest finally all claims against the Compromising Parties, the -23- 24 Related Parties, Hartford, and/or the Settling Insurers Related to the Incident, and to avoid further litigation, without any admission on the part of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers of any liability whatsoever for injuries (including death) and/or compensatory damages, exemplary or punitive damages, or any other right of recovery under Louisiana, Mississippi, or any other law, or causation or quantum of any alleged injuries (including death) and/or damages. 3.7 It is the intention of this Conditional Agreement to Settle, and the parties agree, that the settlement contemplated hereby, any provision herein, and any proceedings in connection herewith shall not be construed as an admission of any facts or of liability nor shall they be construed by anyone for any purpose whatsoever as an admission or presumption of any wrongdoing by any of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers or an admission of any fact or presumption on the part of the Mississippi Plaintiffs. 3.8 It is a condition of this Conditional Agreement to Settle, and the parties agree, that by the Effective Date, any and all claims against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers Related to the Incident, including any liens, subrogated interests, or other encumbrances of any third parties, including, but not limited to, federal or state or other health care providers, insurance carriers, health maintenance organizations, attorneys and associated counsel will be fully and completely settled. Without limiting the foregoing, it is also a condition of this Conditional Agreement to Settle, and the parties hereto agree, that prior to the Effective Date, all Compensatory Damage Claims, Exemplary Damage Claims and other claims of whatever nature of the Class Members against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers Related to the Incident (including, without limitation, the claims set forth in the petition in the Class Action) will have been dismissed on the merits, with prejudice and with each party to bear its own costs, and each and every Class -24- 25 Member will be forever barred from instituting or maintaining any action against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers with respect to the Released Claims, and that as against any of the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers, the claims of Class Members against the Class Settlement Fund shall be the exclusive remedy of all Class Members with respect to such claims. It is also a condition of this Conditional Agreement to Settle, and the parties agree, that the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers are not, and in the future will not be, subject to any liability or expense of any kind to any Class Member or any person and/or entity claiming by, through, or under any Class Member with regard to such claims, except that each of the parties shall bear his/her/its own costs. 3.9 It is a condition of this Conditional Agreement to Settle, and the parties agree, that by the Effective Date, any and all Independent Claims (including, without limitation, all Mississippi Claims) will be fully and completely settled. It is also a condition of this Conditional Agreement to Settle, that unless otherwise agreed in writing by the Compromising Parties, prior to the Effective Date, all Independent Claims (including, without limitation, all Mississippi Claims) will be released and dismissed on the merits, with prejudice and with each party to bear its own costs, and each and every Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) will be forever barred from instituting or maintaining any action against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers with respect to the Independent Claims (including, without limitation, all Mississippi Claims), and that as against any of the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers, the claims of Independent Claims Plaintiffs (including, without limitation, each and every Mississippi Plaintiff) against the Preliminary Escrow Account shall be the exclusive remedy of all Independent Claims Plaintiffs (including, without limitation, each and every Mississippi Plaintiff) with respect to such claims. It is also a -25- 26 condition of this Conditional Agreement to Settle that the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers are not, and in the future will not be, subject to any liability or expense of any kind to any Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) or any person and/or entity claiming by, through, or under any Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) with regard to such claims, except that each of the parties shall bear his/her/its own costs. It is also a condition of this Conditional Agreement to Settle that no Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) shall receive any funds from the Preliminary Escrow Account prior to the Effective Date without the prior written approval of the Compromising Parties and the Settling Insurers, except that within thirty (30) days after the date on which, pursuant to Section 7.3 of the Louisiana Conditional Agreement to Settle, the amount calculated to be the Class Settlement Fund is placed into the Class Settlement Fund Subaccount, the Settlement Sum shall, upon the written request of the MPC, be paid to the Initial Twenty Plaintiffs in accordance with the Letter Agreement. 3.10 It is the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that by the Effective Date, the Agreement will fully and completely settle any and all Mississippi Claims. It is also the intention and a condition of this Conditional Agreement to Settle, and the parties hereto agree, that unless otherwise agreed in writing by the Compromising Parties, prior to the Effective Date, all Mississippi Claims will have been released and dismissed on the merits, with prejudice and with each party to bear its own costs, and each and every Mississippi Plaintiff will be forever barred from instituting or maintaining any action against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers with respect to the Mississippi Claims, and that as against any of the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers, the claims of Mississippi Plaintiffs against -26- 27 the Preliminary Escrow Account shall be the exclusive remedy of all Mississippi Plaintiffs with respect to such claims. It is also the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers are not, and in the future will not be, subject to any liability or expense of any kind to any Mississippi Plaintiff or any person and/or entity claiming by, through, or under any Mississippi Plaintiff with regard to such claims, except that each of the parties shall bear his/her/its own costs. It is also the intention and a condition of this Conditional Agreement to Settle, and the parties agree, that no Mississippi Plaintiff shall receive any funds from the Preliminary Escrow Account prior to the Effective Date without the prior written approval of the Compromising Parties and the Settling Insurers, except that within thirty (30) days after the date on which, pursuant to Section 7.3 of the Louisiana Conditional Agreement to Settle, the amount calculated to be the Class Settlement Fund is placed into the Class Settlement Fund Subaccount, the Settlement Sum shall, upon the written request of the MPC, be paid to the Initial Twenty Plaintiffs in accordance with the Letter Agreement. 3.11 It is a condition of this Conditional Agreement to Settle that the Stay Order be entered by October 9, 1998 and become Final. 3.12 It is a condition of this Conditional Agreement to Settle that the Certification Judgment be entered and become Final. 3.13 It is the intention and a condition of this Conditional Agreement to Settle that the Mississippi Stay Order be entered by August 28, 1998, or such later date as is acceptable to the Compromising Parties, and become Final. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. -27- 28 3.14 It is a condition of this Conditional Agreement to Settle that the Preliminary Settlement Date occur, the Preliminary Settlement Agreement be executed by the parties thereto, and the Final Order and Judgment be entered and become Final. 3.15 It is a condition of this Conditional Agreement to Settle that the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers shall never again face litigation or liability with regard to any of the Released Claims. 3.16 It is a condition of this Conditional Agreement to Settle that the commencement and prosecution of any and all claims of the Class as a whole and the Class Members individually against the Compromising Parties, the Related Parties, and/or the Settling Insurers (including, without limitation, subrogation claims derived from or through the Class or Class Members) Related to the Incident (including, without limitation, all of the claims set forth in the actions listed in Exhibit 1) be immediately enjoined and stayed during the pendency of the settlement proceedings referred to herein and that they be permanently barred and enjoined and dismissed with prejudice upon the entry of the Final Order and Judgment. 