<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
(Name of Small Business Issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2860 11-3199437
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
10 EDISON STREET, EAST
AMITYVILLE, NEW YORK 11701
(516) 842-7600
_______________________________________________________
(Address and telephone number of principal executive offices)
MR. PHILIP ROSNER, PRESIDENT
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
10 EDISON STREET, EAST
AMITYVILLE, NEW YORK 11701
(516) 842-7600
_______________________________________________________
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS
SENT TO AGENT FOR SERVICE, SHOULD BE SENT TO:
Jonathan J. Russo, Esq.
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
(212) 702-5714
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after
this Registration Statement becomes effective.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
(SEE NEXT PAGE)
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.................... 1,693,905(1)(2) $1.51(3) $2,557,797 $755
</TABLE>
(1) Includes the registration for sale of all the shares of Common Stock
issuable with respect to the following: (a) 387,655 shares of Common Stock
of the Company issued in connection with the Company's conversion of 9%
Convertible Subordinated Notes due October 17, 1998 in the aggregate
principal amount of $750,000, (b) 450,000 shares of Common Stock issuable
upon the exercise in full of warrants to purchase 450,000 shares of Common
Stock with an exercise price of $2.40 per share (subject to adjustments),
(c) 156,250 shares of Common Stock issuable upon the exercise in full of
warrants to purchase 156,250 shares of Common Stock with an exercise price
of $2.70 per share (subject to adjustments), (d) 600,000 shares of Common
Stock issuable upon the exercise in full of warrants to purchase 600,000
shares of Common Stock with an exercise price of $0.56 per share (subject to
adjustments), and (e) 100,000 shares of Common Stock issuable upon the
exercise in full of warrants to purchase 100,000 shares of Common Stock with
an exercise price of $2.40 per share (subject to adjustments).
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended, such
number of shares of Common Stock registered hereby shall include an
indeterminate number of additional shares of Common Stock which may be
issued upon the occurrence of certain events, including stock splits, stock
dividends and similar transactions.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
upon the average of the high and low sale prices of the Common Stock on the
Toronto Stock Exchange on January 16, 1998 of Cdn. $2.165, converted to
United States Dollars using the exchange rate in effect on such date of
1.4370 Cdn. Dollars to 1.00 U.S. Dollars.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 23, 1998
PROSPECTUS
1,693,905 SHARES OF COMMON STOCK
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
This prospectus (the "Prospectus") relates to the offer and sale (the
"Offering") by the selling security holders listed herein (the "Selling
Securityholders") of 1,693,905 shares of common stock, $0.01 par value per share
(the "Common Stock"), of Technology Flavors & Fragrances, Inc., a Delaware
corporation (the "Company"), of which 387,655 shares of Common Stock are issued
and outstanding in connection with the conversion of the Company's 9%
Convertible Subordinated Notes due October 17, 1998 in the aggregate principal
amount of $750,000 (the "Notes"), and an aggregate of 1,306,250 shares of Common
Stock issuable upon the exercise of warrants to purchase an aggregate of 450,000
shares of the Company's Common Stock (the "Class A Warrants"), warrants to
purchase an aggregate of 156,250 shares of the Company's Common Stock (the
"Class B Warrants"), warrants to purchase an aggregate of 600,000 shares of the
Company's Common Stock (the "SGI Warrants"), and warrants to purchase an
aggregate of 100,000 shares of the Company's Common Stock (the "North Fork
Warrants") (the Class A Warrants, Class B Warrants, SGI Warrants and the North
Fork Warrants are collectively referred to herein as, the "Warrants"). See
"Selling Securityholders," "Plan of Distribution" and "Description of Capital
Stock."
The Company will not receive any of the proceeds from the sale of the shares
of Common Stock being offered hereby since such securities are being offered by
the Selling Securityholders. However, assuming all of the Warrants held by the
Selling Securityholders were exercised in full by the payment of cash, the
Company expects to receive approximately $2.0 million in gross cash proceeds.
The Company expects to use the net proceeds it receives, if any, from the
exercise of the Warrants for working capital and other general corporate
purposes. See "Use of Proceeds."
The Common Stock is listed on the Toronto Stock Exchange under the symbol
"TFF" and is traded from time to time on the Nasdaq OTC Bulletin Board under the
symbol "TFFI." On January 16, 1998, the closing sale price of the Common Stock
as reported on the Toronto Stock Exchange was Cdn. $2.18 per share (U.S. $1.52)
and the closing bid price of the Common Stock on the Nasdaq OTC Bulletin Board
was $1.56 per share.
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
The Selling Securityholders and any other person participating in the
distribution of the shares of Common Stock offered hereby will be subject to
applicable provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder, including
Rules 101 through 104, and such provisions may limit the timing of purchases and
sales of shares. The shares of Common Stock offered hereby may be offered and
sold from time to time pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Securities Act"), by the Selling Securityholders in one or more
transactions on the Toronto Stock Exchange (the "TSE") or the Nasdaq OTC
Bulletin Board, in negotiated transactions, or in a combination of such
transactions. The shares of Common Stock may be sold at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Securityholders may effect such transactions by
selling the shares of Common Stock directly to purchasers or through
underwriters or broker-dealers who may effect such transactions by selling the
shares directly to purchasers or through underwriters or broker-dealers who may
act as agents or principals. Underwriters or broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders or the purchasers of the shares for whom the
underwriters or broker-dealers may act as agent or to whom they sell as
principal or both.
THE DATE OF THIS PROSPECTUS IS JANUARY , 1998
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety to, and should be read in
conjunction with, the more detailed information and the consolidated financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Certain statements made in this Prospectus constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. See
"Risk Factors--Forward-Looking Statements."
Unless the context otherwise requires, (i) the term "Company" refers to
Technology Flavors & Fragrances, Inc., a Delaware corporation, together with its
wholly-owned subsidiary, Technology Flavors & Fragrances, Inc. (Canada), and
(ii) all references to "dollars" refer to U.S. dollars.
THE COMPANY
The Company develops, manufactures and markets flavors, fragrances and
seasonings that are incorporated by its customers into a wide variety of
consumer and institutional products including natural and artificial flavored
beverages, confections, foods, tobaccos, pharmaceuticals, aromatherapy essential
oils, perfumes, and health and beauty products. The Company's proprietary
formulations are currently used in more than 1,500 products sold by more than
500 companies worldwide, approximately 50 of which are Fortune 1,000 companies.
The Company's principal product categories include natural flavors,
artificial flavors, seasonings and fragrances. The five largest end-user
categories for the Company's products are beverages, snack foods, confections,
cosmetics and tobacco. The Company's flavor formulations are sold primarily to
the beverage, food and tobacco industries. Its principal flavor product lines
include sweet goods, culinary, savory, dairy and tobacco flavorings and
seasonings. Examples of consumer products containing the Company's flavor
products include confections, toothpaste, chewing gums, prepared foods, ice
creams, animal feeds, candy, tobacco, alcoholic and non-alcoholic beverages,
poultry and seafood, processed meats and snack foods. The Company's fragrance
products which are derived from proprietary formulations are sold primarily to
the personal care, cosmetic and toiletry, and household and industrial product
industries. These products are used by the Company's customers in the
manufacture of a wide variety of consumer products, such as soaps, detergents,
household cleaners, cosmetic creams, lotions and powders, after-shave lotions,
deodorants, air fresheners, perfumes, colognes, aromatherapy oils and hair care
products.
The Company was incorporated in New York in 1989 under the name "Aroma
Globe, Inc." It later changed its name to "Technology Flavors & Fragrances,
Inc." in May 1991, when it acquired the assets and business of another company
by that name. Since then, the Company has continued to expand its operations
primarily through acquisitions of other businesses and internal growth. In 1993,
the Company reincorporated in Delaware. The Company's executive offices are
located in Amityville, New York while its manufacturing, research and
development, sales and marketing, and distribution facilities are located in
Amityville, New York and Milford, Ohio. See "Business--History."
The Company's Common Stock is listed on the Toronto Stock Exchange under the
symbol "TFF" and is traded from time to time on the Nasdaq OTC Bulletin Board
under the symbol "TFFI." On January 16, 1998, the closing sale price of the
Common Stock as reported on the Toronto Stock Exchange was Cdn. $2.18 per share
(U.S. $1.52) and the closing bid price of the Common Stock on the Nasdaq OTC
Bulletin Board was $1.56 per share.
The Company's principal executive offices are located at 10 Edison Street,
East, Amityville, New York 11701. The Company's telephone number is (516)
842-7600.
2
<PAGE>
THE OFFERING
All of the shares of Common Stock being offered hereby are being sold by the
Selling Securityholders. The Company will not receive any of the proceeds from
the sale of the shares offered hereby. See "Use of Proceeds" and "Selling
Securityholders."
RISK FACTORS
Prospective purchasers are urged to consider the information set forth under
the caption "Risk Factors" beginning on page 5 of this Prospectus in evaluating
an investment in the Common Stock offered hereby.
3
<PAGE>
SUMMARY OF FINANCIAL DATA
The following summary financial data concerning the Company for the years
ended December 31, 1996 and 1995, and for the nine months ended September 30,
1997 and September 30, 1996 are derived from the consolidated financial
statements of the Company. The data presented for the years ended December 31,
1996 and 1995 have been derived from the audited consolidated financial
statements of the Company which appear elsewhere in this Prospectus and the data
presented as of September 30, 1997 and for the nine months ended September 30,
1997 and 1996 have been derived from the unaudited consolidated financial
statements of the Company which appear elsewhere in this Prospectus. The
operating results for interim periods are not necessarily indicative of the
Company's results of operations for the full year. The summary financial data
should be read in conjunction with "Management's Discussion and Analysis,"
"Business" and the consolidated financial statements and notes thereto of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1995 1997 1996
--------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(DOLLAR AMOUNTS IN (DOLLAR AMOUNTS IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................................................. $ 21,018 $ 15,192 $ 19,714 $ 16,029
Gross profit.......................................................... 7,863 5,833 7,770 6,275
Operating expenses:
Selling............................................................. 3,543 2,458 2,646 2,381
General and administrative.......................................... 3,492 2,012 1,960 2,222
Research and development............................................ 1,972 1,146 1,492 1,163
Amortization expense................................................ 833 449 669 536
Income (loss) from operations......................................... (1,977) (232) 1,003 (27)
Interest expense, net................................................. 558 115 548 396
Provision for income taxes............................................ 3 20 9 3
Net income (loss)..................................................... (2,538) (367) 446 (426)
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1997
--------------------
<S> <C>
BALANCE SHEET DATA:
Working capital........................................................................... $ 5,486
Total assets.............................................................................. 16,251
Long-term debt............................................................................ 6,995
Total stockholders' equity................................................................ 5,881
</TABLE>
4
<PAGE>
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk.
Prior to making an investment decision, prospective purchasers should carefully
consider the following risk factors in addition to the other information
contained elsewhere in this Prospectus relating to the Company and this
Offering.
HISTORY OF LOSSES; SIGNIFICANT ACCUMULATED DEFICIT
The Company has incurred net losses for each of the three years ended
December 31, 1994, December 31, 1995 and December 31, 1996. For the three years
ended December 31, 1994, 1995 and 1996, the Company's net losses were
approximately $299,000, $367,000 and 2,538,000, respectively, and for the nine
months ended September 30, 1996 and 1997, the Company reported a net loss of
approximately $426,000 and net income of approximately $446,000, respectively.
However, during the fourth quarter of 1997, the Company experienced a
significant decrease in net sales and expects the reduction to have an
unfavorable impact on its 1997 results of operations. Accordingly, the Company
is likely to incur additional losses in 1997. Any losses incurred by the Company
in the future could be substantial and could have a material adverse effect on
the Company. In addition, at September 30, 1997, the Company had an accumulated
deficit of approximately $3.4 million. There can be no assurance that the
Company will be able to achieve or sustain any level of profitability in the
future. Future operating results will depend on a number of factors, including
demand for the Company's products, market acceptance of new products, and
prevailing economic conditions. See "Management's Discussion and Analysis."
SUBSTANTIAL INDEBTEDNESS; DEFAULT ON SENIOR INDEBTEDNESS
The Company has incurred substantial indebtedness in the past and is highly
leveraged. At September 30, 1997, the Company had approximately $7.2 million of
long-term debt outstanding, including current maturities of approximately
$200,000, without giving effect to the Company's October 1997 Refinancing (as
defined below). The Company's high degree of leverage will have important
consequences, including the following: (i) the dedication of a substantial
portion of the Company's cash flow from operations to the payment of interest in
respect of its debt obligations, which will reduce the funds available to the
Company for its operations and future business opportunities; (ii) the
impairment of the Company's ability to obtain additional financing in the future
for working capital, capital expenditures, acquisitions, general corporate or
other purposes; and (iii) the vulnerability of the Company to a downturn in its
business or the economy generally. Any inability of the Company to service its
indebtedness or other obligations could have a significant adverse effect on the
market value and marketability of the Common Stock.
The Company's ability to pay the interest and principal on the Company's
indebtedness is dependent upon its future profitability (if any) and cash flow.
The Company has historically incurred losses from its operations and
consequently has been unable to generate sufficient cash flow from its
operations to meet its expenses. In addition, the breach of any of the covenants
or restrictions pursuant to the Company's debt obligations could result in a
default thereunder which would permit the lender to declare all amounts borrowed
thereunder to be due and payable, together with accrued and unpaid interest. If
the Company were unable to repay such indebtedness, the lender could proceed
against the collateral securing such indebtedness, which consists of
substantially all the assets of the Company. Accordingly, the failure of the
Company to pay its obligations could have a material adverse effect on the
Company. See "Management's Discussion and Analysis--Liquidity and Capital
Resources."
As of January 16, 1998, the Company is in violation of two financial
covenants in the credit agreement relating to its senior, secured credit
facility (the "1997 Credit Facility"). The Company is seeking a waiver from its
lender with respect to such default, but there can be no assurance that the
Company will obtain the waiver. If the Company is unable to obtain the waiver,
the lender may declare the indebtedness under the facility to be immediately due
and payable and, in the event the Company is unable to satisfy its
5
<PAGE>
obligations, the lender can proceed to foreclose on the assets of the Company
pledged as collateral, which are substantially all of the Company's assets.
There can be no assurance that the lender will not foreclose on the assets of
the Company or take other action detrimental to the Company. See "Management's
Discussion and Analysis--Liquidity and Capital Resources" and
"Business--History."
NEED FOR ADDITIONAL FINANCING; COVENANTS OF THE CREDIT AGREEMENT
The Company's working capital at September 30, 1997 was approximately $5.5
million (without giving effect to the Company's October 1997 Refinancing).
Historically, the Company's financing needs have been met through the issuances
of equity and debt securities as well as maintaining a senior, secured credit
facility. The Company's 1997 Credit Facility (as defined below) consists of a
$6.0 million revolving credit facility and a $750,000 term loan facility.
Borrowings under the credit facility are secured by substantially all of the
assets of the Company. As of January 16, 1998, the Company had outstanding
borrowings of approximately $4,825,000 under the revolving loan facility and
approximately $713,000 under the term loan facility, and approximately $390,000
was available for borrowing by the Company under the revolving facility, subject
to the restrictions contained therein. The Company believes it has adequate
capital to fund current operations for at least the next 12 months, assuming it
can obtain a waiver from its lender with respect to the indebtedness outstanding
under the 1997 Credit Facility (see "--Substantial Indebtedness; Default on
Senior Indebtedness"). However, the Company may be required to obtain additional
financing earlier in order to continue its operations or otherwise. There can be
no assurance that additional funds will be available when needed, or if
available, will be on favorable terms or in the amounts required by the Company.
If adequate funds are not available to the Company when needed, it may be
required to delay, scale back or eliminate some or all of its marketing and
development efforts or other operations, which will have a material adverse
effect on the Company's business, results of operations and prospects. Future
issuances of the Company's securities will cause dilution to the Company's then
existing stockholders, which in certain circumstances could be substantial. See
"Management's Discussion and Analysis-- Liquidity and Capital Resources."
Under the credit agreement relating to the Company's 1997 Credit Facility,
the Company is prohibited from incurring any indebtedness other than, among
other things, existing indebtedness, subordinated debt (with the consent of the
bank), and unsecured trade indebtedness in the ordinary course of business, and
is restricted in its ability to incur liens, make investments, sell assets, make
acquisitions and pay dividends. The Company's inability to incur additional
indebtedness when additional funds are needed may cause it to delay, scale back
or eliminate some or all of its operations which could have a material adverse
effect on its operations. In addition, in the event of a default under the
credit agreement the lender may foreclose on substantially all of the Company's
assets. See "Management's Discussion and Analysis-- Liquidity and Capital
Resources" and "Business--History."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates," "may,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company (or industry results, performance or
achievements) expressed or implied by such forward-looking statements to be
substantially different from those predicted. Such factors include, among
others, the following: general economic and business conditions, both nationally
and in the regions in which the Company operates; competition; changes in
business strategy or development plans; the development or testing of the
Company's products; technological, manufacturing, quality control or other
problems which could delay the sale of the Company's products; the Company's
inability to obtain appropriate licenses from third parties, protect its trade
secrets, operate without infringing upon the proprietary rights of others and
prevent others from
6
<PAGE>
infringing on the proprietary rights of the Company; the Company's inability to
obtain sufficient financing to continue operations; and changes in demand for
products of the Company's customers. Certain of these factors are discussed in
more detail elsewhere in this Prospectus, including, without limitation, under
the captions "Risk Factors," "Management's Discussion and Analysis" and
"Business."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the services of its management, key
personnel and other individuals. The loss of the services of one or more of the
Company's executive officers or other key persons, including Philip Rosner, the
Company's Chairman and President, and A. Gary Frumberg, the Company's Executive
Vice President, could have a material adverse effect on the Company. Messrs.
Rosner and Frumberg each have substantial experience in the flavor and fragrance
business. The Company's future success depends, in large part, on the continued
service of Messrs. Rosner and Frumberg and other key management, technical and
sales personnel. Although the Company has employment agreements with Messrs.
Rosner and Frumberg, there can be no assurance that they or any other of the
Company's employees will remain with the Company or that, in the future, any
former employee will not organize a competitive business or render services to a
competitor of the Company. The Company's success will also depend on its ability
to attract and retain additional highly skilled personnel in all areas of its
business. The competition for qualified personnel in the Company's industry is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining personnel. See "Management."
UNCERTAINTY OF PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company considers its flavor, fragrance and seasonings formulas to be
proprietary information and trade secrets. The Company does not, however,
generally rely on patents, copyrights or trademarks to protect its proprietary
rights in its formulations. There can be no assurance that the Company's current
protections will be adequate or that the Company's competitors will not
independently develop flavors, fragrances and seasonings that are substantially
equivalent or superior to the Company's flavors, fragrances and seasonings.
A substantial portion of the Company's technology and know-how are trade
secrets. The Company has a policy of requiring its employees and contractors to
respect its proprietary information through written agreements. In addition, the
Company has a policy of requiring prospective business partners to enter into
non-disclosure agreements before any of the Company's proprietary information is
revealed to them. There can be no assurance that the measures taken by the
Company to protect its technology, products and other proprietary rights will
adequately protect the Company against improper use of the technology, products
or other proprietary rights. Further, there can be no assurance that others will
not independently develop substantially equivalent proprietary information and
technologies, or otherwise gain access to the Company's trade secrets.
The Company may be required to take various forms of legal actions, from
time to time, to protect its proprietary rights. Because of the rapid evolution
of technology and uncertainties in intellectual property laws in the United
States and internationally, there can be no assurance that the Company's current
or future products or technologies will not be subject to claims of
infringement. Any litigation regarding claims against the Company or claims made
by the Company against others could result in significant expense to the
Company, divert the efforts of its technical and management personnel and have a
material adverse effect on the Company, whether or not such litigation is
ultimately resolved in favor of the Company. In the event of an adverse result
in any such litigation, the Company may be required to expend significant
resources to develop non-infringing products or obtain licenses from third
parties. There can be no assurance that the Company would be successful in such
development or that any such licenses would be available on commercially
reasonable terms, if at all. See "Business--Proprietary Rights."
7
<PAGE>
POTENTIAL PRODUCT LIABILITY CLAIMS; AVAILABILITY OF INSURANCE
The testing, marketing, manufacturing and sale of the Company's products
could expose the Company to the risk of product liability claims. The Company
believes it has obtained product liability insurance and other insurance in
amounts that it considers appropriate. However, there can be no assurance that
such insurance will continue to be available to the Company on acceptable terms,
if at all, or that such insurance will be sufficient to protect the Company
against claims. A product liability claim made against the Company could have a
material adverse effect on its business, financial condition or reputation. See
"Business--Governmental Regulations."
DEPENDENCY ON RELATIONSHIPS WITH CUSTOMERS; SIGNIFICANT CUSTOMERS
In general, the Company develops and produces flavor, fragrance and
seasonings formulations specifically for each customer. However, the Company
does not typically enter into agreements with its customers, but rather relies
on its relationships in proceeding with the development, production and sale of
flavor or fragrance products. Therefore, the development and sale of the
Company's products relies substantially on its personnel maintaining
satisfactory relationships with its customers rather than long-term contractual
arrangements. No assurance can be given that such relationships will continue in
the future.
No customer accounted for more than 10% of the Company's revenues in 1995 or
1996. However, for the year ended December 31, 1997, the Company estimates that
one customer accounted for approximately 16% of the Company's revenues and the
top ten customers accounted for approximately 41% of the Company's revenues.
Accordingly, the Company's operations could be adversely affected if the Company
loses one or more of its significant customers. See "Business--Customers."
DISRUPTIONS IN AVAILABILITY OF RAW MATERIALS
The Company currently uses over 1,200 different raw materials in the
preparation of its flavor and fragrance formulations. Considerable effort is
given to ensuring that these materials remain uniform and consistent over
time--a critical process since many of the materials are inherently unstable
and/or are derived from plants that vary naturally with seasons and crop years.
In addition, the Company purchases its raw materials from various suppliers.
There can be no assurance that the Company will continue to have access to the
materials on an as-needed basis and that such materials will continue to have
the same characteristics over time. In addition, there can be no assurance that
alternate sources of raw materials are available if an interruption in the
supply of raw materials from a single supplier occurs. See "Business-- Raw
Materials."
SEASONALITY OF BUSINESS
The Company's business has historically been subject to seasonal cycles
caused primarily by the demand for beverages and snack foods sold by its
customers. Generally, the Company's operating results for the quarters ending
June 30 and September 30 are more favorable than the quarters ending March 31
and December 31. Adverse business or economic conditions may adversely affect
the Company's results of operations for any quarter, and consequently, for the
full year. In addition, such fluctuations may adversely effect the market price
of the Company's Common Stock. Due to the seasonality of the business, the
Company's financial results for a particular quarter may not be indicative of
the Company's results for an entire year. In addition, in the event that the
Company's results of operations are below the expectation of market analysts and
investors, the market price of the Common Stock could be adversely affected. See
"Business--Seasonality."
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GOVERNMENTAL REGULATIONS
Production of many of the Company's products involves the manufacture of
flavors and seasonings for foods and beverages, the handling of alcohol and the
generation, storage, transportation and disposal of hazardous waste.
Accordingly, the Company's operations are subject to extensive federal, state
and local laws and regulations relating to such matters, and to the safety and
health of the Company's employees. Although there can be no assurance, the
Company believes that it currently complies in all material respects with such
laws and regulations. The Company could be subject to, among other things,
sanctions, penalties (including significant fines), and suspension or revocation
of required licenses or permits for failure to comply with applicable
governmental laws or regulations. Any of these actions could have a material
adverse effect on the results of the operations of the Company in any given
year, or materially effect the Company's liquidity or financial position over a
longer period of time. At this time, the Company is unable to anticipate the
impact, if any, that subsequent changes or new interpretations to applicable
regulations may have on the Company's business, financial condition or results
of operations. See "Business--Governmental Regulations."
COMPETITION
The flavor, fragrance and seasoning industries are highly fragmented with a
few large companies, such as International Flavors & Fragrances Inc., Haarmann &
Reimer Corporation and Firmenich, Inc., competing against many smaller ones.
Certain of the Company's competitors have substantially greater financial,
marketing and other resources than the Company. Recently there have been trends
towards increased concentration as companies vertically integrate with suppliers
and expand horizontally through acquisitions. The Company believes that its
competitiveness depends upon its creativity, responsiveness and reliability, as
well as the diversity of its customers and products. There can be no assurance
that the Company will have the resources and technology to continue to
successfully compete.
The markets in which the Company competes are subject to rapid and
significant changes, frequent introductions of new products and product
enhancements and the development of new products. Since the markets for the
Company's products change, the Company believes that its products will be
subject to such changes. There can be no assurance that the Company will be able
to develop new products or enhance existing products in a timely manner in order
to respond to market demands or that changes in consumer tastes will not have a
material adverse effect on the Company.
The Company believes that the principal competitive factors in the markets
for flavor, fragrance and seasonings products are the ability to develop
flavors, fragrances and seasonsings which are able to withstand the rigors of
processing, storage, and final preparation and able to maintain the integrity of
the basic taste and scent characteristics for the useful life of the final
product. There can be no assurance that the Company will be able to develop new
products to meet the changing demands of the marketplace, and consequently, be
competitive as these industries evolve, market demands change and the Company's
competitors apply substantial resources toward the development of new products
and technologies. In addition, the Company's competitors may develop products
that are more effective or in greater demand than those products developed by
the Company. See "Business--Industry Overview" and "--Competition."
CONTROL BY EXISTING STOCKHOLDERS
As of January 16, 1998, the Company's executive officers, directors and
existing principal stockholders (excluding the shares of Common Stock
beneficially owned by Strategic Growth International, Inc. (see "Beneficial
Ownership" and "Selling Securityholders")) may be deemed to beneficially own
approximately 41.1% of the Company's shares of Common Stock, assuming holders of
all outstanding options, warrants and other securities held by such persons
which may be exercised or converted into, or exchanged for, shares of Common
Stock within 60 days from such date are exercised or converted in full. As a
result, if
9
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such individuals were to act collectively as stockholders, they would have the
ability to substantially influence matters requiring stockholder approval,
including the election of directors and other matters to be voted on by the
Company's stockholders with respect to the business and affairs of the Company.
See "Beneficial Ownership" and "Description of Capital Stock."
EFFECT OF EXERCISE OF WARRANTS; DILUTION
Assuming the exercise of all of the Warrants held by the Selling
Securityholders, the Company is obligated to issue approximately 1,306,250
shares of Common Stock, representing approximately 10.6% of the issued and
outstanding shares of Common Stock of the Company as of January 16, 1998.
Accordingly, the exercise of the Warrants and similar securities has, and the
issuance of any other securities or interests which are exercisable for, or
convertible into, shares of Common Stock will have, a dilutive effect, which
could be substantial, on the currently and then outstanding shares of Common
Stock, respectively. See "Description of Capital Stock" and "Selling
Securityholders." In addition, the Company has granted stock options to purchase
an aggregate of approximately 1,202,000 shares of Common Stock under two stock
option plans. The exercise of the stock options and the issuance of shares of
Common Stock pursuant thereto will have a further dilutive effect on the
outstanding shares of Common Stock. See "Executive Compensation."
NO ANTICIPATED DIVIDENDS ON THE COMMON STOCK
To date, the Company has not paid cash dividends on its Common Stock and
does not anticipate paying such dividends in the foreseeable future. The
declaration and payment of dividends on the Common Stock is within the
discretion of the Company's Board of Directors and will depend on, among other
things, the Company's operating results, financial condition, capital
requirements, contractual restrictions or prohibitions with respect to the
payment of dividends, and such other factors as the Board of Directors may deem
relevant. The credit agreement relating to the Company's 1997 Credit Facility
prohibits the payment of cash dividends. See "--Need for Additional Financing;
Covenants of the Credit Agreement" and "Dividend Policy."
POSSIBLE STOCK PRICE VOLATILITY
The Company's Common Stock is listed on the Toronto Stock Exchange and
quoted on the Nasdaq OTC Bulletin Board. In recent years, stock prices of
consumer chemical companies such as the Company have experienced significant
volatility due to changes in consumer tastes and fads and such fluctuations were
not necessarily related to the operating performance of these companies. The
market price of the Company's Common Stock has been and could be subject to
significant fluctuations as a result of variations in its operating results,
announcements of technological innovations or new products by the Company or its
competitors, announcements of new strategic relationships by the Company or its
competitors, general conditions in the flavor and fragrance industry or market
conditions unrelated to the Company's business and operating results. See
"Business--Industry Overview" and "Market for Common Equity and Related
Stockholder Matters."
EFFECT OF DELISTING OF COMMON STOCK
The Company's Common Stock is listed on the Toronto Stock Exchange and
quoted on the Nasdaq OTC Bulletin Board. The Company is required to satisfy
continued listing requirements pursuant to the Toronto Stock Exchange rules in
order for the Common Stock (including the shares offered hereby) to remain
eligible for such listing. As of the date of this Prospectus, the Company
believes it meets these requirements. There can be no assurance, however, that
the Company will satisfy the Toronto Stock Exchange's continued listing
requirements in the future.
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<PAGE>
If the Company fails to meet any of the Toronto Stock Exchange's continued
listing requirements, the Common Stock may be delisted from the Toronto Stock
Exchange. In such event, there can be no assurance that trading in the Common
Stock will continue (through the OTC Bulletin Board or otherwise). Any delisting
of the Common Stock may adversely affect a holder's ability to dispose of, or to
obtain quotations as to the market value of, the Common Stock. In addition, any
delisting may cause the Common Stock to be subject to "penny stock" regulations
promulgated by the Securities and Exchange Commission or similar rules
promulgated under the Ontario Securities Act, if any. Under such regulations,
broker-dealers are required to, among other things, comply with disclosure and
special suitability determinations prior to the sale of the Common Stock. If the
Common Stock becomes subject to these regulations, the market price of the
Common Stock and the liquidity thereof could be adversely affected. See
"Business," "Description of Capital Stock," and "Market for Common Equity and
Related Stockholders Matters."
SHARES ELIGIBLE FOR FUTURE SALE
As of January 16, 1998, approximately 12,375,000 shares of Common Stock were
issued and outstanding, of which approximately 12,345,000 shares of Common Stock
are available for sale pursuant to the provisions of Rule 144 under the
Securities Act (including 387,655 shares offered hereby that were issued by the
Company in connection with the October 1997 Refinancing (as defined below), and
approximately 647,123 and 428,399 shares of Common Stock owned by Messrs. Rosner
and Frumberg, respectively, which shares are held in escrow and generally may
not be sold until October 28, 1998 without the consent of the Ontario Securities
Commission). No prediction can be made as to the effect that future sales of
Common Stock will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Common Stock and could impair the Company's ability to raise capital through
the future sale of equity securities. See "Beneficial Ownership" and
"Description of Capital Stock."
STATE REGISTRATION REQUIRED FOR SALES OF SHARES
Under the securities laws of certain states, the shares of Common Stock
offered hereby may not be sold unless they are qualified for sale or are exempt
from registration under the state securities laws of the state in which the
prospective purchaser resides. The Company is contractually obligated to use its
best efforts to register and qualify the shares offered hereby under applicable
state securities laws in such jurisdictions as may be reasonably requested by
the Selling Securityholders.
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<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the shares
of Common Stock being offered hereby since such securities are being offered by
the Selling Securityholders. However, assuming all of the Warrants held by the
Selling Securityholders were exercised in full for cash, the Company expects to
receive approximately $2.0 million in gross cash proceeds. The Company expects
to use the net proceeds it receives, if any, from the exercise of the Warrants
for working capital and other general corporate purposes. The foregoing use of
proceeds is only a prediction and the Company reserves the right to reallocate
the foregoing use to such other uses as it deems appropriate. See "Risk
Factors--Substantial Indebtedness; Default on Senior Indebtedness."
Based on the Company's current plan of operations, the Company believes that
its existing working capital and expected operating revenues, together with its
credit facility, will provide it with sufficient working capital for its
operations for at least the next 12 months, assuming it can obtain a waiver from
its lender with respect to the indebtedness outstanding under the 1997 Credit
Facility (see "Risk Factors-- Substantial Indebtedness; Default on Senior
Indebtedness.") However, there can be no assurance that the Company will not
require additional funds prior to that time. The Company's capital requirements
depend on, among other things, whether the Company is successful in generating
revenues and income, the ability of the Company to successfully market its
products and the effect of such efforts on the Company's operations, market
developments, the costs involved in protecting and enforcing its proprietary
rights and any litigation related thereto and the cost and availability of
third-party financing. See "Risk Factors," "Business" and "Plan of
Distribution."
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common Stock and
does not anticipate paying such dividends in the foreseeable future. The
declaration and payment of dividends on the Common Stock is within the
discretion of the Board of Directors and will depend on, among other things, the
Company's operating results, financial condition, capital requirements,
contractual restrictions or prohibitions with respect to the payment of
dividends, and such other factors as the Board of Directors may deem relevant.
The credit agreement relating to the Company's 1997 Credit Facility prohibits
the payment of cash dividends. See "Risk Factors--No Anticipated Dividends on
the Common Stock" and "Management's Discussion and Analysis--Liquidity and
Capital Resources."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
1996. In 1996, the Company expanded its operations through (i) increased
research and development activities, (ii) increased marketing activities and
(iii) increased diversification of its marketing channels. In addition, the
Company made significant technological investments, particularly during the
latter part of the year, to enhance its position as a multi-product,
multi-customer company in the flavors, fragrances and seasonings markets.
Towards the end of 1996, the Company focused its efforts on the development and
implementation of a strategic business plan related primarily to cost reduction
and containment and aggressive sales and marketing strategies in order to
increase sales.
In order to meet established growth objectives, the Company hired a number
of additional key management, sales, marketing, and technical R&D personnel in
1996. The investment in personnel initially had an unfavorable cost impact on
the Company. As part of its business strategy, the Company invested over 9% of
its net sales into expanded R&D activities. The Company's continued commitment
to R&D is expected to result in new and innovative products in the future.
During the latter part of 1996, the Company incurred approximately $781,000 in
research and development, start-up and pre-production costs relating to a 1997
product launch for one of its significant customers. Although such costs were
expensed in 1996, product sales began in early 1997.
1997. In 1997, the Company focused its efforts on achieving the goals
identified in its strategic business plan. During the year, the Company
implemented cost reductions which resulted in a net reduction in its 1997
estimated general and administrative expenses of approximately $940,000. During
the fourth quarter of 1997, the Company identified further cost reduction
measures which could result in reduction of approximately $376,000 and expects
to implement these measures during 1998.
In 1997, the Company continued expanding its sales and marketing activities,
particularly in the fragrance division where it hired additional sales
professionals and increased its marketing efforts. Such additional expenditures
in the fragrance division are expected to support anticipated future growth.
During 1997, the Company also continued its commitment to R&D by investing
approximately $2.0 million, or 8% of estimated net sales in 1997, in R&D. During
the year, the Company introduced numerous new products to new and existing
customers and is currently in the process of developing numerous other products,
some of which the Company anticipates launching in 1998.
During the fourth quarter of 1997, the Company experienced a significant
decrease in net sales due principally to a weakening of the flavor industry, a
reduction in shipments of a new product line to a significant customer and
delays in new product launches. The Company expects the reduction in net sales
to have a significant unfavorable impact on the results of operations for the
quarter which is expected to result in a net loss for the year.
RESULTS OF OPERATIONS
The following table sets forth financial data of the Company for the nine
months ended September 30, 1997 and September 30, 1996, and for the years ended
December 31, 1996 and December 31, 1995, respectively. The historical financial
data for the years ended December 31, 1996 and 1995 are derived from the audited
financial statements of the Company. The financial data for the Company for the
nine months ended September 30, 1997 and September 30, 1996 are derived from the
unaudited financial statements of the Company, but, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of results for the interim
periods. The operating results for interim periods are not necessarily
indicative of results for the full fiscal year. This
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<PAGE>
historical financial data should be read in conjunction with the Company's
financial statements and the notes thereto, and other information concerning the
Company, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------------------ ------------------------------------------
1997 1996 1996 1995
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 19,714 100.0% $ 16,029 100.0% $ 21,018 100.0% $ 15,192 100.0%
Gross profit................... 7,770 39.4 6,275 39.1 7,863 37.4 5,833 38.4
Operating expenses:
Selling...................... 2,646 13.4 2,381 14.9 3,543 16.9 2,458 16.2
General and administrative... 1,960 9.9 2,222 13.9 3,492 16.6 2,012 13.2
Research and development..... 1,492 7.6 1,163 7.3 1,972 9.4 1,146 7.5
Amortization expense......... 669 3.4 536 3.3 833 4.0 449 3.0
Income (loss) from
operations................... 1,003 5.1 (27) (.2) (1,977) 9.4 (232) 1.5
Interest expense, net.......... 548 2.8 396 2.5 558 2.7 115 0.8
Provision for income taxes..... 9 -- 3 -- 3 -- 20 0.1
Net income (loss).............. 446 2.3 (426) (2.7) (2,538) 12.1 (367) 2.4
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET SALES. Net sales increased 23% to $19,714,000 for the nine months ended
September 30, 1997 from $16,029,000 for the comparable nine months of 1996. The
increase was primarily due to shipments of several new flavor and fragrance
products to new and existing customers relative to increased marketing
activities and shipments of a new flavor product to a significant customer
during the first and second quarters of 1997.