3.17 It is a condition of this Conditional Agreement to Settle that the commencement and prosecution of any and all claims of the Independent Claims Plaintiffs against the Compromising Parties, the Related Parties, and/or the Settling Insurers (including, without limitation, subrogation claims derived from or through the Independent Claims Plaintiffs, including, without limitation, Mississippi Plaintiffs) Related to the Incident (including, without limitation, all of the claims set forth in the actions listed in Exhibit 1) be immediately enjoined and stayed during the pendency of the settlement proceedings referred to herein. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.18 It is a condition of this Conditional Agreement to Settle that the commencement and/or prosecution by the Nonsettling Parties of any and all Claims for Contribution, Indemnity, and/or -28- 29 Subrogation against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers be immediately enjoined and stayed during the pendency of the settlement proceedings referred to herein. The parties agree to use their best efforts to fulfill and satisfy this intention and condition. 3.19 It is a condition of this Conditional Agreement to Settle that no Class Member or Independent Claims Plaintiff (including, without limitation, each and every Mississippi Plaintiff) shall recover, directly or indirectly, any sums from any Compromising Party, Related Party, Hartford, or Settling Insurer other than those received from the Preliminary Escrow Account (or a subaccount thereof) under the terms of the Preliminary Settlement Agreement, the Louisiana Conditional Agreement to Settle, or this Conditional Agreement to Settle, as applicable. 3.20 It is a condition of this Conditional Agreement to Settle, and the parties agree, that the Class Members and Independent Claims Plaintiffs (including, without limitation, Mississippi Plaintiffs) will reduce any judgments against Nonsettling Parties to the extent necessary to relieve the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers of all liability for Claims for Contribution, Indemnity, and/or Subrogation. 3.21 It is a condition of this Conditional Agreement to Settle that an order or stipulation of dismissal without prejudice of the claims of the Initial Twenty Plaintiffs be filed by August 28, 1998, or such later date as is acceptable to the Compromising Parties. 3.22 It is a condition of this Conditional Agreement to Settle that on or before August 28, 1998, or such later date as is acceptable to the Compromising Parties, the Court enter an order that any judgment or order rendered in the trial of the claims of the Initial Twenty Plaintiffs shall have no precedential or binding effect on the Compromising Parties, the Related Parties, or the Settling Insurers. -29- 30 3.23 It is a condition of this Conditional Agreement to Settle that the Court shall enjoin and stay the depositions of Trans-Resources, Inc., TPR Investment Associates, Inc., Nine West Corporation, and Arie Genger. 3.24 Anything in this Conditional Agreement to Settle to the contrary notwithstanding, the Compromising Parties, with the approval of the Settling Insurers, shall have the unilateral right in their sole discretion, to waive, in whole or in part, the conditions set forth in Sections 3.8 through 3.23, inclusive, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 6.1, 6.2, 8.1 (i) through (vii), inclusive, and 8.1(ix) and (x) of this Conditional Agreement to Settle, and the non-occurrence of any of the events set forth in Paragraph 9.A through E, inclusive, of the Letter Agreement and the termination thereby of the Letter Agreement, which waiver shall be binding upon the MPC and the Mississippi Plaintiffs with respect to this Conditional Agreement to Settle and the Letter Agreement. The Settling Insurers shall not withhold or delay such approval unless such waiver will have a material, detrimental effect upon the interests of the Settling Insurers. 3.25 The MPC and the Compromising Parties acknowledge and agree that the MPC has received or will receive from the Compromising Parties all information deemed reasonably necessary to an examination of the insurance coverage provided to the Compromising Parties by CIGNA, Reliance and Westchester in connection with this Agreement. The MPC and the Compromising Parties further agree to cooperate in good faith with respect to any additional document discovery and/or testimony relating to CIGNA, Reliance, and Westchester that may be necessary on this issue in connection with the Agreement. All information provided by the Compromising Parties shall remain confidential and be used only as necessary to effect the insurance-related provisions of this Conditional Agreement to Settle. 3.26 In the event that any Nonsettling Party or other third party executes a written agreement compromising, settling, releasing, waiving, forfeiting, surrendering, acquitting, and forever discharging any -30- 31 and all Claims for Contribution, Indemnity, and/or Subrogation that it may have against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers Related to the Incident, the Compromising Parties and the Related Parties shall release their claims for contribution, indemnity, and/or subrogation Related to the Incident against such Nonsettling Party or other third party in the manner and with the effect provided in Section 5.7 below. 4. STAY ORDERS 4.1 Pursuant to the Louisiana Conditional Agreement to Settle, one or more of the Compromising Parties, the Settling Insurers, and the PLC shall submit to the Louisiana Court a Joint Motion for Stay signed by or on behalf of the Class, the PLC, one or more of the Compromising Parties, and the Settling Insurers, with a proposed form of Stay Order attached thereto, pursuant to which Stay Order, the Louisiana Court shall enjoin and stay, during the pendency of the settlement proceedings contemplated by this Agreement, the commencement and/or prosecution of any and all actions and proceedings (including discovery) by Class Members, Opt-Out Parties, and Nonsettling Parties against any of the Compromising Parties, the Related Parties, and/or the Settling Insurers Related to the Incident, including any and all Claims for Contribution, Indemnity, and/or Subrogation, by, on behalf of or through any Class Members and/or Opt-Out Parties and/or Nonsettling Parties, such stay and injunction to remain effective during the pendency of such settlement proceedings unless modified by further order of the Louisiana Court. 4.2 The MPC and one or more of the Compromising Parties will jointly move the Court to sever all claims (including any claims of Nonsettling Parties) against the Compromising Parties, the Related Parties, and/or the Settling Insurers from the Initial Twenty Trial. -31- 32 4.3 The MPC and one or more of the Compromising Parties will take such actions as necessary to have the Court determine, rule, and order that any judgment or order rendered in the Initial Twenty Trial shall have no precedential or binding effect on the Compromising Parties, the Related Parties, and/or the Settling Insurers, so that none of the Compromising Parties, the Related Parties, and/or the Settling Insurers need participate in the Initial Twenty Trial in order to protect their interests. 4.4 The MPC and one or more of the Compromising Parties will jointly move the Court to enjoin and stay, during the pendency of the settlement proceedings contemplated by this Agreement, the Mississippi Action (including all discovery therein or related thereto and any and all Claims for Contribution, Indemnity, and/or Subrogation) insofar as affecting the Compromising Parties, the Related Parties and/or the Settling Insurers, such stay and injunction to remain effective during the pendency of such settlement proceedings unless modified by further order of the Court. 4.5 Within twenty (20) days after the execution of this Conditional Agreement to Settle by or on behalf of all parties, any member of the MPC who represents plaintiffs in federal or state court actions, other than the Mississippi Action, Related to the Incident shall move to stay all such federal and state court actions as against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers. The MPC will use its best efforts to cause all the plaintiffs in the actions listed in Exhibit 1 to move to stay all such actions as against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers within said twenty (20) day period. 4.6 If the Louisiana Court enters the Stay Order, the Court enters the Mississippi Stay Order, and the Louisiana First Circuit Court of Appeal enters the Certification Judgment, the parties shall use their best efforts to proceed with the settlement contemplated in this Agreement as promptly as practicable. 5. INDEPENDENT CLAIMS/CONTINGENCY ESCROW -32- 33 5.1 Within twenty-one (21) days after the expiration of the Prescriptive Period, the MPC and counsel for the Compromising Parties shall jointly prepare a list identifying all Independent Claims Plaintiffs, the actions in which the Independent Claims Plaintiffs have asserted Independent Claims, and the types of claims asserted by the Independent Claims Plaintiffs. 5.2 The MPC shall use its best efforts to obtain binding commitments for releases and dismissals with prejudice, in form and content acceptable to the Compromising Parties in their good faith, sole discretion, of all Mississippi Claims within the Independent Claims Period. 5.3 In the context of the global settlement contemplated by this Conditional Agreement to Settle, the Louisiana Conditional Agreement to Settle and the Preliminary Settlement Agreement, counsel for the Initial Twenty Plaintiffs and counsel for the Compromising Parties entered into the Letter Agreement settling the claims of the Initial Twenty Plaintiffs as against the Compromising Parties, the Related Parties and the Settling Insurers on the terms and conditions set forth in the Letter Agreement, which, subject to Paragraph 9 thereof, remains in full force and effect. The Initial Twenty Plaintiffs are among the Mississippi Plaintiffs and are, therefore, also subject to the terms and conditions of this Conditional Agreement to Settle. In the event of the termination of this Conditional Agreement to Settle for reasons other than the failure of any of the events set forth in Paragraph 9 of the Letter Agreement to occur, (i) the terms and conditions of the Letter Agreement shall survive and remain in full force and effect, and (ii) and the judgment reduction, indemnity, defense and other obligations set forth in Sections 3.20, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 8.3, and 10.3 of this Conditional Agreement to Settle shall survive and remain in full force and effect with respect to the Initial Twenty Plaintiffs. 5.4 It is a condition of this Agreement, and the Mississippi Plaintiffs agree, that the release to be executed by each Mississippi Plaintiff who receives settlement funds pursuant to Section 8.3 below or -33- 34 from the Preliminary Escrow Account shall require each such Mississippi Plaintiff to defend, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers: 5.4.1 From and against any and all past, present, or future claims, Released Claims, demands, suits, causes of action, rights of action, liabilities, liens, or judgments of any kind whatsoever by, on behalf of, or deriving from that Mississippi Plaintiff, or by, on behalf of, or deriving from his, her, its, or their heirs, executors, representatives, attorneys or former attorneys, successors, employers, insurers, employers' insurers, health insurers, health care providers, assignees, subrogees, predecessors in interest, successors in interest, beneficiaries or survivors, arising out of or in any way Related to the Incident; and 5.4.2 From and against (a) any subrogation claims arising or derived from any claim of that Mississippi Plaintiff and (b) all Claims for Contribution, Indemnity, and/or Subrogation, whether under contract, tort, or otherwise, related to or connected in any way with the Released Claims of that Mississippi Plaintiff. 5.5 The indemnity and defense obligations of Section 5.4 shall include any and all claims, demands, suits, causes of action, rights of action, liabilities, liens, or judgments of any kind whatsoever (including any claims of the Compromising Parties, the Related Parties, Hartford or the Settling Insurers for reasonable attorneys' fees and costs) related, directly or indirectly, to the disbursement of or from, or the failure to make disbursement of or from, the Preliminary Escrow Account. To the extent that claims for wrongful death or any other claims of any Mississippi Plaintiff have not been released effectively, that Mississippi Plaintiff binds himself or herself, and his or her succession or estate, executors, heirs, successors, beneficiaries, assignees, and subrogees, to defend, protect, indemnify, and hold harmless the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers from and against any and all claims, demands, suits, liabilities, liens, judgments, rights of action, or causes of action of any kind -34- 35 whatsoever, whether arising under tort, contract or otherwise, brought by any person, succession, or estate Related to the Incident for the wrongful death or any other claims of that Mississippi Plaintiff. This defense and indemnity obligation is intended to apply to any and all claims for wrongful death, whether arising under Louisiana law (including Louisiana Civil Code art. 2315.2), Mississippi law, or the law of any other state, and whether presently existing or in existence at the time of the death of the Mississippi Plaintiff. 5.6 It is also a condition of this Agreement, and the Mississippi Plaintiffs agree, that the release to be executed by each Mississippi Plaintiff who receives settlement funds pursuant to Section 8.3 below or from the Preliminary Escrow Account shall also require that each such Mississippi Plaintiff: 5.6.1 Will not attempt to execute or to collect any judgment or any portion of any judgment obtained against one or more Nonsettling Parties or other third parties to the extent or in a manner that the execution or collection of the judgment or any portion thereof would create in the judgment debtor any right to recover from any of the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers any sums based on Claims for Contribution, Indemnity, and/or Subrogation; and 5.6.2 Shall reduce or satisfy any judgment that such Mississippi Plaintiff may obtain against a Nonsettling Party or other third party to the extent necessary to extinguish any Claims for Contribution, Indemnity, and/or Subrogation by such Nonsettling Party or other third party against the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers arising from such judgment. 5.7 It is also a condition of this Agreement, and the Mississippi Plaintiffs agree, that the release to be executed by each Mississippi Plaintiff who receives settlement funds pursuant to Section 8.3 below or from the Preliminary Escrow Account shall also require that if such Mississippi Plaintiff settles with or dismisses any Nonsettling Party or other third party, the Mississippi Plaintiff agrees not to compromise, -35- 36 settle, release, waive, forfeit, surrender, acquit, or discharge any claim against such Nonsettling Party or other third party, without first obtaining an express, written agreement by which such Nonsettling Party or other third party compromises, settles, releases, waives, forfeits, surrenders, acquits, and forever discharges, or extinguishes, by release, assignment, or otherwise, any Claims for Contribution, Indemnity, and/or Subrogation that it may have against any of the Compromising Parties, the Related Parties, Hartford, and/or the Settling Insurers related to or connected in any way with the Released Claims of that Mississippi Plaintiff. The Compromising Parties agree that, once the Mississippi Plaintiff has obtained such an express, written agreement from such Nonsettling Party or other third party, the Compromising Parties and the Related Parties shall be deemed to have released their claims for contribution, indemnity, and/or subrogation Related to the Incident against such Nonsettling Party or other third party, to the same extent as the Compromising Parties and the Related Parties have been released by such Nonsettling Party or other third party. 5.8 It is expressly understood and agreed that the indemnity, defense and judgment reduction obligations detailed above shall exist regardless of the legal basis for the claim, demand, cause of action, right of action, liability, lien, or judgment demand asserted by any person and/or entity Related to the Incident. In particular, it is a condition of this Agreement that each Mississippi Plaintiff who receives funds pursuant to Section 8.3 below or from the Preliminary Escrow Account must expressly agree to the foregoing indemnity, defense and judgment reduction obligations regardless of whether the claim, demand, suit, liability, lien, judgment, cause of action, or right of action is based on or related to (a) the negligence of any of the Compromising Parties or the Related Parties, sole or concurrent; or (b) the strict liability of any of the Compromising Parties or the Related Parties under any theory whatsoever; or (c) the participation in or maintenance of an ultrahazardous activity or condition by any of the Compromising -36- 37 Parties or the Related Parties; or (d) the absolute liability of any of the Compromising Parties or the Related Parties; or (e) the wanton, reckless, or wilful misconduct of any of the Compromising Parties or the Related Parties; or (f) the liability of any of the Compromising Parties or the Related Parties for exemplary or punitive damages; or (g) the breach of any express or implied warranty of any of the Compromising Parties or the Related Parties with respect to products liability tort claims; or (h) the manufacture, design, or sale of any product or material by any of the Compromising Parties or the Related Parties; or (i) the vicarious liability of any of the Compromising Parties or the Related Parties for the conduct of others; or (j) a conspiracy or concerted action by any of the Compromising Parties or Related Parties with any other person and/or entity; or (k) any actual, alleged or purported right, asserted by any Compromising Party, Related Party, Class Member, Independent Claims Plaintiff, Initial Twenty Plaintiff, or Mississippi Plaintiff, under a policy of insurance issued to one or more of the Compromising Parties by a Settling Insurer or Hartford; or (l) any other basis whatsoever, including by contract, course of dealing or other conduct, Related to the Incident. 