GROSS PROFIT. The gross profit percentage of 39.4% for the nine month
period ended September 30, 1997 was consistent with the gross profit percentage
of 39.1% reported for the same nine month period in 1996.
SELLING EXPENSES. Selling expenses increased 11.1% to $2,646,000 for the
nine months ended September 30, 1997 from $2,381,000 for the comparable 1996
period. The increase was due principally to the hiring of additional sales
personnel and expanded sales support and increased sales commissions on higher
volume sales. Selling expenses, as a percentage of sales, decreased to 13.4% for
the nine months ended September 30, 1997 from 14.9% for the comparable nine
month period in 1996 as a result of increased sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased by 11.8% to $1,960,000 for the nine months ended September 30, 1997
from $2,222,000 for the nine month period in 1996. The decrease was primarily as
a result of the effects of the Company's cost reduction program implemented
during the latter part of the fourth quarter of 1996. General and administrative
expenses, as a percentage of sales, decreased to 9.9% for the nine months ended
September 30, 1997 from 13.9% for the nine months ended September 30, 1996 as a
result of cost reductions and increased sales volume.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 28.3% to $1,492,000 for the nine months ended September 30, 1997 from
$1,163,000 for the nine month period in 1996 due to expanded research and
development projects and the hiring of additional technical personnel during the
period.
AMORTIZATION EXPENSE. Amortization expense increased to $669,000 for the
nine months ended September 30, 1997 from $536,000 for the comparable nine month
period in 1996. The increase was due principally to the amortization of deferred
charges associated with the Company's $1.5 million convertible debt financing
consummated in October 1996. See "--Liquidity and Capital Resources."
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INTEREST EXPENSE, NET. Interest expense increased to $548,000 for the nine
months ended September 30, 1997 from $396,000 for the nine months ended
September 30, 1996. The increase was primarily due to the additional long-term
debt incurred by the Company in October 1996 in connection with the $1.5 million
convertible debt financing. See "--Liquidity and Capital Resources."
PROVISION FOR INCOME TAXES. Provision for income taxes represents state
franchise taxes. No federal income tax provision for the nine months ended
September 30, 1997 was provided due to the Company's utilization of available
net operating loss carryforwards.
YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased 38% to $21,018,000 for the year ended
December 31, 1996 from $15,192,000 for the year ended December 31, 1995
primarily due to 1996 sales of $5,345,000 contributed by the Seasonings
Division, which first commenced operations in December 1995 as a result of the
acquisition of assets of Seafla, Inc. See " Business--History". The balance of
the sales increase came principally from the Company's flavor products. By
expanding the customer base of the Seasonings Division to include those of the
Company, sales generated from the Seasonings Division in 1996 were $1,120,000
higher than in 1995.
GROSS PROFIT. Gross profit, as a percentage of sales, decreased to 37.4% on
sales of $21.0 million for the year ended December 31, 1996 as compared to 38.4%
on sales of $15.2 million for 1995, principally as a result of the Seasonings
Division, which operated historically at a gross profit of approximately 36%.
SELLING EXPENSES. Selling expenses increased 44.1% to $3,543,000 for the
year ended December 31, 1996 from $2,458,000 for 1995. The increase was
primarily attributable to the Seafla Acquisition (as defined below), which
resulted in additional selling expenses in 1996 of $731,000. The balance of the
increase resulted from the expansion of the Company's sales and marketing
activities, including the addition of personnel and increased expenditures for
sales support, and costs associated with the Company's share of certain
co-operative start-up marketing and advertising costs incurred by a significant
Company customer associated with a new product scheduled for production during
the first quarter of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
rose 73.6% to $3,492,000 for the year ended December 31, 1996 from $2,012,000 in
1995. The Seafla Acquisition resulted in $751,000 of the incremental costs,
while the hiring of additional key management personnel and higher professional
and consulting services fees, occurring principally during the second half of
1996, also contributed to such increase. In addition, during the fourth quarter
of 1996, the Company incurred approximately $122,000 of costs associated with
the start-up and pre-production phases of a major product development program by
a significant Company customer which commenced production in early 1997. The
Company began implementing a comprehensive cost containment program late in the
fourth quarter of 1996. See "--Overview".
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 72.1% to $1,972,000 in 1996 from $1,146,000 in 1995. The Seasonings
Division accounted for $383,000 of the increase while the balance principally
pertaining to costs associated with a major product development program by a
significant Company customer and was incurred primarily during the fourth
quarter of 1996. Full production and sales by such customer from this program
commenced during the first quarter of 1997.
AMORTIZATION EXPENSE. Amortization expense amounted to $833,000 in 1996, an
increase of $384,000 from 1995's total of $449,000. The increase was principally
attributable to the Seafla Acquisition and the amortization of associated
deferred financing costs. See "--Liquidity and Capital Resources."
INTEREST EXPENSE, NET. Interest expense rose to $558,000 in 1996 from
$115,000 in 1995. The increase was due primarily to debt financing for the
Seafla Acquisition.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations amounted to $364,000 for the nine months ended
September 30, 1997 as compared to $520,000 for the same period of 1996. Working
capital at September 30, 1997 was $5,486,000 as compared to $4,020,000 at
December 31, 1996.
Historically, the Company's financing needs have been met through the
issuances of equity and debt. For several years prior to 1996, the Company's
principal line of credit for working capital requirements was a $2.0 million
short-term revolving note, which the Company extended upon maturity. Borrowings
under the revolving line of credit bore interest at the rate of one-half percent
above the then applicable prime rate.
In October 1996, the Company consolidated its then existing $3,500,000 term
loan (obtained in connection with the Seafla Acquisition) and its $2,000,000
revolving credit into a $5,500,000 revolving credit facility (the "1996 Credit
Facility"). The borrowings were collateralized by liens on substantially all of
the assets of the Company. In April 1997, the Company and the lender under the
1996 Credit Facility entered into a waiver and modification agreement (the
"Waiver") which waived compliance by the Company with certain covenants for 1996
and amended one such covenant for 1997. Additional events of default were also
added to the 1996 Credit Facility. In connection with the Waiver, the Company
issued the lender the North Fork Warrants to purchase 100,000 shares of Common
Stock, at an exercise price of $2.40 per share (subject to adjustments). The
warrants contain a "put" provision which gives the bank the right to require the
Company to purchase the warrants from the bank for $20,000. In addition, the
Company has the right at any time prior to April 7, 1998 to "call" 50,000 of the
warrants by paying the bank $20,000. See "Selling Securityholders."
In October 1996, the Company also consummated a financing which provided for
the issuance of $1,500,000 in 9% Convertible Subordinated Notes due October 17,
1998 (the "Notes") and the issuance of the Class A Warrants to purchase an
aggregate of 450,000 shares of Common Stock at $2.40 per share (subject to
adjustments) and the Class B Warrants to purchase an aggregate of 156,250 shares
of Common Stock at $2.70 per share (subject to adjustments). The Notes were
collateralized by liens on substantially all of the assets of the Company, which
liens were junior to those in favor of the Company's lender under the 1996
Credit Facility. See "Selling Securityholders."
On October 16, 1997, the Company entered into a credit agreement with a bank
providing for a $6,000,000 revolving credit facility and a $750,000 term loan
facility (the "1997 Credit Facility"). This 1997 Credit Facility replaced its
then existing $5,500,000 credit line (the 1996 Credit Facility) and refinanced
$750,000 of the Notes (the "October 1997 Refinancing"). Outstanding borrowings
under the 1997 Credit Facility bear interest based on the bank's London
Interbank Offering Rate ("LIBOR") plus 2 1/2% (which currently equates to
approximately the bank's prime rate) or 1/2 of 1% above the bank's prime rate,
at the Company's option. Outstanding borrowings are collateralized by
substantially all of the assets of the Company and are subject to eligibility
requirements relating to the Company's receivables, inventories and product
formulations.
Under the credit agreement relating to the 1997 Credit Facility, the Company
is prohibited from incurring any indebtedness other than, among other things,
existing indebtedness, subordinated debt (with the consent of the bank), and
unsecured trade indebtedness in the ordinary course of business, and restricted
in its ability to incur liens, make investments, sell assets, make acquisitions
and pay dividends. The Company's inability to incur additional indebtedness when
additional funds are needed may cause it to delay, scale back or eliminate some
or all of its operations which could have a material adverse effect on its
operations.
In conjunction with the October 1997 Refinancing, the Company converted an
aggregate principal amount of $750,000 of the Notes into 387,655 shares of the
Company's Common Stock, based on the weighted average share price during the
preceding ten trading days prior to the closing. As of January 16,
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<PAGE>
1998, the Company had outstanding borrowings of approximately $713,000 under its
term loan facility and approximately $4,825,000 under its revolving credit
facility and approximately $390,000 was available for borrowings against its
borrowing base. As of January 16, 1998, the outstanding borrowings under the
credit facility bore interest at the rate of approximately 8.4% per annum.
Upon exercise of the Warrants, the Company will receive gross cash proceeds
of approximately $2.0 million in the aggregate and will be obligated to issue
1,306,250 shares of Common Stock, assuming that all of the Warrants are
exercised for cash. The issuance of such shares of Common Stock will have a
dilutive effect, which could be substantial, on the currently and then
outstanding shares of Common Stock. See "Use of Proceeds."
As of January 16, 1998, the Company is in violation of two financial
covenants in the credit agreement relating to the 1997 Credit Facility. The
Company is seeking a waiver from its lender with respect to such default, but
there can be no assurance that the Company will obtain the waiver. If the
Company is unable to obtain the waiver, the lender may declare the indebtedness
under the facility to be immediately due and payable and, in the event the
Company is unable to satisfy its obligations, the lender can proceed to
foreclose on the assets of the Company pledged as collateral, which are
substantially all of the Company's assets. There can be no assurance that the
lender will not foreclose on the assets of the Company or take other action
detrimental to the Company. See "Risk Factors--Substantial Indebtedness; Default
on Senior Indebtedness."
Although there can be no assurance, the Company believes it has adequate
capital to fund current operations for at least the next 12 months, assuming the
Company can obtain a waiver from its lender with respect to the indebtedness
outstanding under the 1997 Credit Facility. See "Risk Factors."
17
<PAGE>
BUSINESS
INTRODUCTION
The Company develops, manufactures and markets flavors, fragrances and
seasonings that are incorporated by its customers into a wide variety of
consumer and institutional products including natural and artificial flavored
beverages, confections, foods, tobaccos, pharmaceuticals, aromatherapy essential
oils, perfumes, and health and beauty products. The Company's proprietary
formulations are currently used in more than 1,500 products sold by more than
500 companies worldwide, approximately 50 of which are Fortune 1,000 companies.
The Company's executive offices are located in Amityville, New York while its
manufacturing, research and development, sales and marketing, and distribution
facilities are located in Amityville, New York and Milford, Ohio. The Company
also has sales, marketing and warehouse facilities located in Los Angeles,
California, Toronto, Canada and Chile, South America.
Unless the context otherwise requires, (i) the term "Company" refers to
Technology Flavors & Fragrances, Inc., a Delaware corporation, together with its
wholly-owned subsidiary, Technology Flavors & Fragrances, Inc. (Canada), and
(ii) all references to "dollars" refer to U.S. dollars.
HISTORY
The Company was incorporated in New York in 1989 under the name "Aroma
Globe, Inc." It later changed its name to "Technology Flavors & Fragrances,
Inc." in May 1991, when it acquired the assets and business of another company
by that name. Since then, the Company has expanded its operations primarily
through acquisitions of other businesses and internal growth.
In July 1993, the Company acquired most of the assets of the Fragrance
Division ("F&C Fragrance Division") of F&C International Inc. for $5,441,000 in
cash. The acquisition was funded by bank debt of approximately $3,500,000 and
the sale, in a private offering, of 1,080,268 shares of Common Stock for net
proceeds of $1,499,000. The F&C Fragrance Division was engaged in the business
of developing, manufacturing, marketing and selling, domestically and
internationally, fragrance products for personal care, cosmetic and toiletry,
household, industrial and commercial products. The acquisition provided the
Company with a library of over 12,000 proprietary formulations and an
introduction to certain large U.S. manufacturers of household and personal care
products and of industrial and commercial products. The F&C Fragrance Division
serviced its fragrance customers from its production facility in Brooklyn, New
York, its marketing and research development facilities in Allendale, New
Jersey, and two warehousing facilities located in southern California and
Toronto, Canada. The Company thereafter consolidated the manufacturing,
marketing and research and development activities of the F&C Fragrance Division
at its Amityville, New York facilities and moved a portion of the warehousing
function to an adjoining building in Amityville, New York.
In November 1993, the Company reincorporated in Delaware and merged with
Canamerica Corp., a private corporation owned by Mr. Philip Rosner, one of the
Company's founders and principal stockholders. Mr. Rosner was issued 200,000
shares of Common Stock in the merger.
In March 1994, the Company completed concurrent offerings of a total of
5,000,000 shares of Common Stock, 4,670,000 of those shares being sold to the
public in the Canadian Provinces of Ontario and British Columbia at a price of
Cdn. $2.00 per share and the other 330,000 shares being sold privately in the
United States for the equivalent price of U.S. $1.44 per share. In addition, the
Common Stock was listed on the Toronto Stock Exchange in March 1994. The
proceeds of these sales were used to repay the bank debt that was incurred to
acquire assets of the F&C Fragrance Division.
On December 6, 1995, the Company acquired substantially all of the assets
and assumed the trade obligations and certain other liabilities of Seafla, Inc.
("Seafla"), a Milford, Ohio producer of savory and dairy flavors (the "Seafla
Acquisition"). In consideration therefor, the Company paid $3,000,000 in cash
and issued a 12% promissory note for $888,019, payable in installments of
$177,604 (the "Seafla Note"). In
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<PAGE>
March 1997, the Seafla Note was amended to extend the installment dates so that
the first installment is due on March 31, 1998 and the remaining installments
are payable on each January 1 thereafter through 2002, with interest at 12% per
annum. The Company funded the cash portion of the Seafla purchase price through
bank borrowings of $3,500,000.
The Company operates Seafla's business as the Seasonings Division of the
Company (the "Seasonings Division"). Products from the Seasonings Division are
purchased principally by manufacturers of dairy products, snack foods and baked
goods.
1996 CONVERTIBLE DEBT FINANCING
On October 17, 1996, the Company consummated a financing providing for the
issuance of (i) $1,500,000 aggregate principal amount of the Notes due October
17, 1998, (ii) the Class A Stock Warrants to purchase an aggregate of 450,000
shares of Common Stock, and (iii) the Class B Stock Warrants to purchase an
aggregate of 156,250 shares of Common Stock. The Class A Warrants and the Class
B Warrants are exercisable for shares of Common Stock at exercise prices of
$2.40 and $2.70 per share, respectively, subject to adjustments under certain
circumstances.
The Notes were collateralized by liens on substantially all of the assets of
the Company and were convertible into shares of Common Stock, at the option of
the Company, at any time on or prior to October 16, 1997, at a conversion price
equal to the average market price of the Common Stock for the ten trading days
immediately preceding the date of determination.
THE OCTOBER 1997 REFINANCING
On October 16, 1997, the Company entered into a credit agreement with a bank
providing for a $6,000,000 revolving credit facility and a $750,000 term loan
facility. The 1997 Credit Facility replaced the Company's then existing
$5,500,000 credit line (the 1996 Credit Facility) and refinanced $750,000 of the
Notes. In conjunction with the October 1997 Refinancing, the Company converted
an aggregate principal amount of $750,000 of the Notes into 387,655 shares of
the Company's Common Stock, based on the weighted average share price during the
preceding ten trading days prior to the closing. See "Risk Factors--Substantial
Indebtedness; Default on Senior Indebtedness," "Management's Discussion and
Analysis" and "Description of Capital Stock."
INDUSTRY OVERVIEW
The flavor, fragrance and seasonings industries sell primarily to
manufacturers of consumer products. The cost of the flavor, fragrance or
seasonings component of a consumer product typically represents a small portion
of the total cost of the consumer product. As a result, in selling such
products, price is a less significant factor than product performance and
customer service.
The Company believes that important changes in consumer buying habits and
preferences over the past few years have had a significant impact on these
industries as a whole. The Company believes that these changes have contributed
to a demand for new and innovative products.
The Company believes that currently there is a trend toward more natural
foods in the marketplace, requiring manufacturers to produce more
naturally-flavored products. Not only has this translated into a steady shift
from artificial ingredients to natural ones, but it is also placing greater
emphasis on achieving flavors that more effectively impart "natural" tastes in
processed foods. The Company believes that a growing desire among consumers to
adopt a healthier lifestyle is increasing the demand for lighter, healthier
foods. This has posed new challenges for the Company to come up with ways of
replacing the tastes which are lost when sugar, salt, fat, and cholesterol are
reduced or eliminated from traditional food preparations.
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<PAGE>
The Company believes that another important trend in the industry is the
growing consumption of processed foods. It is estimated that more than 80% of
the food consumed today is in processed form, and over 1,000 natural and
synthetic flavoring agents are used to produce these foods. The Company believes
that as the demand for microwaveable products and prepared and frozen
convenience foods continues to rise, so, too, will the need for new flavor
products to counteract the adverse effects of microwaving and freezing.
The Company believes that the trend towards natural, healthier ingredients
also includes soaps, shampoos, cosmetics, detergents, and other cleaning
products, air fresheners, and numerous other household items.
PRODUCTS
The Company's principal product categories include the following: natural
flavors, artificial flavors, seasonings and fragrances. The five largest
end-user categories for the Company's products are beverages, snack foods,
confections, cosmetics and tobacco. The Company's flavor products, produced from
its proprietary formulations, are sold primarily to the beverage, food and
tobacco industries. Its principal flavor product lines include sweet goods,
culinary, savory, dairy and tobacco flavorings and seasonings. Examples of
consumer products containing the Company's flavor products include: confections,
toothpaste, chewing gums, prepared foods, ice creams, animal feeds, candy,
tobacco, alcoholic and non-alcoholic beverages, poultry and seafood, processed
meats and snack foods.
Areas which the Company believes currently offer growth opportunities
include the following: flavor products to enhance "natural foods"; products to
restore the flavors in non-fat and low fat, sugar, salt and cholesterol foods;
and flavor products able to withstand the effects of microwaving and freezing
(i.e., convenience foods).
The Company's fragrance products, produced from its proprietary
formulations, are sold primarily to the personal care, cosmetic and toiletry,
and household and industrial product industries. Fragrances are used by
customers in the manufacture of a wide variety of consumer products, such as
soaps, detergents, household cleaners, cosmetic creams, lotions and powders,
after-shave lotions, deodorants, air fresheners, perfumes, colognes,
aromatherapy oils and hair care products.
RESEARCH AND DEVELOPMENT
The Company's research and development ("R&D") activities are conducted
primarily at its Amityville, New York and Milford, Ohio operating facilities.
The Company maintains R&D labs as well as applications labs, both of which are
necessary for the development of high quality flavor and fragrance compounds.
The Company believes that the most fundamental challenge in creating flavor
and fragrance formulations, from a technical standpoint, is to develop flavors
and fragrances which are: (1) able to withstand the rigors of processing,
storage, and final preparation and (2) able to maintain the integrity of the
basic taste and scent characteristics for the useful life of the final product.
In the case of certain products, such as perfumes, colognes and frozen foods,
the potential shelf-life of the product may represent a period of up to one
year.
Additional product performance challenges that need to be accounted for in
the R&D phase are the result of changes in consumer demographics and lifestyles.
Microwaveable foods, for example, are a relatively recent phenomenon
necessitating new development and testing techniques. Non-traditional
applications for flavor and fragrance materials, such as fragranced plastic and
rubber products, are another example. Management believes that the Company's
ability to develop and offer new products for emerging new categories is
increasingly important.
20
<PAGE>
The Company works in association with existing and potential customers in
the development of an appropriate flavor or fragrance for a new consumer
product. During the process, which generally takes between six and nine months,
it is not unusual for the representative of the Company to present the customer
with several samples from the Company's proprietary formulations. Typically, a
particular flavor or fragrance formulation is created and produced for one
customer.
In the last two years, the Company has furnished over 10,000 samples to
existing and potential new customers. The typical lag time between when samples
are tested and when customers may place production orders historically has
ranged from 6 to 18 months.
In 1996, the Company installed a Processed Flavor Reaction Laboratory that
utilizes amino acids and sugars in a water medium to produce meat, poultry and
roasted flavors and aromas. The Company offered new and innovative products
developed in the laboratory during 1997.
During the past several years, the flavor industry has had to respond to new
demands by consumers for (i) products with little or no cholesterol, fat, sugar
or salt, (ii) products that withstand microwaving or freezing, and (iii)
products that contain more natural ingredients. Each of these demands results in
taste differences from what consumers have come to expect so that new flavor
formulations are necessary to satisfy taste expectations. At the same time, the
range of products that are offered in scented versions, including a variety of
plastic and rubber products, is expanding. Consequently, research and
development capabilities are increasingly important for successful flavor
companies. See "Risk Factors--Competition."
RAW MATERIALS
The Company currently utilizes over 1,200 different raw materials in the
preparation of its flavor, fragrance and seasoning formulations. Considerable
effort is devoted to ensuring that these ingredients remain uniform and
consistent over time--a critical process, since many of the raw materials are
inherently unstable, and/or are derived from plants that vary naturally with
seasons and crop years. Accordingly, shipments of raw materials received by the
Company are tested and analyzed for compliance with set specifications.
The Company purchases raw materials from various suppliers. For the year
ended December 31, 1997, the Company estimates that no single supplier and no
single raw material accounted for more than approximately 11% and 3%,
respectively, of the Company's raw material requirements. Although there can be
no assurance, the Company believes that alternate sources of raw materials are
available in the event of an interruption in the supply of raw materials from a
single supplier. See "Risk Factors-- Disruptions in Availability of Raw
Materials."
SEASONALITY
Historically, the Company's sales tend to be somewhat higher in the quarters
ending June 30 and September 30 primarily due to higher consumer demand from the
Company's beverage and snack food customers during those periods. Although there
can be no assurance, the Company believes that seasonal fluctuations should not
significantly impact its operations. See "Risk Factors--Seasonality of
Business."
COMPETITION
The flavor, fragrance and seasonings industries are highly fragmented with a
few large companies, such as International Flavors & Fragrances Inc., Haarmann &
Reimer Corporation and Firmenich, Inc., competing against many smaller
producers. Certain of the Company's competitors have substantially greater
financial, marketing and other resources than the Company. Recently, there have
been trends towards increased industry concentration as companies vertically
integrate with suppliers and expand horizontally through acquisitions.
21
<PAGE>
The Company believes that its competitiveness depends upon its creativity,
responsiveness and reliability, as well as the diversity of its customers and
products. Management expects that the Company will continue to sell to large
companies that do not purchase all of their fragrance and flavor products from a
single supplier and to smaller companies that the Company's large competitors do
not choose to service. See "Risk Factors--Competition."
CUSTOMERS
The Company's formulations are currently used in more than 1,500 products
sold by more than 500 companies worldwide, approximately 50 of which are Fortune
1,000 companies. The Company cooperates with these customers in the development
of specific flavors or fragrances for a particular end product. No one customer
accounted for more than 10% of the Company's revenues in 1995 or 1996. For the
year ended December 31, 1997, the Company estimates that one customer accounted
for approximately 16% of the Company's revenues and the top ten customers
accounted for approximately 41% of the Company's revenues. See "Risk
Factors--Dependence on Relationships with Customers; Significant Customers."
BACKLOG
Customers purchase the Company's products as required, and normally delivery
can be made within two to four weeks thereafter. Consequently, backlog is not a
significant indicator of the volume of the Company's business over an extended
period of time.
GOVERNMENTAL REGULATIONS
The Company is subject to various laws and regulations regarding, among
other things, the manufacturing of flavors and seasonings for food, the handling
of alcohol, the generation, storage, transportation and disposal of hazardous
materials and the safety and health of its employees. Although there can be no
assurance, the Company believes that it currently complies in all material
respects with such laws and regulations. The Company could be subject to, among
other things, sanctions, penalties (including significant fines) and suspension
or revocation of required licenses or permits for failure to comply with
applicable governmental laws and regulations. At this time, the Company is
unable to anticipate the impact, if any, that subsequent changes or new
interpretations to applicable laws and regulations may have on the Company's
business, financial condition or results of operations. See "Risk
Factors--Governmental Regulations."
EMPLOYEES
At January 16, 1998, the Company had approximately 93 full-time employees,
categorized as follows: 9 management, 14 administrative, 14 marketing and sales,
28 production, 22 research and development, and 6 customer service. The Company
considers its relationships with its employees to be satisfactory.
PROPRIETARY RIGHTS
The Company's business depends on its ability to protect trade secrets, to
operate without infringing upon the proprietary rights of others and to prevent
others from infringing upon the proprietary rights of the Company. Trade secrets
are difficult to protect and there can be no assurance that others will not gain
access to the Company's trade secrets (or others will not independently develop
substantially equivalent proprietary information or techniques), that such trade
secrets will not be disclosed or that the Company can adequately protect its
rights to trade secrets. The Company may be required to obtain licenses to
patents or proprietary rights of others and no assurance can be given that any
required license would be available to the Company (on acceptable terms or
otherwise). The Company may encounter delays or be precluded from product market
introductions if it does not obtain a required license. In addition, the Company
may be involved in litigation in order to, among other things, defend against or
assert claims of
22
<PAGE>
infringement, protect trade secrets or know-how owned by the Company or
determine the scope or validity of proprietary rights of others. Any litigation
could have a material adverse impact on, or result in substantial costs to, the
Company.
The Company, like other flavor, fragrance and seasonings companies,
customarily owns the formulas of its products. Product formulations are
generally not protectable by patents, copyrights or trademarks. See "Risk
Factors--Uncertainty of Protection of Intellectual Property and Proprietary
Rights."
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
ordinary litigation incidental to its business.
DESCRIPTION OF PROPERTY
The Company's principal properties are its 36,000 square foot headquarters,
sales and marketing, R&D and production facility at 10 Edison Street, East in
Amityville, New York, with an adjoining 12,000 square foot warehouse, and a
37,000 square foot facility in Milford, Ohio. The Company's lease concerning its
principal executive offices and production facility in Amityville, New York
expires in 2006 and its lease for its Ohio facility expires in 2014. The
Company's Ohio facility is leased from a partnership in which Mr. Richard
Higgins, the Company's Executive Vice President, is a partner. See "Certain
Relationships and Related Transactions." The Company also leases marketing,
warehouse and customer service facilities in southern California, Toronto,
Canada, and Chile, South America. For the year ended December 31, 1997, the
Company paid an aggregate of approximately $430,000 in lease payments for its
facilities. The Company believes that its existing leases will be renegotiated
as they expire or it will lease alternative properties on acceptable terms. The
Company believes its present facilities are adequate for its current and
anticipated operations.
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<PAGE>
MANAGEMENT
INFORMATION CONCERNING THE COMPANY'S BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Philip Rosner........................................ 62 President, Chairman of the Board and Director
A. Gary Frumberg..................................... 64 Executive Vice President and Director
Richard R. Higgins................................... 59 Executive Vice President and Director
Joseph A. Gemmo...................................... 52 Vice President, Chief Financial Officer and Assistant
Secretary
Harvey Farber........................................ 57 Senior Vice President--Flavor Division
Paul E. Hoffmann..................................... 51 Secretary and Treasurer
Ronald J. Dintemann.................................. 54 Vice President--Operations
Sydney Stein......................................... 62 Director
Duncan Shirreff...................................... 46 Director
Scott Cunningham..................................... 63 Director
</TABLE>
The business experience of each of the persons listed above for at least the
last five years is as follows:
PHILIP ROSNER has been the President and Chairman of the Board of the
Company since its inception in 1989. He has been engaged in the flavor and
fragrance industry for over 45 years. Before 1989, Mr. Rosner was the President
of Globe Extracts, Inc. and, for 15 years before that, the President of Felton
Worldwide, Inc., both of which produced and marketed flavors and fragrances.
A. GARY FRUMBERG has been the Executive Vice President of the Company since
1989. Prior to 1989, Mr. Frumberg served as Vice President-International Sales
of Felton Worldwide, Inc.
RICHARD R. HIGGINS has been a Director of the Company since June 1996, and
an Executive Vice President of the Company and President of the Company's
Seasonings Division since December 1995. Prior to that, Mr. Higgins was
President of Seafla, Inc. from 1980 until that business was acquired by the
Company in December 1995.
JOSEPH A. GEMMO has been Vice President and Chief Financial Officer of the
Company since August 1996 and Assistant Secretary since October 1997. From
January 1994 to April 1996, Mr. Gemmo was the Chief Financial Officer of
Bio-Botanica, Inc., a developer and manufacturer of herbal extracts. Prior to
that, Mr. Gemmo was the Chief Financial Officer of General Aerospace Materials
Corp. from 1989 to 1994.
HARVEY FARBER has been Senior Vice President--Flavor Development of the
Company from October 1995 through October 1997, at which time he became Senior
Vice President--Flavor Division. Before he joined the Company, he was the Vice
President--Flavor Development at J. Manheimer Inc. for 12 years.
PAUL E. HOFFMANN has been the Secretary and Treasurer of the Company since
1990 and was a Director of the Company until June 1996. Before he joined the
Company, Mr. Hoffmann was Vice President, Finance of Globe Extracts, Inc. for
more than eight years.
RONALD J. DINTEMANN has been Vice President--Operations of the Company since
May 1989, after serving as Vice President--Operations of Globe Extracts, Inc.
SYDNEY STEIN has been a Director of the Company since 1993. Since 1974, Mr.
Stein has been President of Syco Holdings Ltd., a Montreal-based retail chain.
In addition, from March 1991 to May 1994, Mr. Stein was President of Kasyco,
Inc., a Montreal-based wholesaler.
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<PAGE>
DUNCAN SHIRREFF has been a Director of the Company since 1994. Since 1994,
Mr. Shirreff also has been the Resident Director of the Toronto Branch of the
Canadian merchant banking firm of CM Oliver & Company Limited in charge of
corporate finance and European capital markets. From 1991 to 1994, he was an
independent financial consultant to various corporations. Prior to 1991, Mr.
Shirreff served as a Director of, and in senior executive positions with, Scotia
McLeod, Inc., a Toronto merchant banking firm.
SCOTT CUNNINGHAM has been a Director of the Company since February 1997.
Since 1993, Dr. Cunningham has been President of Stonehouse Development Co., a
food technology company, and since 1986 he has been a Managing Director of
Interlaken Capital, Inc., a management consulting firm specializing in the food
and other industries.
All directors of the Company serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers serve
at the discretion of the Board of Directors, subject to rights, if any, under
contracts of employment. See "Executive Compensation--Employment Agreements."
There are no family relationships among the directors and executive officers of
the Company. See "Risk Factors--Dependence on Key Personnel."
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<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid to or earned by the Company's Chairman of the Board and
President and the other four most highly compensated executive officers of the
Company (other than the Chairman of the Board and President) whose total annual
salaries and bonuses exceeded $100,000 for the year ended December 31, 1997 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
AWARDS
ANNUAL ------------- PAYOUTS
COMPENSATION SECURITIES ----------------
------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS COMPENSATION(1)
- ---------------------------------------------------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Philip Rosner....................................... 1997 $ 225,962 -- $ 16,820
Chairman and President 1996 235,000 100,000( (3) 17,216
1995 200,000 -- 16,001
A. Gary Frumberg.................................... 1997 192,308 -- 17,761
Executive Vice President 1996 199,903 100,000( (3) 17,010
1995 164,000 -- 12,305
Richard R. Higgins.................................. 1997 158,164 -- 16,805
Executive Vice President 1996 150,000 -- 16,757
1995 5,769 -- 1,261
Harvey Farber....................................... 1997 163,461 75,000(4) 10,436
Senior Vice President--Flavor Division 1996 161,509 10,000 8,429
1995 36,821 -- 1,850
Ronald J. Dintemann................................. 1997 129,808 25,000(5) 15,500
Vice President--Operations 1996 134,085 75,000( (3) 22,580
1995 97,176 -- 10,909
</TABLE>
- ------------------------
(1) Represents Company reimbursed automobile expenses of such executive.
(2) Represents options granted in 1994 under the Company's 1993 Option Plan,
including options granted to Messrs. Rosner, Frumberg and Dintemann, and
options granted in April 1994 to certain of the Company's directors,
executive officers and employees. The Company obtained stockholder approval
of the reduction in exercise price of such stock options in October 1996.
See "--Description of the 1993 Plan" and "Risk Factors--Effect of Exercise
of Warrants; Dilution."
(3) Represents those stock options which the Company granted to the respective
executive officers in 1994. The exercise prices of such options were reduced
in October 1996 pursuant to stockholder approval. See "--Description of the
1996 Plan" and "Risk Factors--Effect of Exercise of Warrants; Dilution."
(4) Includes (a) 25,000 shares of Common Stock granted to Mr. Farber as
additional compensation pursuant to his amended employment agreement and (b)
50,000 shares of Common Stock issuable to Mr. Farber pursuant to stock
options granted under the 1996 Stock Option Plan. See "--Employment
Agreements."
(5) Represents 25,000 shares of Common Stock issuable to Mr. Dintemann pursuant
to stock options granted under the 1996 Stock Option Plan.
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<PAGE>
OPTION GRANTS IN 1997
The following table sets forth certain information concerning individual
option grants during the year ended December 31, 1997 to each of the Named
Executive Officers:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENTAGE OF TOTAL APPRECIATION FOR
OPTIONS GRANTED EXERCISE OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ------------------------------------------ ----------- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip Rosner............................. -- -- -- -- -- --
A. Gary Frumberg.......................... -- -- -- -- -- --
Richard R. Higgins........................ -- -- -- -- -- --
Harvey Farber............................. 50,000 14.0% $ 1.31 2/27/07 $ 41,193 $ 104,390
Ronald J. Dintemann....................... 25,000 7.0% $ 1.6875 6/25/07 $ 26,531 $ 67,235
</TABLE>
- ------------------------
(1) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future price of its Common Stock.
AGGREGATE OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
The following table provides certain information regarding stock option
ownership and exercises by the Named Executive Officers, as well as the number
and assumed value of exercisable and unexercisable options held by those persons
at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1997 DECEMBER 31, 1997($)
NAME EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---------------------------------- ------------- ------------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Philip Rosner..................... -- -- 75,000/25,000 $ 49,500/16,500
A. Gary Frumberg.................. -- -- 75,000/25,000 49,500/16,500
Richard R. Higgins................ -- -- --/-- --/--
Harvey Farber..................... -- -- 15,000/45,000 750/750
Ronald J. Dintemann............... -- -- 56,250/43,750 40,500/13,500
</TABLE>
- ------------------------
(1) Value of exercisable "in-the-money" options is equal to the difference
between the closing bid price per share of the Common Stock on the TSE at
December 31, 1997 (U.S. $1.30) and the option exercise price per share
multiplied by the number of shares subject to options.
EMPLOYMENT AGREEMENTS
In October 1995, the Company entered into five-year employment agreements
with Messrs. Rosner and Frumberg which provide such executives with annual
salaries (adjustable in accordance with the Consumer Price Index) of $235,000
and $200,000, respectively. Each agreement contains, among other things,
customary termination and confidentiality provisions.
In October 1995, the Company entered into a three-year employment agreement
with Mr. Farber. Pursuant to the employment agreement, Mr. Farber is entitled to
receive an annual salary of $160,000. In addition, the employment agreement
provides that Mr. Farber may receive an annual bonus, payable at the sole
discretion of the Company. In December 1997, the employment agreement was
amended to provide
27
<PAGE>
that Mr. Farber will receive a base salary of $176,800 per annum commencing
January 1, 1998 for the balance of the term of the agreement. Pursuant to such
amendment, in 1997 the Company issued to Mr. Farber 25,000 shares of Common
Stock as additional compensation.
In December 1995, the Company entered into an employment agreement with Mr.
Higgins. Pursuant to the employment agreement, Mr. Higgins is entitled to
receive an annual salary of $150,000 plus an amount, each year, equal to 2% of
the Company's sales produced but not generated by the Seasonings Division in
that year. However, Mr. Higgins' annual compensation is not to exceed the higher
of Mr. Rosner's annual compensation or $200,000. Pursuant to the Seafla
Acquisition, Mr. Higgins also received an aggregate of 750,000 restricted shares
of Common Stock. See "Business--History" and "Beneficial Ownership."
In January 1996, the Company entered into a five-year employment agreement
with Ronald J. Dintemann with an annual salary (adjustable in accordance with
the Consumer Price Index) of $135,000 per annum. The agreement contains, among
other things, customary termination and confidentiality provisions.
On August 2, 1996, the Company entered into a three-year employment
agreement with Joseph A. Gemmo to serve as the Company's Vice President and
Chief Financial Officer effective August 19, 1996. Pursuant to such agreement,
Mr. Gemmo is paid an annual salary of $115,000 and received an option to
purchase 100,000 shares of the Company's Common Stock. In addition, the
employment agreement provides that Mr. Gemmo may receive an annual bonus,
payable at the sole discretion of the Company.
DESCRIPTION OF THE 1993 OPTION PLAN
In November 1993, the Company adopted the 1993 Option Plan (the "1993 Plan")
pursuant to which the Company may grant options to its employees to purchase up
to 500,000 shares of Common Stock. The options granted under the 1993 Plan may
be exercised during the ten year period after they are granted, at an exercise
price equal to the mean between the high and low selling prices of the Company's
Common Stock on the TSE on the date of grant. Options granted to any person who
beneficially owns ten percent (10%) or more of the Common Stock may not be
exercised until the fifth anniversary of the date of the grant and must be
granted at an exercise price equal to 110% of the market price at the date of
the grant.
On April 8, 1994, the Company granted options to purchase an aggregate of
492,500 shares of Common Stock to 71 employees (the "1994 Option Grants"). Of
such amount, (A) ten-year options were granted to purchase 289,500 shares of
Common Stock to 66 employees in the United States (including options for 75,000
shares to Mr. Hoffmann, the Company's Secretary and Treasurer and to Mr.
Dintemann, the Company's Vice President--Operations) at an exercise price of
U.S. $1.38, (B) ten-year options to purchase 3,000 shares of Common Stock, in
the aggregate, were granted to three employees in Canada at the equivalent
exercise price of Cdn. $1.90 and (C) five-year options to purchase 100,000
shares of Common Stock at an exercise price of U.S. $1.52 were granted to each
of Philip Rosner and A. Gary Frumberg, each of whom beneficially owned at least
10% of the Common Stock at the time of grant. In each instance, 25% of the
options become exercisable on each of the first four anniversaries of the grant
date. The options granted to Messrs. Rosner, Frumberg, Hoffmann and Dintemann
constituted 71% of the options granted to the Company's employees in 1994.
On October 30, 1995, the Board of Directors reduced the exercise prices of
all outstanding options granted under the 1993 Option Plan and the 1994 Option
Grants from U.S. $1.38 per share to U.S. $.58 per share with respect to options
granted to employees, officers or directors of the Company who are not
beneficial owners of 10% or more of the Common Stock, and from U.S. $1.52 per
share to U.S. $.64 per share with respect to options granted to employees,
officers and directors who beneficially owned 10% or more of the Common Stock.
Such reductions were approved by the Company's stockholders in 1996.
28
<PAGE>
The Company's Board of Directors decided to reduce the exercise prices of
all outstanding options in order to bring the exercise prices more in line with
the then prevailing prices of the Company's Common Stock. The reduced exercise
prices approved by the Company's Board of Directors were based on the downward
trend in the price of the Company's Common Stock during the three quarterly
periods immediately preceding the Board's decision. In addition, the reduced
exercise prices are consistent with the average of the high and low selling
prices of the Company's Common Stock on the TSE during the quarterly period in
which such decision was made.
DESCRIPTION OF THE 1996 OPTION PLAN
In 1996, the Board adopted the 1996 Option Plan. Under the 1996 Option Plan,
the maximum number of shares of Common Stock that may be subject to options may
not exceed an aggregate of 1,000,000 shares. The maximum number of shares may be
adjusted in certain events, such as a stock split, reorganization or
recapitalization. Employees (including officers and directors who are employees)
of the Company or its subsidiaries are eligible for the grant of incentive
options under the 1996 Option Plan. Directors who are not employees or officers
are not eligible to receive incentive options. Options may also be granted to
other persons, provided that such options shall be non-qualified options. In the
event of incentive options, the aggregate fair market value of the Common Stock
with respect to which such options become first exercisable by the holder during
any calendar year cannot exceed $100,000. This limit does not apply to
non-qualified options. To the extent an option that otherwise would be an
incentive option exceeds this $100,000 threshold, it will be treated as a
non-qualified option.
The Company will receive no monetary consideration for the grant of options
under the 1996 Option Plan. In the case of an incentive option, the exercise
price cannot be less than the fair market value (as defined in the 1996 Option
Plan) of the Common Stock on the date the option is granted and, if an optionee
is a stockholder who beneficially owns 10% or more of the outstanding Common
Stock, the exercise price of incentive options may not be less than 110% of the
fair market value of the Common Stock. The term of an option cannot exceed ten
years and, in the case of an optionee who owns 10% or more of the outstanding
Common Stock, cannot exceed five years.
The 1996 Option Plan was adopted by the Board of Directors and was
subsequently approved by the stockholders at the special meeting held on October
30, 1996. The 1996 Option Plan will terminate automatically and no options may
be granted more than ten years after the date the 1996 Option Plan was approved
by the Company's Board of Directors. The 1996 Option Plan may be terminated at
any prior time by the Board of Directors. Termination of the 1996 Option Plan
will not affect options that were granted prior to the termination date. See
"Risk Factors--Effect of Exercise of Warrants; Dilution."
As of January 16, 1998, options to purchase an aggregate of approximately
1,102,000 shares of the Common Stock were outstanding under the 1993 and 1996
Stock Option Plans.
DIRECTOR COMPENSATION
Directors are reimbursed for reasonable expenses actually incurred in
connection with attending each formal meeting of the Board of Directors or any
committee thereof. In addition, each outside director of the Company is paid a
$10,000 annual fee plus $500 for each formal meeting attended. For the year
ended December 31, 1997, the Company's outside directors waived their annual
fees.
29
<PAGE>
BENEFICIAL OWNERSHIP
The following table sets forth certain information as of January 16, 1998
regarding the beneficial ownership of Common Stock by (A) each person known by
the Company to own beneficially more than 5% of the Common Stock, (B) each
director of the Company, (C) each of the Named Executive Officers, and (D) all
executive officers and directors of the Company as a group (10 persons):
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE
NAME OWNED(1) BENEFICIALLY OWNED
- ------------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Philip Rosner(2)................................................... 2,258,709(3)(4) 18.1%
A. Gary Frumberg(2)................................................ 1,147,199(3) 11.4%
Richard R. Higgins(2).............................................. 931,500 7.5%
Stanley Altschuler(5).............................................. 887,280 7.1
Richard E. Cooper(6)............................................... 787,500 6.3
Scott Cunningham(2)................................................ 20,000 *
Sydney Stein(2).................................................... 100,000(8) *
Duncan Shirreff(2)................................................. 1,000 *
Ronald J. Dintemann(2)............................................. 125,361(7) 1.0%
Harvey Farber(2)................................................... 44,732(9) *
All directors and executive officers as a group (11 persons)....... 5,180,794 41.1%
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, to the Company's knowledge the nature of the
beneficial ownership for all shares of Common Stock listed above is sole
voting and investment power.
(2) The business address of Messrs. Rosner and Frumberg is 10 Edison Street
East, Amityville, New York 11701. The business address of Mr. Higgins is 999
Tech Drive, Milford, Ohio 45150. The business addresses of each of Messrs.
Cunningham, Stein, Shirreff, Dintemann and Farber is c/o Technology Flavors
& Fragrances, Inc., 10 Edison Street East, Amityville, New York 11701.
(3) Includes (a) 75,000 shares of Common Stock issuable upon the exercise of
options granted on April 8, 1994 to each of Messrs. Rosner and Frumberg to
purchase 100,000 shares of Common Stock and (b) 647,123 and 428,399 shares
of Common Stock of Messrs. Rosner and Frumberg, respectively, held in escrow
until October 26, 1998 pursuant to requirements imposed in connection with
the Company's initial public offering in Canada under the Ontario Securities
Act. The shares held in escrow generally may not be sold, transferred or
pledged without the consent of the Ontario Securities Commission.
(4) Includes 36,438 shares of Common Stock held by Mr. Rosner's wife. Mr. Rosner
disclaims beneficial ownership of the shares held by his wife.
(5) Mr. Altschuler directly owns and holds 287,280 shares of Common Stock.
Because Altschuler owns 50% of the common stock of SGI, he is deemed to own
the 600,000 shares of Common Stock underlying the SGI Warrants, as such
warrants are currently exercisable. Accordingly, Mr. Altschuler is deemed to
beneficially own 887,280 shares of Common Stock. Mr. Altschuler has sole
voting and dispositive power over the 287,280 shares of Common Stock which
he holds. Mr. Altschuler shares dispositive power over the SGI Warrants,
and, upon exercise of such warrants, would share voting power over the
resulting Common Stock. See "Selling Securityholders."
(6) Mr. Cooper directly owns and holds 187,500 shares of Common Stock. Because
Cooper owns 50% of the common stock of SGI, he is deemed to beneficially own
the 600,000 shares of Common Stock underlying the SGI Warrants as such
warrants are currently exercisable. Accordingly, Mr. Cooper is deemed to
beneficially own 787,500 shares of Common Stock. Mr. Cooper has sole voting
and dispositive power over the 187,500 shares of Common Stock which he
holds. Mr. Cooper shares dispositive power over the SGI Warrants, and, upon
exercise of such warrants, would share voting power over the resulting
Common Stock. See "Selling Securityholders."
(7) Includes ten-year options to purchase 56,250 shares of Common Stock granted
to Mr. Dintemann on April 8, 1994 and excludes options to purchase an
additional 18,750 shares that have not yet vested.
(8) Represents ten-year options to purchase 100,000 shares of Common Stock
granted to Mr. Stein on April 8, 1994.
(9) Includes 15,000 shares of Common Stock issuable upon options granted to Mr.
Farber.
30
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH PRINCIPAL STOCKHOLDERS
On December 6, 1995, the Company consummated the Seafla Acquisition. As
consideration in such transaction, the Company paid $3,000,000 and issued a
promissory note in the amount of $888,019. Of such amount, $177,604 was payable
on January 1, 1997 and the remaining four installments were payable on each
January 1 thereafter through 2001. In March 1997, the Seafla Note was amended in
order to extend the Company's obligation to pay the first principal installment
of $177,604 until March 31, 1998; and the remaining four installments are due on
January 1 of each year through January 2002. Outstanding amounts under the
Seafla Note bear interest at a rate of 12% per annum. Under the Seafla Note, as
amended, the Company is required to pay the interest accrued through December
31, 1996 in nine equal monthly installments of $10,000 beginning April 15, 1997
with the final installment of $12,767 to be paid in January 1998. The Company
funded the cash portion of the Seafla purchase price through a term loan in the
amount of $3,500,000 with interest payable monthly at one and one-half percent
above the bank's prime rate. Concurrently with the closing of the acquisition,
the Company entered into a five-year employment agreement with Mr. Higgins, the
President of Seafla, to be the President of the Company's Seasonings Division.
See "Executive Compensation--Employment Agreements."
In connection with the Seafla Acquisition, the Company assumed the lease of
Seafla's 37,000 square foot facility in Milford, Ohio, with a term expiring in
2014. The owner of this leased facility is a partnership in which Mr. Higgins is
a partner. The annual rental paid by the Company in respect of this facility is
$192,000. In connection with the Seafla Acquisition, the Company obtained a
report of an independent appraisal firm which concluded that the rental paid by
the Company is at or very close to market value. See "Business--Description of
Property."
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding loans made by
the Company to its directors and executive officers which were outstanding as of
the end of the fiscal year ended December 31, 1997 (collectively, the "Loans").
As of January 16, 1998, the aggregate indebtedness owed to the Company pursuant
to the Loans was approximately $273,880, including accrued interest thereon. The
Loans are unsecured, bear interest at a rate of 8% per annum and are due in
installments of principal and interest through December 31, 1999.
TABLE OF INDEBTEDNESS OF DIRECTORS
AND EXECUTIVE OFFICERS OF COMPANY
<TABLE>
<CAPTION>
AMOUNT
AMOUNT OUTSTANDING
OUTSTANDING AS OF
INVOLVEMENT AS OF JAN. 16,
NAME AND PRINCIPAL POSITION OF ISSUER DECEMBER 31, 1997(1) 1998(1)
- -------------------------------------------------------------- ----------- -------------------- ---------------
<S> <C> <C> <C>
Philip Rosner................................................. Lender $ 189,981 $ 189,656
A. Gary Frumberg.............................................. Lender $ 84,424 $ 84,224
</TABLE>
- ------------------------
(1) Includes accrued interest.
31
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation authorizes the issuance of 20.0
million shares of Common Stock, par value $0.01 per share. As of January 16,
1998, 12,374,623 shares of Common Stock were issued and outstanding. See
"Selling Securityholders," "Beneficial Ownership" and "Risk Factors--Control by
Existing Stockholders."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors, from time to time, out of funds legally
available therefore, subject to, among other things, those factors described
under the heading "Risk Factors." Upon any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, holders of Common Stock are
entitled to receive pro rata all assets available for distribution to its
stockholders after payment or provision for payment of debts and other
liabilities of the Company. As of the date hereof, there are no preemptive or
other subscription rights or redemption or sinking fund provisions with respect
to the Common Stock. See "Risk Factors--Exercise of Warrants; Dilution" and
"Dividend Policy."
OUTSTANDING WARRANTS AND OPTIONS
The Class A and Class B Warrants are exercisable at anytime up to and
including October 17, 2001 at $2.40 per share, and at $2.70 per share,
respectively. The exercise price of the Class A and the Class B Warrants is
subject to adjustment if the Company issues any additional shares of Common
Stock in connection with a stock dividend, stock split, stock reclassification,
consolidation, merger or other similar transaction. See "Selling
Securityholders."
The SGI Warrants are exercisable at anytime up to and including October 24,
2000 at an exercise price of $0.56 per share (subject to adjustments). The SGI
Warrants are subject to redemption by the Company anytime after December 31,
1999, at a redemption price of $0.01 per warrant if the average market price of
the Common Stock for 30 consecutive trading days prior to the service of the
redemption notice by the Company equals or exceeds Cdn. $1.50. The Company may
redeem all, but not part, of the SGI Warrants. See "Selling Securityholders."
The North Fork Warrants are exercisable at any time up to and including
September 15, 1999 at an exercise price of $2.40 per share (subject to
adjustments). The North Fork Warrants include a mandatory redemption provision
which requires the Company to purchase all of the North Fork Warrants for
$20,000. In addition, the Company has the right at any time prior to April 7,
1998 to "call" 50,000 shares of the warrants for $50,000. See "Selling
Securityholders."
The Company has two stock option plans. As of January 16, 1998, options to
purchase an aggregate of approximately 1,102,000 shares of Common Stock were
issued and outstanding under such plans. See "Executive Compensation."
TRANSFER AGENT AND REGISTRAR
The Company's transfer agents and registrars for the Common Stock are the
Montreal Trust Company of Canada, Toronto, Ontario and The Bank of Nova Scotia
Trust Company of New York, New York, New York.
32
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The General Corporation Law of Delaware permits a corporation through its
certificate of incorporation to eliminate the personal liability of its
directors to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, with certain exceptions. The exceptions include
breach of fiduciary duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, improper
declarations of dividends and transactions from which the directors derived an
improper personal benefit. The Company's Certificate of Incorporation, as
amended, exonerates its directors from monetary liability to the fullest extent
permitted by this statutory provision but does not restrict the availability of
non-monetary and other equitable relief.
The Company's Certificate of Incorporation, as amended, and By-laws provide
that the Company shall indemnify its directors and officers to the fullest
extent permitted by Delaware law.
It is the position of the Securities and Exchange Commission that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted for any director or officer of the Company pursuant to the foregoing
provisions as a means of indemnifying any of them against such liabilities, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
33
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
TORONTO STOCK EXCHANGE. The Company's Common Stock has been listed on the
TSE since March 28, 1994 (Symbol: "TFF"). The following table sets forth the
reported high and low sale prices (as reported by the TSE) for the Company's
Common Stock for each calendar quarter from January 1, 1995 through December 31,
1997, in Canadian dollars and translated into U.S. dollars at the exchange rates
in effect on those dates.
<TABLE>
<CAPTION>
HIGH LOW
-------------------------- --------------------------
<S> <C> <C>
1995
First Quarter.......................................... Cdn. $1.90 (U.S. $1.36) Cdn. $1.05 (U.S. $0.75)
Second Quarter......................................... Cdn. $1.65 (U.S. $1.05) Cdn. $1.05 (U.S. $0.76)
Third Quarter.......................................... Cdn. $1.25 (U.S. $0.92) Cdn. $0.85 (U.S. $0.63)
Fourth Quarter......................................... Cdn. $1.35 (U.S. $0.99) Cdn. $0.60 (U.S. $0.44)
1996
First Quarter.......................................... Cdn. $2.45 (U.S. $1.78) Cdn. $1.20 (U.S.$0.88)
Second Quarter......................................... Cdn. $3.42 (U.S. $2.50) Cdn. $2.00 (U.S. $1.47)
Third Quarter.......................................... Cdn. $2.95 (U.S. $2.15) Cdn. $2.05 (U.S. $1.49)
Fourth Quarter......................................... Cdn. $2.68 (U.S. $1.97) Cdn. $1.50 (U.S. $1.12)
1997
First Quarter.......................................... Cdn. $2.25 (U.S. $1.64) Cdn. $1.75 (U.S. $1.29)
Second Quarter......................................... Cdn. $2.50 (U.S. $1.80) Cdn. $1.70 (U.S. $1.23)
Third Quarter.......................................... Cdn. $2.83 (U.S. $2.05) Cdn. $2.00 (U.S. $1.45)
Fourth Quarter......................................... Cdn. $2.69 (U.S. $1.96) Cdn. $1.70 (U.S. $1.19)
</TABLE>
The closing sale price of the Common Stock on the TSE on January 16, 1998
was Cdn. $2.18 (U.S. $1.52).
OTC BULLETIN BOARD. Information regarding the Company's Common Stock is
available through the Nasdaq OTC Bulletin Board. The Company's Common Stock
(Symbol: "TFFI") was first quoted on the OTC Bulletin Board on March 12, 1996.
The following table sets forth the range of high and low bid quotations for the
Common Stock (as reported by the OTC Bulletin Board) for each quarter with
respect to the period from March 12, 1996 through December 31, 1997.
<TABLE>
<CAPTION>
HIGH LOW
-------------- --------------
<S> <C> <C>
1996
First Quarter (from March 12, 1996)............................................ U.S. $ 1.625 U.S. $ 1.125
Second Quarter................................................................. U.S. $ 2.0625 U.S. $ 1.375
Third Quarter.................................................................. U.S. $ 2.0625 U.S. $ 1.50
Fourth Quarter................................................................. U.S. $ 1.875 U.S. $ 1.1187
1997
First Quarter.................................................................. U.S. $ 1.625 U.S. $ 1.1875
Second Quarter................................................................. U.S. $ 1.6563 U.S. $ 1.125
Third Quarter.................................................................. U.S. $ 2.0938 U.S. $ 1.4688
Fourth Quarter................................................................. U.S. $ 1.9688 U.S. $ 1.125
</TABLE>
The closing bid price of the Common Stock on the OTC Bulletin Board, as
reported by Nasdaq on January 16, 1998, was U.S. $1.56.
At January 16, 1998, there were approximately 900 holders of record of the
Company's Common Stock.
34
<PAGE>
To date, the Company has not paid any dividends on its Common Stock and does
not anticipate paying dividends in the foreseeable future. The declaration and
payment of dividends on the Common Stock is in the discretion of the Board of
Directors and will depend on, among other things, the Company's operating
results, financial condition, capital requirements, contractual restrictions or
prohibitions with respect to the payment of dividends, and such other factors as
the Board of Directors may deem relevant. See "Risk Factors--No Anticipated
Dividends on the Common Stock" and "Dividend Policy."
35
<PAGE>
SELLING SECURITYHOLDERS
The following Selling Securityholders beneficially own as of January 16,
1998 and may offer hereby the number of shares of Common Stock set forth
opposite their respective names (assuming that all of the Warrants are exercised
in full as of January 16, 1998). The shares offered pursuant to this Prospectus
may be offered, from time to time, by the Selling Securityholders named below or
their nominees. The Selling Securityholders are under no obligation to sell all
or any portion of their shares pursuant to this Prospectus. In addition, because
the Selling Securityholders are not obligated to sell all or a portion of their
shares pursuant to this Prospectus, the Company is unable to ascertain the
number of shares of Common Stock that will be beneficially owned by each Selling
Securityholder following the termination of the Offering.
The Company will incur expenses in respect of this Offering in an amount
estimated to be approximately $150,000 in the aggregate. Except as provided in
this Prospectus (including the footnotes to the table set forth below), no
Selling Securityholder has held any position or office or had any other material
relationship with the Company within the past three years. The Selling
Securityholders will receive all of the proceeds from the sale of the shares
offered hereby. The Company will not receive any proceeds from the sale of such
shares. 1,306,250 shares of the Common Stock offered hereby are issuable upon
the exercise of all of the outstanding Warrants to purchase shares of Common
Stock. If all of the Warrants were exercised by the Selling Securityholders for
cash, the Company estimates that it would receive gross cash proceeds of
approximately $2.0 million (subject to adjustment in some cases). See "Use of
Proceeds" and "Plan of Distribution."
The information in the table concerning the Selling Securityholders is based
on information provided to, or known by, the Company, and assumes that all of
the Warrants have been exercised in full. Information concerning the Selling
Securityholders may change, from time to time, after the date of this
Prospectus. See "Risk Factors--Effect of Exercise of Warrants; Dilution," "Plan
of Distribution" and "Description of Capital Stock."
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
SHARES OF COMMON STOCK OFFERED PURSUANT TO
NAME OF SELLING SECURITYHOLDER OWNED PRIOR TO OFFERING OFFERING
- -------------------------------------------------------------- ------------------------- -----------------------
<S> <C> <C>
Laurence D. Fink(1)........................................... 35,010(2) 35,010(2)
12,156(3) 12,156(3)
Bennett W. Golub(1)........................................... 35,010(2) 35,010(2)
12,156(3) 12,156(3)
The High View Fund, L.P.(1)................................... 239,054 239,354
172,485(2) 172,485(2)
59,891(3) 59,891(3)
The High View Fund(1)......................................... 148,601 148,601
172,485(2) 172,485(2)
59,891(3) 59,891(3)
The Robert S. Kapito Family Trust(1).......................... 35,010(2) 35,010(2)
12,156(3) 12,156(3)
North Fork Bank(4)............................................ 100,000 100,000
Strategic Growth International, Inc.(5)....................... 600,000 600,000
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
36
<PAGE>
- ------------------------
(1) In 1996, the Company consummated a financing with the Selling
Securityholders which provided for the issuance of (i) $1,500,000 principal
amount of 9% Convertible Subordinated Notes due October 17, 1998, (ii) Class
A Warrants to purchase an aggregate of 450,000 shares of Common Stock, and
(iii) Class B Warrants to purchase an aggregate of 156,250 shares of Common
Stock. The Class A Warrants and Class B Warrants are exercisable into shares
of Common Stock at $2.40 and $2.70 per share, respectively, subject to
adjustments under certain circumstances pursuant to the financing. On
October 16, 1997, the Company converted one-half of the Notes into 387,655
shares of Common Stock based upon the weighted average share price during
the preceding ten trading days prior to closing, which are being offered for
sale pursuant to this Prospectus. See "Management's Discussion and
Analysis," "Business--History" and "Description of Capital Stock."
In December 1997, Messrs. Fink and Golub and The Robert S. Kapito Family
Trust each transferred 30,151 shares of Common Stock received by such
persons in respect to the conversion of the Notes to The High View Fund,
L.P.
(2) Represents shares of Common Stock issuable upon exercise of the Class A
Warrants.
(3) Represents shares of Common Stock issuable upon exercise of the Class B
Warrants.
(4) Prior to October 1997, North Fork Bank was the Company's principal lender.
In April 1997, the Company and North Fork entered into a waiver and in
connection therewith received the North Fork Warrants. See "Management's
Discussion and Analysis--Liquidity and Capital Resources."
(5) In October 1995, the Company entered into a one-year consulting agreement
with Strategic Growth International, Inc. ("SGI"), pursuant to which SGI, on
behalf of the Company, agreed to (a) arrange and conduct meetings with the
professional investment community and investor groups, (b) develop and
implement a comprehensive investor relations program, and (c) provide
professional staff services to assist the Company in carrying out its
programs and objectives (the "Consulting Agreement"). Under the Consulting
Agreement, the Company paid to SGI a retainer fee of $8,000 per month plus
reasonable expenses and issued to SGI the SGI Warrants.
In October 1996, the Consulting Agreement expired by its terms. The Company
continued to engage SGI on a month to month basis, pursuant to the terms of
the agreement, subject to cancellation at any time. On October 28, 1997, the
Company terminated the consulting arrangement.
In December 1997, SGI exercised the SGI Warrant to purchase 5,000 shares of
the Company's Common Stock.
37
<PAGE>
PLAN OF DISTRIBUTION
All of the shares of Common Stock offered hereby are being offered on behalf
of the Selling Securityholders. The Company will not receive any proceeds from
the sale of the shares. However, 1,306,250 shares of the Common Stock offered
hereby are issuable upon the exercise of all of the Warrants. If all of the
Warrants are exercised by the Selling Securityholders for cash, the Company
estimates that it would receive gross cash proceeds of approximately $2.0
million.
The sale of the shares of Common Stock may be effected directly to
purchasers by the Selling Securityholders as principals or through one or more
underwriters, brokers, dealers or agents, from time to time, in one or more
transactions (which may involve block transactions). Any sales of the shares may
be effected in one or more transactions on the Toronto Stock Exchange, the
Nasdaq OTC Bulletin Board, in negotiated transactions or in a combination of
such transactions. The shares may be sold at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. If the Selling Securityholders effect sales through
underwriters, brokers, dealers or agents, such firms may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholders or the purchasers of the shares for whom they may act as agent,
principal or both. Those persons who act as broker-dealers or underwriters in
connection with the sale of the shares will be selected by the Selling
Securityholders and may have other business relationships with, and perform
services for, the Company. Any Selling Securityholder, underwriter or
broker-dealer who participates in the sale of the shares may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act. Any
commissions received by any underwriter or broker-dealer and any profit on any
resale of the shares as principal may be deemed to be underwriting discounts and
commissions under the Securities Act.
The anti-manipulation provisions of Rules 101 through 104 under the Exchange
Act may apply to purchases and sales of shares of Common Stock by the Selling
Securityholders. In addition, there are restrictions on market-making activities
by persons engaged in the distribution of the Common Stock.
Under the securities laws of certain states, the shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the shares may not be able to be sold unless the Common Stock has
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
The Company will incur expenses incident to the registration, offering and
sale of the shares of Common Stock pursuant to this Offering. The Company has
also agreed to indemnify Selling Securityholders, their partners, officers,
directors and each of their controlling persons, if any, against certain
liabilities, including liabilities under the Securities Act. The Company
estimates that its expenses in connection with the Offering will be
approximately $150,000 in the aggregate.
The Company has advised the Selling Securityholders that if a particular
offer of shares is to be made on terms constituting a material change from the
information set forth above then to the extent required, a Prospectus Supplement
must be distributed setting forth such terms and related information. See "Risk
Factors--State Registration Required for Sales of Shares" and "Selling
Securityholders."
38
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Baer Marks & Upham LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and for the year then ended, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated balance sheet of Technology Flavors & Fragrances, Inc. as
of December 31, 1995 and the consolidated statements of operations,
shareholders' equity and cash flows for the year then ended included in this
Prospectus, have been included herein in reliance on the report of Coopers and
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The financial statements of the Seafin (a division of Technology Flavors &
Fragrances, Inc.) as of December 31, 1995 and for the period then ended,
included in this Prospectus, have been included herein in reliance on the report
of Tabb, Conigliaro & McGann, P.C. independent accountants, given on the
authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission under the
Securities Act a Registration Statement on Form SB-2 (the "Registration
Statement"), of which this Prospectus is a part, with respect to the shares
offered hereby via the Electronic Data Gathering Analysis and Retrieval system
("EDGAR") and may be found on the Securities and Exchange Commission's web site
at http:// www.sec.gov. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules as permitted by the rules and regulations of the Securities and
Exchange Commission. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to herein are not necessarily
complete. With respect to each contract, agreement or other document filed as an
exhibit to the Registration Statement or in a filing incorporated by reference
herein, reference is made to the exhibit for a more complete description of the
matters involved, and each statement shall be deemed qualified in its entirety
by this reference.
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files certain periodic reports, proxy statements
and other information with the Securities and Exchange Commission. Reports and
other information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at its
principal offices located at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the Securities
and Exchange Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.
Copies of such material may be obtained by mail from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Electronic filings made via EDGAR
are publicly available through the Commission's web site referenced above. In
addition, material filed by the Company can be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006 and at the offices of the Toronto Stock Exchange, the
Exchange Tower, 2 First Canadian Place, Toronto, ON M5X 1J2, Canada.
39
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Report of Ernst & Young LLP, Independent Auditors....................................................... F-2
Report of Coopers and Lybrand L.L.P., Independent Accountants........................................... F-3
Report of Tabb, Conigliaro & McGann, P.C., Independent Auditors......................................... F-4
Consolidated Balance Sheets as at December 31, 1996 and December 31, 1995............................... F-5
Consolidated Statements of Operations for the years ended December 31, 1996 and
December 31, 1995..................................................................................... F-6
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996
and December 31, 1995................................................................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and December 31, 1995....... F-8
Notes to Consolidated Financial Statements for the years ended December 31, 1996 and December 31,
1995.................................................................................................. F-10
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Consolidated Balance Sheets as at September 30, 1997 and September 30, 1996 (Unaudited)................. F-22
Consolidated Statements of Operations for the three and nine months ended September 30, 1997 and
September 30, 1996 (Unaudited)........................................................................ F-23
Consolidated Statements of Cash Flows for the three and nine months ended September 30, 1997 and
September 30, 1996 (Unaudited)........................................................................ F-24
Notes to Unaudited Consolidated Financial Statements for the three and nine months ended September 30,
1997 and September 30, 1996........................................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Technology Flavors & Fragrances, Inc.
We have audited the accompanying consolidated balance sheet of Technology
Flavors & Fragrances, Inc. and Subsidiary as of December 31, 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated March 25, 1997,
except for Note 10, as to which the date is April 7, 1997, management of the
Company, as discussed in Note 16, believes, based upon available information,
that the Company is in violation of two financial covenants contained in its
credit agreement. Management and the Company's lender are in the process of
discussing (i) a restructuring of the New Facility to provide additional
flexibility with respect to certain covenants, and (ii) the granting of waivers
for such covenant violations.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Technology
Flavors & Fragrances, Inc. and Subsidiary at December 31, 1996 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Melville, New York
March 25, 1997, except for
Note 10, as to which the
date is April 7, 1997 and
Note 16, as to which the
date is January 19, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of
Technology Flavors & Fragrances, Inc.
We have audited the accompanying consolidated balance sheet of Technology
Flavors & Fragrances, Inc. as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial statements of the
Company's wholly-owned Seafla Division acquired on December 6, 1995, which
statements reflect total assets of $4,442,721 as of December 31, 1995, and total
revenues of $310,299 for the period December 6, 1995 through December 31, 1995.
Those 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 the
Seafla Division, is based solely on the report of the other auditors.
We conducted our audit 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 audit, and the report of the other auditors, provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Technology Flavors &
Fragrances, Inc. as of December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Melville, New York
March 25, 1996
F-3
<PAGE>
To the Board of Directors
Technology Flavors & Fragrances, Inc.
Amityville, NY
INDEPENDENT AUDITORS' REPORT
We have audited the balance sheet of Seafla (a division of Technology
Flavors & Fragrances, Inc.) as of December 31, 1995 and the related statements
of income and cash flows for the period from inception (December 7, 1995) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Seafla at December 31, 1995,
and the results of its operations and its cash flows for the period from
inception (December 7, 1995) to December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ TABB, CONIGLIARO & McGANN, P.C.
New York, NY
March 1, 1996
F-4
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 233,566 $ 467,134
Receivables (less allowance for doubtful accounts of $150,000 in 1996 and
$139,000 in 1995) (Note 4)..................................................... 3,529,997 2,653,731
Inventories (Note 5)............................................................. 4,025,586 3,420,254
Prepaid expenses and other current assets........................................ 97,617 195,287
------------- -------------
Total current assets........................................................... 7,886,766 6,736,406
Fixed assets, net (Note 6)......................................................... 1,401,062 1,480,101
Intangible assets, net (Note 7).................................................... 6,205,754 6,812,137
Other assets....................................................................... 328,670 387,787
Notes receivable from related parties (Note 8)..................................... 281,011 316,774
------------- -------------
Total assets................................................................... $ 16,103,263 $ 15,733,205
------------- -------------
------------- -------------
LIABILITIES
Current liabilities:
Accounts payable................................................................. $ 2,907,558 $ 2,318,968
Accrued expenses................................................................. 939,636 288,245
Notes payable (Note 9)........................................................... -- 1,100,000
Current portion of long-term debt (Note 10)...................................... 19,078 52,000
------------- -------------
Total current liabilities...................................................... 3,866,272 3,759,213
Long-term debt (Note 10)........................................................... 6,840,529 4,388,019
Deferred rent payable.............................................................. 22,007 12,479
------------- -------------
10,728,808 8,159,711
Commitments (Note 12)
STOCKHOLDERS' EQUITY
Common stock:
$.01 par value, authorized 20,000,000 shares, issued 11,993,406 and 12,166,706
shares, respectively........................................................... 119,934 121,667
Paid-in capital.................................................................... 9,409,706 9,457,251
Accumulated deficit................................................................ (3,827,890) (1,290,277)
Unearned compensation arising from stock awards.................................... (317,295) (398,306)
Treasury stock at cost--36,438 and 409,738 shares of common stock, respectively.... (10,000) (316,841)
------------- -------------
Total stockholders' equity................................................... 5,374,455 7,573,494
------------- -------------
Total liabilities and stockholders' equity................................... $ 16,103,263 $ 15,733,205
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net sales.......................................................................... $ 21,017,960 $ 15,191,848
Cost of sales...................................................................... 13,155,260 9,358,590
------------- -------------
Gross profit................................................................. 7,862,700 5,833,258
------------- -------------
Operating expenses:
Selling.......................................................................... 3,543,130 2,457,955
General and administrative....................................................... 3,491,452 2,012,015
Research and development......................................................... 1,971,770 1,145,854
Amortization expense............................................................. 833,427 449,401
------------- -------------
Total operating expenses..................................................... 9,839,779 6,065,225
------------- -------------
Loss from operations............................................................... (1,977,079) (231,967)
Interest expense, net.............................................................. (557,660) (114,656)
------------- -------------
Loss before provision for income taxes............................................. (2,534,739) (346,623)
Provision for income taxes......................................................... (2,874) (19,906)
------------- -------------
Net loss........................................................................... $ (2,537,613) $ (366,529)
------------- -------------
------------- -------------
Net loss per common share.......................................................... $ (.21) $ (.03)
------------- -------------
------------- -------------
Weighted average shares outstanding................................................ 11,864,345 11,195,465
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
UNEARNED
COMMON STOCK COMPENSATION TREASURY STOCK
-------------------- PAID-IN (ACCUMULATED ARISING FROM --------------------
SHARES AMOUNT CAPITAL DEFICIT) STOCK AWARDS SHARES AMOUNT TOTAL
--------- --------- --------- ------------ ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994....................... 11,316,706 $ 113,167 $8,957,501 $ (923,748) (36,438) $ (10,000) $8,136,920
Shares issued upon exercise
of stock options......... 100,000 1,000 43,000 44,000
Shares issued in connection
with stock award......... 750,000 7,500 396,750 $(404,250)
Amortization of unearned
compensation............. 5,944 5,944
Warrants issued for
services................. 60,000 60,000
Purchase of treasury
stock.................... (373,300) (306,841) (306,841)
Net loss................... (366,529) (366,529)
--------- --------- --------- ------------ ------------- --------- --------- ---------
Balance at December 31,
1995....................... 12,166,706 121,667 9,457,251 (1,290,277) (398,306) (409,738) (316,841) 7,573,494
Shares issued in connection
with convertible debt
financing................ 100,000 1,000 105,063 106,063
Shares issued to broker in
connection with Seafla
acquisition.............. 100,000 1,000 150,500 151,500
Amortization of unearned
compensation............. 81,011 81,011
Cancellation of treasury
stock.................... (373,300) (3,733) (303,108) 373,300 306,841
Net loss................... (2,537,613) (2,537,613)
--------- --------- --------- ------------ ------------- --------- --------- ---------
Balance at December 31,
1996....................... 11,993,406 $ 119,934 $9,409,706 $(3,827,890) $(317,295) (36,438) $ (10,000) $5,374,455
--------- --------- --------- ------------ ------------- --------- --------- ---------
--------- --------- --------- ------------ ------------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-7
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Cash flows from operating activities:
Net loss.......................................................................... $ (2,537,613) $ (366,529)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization................................................... 1,146,126 713,457
Provision for bad debts......................................................... 150,664 123,100
Deferred rent................................................................... 9,528 6,277
Changes in assets and liabilities, net of effects of acquired business in 1995:
Accounts receivable........................................................... (1,026,930) (547,966)
Inventories................................................................... (605,332) (179,492)
Prepaid expenses and other current assets..................................... 47,670 122,826
Other assets.................................................................. (190,874) (57,394)
Accounts payable.............................................................. 740,090 342,905
Accrued expenses.............................................................. 651,391 (127,545)
------------- -------------
Net cash (used in) provided by operating activities............................. (1,615,280) 29,639
------------- -------------
Cash flows from investing activities:
Purchase of fixed assets.......................................................... (137,072) (44,537)
Notes receivable.................................................................. 35,763 (190,256)
Decrease (increase) in cash surrender value of life insurance policy.............. 307,785 (55,355)
Acquisition of Seafla, Inc........................................................ (47,764) (3,000,000)
Cash acquired in Seafla acquisition............................................... -- 86,125
------------- -------------
Net cash provided by (used in) investing activities............................. 158,712 (3,204,023)
------------- -------------
Cash flows from financing activities:
Proceeds from convertible debt financing.......................................... 1,500,000 --
Proceeds from long-term bank debt................................................. -- 3,500,000
Issuance of common stock.......................................................... -- 44,000
Repayment of long-term debt....................................................... (277,000) (101,333)
Purchase of treasury stock........................................................ -- (306,841)
------------- -------------
Net cash provided by financing activities....................................... 1,223,000 3,135,826
------------- -------------
Decrease in cash.................................................................... (233,568) (38,558)
Cash--beginning of year............................................................. 467,134 505,692
------------- -------------
Cash--end of year................................................................... $ 233,566 $ 467,134
------------- -------------
------------- -------------
Supplemental information:
Cash paid during the period for interest.......................................... $ 476,000 $ 103,000
------------- -------------
------------- -------------
Cash paid during the period for income taxes...................................... $ -- $ 4,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental disclosures of non-cash investing and financing activities:
Equipment acquired under a capital lease obligation amounted to $97,000 in
1996.