5.9 It is also a condition of this Agreement, and the Mississippi Plaintiffs agree, that each Mississippi Plaintiff who receives funds pursuant to Section 8.3 below or from the Preliminary Escrow Account also expressly agrees that if any person and/or entity should hereafter commence, join in or in any manner seek relief through any suit or claim arising out of, based upon or relating to that Mississippi Plaintiff's Released Claims, for the enforcement of assignments, liens, privileges or otherwise, that Mississippi Plaintiff shall defend, indemnify and hold the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers and each of them, harmless from and against any such suit or claim (including any claims of the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers for reasonable attorneys' fees and costs). -37- 38 5.10 The MPC may enter into agreements with Mississippi Plaintiffs, or their counsel, in order to obtain the necessary binding commitments for releases and dismissals with prejudice referred to in Section 5.2, provided (and it is a condition of this Conditional Agreement to Settle) that such agreements do not conflict with any of the provisions of this Agreement, the Louisiana Conditional Agreement to Settle, or the Preliminary Settlement Agreement. Such agreements may provide for the distribution to Mississippi Plaintiffs of sums from the Preliminary Escrow Account, provided (and it is a condition of this Conditional Agreement to Settle) that no such distributions may occur prior to the Effective Date or without the prior written approval of the Compromising Parties, except that within thirty (30) days after the date on which, pursuant to Section 7.3 of the Louisiana Conditional Agreement to Settle, the amount calculated to be the Class Settlement Fund is placed into the Class Settlement Fund Subaccount, the Settlement Sum shall, upon the written request of the MPC, be paid to the Initial Twenty Plaintiffs in accordance with the Letter Agreement. 5.11 If by the expiration of the Independent Claims Period, the MPC and/or the PLC have not obtained binding commitments for the releases and dismissals with prejudice, in form and content acceptable to the Compromising Parties in their good faith, sole discretion, of all Independent Claims (including, without limitation, all Mississippi Claims), the Compromising Parties may (i) terminate this Agreement by written notice to the MPC, or (ii) by written notice to the MPC, elect to go forward with the settlement embodied in the Agreement, provided that a sum acceptable to the Compromising Parties and the PLC is placed in the Independent Claims Contingency Escrow within the Preliminary Escrow Account to pay Independent Claims. 5.12 The Compromising Parties and/or the Settling Insurers may apply to the escrow agent for the Preliminary Escrow Account for disbursements from the Independent Claims Contingency Escrow and -38- 39 shall be permitted to withdraw amounts from the Independent Claims Contingency Escrow necessary to obtain the release and dismissal with prejudice of Independent Claims (including, without limitation, Mississippi Claims) and to recover all legal fees, costs, and expenses incurred by the Compromising Parties, Related Parties, Hartford, and/or the Settling Insurers, as applicable, in defending any such Independent Claims after the Preliminary Settlement Date. 5.13 If applicable, the Independent Claims Contingency Escrow shall continue in full force and effect until the earliest of the following occurs: (i) the date when all Independent Claims (including, without limitation, all Mississippi Claims) are released and dismissed with prejudice, or (ii) the expiration of ten years from the date of initial funding of the Independent Claims Contingency Escrow, or (iii) the date when the amount held in the Independent Claims Contingency Escrow is reduced to zero. Upon the termination of the Independent Claims Contingency Escrow and the payment of all valid claims made against the Independent Claims Contingency Escrow, any funds then remaining in the Independent Claims Contingency Escrow shall be distributed for the benefit of the Class at the discretion of the Louisiana Court. 5.14 Within five (5) business days after the expiration of the Independent Claims Period, a sum mutually acceptable to the Compromising Parties and the PLC shall be placed in the Other Claims Contingency Escrow within the Preliminary Escrow Account. 5.15 The Compromising Parties and/or the Settling Insurers may apply to the escrow agent for the Preliminary Escrow Account for disbursements from the Other Claims Contingency Escrow and shall be permitted to withdraw amounts from the Other Claims Contingency Escrow necessary to obtain the release and dismissal with prejudice of claims Related to the Incident other than Independent Claims and to recover all legal fees, costs, and expenses incurred by the Compromising Parties, Related Parties, -39- 40 Hartford and/or the Settling Insurers, as applicable, in defending any such claims after the Preliminary Settlement Date. 5.16 The Other Claims Contingency Escrow shall continue in full force and effect until the earlier to occur of: (i) the expiration of ten years from the date of initial funding of the Other Claims Contingency Escrow, or (ii) the date when the amount held in the Other Claims Contingency Escrow is reduced to zero. Upon the termination of the Other Claims Contingency Escrow and the payment of all valid claims made against the Other Claims Contingency Escrow, any funds then remaining in the Other Claims Contingency Escrow shall be distributed for the benefit of the Class at the discretion of the Louisiana Court. 6. LOUISIANA CONDITIONAL AGREEMENT TO SETTLE/ PRELIMINARY SETTLEMENT AGREEMENT 6.1 It is a condition of this Conditional Agreement to Settle that the Louisiana Conditional Agreement to Settle as amended and restated be executed by or on behalf of the Compromising Parties, the PLC, the Class and the Settling Insurers on or before March 22, 1999. 6.2 It is a condition of this Conditional Agreement to Settle that within twenty (20) business days after the Preliminary Settlement Date, the Compromising Parties, the Settling Insurers, and the PLC shall execute the Preliminary Settlement Agreement and submit the Preliminary Settlement Agreement to the Louisiana Court for preliminary approval pursuant to the Preliminary Settlement Agreement. 7. CONTRIBUTIONS 7.1 The parties acknowledge and agree that the Louisiana Conditional Agreement to Settle, which the MPC acknowledges having received and reviewed, provides that the Compromising Parties shall have the following obligations with respect to the funding of the Temporary Escrow Account or the Preliminary Escrow Account, as applicable: -40- 41 7.1.1 On or before August 31, 1998, the Compromising Parties shall pay into the Temporary Escrow Account, which was created pursuant to the Temporary Escrow Agreement, the sum of Ten Million and No/100 ($10,000,000.00) Dollars. (The MPC hereby acknowledges that this payment has been timely made.) 7.1.2 Within two (2) business days after this Conditional Agreement to Settle, the Louisiana Conditional Agreement to Settle, and the Preliminary Escrow Agreement are signed by all of the parties to each of these agreements, the Compromising Parties shall so notify the escrow agent for the Temporary Escrow Account, who upon receipt of such notice, shall forthwith transfer the Ten Million and No/100 ($10,000,000.00) Dollars placed in the Temporary Escrow Account, as described in Section 7.1.1 above, into the Preliminary Escrow Account, to be held pursuant to the Preliminary Escrow Agreement, together with all interest earned or accrued thereon, less any charges or expense authorized under the Temporary Escrow Agreement. 7.1.3(a) The Compromising Parties shall pay into the Preliminary Escrow Account additional sums, as follows: (i) on March 31, 1999, Five Million and No/100 ($5,000,000.00) Dollars; (ii) on September 30, 1999, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the rate of Six and One Quarter Percent (6.25%) per year (the "Interest Rate") from April 1, 1999 through September 30, 1999; (iii) on January 31, 2000, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from October 1, 1999 through January 31, 2000; -41- 42 (iv) on June 30, 2000, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from February 1, 2000 through June 30, 2000; (v) on September 30, 2000, an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from July 1, 2000 through September 30, 2000; (vi) on December 31, 2000, Six Million Eight Hundred Thousand and No/100 ($6,800,000.00) Dollars (the "12/31/00 Base Amount") plus an amount equal to the interest that would have been due on Seventeen Million and No/100 ($17,000,000.00) Dollars computed at the Interest Rate from the October 1, 2000 through December 31, 2000; (vii) on June 30, 2001, Five Million One Hundred Thousand and No/100 ($5,100,000.00) Dollars (the "6/30/01 Base Amount") plus an amount equal to the interest that would have been due on Ten Million Two Hundred Thousand and No/100 ($10,200,000.00) Dollars computed at the Interest Rate from January 1, 2001 through June 30, 2001; and (viii) on December 31, 2001, Five Million One Hundred Thousand and No/100 ($5,100,000.00) Dollars (the "12/31/01 Base Amount") plus an amount equal to the interest that would have been due on Five Million One Hundred Thousand and No/100 ($5,100,000.00) Dollars computed at the Interest Rate from July 1, 2001 through December 31, 2001. 7.1.3(b) Notwithstanding anything in Section 7.1.3(a) to the contrary, the Compromising Parties may prepay all or any part of the 12/31/00, the 6/30/01 and the 12/31/01 Base Amounts without penalty or premium, and may specify the Base Amount against which such prepayment shall be applied. The amount of any prepayment of any Base Amount shall reduce the $17,000,000 figure in Section 7.1.3 -42- 43 (a)(ii)(iii), (iv), (v) and (vi), the $10,200,000 figure in Section 7.1.3 (a)(vii) and the $5,100,000 figure in Section 7.1.3 (a)(viii), pro tanto, as applicable, from and after the date of prepayment. 7.2 The Insurance Companies have issued policies of insurance to the Compromising Parties of up to Fifty-two Million and No/100 ($52,000,000.00) Dollars. The Compromising Parties believe, but do not represent or warrant, that these insurance policies afford coverage up to that amount for claims Related to the Incident. The relevant insurance policies issued by the Insurance Companies to the Compromising Parties are identified in Exhibit 4 attached hereto. 7.2.1 The MPC and the Mississippi Plaintiffs expressly acknowledge that CIGNA, Hartford, Reliance, and Westchester have each denied that their policies afford coverage for claims Related to the Incident. Notwithstanding Hartford's denial of coverage, Hartford, the PLC, the MPC and the Compromising Parties have agreed to finally settle and resolve all of the claims Related to the Incident arising from or related to the Hartford policy of insurance identified in Exhibit 4 (the "Hartford Policy"), including all claims for liability, indemnity and the "duty to defend." As part of such settlement, (a) on a date agreed to by Hartford and the Compromising Parties, Hartford will pay to the Compromising Parties the sum of Two Million Eight Hundred Seventy-Five Thousand and No/100 ($2,875,000.00) Dollars, which amount exhausts the applicable indemnity limits, and shall be deemed to fully discharge Hartford's defense obligations, for claims Related to the Incident under the Hartford Policy, (b) the Compromising Parties will pay into the Preliminary Escrow Account the sum of Four Hundred Forty-Two Thousand, Three Hundred Fifty and No/100 ($442,350.00) Dollars one (1) business day after the Court's entry of the Order of Preliminary Approval as provided in the Preliminary Settlement Agreement (in addition to the amount to be paid into the Preliminary Escrow Account on said date as described in Section 7.2.3 below), (c) the MPC will cause, on or before the Effective Date, the release and dismissal, with prejudice, of all actions -43- 44 and claims of the Mississippi Plaintiffs Related to the Incident against Hartford, the Compromising Parties and/or the Related Parties arising from or related to said Hartford Policy, (d) the MPC will cause any and all such actions or claims to be forthwith stayed during the pending of the settlement proceedings contemplated by this Agreement (the "Hartford Stay"), and (e) the MPC will, promptly upon the request of the Compromising Parties or Hartford, execute and deliver to the Compromising Parties and Hartford all documents necessary to effectuate, confirm or perfect such release and dismissal and the Hartford Stay. 7.2.2 The MPC expressly acknowledges that the Compromising Parties have been informed by the Settling Insurers that their policies will respond to the bodily injury and property damage claims Related to the Incident, but that Steadfast's policy will respond only with respect to post-explosion claims. 7.2.3 The parties acknowledge and agree that the Louisiana Conditional Agreement to Settle provides that on April 1, 1999, National Union, which provides Fifteen Million and No/100 ($15,000,000.00) Dollars of insurance coverage to the Compromising Parties, shall pay into the Preliminary Escrow Account the sum of Fifteen Million and No/100 ($15,000,000.00) Dollars, less the amount of any payments previously made by National Union to or on behalf of the Compromising Parties or the Related Parties in connection with the defense of claims Related to the Incident. To the extent that any of the proceeds of the National Union policy are depleted by payments made to or on behalf of the Compromising Parties or the Related Parties in connection with the defense of claims Related to the Incident, the Compromising Parties shall, within one (1) business day after the Louisiana Court's entry of the Order of Preliminary Approval as provided in Preliminary Settlement Agreement, pay into the Preliminary Escrow Account, in addition to the amounts payable as described above, a sum equal to one hundred (100%) percent of the amount of any such depletion. -44- 45 7.2.4 The parties acknowledge and agree that the Louisiana Conditional Agreement to Settle provides that within twenty-four (24) hours after the receipt by Steadfast's Environmental Claims Division's Vice President of proof that the Compromising Parties have paid or caused to be paid into the Preliminary Escrow Account the total sum of Fifteen Million and No/100 ($15,000,000) Dollars as set forth in Sections 7.1.2 and 7.1.3(a)(i) of the Louisiana Conditional Agreement to Settle and that National Union has made its payment as set forth in Section 7.2.3 of the Louisiana Conditional Agreement to Settle, Steadfast, which provides Ten Million and No/100 ($10,000,000.00) Dollars of insurance coverage to the Compromising Parties, shall pay into the Preliminary Escrow Account the sum of Ten Million and No/100 ($10,000,000.00) Dollars. 7.3 Within two (2) business days after the Louisiana Court's entry of the Order of Preliminary Approval as provided in the Preliminary Settlement Agreement, and pursuant to the Court's order, the Preliminary Escrow Agreement, and the Preliminary Settlement Agreement, the escrow agent for the Preliminary Escrow Account shall calculate the amount of the Class Settlement Fund (recognizing that, depending on the date of the entry of the Order of Preliminary Approval, further payments may be made into the Preliminary Escrow Account in accordance with Section 7.1 above) and place said amount in the Class Settlement Fund Subaccount. 7.4 All contributions into the Temporary Escrow Account and/or the Preliminary Escrow Account shall be held in an interest-bearing trust account, pursuant to the terms of the Temporary Escrow Agreement or the Preliminary Escrow Agreement, as applicable. 7.5 The obligations of the Compromising Parties under the Agreement are not intended to and shall not create or be deemed to create any joint or joint and several or in solido obligations on the part -45- 46 of any person and/or entity, including the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers. 7.6 If the Compromising Parties fail to make a payment they are obligated to make as described above, the MPC shall so notify the Compromising Parties. The Compromising Parties shall then have a reasonable opportunity (at least thirty (30) days) to "cure" the default; any such cure shall require the Compromising Parties to pay simple interest at the prime rate, accruing as of the date the payment was due under the terms of the Agreement and terminating on the date the payment is made. If the Compromising Parties do not "cure" the default as provided above, the sole remedy is to terminate the Agreement. 