In October 1996, the Company issued 100,000 shares of Common Stock
valued at $100,000 to a broker and issued 606,250 warrants to the
Convertible Note holders in connection with a convertible debt financing.
(See Note 10.)
In February 1996, the Company issued 100,000 shares of Common Stock
valued at $152,000 for services performed by a broker in connection with the
Company's December 1995 acquisition of Seafla, Inc. The issuance of shares
was in lieu of payment which had previously been accrued at December 31,
1995.
During 1995, the Company issued stock to an employee and recorded
unearned compensation aggregating $404,000.
In December 1995, the Company purchased the net assets of Seafla, Inc.
for cash and the issuance of a note payable for $888,019. Expenses of
$246,607 were accrued at December 31, 1995. (See Note 3.)
During 1995, the Company issued warrants with a value of $60,000 to a
service provider.
See accompanying notes.
F-9
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. BACKGROUND AND DESCRIPTION OF BUSINESS
Technology Flavors & Fragrances, Inc. (the "Company") is a manufacturer of
flavor, fragrance and seasoning products used to provide or enhance flavors or
fragrances in a wide variety of consumer and industrial products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market. The cost of raw materials is determined on the
specific identification method.
FIXED ASSETS
Machinery and equipment are recorded at cost and depreciated over their
estimated useful lives ranging from 5 to 10 years, using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease term
or estimated useful life of the assets. Maintenance and repairs are charged to
expense as incurred and renewals and improvements, which extend the life of the
assets, are capitalized.
If events or changes in circumstances indicate that the carrying value of
the Company's long-lived assets may not be recovered, the Company estimates the
future net cash flows expected to result from the use of the asset. If this net
cash flow is less than the carrying value, the Company will recognize an
impairment loss. No such impairment loss has been recognized for any period
presented.
INTANGIBLE ASSETS
Amortization of intangible assets is provided on the straight-line method
over the estimated useful lives of the assets. Annually, the Company assesses
the realizability of its capitalized formulations based upon the yearly level of
product utilization and forecasted sales data (see Note 7).
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount currently estimated to be realized.
F-10
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's Canadian
subsidiary are measured using local currency as the functional currency. Balance
sheet accounts are translated at the end of year exchange rate, and income
statement accounts are translated at the average rate of exchange prevailing
during the year. Translation adjustments arising from differences in exchange
rates between years are not material.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of common
shares outstanding in each period. The effect of including shares issuable upon
the assumed exercise of outstanding options and warrants or the conversion of
the subordinated note would be anti-dilative and, therefore, such effects have
not been included in the computation of net loss per share.
UNEARNED COMPENSATION
Unearned compensation is recorded as a separate component of stockholders'
equity for the fair market value of the shares at time of issuance and are
charged on a straight-line basis to general and administrative expenses over the
related vesting periods.
REVENUE RECOGNITION
The Company recognizes revenue when inventory is shipped and title legally
transfers to the purchaser.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs were
approximately $175,000 in 1996 and $14,000 in 1995.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, notes receivable and long-term debt are reflected
in the accompanying consolidated balance sheets at amounts considered by
management to reasonably approximate fair value. The Company estimates the fair
value of its fixed rate note receivable and long-term debt by using a discounted
cash flow analysis.
RECLASSIFICATION
Certain prior year amounts have been reclassified in the financial
statements to be consistent with the current year presentation.
F-11
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
3. ACQUISITIONS
SEAFLA, INC.
Effective December 6, 1995, the Company acquired all of the assets and
assumed all of the liabilities of Seafla, Inc. ("Seafla") for $3,000,000 in cash
and a promissory note in the principal amount of $888,019 (see Note 10). Seafla
manufactures and distributes food seasonings and flavorings principally in the
midwest region of the United States. The acquisition has been accounted for by
the purchase method of accounting. The results of operations of Seafla are
included in the Company's statement of operations from the date of acquisition.
The total cost of the acquisition of $4,134,626, including expenses of
$246,607, was allocated on the basis of the fair value of assets acquired and
liabilities assumed and incurred. Approximately $1,416,000 was allocated to
tangible assets and $294,000 was allocated to liabilities. The excess of the
purchase price over the fair value of assets and liabilities assumed and
incurred of $3,012,478 was allocated to the following intangible assets:
<TABLE>
<S> <C>
Formulations.................................................... $1,750,000
Goodwill........................................................ 987,478
Covenant not to compete......................................... 150,000
Customer list................................................... 100,000
Trademarks...................................................... 25,000
</TABLE>
These intangible assets are being amortized on a straight-line basis over
their respective lives (see Note 7).
The unaudited pro forma financial information set forth below is based upon
the Company's historical consolidated statement of operations for the year ended
December 31, 1995, adjusted to give effect to the acquisition of Seafla as if it
occurred on January 1, 1995:
<TABLE>
<S> <C>
Net sales...................................................... $19,085,212
Net loss....................................................... $ (929,070)
Net loss per share............................................. $ ( .08)
</TABLE>
The unaudited pro forma information is presented for informational purposes
only and may not be indicative of what actual results of operations would have
been had the acquisition occurred on January 1, 1995, nor does it purport to
represent the results of operations for future periods.
F & C INTERNATIONAL, INC.
In July 1993, the Company purchased certain assets which included customer
lists and product formulas of F & C International, Inc.'s Fragrance Division and
a 5-year covenant not to compete for approximately $4,700,000 in cash. The
assets purchased include certain tangible assets with a fair market value of
$388,000, with the balance assigned to intangible assets to be amortized over 13
years, commencing August 1, 1993.
F-12
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
4. RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Trade............................................................ $3,222,157 $2,472,482
Alcohol drawbacks................................................ 154,430 165,726
Other............................................................ 153,410 15,523
------------ ------------
$3,529,997 $2,653,731
------------ ------------
------------ ------------
</TABLE>
In 1996 and 1995, the allowance for doubtful accounts increased by an
additional provision of $151,000 and $123,000, respectively, and was reduced by
bad debt write-offs of $140,000 and $66,000, respectively.
5. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials.................................................... $3,145,743 $2,333,653
Finished goods................................................... 879,843 1,086,601
------------ ------------
$4,025,586 $3,420,254
------------ ------------
------------ ------------
</TABLE>
6. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Machinery and equipment.......................................... $1,595,536 $1,521,465
Leasehold improvements........................................... 685,596 640,349
Furniture and fixtures........................................... 584,918 473,343
------------ ------------
2,866,050 2,635,157
Less: accumulated depreciation and amortization.................. (1,464,988) (1,155,056)
------------ ------------
$1,401,062 $1,480,101
------------ ------------
------------ ------------
</TABLE>
Depreciation and amortization expense relating to fixed assets for the years
ended December 31, 1996 and 1995 was approximately $313,000 and $249,000,
respectively.
7. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AMORTIZATION DECEMBER 31, DECEMBER 31,
PERIOD 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Goodwill.......................................... 15 $ 1,025,591 $ 987,478
Formulations...................................... 5-13 6,242,959 6,299,294
Organization costs................................ 5 44,640 77,520
Customer lists.................................... 5-13 360,000 360,000
Non-compete covenants............................. 4 150,000 355,000
Trademarks........................................ 5 39,095 39,095
------------- -------------
7,862,285 8,118,387
Less: accumulated amortization.................... (1,656,531) (1,306,250)
------------- -------------
$ 6,205,754 $ 6,812,137
------------- -------------
------------- -------------
</TABLE>
F-13
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
7. INTANGIBLE ASSETS (CONTINUED)
Amortization expense relating to intangible assets for the years ended
December 31, 1996 and 1995 was approximately $654,000 and $449,000,
respectively.
8. NOTES RECEIVABLE FROM RELATED PARTIES
Notes receivable from related parties consist of amounts owed by two
executives and principal shareholders of the Company. The notes bear interest at
8% per annum and are due in monthly installments of principal and interest
through December 31, 1999.
9. NOTES PAYABLE
The Company had a line of credit from a bank for borrowings up to $2,000,000
at an interest rate based on the bank's prime lending rate plus 1/2% per annum.
As of December 31, 1995, $1,100,000 was outstanding under this facility. During
October 1996, this arrangement was consolidated into a long-term revolving
credit line facility (see Note 10).
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Revolving credit line borrowings bearing interest at 1 1/4% above
the bank's prime rate (8% at December 31, 1996) maturing
January 1999(a)................................................ $4,375,000 $3,500,000
Convertible subordinated notes payable bearing interest at 9% per
annum maturing October 1998(b)................................. 1,500,000 --
Note payable to the former Seafla shareholder bearing interest at
12% per annum payable in five equal annual installments
commencing March 1998(c)....................................... 888,019 888,019
Capital leases................................................... 96,588 --
Notes payable to former stockholders............................. -- 12,000
Non compete liability to former shareholders..................... -- 40,000
------------ ------------
6,859,607 4,440,019
Less: current maturities..................................... 19,078 52,000
------------ ------------
$6,840,529 $4,388,019
------------ ------------
------------ ------------
</TABLE>
(a) On October 22, 1996, the Company consolidated its existing $3,500,000
bank term loan and its $2,000,000 revolving line of credit into a $5,500,000
revolving credit line. Outstanding borrowings under the credit line are secured
by substantially all of the assets of the Company. The credit line requires the
maintenance of specified levels of tangible net worth, working capital and
limits on capital expenditures. On April 7, 1997, the bank waived certain
covenant provisions for 1996 and amended a covenant provision for 1997.
On April 7, 1997, in connection with the 1996 waivers and 1997 amendment,
the Company issued to the bank warrants to purchase 100,000 shares of the
Company's common stock at a price of $2.40 per share, subject to approval of the
TSE. The expiration of the warrants coincides with the expiration date of
F-14
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
10. LONG-TERM DEBT (CONTINUED)
the revolving credit line, January 15, 1999; however, if the credit line's
maturity is extended for any reason, including any renewals, the expiration of
the warrants will be automatically extended, but not to exceed 5-years from date
of issuance. The warrants contain a "put" provision which will give the bank the
right to require that the Company purchase the warrants from the bank for
$20,000.
The bank's "put" period will be for 120 days, to begin on the first
anniversary of the issuance of the warrants. The warrants contain anti-dilution
provisions and other benefits provided to the Convertible Subordinated Note
holders (see (b) below) in their warrants. The Company has the right at any time
prior to April 7, 1998 to "call" 50,000 of the warrants by paying the bank
$20,000. The "call" provision will be valid up to the first anniversary of the
issuance of the warrants. Should the Company exercise its "call" rights, the
bank will retain its right to "put" the remaining balance of the warrants to the
Company and be paid a fee of $10,000. In addition, the bank is requiring the
Company to exercise its option to convert the Convertible Subordinated Notes
into Common Stock pursuant to the terms of the financing agreement prior to
October 17, 1997.
(b) On October 17, 1996, the Company consummated a $1,500,000 Convertible
Subordinated Notes financing together with the issuance of stock purchase
warrants (see Note 13). The Notes are secured by liens on substantially all of
the assets of the Company and are convertible into shares of common stock, at
the option of the Company, at any time on or prior to October 16, 1997, at a
conversion price equal to the average market price for the ten trading days
immediately preceding the date of determination. From October 17, 1997 to
maturity, the Notes are convertible into shares of common stock, at the option
of the holders, at a conversion price equal to the greater of the market price,
as defined, at that time or the floor price of $1.50 per share, subject to
adjustments under certain circumstances as defined in the agreement. As
described in paragraph (a) above, the Company is required to exercise its option
to convert all of the Convertible Subordinated Notes to Common Stock prior to
October 17, 1997.
(c) In connection with the acquisition of Seafla, Inc. in December 1995, the
Company issued a promissory note of $888,019 payable in five annual installments
of $177,604 plus accrued interest, commencing January 1, 1997. In March 1997,
the note was amended to delay the initial principal payment plus accrued
interest for 1997 until March 31, 1998, while the accrued interest through
December 31, 1996 is payable in monthly installments from April 1997 through
January 1998. The remaining four principal installments plus accrued interest
shall be payable on the first day of January of each succeeding year after the
initial March 1998 payment until January 1, 2002.
11. INCOME TAXES
The income tax provision for the years ended December 31, 1996 and 1995
represents current state income taxes.
F-15
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
11. INCOME TAXES (CONTINUED)
A reconciliation of the income tax provision (benefit) at the statutory rate
to income tax expense at the Company's annualized estimated effective tax rate
for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Computed tax at federal statutory rate.............................. $ (861,811) $ (114,381)
State and local income taxes--net of federal tax benefit............ 1,897 9,345
Non-deductible officers' life insurance premiums and travel and
entertainment expenses............................................ 33,784 11,473
Limitation on net operating loss carry-forward...................... 787,766 113,469
Other............................................................... 41,238 --
----------- -----------
Provision for income taxes.......................................... $ 2,874 $ 19,906
----------- -----------
----------- -----------
</TABLE>
The components of deferred taxes as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------- -----------
<S> <C> <C>
Deferred tax assets
Accounts receivable............................................. $ 57,000 $ 52,820
Capitalized inventory costs..................................... 68,537 36,788
Depreciation.................................................... 3,079 12,546
Amortization.................................................... 25,049 72,059
Straight-line rent.............................................. 8,363 4,750
Net operating loss carryforward................................. 1,271,055 379,148
------------- -----------
1,433,083 558,111
Valuation allowance............................................... (1,433,083) (558,111)
------------- -----------
Net deferred tax asset............................................ $ -- $ --
------------- -----------
------------- -----------
</TABLE>
The Company has net operating loss carryforwards of approximately $3,345,000
which expire at various dates through 2012.
12. COMMITMENTS
LEASE OBLIGATIONS
During 1994, the Company received a rent abatement of $150,000 relating to
its Amityville, New York facility. As a result of the abatement, the Company
paid no rent for the first six months of the lease term and paid reduced rent
for the next seventeen months. The lease includes a provision for annual
increases in rental payments. The Company has recorded rent expense under the
straight-line method based on the minimum rent payable over the 12-year period
of the lease.
In connection with the Company's acquisition of Seafla, the Company assumed
the lease of Seafla's 37,000 square foot facility in Milford, Ohio. The owner of
this facility is a partnership in which Mr. Richard Higgins, the Company's
Senior Vice President, is a partner. The annual rental paid by the Company for
this facility is $192,000. The Company has an option to purchase the
manufacturing facility on or before
F-16
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
12. COMMITMENTS (CONTINUED)
December 6, 2000. If the option is exercised within the first two years, the
purchase price will be $1,600,000. If the option is exercised within the last
three years, the purchase price will be the fair market value of the property
determined by independent appraisers.
Future minimum commitments under noncancelable operating leases as well as
the lease on the Seafla facility, which the Company has the option to purchase
at fair value, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1997............................................................................ $ 523,680
1998............................................................................ 452,288
1999............................................................................ 385,207
2000............................................................................ 334,571
2001............................................................................ 329,360
Thereafter...................................................................... 3,066,272
</TABLE>
Rental expense charged to operations for the years ended December 31, 1996
and 1995 was $606,022 and $374,855, respectively, of which approximately
$192,000 and $16,000 was paid to a related party in 1996 and 1995, respectively.
EMPLOYMENT CONTRACTS
The Company is obligated under employment contracts, providing for annual
compensation, expiring on various dates through December 2000. Certain contracts
also call for additional compensation based on sales volumes.
Future fixed compensation under these contracts, not including commissions
based upon sales volume, as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
<S> <C>
1997............................................................................ $ 1,465,000
1998............................................................................ 1,232,500
1999............................................................................ 1,057,100
2000............................................................................ 859,000
</TABLE>
13. STOCKHOLDERS' EQUITY
WARRANTS/STOCK GRANTS
In October 1996, the Company consummated a financing which provided for the
issuance of $1,500,000 of Convertible Subordinated Notes (see Note 10) together
with Class A Stock Purchase Warrants, which entitle the holders to purchase an
aggregate of 450,000 shares of Common Stock, and Class B Warrants to purchase an
aggregate of 156,250 shares of Common Stock. The Class A and Class B Warrants,
which expire in 5 years, are exercisable into shares of Common Stock at exercise
prices of $2.40 per share and $2.70 per share, respectively, subject to
adjustments under certain circumstances pursuant to the financing. The value
received for these warrants of $6,063 was credited to paid-in capital in 1996.
F-17
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
13. STOCKHOLDERS' EQUITY (CONTINUED)
In October 1996, the Company issued 100,000 shares of Common Stock to a
broker in connection with the financing for the Company's Convertible
Subordinated Notes. The value associated with these shares of Common Stock is
approximately $100,000.
In February 1996, the Company issued 100,000 shares of Common Stock valued
at $152,000 for services performed by a broker in connection with the Company's
December 1995 acquisition of Seafla, Inc. The issuance of shares was in lieu of
payment which had previously been accrued at December 31, 1995.
During 1995, the Company issued warrants to purchase 600,000 shares of
common stock at an exercise price of U.S. $0.56 per share to a service provider,
which expire in 5 years. The value ascribed to these warrants of $60,000 was
amortized to expense over a one-year vesting period. Approximately $50,000
related to these warrants was expensed in 1996 and $10,000 in 1995.
STOCK OPTION PLANS
The Company has granted stock options under two separate plans: the 1996
Option Plan and the 1993 Option Plan.
Under the 1996 and 1993 Option Plans, employees (including officers and
directors who are employees) of the Company or its subsidiary are eligible for
the grant of Incentive Options to purchase up to a maximum of 1,000,000 and
500,000 shares, respectively, which vest ratably over periods ranging from three
to five years. Options may also be granted to other persons, provided that such
options shall be Non-Qualified Options. In the case of an Incentive Option, the
exercise price cannot be less than the fair market value of the shares on the
date the Option is granted, and if an optionee is a shareholder who beneficially
owns 10% or more of the outstanding Common Stock, the exercise price of the
Incentive Options cannot be less than 110% of such fair market value. The
exercise price of Non-Qualified Options shall be determined by the Company's
Board of Directors or the Committee appointed by the Board of Directors.
During 1996, the stockholders ratified the October 1995 Board of Directors'
resolution to reduce the exercise prices of all outstanding options granted
under the 1993 Option Plan from $1.38 per share to $.58 per share, with respect
to options granted to employees, officers or directors of the Company who were
not beneficial owners of 10% or more of the Common Stock and from $1.52 per
share to $.64 per share with respect to options granted to employees, officers
or directors who beneficially own 10% or more of the Common Stock.
STOCK BASED COMPENSATION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock options because, as discussed below,
the alternative fair value accounting provided for under Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), requires use of option valuation models that were not
developed for use in valuing such stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
F-18
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
13. STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net income or loss and net income or loss
per share is required by Statement 123, and has been determined as if the
Company has accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Sholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.3%; no dividend yields; volatility
factor of the expected market price of the Company's Common Stock of 50%; and a
weighted-average expected life of the options of 6 years at December 31, 1996
and 1995.
The Black-Sholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -----------
<S> <C> <C>
Net loss as reported............................................ $ (2,537,613) $ (366,529)
Pro forma net loss.............................................. (2,574,512) (408,806)
Net loss per share as reported.................................. (.21) (.03)
Pro forma net loss per share.................................... (.22) (.04)
</TABLE>
FASB No. 123 method of accounting has not been applied to options granted
prior to January 1, 1995. As a result, the pro forma compensation cost may not
be representative of that to be expected in future years.
Information as to options for shares of common stock granted as of December
31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
WEIGHTED AVG. WEIGHTED AVG.
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- --------------- ---------- ---------------
Outstanding at beginning of year............................ 552,000 $ .60 692,500 $ 1.42
Granted..................................................... 120,000 1.91 -- --
Exercised................................................... -- -- (100,000) .44
Canceled.................................................... (42,500) .58 (40,500) 1.38
--------- ----------
Outstanding at end of year.................................. 629,500 .86 552,000 .60
--------- ----- ---------- -----
--------- ----- ---------- -----
Exercisable at end of year.................................. 304,750 213,000
--------- ----------
--------- ----------
Weighted average fair value of options granted during the
year...................................................... $ 1.13 $ .60
----- -----
----- -----
</TABLE>
F-19
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
13. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS OPTIONS REMAINING CONTRACTUAL LIFE
EXERCISE PRICE OUTSTANDING EXERCISABLE IN YEARS
- ---------------------------------------------------------------------- ----------- ----------- ----------------------------
<S> <C> <C> <C>
$.58-.64.............................................................. 509,500 304,750 5.3
1.15.................................................................. 20,000 -- 9.1
2.06.................................................................. 100,000 -- 9.6
----------- ----------- ---
629,500 304,750 6.1
----------- ----------- ---
----------- ----------- ---
</TABLE>
At December 31, 1996, 970,500 shares of common stock were reserved for the
future issuance of stock options.
14. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan covering all non-union employees
meeting certain age and length of service requirements, pursuant to Section 401K
of the Internal Revenue Code. Participants may contribute a percentage of
compensation, but not in excess of the maximum allowable by law.
The Plan provides for a matching contribution by the Company which is one
half of the amount contributed by the participant up to a maximum of 3%.
Matching contributions amounted to $74,775 and $56,317 for the years ended
December 31, 1996 and 1995, respectively. Employees vest in the employer
contribution at the rate of 25% per year.
15. OTHER INFORMATION
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily trade accounts receivable. Ongoing
credit evaluation of customers' financial condition are performed and generally
no collateral is required. Credit losses have typically been within management's
expectations.
At December 31, 1996 and 1995, five customers accounted for approximately
42% and 29% of the accounts receivable balance, respectively. For the years
ended December 31, 1996 and 1995, no one customer accounted for more than 10% of
the Company's net sales.
For the years ended December 31, 1996 and 1995, export sales were
approximately 29% and 28%, respectively, of total sales. The Company's export
sales are made to entities located primarily in Canada, South America and
Europe.
Cash and cash equivalent balances are held primarily at one financial
institution and may, at times, exceed the amount insurable. The Company believes
it mitigates its risks by investing in or through major financial institutions.
Recoverability of investment is dependent upon the performance of the issuer.
F-20
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
16. SUBSEQUENT EVENTS
On October 16, 1997, the Company entered into a credit agreement with a
different bank which provided for a $6,000,000 Revolving Credit Facility and a
$750,000 Term Loan Facility (the "New Facility") to replace the $5,500,000
revolving credit line described in Note 10 and to refinance $750,000 of the 9%
Convertible Subordinated Notes also described in Note 10. The Company also
exercised its option to exchange the remaining balance of the $1,500,000
Convertible Subordinated Notes for 387,655 shares of the Company's common stock
in accordance with the terms of the Convertible Subordinated Notes.
The New Facility bears interest based on the bank's London Interbank
Offering Rate ("LIBOR") plus 2- 1/2% (which currently equates to approximately
the bank's prime rate) or 1/2 of 1% above the bank's prime rate, at the
Company's option. Outstanding borrowings are secured by substantially all of the
assets of the Company, subject to the Company's borrowing base which includes
eligible receivables, inventories and product formulations. The New Facility
requires the maintenance of certain financial and other covenants.
Management of the Company believes, based upon available information, that
the Company is in violation of two financial covenants contained in the New
Facility. Management and the Company's lender are in the process of discussing
(i) a restructuring of the New Facility to provide additional flexibility with
respect to certain covenants, and (ii) the granting of waivers for such covenant
violations.
F-21
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
(UNAUDITED) (NOTE)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 142,241 $ 233,566
Receivables, net.......................................................... 4,242,736 3,529,997
Inventories............................................................... 4,305,459 4,025,586
Prepaid expenses and other current assets................................. 139,635 97,617
---------------- ---------------
Total current assets.................................................. 8,830,071 7,886,766
Fixed assets, net......................................................... 1,223,214 1,401,062
Intangible assets, net.................................................... 5,720,618 6,205,754
Other assets.............................................................. 204,714 328,670
Notes receivable from related parties..................................... 271,981 281,011
---------------- ---------------
Total assets.......................................................... $ 16,250,598 $ 16,103,263
---------------- ---------------
---------------- ---------------
<CAPTION>
LIABILITIES
<S> <C> <C>
Current liabilities:
Accounts payable.......................................................... $ 2,409,034 $ 2,907,558
Accrued expenses.......................................................... 735,497 939,636
Current portion of long-term debt......................................... 199,138 19,078
---------------- ---------------
Total current liabilities............................................. 3,343,669 3,866,272
Long-term debt................................................................ 6,994,501 6,840,529
Deferred rent payable......................................................... 31,277 22,007
---------------- ---------------
10,369,447 10,728,808
<CAPTION>
STOCKHOLDERS' EQUITY
<S> <C> <C>
Common stock, issued 11,993,406 shares........................................ 119,934 119,934
Paid-in capital............................................................... 9,409,706 9,409,706
Accumulated deficit........................................................... (3,381,953) (3,827,890)
Unearned compensation arising from stock awards............................... (256,536) (317,295)
Treasury stock at cost (36,438 shares of common stock)........................ (10,000) (10,000)
---------------- ---------------
Total stockholders' equity............................................ 5,881,151 5,374,455
---------------- ---------------
Total liabilities and stockholders' equity............................ $ 16,250,598 $ 16,103,263
---------------- ---------------
---------------- ---------------
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for audited financial statements.
See accompanying notes.
F-22
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN U.S. DOLLARS) (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales............................................. $ 5,889,589 $ 5,139,096 $ 19,714,293 $ 16,029,331
Cost of sales......................................... 3,620,186 3,172,693 11,944,522 9,754,345
------------ ------------ ------------- -------------
Gross profit........................................ 2,269,403 1,966,403 7,769,771 6,274,986
------------ ------------ ------------- -------------
Operating expenses:
Selling............................................. 929,009 924,566 2,645,797 2,381,284
General and administrative.......................... 687,622 857,291 1,960,405 2,221,771
Research and development............................ 531,336 382,034 1,491,606 1,162,992
Amortization expense................................ 223,080 178,536 668,685 535,610
------------ ------------ ------------- -------------
Total operating expenses.......................... 2,371,047 2,342,427 6,766,493 6,301,657
------------ ------------ ------------- -------------
Income (loss) from operations......................... (101,644) (376,024) 1,003,278 (26,671)
Interest expense, net................................. 189,615 117,577 548,501 396,283
------------ ------------ ------------- -------------
Income (loss) before provision for income
taxes............................................... (291,259) (493,601) 454,777 (422,954)
Provision for income taxes............................ 2,090 1,364 8,840 2,719
------------ ------------ ------------- -------------
Net income (loss)..................................... $ (293,349) $ (494,965) $ 445,937 $ (425,673)
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Net income (loss) per share........................... $ (.02) $ (.04) $ .04 $ (.04)
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Weighted average shares outstanding................... 11,956,968 11,756,568 12,579,414 11,756,568
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS) (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
<S> <C> <C>
1997 1996
---------- -----------
Cash flows from operating activities:
Net income (loss)..................................................................... $ 445,937 $ (425,673)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating
activities:
Depreciation and amortization....................................................... 916,685 833,286
Deferred rent....................................................................... 9,270 7,146
Changes in assets and liabilities:
Accounts receivable............................................................... (712,739) (1,139,056)
Inventories....................................................................... (279,873) (503,897)
Prepaid expenses and other current assets......................................... (42,018) (18,855)
Other assets...................................................................... 1,166 (206,272)
Accounts payable.................................................................. (498,524) 647,274
Accrued expenses.................................................................. (204,139) 285,748
---------- -----------
Net cash used in operating activities............................................... (364,235) (520,299)
---------- -----------
Cash flows from investing activities:
Purchase of fixed assets.............................................................. (70,152) (94,682)
Notes receivable...................................................................... 9,030 31,813
Decrease in cash surrender value of life insurance policy............................. -- 288,153
Acquisition of Seafla, Inc............................................................ -- (104,422)
---------- -----------
Net cash (used in) provided by investing activities................................. (61,122) 120,862
---------- -----------
Cash flows from financing activities:
Proceeds from long-term debt.......................................................... 1,050,000 350,000
Repayment of long-term debt........................................................... (715,968) (52,000)
Proceeds from issuance of common stock................................................ -- 6,500
---------- -----------
Net cash provided by financing activities........................................... 334,032 304,500
---------- -----------
Decrease in cash........................................................................ (91,325) (94,937)
Cash--beginning of period............................................................... 233,566 467,134
---------- -----------
Cash--end of period..................................................................... $ 142,241 $ 372,197
---------- -----------
---------- -----------
</TABLE>
See accompanying notes.
F-24
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
Technology Flavors & Fragrances, Inc. (the "Company") develops and
manufactures flavors, fragrances and seasonings used to provide or enhance
flavors or fragrances in a wide variety of consumer and industrial products.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB/A for
the year ended December 31, 1996.
2. INVENTORIES
Components of inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Raw Materials.......................................... $ 3,111,369 $ 3,145,743
Finished Goods......................................... 1,194,090 879,843
------------------ -----------------
$ 4,305,459 $ 4,025,586
------------------ -----------------
------------------ -----------------
</TABLE>
3. EARNINGS PER SHARE
Net income (loss) per share is based on the weighted average number of
common shares outstanding after giving effect to dilutive stock options and
warrants. Fully diluted earnings per share has not been presented as the
dilutive effect is not material.
4. SUBSEQUENT EVENTS
On October 16, 1997, the Company entered into a credit agreement with a bank
providing for a $6,000,000 Revolving Credit Facility and a $750,000 Term Loan
Facility. These Credit Facilities replace its existing $5,500,000 credit line
with another bank and refinances $750,000 of its 9% Convertible Subordinated
Notes. Outstanding borrowings under the new Credit Facilities bear interest
based on the bank's London Interbank Offering Rate ("LIBOR") plus 2 1/2% (which
currently equates to approximately 1/4 of 1% below the bank's prime rate) or
1/2 of 1% above the bank's prime rate, at the Company's option. The credit
agreement requires the maintenance of financial and other covenants. Outstanding
borrowings are secured by substantially all of the assets of the Company and are
subject to eligibility requirements relating to the Company's receivables,
inventories and product formulations.
In conjunction with this refinancing, the Company converted one-half of its
$1.5 million 9% Convertible Notes in exchange for 387,655 shares of the
Company's common stock based on the weighted average share price during the
preceding ten trading days prior to the closing.
F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES SPECIFICALLY OFFERED HEREBY OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 2
Risk Factors.................................... 5
Use of Proceeds................................. 12
Dividend Policy................................. 12
Management's Discussion and Analysis............ 13
Business........................................ 18
Management...................................... 24
Executive Compensation.......................... 26
Beneficial Ownership............................ 31
Certain Relationships and Related
Transactions.................................. 32
Description of Capital Stock.................... 33
Market for Common Equity and Related Stockholder
Matters....................................... 35
Selling Securityholders......................... 37
Plan of Distribution............................ 39
Legal Matters................................... 40
Experts......................................... 40
Available Information........................... 40
Financial Statements............................ F-1
</TABLE>
1,693,905
COMMON STOCK
TECHNOLOGY FLAVORS &
FRAGRANCES, INC.
---------------------
PROSPECTUS
---------------------
JANUARY , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, among other things, and
subject to certain conditions, authorizes the Company to indemnify its officers
and directors against certain liabilities and expenses incurred by such persons
in connection with the claims made against them as a result of their being an
officer or director. The Company's Certificate of Incorporation and By-Laws
provide that the Company shall indemnify any person who is or was a director or
officer of the Company and is a party or is threatened to be made a party to any
action or proceeding to the fullest extent permitted by Delaware law.
Article Ninth of the Company's Certificate of Incorporation provides as
follows:
The Corporation shall, to the fullest extent permitted by Delaware law as
in effect from time to time, indemnify any person against all liability
and expense (including attorney's fees) incurred by reason of the fact
that he or she is or was a director or officer of the corporation [sic]
or, while serving as a director or officer of the Corporation, he or she
is or was serving at the request of the Corporation as a director,
officer, partner or trustee of, or in any similar managerial or fiduciary
position of, or an employee or agent of, another corporation,
partnership, joint venture, trust, association or other entity. Expenses
(including attorney's fees) incurred in defending an action, suit or
proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding to the full extent and
under the circumstances permitted by Delaware law. The Corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation
against any liability asserted against and incurred by such person in any
such capacity or arising out of such person's position, whether or not
the Corporation would have the power to indemnify against such liability
under the provisions of this Article NINTH. The indemnification provided
by this Article NINTH shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under this Certificate of
Incorporation, any by-law, agreement, vote of stockholders or
disinterested directors, statute, or otherwise, and shall inure to the
benefit of heirs, executors, and administrators. The provisions of this
Article NINTH shall not be deemed to preclude the Corporation from
indemnifying other persons from similar or other expenses and liabilities
as the board of directors or the stockholders may determine in a specific
instance or by resolution of general application.
If the General Corporation Law of the state of Delaware is amended after
the date hereof to authorize corporate action further eliminating or
limited to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended.
Article VIII of the Company's By-laws provides as follows:
The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be
amended, any person who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by
reason of the fact that the person, or another person for whom that
person is the legal representative, is or was a director, officer,
employee or agent of the corporation or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or
non-profit entity, including service with respect to employee benefit
plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The corporation shall be required to indemnify a
person in connection with a proceeding initiated by such person only if
the proceeding was authorized by the board of directors.
II-1
<PAGE>
The corporation shall pay the expenses incurred in defending any
proceeding in advance of its final disposition; PROVIDED, HOWEVER, that
the payment of expenses incurred by a director or officer in advance of
the final disposition of the proceeding shall be made only upon receipt
of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under this Article or
otherwise.
If a claim for indemnification or payment of expenses under this Article
is not paid in full within sixty days after a written claim therefor has
been received by the corporation the claimant may file suit to recover
the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred and borne by the
Company in connection with the sale and distribution of the shares of Common
Stock offered hereby (other than underwriting discounts and commissions). All
amounts shown are estimates, except for the Securities and Exchange Commission
filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................... $ 755
Toronto Stock Exchange Fee........................................ $ 3,612
Legal fees and expenses........................................... $ 60,000
Accounting fees and expenses...................................... $ 30,000
Blue Sky fees and expenses........................................ $ 5,000
Printing and engraving expenses................................... $ 40,000
Miscellaneous..................................................... $ 10,633
---------
Total fees and expenses....................................... $ 150,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following paragraphs set forth certain information with respect to all
securities sold by the Company within the past three years without registration
under the Securities Act of 1933, as amended (the "Securities Act"). The
information includes the names of the purchasers, the dates of issuance, the
title and number of securities sold and the consideration received by the
Company for the issuance of these shares.
The following shares of Common Stock were issued by the Company without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as transactions
by an issuer not involving a public offering:
1. In October 1995, the Company issued to SGI warrants to purchase
600,000 shares of Common Stock at an exercise price of $.56 per share
(subject to adjustment) in connection with the SGI Consulting Agreement.
2. In January 1998, the Company issued to Mr. Farber 25,000 shares of
Common Stock for no additional consideration in connection with the
amendment to his employment agreement with the Company.
3. In October 1996, in connection with its amending its credit
agreement, the Company issued to the lender warrants to purchase 100,000
shares of Common Stock at an exercise price of $2.40 per share, which expire
on January 15, 1999.
II-2
<PAGE>
4. In October 1996, the Company issued $1,500,000 Convertible Notes,
warrants to purchase 450,000 shares of Common Stock at an exercise price of
$2.40 per share (subject to adjustment) and warrants to purchase 156,250
shares of Common Stock at an exercise price of $2.70 per share (subject to
adjustment).
5. In October 1997, the Company issued 387,655 shares of Common Stock
upon conversion of $750,000 in the aggregate principal amount of the Notes.
The following shares of Common Stock were issued without registration under
the Securities Act in accordance with Regulation S of the Securities Act:
1. In August 1996, the Company issued to Multinational Consultants
100,000 shares of the Company's Common Stock as compensation in connection
with services provided to the Company in connection with the Seafla
Acquisition.
ITEM 27. EXHIBITS.
The following is a list of Exhibits filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation and By-Laws (Incorporated by reference to the Company's Registration
Statement on Form 10-SB (File No. 0-26682) filed with the Commission on August 28, 1995).
*4.1 Form of Certificate Representing Share of Common Stock.
*5.1 Opinion of Baer Marks & Upham LLP.
10.1 Lease for Property in Amityville, New York (Incorporated by reference to the Company's
Registration Statement on Form 10-SB (File No. 0-26682) filed with the Commission on August 28,
1995).