7.7 If National Union and/or Steadfast fail to make the payments they are obligated to make as described above, the MPC shall so notify the Compromising Parties and the Settling Insurers. National Union and/or Steadfast, as the case may be, shall then have a reasonable opportunity (at least thirty (30) days) to "cure" the default; any such cure shall require National Union and/or Steadfast to pay simple interest at the prime rate, accruing as of the date the payment was due under the terms of the Agreement and terminating on the date the payment is made. If National Union and/or Steadfast do not "cure" the default as provided above, the sole remedy is to terminate the Agreement. The Compromising Parties in their sole discretion, and in order to cure the default of National Union and/or Steadfast and avoid termination of the Agreement, may make the payments, including the interest earned on the overdue amounts, to the Preliminary Escrow Account that should have been paid by National Union and/or Steadfast, but have no obligation whatsoever to do so. 8. TERMINATION OF AGREEMENT 8.1 In the event that: -46- 47 (i) any of the conditions of this Conditional Agreement to Settle set forth in Sections 3.8 through 3.23, inclusive, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 6.1, and 6.2 are not fulfilled, and not waived by the Compromising Parties, and the Compromising Parties give the MPC written notice of termination of this Agreement for such reason; (ii) the Compromising Parties give the MPC written notice of the termination of the Letter Agreement pursuant to Paragraph 9 thereof; (iii) this Conditional Agreement to Settle, the Louisiana Conditional Agreement to Settle, the Temporary Escrow Agreement, and the Preliminary Escrow Agreement, or any of them, are not signed by all of the respective parties thereto on or before March 22, 1999 and the Compromising Parties give the MPC written notice of termination of this Agreement for such reason; (iv) binding commitments for releases and dismissals with prejudice of all Independent Claims (including, without limitation, Mississippi Claims) are not obtained by the MPC and/or the PLC within the Independent Claims Period and the Compromising Parties give the MPC written notice of the termination of this Agreement pursuant to Section 5.11 above; (v) the Preliminary Settlement Agreement is terminated; (vi) the Louisiana Conditional Agreement to Settle is terminated; (vii) within five (5) business days after the expiration of the Independent Claims Period, a sum mutually acceptable to the Compromising Parties and the PLC is not placed in the Other Claims Contingency Escrow within the Preliminary Escrow Account to pay claims Related to the Incident other than Independent Claims; -47- 48 (viii) contributions to the Temporary Escrow Account or the Preliminary Escrow Account are not made timely as described above and such failure is not cured pursuant to Sections 7.6 and/or 7.7 above; (ix) any of the Independent Claims Plaintiffs or any other person and/or entity (including, without limitation, the Nonsettling Parties) with a claim Related to the Incident obtains a money judgment on his/her/its claim against the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers prior to the Effective Date, and such judgment is not fully discharged prior to the Effective Date by the MPC or the PLC before such Independent Claims Plaintiff or other person executes upon such judgment or otherwise takes steps to enforce or collect such judgment and the Compromising Parties give the MPC and the PLC written notice of termination of this Agreement for such reason; or (x) the MPC fails to fulfill any of its obligations under Section 7.2.2 above and the Compromising Parties give the MPC written notice of termination of this Agreement for such reason, this Agreement may be terminated by the Compromising Parties or the MPC upon written notice to the other, provided, however, that a party whose willful conduct causes the event giving rise to the right to terminate shall not have a right to terminate this Agreement by reason of such event. 8.2 In the event of termination of the Agreement, (i) all parties shall be restored to their respective positions immediately before execution of this Conditional Agreement to Settle; (ii) any and all monies or other contributions paid by the Compromising Parties and/or the Settling Insurers into the Temporary Escrow Account or the Preliminary Escrow Account, plus all earnings (actual and accrued)thereon, less taxes and other expenses authorized under this Conditional Agreement to Settle or -48- 49 the Preliminary Settlement Agreement or the Temporary Escrow Agreement or the Preliminary Escrow Agreement and other expenses incurred with the specific authorization of the Louisiana Court, shall be returned to the Compromising Parties or the Settling Insurers, as applicable; and (iii) the litigation Related to the Incident against the Compromising Parties, the Related Parties, Hartford and/or the Settling Insurers shall revert to its status before the execution of this Conditional Agreement to Settle as if related orders and papers and the efforts leading to the Agreement had not been entered, prepared, or taken. Further, in the event of such termination, the Compromising Parties and the Settling Insurers shall have full authority to immediately withdraw from the Temporary Escrow Account and/or the Preliminary Escrow Account, as applicable, their respective contributions and payments, and the earnings (actual and accrued) thereon, without further proceedings or approval of any court, subject to and in accordance with the Temporary Escrow Agreement and/or the Preliminary Escrow Agreement, as applicable. 8.3 In the event that the Letter Agreement has not terminated and this Conditional Agreement to Settle terminates prior to the transfer of the Ten Million and No/100 ($10,000,000.00) Dollars payment to the Preliminary Escrow Account described in Section 7.1.2 above, the Compromising Parties shall pay the Settlement Sum to the Initial Twenty Plaintiffs in accordance with the Letter Agreement, said payment to be made within thirty (30) days after the later of (a) the receipt by the Compromising Parties of a written demand from the MPC that such payment be made and (b) the return of the amounts in the Temporary Escrow Account to the Compromising Parties as set forth in Section 8.2 above; provided and on the condition that contemporaneously with and in exchange for such payment to the Initial Twenty Plaintiffs, the Initial Twenty Plaintiffs shall deliver to the Compromising Parties, in accordance with the terms and conditions of this Conditional Agreement to Settle and the Letter Agreement, (i) executed releases of all their claims (including all Released Claims) against the Compromising Parties, the Related Parties, and the -49- 50 Settling Insurers Related to the Incident, in form and content satisfactory to the Compromising Parties, (ii) such stipulations and other documents as are necessary to dismiss all such claims, with prejudice and each party to bear its own costs, and (iii) such documents as are necessary to acknowledge and afford the Compromising Parties, the Related Parties, and the Settling Insurers the judgment reduction, indemnity, defense, and other obligations set forth in Sections 3.20, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 8.3, and 10.3 of this Conditional Agreement to Settle. In the event that the Compromising Parties fail to timely make the payment to the Initial Twenty Plaintiffs provided for in this Section 8.3 and the Initial Twenty Plaintiffs are ready, willing, and able to deliver to the Compromising Parties the executed releases, stipulations, and other documents described above in exchange for and contemporaneously with such payment, the Initial Twenty Plaintiffs shall be entitled to, in addition to the Settlement Sum, reasonable attorney's fees incurred by the Initial Twenty Plaintiffs in enforcing this Section 8.3 and simple interest at the prime rate from the date when such payment was due until paid. 9. ADDITIONAL OBLIGATIONS OF THE MPC AND THE COMPROMISING PARTIES 9.1 The MPC covenants, represents and warrants to the Compromising Parities that: 9.1.1 The MPC is unaware of and has not been notified of any lawsuit, claim, or legal action Related to the Incident brought or made by or on behalf of any person and/or entity other than those actions listed in Exhibit 1. 9.1.2 The MPC has exercised due diligence in ascertaining that the representations contained in this Conditional Agreement to Settle on the part of the MPC and/or the Mississippi Plaintiffs are true and accurate, and the MPC shall have, until the Effective Date, a continuing obligation to ensure that these representations are accurate, and the MPC shall notify the Compromising Parties within a reasonable time after learning that any of the representations are or become inaccurate; -50- 51 9.1.3 All liens or other encumbrances attaching to the proceeds of this settlement, or the interest of any individual Mississippi Plaintiff therein, of which the MPC has been placed on notice are set forth in Exhibit 5, and as additional liens and other encumbrances become known to the MPC, the MPC will supplement this exhibit accordingly; 9.1.4 The MPC has the full authority to provide any and all of the representations and warranties contained in this Agreement that it makes for itself or on behalf of the Mississippi Plaintiffs in the cases listed in Exhibit 6 hereto and has full authority to enter into this Agreement on behalf of and bind such plaintiffs; 9.1.5 The MPC will diligently endeavor to obtain the written concurrence of any attorney or lawyer representing any Mississippi Plaintiff individually to the terms of the Agreement and the dismissal, with prejudice and with each party to bear its own costs, of the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers in the Mississippi Action and any other actions Related to the Incident. 9.2 Each of the Compromising Parties and the Settling Insurers covenants, represents and warrants to the MPC that, except as set forth in Exhibit 5, there are no liens or other encumbrances of which it has been placed on notice which must be satisfied as a condition of its performance of its obligations under this Agreement and that it will promptly notify the MPC in the event that it becomes aware of any such lien or encumbrance, including a notice or letter that could result in a lien or encumbrance, in the future. 10. GENERAL PROVISIONS 10.1 The Preliminary Escrow Agreement shall provide that at least once each calendar quarter, the escrow agent of the Preliminary Escrow Account will provide the PLC, the MPC, the Compromising Parties and the Settling Insurers with an accounting for the Preliminary Escrow Account. -51- 52 10.2 Neither the Compromising Parties nor the Related Parties nor the Settling Insurers guarantee or make any representation that the Temporary Escrow Account and/or the Preliminary Escrow Account and/or any earnings therefrom will be sufficient to satisfy the claims of the Class Members, the Independent Claims Plaintiffs, the Mississippi Plaintiffs, or any other person and/or entity with a claim Related to the Incident. 10.3 If any Mississippi Plaintiff is a minor, ward, incompetent, succession or absentee under the laws of the state of Mississippi or the state where that Mississippi Plaintiff resides, the MPC shall take all necessary steps to satisfy any and all legal and equitable requirements of the applicable jurisdiction with respect to settlement approval; establishment of a guardianship, conservatorship, or the like; and/or any other action that is or may be required under the laws of the applicable jurisdiction to make the settlement of such Mississippi Plaintiff's claim final and binding. Furthermore, a certified copy of the order or decree approving the settlement and compromise of the claims of said person must be forwarded to the Compromising Parties in order for any funds to be distributed under this Agreement. 10.4 In any case where a party has assumed a defense obligation under this Agreement, such party has the right to select counsel of its choice to assume any necessary defense, and such defense counsel shall be experienced and competent in the legal area being defended. If the party to be defended chooses different counsel to assume its defense or to associate with counsel selected by the party who has the defense obligation, the counsel so selected by the party to be defended and the legal costs incurred by such counsel shall be at the expense of the party to be defended. At the option of the Settling Insurers, in any filing or appearance in any proceeding in which a party defends as provided in this Agreement, the Settling Insurers may require the party to include the following disclaimer: Although [the party] is authorized to defend [the Settling Insurer(s)] and to resolve this litigation as [the party] -52- 53 deems appropriate, [the Settling Insurer(s)] take no position with respect to the policy of insurance issued by [the Settling Insurer(s)]. All statements and positions are solely those of [the party] and shall not constitute any representation or admission by [the Settling Insurer(s)]. 10.5 The MPC acknowledges and agrees that the obligations of the Compromising Parties and the Settling Insurers set forth in Section 7 above are duplicative of the obligations set forth in Section 7 of the Louisiana Conditional Agreement to Settle and do not create any independent or additional obligations on the part of the Compromising Parties or the Settling Insurers and shall be deemed fulfilled when the obligations of Section 7 of the Louisiana Conditional Agreement to Settle are fulfilled. 10.6 Anything contained in this Conditional Agreement to Settle and/or the Preliminary Settlement Agreement to the contrary notwithstanding, the parties agree that the indemnity obligations of Class Members and Independent Claims Plaintiffs shall not extend to claims asserted by third parties against the Compromising Parties, the Related Parties, and/or the Settling Insurers under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601, et seq. Related to the Incident. 10.7 Neither this Conditional Agreement to Settle nor the Agreement nor any proceeding taken hereunder shall be construed as or deemed to be evidence or an admission or concession by the Compromising Parties, the Related Parties, or the Settling Insurers of any liability or wrongdoing whatsoever, which is expressly denied by the Compromising Parties, the Related Parties, Hartford, and the Settling Insurers, or, on the part of the Mississippi Plaintiffs, of any lack of merit in their claims. None of the provisions of this Conditional Agreement to Settle or the Agreement nor evidence of any negotiations or proceedings in pursuance of the compromise and settlement herein, shall be offered or received in evidence in this action or any other action or proceeding as an admission or concession of liability or -53- 54 wrongdoing of any nature on the part of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers, or to establish jurisdiction or venue or to create a waiver of any affirmative defense. The provisions of the Conditional Agreement to Settle and/or the Agreement may be offered or received in evidence solely to enforce the terms and provisions hereof. The MPC, the Mississippi Plaintiffs, the Settling Insurers, and the Compromising Parties specifically acknowledge, agree and admit that this Conditional Agreement to Settle and the Agreement along with all related motions and pleadings shall be considered an offer to compromise and a compromise within the meaning of article 408 of the Mississippi Rules of Evidence and any equivalent rule of evidence of any state or federal court, and shall not be offered or received into evidence as an admission of liability or wrongdoing on the part of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers or as a concession of liability or wrongdoing on the part of the Compromising Parties, the Related Parties, Hartford, or the Settling Insurers. The financial terms and provisions of the settlement of the claims of the Initial Twenty Plaintiffs shall be kept in strict confidence by the parties and their counsel. This Section 10.7 shall survive the termination of the Agreement. 10.8 This Agreement, including the exhibits attached hereto, and the Letter Agreement constitute the entire agreement among the parties and may not be modified, amended, or waived except by a written instrument duly executed by all the parties or their authorized representatives. This Agreement and the Letter Agreement supersede and replace any previous agreements or understandings between the parties, or any of them, on the subject matter thereof. 10.9 All of the undersigned attorneys who appear on behalf of designated law firms severally represent that they have been duly authorized by their designated law firms to enter into the Agreement. Likewise, the undersigned attorneys who appear on behalf of the Compromising Parties severally represent -54- 55 that they have been duly authorized to enter into the Agreement on behalf of their clients and the undersigned signatories who appear for or on behalf of the Settling Insurers severally represent that they have been duly authorized to enter into the Agreement for or on behalf of the Settling Insurer for whom or on whose behalf they appear. 10.10 This Conditional Agreement to Settle may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 10.11 The terms and conditions of this Agreement shall bind and inure to the benefit of the heirs, executors, administrators, predecessors in interest, successors in interest, legal representatives, and assigns of all parties hereto. 10.12 The waiver by a party of any term, condition, covenant, or breach of the Agreement shall not be deemed to be a continuing waiver of same. 10.13 For purposes of this Agreement, the use of singular form of any word includes the plural and vice versa. 10.14 The parties agree that the terms and conditions of the Agreement are the result of negotiations between the parties or their counsel and that the Conditional Agreement to Settle shall not be construed in favor of or against any party by reason of the extent to which the parties or their counsel of record participated in the drafting of the same. 10.15 The parties to the Agreement have agreed that the validity and interpretation of the Agreement and any of the terms or provisions hereof, as well as the rights and duties of the parties thereunder, shall be governed solely by the laws of the State of Mississippi without giving effect to any conflict of laws principles and that the exclusive forum for any claim related to the interpretation or -55- 56 enforcement of the Agreement shall be the Circuit Court of Hinds County, Mississippi, First Judicial District. 