10.2 1993 Employee Stock Option Plan (Incorporated by reference to the Company's Registration
Statement on Form 10-SB (File No. 0-26682) filed with the Commission on August 28, 1995).
10.3 Seafla Inc. Asset Purchase Agreement dated December 6, 1995 (Incorporated by reference to the
Company's Report on Form 8-K filed with the Commission on December 20, 1995).
10.4 Purchase Agreement, dated as of October 17, 1996, between the Company and the Purchasers listed
therein (Incorporated by reference to the Company's Report on Form 8-K filed with the Commission
on November 4, 1996).
10.5 General Security Agreement, dated as of October 17, 1996, between the Company and the Purchasers
listed therein (Incorporated by reference to the Company's Report on Form 8-K filed with the
Commission on November 4, 1996).
10.6 Class A Warrant Certificates (Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on November 4, 1996).
10.7 Class B Warrant Certificates (Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on November 4, 1996).
10.8 Letter Agreement, dated as of November 1, 1996, by and between the Company and the Purchaser
listed therein (Incorporated by reference to the Company's Report on Form 8-K filed with the
Commission on November 4, 1996).
10.9 Escrow Agreement relating to shares of Messrs. Rosner and Frumberg (Incorporated by reference to
the Company's Registration Statement on Form 10-SB (File No. 0-26682) filed with the Commission
on August 28, 1995).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.10 Amendment to Amended and Restated Promissory Note (Incorporated by reference to the Company's
Annual Report on Form 10-KSB/A filed with the Commission on April 17, 1997).
10.11 Recognition, Subordination & Limited Waiver Agreement, dated October 17, 1996, by and among the
Company, North Fork Bank and the Purchasers under the Purchase Agreement dated October 17, 1996
(Incorporated by reference to the Company's Annual Report on Form 10-KSB/A filed with the
Commission on April 17, 1997).
10.12 Northfork Bank Consolidated, Modified Revolving Credit Note, dated October 22, 1996 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB/A filed with the Commission on April
17, 1997).
10.13 Waiver and Amendment, dated April 9, 1997 between North Fork Bank and the Company (Incorporated
by reference to the Company's Annual Report on Form 10-KSB/A filed with the Commission on April
17, 1997).
10.14 Amendment to Consolidated, Modified Revolving Note (Incorporated by reference to the Company's
Annual Report on Form 10-KSB/A filed with the Commission on April 17, 1997).
10.15 Warrant Certificate to North Fork Bank (Incorporated by reference to the Company's Annual Report
on Form 10-KSB/A filed with the Commission on April 17, 1997).
*10.16 1996 Employee Stock Option Plan.
*10.17 Credit Agreement, dated as of October 16, 1997, among the Company and The Chase Manhattan Bank.
*10.18 Guarantee, dated October 16, 1997, given by Technology Flavors & Fragrances, Inc. (Canadian
Subsidiary) to The Chase Manhattan Bank.
*10.19 Intercreditor Agreement, dated as of October 16, 1997, among The Chase Manhattan Bank, Seafla,
Inc. and the Company.
*10.20 Security Agreement, dated as of October 16, 1997, between the Company and The Chase Manhattan
Bank.
11.1 Statement re: Computation of Per Share Earnings (not required pursuant to Item 601(b) of
Regulation S-B).
16.1 Letter on Change of Certified Accountants (Incorporated by reference to the Company's Report on
Form 8-K filed with the Commission on December 20, 1995).
16.2 Letter dated June 11, 1996 from Coopers & Lybrand L.L.P. (Incorporated by reference to the
Company's Report on Form 8-K filed with the Commission on June 12, 1996).
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
*23.2 Consent of Ernst & Young LLP, Independent Auditors.
*23.3 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
*23.4 Consent of Tabb, Conigliaro & McGann, P.C., Independent Auditors.
*24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule (not required pusuant to Item 601(c) of Regulation S-B).
</TABLE>
- ------------------------
* Filed herewith
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) The Registrant hereby undertakes the following:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against the
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Amityville, State of New York, on January 22, 1998.
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
BY: /S/ JOSEPH A. GEMMO,
-----------------------------------------
Joseph A. Gemmo,
Vice President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Philip Rosner, Joseph A. Gemmo
and Jonathan J. Russo, or any of them, as his true and lawful attorneys-in-fact
and agents, with full powers of substitution and resubstitution, for him and in
his name, place and stead, to sign in any and all capacities any and all
amendments (including post-effective amendments) to this Registration Statement
on Form SB-2 and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that such attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ PHILIP ROSNER Chairman of the Board and
- ------------------------------ President (Principal January 22, 1998
Philip Rosner Executive Officer)
Vice President and Chief
/s/ JOSEPH A. GEMMO Financial Officer
- ------------------------------ (Principal Financial and January 22, 1998
Joseph A. Gemmo Accounting Officer)
/s/ A. GARY FRUMBERG
- ------------------------------ Executive Vice President January 22, 1998
A. Gary Frumberg and Director
/s/ RICHARD R. HIGGINS
- ------------------------------ Executive Vice President January 22, 1998
Richard R. Higgins and Director
/s/ DUNCAN SHIRREFF
- ------------------------------ Director January 22, 1998
Duncan Shirreff
/s/ SCOTT CUNNINGHAM
- ------------------------------ Director January 22, 1998
Scott Cunningham
/s/ SYDNEY STEIN
- ------------------------------ Director January 22, 1998
Sydney Stein
II-6
<PAGE>
INDEX TO EXHIBITS FILED WITH THIS
FORM SB-2 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation and By-Laws (Incorporated by reference to the Company's Registration
Statement on Form 10-SB (File No. 0-26682) filed with the Commission on August 28, 1995).
*4.1 Form of Certificate Representing Share of Common Stock.
*5.1 Opinion of Baer Marks & Upham LLP.
10.1 Lease for Property in Amityville, New York (Incorporated by reference to the Company's
Registration Statement on Form 10-SB (File No. 0-26682) filed with the Commission on August 28,
1995).
10.2 1993 Employee Stock Option Plan (Incorporated by reference to the Company's Registration
Statement on Form 10-SB (File No. 0-26682) filed with the Commission on August 28, 1995).
10.3 Seafla Inc. Asset Purchase Agreement dated December 6, 1995 (Incorporated by reference to the
Company's Report on Form 8-K filed with the Commission on December 20, 1995).
10.4 Purchase Agreement, dated as of October 17, 1996, between the Company and the Purchasers listed
therein (Incorporated by reference to the Company's Report on Form 8-K filed with the Commission
on November 4, 1996).
10.5 General Security Agreement, dated as of October 17, 1996, between the Company and the Purchasers
listed therein (Incorporated by reference to the Company's Report on Form 8-K filed with the
Commission on November 4, 1996).
10.6 Class A Warrant Certificates (Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on November 4, 1996).
10.7 Class B Warrant Certificates (Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on November 4, 1996).
10.8 Letter Agreement, dated as of November 1, 1996, by and between the Company and the Purchaser
listed therein (Incorporated by reference to the Company's Report on Form 8-K filed with the
Commission on November 4, 1996).
10.9 Escrow Agreement relating to shares of Messrs. Rosner and Frumberg (Incorporated by reference to
the Company's Registration Statement on Form 10-SB (File No. 0-26682) filed with the Commission
on August 28, 1995).
10.10 Amendment to Amended and Restated Promissory Note (Incorporated by reference to the Company's
Annual Report on Form 10-KSB/A filed with the Commission on April 17, 1997).
10.11 Recognition, Subordination & Limited Waiver Agreement, dated October 17, 1996, by and among the
Company, North Fork Bank and the Purchasers under the Purchase Agreement dated October 17, 1996
(Incorporated by reference to the Company's Annual Report on Form 10-KSB/A filed with the
Commission on April 17, 1997).
10.12 Northfork Bank Consolidated, Modified Revolving Credit Note, dated October 22, 1996 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB/A filed with the Commission on April
17, 1997).
10.13 Waiver and Amendment, dated April 9, 1997 between North Fork Bank and the Company (Incorporated
by reference to the Company's Annual Report on Form 10-KSB/A filed with the Commission on April
17, 1997).
10.14 Amendment to Consolidated, Modified Revolving Note (Incorporated by reference to the Company's
Annual Report on Form 10-KSB/A filed with the Commission on April 17, 1997).
10.15 Warrant Certificate to North Fork Bank (Incorporated by reference to the Company's Annual Report
on Form 10-KSB/A filed with the Commission on April 17, 1997).
*10.16 1996 Employee Stock Option Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
*10.17 Credit Agreement, dated as of October 16, 1997, among the Company and The Chase Manhattan Bank.
*10.18 Guarantee, dated October 16, 1997, given by Technology Flavors & Fragrances, Inc. (Canadian
Subsidiary) to The Chase Manhattan Bank.
*10.19 Intercreditor Agreement, dated as of October 16, 1997, among the Chase Manhattan Bank, Seafla,
Inc. and the Company.
*10.20 Security Agreement, dated as of October 16, 1997, between the Company and The Chase Manhattan
bank.
11.1 Statement re: Computation of Per Share Earnings (not required pursuant to Item 601(b) of
Regulation S-B).
16.1 Letter on Change of Certified Accountants (Incorporated by reference to the Company's Report on
Form 8-K filed with the Commission on December 20, 1995).
16.2 Letter dated June 11, 1996 from Coopers & Lybrand L.L.P. (Incorporated by reference to the
Company's Report on Form 8-K filed with the Commission on June 12, 1996).
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
*23.2 Consent of Ernst & Young LLP Independent Auditors.
*23.3 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
*23.4 Consent of Tabb, Conigliaro & McGann, P.C., Independent Auditors.
*24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule (not required pursuant to Item 601(c) of Regulation S-B).
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
NUMBER The shares represented by this certificate have not been SHARES
00223 registered under the United States Securities Act of 1933, as
amended (the "1933 Act") and may not be sold, directly or
indirectly for a U.S. person of in the United States, as each
such term is defined in Regulation S promulgated under the
1933 Act, except pursuant to an effective registration
statement under the 1933 Act or an exemption from registration
thereunder or otherwise in accordance with the provisions of
Regulation S.
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 87869A 10 4
THIS CERTIFIES THAT
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK WITH A PAR
VALUE OF U.S. $0.01 PER SHARE
in the Capital of the above named Corporation transferable on the books of
the Corporation by the registered holder in person or by Attorney duly
authorized in writing upon surrender of this Certificate properly endorsed.
This certificate and the shares represented hereby are subject to the laws of
the State of Delaware, and to the Articles of Incorporation and Bylaws of the
Corporation as now or hereafter amended.
This Certificate is not valid unless countersigned by the Transfer Agent and
Registrar of the Corporation.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be signed
on its behalf by the facsimile signatures of its duly authorized officers.
<TABLE>
<S> <C> <C>
/s/ Philip Rosner COUNTERSIGNED AND REGISTERED COUNTERSIGNED AND REGISTERED
THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK, NEW YORK MONTREAL TRUST COMPANY OF CANADA VANCOUVER
CO-TRANSFER AGENT AND REGISTRAR TRANSFER AGENT AND REGISTRAR TORONTO
/s/ Paul W. Hoffmann
By _________________________________________________ By_________________________________________
Authorized Officer Authorized Officer
The Shares represented by this Certificate are transferable at the offices
of Montreal Trust Company of Canada, Vancouver, B.C. or Toronto, Ont. and New York, New York
</TABLE>
<PAGE>
The Corporation will furnish to any stockholder without charge upon
request to the Transfer Agent named on the face of this Certificate a
statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferenced and/or rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ............Custodian...........
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gift to Minors
survivorship and not as tenants Act...........................
in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
Please insert social insurance or other
identifying number of assignee
_______________________
| |
|_______________________|
_______________________________________________________________________________
(Name and address of transferor)
_______________________________________________________________________________
_________________________________________________________________________shares
registered in the name of the undersigned on the books of the Corporation
named on the face of this Certificate and represented hereby, and irrevocably
constitutes and appoints
___________________________________________________________________the attorney
of the undersigned to transfer the said shares on the register of transfers
and books of the Corporation with full power of substitution hereunder.
This transfer is being made through the facilities of The Toronto Stock
Exchange in a customary broker's transaction and does not result from an
offer to a person in, directed selling efforts in, or so far as I/we know,
prearrangement with a buyer in, the United States. I/we do not know that the
transferee is a U.S. person or a dealer. No remuneration is being paid other
than customary broker's commission.
__________________________________ _________________________________
(Signature of Witness) (Signature of Shareholder)
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
THE SIGNATURE OF THE TRANSFEROR MUST BE GUARANTEED BY A BANK, TRUST COMPANY
OR REGISTERED SECURITIES DEALER.
SIGNATURE GUARANTEED BY:__________________________________________________
<PAGE>
EXHIBIT 5.1
January 23, 1998
Technology Flavors & Fragrances
10 Edison Street East
Amityville, NY 11701-2814
Re: Registration Statement on Form SB-2
-----------------------------------
Gentlemen:
We have acted as your special counsel in connection with the offering by
the selling securityholders of 1,693,905 shares of Common Stock, par value $.01
per share (collectively the "SHARES"), of Technology Flavors & Fragrances, Inc.
(the "COMPANY") which consist of (a) 387,655 shares of Common Stock of the
Company issued by the Company in connection with its conversion of an aggregate
principal amount of $750,000 of the Company's 9% Convertible Subordinated Notes
due October 17, 1998 (the "NOTE SHARES"), (b) 450,000 shares of Common Stock
issuable upon the exercise in full of warrants to purchase 450,000 shares of
Common Stock, (c) 156,250 shares of Common Stock issuable upon the exercise in
full of warrants to purchase 156,250 shares of Common Stock, (d) 600,000
shares of Common Stock issuable upon the exercise in full of warrants to
purchase 600,000 shares of Common Stock, and (e) 100,000 shares of Common Stock
issuable upon the exercise in full of warrants to purchase 100,000 shares of
Common Stock (such 1,306,250 shares of Common Stock issuable upon exercise of
the Warrants being collectively referred to herein as the "WARRANT SHARES").
The Shares are being offered pursuant to the Company's registration statement
on Form SB-2 (the "REGISTRATION STATEMENT") filed with the Securities and
Exchange Commission (the "COMMISSION") on January 23, 1998. All capitalized
terms used herein which are not otherwise defined herein shall have the
meanings given to such terms in the Registration Statement.
In connection with the foregoing, we have examined originals or copies,
satisfactory to us, of all such corporate records and of all such agreements,
certificates and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed, including the following documents:
(a) the Company's Certificate of Incorporation, as amended; (b) the Company's
Bylaws; and
<PAGE>
(c) the Unanimous Written Consent of the Board of Directors of the Company dated
January 20, 1998.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies. As to
any facts material to such opinion, we have relied on certificates of public
officials and certificates of officers or other representatives of the Company.
Based upon the foregoing, and subject to the qualifications and limitations
contained herein, we are of the opinion that the Note Shares are duly
authorized, validly issued and outstanding, fully paid and non-assessable, and
the Warrant Shares, when issued and delivered pursuant to the Warrants, will be
duly authorized, validly issued and outstanding, fully paid and non-assessable.
We are members of the Bar of the State of New York and are not licensed or
admitted to practice law in any other jurisdiction. Accordingly, we express no
opinion with respect to the laws of any jurisdiction other than the State of New
York.
Our opinion and the matters expressed herein are as of the date hereof and
we assume no obligation to advise you of any change in any matter set forth
herein after the date hereof. This opinion may not be relied upon by any other
person for any purpose without our prior written consent.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement. In
giving such consent, we do not thereby concede that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended (the "ACT"), or the rules and regulations thereunder, or that we are
"experts" within the meaning of the Act or such rules and regulations.
Very truly yours,
/s/ Baer Marks & Upham LLP
-----------------------------------
Baer Marks & Upham LLP
<PAGE>
EXHIBIT 10.16
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
1996 STOCK OPTION PLAN
1. PURPOSE
The purpose of this plan (the "Plan") is to secure for TECHNOLOGY FLAVORS &
FRAGRANCES, INC. (the "Company") and its stockholders the benefits arising from
capital stock ownership by employees, officers and directors (who are also
either employees or officers) of the Company and its subsidiary corporations who
are expected to contribute to the Company's future growth and success. Those
provisions of the Plan which make express reference to Section 422 of the
Internal Revenue Code of 1986, as amended or replaced from time to time (the
"Code"), shall apply only to Incentive Stock Options (as that term is defined in
the Plan). The Plan is also designed to attract and retain other persons who
will provide services to the Company.
2. TYPE OF OPTIONS AND ADMINISTRATION
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors (the "Board") of the Company (or
a committee designated by the Board) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code ("Non-Qualified Options").
(b) ADMINISTRATION. The Plan will be administered by the Board or by a
committee consisting of two or more directors each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule ("Rule 16b-3") and an "outside director" within the meaning of
Treasury Regulation Section 1.162-27(e)(3) promulgated under Section 162(m) of
the Code (the "Committee") appointed by the Board, in each case whose
construction and interpretation of the terms and provisions of the Plan shall be
final and conclusive. If the Board determines to create a Committee to
administer the Plan, the delegation of powers to the Committee shall be
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3). The Board or Committee may in its sole
discretion grant options to purchase shares of the Company's Common Stock, $0.01
par value per share ("Common Stock"), and issue shares upon exercise of such
options as provided in the Plan. The Board or Committee shall have authority,
subject to the express provisions of the Plan, to construe the respective option
agreements and the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the respective
option agreements, which need not be identical; and to make all other
determinations in the judgment of the Board or Committee necessary or desirable
for the administration of the Plan. The Board or Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board shall be liable for any action or determination under the Plan made in
good faith.
3. ELIGIBILITY
Options may be granted to persons who are, at the time of grant, employees,
officers or directors (who are also either employees or officers) of the Company
or any subsidiaries of the Company as defined in Sections 424(e) and 424(f) of
the Code, PROVIDED, that Incentive Stock Options may only be granted to
individuals who are employees of the Company (within the meaning of Section
3401(c) of the Code). Options may also be granted to other persons, provided
that such options shall be Non-Qualified Options. A person who has been granted
an option may, if he or she is otherwise eligible, be granted additional options
if the Board or Committee shall so determine.
<PAGE>
4. STOCK SUBJECT TO PLAN
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 1,000,000. If an
option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan.
5. FORMS OF OPTION AGREEMENTS
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan and the requirements of The Toronto Stock Exchange (to the extent such
requirements are binding upon the Company) as may be approved by the Board. Such
option agreements may differ among recipients.
6. PURCHASE PRICE
(a) GENERAL. The purchase price per share of stock issuable upon the
exercise of an option shall be determined by the Board or the Committee at the
time of grant of such option, PROVIDED, HOWEVER, that in the case of an
Incentive Stock Option or Non-Qualified Option, the exercise price shall not be
less than 100% of the Fair Market Value (as hereinafter defined) of such stock
at the time of grant of such option, or less than 110% of such Fair Market Value
in the case of options described in Section 11(b). "Fair Market Value" of a
share of Common Stock of the Company as of a specified date for purposes of the
Plan shall mean the closing price of a share of the Common Stock on The Toronto
Stock Exchange (or, if such shares are not traded thereon, the principal
securities exchange on which such shares are traded) on the day immediately
preceding the date as of which Fair Market Value is being determined, or on the
next preceding date on which such shares are traded if no shares were traded on
such immediately preceding day, or if the shares are not traded on a securities
exchange, Fair Market Value shall be deemed to be the average of the high bid
and low asked prices of the shares in the over-the-counter market on the day
immediately preceding the date as of which Fair Market Value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the shares are not publicly traded, Fair Market Value of a share of
Common Stock (including, in the case of any repurchase of shares, any
distributions with respect thereto which would be repurchased with the shares)
shall be determined in good faith by the Board. In no case shall Fair Market
Value be determined with regard to restrictions other than restrictions which,
by their terms, will never lapse.
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or by any other means which the Board determines are consistent with the purpose
of the Plan and with applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the
Federal Reserve Board).
7. EXERCISE OPTION PERIOD
Subject to earlier termination as provided in the Plan, each option and all
rights thereunder shall expire on such date as determined by the Board or the
Committee and set forth in the applicable option agreement, PROVIDED, that such
date shall not be later than ten (10) years after the date on which the option
is granted.
8. EXERCISE OF OPTIONS
Each option granted under the Plan shall be exercisable either in full or in
installments at such time or times and during such period as shall be set forth
in the option agreement evidencing such option, subject
2
<PAGE>
to the provisions of the Plan. Subject to the requirements in the immediately
preceding sentence, if an option is not at the time of grant immediately
exercisable, the Board may (i) in the agreement evidencing such option, provide
for the acceleration of the exercise date or dates of the subject option upon
the occurrence of specified events, and/or (ii) at any time prior to the
complete termination of an option, accelerate the exercise date or dates of such
option.
9. NONTRANSFERABILITY OF OPTIONS
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee, except by will or by the laws of descent and
distribution. An option may be exercised during the lifetime of the optionee
only by the optionee.
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP
Except as provided in Section 11(d) with respect to Incentive Stock Options
and except as otherwise determined by the Board or Committee at the date of
grant of an option, and subject to the provisions of the Plan, an optionee may
exercise an option at any time within three (3) months following the termination
of the optionee's employment or other relationship with the Company or within
one (1) year if such termination was due to the death or disability of the
optionee (to the extent such option is then exercisable) but in no event later
than the expiration date of the option. If the termination of the optionee's
employment is for cause or is otherwise attributable to a breach by the optionee
of an employment or confidentiality or non-disclosure agreement, the option
shall expire immediately upon such termination. The Board shall have the power
to determine what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee.
11. INCENTIVE STOCK OPTIONS
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) the purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value
of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five (5) years from the
date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate Fair Market Value, as of the
respective date or dates of grant, of more than $100,000.
3
<PAGE>
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three (3) months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), to the extent it is then exercisable, PROVIDED, that the
agreement with respect to such option may designate a longer exercise period
and that the exercise after such three (3) month period shall be treated as
the exercise of a non-statutory option under the Plan,
(ii) if the optionee dies while in the employ of the Company, or within
three (3) months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one (1) year after the date of death (or within such lesser period
as may be specified in the applicable option agreement), to the extent it is
then exercisable, and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provisions thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one (1) year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may be
specified in the applicable option agreement), to the extent it is then
exercisable.
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. ADDITIONAL PROVISIONS
(a) ADDITIONAL OPTION PROVISIONS. The Board or the Committee may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation, restrictions on
transfer, repurchase rights, rights of first refusal, commitments to pay cash
bonuses or to make, arrange for or guaranty loans or to transfer other property
to optionees upon exercise of options, or such other provisions as shall be
determined by the Board or the Committee, PROVIDED, that such additional
provisions shall not be inconsistent with the requirements of The Toronto Stock
Exchange governing employee stock option and purchase plans or with any other
term or condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
(b) ACCELERATION, EXTENSION, ETC. The Board or the Committee may, in its
sole discretion (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised, or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised, PROVIDED, however that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 (if applicable to such option).
13. GENERAL RESTRICTIONS
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an option is granted, as a condition of exercising such option or award, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option or
award for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws, or with covenants or
representations
4
<PAGE>
made by the Company in connection with any public offering of its Common Stock,
including any "lock-up" or other restriction on transferability.
(b) COMPLIANCE WITH SECURITIES LAW. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
or award upon any securities exchange or automated quotation system or under any
state or federal law, or the consent or approval of any governmental or
regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition, is necessary as a condition of, or in
connection with the issuance or purchase of shares thereunder, such option or
award may not be exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval or satisfaction of such
condition shall have been effected or obtained on conditions acceptable to the
Board or the Committee. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. RIGHTS AS A STOCKHOLDER
The holder of an option shall have no rights as a stockholder with respect
to any shares covered by the option (including, without limitation, any right to
vote or to receive dividends or non-cash distributions with respect to such
shares) until the effective date of exercise of such option and then only to the
extent of the shares of Common Stock so purchased. No adjustment shall be made
for dividends or other rights for which the record date is prior to the date of
exercise.
15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS, REORGANIZATIONS AND RELATED
TRANSACTIONS
(a) RECAPITALIZATIONS AND RELATED TRANSACTIONS. If, through or as a result
of any recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other similar transaction (i) the outstanding shares of Common
Stock are increased, decreased or exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, an appropriate and proportionate
adjustment shall be made in (x) the maximum number and kind of shares reserved
for issuance under or otherwise referred to in the Plan, (y) the number and kind
of shares or other securities subject to any then-outstanding options under the
Plan, and (z) the price for each share subject to any then-outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15 if such adjustment (A) would cause the Plan
to fail to comply with Section 422 of the Code or with Rule 16b-3 (if applicable
to such option), or (B) would be considered as the adoption of a new plan
requiring stockholder approval.
(b) REORGANIZATION, MERGER AND RELATED TRANSACTIONS. All outstanding
options under the Plan shall become fully exercisable for a period of sixty (60)
days following the occurrence of any Trigger Event (as defined below), whether
or not such options are then exercisable under the provisions of the applicable
agreements relating thereto. For purposes of the Plan, a "Trigger Event" is any
one of the following events:
(i) the date on which shares of Common Stock are first purchased
pursuant to a tender offer or exchange offer (other than such an offer by
the Company, any subsidiary of the Company, any employee benefit plan of the
Company or of any subsidiary of the Company or any entity holding shares or
other securities of the Company for or pursuant to the terms of such plan),
whether or not such offer is approved or opposed by the Company and
regardless of the number of shares purchased pursuant to such offer;
(ii) the date the Company acquires knowledge that any person or group
deemed a person under Section 13(d)-3 of the Exchange Act (other than the
Company, any subsidiary of the Company, any employee benefit plan of the
Company or of any subsidiary of the Company or any entity holding shares of
Common Stock or other securities of the Company for or pursuant to the terms
of any such
5
<PAGE>
plan or any individual or entity or group or affiliate thereof which
acquired its beneficial ownership interest prior to the date the Plan was
adopted by the Board), in a transaction or series of transactions, has
become the beneficial owner, directly or indirectly (with beneficial
ownership determined as provided in Rule 13d-3, or any successor rule, under
the Exchange Act), of securities of the Company entitling the person or
group to 30% or more of all votes (without consideration of the rights of
any class or stock to elect directors by a separate class vote) to which all
stockholders of the Company would be entitled in the election of the Board
were an election held on such date;
(iii) the date, during any period of two (2) consecutive years, when
individuals who at the beginning of such period constitute the Board cease
for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the stockholders of the Company,
of each new director was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of such
period; and
(iv) the date of approval by the stockholders of the Company of an
agreement (a "reorganization agreement") providing for:
(A) The merger or consolidation of the Company with another
corporation (x) where the stockholders of the Company, immediately prior
to the merger or consolidation, do not beneficially own, immediately
after the merger or consolidation, shares of the corporation issuing cash
or securities in the merger or consolidation entitling such stockholders
to 80% or more of all votes (without consideration of the rights of any
class of stock to elect directors by a separate class vote) to which all
stockholders of such corporation would be entitled in the election of
directors, or (y) where the members of the Board, immediately prior to
the merger or consolidation, do not, immediately after the merger or
consolidation, constitute a majority of the Board of Directors of the
corporation issuing cash or securities in the merger or consolidation, or
(B) The sale or other disposition of all or substantially all the
assets of the Company.
(c) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board or the Committee, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
(a) GENERAL. In the event of any sale, merger, transfer or acquisition of
the Company or substantially all of the assets of the Company in which the
Company is not the surviving corporation, provided that after the merger,
transfer or acquisition the Company shall have requested the acquiring or
succeeding corporation (or an affiliate thereof) that equivalent options shall
be substituted and such successor corporation shall have refused or failed to
assume all options outstanding under the Plan or issue substantially equivalent
options, then any or all outstanding options under the Plan shall accelerate and
become exercisable in full immediately prior to such event. The Board or
Committee will notify holders of options under the Plan that any such options
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the options will terminate upon expiration of such notice.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board considers appropriate in the circumstances.
6
<PAGE>
17. NO SPECIAL EMPLOYMENT RIGHTS
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. OTHER EMPLOYEE BENEFITS
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board.
19. AMENDMENT, MODIFICATION OR TERMINATION OF THE PLAN
(a) Subject to the prior consent of The Toronto Stock Exchange (to the
extent it is required), the Board may at any time modify, amend or terminate the
Plan provided, however, that if at any time the approval of the stockholders of
the Company is required under Section 422 of the Code or any successor provision
with respect to Incentive Stock Options, or under Rule 16b-3, the Board may not
effect such modification or amendment without such approval.
(b) The modification, amendment or termination of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board or the Committee may amend or modify outstanding option agreements in a
manner not inconsistent with the requirements of The Toronto Stock Exchange
governing employee stock option and purchase plans (to the extent such
requirements are binding upon the Company) or with the Plan. The Board shall
have the right to amend or modify (i) the terms and provisions of the Plan and
of any outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. WITHHOLDING
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part by (i) causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option, or (ii) delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a Fair
Market Value equal to such withholding obligation as of the date that the amount
of tax to be withheld is to be determined. An optionee who has made an election
pursuant to this Section 20(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an Incentive
Stock Option shall constitute an agreement by the optionee (i) to notify the
Company if any or all of such shares are disposed of by the optionee within two
(2) years from the date the option was granted or within one (1) year from the
date the shares were issued to the optionee pursuant to the exercise of the
option, and (ii) if required
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<PAGE>
by law, to remit to the Company, at the time of and in the case of any such
disposition, an amount sufficient to satisfy the Company's federal, state and
local withholding tax obligations with respect to such disposition, whether or
not, as to both (i) and (ii), the optionee is in the employ of the Company at
the time of such disposition.
21. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
Subject to the prior consent of The Toronto Stock Exchange (to the extent
such consent is required), the Board or the Committee shall have the authority
to effect, at any time and from time to time, with the consent of the affected
optionees the (i) cancellation of any or all outstanding options under the Plan
and the grant in substitution therefor of new options under the Plan covering
the same or different numbers of shares of Common Stock and having an option
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled options, or (ii) amendment of the terms of any and
all outstanding options under the Plan to provide an option exercise price per
share which is higher or lower than the then-current exercise price per share of
such outstanding options.
22. EFFECTIVE DATE AND DURATION OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board, but no Incentive Stock Option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
requiring stockholder approval shall become effective when adopted by the Board
and amendments requiring stockholder approval (as provided in Section 19) shall
become effective when adopted by the Board, but no Incentive Stock Option
granted after the date of such amendment shall become exercisable (to the extent
that such amendment to the Plan was required to enable the Company to grant such
Incentive Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve (12) months of the Board's adoption of
such amendment, any Incentive Stock Options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such option to a particular optionee.
Subject to this limitation, options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated by the Board, the Plan shall
terminate upon the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board. After termination of the
Plan, no further options may be granted under the Plan; PROVIDED HOWEVER, that
such termination will not affect any options granted prior to termination of the
Plan.
23. PROVISION FOR FOREIGN PARTICIPANTS
The Board may, without amending the Plan, modify awards or options granted
to participants who are foreign nationals or employed outside the United States
to recognize differences in laws, rules, regulations or customs of such foreign
jurisdictions with respect to tax, securities, currency, employee benefit or
other matters.
24. GOVERNING LAW
The provisions of this Plan shall be governed and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws.
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<PAGE>
Exhibit 10.17
CREDIT AGREEMENT
dated as of October 16, 1997
between
TECHNOLOGY FLAVORS & FRAGRANCES, INC.,
as Borrower,
and
THE CHASE MANHATTAN BANK, as Bank
<PAGE>
THIS CREDIT AGREEMENT (the "Agreement") dated as of October 16, 1997,
between TECHNOLOGY FLAVORS & FRAGRANCES, INC., a corporation organized under the
laws of the State of Delaware (the "Borrower") and THE CHASE MANHATTAN BANK, a
New York banking corporation (the "Bank").
The Borrower desires the Bank to extend credit to the Borrower as
provided herein, and the Bank is willing to extend such credit on the terms and
conditions set forth herein. Accordingly, the Borrower and the Bank agree as
follows:
ARTICLE 1.
DEFINITIONS; ACCOUNTING TERMS.
SECTION 1.1 DEFINITIONS.
As used in this Agreement the following terms have the following
meanings (terms defined in the singular to have a correlative meaning when used
in the plural and vice versa).
"Acquisition" means any transaction pursuant to which the Borrower or
any of its Subsidiaries (a) acquires, or enters into an agreement to acquire,
equity securities (or warrants, options or other rights to acquire such
securities) of any Person which is not then a Subsidiary of such entities,
pursuant to a solicitation of tenders therefor, or in one or more negotiated
block, market or other transactions not involving a tender offer, or a
combination of any of the foregoing, or (b) makes, or enters into any agreement
to make, any Person not then a Subsidiary of such entities, a Subsidiary of such
entities, or causes any such Person to be merged into any such entities, or vice
versa in any case pursuant to a merger, purchase of assets or reorganization
providing for the delivery or issuance to the holders of such Person's then
outstanding securities, in exchange for such securities, of cash or securities
of any such entities, or a combination thereof, or (c) purchases, or enters into
an agreement to purchase, all or substantially all of the business or assets of
any Person. For purposes hereof, the term "Acquisition" shall not include the
formation by the Borrower or any of its Subsidiaries of a new Subsidiary that
does not involve any of the transactions referred to in the immediately
preceding sentence.
"Additional Costs" shall have the meaning given to such term in
Article 5 hereof.
"Affiliate" means with respect to any Person, any other Person: (a)
which directly or indirectly controls, or is controlled by, or is under common
control with, such Person; (b) which directly or indirectly beneficially owns or
holds 10% or more of any class of voting stock of such Person; (c) 10% or more
of the voting stock or other voting interests of which is directly or indirectly
beneficially owned or held by such Person; (d) which is a partnership in which
such Person is a general partner, and (e) which is a limited liability company
in which such Person is the manager. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
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<PAGE>
"Aggregate Outstandings" means, at a particular time, the aggregate
outstanding principal amount of all Loans at such time.
"Aggregate Revolving Credit Loans Outstanding" means, at a particular
time, the aggregate outstanding principal amount of all Revolving Credit Loans
at such time.
"Agreement" means this Agreement, as amended or supplemented from time
to time. References to Articles, Sections, Exhibits, Schedules and the like
refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"Alternate Base Rate" means, at the time of determination, the higher
of (a) the Prime Rate or (b) the Federal Funds Effective Rate, plus a margin of
1/2 of 1% per annum.
"Alternate Base Rate Loan" means any Loan when and to the extent that
the interest rate therefor is determined on the basis of the Alternate Base
Rate.
"Amortization Date" means, with respect to any Term Loan, each date on
which an installment of principal is due with respect to such Loan.
"Banking Day" means any day on which commercial banks are not
authorized or required to close in New York City, provided that whenever such
day relates to a LIBOR Loan or notice with respect to any LIBOR Loan, such term
shall mean any such day on which dealings in Dollar deposits are also carried
out in the London interbank market.
"Borrowing Base" means, at any time, an amount equal to the sum of (i)
eighty-five percent (85%) of the Eligible Receivables of the Borrower, (ii)
fifty percent (50%) of Eligible Inventory of the Borrower, up to a maximum of
$2,500,000 and (iii) fifty percent (50%) of Eligible Formulations of the
Borrower. The percentage rates set forth in this definition are subject to
change in the sole discretion of the Bank, to be exercised in a commercially
reasonable manner, based upon the results of future collateral audits or
otherwise; provided, however, that unless a Default or Event of Default has
occurred and is continuing (in which case no notice shall be required) the Bank
shall provide the Borrower with 30 days' prior written notice of any such
change.
"Borrowing Base Certificate" means a certificate signed by the chief
executive officer or the chief financial officer of the Borrower in the form of
Exhibit B annexed hereto with such changes as the Bank may require from time to
time.
"Capital Expenditures" means the sum of (a) expenditures for fixed
assets or improvements, replacements, substitutions, or additions thereto which
would be treated as capital expenditures in accordance with GAAP and (b) that
portion of all payments with respect to Capital Leases which are required to be
capitalized on the balance sheet of the lessee in accordance with GAAP.
2
<PAGE>
"Capital Lease" means any lease which is required to be capitalized on
the balance sheet of the lessee in accordance with GAAP.
"Change in Control" means any event which results in (i) any Person or
group (within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934 and the rules of the Securities and Exchange Commission thereunder as in
effect on the date hereof) other than Mr. Philip Rosner owning 30% or more of
the then outstanding voting securities of the Borrower, or (ii) Mr. Philip
Rosner ceasing to hold a position as President or Chairman of the Board of
Directors of the Borrower unless, in the event that Mr. Rosner ceases to hold
such position as a result of his death or disability, the Borrower presents the
Bank with a succession plan satisfactory to the Bank within 120 days of his
death or disability.
"Closing Date" means the date this Agreement has been executed by the
Borrower and the Bank.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" means, with respect to the Borrower and each of the
Guarantors other than the Canadian Guarantor, all personal property of such
entity all as more fully described in the Security Agreement executed by such
entity, and any and all products and proceeds of the foregoing and proceeds of
refunds with respect to insurance on any of the foregoing.
"Commitment Fee" means the fees payable by the Borrower to the Bank
pursuant to Section 4.4 hereof.
"Consolidated Debt Service Coverage Ratio" means, at the time of
calculation the ratio of (i) Consolidated Net Income (calculated including
extraordinary gains and extraordinary losses, if any) plus depreciation and
amortization, on a consolidated basis, plus Consolidated Income Tax Expense plus
Consolidated Interest Expense minus Consolidated Unfunded Capital Expenditures
minus cash income taxes paid, on a consolidated basis minus cash Dividends paid
on a consolidated basis to (ii) Consolidated Interest Expense plus installments
of principal on all long term Indebtedness (including Subordinated Debt), on a
consolidated basis, scheduled during the subsequent four quarters. With regard
to the Indebtedness of the Borrower under this Agreement, provided that no Event
of Default has occurred and is continuing, the denominator of the Debt Service
Coverage Ratio will include no more than four quarters of scheduled principal
payments.
"Consolidated EBITDA" means, for any fiscal period, Consolidated Net
Income of the Borrower and its Subsidiaries before provision for federal and
state income taxes; plus (i) Consolidated Interest Expense plus (ii)
depreciation and amortization, on a consolidated basis, all as determined as a
rolling four quarters basis in accordance with GAAP.
"Consolidated Funded Debt" means, on the date of determination, all
outstanding Indebtedness of the Borrower and its Subsidiaries having original
maturities of one year or more,
3
<PAGE>
including all current portions of such Indebtedness, all as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Income Tax Expense" means, for a particular period, the
consolidated income tax expense of the Borrower and its Subsidiaries as
reflected on the consolidated financial statements of the Borrower and its
Subsidiaries for such period calculated in accordance with GAAP.
"Consolidated Interest Expense" means, for a particular period, the
consolidated interest expense of the Borrower and its Subsidiaries as reflected
in the Borrower's consolidated financial statements for such period and
calculated in accordance with GAAP and shall in any event include, without
limitation, (i) amortization of debt discounts, (ii) amortization of all fees
payable in connection with the incidence of Indebtedness to the extent included
in interest expense, and (iii) that portion of any Capital Lease obligation
allocable to interest expense.
"Consolidated Net Income" means, for a particular period, the
consolidated net income of the Borrower and its Subsidiaries for such period
determined in accordance with GAAP.
"Consolidated Subordinated Debt" means, at any time, all Subordinated
Debt, as determined on a consolidated basis.
"Consolidated Tangible Net Worth" means, at any particular date, the
amount of excess of Consolidated Total Assets over Consolidated Total
Liabilities which would, in conformity with GAAP, be included under
shareholders' equity on a consolidated balance sheet of the Borrower and its
Subsidiaries as at such date, less all intangible assets, including, without
limitation, organizational expenses, patents, trademarks, copyrights, goodwill,
covenants not to compete, research and developmental costs and training costs as
at such date. "Consolidated Tangible Net Worth" shall include Formulations
included on the consolidated balance sheet of the Borrower and its Subsidiaries
on the date of determination (net of accumulated amortization).
"Consolidated Total Assets" means, at a particular date, all amounts
which would, in conformity with GAAP, be included as assets on a consolidated
balance sheet of the Borrower and its Subsidiaries as at such date.
"Consolidated Total Liabilities" means, at a particular date, all
amounts which would, in conformity with GAAP, be included as liabilities on a
consolidated balance sheet of the Borrower and its Subsidiaries as at such date,
less Subordinated Debt of the Borrower and its Subsidiaries as at such date.
"Consolidated Unfunded Capital Expenditures" means, for the Borrower
and its Subsidiaries, on a consolidated basis, Capital Expenditures less those
Capital Expenditures funded by Indebtedness.
4
<PAGE>
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means, with respect to any Loan, a rate per annum equal
to 2% above the rate of interest that would otherwise then be applicable to such
Loan.
"Dividends" means, with respect to any Person for any period,
dividends paid by such Person.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Eligible Formulations" means those Formulations of the Borrower
included in the balance sheet of the Borrower as to the date hereof together
with such other Formulations as the Bank may agree in its sole discretion, to be
exercised in a commercially reasonable manner, to add to the Borrowing Base from
time to time. Notwithstanding the foregoing, as any Formulation is amortized on
the books of the Borrower availability attributable to such Formulation shall
also be reduced.
"Eligible Inventory" shall mean the aggregate of the gross amount of
the inventory of the Borrower located in the United States of America, that
consists of raw materials and finished goods and shall not include the following
items: work-in-process; any packaging materials and supplies; damaged or
unsalable goods which are returned or rejected by customers of the Borrower;
obsolete goods to be returned to the Borrower's suppliers; Inventory located at
facilities where the Bank does not have a perfected security interest;
capitalized costs in Inventory which are not included in "landed" costs; and
obsolescence reserve in accordance with GAAP. If any inventory is moved to a
location where the Bank's security interest therein becomes unperfected upon
such move under applicable law, such Inventory shall not be Eligible Inventory
(a) until 91 days after the date on which the Bank's security interest therein
has become perfected under applicable law and (b) such Inventory meets all of
the other requirements set forth in this definition. Notwithstanding anything
contained herein to the contrary, the maximum value of Eligible Inventory for
purposes of calculating the Borrowing Base hereunder shall be $2,500,000.
"Eligible Receivables" shall mean the aggregate of the gross amount of
accounts receivable (i.e. determined in accordance with GAAP; hereinafter,
"receivables," "accounts" or "accounts receivable") of the Borrower arising out
of sales of Inventory in the ordinary course of the Borrower's business made by
the Borrower which are not known to the Borrower to be in dispute or to be
subject to defense, offset, counterclaim or adjustment and for which records are
maintained at a location of the Borrower in the United States in a state where
the Bank's lien upon or security interest in such assets has been perfected or
recorded, and which are otherwise satisfactory to the Bank in its sole
discretion to be exercised in a commercially reasonable manner; and further
provided, however, that the following items shall not be deemed Eligible
Receivables: intercompany accounts (i.e., owing from any Affiliate of the
Borrower); receivables resulting from consignment sales; receivables resulting
from the sale of goods or services which have been returned, repossessed or
rejected; credit balances; receivables that have remained
5
<PAGE>
unpaid for over 90 days from original invoice date (or 150 days from original
invoice date in the case of receivables arising from account debtors located
outside of the United States provided that such accounts are covered by
insurance satisfactory to the Bank in its sole discretion to be exercised in a
commercially reasonable manner); government accounts; deposit/prepayments; that
portion of any receivable that constitutes an allowance or discount receivables
arising from advanced billing; contra accounts; foreign accounts not covered by
insurance (subject to receipt and satisfactory review by the Bank of such
insurance policies); and amounts billed not shipped. Any receivables shall be
ineligible upon the Borrower or the Bank becoming aware that the account debtor
for such receivables has filed and there is pending a case for bankruptcy or
reorganization under the Bankruptcy Code or any similar legislation or under any
similar Canadian laws, or if any such case under the Bankruptcy Code or any
similar legislation has been filed and is pending against such account debtor or
if such account debtor has made and there is pending a general assignment for
the benefit of creditors, or if the account debtor suspended business
operations, becomes insolvent or has suffered or is suffering a receiver or a
trustee to be appointed for all or a significant portion of its assets or
affairs or if the Bank, in its sole discretion to be exercised in a commercially
reasonable manner, is not satisfied with the credit worthiness of the relevant
account debtor. Any receivables payable by an account debtor shall be
ineligible if (A)(i) any entity that controls or is controlled by that account
debtor (any such entity being referred to as a "Debtor's Affiliate") has filed
and there is pending a case for bankruptcy or reorganization under the
Bankruptcy Code or any similar legislation, or (ii) any such case under the
Bankruptcy Code or such similar laws has been filed and is pending against any
such Debtor's Affiliate or (iii) any such Debtor's Affiliate has made or there
is pending a general assignment for the benefit or creditors, or (iv) any such
Debtor's Affiliate has failed, suspended business operations, become insolvent
or has suffered or is suffering a receiver or a trustee to be appointed for all
or a significant portion of its assets or affairs. Any receivable shall also be
ineligible if 50% or more of the aggregate accounts receivable owing from the
relevant account debtor has remained unpaid for 90 days or more past original
invoice date or, in the case of receivables owing from account debtors located
outside of the United States only, for 150 days or more past original invoice
date provided that such accounts are covered by insurance acceptable to the
Bank. No more than 10% of Eligible Receivables shall be receivables owing to
the Borrower from any account debtor except that up to 20% of Eligible
Receivables may be owing to the Borrower from Clearly Canadian Beverage
Corporation. The percentages set forth in the preceding sentence are subject to
change in the sole discretion of the Bank, to be exercised in a commercially
reasonable manner; provided, however, that unless a Default or Event of Default
has occurred and is continuing (in which case no notice shall be required) the
Bank shall provide the Borrower with 30 days' prior notice of any such change
indicating in general terms the Bank's reasons for making such change.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, or other governmental restrictions relating to the environment
or to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment,
6
<PAGE>
storage, disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, toxic substances or Hazardous Substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower, or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Event of Default" shall have the meaning given such term in Section
11.1 hereof.
"Eurocurrency Reserve Requirements" means, with respect to each
Interest Period for each LIBOR Loan, the aggregate (without duplication) of the
maximum rates (expressed as a percentage and rounded upward, if necessary, to
the nearest 1/100 of 1%) of reserve requirements current on the date two Banking
Days prior to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves under
Regulation D or any other regulation of the Board of Governors of the Federal
Reserve System or other governmental authority having jurisdiction with respect
thereto), as now and/or from time to time hereafter in effect, dealing with
reserve requirements prescribed for eurocurrency funding maintained by a member
bank of such system.
"Facility Documents" means this Agreement, the Notes, the Security
Agreements, the Guarantees, the financing statements executed in connection
therewith, and all other agreements, documents and instruments executed by the
Borrower or any Guarantor in connection herewith or therewith including, but not
limited to, all documents and instruments executed by the Borrower or any
Guarantor in favor of the Bank in connection with this Agreement and the Loans
made hereunder.
"Facility Fee" means the facility fee paid by the Borrower to the Bank
pursuant to Section 4.5 hereof.
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100th of 1%) of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day, or, if such rate is not so published for any day which is a
Banking Day, the average (rounded upwards; if necessary, to the next 1/100 of
1%) of the quotations for such day for such transactions received by the Bank
from three independent Federal funds brokers of recognized standing selected by
it.
"Final Maturity Date" means the date on which all Loans hereunder have
been paid in full and the Revolving Credit Commitment has terminated.
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<PAGE>
"Forfeiture Proceeding" means the commencement by any governmental
authority of any action or proceeding affecting the Borrower or any of its
Subsidiaries before any court, governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign having jurisdiction over
such entity which would result in the seizure or forfeiture of property having a
value of $100,000 or more in any case or in the aggregate.
"Formulations" means formulations of the Borrower included on the
balance sheet of the Borrower.
"GAAP" means generally accepted accounting principles and practices in
the United States which are recognized as such by the American Institute of
Certified Public Accountants.
"Guarantees" means the guarantees to be delivered on the Closing Date
to the Bank by each of the Guarantors and the guarantees to be delivered to the
Bank from time to time hereafter by Persons that become Guarantors subsequent to
the Closing Date, all in the form(s) attached hereto as Exhibit C.
"Guarantors" means all now existing or hereafter created Subsidiaries
of the Borrower, including, without limitation, each of the entities listed on
Schedule 7.9 hereto.
"Hazardous Substance" or "Hazardous Substances" means any material,
including, without limitation, raw, processed or waste by-product materials,
which in itself or as found or used, is toxic, noxious or harmful to the health
or safety of human life, regardless of whether such material be found on or
below the surface of the ground, in any surface or underground water, or
airborne in ambient air or in the air inside of any structure built or located
upon or below the surface of the ground, or in any machinery, equipment or
inventory located or used in any such structure, including, but in no event
limited to, all hazardous materials, hazardous wastes, toxic substances,
infectious wastes, pollutants and contaminants from time to time defined or
classified as such under any Environmental Law, regardless of the quantity
found, used, manufactured or removed from a given location.
"Indebtedness" means, without duplication, with respect to any Person,
(a) all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations of
such Person for the deferred purchase price of property or services, (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property purchased by such Person, (e) all payment
obligations of such Person with respect to interest rate or currency protection
agreements, (f) all obligations of such Person as an account party under any
letter of credit or in respect of bankers' acceptances, (g) all obligations of
any third party secured by property or assets of such Person (regardless of
whether or not such Person is liable for repayment of such obligations), (h) all
guarantees of such Person and (i) the redemption price of all redeemable
preferred stock of such Person, but only to the extent that such stock is
redeemable at the option of the holder or requires sinking fund or similar
payments at any time prior to the Final Maturity Date.
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<PAGE>
"Interest Period" means the period commencing on the date of making,
renewal or conversion of a Loan to a LIBOR Loan and expiring one, two or three
months thereafter, as designated by the Borrower in the notice given to the Bank
under Sections 2.4, 2.7(c) or 3.3 hereof, provided that:
(a) the initial Interest Period for any LIBOR Loan shall
commence on the date of the making of such Loan (including the date of
any conversion from an Alternate Base Rate Loan) and each Interest
Period occurring thereafter in respect of such Loan shall commence on
the date on which the next preceding Interest Period expires;
(b) if any Interest Period would otherwise expire on a day
which is not a Banking Day, such Interest Period shall expire on the
next succeeding Banking Day, provided, however, that if any Interest
Period would otherwise expire on a day which is not a Banking Day but
is a day of a calendar month after which no further Banking Day occurs
(in such month), such Interest Period shall expire on the next
preceding Banking Day;
(c) no Loan shall be continued as or converted to a LIBOR
Loan if at the time of any such continuation or conversion a Default
or an Event of Default exists; and
(d) no Interest Period shall extend beyond the Revolving
Credit Termination Date, in the case of Revolving Credit Loans, or
beyond the relevant Maturity Date in the case of Term Loans.
"Lending Office" means the lending office of the Bank (or of an
affiliate of the Bank) designated as such on its signature page hereof or such
other office of the Bank (or of an affiliate of the Bank) as the Bank may from
time to time specify in writing to the Borrower as the office by which its Loans
are to be made and maintained.
"LIBOR" means, for any LIBOR Loan, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) at which Dollar deposits
approximately equal in principal amount to the requested LIBOR Loan and for a
maturity equal to the requested Interest Period are offered in immediately
available funds to the principal London branch of the Bank by leading banks in
the London interbank market for dollar deposits at approximately 10:00 a.m.
London time two Banking Days prior to the first day of the Interest Period for
such Loan.
"LIBOR Loan" means any Loan when and to the extent the interest rate
therefor is determined on the basis of the Reserve Adjusted LIBOR Rate.
"Lien" means any mortgage, pledge, security interest, hypothecation,
assignment, deposit arrangement, encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any
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conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction).
"Loans" means the Revolving Credit Loans and the Term Loans.
"Margin" means with respect to LIBOR Loans two and one-half percent
(2.5%) per annum.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or conditions, financial or otherwise,
of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower or
any Material Subsidiary, or (b) the ability of the Borrower or any Guarantor to
perform its obligations under the Facility Documents.
"Material Subsidiary" means any Subsidiary of the Borrower that has
assets constituting ten percent (10%) or more of the Consolidated Total Assets;
provided, however, that if Subsidiaries other than Material Subsidiaries in the
aggregate have assets that constitute more than fifteen percent (15%) of the
Consolidated Total Assets, then all Subsidiaries shall be deemed to be Material
Subsidiaries.
"Maturity Date" means, with respect to any Term Loan, the date on
which such Loan is paid in full in accordance with its terms, by acceleration or
otherwise.
"Multiemployer Plan" means a Plan defined as such in Section
4001(a)(3) of ERISA to which contributions have been made by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Notes" means the Revolving Credit Note and the Term Notes.
"Obligations" means all of the obligations of the Borrower or any
Guarantor to the Bank pursuant to this Agreement, the Notes, any Loan or any of
the other Facility Documents, as such agreements, documents and instruments are
originally executed or as modified, amended, restated, supplemented or extended
from time to time, and all obligations of the Borrower or any Guarantor to the
Bank arising out of any extension, refinancing or refunding of any of the
foregoing obligations, whether such obligations are now existing or hereafter
acquired or arising, direct or indirect, joint or several, absolute or
contingent, due or to become due, matured or unmatured, liquidated or
unliquidated, arising by contract, operation of law or otherwise.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" means: (i) direct obligations of the United
States of America or any governmental agency thereof, or obligations guaranteed
by the United States of America, provided that such obligations mature within
one year from the date of acquisition
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thereof; or (ii) dollar denominated time certificates of deposit having a
maturity of one year or less issued by any commercial bank organized and
existing under the laws of the United States or any state thereof and having
aggregate capital and surplus in excess of $1,000,000,000; or (iii) money market
mutual funds having assets in excess of $2,500,000,000; or (iv) commercial paper
having a maturity of not more than one year rated not less than P-1 or A-1 or
their equivalent by Moody's Investor Services, Inc. or Standard & Poor's
Corporation, respectively; or (v) debt securities rated AA or better by Moody's
Investor Services, Inc. or Standard & Poor's Corporation, provided that such
securities mature within one year from the date of acquisition thereof.
"Permitted Liens" means those certain Liens defined in Section 9.2
hereof.
"Person" means an individual, partnership, corporation, limited
liability company or limited liability partnership, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA or to which Section
412 of the Code applies provided that such term shall not include plans
terminated prior to the date hereof.
"Prime Rate" means that rate of interest per annum from time to time
announced by the Bank at its principal office in New York City as its prime rate
each change in the Prime Rate shall be effective on the date such change is
announced.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to the Bank, any change after
the Closing Date in United States federal, state, municipal or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests, in each case, applying to a
class of banks including the Bank under any United States, federal, state,
municipal or foreign laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event.
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"Reserve Adjusted LIBOR Rate" means, with respect to the Interest
Period for each LIBOR Loan, the rate per annum (rounded upwards to the nearest
whole multiple of 1/100th of one percent) equal to the following:
LIBOR
--------------------------------
1.00 - Eurocurrency Reserve Requirements.
"Revolving Credit Commitment" means the obligation of the Bank to
extend Revolving Credit Loans to the Borrower hereunder and, subject to the
terms hereof, in the aggregate principal amount of $6,000,000 as such amount may
be reduced from time to time by the Borrower in accordance with the terms of
this Agreement.
"Revolving Credit Facility" means the aggregate of all extensions of
credit to be made available to the Borrower by the Bank, all as provided for
pursuant to Article 2 hereof.
"Revolving Credit Loan" means any extension of credit made by the Bank
to the Borrower pursuant to Section 2.1 hereof.
"Revolving Credit Note" means the promissory note of the Borrower
substantially in the form of Exhibit A hereto evidencing Revolving Credit Loans
made by the Bank hereunder.
"Revolving Credit Termination Date" means the earlier to occur of (a)
the date on which the Revolving Credit Commitment shall terminate in accordance
with the terms hereof and (b) October 16, 1999.
"Seafla Note" means the amended and restated promissory note of the
Borrower dated as of December 6, 1995 payable to Seafla, Inc. in the amount of
$888,019.
"Security Agreement" means a security agreement in substantially the
form of Exhibit D-1, to be delivered to the Bank on the Closing Date by the
Borrower and substantially in the form of Exhibit D-2 to be delivered to the
Bank by each of the Guarantors other than Technology Flavors & Fragrances, Inc.
(Canada) and from time to time hereafter under the terms of this Agreement by
Persons becoming Guarantors subsequent to the Closing Date.
"Solvent" means when used with respect to any Person on a particular
date, that on such date: (a) the fair value of its total assets is in excess of
the total amount of its liabilities, including, without limitation, the
reasonably expected amount of such Person's obligations with respect to
contingent liabilities, (b) the present fair value of the assets of such Person
is not less than the amount that will be required to pay the probable liability
of such Person on its Indebtedness as they become absolute and matured, (c) such
Person does not intend to, and does not believe that it will, incur Indebtedness
or liabilities beyond such Person's ability to pay as such Indebtedness and
liabilities mature and (d) such Person is not engaged in business or a
transaction for which such Person's property would constitute an unreasonably
small capital.
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"Subordinated Debt" means unsecured Indebtedness of the Borrower, or
any of its Subsidiaries, that is subordinated, on the terms satisfactory and
approved in writing, to the Bank in its sole discretion, to the obligations of
such entity to the Bank under this Agreement.
"Subsidiary", with respect to any Person, means any corporation or
other entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are, at the
relevant time, owned directly or indirectly by such Person.
"Term Loans" means, collectively, Term Loan A and Term Loan B.
"Term Loan A" means the Term Loan made by the Bank to the Borrower
pursuant to Section 2.7 hereof.
"Term Loan B" means the Term Loan made by the Bank to the Borrower
pursuant to Article 3 hereof.
"Term Loan A Note" means the promissory note of the Borrower
substantially in the form of Exhibit A-1 hereto evidencing the Borrower's
obligations with respect to Term Loan A.
"Term Loan B Note" means the promissory note of the Borrower
substantially in the form of Exhibit A-2 hereto evidencing the Borrower's
obligations with respect to Term Loan B.
"Term Notes" means, collectively, Term Loan A Note and Term Loan B
Note.
"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under the Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA.
SECTION 1.2. ACCOUNTING TERMS.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, and all financial data required to be
delivered hereunder shall be prepared in accordance with GAAP.
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ARTICLE 2.
REVOLVING CREDIT FACILITY.
SECTION 2.1. REVOLVING CREDIT LOANS.
Subject to the terms and conditions of this Agreement, the Bank agrees
to make revolving credit loans in Dollars (the "Revolving Credit Loans") to the
Borrower from time to time, from and including the date hereof to but excluding
the Revolving Credit Termination Date, up to but not exceeding at any one time
outstanding the amount of the Revolving Credit Commitment; provided, that no
Revolving Credit Loan shall be made if after giving effect to such Revolving
Credit Loan the Aggregate Outstandings at the time of such Revolving Credit Loan
would exceed the Borrowing Base in effect on such date or the Aggregate
Revolving Credit Loans Outstanding would exceed the Revolving Credit Commitment.
The Revolving Credit Loans may be outstanding as Alternate Base Rate Loans or
LIBOR Loans; provided, however, that during the occurrence and continuance of an
Event of Default, the Borrower may not elect and the Bank shall have no
obligation to make LIBOR Loans. Subject to the foregoing limits, the Borrower
may borrow, repay and reborrow, on or after the date hereof and prior to the
Revolving Credit Termination Date, all or a portion of the Revolving Credit
Commitment hereunder. Any amount of any Revolving Credit Loan not paid when due
(at maturity, on acceleration or otherwise) shall bear interest thereafter until
paid at the rate set forth in Section 4.3(c) hereof.
SECTION 2.2. THE REVOLVING CREDIT NOTE.
The Revolving Credit Loans shall be evidenced by a promissory note in
favor of the Bank substantially in the form of Exhibit A hereto with appropriate
insertions, duly executed and completed by the Borrower. The Bank is hereby
authorized to record the date, type and amount of each Revolving Credit Loan,
the date and amount of each payment of principal thereof, and the principal
amount subject thereto and interest rate with respect thereto in the Bank's
records and/or on the schedules annexed to and constituting a part of the
Revolving Credit Note, and, absent manifest error, any such recordation shall
constitute conclusive evidence of the information so recorded; provided that the
failure to make any such recordation shall not in any way affect the obligation
of the Borrower to repay outstanding amounts under the Revolving Credit Loans.
The Revolving Credit Note (a) shall be dated the date hereof, (b) be stated to
mature on the Revolving Credit Termination Date and (c) shall bear interest on
the unpaid principal amount thereof from time to time outstanding as provided
herein.
SECTION 2.3. USE OF PROCEEDS.
(a) The Borrower shall use the proceeds of the Revolving Credit Loans
(i) on the date of this Agreement, to pay in full existing Indebtedness of the
Borrower to North Fork Bank and (ii) for general corporate and working capital
purposes. No part of the proceeds of any of the Loans will be used for any
purpose which violates the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System as in effect on the date of making such
Revolving Credit Loans.
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(b) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, affiliates, agents or other representatives, and hold the
Bank and its respective directors, officers, employees, affiliates, agents or
other representatives, harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without limitation,
the reasonable fees and expenses of counsel for any such Person in connection
with any investigative, administrative or judicial proceeding, whether or not
such Person shall be designated a party thereto) which may be incurred by any
such Person, relating to or arising out of this Agreement or any actual or
proposed use of any proceeds of Revolving Credit Loans hereunder; provided that
the Borrower and its Subsidiaries shall not be liable to any such Persons
hereunder in connection with any matters resulting from the gross negligence or
willful misconduct of the Bank or any such Persons.
SECTION 2.4. BORROWING PROCEDURE FOR REVOLVING CREDIT LOANS: RATE AND
INTEREST PERIOD SELECTION; CONVERSIONS.
(a) The Borrower may request a borrowing under the Revolving Credit
Commitment hereunder as provided in Section 4.1. Not later than 3:00 p.m. New
York time on the date of such borrowing, the Bank shall, through its Lending
Office and subject to the conditions of this Agreement, make the amount of the
Revolving Credit Loan to be made on such date available to the Borrower, in
immediately available funds, by crediting an account of the Borrower designated
by the Borrower and maintained with the Bank.
(b) In the case of a LIBOR Loan, the Borrower shall select an
Interest Period of any duration in accordance with the definition of Interest
Period in Section 1. 1, subject to the limitations that no Interest Period for a
LIBOR Loan shall have a duration less that one month, and if any such proposed
Interest Period would otherwise be for a shorter period, such Interest Period
shall not be available.
(c) Upon the expiration of an Interest Period for any Revolving
Credit Loan, or any portion thereof, such Revolving Credit Loan or portion
thereof shall be automatically continued as an Alternate Base Rate Loan except
to the extent that such Revolving Credit Loan shall be repaid hereunder or
unless the Borrower shall have notified the Bank, as provided in Section 4.1
hereof, of its intention to select a different interest rate option with respect
to such Revolving Credit Loan or any portion thereof. Subject to the following
conditions and to the terms and conditions of this Agreement, the Borrower shall
have the right to convert any Revolving Credit Loan or portion thereof to a
different type of Loan (i.e., from an Alternate Base Rate Loan to a LIBOR Loan
or vice versa):
(i) if less than all Revolving Credit Loans at the time outstanding
shall be converted, the notice given by the Borrower to the Bank shall
specify the aggregate amount of Revolving Credit Loans in each case to be
converted;
(ii) in the case of a conversion of less than all outstanding
Revolving Credit Loans, the aggregate principal amount of Revolving Credit
Loans to be converted shall
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not be less than (1) $500,000 (and if greater in integral multiples of
$100,000) in the case of conversions to or into LIBOR Loans or (2) $100,000
(and if greater in integral multiples of $100,000) in the case of
conversions to or into Alternate Base Rate Loans;
(iii) no Revolving Credit Loan may be converted to a LIBOR Loan less
than one month before the Revolving Credit Termination Date;
(iv) a LIBOR Loan may be converted to a different type of Loan only on
the last day of the then applicable Interest Period with respect thereto;
and
(v) no Revolving Credit Loan or portion thereof may be converted to a
LIBOR Loan during the occurrence and continuance of an Event of Default.
SECTION 2.5. MINIMUM AMOUNTS OF REVOLVING CREDIT LOANS.
Except for borrowings, conversions or continuations which involve or
utilize the full remaining amount of the Revolving Credit Commitment and
payments which result in the prepayment of all Alternate Base Rate Loans, each
borrowing and payment of an Alternate Base Rate Loan shall be in an amount at
least equal to $100,000 and, if greater, integral multiples of $100,000 in
excess thereof. Each borrowing of a LIBOR Loan shall be in an amount at least
equal to $500,000 and, if greater, in integral multiples of $100,000 in excess
thereof.
SECTION 2.5. REDUCTION OF REVOLVING CREDIT COMMITMENT.
(a) The Borrower shall have the right to reduce or terminate the
amount of the unused Revolving Credit Commitment at any time and from time to
time, provided that: (i) the Borrower shall give notice of each such reduction
or termination to the Bank as provided in Section 4.1, and (ii) each partial
reduction shall be in an aggregate amount at least equal to $200,000 or , if
greater, in integral multiples of $200,000.
(b) The Revolving Credit Commitment, once reduced or terminated, may
not be reinstated.
(c) If the Borrower terminates the Revolving Credit Commitment
pursuant to this Section 2.6 and repays all Revolving Credit Loans Outstanding
(without converting such Loans to Term Loan A pursuant to Section 2.7 hereof)
prior to the second anniversary of the date of this Agreement, the Borrower
shall pay to the Bank a termination fee of $33,750 on the date of such
termination and/or repayment as applicable. Notwithstanding the foregoing, if
the Borrower terminates the Revolving Credit Commitments and repays all
Revolving Credit Loans then outstanding within 60 days of the Bank notifying
Borrower of a change in the advance rates or other characteristics of the
Borrowing Base, the fee provided for in this Section 2.6(c) shall be waived by
the Bank.
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SECTION 2.7. CONVERSION TO TERM LOAN.
(a) Generally. At the Borrower's option, provided that no Default or
Event of Default then exists, at any time prior to the Revolving Credit
Termination Date by notice to the Bank as provided in Section 4.1, the Borrower
may elect to convert the outstanding principal balance of Revolving Credit Loans
to a four year term loan ("Term Loan A"). If the Borrower makes an election
pursuant to this Section 2.7(a), the Revolving Credit Commitment shall
terminate. Term Loan A initially may be an Alternate Base Rate Loan or LIBOR
Loan or a combination thereof, as determined by the Borrower and notified to the
Bank in accordance with Section 4.1; provided, however, that the minimum
principal amount of any Alternate Base Rate Loan shall be $100,000 and, if
greater, integral multiples of $100,000 and the minimum principal amount of any
LIBOR Loan shall be $500,000 and, if greater, integral multiples of $100,000.
(b) Amortization of Term Loan A. The principal amount of Term Loan A
shall be repaid in sixteen (16) consecutive and substantially equal quarterly
installments commencing on the first Banking Day of the fourth calendar month
following the month during which Term Loan A is made and continuing on the first
Banking Day of each third calendar month thereafter, with a 16th and final
installment of all unpaid principal and interest with respect thereto being due
and payable on the first business day of the forty-ninth month following the
making of Term Loan A.
(c) Interest Period; Conversions.
(i) If any portion of Term Loan A is designated as a LIBOR Loan,
the Borrower shall select an Interest Period of any duration in accordance with
the definition of Interest Period in Section 1.1 hereof, subject to the
limitation that no Interest Period may extend beyond an Amortization Date,
unless after giving effect thereto, the aggregate principal amount of Term Loan
A that is designated as LIBOR Loans having Interest Periods which end after such
Amortization Date shall be less than or equal to the principal amount of Term
Loan A to be outstanding hereunder after such Amortization Date.
(ii) Upon the expiration of an Interest Period with respect to
any portion of Term Loan A that is a LIBOR Loan, such portion of Term Loan A
shall automatically be continued as an Alternate Base Rate Loan except to the
extent that such Loan shall be prepaid hereunder or unless the Borrower shall
have notified the Bank, as provided in Section 4.1 hereof of its intent to
select a new Interest Period with respect to such portion of Term Loan A.
Subject to the following conditions, the Borrower shall have the right to
convert any portion of Term Loan A to a different type of Loan (i.e., from an
Alternate Base Rate Loan to a LIBOR Loan and vice versa):
(1) if less than all of Term Loan A at the time outstanding
shall be converted, the notice given by the Borrower to the Bank
shall specify the aggregate amount of Term Loan A to be
converted;
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(2) no portion of Term Loan A may be converted to a LIBOR Loan
less than one month prior to the maturity date of Term Loan A;
(3) a LIBOR Loan may be converted to a different type of Loan
only on the last day of an Interest Period; and
(4) no portion of Term Loan A may be converted to a LIBOR Loan
during the occurrence and continuance of an Event of Default.
(iii) Notwithstanding anything to the contrary herein, after
giving effect to any Loan, unless consented to by the Bank in its sole
discretion, there shall not be more than three (3) Interest Periods in effect in
respect of Term Loan A at any one time.
(d) Term Loan A Note. Term Loan A shall be evidenced by a single
promissory note of the Borrower substantially in the form of Exhibit A-1 hereto
(the "Term Loan A Note"), with appropriate insertions, payable to the order of
the Bank and representing the obligation of the Borrower to pay the unpaid
principal balance of such Term Loan A with accrued and unpaid interest thereon
as provided herein. The Bank is hereby authorized to record the date and amount
of each payment or prepayment of principal thereof, the date and amount of each
interest rate conversion pursuant to Section 2.7(c) and the principal amount
subject thereto and the interest rate applicable thereto in such Bank's records
and/or on a schedule annexed to and constituting a part of Term Loan A Note,
and, absent manifest error, any such recordation shall constitute conclusive
evidence of the accuracy of the information so recorded; provided, however, that
the failure to make any such recordation shall not affect the Borrower's
obligations to repay outstanding amounts under Term Loan A. The Term Loan A
Note shall (a) be dated the Revolving Credit Termination Date, (b) be stated to
mature in 16 consecutive and substantially equal quarterly installments, as
provided above, and (c) shall bear interest for a period from the date such Loan
is made on the unpaid principal amount thereof at the applicable rates per annum
specified herein.
(e) Use of Proceeds of Term Loan A. (i) The Borrower shall use the
proceeds of Term Loan A to refinance Revolving Credit Loans hereunder.
(ii) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, affiliates, agents or other representatives, and hold the
Bank and its respective directors, officers, employees, affiliates, agents or
other representatives, harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without limitation,
the reasonable fees and expenses of counsel for any such Person in connection
with any investigative, administrative or judicial proceeding, whether or not
such Person shall be designated a party thereto) which may be incurred by any
such Person, relating to or arising out of this Agreement or any actual or
proposed use of any proceeds of Term Loan A hereunder; provided that the
Borrower and its Subsidiaries shall not be liable to any such Persons hereunder
in connection with any matters resulting from the gross negligence or willful
misconduct of the Bank or any such Persons.
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ARTICLE 3.
TERM LOAN B.
SECTION 3.1. GENERALLY.
On the Closing Date, subject to the terms and conditions hereof, the
Bank agrees to make a five year $750,000 term loan to the Borrower ("Term Loan
B"). Term Loan B initially may be an Alternate Base Rate Loan or LIBOR Loan, or
any combination thereof, as determined by the Borrower and notified to the Bank
in accordance with Section 4.1; provided, however, that the minimum principal
amount of any LIBOR Loan shall be $500,000 and, if greater, integral multiples
of $100,000.
SECTION 3.2. AMORTIZATION OF TERM LOAN B.
The principal amount of Term Loan B shall be repaid in twenty (20)
consecutive equal quarterly installments of $37,500 each commencing on
January 1, 1998 and continuing on the first Banking Day of each April, July,
October and January thereafter with a 20th and final installment of all unpaid
principal, together with all unpaid interest and fees with respect thereto being
due and payable on October 1, 2002.
SECTION 3.3. INTEREST PERIODS; CONVERSIONS.
(i) If any portion of Term Loan B is designated as a LIBOR Loan,
the Borrower shall select an Interest Period of any duration in accordance with
the definition of Interest Period in Section 1.1 hereof, subject to the
limitation that no Interest Period may extend beyond an Amortization Date,
unless after giving effect thereto, the aggregate principal amount of Term Loan
B that is designated as LIBOR Loans having Interest Periods which end after such
Amortization Date shall be less than or equal to the principal amount of Term
Loan B to be outstanding hereunder after such Amortization Date.
(ii) Upon the expiration of an Interest Period with respect to
any portion of Term Loan B that is a LIBOR Loan, such portion of Term Loan B
shall automatically be continued as an Alternate Base Rate Loan except to the
extent that such Loan shall be prepaid hereunder or unless the Borrower shall
have notified the Bank, as provided in Section 4.1 hereof of its intent to
select a new Interest Period with respect to such portion of Term Loan B.
Subject to the following conditions, the Borrower shall have the right to
convert any portion of Term Loan B to a different type of Loan (i.e., from an
Alternate Base Rate Loan to a LIBOR Loan and vice versa):
(1) if less than all of Term Loan B at the time outstanding
shall be converted, the notice given by the Borrower to the Bank
shall specify the aggregate amount of Term Loan B to be
converted;
(2) no portion of Term Loan B may be converted to a LIBOR Loan
less than one month prior to the maturity date of Term Loan B;
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(3) a LIBOR Loan may be converted to a different type of Loan
only on the last day of an Interest Period; and
(4) no portion of Term Loan B may be converted to a LIBOR Loan
during the occurrence and continuance of an Event of Default.
SECTION 3.4. TERM LOAN B NOTE.
Term Loan B shall be evidenced by a single promissory note of the
Borrower substantially in the form of Exhibit A-2 hereto (the "Term Loan B
Note"), with appropriate insertions, payable to the order of the Bank and
representing the obligation of the Borrower to pay the unpaid principal balance
of such Term Loan B with accrued and unpaid interest thereon as provided herein.