10.16 Any notice, request, instruction, or other document to be given by any party to this Agreement to any other party to this Agreement shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, as follows: (i) If to the Compromising Parties or the Related Parties, to: Stephen A. Marshall RUBIN BAUM LEVIN CONSTANT & FRIEDMAN 30 Rockefeller Plaza New York, New York 10112 and John E. Wade, Jr. BRUNINI, GRANTHAM, GROWER & HEWES, PLLC 1400 Trustmark Building 248 East Capital Street Jackson, Mississippi 39201 and Leonard L. Kilgore, III KEAN, MILLER, HAWTHORNE, D'ARMOND, MCCOWAN & JARMAN, L.L.P. One American Place, 22nd Floor (70825) Post Office Box 3513 Baton Rouge, Louisiana 70821 and Thomas Hardy TRANS-RESOURCES, INC. Nine W. 57th Street New York, New York 10019 and -56- 57 President VICKSBURG CHEMICAL COMPANY Rifle Range Road Vicksburg, Mississippi 39108 (ii) If to the Settling Insurers, To National Union Fire Insurance Company of Pittsburgh, Pa.: Dayva Zaccaria Manager, Environmental Claims AIG Technical Services, Inc. 80 Pine Street, 6th Floor New York, NY 10005 and To Steadfast Insurance Company: Thomas Lysaught Vice President of Environmental Claims STEADFAST INSURANCE COMPANY 1400 American Lane Schaumburg, IL 60196 (iii) If to the MPC, to each of the following: Stuart H. Smith David T. Cobb Val P. Exnicios SACKS & SMITH Post Office Box 16189 Liska, Exnicios & Nungesser 1615 Poydras Street, Suite 1900 Lakeland Drive 9701 Lake Forest Blvd. 860 Jackson, MS 39236-6189 New Orleans, LA 70127 New Orleans, LA 70112 Robert L. Johnson, III John Lee Grayson Linnes Finney 1187 Martin Luther King Drive Fleming, Hovenkamp & Gary, Williams, Parenti, Finney, Post Office Box 1678 Grayson Lewis, Natchez, MS 39120 1330 Post Oak Boulevard, McManus, Watson & Suite 3030 Sperando Houston, TX 77056 Post Office Box 3390 Fort Pierce, Florida 34948
-57- 58 Gladstone N. Jones, III Jack W. Harang Henry A. Dart SMITH, JONES & FAWER, Jack Harang, PLC Henry A.Dart, PLC LLP 3748 N. Causeway Blvd., 3748 N. Causeway Blvd. 201 St. Charles Avenue, Suite Suite 303 Metairie, Louisiana 70002 3702 Metairie, Louisiana 70002 New Orleans, LA 70170 Frank C. Dudenhefer, Jr. John L. Young Frank J. D'Amico, Jr. Cummings, Cummings, 915 St. Louis Street 622 Baronne St., 2nd Floor Dudenhefer New Orleans, LA 70112 New Orleans, LA 70130 & Martin 416 Gravier Street New Orleans, LA 70130
-58- 59 The parties may change their respective recipients and addresses for notice by giving notice of such change to the other parties pursuant to this Section 10.16. As of August 20, 1998 /s/ John E. Wade, Jr. - --------------------------- ------------------------------------ Date John E. Wade, Jr., MSB#6850 Robert L. Gibbs, MSB #4816 T. Michael Cronin, MSB #10108 BRUNINI, GRANTHAM, GROWER & HEWES 1400 Trustmark Building 248 East Capitol St. Jackson, MS 39201 Telephone: (601) 948-3101 and As of August 20, 1998 /s/ Leonard L. Kilgore, III - --------------------------- ------------------------------------ Date Leonard L. Kilgore, III (#7372) Sandra L. Edwards (#14248) Esteban Herrera, Jr. (#20859) KEAN, MILLER, HAWTHORNE, D'ARMOND, MCCOWAN & JARMAN, L.L.P. One American Place, 22nd Floor Post Office Box 3513 Baton Rouge, Louisiana 70821 Telephone: (504) 387-0999 ATTORNEYS FOR VICKSBURG CHEMICAL COMPANY AND CEDAR CHEMICAL CORPORATION As of August 20, 1998 /s/ Stephen A. Marshall - --------------------------- ------------------------------------ Date Stephen A. Marshall Martin P. Michael Martin J. Schwartz RUBIN BAUM LEVIN CONSTANT & FRIEDMAN 30 Rockefeller Plaza - 29th Floor New York, NY 10112 Telephone: (212) 698-7700 -59- 60 ATTORNEYS FOR TRANS-RESOURCES, INC. TPR INVESTMENT ASSOCIATES, INC. AND NINE WEST CORPORATION As of August 20, 1998 National Union Fire Insurance Company - --------------------------- of Pittsburgh, Pa. Date /s/ Dayva Zaccaria ------------------------------------- Dayva Zaccaria, Manager Environmental Claims Department AIG Technical Services, Inc, as authorized agent for National Union Fire Insurance Company of Pittsburgh, Pa. 80 Pine Street, 6th Floor New York, NY 10005 Telephone: (212) 770-7000 FOR NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA As of August 20, 1998 /s/ Thomas Lysaught - --------------------------- ------------------------------------ Date Thomas Lysaught Vice President of Environment Claims STEADFAST INSURANCE COMPANY 1400 American Lane Schaumburg, IL 60196 Telephone: (847) 605-6049 STEADFAST INSURANCE COMPANY As of August 20, 1998 /s/ Katrina Von Hadermann - --------------------------- ------------------------------------ Date Katrina Von Hadermann FLEMING, HOVENKAMP & GRAYSON 1330 Post Oak Blvd., Suite 3030 Houston, Texas 77056-3019 Telephone: (713) 621-7944 -60- 61 As of August 20, 1998 /s/ Stuart H. Smith - --------------------------- ------------------------------------ Date Stuart H. Smith SACKS & SMITH 1615 Poydras Street, Suite 860 New Orleans, Louisiana 70112 Telephone: (504) 593-9600 As of August 20, 1998 /s/ John L. Young - --------------------------- ------------------------------------ Date John L. Young 915 St. Louis Street New Orleans, Louisiana 70112 Telephone: (504) 581-2200 As of August 20, 1998 /s/ Val P. Exnicios - --------------------------- ------------------------------------ Date Val P. Exnicios Liska, Exnicios & Nungesser 9701 Lake Forest Blvd. New Orleans, Louisiana 70127 Telephone: (504) 245-1612 As of August 20, 1998 /s/ Linnes Finney - --------------------------- ------------------------------------ Date Linnes Finney GARY, WILLIAMS, PARENTI, FINNEY, LEWIS, MCMANUS, WATSON & SPERANDO P.O. Box 3390 320 South Indian River Drive Fort Pierce, Florida 34948 Telephone: (561) 464-4226 As of August 20, 1998 /s/ Gladstone N. Jones, III - --------------------------- ------------------------------------ Date Gladstone N. Jones, III SMITH, JONES & FAWER, LLP 201 St. Charles Avenue, Suite 3702 New Orleans, Louisiana 70170 Telephone: (504) 525-2200 As of August 20, 1998 /s/ Jack W. Harang - --------------------------- ------------------------------------ Date Jack W. Harang Jack Harang, PLC -61- 62 3748 N. Causeway Blvd., Suite 303 Metairie, Louisiana 70002 Telephone: (504) 828-2777 As of August 20, 1998 /s/ Henry A. Dart - --------------------------- ------------------------------------ Date Henry A. Dart Henry A. Dart, PLC 3748 N. Causeway Blvd. Metairie, Louisiana 70002 Telephone: (504) 838-8383 As of August 20, 1998 /s/ Frank J. D'Amico, Jr. - --------------------------- ------------------------------------ Date Frank J. D'Amico, Jr. 622 Baronne St., 2nd Floor New Orleans, Louisiana 70130 Telephone: (504) 525-9561 As of August 20, 1998 /s/ Frank C. Dudenhefer, Jr. - --------------------------- ------------------------------------ Date Frank C. Dudenhefer, Jr. CUMMINGS, CUMMINGS & DUDENHEFER 416 Gravier Street New Orleans, Louisiana 70130-2499 Telephone: (504) 586-0000 As of August 20, 1998 /s/ David T. Cobb - --------------------------- ------------------------------------ Date David T. Cobb LAW OFFICE OF DAVID T. COBB P.O. Box 1619 Jackson, Mississippi 39236 Telephone: (601) 981-6835 As of August 20, 1998 /s/ Robert L. Johnson, III - --------------------------- ------------------------------------ Date Robert L. Johnson, III Post Office Box 1678 Natchez, Mississippi 39120 Telephone: (601) 442-9372 ATTORNEYS FOR THE MISSISSIPPI PLAINTIFFS -62- EX-21 5 SUBSIDIARIES 1 EXHIBIT 21 The following table sets forth certain information, as of March 29, 1999, 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. 100% France EDP, Inc. 100% Delaware Almat, Inc. 100% Delaware Na-Churs Plant Food Company 100% Delaware Alpine Plant Foods Corporation 100% Ontario, Canada Plant Products Company, Ltd. 100% Ontario, Canada V-J Growers Supply, Inc. 80% Delaware Nine West Corporation 100% Delaware Cedar Chemical Corporation 100% Delaware NMPC, Inc. 100% New Mexico Vicksburg Chemical Company 100% Delaware TRI Pro, Inc. 100% Delaware TRI Chem Rt. 100% Hungary EMV Kft. 100% Hungary
(1) Including approximately 7% owned by Trans-Resources (Israel) Ltd. (2) Including approximately 5% owned by Haifa Chemicals South, Ltd. E-8 EX-24 6 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, 1998 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 29, 1999 /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 and Secretary (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 Director /s/ Avi Pelossof -------------------------------------------- Avi Pelossof Director E-9 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 DEC-31-1998 12,387 0 90,998 0 95,442 278,912 411,534 150,949 599,286 168,778 414,432 0 7,960 0 (46,803) 599,286 423,558 423,558 336,544 336,544 51,221 0 37,605 (10,436) 3,882 (14,318) 0 (11,328) (1,253) (26,899) 0 0
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