The Bank is hereby authorized to record the date and amount of each payment or
prepayment of principal thereof, the date and amount of each interest rate
conversion pursuant to Section 3.3 and the principal amount subject thereto and
the interest rate applicable thereto in such Bank's records and/or on a schedule
annexed to and constituting a part of Term Loan B Note, and, absent manifest
error, any such recordation shall constitute conclusive evidence of the accuracy
of the information so recorded; provided, however, that the failure to make any
such recordation shall not affect the Borrower's obligations to repay
outstanding amounts under Term Loan B. The Term Loan B Note shall (a) be dated
the date hereof, (b) be stated to mature in 20 equal quarterly installments, as
provided above, and (c) shall bear interest for a period from the date such Loan
is made on the unpaid principal amount thereof at the applicable rates per annum
specified herein.
SECTION 3.5. USE OF PROCEEDS OF TERM LOAN B.
(a) The Borrower shall use the proceeds of Term Loan B to refinance
50% of the Borrower's 9% convertible subordinated debentures due October 17,
1998. No part of the proceeds of Term Loan B will be used for any purpose which
violates the provisions of Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System.
(b) The Borrower agrees to indemnify the Bank and its directors,
officers, employees, affiliates, agents or other representatives, and hold the
Bank and its respective directors, officers, employees, affiliates, agents or
other representatives, harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without limitation,
the reasonable fees and expenses of counsel for any such Person in connection
with any investigative, administrative or judicial proceeding, whether or not
such Person shall be designated a party thereto) which may be incurred by any
such Person, relating to or arising out of this Agreement or any actual or
proposed use of any proceeds of Term Loan B hereunder; provided that the
Borrower and its Subsidiaries shall not be liable to any such Persons hereunder
in connection with any matters resulting from the gross negligence or willful
misconduct of the Bank or any such Persons.
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ARTICLE 4.
GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS.
SECTION 4.1. CERTAIN NOTICES.
Except as otherwise provided in this Agreement, written notices by the
Borrower to the Bank of each borrowing pursuant to Section 2.4, each prepayment
pursuant to Section 4.2, each reduction or termination of the Revolving Credit
Commitment pursuant to Section 2.6, each conversion of Revolving Credit Loans to
Term Loan A pursuant to Section 2.7(a) and each conversion or continuation of
Loans pursuant to Section 2.4, Section 2.7(c) or Section 3.3 shall be
irrevocable and shall be effective on the date of receipt only if received by
the Bank, by not later than 12:00 noon, New York City time, and (a) in the case
of borrowings and (in the case of Alternate Base Rate Loans only) prepayments of
(i) Alternate Base Rate Loans, if given the date thereof and (ii) LIBOR Loans,
if given three Banking Days prior thereto; (b) in the case of reductions or
terminations of the Revolving Credit Commitment, given 5 Banking Days prior
thereto; (c) in the case of the conversion of Revolving Credit Loans to Term
Loan A, if given 5 Banking Days prior thereto; and (d) in the case of
conversions or continuations pursuant to Section 2.4, Section 2.7(c) or Section
3.3, if given three Banking Days prior thereto in the case of conversions to or
continuations of LIBOR Loans and if given on the date thereof in the case of
conversions to Alternate Base Rate Loans. Each such notification shall specify
the amount of the borrowing, the type of Loan (i.e., Alternate Base Rate Loan or
LIBOR Loan), the date of the proposed borrowing, whether such Loan represents an
additional borrowing, a continuation or a conversion, and in the case of a LIBOR
Loan, the Interest Period to be used in the computation of interest with respect
thereto. Each such notice relating to a reduction or termination of the
Revolving Credit Commitment shall specify the amount of the Revolving Credit
Commitment to be reduced or terminated. Each notice of borrowing pursuant to
Section 2.4 may be delivered by telephone provided that it is promptly confirmed
in writing on the same day as the telephonic notice.
SECTION 4.2. PREPAYMENTS.
(a) The Borrower shall have the right at any time and from time to
time to prepay any Alternate Base Rate Loan, in whole or in part; provided,
however, that each such partial prepayment of an Alternate Base Rate Loan shall
be in a minimum aggregate principal amount of $100,000 or, if greater in amounts
which are integral multiples of $100,000. Except as required by paragraph (b)
below or on the last day of an Interest Period with respect thereto, the
Borrower shall not be permitted to prepay LIBOR Loans.
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(b) In the event that the Aggregate Outstandings exceed the then
applicable Borrowing Base or the Aggregate Revolving Credit Loans Outstanding
exceed the Revolving Credit Commitments at any time, the Borrower shall promptly
pay or prepay so much of the Loans outstanding as shall be necessary in order
that the Aggregate Outstandings will not exceed the Borrowing Base then in
effect and that Aggregate Revolving Credit Loans Outstanding will not exceed the
Revolving Credit Commitments. All prepayments under this subparagraph shall be
subject to Section 5.1. Notwithstanding the foregoing, in the event the
Borrower is required to prepay Loans hereunder as a result of a change in the
advance rates or other characteristics of the Borrowing Base, provided that no
Default or Event of Default exists hereunder, the Borrower shall have 60 days to
make such prepayment. Until such prepayment is made, the Borrower shall not be
permitted to borrow Revolving Credit Loans hereunder.
(c) All prepayments required by paragraph (b) above shall be applied
first to Revolving Credit Loans that are Alternate Base Rate Loans outstanding,
then to Revolving Credit Loans that are LIBOR Loans outstanding, then to Term
Loan A and finally to Term Loan B, and any such prepayment of a Term Loan
hereunder shall be applied to installments of principal in inverse order of
maturity.
(d) All prepayments made pursuant to this Section 4.2 shall be
accompanied by the payment of all accrued interest on the amount so prepaid and
by all amounts required to be paid pursuant to Section 5.1 in connection
therewith.
SECTION 4.3. INTEREST ON LOANS.
(a) Alternate Base Rate Loans. The Borrower shall pay interest on
the outstanding and unpaid principal amount of each Alternate Base Rate Loan
made under this Agreement at a fluctuating rate per annum equal to the Alternate
Base Rate from time to time in effect plus a margin of 1/2 of 1% per annum.
Each change in the interest rate shall take effect simultaneously with the
corresponding change in the Alternate Base Rate. Interest shall be calculated
on the basis of the actual number of days elapsed divided by a year of three
hundred sixty (360) days and shall be paid to the Bank in arrears on the first
day of each month commencing November 1, 1997, and (i) on the Revolving Credit
Termination Date, in the case of Revolving Credit Loans, and (ii) on the
Maturity Date in the case of each Term Loan.
(b) LIBOR Loans. The Borrower shall pay interest on the outstanding
and unpaid principal amount of each LIBOR Loan made under this Agreement for
each Interest Period applicable to such LIBOR Loan at a rate per annum equal to
the Reserve Adjusted LIBOR Rate in effect with respect thereto plus the Margin.
Interest shall be calculated on the basis of the actual number of days elapsed
divided by a year of three hundred sixty (360) days and shall be paid to the
Bank monthly in arrears on the first day of each month following the
commencement of such Interest Period and on the last day of such Interest Period
and (i) on the Revolving Credit Termination Date, in the case of Revolving
Credit Loans and (ii) on the Maturity Date in the case of each Term Loan.
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(c) Post-Default. If any payment of principal, interest or fees is
not made by the Borrower to the Bank as and when due hereunder, the Borrower
shall pay additional interest with respect to such payment calculated as
follows: the amount past due multiplied by the Default Rate multiplied by the
number of days the payment is past due. In addition, if any Default or Event of
Default has occurred and is continuing hereunder, all Loans, and all interest,
fees or other amounts due hereunder, to the extent permitted by applicable law,
may, at the option of the Bank, bear interest (payable on demand, and in any
event on the last day of each month, and computed daily on the basis of a
360-day year for actual days elapsed) at the Default Rate until paid. In no
event, however, shall interest payable hereunder be in excess of the maximum
rate of interest permitted under applicable law.
SECTION 4.4. COMMITMENT FEE.
The Borrower shall pay to the Bank a commitment fee for the period
from and including the date hereof to and excluding the Revolving Credit
Termination Date equal to 1/8 of 1% per annum on the average daily unused
portion of the Revolving Credit Commitment during the applicable period. The
commitment fee shall be calculated on the basis of a year of 360 days for the
actual number of days elapsed. The commitment fee shall be due and payable
quarterly in arrears on the first day of each calendar quarter and on the
Revolving Credit Termination Date.
SECTION 4.5. FACILITY FEE.
The Borrower shall pay to the Bank on the date of this Agreement
$8,500, representing the final payment of a facility fee of $17,000.
SECTION 4.6. PAYMENTS GENERALLY.
(a) All payments under this Agreement or the Notes, shall be made in
Dollars in immediately available funds to the Bank not later than 1:00 p.m. New
York City time on the relevant dates specified above (each such payment made
after such time on such due date is to be deemed to have been made on the next
succeeding Banking Day), to the Bank's office at 395 North Service Road, Suite
302, Melville, New York 11747. The Borrower will notify the Bank of any payment
pursuant to the provisions of this Section at the same time it makes any such
payment. The Bank may (but shall not be obligated to) debit the amount of any
such payment to any ordinary deposit account of the Borrower with the Bank. The
Bank agrees to provide the Borrower prompt written notice of any such debit
which notice shall indicate how such debited amount was applied by the Bank.
The Borrower shall, at the time of making each payment under this Agreement or
the Notes, specify to the Bank the principal or other amount payable by the
Borrower under this Agreement or the Notes to which such payment is to be
applied; provided, however, that in the event that the Borrower fails to so
specify, or if a Default or an Event of Default has occurred and is continuing,
the Bank shall apply such payment as it may elect in its sole discretion.
Except as provided in the definition of "Interest Period" in Section 1.1 hereof,
if the due date of any payment under this Agreement or the Notes would otherwise
fall on a day which is not a Banking Day, such date shall be extended to the
next succeeding Banking Day and interest shall be payable for any principal so
extended for the period of such extension.
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(b) All payments made by the Borrower under this Agreement, the Notes
or the other Facility Documents shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any governmental or taxing authority of any jurisdiction located outside of
the United States, excluding income taxes and franchise taxes (imposed in lieu
of income taxes) imposed on the Bank as a result of a present or former
connection between the jurisdiction of the government or the taxing authority
imposing such tax and the Bank (excluding a connection arising solely from such
Bank having executed, delivered, or performed its obligations or received a
payment under, or enforced, this Agreement, the Notes or the other Facility
Documents) or any political subdivision or taxing authority thereof or therein
(all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions
and withholdings being hereinafter called "Taxes"). If any Taxes are withheld
from any amounts payable to the Bank hereunder or under the Facility Documents,
the amounts so payable to the Bank shall be increased to the extent necessary to
yield to the Bank (after payment of all Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement, the Notes and the other Facility Documents. Whenever any Taxes are
payable by the Borrower, as promptly as possible thereafter, the Borrower shall
send to the Bank, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any Taxes
when due to the appropriate taxing authority or fails to remit to the Bank the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Bank for any incremental taxes, interest or penalties that may
become payable by the Bank as a result of any such failure. The agreements in
this subsection shall survive the termination of this Agreement and the Facility
Documents and the payment of the Notes and all other amounts payable hereunder
or thereunder.
ARTICLE 5.
YIELD PROTECTION, ETC.
SECTION 5.1. CERTAIN COMPENSATION.
(a) The Borrower hereby agrees to indemnify the Bank against any loss
or expense which the Bank may sustain or incur as a consequence of any of the
following:
(i) the receipt or recovery by the Bank, whether by voluntary
prepayment, acceleration or otherwise, of all or any part of a LIBOR Loan
prior to the last day of an Interest Period applicable thereto;
(ii) the conversion, prior to the last day of an applicable Interest
Period, of a LIBOR Loan into an Alternate Base Rate Loan;
(iii) the failure by the Borrower to borrow any LIBOR Loan, convert
any Alternate Base Rate Loan to a LIBOR Loan or continue any LIBOR Loan on
the date of
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borrowing, conversion or continuation set forth in any notice by the
Borrower pursuant to the provisions hereof; or
(iv) the failure by the Borrower to pay, punctually on the due date
thereof, any amount payable by the Borrower with respect to or on account
of any LIBOR Loan.
Without limiting the effect of the foregoing, the amount to be paid by
the Borrower to the Bank in order to so indemnify the Bank for any loss
occasioned by any of the events described in the preceding paragraph, and as
liquidated damages therefor, shall be equal to the excess, discounted to its
present value as of the date paid to the Bank, of (i) the amount of interest
which otherwise would have accrued on the principal amount so received,
recovered, converted or not borrowed during the period (the "Indemnity Period")
commencing with the date of such receipt, recovery, conversion, or failure to
borrow to the last day of the applicable Interest Period for such LIBOR Loan at
the rate of interest applicable to such LIBOR Loan (or the rate of interest
agreed to in the case of a failure to borrow) provided for herein (prior to
default) over (ii) the amount of interest which would be earned by the Bank
during the Indemnity Period if it invested the principal amount so received,
recovered, converted or not borrowed at the rate per annum approximately equal
to LIBOR, as the case may be, on an amount approximately equal to such principal
amount for a period of time comparable to such Indemnity Period.
(b) A certificate as to any additional amounts payable pursuant to
this Section 5.1 (setting forth in detail the basis and method of, and
computations used for, determining such amounts shall be conclusive, absent
manifest error, as to the determination by the Bank set forth therein if made
reasonably and in good faith. The Borrower shall pay to the Bank any amounts so
certified by the Bank within 10 days of receipt of any such certificate. For
purposes of this Section 5.1, all references to the "Bank" shall be deemed to
include any participant in this Agreement and/or the Loans.
SECTION 5.2. ADDITIONAL COSTS.
(a) The Borrower shall pay to the Bank, from time to time, within two
Banking Days of receipt of the written demand of the Bank, such amounts as the
Bank may reasonably determine to be necessary to compensate it for any
additional costs actually incurred by the Bank which the Bank reasonably
determines are attributable to its obligation to make any Loan hereunder, or any
reduction in any amount receivable by the Bank hereunder in respect of any such
Loans or such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to the Bank under this Agreement or the Notes in respect of any such
obligations (other than taxes imposed on the overall net income of the Bank for
any of such obligations by the jurisdiction in which the Bank has its principal
office or Lending Office); or (ii) imposes or modifies any reserve, special
deposit, deposit insurance or assessment, minimum capital, capital ratio or
similar requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Bank (including any of such Loans
or any deposits referred to in the definition of "LIBOR Loans"); or (iii)
imposes any
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other condition affecting this Agreement, or the Notes (or any of such
extensions of credit or liabilities) and the Bank's obligations with respect
thereto. The Bank will notify the Borrower in writing of any event occurring
after the date of this Agreement which will entitle the Bank to compensation
pursuant to this Section 5.2(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation.
(b) Without limiting the effect of the foregoing provisions of this
Section 5.2, in the event that, by reason of any Regulatory Change, the Bank
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
the Bank which includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of the Bank which includes LIBOR Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if the Bank so elects by notice
to the Borrower, the obligation of the Bank to make LIBOR Loans hereunder shall
be suspended until the date such Regulatory Change ceases to be in effect (in
which case the provisions of Section 5.5 shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.2 (but without duplication), the Borrower shall pay to the Bank from
time to time on request such amounts as the Bank may reasonably determine to be
necessary to compensate the Bank for any costs which it reasonably determines
are attributable to the maintenance by it or any of its Affiliates pursuant to
any law or regulation of any jurisdiction or any interpretation, directive or
request (whether or not having the force of law and whether in effect on the
date of this Agreement or thereafter) of any court or governmental or monetary
authority, of capital in respect of its Loans or other obligations hereunder
(such compensation to include, without limitation, an amount equal to any
reduction in return on assets or equity of the Bank to a level below that which
it could have achieved but for such law, regulation, interpretation, directive
or request). The Bank will notify the Borrower if it is entitled to
compensation pursuant to this Section 5.2(c) as promptly as practicable after it
determines to request such compensation.
(d) Determinations and allocations by the Bank for purposes of this
Section 5.2 of the effect of any Regulatory Change pursuant to subsections (a)
or (b), or of the effect of capital maintained pursuant to subsection (c), on
its costs of making or maintaining Loans or its obligation to make Loans, or on
amounts receivable by, or the rate of return to, it in respect of Loans, and of
the additional amounts required to compensate the Bank under this Section 5.2,
shall be conclusive, absent manifest error, if such determination is made
reasonably by the Bank and in good faith.
SECTION 5.3. LIMITATION ON TYPES OF LOANS.
Anything herein to the contrary notwithstanding, if:
(a) the Bank determines in good faith on a commercially reasonable
basis (which determination shall be conclusive, absent manifest error) that
quotations of interest rates for the relevant deposits referred to in the
definition of "LIBOR Loans" in Section 1.1 are not
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being provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for any LIBOR Loans as provided in
this Agreement; or
(b) the Bank determines in good faith on a commercially reasonable
basis (which determination shall be conclusive, absent manifest error) and
notifies the Borrower that the relevant rates of interest referred to in the
definition of "LIBOR Loans" in Section 1.1 upon the basis of which the rate of
interest for any LIBOR Loans is to be determined do not cover the cost to the
Bank of making or maintaining such Loans, then, and so long as such condition
remains in effect, the Bank shall be under no obligation to make LIBOR Loans.
SECTION 5.4. ILLEGALITY.
Notwithstanding any other provision in this Agreement, in the event
that it becomes unlawful for the Bank to honor its obligation to make or
maintain LIBOR Loans hereunder, then the Bank shall promptly notify the Borrower
thereof and the Bank's obligation to make or maintain LIBOR Loans hereunder
shall be suspended until such time as the Bank may again make and maintain such
affected Loans (in which case the provisions of Section 5.5 shall be
applicable).
SECTION 5.5. CERTAIN LIBOR LOANS PURSUANT TO SECTIONS 5.2(b), 5.3 AND
5.4.
If an event referred to in Section 5.2(b), 5.3 or 5.4 has occurred,
the Bank shall be required to make Alternate Base Rate Loans in accordance with
this Agreement, and all LIBOR Loans of the Bank then outstanding shall be
automatically converted into Alternate Base Rate Loans on the date specified by
the Bank in such notice, and, to the extent that LIBOR Loans are so made as (or
converted into) Alternate Base Rate Loans, all payments of principal which would
otherwise be applied to the Bank's LIBOR Loans shall be applied instead to its
Alternate Base Rate Loans. In the event of any conversion of any LIBOR Loan to
an Alternate Base Rate Loan pursuant to this Section 5.5 prior to the maturity
date with respect to such LIBOR Loan the Borrower shall pay to the Bank all
amounts required to be paid pursuant to Section 5.1 hereof.
SECTION 5.6. SURVIVAL.
The indemnities and other obligations set forth in this Article 5
shall survive payment in full of all Loans or extensions of credit made pursuant
to this Agreement and the Final Maturity Date.
ARTICLE 6.
CONDITIONS PRECEDENT.
SECTION 6.1. CONDITIONS PRECEDENT.
The obligation of the Bank to make the Loans on the date hereof is
subject to the conditions precedent that:
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(a) the Bank shall have received on or before the date hereof each of
the following, in form and substance reasonably satisfactory to the Bank and its
counsel:
(i) this Agreement, the Revolving Credit Note executed in favor
of the Bank and the Term Loan B Note executed in favor of the Bank, each
duly executed by the Borrower;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Borrower and each of the Guarantors, dated the Closing Date, attesting
to all corporate action taken by such entity, including resolutions of its
Board of Directors authorizing the execution, delivery and performance of
the Facility Documents and each other document to be delivered pursuant to
this Agreement to which it is a party, together with certified copies of
the certificate or articles of incorporation and the by-laws of the
Borrower and each of the Guarantors; and, such certificate shall state that
the resolutions and corporate documents thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate;
(iii) a certificate of the Secretary or an Assistant Secretary of
the Borrower and each of the Guarantors, dated the Closing Date, certifying
the names and true signatures of certain officers of such entity authorized
to sign the Facility Documents and the other documents to be delivered by
such entity under this Agreement;
(iv) a certificate of a duly authorized officer of the Borrower,
dated the Closing Date, stating that the representations and warranties in
Article 7 are true and correct on such date as though made on and as of
such date and that no event has occurred and is continuing which
constitutes a Default or Event of Default;
(v) a Security Agreement duly executed by the Borrower, together
with (A) fully completed and executed financing statements on Form UCC-1,
in proper form for filing under the Uniform Commercial Code in all
jurisdictions requested by the Bank the security interests to be granted
hereunder and under the Security Agreement and (B) UCC search results
identifying all of the financing statements on file with respect to the
Borrower in all jurisdictions referred to under clause (A) hereof,
indicating that no party claims an interest in any of the Collateral except
for the holders of Permitted Liens;
(vi) Guarantees, duly executed by each Guarantor;
(vii) a favorable opinion of counsel for the Borrower and Ontario
counsel to the Guarantor, dated the Closing Date, each in form and
substance reasonably satisfactory to the Bank and its counsel;
(viii) satisfactory evidence that the Borrower and the Guarantors
are duly organized, validly existing and in good standing under the laws of
their respective jurisdictions of incorporation and each other jurisdiction
where qualification is necessary;
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(ix) audited consolidated balance sheet of the Borrower and its
Subsidiaries as of December 31, 1996, and consolidated income statement and
statement of cash flows of the Borrower and its Subsidiaries for the fiscal
year then ended, all prepared in accordance with GAAP, together with the
unqualified opinion thereon of Ernst & Young, LLP, independent certified
public accountants, and unaudited consolidated balance sheet of the
Borrower and its Subsidiaries as at June 30, 1997, together with income
statement and statement of cash flows of the Borrower and its Subsidiaries
for the fiscal quarter ended June 30, 1997, and for the period commencing
at the end of the previous fiscal year and ending with the end of such
quarter, each prepared by or under the supervision of the chief financial
officer of the Borrower in accordance with GAAP;
(x) certificates of insurance covering the Collateral and the
other assets and the business of the Borrower and the Guarantors, which
certificates shall designate the Bank as the loss payee, in form and
substance (including with respect to general liability and products
liability insurance) reasonably satisfactory to the Bank together with
copies of the related insurance policies with proper endorsements to
reflect the Bank's interests;
(xi) a duly executed Borrowing Base Certificate as of September
30, 1997, in form and substance reasonably satisfactory to the Bank; and
(xii) landlord's waivers, in form and substance satisfactory to
the Bank and its counsel, with respect to each leased property of the
Borrowers or the Guarantors at which collateral is located;
(xiii) a detailed accounts receivable aging (by account) of the
Borrower and each Guarantor, together with an inventory designation
schedule, each as of September 30, 1997;
(xiv) certificates of insurance relating to foreign accounts
receivable, which certificates shall designate the Bank as loss payee, in
form and substance reasonably satisfactory to the Bank; and
(xv) such other documents, instruments, approvals, opinions and
evidence as the Bank may reasonably require.
(b) the Borrower shall have paid or caused to be paid to the Bank in
full all fees and expenses required to be paid hereunder or in connection
herewith on the date hereof, and including all fees and expenses of the Bank
incurred in connection with its field examination of the Borrower and its
Subsidiaries and the preparation, execution and delivery of this Agreement and
the other Facility Documents and the consummation of the transactions
contemplated thereby;
(c) the Borrower and the Guarantors shall have obtained all consents,
permits and approvals required in connection with the execution, delivery and
performance by the
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Borrower and the Guarantors of their obligations hereunder and such consents,
permits and approvals shall continue in full force and effect;
(d) the Bank shall be satisfied that the proceeds of the initial
Revolving Credit Loans hereunder shall be applied to pay the Borrower's existing
indebtedness to North Fork Bank in full on the date hereof and that all
documentation executed in connection with such indebtedness, including all UCC-1
financing statements, shall have been canceled, terminated or assigned to the
Bank;
(e) the Bank shall be reasonably satisfied with the form and content
of all Schedules delivered by the Borrower pursuant to this Agreement or any
document delivered in connection herewith;
(f) the Borrower shall provide reasonably satisfactory evidence that
neither it nor any Guarantor is in default with respect to any contractual
obligations to which it is a party, which may cause a Material Adverse Effect;
(g) results reasonably satisfactory to the Bank of all due diligence
with respect to the Borrower and the Guarantors including, without limitation,
bank checkings, trade checkings, customer checkings and litigation checkings and
all due diligence with respect to management of the Borrower and/or the
Guarantors;
(h) receipt and reasonably satisfactory review by the Bank of (i) all
material loan documents or credit agreements binding in the Borrower or any
Guarantor; (ii) all existing shareholder, and management agreements entered into
by the Borrower or any Guarantor; and (iii) any existing employment agreement
entered into by the Borrower or any Guarantor and any executive officer of any
such entity;
(i) receipt and reasonably satisfactory review by the Bank of a
schedule of all lease agreements of the Borrower and the Guarantors relating to
real property which schedule shall include, without limitation, the following
information with respect to each such lease: the lessor, the lessee, the term of
the lease, the annual lease expenditure and whether such lease is an operating
lease or a capital lease;
(j) since December 31, 1996, nothing shall have occurred which in the
Bank's sole judgment (to be exercised in a commercially reasonable manner)
could, individually or in the aggregate, have a Material Adverse Effect; and
(k) with regard to the Borrower's 9% existing convertible
subordinated debentures due October 17, 1998, (i) evidence that $750,000 of such
indebtedness shall have been converted to "equity" and that the balance of such
indebtedness will be paid in full with the proceeds of Term Loan B on the date
hereof and (ii) that all documentation executed in connection with such
indebtedness, including all UCC-1 financing statements, shall have been
canceled, terminated or assigned to the Bank;
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(l) receipt and reasonably satisfactory review of the Bank of all
documentation regarding the Borrower's acquisition of the assets of Seafla, Inc.
including, without limitation, the acquisition agreement, the related notes,
security agreements, subordination and intercreditor agreements and the
execution of a subordination and intercreditor agreement with respect to the
Seafla Note in favor of the Bank, which shall be in form and substance
reasonably satisfactory to the Bank and its counsel;
(m) all legal matters in connection with this financing shall be
reasonably satisfactory to the Bank and its counsel.
SECTION 6.2. ADDITIONAL CONDITIONS PRECEDENT.
The obligation of the Bank to make any Loan after the date hereof
shall be subject to the further conditions precedent that on the date of such
Loan, the Bank shall have received the following:
(a) a certificate executed by the Chief Financial Officer of the
Borrower substantially in the form of Exhibit E, dated as of such date, stating
that (i) the representations and warranties contained in Article 7 hereof, which
for purposes of this Section, shall be deemed to relate to the Borrower and to
each Subsidiary as if each such Person were the subject of each such
representation and warranty, are true and correct in all material respects on
and as of the date of such Loan as though made on and as of such date (except
when such representation or warranty by its terms relates to the date hereof or
another specific date); and (ii) no Default or Event of Default has occurred and
is continuing or would result from any such Loan; and (iii) that the proceeds of
such Loan shall be used in accordance with the terms hereof;
(b) a certificate executed by the Chief Financial Officer of the
Borrower, dated as of such date, in form and substance reasonably satisfactory
to the Bank stating that the Aggregate Outstandings after giving effect to the
proposed borrowing will not exceed the Borrowing Base then in effect and that
the Aggregate Revolving Credit Loans Outstanding after giving effect to the
proposed borrowing will not exceed the Revolving Credit Commitment then in
effect; and
(c) a duly executed Borrowing Base Certificate dated as of the last
day of the prior calendar month, in form and substance reasonably satisfactory
to the Bank.
SECTION 6.3. ADDITIONAL CONDITIONS PRECEDENT TO CONVERSION OF
REVOLVING CREDIT LOANS.
The obligation of the Bank to permit the Revolving Credit Loans to be
converted to Term Loan A pursuant to Section 2.7 hereof shall be subject to the
additional conditions precedent that on the date of such conversion:
(a) the Bank shall have received a duly executed and completed Term
Loan A Note;
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(b) no Default or Event of Default shall then be existing or shall
result from such conversion; and
(c) the Bank shall have received a current Borrowing Base
Certificate, in form and substance reasonably satisfactory to the Bank.
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES
The Borrower and, where applicable, each Guarantor, hereby represent
and warrant that:
SECTION 7.1. ORGANIZATION, GOOD STANDING AND DUE QUALIFICATION;
COMPLIANCE WITH LAW.
The Borrower and each of its Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation, has the corporate power and authority to own its
assets and to transact the business in which it is now engaged or presently
proposes to be engaged, and is duly qualified as a foreign corporation and in
good standing under the laws of each other jurisdiction in which such
qualification is required, except where the failure to be so qualified shall not
result in a Material Adverse Effect. In addition, the Borrower and each of its
Subsidiaries is in compliance in all material respects with all applicable laws,
treaties, rules or regulations, and applicable determinations or orders of or
with respect to all arbitrators, courts or other governmental authorities,
except where the failure to so comply does not have a Material Adverse Effect.
SECTION 7.2. POWER AND AUTHORITY; NO CONFLICTS.
The execution, delivery and performance by the Borrower and each of
the Guarantors of each of the Facility Documents to which it is a party have
been duly authorized by all necessary corporate action and do not: (a) require
any consent or approval of the stockholders, members or partners of the Borrower
or any of the Guarantors; (b) contravene the charter or by-laws of the Borrower
or any of the Guarantors; (c) violate any provision of, or require any filing,
registration, consent or approval under, any law, rule, regulation (including,
without limitation, the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve system as in effect from time to time), order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to the Borrower or any of the Guarantors; (d) result in a
breach of or constitute a default or require any consent under any indenture or
loan agreement or any other agreement, lease or instrument to which the Borrower
or any of the Guarantors is a party or by which properties of the Borrower or
any of the Guarantors may be bound or affected the breach of which would result
in a Material Adverse Effect; (e) result in or require the creation or
imposition of any Lien upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower or any of the Guarantors except in favor
of the
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Bank as herein provided; or (f) cause the Borrower or any of the Guarantors to
be in default, in any material respect, under any such rule, regulation, order,
writ, judgment, injunction, decree, determination or award.
SECTION 7.3. LEGALLY ENFORCEABLE AGREEMENTS.
Each Facility Document is, or when delivered under this Agreement will
be, a legal, valid and binding obligation of the Borrower and each Guarantor (if
such entity or Person is a party thereto) enforceable against such entities or
Person in accordance with its terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization and other
similar laws affecting creditors' rights or by the effect of principles of
equity which may limit the availability of remedies (whether in a proceeding at
law or in equity).
SECTION 7.4. LITIGATION.
There are no actions, suits or proceedings pending or, to the
knowledge of the Borrower, threatened, against the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which could,
in any one case or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
SECTION 7.5. FINANCIAL STATEMENTS; OTHER LIABILITIES.
The consolidated balance sheet of the Borrower and its Subsidiaries as
at December 31, 1996, and the related consolidated income statement and
statement of cash flow of the Borrower and its Subsidiaries for the fiscal year
then ended, and the accompanying notes, together with the unqualified opinion
thereon of Ernst & Young, LLP, independent certified public accountants, and the
interim financial statements of the Borrower and its Subsidiaries as at and as
of (as the case may be) June 30, 1997, copies of which have been furnished to
the Bank, fairly present the financial condition of the Borrower and its
Subsidiaries as at such dates and the results of the operations of the Borrower
and its Subsidiaries for the periods covered by such statements, all in
accordance with GAAP consistently applied (subject, in the case of interim
financial statements, to year-end adjustments and except, in the case of such
interim financial statements, for the absence of GAAP notes thereto). As of the
date hereof, there are no material liabilities or obligations of the Borrower or
any of its Subsidiaries, whether direct or indirect, absolute or contingent, or
matured or unmatured, other than (a) as disclosed or provided for in the
financial statements and notes thereto which are referred to above, or (b)
arising in the ordinary course of business since December 31, 1996 or (c)
created by this Agreement. The written information, exhibits and reports
furnished by the Borrower to the Bank pursuant to Section 6.1 of this Agreement
are complete and correct in all material respects as of the date hereof.
SECTION 7.6. OWNERSHIP AND LIENS.
The Borrower and its Subsidiaries have title to, or valid leasehold
interests in, all of their properties and assets, real and personal, including
the properties and assets, and leasehold
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interests reflected in the financial statements referred to in Section 7.5, and
none of the properties and assets owned by the Borrower or the Guarantors, and
none of their respective leasehold interests is subject to any Lien, except for
Permitted Liens.
SECTION 7.7. TAXES.
The Borrower and each of its Subsidiaries has filed all tax returns
(foreign, federal, state and local) required to be filed and the Borrower and
each of its Subsidiaries and has paid all taxes, assessments and governmental
charges and levies shown thereon to be due, including interest and penalties,
other than taxes, assessments and governmental charges and levies being
contested in good faith by proceedings and with respect to which adequate
reserves in conformity with GAAP shall have been provided on the books of the
Borrower and its Subsidiaries.
SECTION 7.8. ERISA.
As of the date hereof, the Borrower, the Guarantors and their ERISA
Affiliates are in compliance in all material respects with all applicable
provisions of ERISA. No Reportable Event has occurred with respect to any Plan;
no notice of intent to terminate a Plan has been filed nor has any Plan been
terminated; no circumstance exists which constitutes grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings;
none of the Borrower or the Guarantors, nor any ERISA Affiliate, has completely
or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer
Plan; the Borrower, the Guarantors and each of their ERISA Affiliates have met
their minimum funding requirements under ERISA with respect to all of their
Plans and there are no Unfunded Vested Liabilities, and none of the Borrower or
the Guarantors, nor any ERISA Affiliate has incurred any material liability to
the PBGC under ERISA.
SECTION 7.9. SUBSIDIARIES AND AFFILIATES.
As of the date hereof, Schedule 7.9 is a complete and correct list of
all Subsidiaries and Affiliates of the Borrower.
SECTION 7.10. CREDIT ARRANGEMENTS.
Schedule 7.10 is a complete and correct list of all agreements,
indentures, purchase agreements with suppliers or vendors having commitments to
purchase in excess of $100,000, guaranties, Capital Leases and other agreements
and arrangements in effect on the date of this Agreement providing for or
relating to extensions of credit to the Borrower or any of its Subsidiaries for
borrowed money (including agreements and arrangements for the issuance of
letters of credit or for acceptance financing) in respect of which the Borrower
or any of its Subsidiaries is in any manner directly or contingently obligated;
and the maximum principal or face amounts of the credit in question, outstanding
and which can be outstanding, are correctly
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stated, and all Liens of any nature given or agreed to be given by the Borrower
or any of its Subsidiaries as security therefor are correctly described or
indicated in such Schedule.
SECTION 7.11. OPERATION OF BUSINESS.
To the Borrower's knowledge, the Borrower and its Subsidiaries possess
all licenses, permits, franchises, patents, patent applications, copyrights,
trademarks and trade names, or rights thereto, to conduct their respective
businesses substantially as now conducted and as presently proposed to be
conducted.
SECTION 7.12. HAZARDOUS SUBSTANCES.
To the Borrower's knowledge, the Borrower and its Subsidiaries are in
material compliance with all applicable Environmental Laws, and have obtained
all necessary licenses and permits required to be issued pursuant to any
applicable Environmental Law. As of the date hereof, neither the Borrower nor
any of its Subsidiaries has received any written or, to its knowledge, other
notice or communication from any governmental agency with respect to (i) any
violation of Environmental Laws relative to its operations, property or
business, or (ii) any investigation, demand or request pursuant to or enforcing
any Environmental Law relating to it or its operations, property or business,
and no such investigation is pending or, to the knowledge of the Borrower,
threatened.
SECTION 7.13. NO DEFAULT ON OUTSTANDING JUDGMENTS OR ORDERS.
The Borrower and each of its Subsidiaries has satisfied all judgments
by which they are bound and neither the Borrower nor any of its Subsidiaries is
in default (i) with respect to any judgment, writ, injunction, decree of any
court, arbitrator or federal, state, municipal or other governmental authority,
commission, board, bureau, agency or instrumentality, domestic or foreign having
jurisdiction or (ii) in any material respect with respect to any rule or
regulation of any such entity.
SECTION 7.14. LABOR DISPUTES AND ACTS OF GOD.
As of the date hereof, neither the business nor the properties of the
Borrower or any of its Subsidiaries are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could reasonably be expected to
result in a Materially Adverse Effect.
SECTION 7.15. GOVERNMENTAL REGULATION.
Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Investment
Company Act of 1940 or any other statute or regulation limiting its ability to
incur indebtedness for money borrowed as contemplated hereby.
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SECTION 7.16. PARTNERSHIPS, ETC.
Neither the Borrower nor any of its Subsidiaries is a partner in any
partnership or a member in any limited liability partnership or company.
SECTION 7.17. NO FORFEITURE PROCEEDING.
Neither the Borrower nor any of its Subsidiaries is engaged in or
proposes to be engaged in the conduct of any business or activity which is
likely to result in a Forfeiture Proceeding, and no Forfeiture Proceeding
against any of them is pending or, to the knowledge of the Borrower and its
Subsidiaries as of the date hereof, is threatened.
SECTION 7.18. NO DEFAULT OR EVENT OF DEFAULT.
No Default or Event of Default has occurred and is continuing under
this Agreement.
SECTION 7.19. SECURITY.
The provisions contained in the Security Agreements, in accordance
with their respective terms, create in favor of the Bank a valid and
enforceable, first priority security interests in all right, title and interest
of the Borrower and the Guarantors in the collateral described therein, except
for Permitted Liens.
SECTION 7.20. SOLVENCY.
The Borrower and each of the Guarantors is Solvent.
SECTION 7.21. NAME.
Except as disclosed in the Schedules to the Security Agreements,
during the five years prior to the date of this Agreement, neither the Borrower
nor any Guarantor has been known under, or transacted business using, any name
or trade style except for the name set forth above such entity's signature on
this Agreement.
SECTION 7.22. OTHER AGREEMENTS.
Neither the Borrower nor any of its Subsidiaries, is a party to any
indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction which could, in
any case or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. Neither the Borrower, nor any of its Subsidiaries, is in
default in any respect in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement or
instrument the breach of which would result in a Material Adverse Effect.
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SECTION 7.23. DISCLOSURE.
The Borrower has disclosed to the Bank all agreements, instruments and
corporate or other restrictions to which it or any of its Subsidiaries is
subject, and all other matters known to it that, individually, or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
None of the written reports, financial statements, certificates or other
information furnished by the Borrower or any of its agents or representatives to
the Bank in connection with the registration of this Agreement or delivered
hereunder contains any material misstatement of facts or omits to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made not misleading.
SECTION 7.24. MATERIAL ADVERSE EFFECT
Except to the extent that the Borrower has disclosed to the Bank that
it anticipates a loss for its fiscal quarter ending September 30, 1997, since
the date of the most recent financial statements delivered by the Borrower to
the Banks pursuant to the terms of this Agreement, no event or series of events
has occurred which would reasonably be expected to result in a Material Adverse
Effect.
ARTICLE 8.
AFFIRMATIVE COVENANTS.
So long as the Notes or any other Obligations shall remain unpaid or
the Bank shall have any Revolving Credit Commitment hereunder, the Borrower
shall, and the Borrower shall cause each of its Subsidiaries to:
SECTION 8.1. MAINTENANCE OF EXISTENCE.
Preserve and maintain its corporate existence and remain in good
standing in the jurisdiction of its organization, and qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is required.
SECTION 8.2. CONDUCT OF BUSINESS.
Continue to engage principally in the principal businesses conducted
by it on the date hereof.
SECTION 8.3. MAINTENANCE OF PROPERTIES, ETC.
Maintain, keep and preserve, all of its properties (tangible and
intangible) material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and maintain and preserve all
licenses, permits, franchises, patents, copyrights, trademarks and trade names
material to the conduct of its business in full force and effect.
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SECTION 8.4. MAINTENANCE OF RECORDS.
Keep adequate records and books of account, in which complete entries,
reflecting all financial transactions of such Person, will be made.
SECTION 8.5. MAINTENANCE OF INSURANCE.
Maintain insurance covering its assets and its business with
financially sound and reputable insurance companies or associations properly
licensed to do business in New York and in the other jurisdictions where
Collateral is located in such amounts and covering such risks (including,
without limitation, products liability) as are usually carried by companies
engaged in the same or a similar business and similarly situated and as are
required by the Facility Documents. The Borrower shall provide the Bank notice
that such policies have been paid in full and shall deliver certified copies of
the policy or policies of such insurance to the Bank if the Bank so requests.
SECTION 8.6. COMPLIANCE WITH LAWS.
Comply in all material respects with all applicable laws, rules,
regulations and orders applicable to it.
SECTION 8.7. RIGHT OF INSPECTION; COLLATERAL AUDITS.
At any reasonable time upon reasonable notice during normal business
hours and from time to time, permit the Bank or any agent or representative
thereof, to examine and make copies and abstracts from the records and books of
account of, and visit the properties of, such Person and to discuss the affairs,
finances and accounts of such Person with any of its officers and directors and
such entity's independent accountants. In addition, the Bank or any agent or
representative thereof shall be permitted to conduct one field audit with
respect to the collateral each year in the Bank's sole discretion, at the cost
and expense of the Borrower. During the occurrence and continuance of a Default
or Event of Default, the Bank shall be permitted to conduct an unlimited number
of such audits at the cost and expense of the Borrower. At all other times, the
Bank shall be permitted to conduct such additional audits as the Bank may
request at the cost and expense of the Bank. Notwithstanding the foregoing,
provided that no Default or Event of Default has occurred and is continuing, the
Borrower's obligations to incur the cost of such field audits shall be limited
to $5,200 per audit. This limit shall be inapplicable during the occurrence and
continuance of Default or an Event of Default.
SECTION 8.8. REPORTING REQUIREMENTS.
Furnish directly to the Bank:
(a) as soon as available and in any event within 105 days after the
end of each fiscal year of the Borrower, audited consolidated financial
statements of the Borrower and its Subsidiaries, which shall include
consolidated balance sheets of the Borrower and its
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Subsidiaries as of the end of such fiscal year, together with consolidated
income statements and statements of cash flows of the Borrower and its
Subsidiaries for such fiscal year and as of the end of and for the prior fiscal
year, all prepared in accordance with GAAP and accompanied by an unqualified
opinion thereon by Ernst & Young, LLP or such other firm of independent
certified public accountants reasonably acceptable to the Bank, together with
(i) unaudited consolidating financial statements that relate to such financial
statements prepared by or under the supervision of the chief financial officer
of the Borrower, and (ii) the management letter, if any, prepared by such
independent certified public accountants;
(b) as soon as available and in any event within 50 days after the
end of each of the first, second and third quarters of each fiscal year of the
Borrower, unaudited consolidated and consolidating financial statements of the
Borrower and its Subsidiaries, which shall include unaudited consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as of the end
of each such quarter, together with consolidated and consolidating income
statements and statements of cash flows of the Borrower and its Subsidiaries for
each such quarterly period and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, all in reasonable
detail and stating in comparative form the respective figures for the
corresponding date and period in the previous fiscal year and all prepared by or
under the supervision of the Chief Financial Officer of the Borrower and the
Guarantors in accordance with GAAP (subject to year-end adjustments and except
for the absence of GAAP notes thereto);
(c) simultaneously with the delivery of the financial reporting
statements referred to in (a) and (b) above, a certificate of the Chief
Financial Officer of the Borrower certifying that to the best of his knowledge
(i) no Default or Event of Default has occurred and is continuing or, if a
Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action which is proposed to be taken with respect
thereto, with computations demonstrating compliance (or non-compliance, as the
case may be) with the covenants contained in Article 10, and (ii) such financial
statements have been prepared in accordance with GAAP;
(d) simultaneously with the delivery of the annual financial
statements referred to in Section 8.8(a), a certificate of the independent
public accountants who audited such statements to the effect that, in making the
examination necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or Event of
Default, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or event
of which they have knowledge and the nature and status thereof;
(e) not later than the 10th day of each calendar month, a monthly
Borrowing Base Certificate, together with a monthly accounts receivable aging
(by account debtor); inventory designation schedule and a Formulation
designation schedule, and, in addition, a report of all changes to the
Borrower's insurance policies regarding foreign accounts receivable (including
all additions to and deletions from the coverages thereunder) each as of the
last day of the preceding calendar month and each certified by the Chief
Financial Officer of the Borrower and each in form and substance reasonably
satisfactory to the Bank;
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(f) promptly after the Borrower or any Guarantor becomes aware of the
commencement thereof, notice of all actions, suits, and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any Guarantor,
including, without limitation, any such proceeding relating to any alleged
violation of any Environmental Law;
(g) as soon as possible after any Default or Event of Default has
occurred, a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken by the Borrower with
respect thereto;
(h) as soon as possible and in any event within five Banking Days
after any Borrower knows that any of the events or conditions specified below
with respect to any Plan or Multiemployer Plan have occurred or exist, a
statement signed by a senior financial officer of the Borrower, setting forth
details respecting such event or condition and the action, if any, which the
Borrower, the Guarantor or the ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or given
to PBGC by the Borrower, any Guarantor or any ERISA Affiliate with respect to
such event or condition):
(i) any Reportable Event;
(ii) the filing under Section 4041 of ERISA of a notice of intent
to terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by any Borrower, any Guarantor or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) receipt by the Borrower, any Guarantor or ERISA Affiliate of
notice from a Multiemployer Plan of the complete or partial withdrawal by
the Borrower, any Guarantor or any ERISA Affiliate under Section 4201 or
4204 of ERISA from a Multiemployer Plan imposing withdrawal liability (as
of the date of such notification) exceeding $100,000 or requiring payments
exceeding $100,000 per annum;
(v) receipt by the Borrower, any Guarantor or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in reorganization
or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends
to terminate or has terminated under Section 4041A of ERISA if the
aggregate annual contributions of the Borrower, any Guarantor and all ERISA
Affiliates to all Multiemployer Plans which are then in reorganization or
being terminated have been increased over amounts contributed to such
Multiemployer Plans for the plan year immediately preceding the plan year
in which the reorganization or termination occurs by an amount exceeding
$100,000; and
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(vi) the institution of a proceeding by a fiduciary or any
Multiemployer Plan against the Borrower, any Guarantor or any ERISA
Affiliate to enforce Section 515 of ERISA for delinquent contributions in
excess of $100,000 which proceeding is not dismissed within 30 days;
(i) promptly after the furnishing thereof, copies of any reports or
records filed with or furnished to any insurance carriers or governmental
authorities relating to Hazardous Substances located on any real properties
owned or occupied by the Borrower or any Guarantor;
(j) promptly after the Borrower or any Guarantor knows of the
commencement or threat thereof, notice of any Forfeiture Proceeding;
(k) promptly after such judgment, decree or order is entered, notice
of any judgment, decree or order entered against the Borrower or any of their
Subsidiaries;
(l) promptly after the sending or filing thereof, copies of all
reports which the Borrower sends to any of its security holders as such, and
copies of all reports, registration statements and other filings which the
Borrower or any of its Subsidiaries files with the Securities and Exchange
Commission, any state securities administrator or any national securities
exchange;
(m) promptly after the Borrower has knowledge thereof, notice of any
event or series of events which could reasonably be expected to result in a
Material Adverse Effect; and
(n) such other information respecting the condition or operations,
financial or otherwise of the Borrower or any of its Subsidiaries or ERISA
Affiliates as the Bank may from time to time reasonably request.
SECTION 8.9. PAYMENT OF OBLIGATIONS.
Pay, discharge or otherwise satisfy at or before maturity or before
they become delinquent, as the case may be, all material Indebtedness of the
Borrower or its Subsidiaries and other material obligations of whatever nature
(including any obligation for taxes or wages) other than those being contested
in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP.
SECTION 8.10. SUBSIDIARIES.
Simultaneously with their creation, the Borrower shall cause all of
its Subsidiaries to become Guarantors hereunder and, in connection therewith to
execute and deliver to the Bank, Guaranties, Security Agreements, financing
statements and any other requisite recording or filing documents or instruments.
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SECTION 8.11. LOCK BOX AGREEMENT.
Upon the occurrence of an Event of Default, upon request of the Bank,
execute the Bank's form of Lock Box Agreement and notify each account debtor and
customer of the Borrower and Guarantor to make payments directly to the p.o. box
identified in the Lock Box Agreement. Nothing in this Section 8.11 shall be
deemed to modify any rights or remedies of the Bank under this Agreement, or any
other Loan Document or at law or otherwise possessed by the Bank in respect of
any Event of Default.
ARTICLE 9.
NEGATIVE COVENANTS.
So long as the Notes or other Obligations (other than those
Obligations that extend beyond the Final Maturity Date) shall remain unpaid or
the Bank shall have any Revolving Credit Commitment hereunder, the Borrower
shall not:
SECTION 9.1. INDEBTEDNESS.
Create, incur, assume or suffer to exist, or permit any Subsidiary to
create, incur, assume or suffer to exist any Indebtedness, except for any of the
following types of Indebtedness:
(a) Indebtedness of the Borrower under this Agreement or the Notes or
any future Indebtedness of the Borrower or any of its Subsidiaries to the Bank;
(b) Indebtedness described in Schedule 9.1 but no extensions,
modifications or renewals thereof;
(c) Subordinated Debt, with the prior written consent of the Bank;
(d) Indebtedness of the Borrower to any Subsidiary that is a
Guarantor or of any Subsidiary that is a Guarantor to the Borrower or another
such Subsidiary;
(e) provided that no Event of Default then exists or would result
therefrom, Indebtedness of the Borrower, or any Guarantor, secured by purchase
money Liens permitted by Section 9.2;
(f) unsecured trade Indebtedness incurred in the ordinary course of
business;
(g) Capital Leases not to exceed $250,000, in the aggregate, at any
time; and
(h) other unsecured Indebtedness provided that the aggregate
principal balance of such Indebtedness does not exceed $50,000 at any time.
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SECTION 9.2. LIENS.
Create, incur, assume or suffer to exist or permit any Subsidiary to
create, incur or suffer to exist, any Lien upon or with respect to any of its
properties, now owned or hereafter acquired, except the following ("Permitted
Liens"):
(a) Liens in favor of the Bank securing the Obligations pursuant to
the provisions hereof or and future Liens granted in favor of the Bank;
(b) Liens existing on the date hereof and described on Schedule
9.2(b) hereto;
(c) Liens for taxes or assessments or other governmental charges or
levies if not yet due and payable or if due and payable if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained in conformity with GAAP;
(d) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than 30 days, or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves in accordance with
GAAP have been established;
(e) Liens under workers' compensation unemployment insurance, social
security or similar legislation (other than ERISA);
(f) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the ordinary course
of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or its Subsidiaries of the
property or assets encumbered thereby in the normal course of its business or
materially impair the value of the property subject thereto; and
(h) (i) purchase money Liens on any property heretofore or hereafter
acquired or the assumption of any Lien on any property existing at the time of
such acquisition, or (ii) a Lien incurred in connection with any conditional
sale or other title retention agreement or a Capital Lease; provided, that in
the case of any of (i)-(ii) above, (i) the creation or occurrence of any such
Lien shall not otherwise result in a Default or Event of Default with respect to
any of the other provisions of this Agreement, (ii) the Indebtedness secured by
such Lien shall not exceed 100% of the fair market value of the property
encumbered by such Lien, and (iii) such Lien shall not encumber any property of
the Borrower or any of its Subsidiaries other than the property so acquired.
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SECTION 9.3. INVESTMENTS.
Make or permit any Subsidiary to make any loan or advance to any
Person or purchase or otherwise acquire or permit any Subsidiary to purchase or
otherwise acquire, any capital stock, obligations or other securities of, make
any capital contribution to, or otherwise invest in, or acquire any interest in
any Person (other than Permitted Investments) except that the Borrower may make
loans or advances to or otherwise invest in any Guarantor and that the Borrower
may continue to maintain the loans to certain of its officers described on
Schedule 9.3 hereto provided that such loans may not be increased.
Notwithstanding the foregoing, the Borrower or any Subsidiary of the Borrower
may acquire capital stock or other securities of any other Persons or make
additional loan to officers or employees provided that the aggregate value of
all such investments and additional loans shall not exceed $50,000, in the
aggregate, at any one time.
SECTION 9.4. SALE OF ASSETS.
Sell, lease, assign, transfer or otherwise dispose of or permit any
Subsidiary to sell, lease, assign, transfer or otherwise dispose of any of its
now owned or hereafter acquired assets except for: (a) assets disposed of in the
ordinary course of business; (b) the sale or other disposition of assets no
longer used or useful in the conduct of its business; or (c) sales of assets
having a book value of, or an aggregate sales price of, not more than $100,000,
in the aggregate, during the term hereof. In no event shall any of the Borrower
or any Guarantor dispose of any capital stock of any Subsidiary.
SECTION 9.5. TRANSACTIONS WITH AFFILIATES.
Enter into or permit any Subsidiary to enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate, except (unless elsewhere
restricted hereunder) for transactions between the Borrower and any Subsidiary
or any Subsidiary with any other Subsidiary, in the ordinary course of and
pursuant to the reasonable requirements of the relevant Person's business and
upon fair and reasonable terms no less favorable to the relevant Person than
would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
SECTION 9.6. MERGERS, ETC.
Merge or consolidate with, or sell, assign, lease or otherwise dispose
of or permit any Subsidiary to merge or consolidate with, or sell, assign, lease
or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to, any Person, or acquire, all or substantially all of the
assets or the business of any Person except that any Subsidiary may be merged
into the Borrower.
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SECTION 9.7. ACQUISITIONS.
Make an Acquisition, or permit any Subsidiary to make an Acquisition
except to the extent permitted under Section 9.3 hereof.
SECTION 9.8. NO ACTIVITIES LEADING TO FORFEITURE.
Engage or permit any Subsidiary to engage in the conduct of any
business or activity which would be reasonably likely to result in a Forfeiture
Proceeding.
SECTION 9.9. CORPORATE DOCUMENTS; FISCAL YEAR; TAX STATUS; ACCOUNTING
PRACTICES.
Amend, modify or supplement or permit any Subsidiary to amend, modify
or supplement its certificate or articles of incorporation or by-laws in any way
which would adversely affect the interest of the Bank or change, or permit any
Subsidiary to change, its fiscal year or tax status or its accounting treatments
and reporting practices, except, with respect to accounting treatments or
reporting practices, as required or permitted by changes in generally accepted
accounting principles.
SECTION 9.10. HAZARDOUS SUBSTANCES; USE OF REAL PROPERTY.
Use, or permit the use of, or permit any Subsidiary to use or permit
the use of any of its real properties for conducting any manufacturing,
industrial, commercial or retail business which involves in any way the
introduction, manufacture, generation, processing or storage of any Hazardous
Substance in violation, in any material respect, of any applicable Environmental
Law.
SECTION 9.11. CHANGE IN BUSINESS.
Materially alter, or permit any Subsidiary to materially alter, the
nature of its business.
SECTION 9.12. CHANGE OF LOCATIONS.
Transfer or permit any Subsidiary to transfer its executive office or
change its corporate name or maintain records (including computer printouts and
programs) with respect to accounts receivable or Formulations or keep or permit
any Subsidiary to keep inventory or any other personal property at locations
other than those at which the same are presently kept or maintained, except in
each case upon 30 days prior written notice to the Bank and provided that prior
to any such change, the Borrower and its Subsidiaries, at the request of the
Bank, shall take all actions (including, without limitation, the filing of any
Uniform Commercial Code Financing Statements or amendments thereto) which the
Bank may deem necessary or desirable to perfect or otherwise protect the Liens
and security interests granted under the Security Agreements or to obtain the
benefits hereunder or thereunder.
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SECTION 9.13. SALES OF RECEIVABLES; SALE-LEASEBACKS.
Sell, discount or otherwise dispose of or permit any Subsidiary to
sell, discount or otherwise dispose of notes, accounts receivable or other
obligations owing to such entity, with or without recourse, except for purposes
of collection in the ordinary course of business; or sell or permit any
Subsidiary to sell any asset pursuant from an arrangement to thereafter lease
such asset from the purchaser thereof.
SECTION 9.14. DIVIDENDS, ETC.
Pay or permit any Subsidiary to pay, any cash dividends, make any
capital distribution in cash or other property (other than stock dividends) or
purchase or redeem any of its stock or other securities, or retire any of its
stock, or take any action which would have an effect equivalent to any of the
foregoing except that (a) any Subsidiary may pay dividends to its parent
corporation provided that the parent corporation is the Borrower or a Guarantor
and (b) the Borrower may purchase those warrants to purchase 100,000 shares of
common stock held by North Fork Bank for an aggregate purchase price not to
exceed $30,000.
SECTION 9.15. NON-U.S. ASSETS
Permit more than 10% of the Consolidated Total Assets of the Borrower
and its Subsidiaries to be owned by Subsidiaries organized under the laws of
jurisdictions outside of the United States of America.
ARTICLE 10.
FINANCIAL COVENANTS.
So long as the Notes or other Obligations shall remain unpaid, or the
Bank shall have any Revolving Credit Commitment under this Agreement, the
Borrower and its subsidiaries shall:
SECTION 10.1 CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EBITDA.
Maintain at all times from December 31, 1997 and thereafter a ratio of
Consolidated Funded Debt to Consolidated EBITDA of not more than 2.90:1.00.
SECTION 10.2 CONSOLIDATED TANGIBLE NET WORTH PLUS CONSOLIDATED
SUBORDINATED DEBT.
Maintain at all times for the periods set forth below a minimum sum of
Consolidated Tangible Net Worth plus Consolidated Subordinated Debt of not less
than the amounts set forth opposite such periods:
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Period Amount
------ ------
Closing Date - 12/30/97 $3,900,000
12/31/97 - 12/30/98 $4,400,000
12/31/98 - 12/30/99 Actual TNW as of 12/31/97 plus
$650,000
12/31/99 - 12/30/2000 Actual TNW as of 12/31/98 plus
$800,000
and for each subsequent fiscal period commencing December 31 through and
including December 30 of the following year, the sum of the prior year's actual
Consolidated Tangible Net Worth plus $1,000,000. This covenant shall be reset
to a level reasonably satisfactory to the Bank within 30 days of any future
subordinated debt issuance or equity offering by the Borrower or any of its
Subsidiaries.
SECTION 10.3. CONSOLIDATED DEBT SERVICE COVERAGE RATIO.
Maintain at all times from December 31, 1997 and thereafter a
Consolidated Debt Service Coverage Ratio, calculated on a rolling four quarters
basis, of not less than 1.25:1.00.
SECTION 10.4. NO LOSSES.
Not suffer a net loss, on a consolidated basis (including, for
purposes of this calculation, extraordinary losses and extraordinary gains) in
any fiscal year.
SECTION 10.5. CAPITAL EXPENDITURES.
Not make, on a consolidated basis, Capital Expenditures in excess of
$500,000 in any fiscal year.
ARTICLE 11.
EVENTS OF DEFAULT.
SECTION 11.1. EVENTS OF DEFAULT.
Any of the following events shall be an "Event of Default":
(a) The Borrower shall (A) fail to pay the principal of or interest
on any Note as and when due and payable; (B) fail to pay any fee due hereunder
as and when due and payable provided that such failure shall continue unremedied
for a period of five (5) Banking Days; (C) fail to pay any other amount due
hereunder as and when the same shall be due and payable, provided that such
failure shall continue unremedied for a period of five (5) Banking Days after
written notice or (D) fail to make any required prepayment as and when due and
payable in accordance with the terms of this Agreement;
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(b) Any representation or warranty made or deemed made by the
Borrower or by any Guarantor in this Agreement or in any other Facility Document
or which is contained in any certificate, document, opinion, financial or other
statement furnished to the Bank at any time pursuant to any Facility Document
shall prove to have been incorrect in any material respect on or as of the date
made or deemed made;
(c) The Borrower shall fail (i) to perform or observe any term,
covenant or agreement contained in Section 2.3, Section 2.7(e), Section 3.5,
Section 4.2(b) or in Articles 5, 9 or 10 or Sections 8.7, 8.8 or 8.11 hereof; or
(ii) fail to perform any other term, covenant or agreement on its part to be
performed or observed (other than the obligations specifically referred to in
Section 11.1(a)) in any Facility Document and, in the case of this clause (ii)
only such failure shall continue for five (5) consecutive Banking Days after
written notice;
(d) The Borrower or any of its Subsidiaries shall: (i) fail to make
when due any payments with respect to any Indebtedness, including but not
limited to indebtedness for borrowed money (other than the payment obligations
described in Section 11.1(a) above), of the Borrower or such Subsidiary, as the
case may be, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) or, if such
Indebtedness has no stated due date, before an action for collection is
commenced; or (ii) fail to perform or observe any material term, covenant or
condition on its part to be performed or observed under any material agreement
or instrument relating to any Indebtedness when required to be performed or
observed, if the effect of such failure to perform or observe is to accelerate,
or to permit the acceleration of, after the giving of notice or passage of time,
or both, the maturity of such Indebtedness, whether or not such failure to
perform or observe shall be waived by the holder of such Indebtedness; or (iii)
any Indebtedness of the Borrower or any of its Subsidiaries shall be declared to
be due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment) prior to the stated maturity thereof; provided,
that it shall not constitute an Event of Default pursuant to clause (i) or (iii)
of this Section 11.1(d) unless the aggregate amount of all Indebtedness referred
to in clauses (i) and (iii) exceeds $100,000 at any one time;
(e) The Borrower or any of its Subsidiaries (i) shall generally not,
or be unable to, or shall admit in writing its or their inability to, pay its or
their debts as such debts become due; or (ii) shall make an assignment for the
benefit of creditors, petition or apply to any court or otherwise for the
appointment of a custodian, receiver or trustee for it or a substantial part of
its assets; or (iii) shall, as debtor, commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (iv) shall have had any such petition or application filed or any
such proceeding shall have been commenced, against it or them, in which an
adjudication or appointment is made or order for relief is entered, or which
petition, application or proceeding remains undismissed for a period of 60 days
or more; or (v) by any act or omission shall indicate its or their consent to,
approval of or acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver or trustee for all
or any substantial part of its property; (vi) shall suffer any such
custodianship, receivership
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or trusteeship to continue undischarged for a period of 60 days or more; or
(vii) shall cease to be Solvent;
(f) One or more judgments, decrees or orders for the payment of money
in excess of $100,000 in the aggregate in respect of uninsured or unbonded
claims shall be rendered against the Borrower or any of its Subsidiaries and
such judgments, decrees or orders shall continue unsatisfied and in effect for a
period of 30 consecutive days without being vacated, discharged, satisfied or
stayed or bonded pending appeal;
(g) An event or condition specified in Section 8.8(h) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
the Borrower, any Guarantor or any ERISA Affiliate shall incur or in the opinion
of the Bank shall be reasonably likely to incur a liability to a Plan, a
Multiemployer Plan or PBGC (or any combination of the foregoing) which
constitutes, in the determination of the Bank, a Material Adverse Effect;
(h) Any Forfeiture Proceeding shall have been commenced with respect
to the Borrower or any Subsidiary;
(i) Any of the Security Agreements shall at any time after its
execution and delivery and for any reason, cease to create a valid and perfected
first priority security interest in and to property purported to be subject to
such agreement; or to be in full force and effect or shall be declared null and
void, or the validity or enforceability thereof shall be contested by the
Borrower or the Guarantors, or any of them, or the Borrower or any of the
Guarantors shall deny that it has any further liability or obligation under a
Security Agreement to which it is a party, or the Borrower or any Guarantor
shall fail to perform any of its material obligations under any Security
Agreement;
(j) an event or condition shall occur which results in a Material
Adverse Effect; or
(k) a Change in Control shall occur.
SECTION 11.2. REMEDIES.
Upon the occurrence and during the continuance of any Event of Default
hereunder, the Bank may, by notice to the Borrower, (i) declare the Revolving
Credit Commitment to be terminated, whereupon the same shall forthwith
terminate, and (ii) declare the outstanding principal of the Notes, all interest
thereon and all other Obligations to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided that, in the
case of an Event of Default referred to in Section 10.1(e) or Section 10.1(h)
above, the Revolving Credit Commitment shall be immediately terminated, and the
Notes, all interest thereon and all other amounts payable under this Agreement
or the Notes shall be immediately due and payable
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without notice, presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower. Furthermore, if an
Event of Default has occurred and the Bank has exercised the remedies set forth
in (i) and (ii) above, interest and fees payable hereunder in connection with
the Loans shall automatically be increased to the Default Rate.
ARTICLE 12.
MISCELLANEOUS.
SECTION 12.1. AMENDMENTS AND WAIVERS.
Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be amended or modified only by an instrument in
writing signed by the Borrower and the Bank and any provision of this Agreement
may be waived by the Bank only by an instrument signed by Bank (if such
provision requires performance by the Borrower, including, but not limited to,
any Event of Default. No failure on the part of the Bank to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof or
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 12.2. USURY.
Anything herein to the contrary notwithstanding, the Obligations shall
be subject to the limitation that payments of interest shall not be required to
the extent that receipt thereof would be contrary to provisions of law
applicable to the Bank limiting rates of interest which may be charged or
collected by the Bank. If any of the above-referenced payments of interest,
together with any other charges or fees deemed in the nature of interest, exceed
the maximum legal rate, then the Bank shall have the right to make such
adjustments as are necessary to reduce any such aggregate interest rate (based
on the foregoing aggregate amount) to the maximum legal rate, and if the Bank
ever receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Borrower. The Borrower waives any
right to prior notice of such adjustment and further agree that any such
adjustment may be made by the Bank subsequent to notification from the Borrower
that such aggregate interest charged exceeds the maximum legal rate.
SECTION 12.3. EXPENSES.
The Borrower shall reimburse the Bank on demand for all reasonable
costs, expenses and charges (including, without limitation, reasonable fees and
charges of the Bank's special counsel, Rivkin, Radler & Kremer (up to a cap of
$25,000 plus disbursements), incurred in connection with or relation to the
documentation, negotiation and closing of the transactions contemplated hereby)
incurred by the Bank in connection with the preparation, review, execution and
delivery of this Agreement and the Facility Documents. Without limiting the
generality of the foregoing, the Borrower shall pay all recording fees and
charges and recording taxes incurred
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by the Bank hereunder or in connection herewith. In addition, the Borrower
shall reimburse the Bank for all of its reasonable costs and expenses
(including, without limitation, reasonable fees and charges of counsel to the
Bank) in connection with the perfection, protection, enforcement or preservation
of any rights under this Agreement, the Notes or the other Facility Documents.
The Borrower agrees to indemnify the Bank and its directors, officers, employees
and agents from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages or expenses incurred by any of them arising out of
or by reason of any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceedings) relating to any
actual or proposed use by the Borrower of the proceeds of the Loans, or to the
failure of the Borrower or any Guarantor to perform or observe any of the terms,
covenants or conditions on its part to be performed or observed under this
Agreement or under any of the Facility Documents including, without limitation,
the reasonable fees and disbursements of counsel incurred in connection with any
such investigation or litigation or other proceedings (but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence, willful misconduct or bad faith of the Person to be indemnified).
SECTION 12.4. SURVIVAL.
The obligations of the Borrower under Section 2.3, Section 3.5(h),
Article 4 and Section 12.3 shall survive the repayment of the Loans and the
Final Maturity Date for a period corresponding to the maximum applicable statute
of limitations in effect in the State of New York from time to time.
SECTION 12.5. ASSIGNMENT: PARTICIPATION.
This Agreement shall be binding upon, and shall inure to the benefit
of the Borrower and the Guarantors, the Bank and their respective successors and
assigns, except that neither the Borrower nor any Guarantor may not assign or
transfer its rights or obligations hereunder. The Bank may assign, or sell
participations in, all or any part of any Loan to another bank or other entity,
in which event (a) in the case of an assignment, the assignee shall have, to the
extent of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations (including, without limitation, a ratable assumption of
the Bank's Commitment) as the Bank hereunder and shall to the extent of such
assignment be a "Bank" hereunder; and (b) in the case of a participation, the
participant shall have no rights under the Facility Documents and all amounts
payable by the Borrower under Articles 2 and 3 shall be determined as if the
Bank had not sold such participation. Notwithstanding the foregoing, prior to
assigning all or any part of the Loans, the Bank shall obtain the written
consent of the Borrower, which consent will not be unreasonably withheld. The
Bank may furnish any information concerning the Borrower and the Guarantors in
the possession of the Bank from time to time to assignees and participants
(including prospective assignees and participants) provided that such
information is provided on a confidential basis pursuant to the terms of an
appropriate confidentiality agreement. There shall be no limit on the number of
assignments or participants that may be granted by the Bank.
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SECTION 12.6. NOTICES.
Unless the party to be notified otherwise notifies the other party in
writing as provided in this Section, and except as otherwise provided in this
Agreement, notices shall be given by certified or registered mail, by recognized
overnight delivery services or by telecopier to any party at its address on the
signature page of this Agreement. Notices shall be effective: (a) if given by
registered or certified mail, 72 hours after deposit in the mails with postage
prepaid, addressed as aforesaid; or (b) if given by recognized overnight
delivery service, on the Banking Day following deposit with such service
addressed as aforesaid; or (c) if given by telecopy, when the telecopy is
transmitted to the telecopy number as aforesaid and confirmed with a
confirmation receipt; provided that all notices to the Bank shall be effective
on receipt.
SECTION 12.7. SETOFF.
The Borrower agrees that, in addition to (and without limitation of)
any right of setoff, banker's lien or counterclaim the Bank may otherwise have,
the Bank shall be entitled, at its option without any prior notice to the
Borrower (any such notice being expressly waived by the Borrower to the extent
permitted by applicable law), upon the occurrence and continuance of a Default
or Event of Default hereunder, to offset balances (general or special, time or
demand, provisional or final) held by it for the account of the Borrower at any
offices of the Bank or any of its Affiliates, in Dollars or in any other
currency, against any amount payable by the Borrower to the Bank under this
Agreement or the Notes which is not paid when due (regardless of whether such
balances are then due to the Borrower), in which case it shall promptly notify
the Borrower thereof; provided that the Bank's failure to give such notice shall
not affect the validity thereof. Payments by the Borrower hereunder shall be
made without setoff or counterclaim.
SECTION 12.8. JURISDICTION; IMMUNITIES; WAIVER OF JURY TRIAL, ETC.
(A) EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK, NASSAU
OR SUFFOLK COUNTIES OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE NOTE, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR FEDERAL COURT. EACH PARTY HERETO IRREVOCABLY CONSENTS TO
THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING (BY CERTIFIED OR REGISTERED MAIL) OF COPIES OF SUCH PROCESS TO THE
BORROWER AT THE ADDRESS SPECIFIED IN SECTION 12.6. THE BORROWER AGREES THAT A
FINAL JUDGMENT (INCLUDING ANY APPLICABLE APPEALS) IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH PARTY HERETO
FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN
ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE
BORROWER
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FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE BANK SHALL BE
BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW
YORK, NASSAU OR SUFFOLK COUNTY. EACH PARTY HERETO WAIVES ANY RIGHT THEY MAY
HAVE TO JURY TRIAL WITH RESPECT TO THIS AGREEMENT AND THE OTHER FACILITY
DOCUMENTS.
(B) NOTHING IN THIS SECTION 12.8 SHALL AFFECT THE RIGHT OF THE BANK
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT
OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
(C) TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER FROM
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE NOTE.
SECTION 12.9. TABLE OF CONTENTS: HEADINGS.
Any table of contents and the headings and captions hereunder are for
convenience only and shall not affect the interpretation or construction of this
Agreement.
SECTION 12.10. SEVERABILITY.
The provisions of this Agreement are intended to be severable. If for
any reason any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
SECTION 12.11. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Agreement by signing any such counterpart.
SECTION 12.12. INTEGRATION.
The Facility Documents set forth the entire agreement among the
parties hereto relating to the transactions contemplated thereby and supersede
any prior oral or written statements or agreements with respect to such
transactions.
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SECTION 12.13. GOVERNING LAW.
This Agreement shall be governed by, and interpreted and construed in
accordance with, the law of the State of New York.
SECTION 12.14. FURTHER RIGHTS OF THE BANK.
(a) The Borrower shall do all things and shall deliver all
instruments reasonably requested by the Bank to protect or perfect any Lien
given hereunder or in connection herewith including, without limitation,
financing statements under the Uniform Commercial Code. The Borrower authorizes
the Bank to execute alone any financing statement or other documents or
instruments that the Bank may require to perfect, protect or establish any Lien
hereunder or in connection herewith and further authorizes the Bank to sign
their names on the same. The Borrower appoints such person or persons as the
Bank may designate as its attorney-in-fact to, upon the exercise by the Bank of
its remedies set forth in Section 11.2 hereof, endorse the name of the Borrower
on any checks, notes, drafts or other forms of payment or security that may come
into the possession of the Bank, to sign the name of the Borrower on invoices or
bills of lading, drafts against customers, notices of assignment, verifications
and schedules and, generally, to do all things necessary to carry out this
Agreement and the Facility Documents. Upon the exercise by the Bank of its
remedies set forth in Section 11.2 hereof, such attorney-in-fact may notify the
Post Office authorities to change the address of delivery of mail to an address
designated by the Bank, and open and dispose of mail addressed to the Borrower.
The powers granted herein, being coupled with an interest, are irrevocable, and
the Borrower approves and ratifies all acts of the attorney-in-fact. Neither
the Bank nor the attorney-in-fact shall be liable for any act or omission, error
in judgment or mistake of law so long as the same is not willful misconduct or
grossly negligent.
(b) In the event that the Borrower shall fail to purchase or maintain
insurance (where applicable) or that any Lien prohibited hereby shall not be
paid in full or discharged, or after the occurrence and during the continuance
of an Event of Default, to pay any tax, assessment, government charge or levy,
except as the same may be otherwise permitted hereunder, or in the event that
the Borrower shall fail to perform or comply with any other covenant, promise or
obligation to the Bank hereunder or under any Facility Document, the Bank may,
but shall not be required to, perform, pay, satisfy, discharge or bond the same
for the account of the Borrower, and all monies so paid by the Bank, including
reasonable attorneys' fees, shall be treated as an advance to the Borrower.
(c) For all purposes contained in this Section 12.14, the obligations
referenced herein shall be deemed obligations of and applicable to the Borrower
and each of the Guarantors, and the Borrower shall cause each of the Guarantors
to comply with or perform all such obligations.
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SECTION 12.15. TREATMENT OF CERTAIN INFORMATION.
The Borrower (a) acknowledges that services may be offered or provided
to it (in connection with this Agreement or otherwise) by the Bank or by one or
more of its Subsidiaries or Affiliates and (b) acknowledges that information
delivered to the Bank by such entity may be provided to each such Affiliate.
Notwithstanding the foregoing, the Bank agrees to maintain all non-public
information which is furnished to it hereunder or under or in connection with
any Facility Document in confidence and not to disclose any such information to
third parties (except as provided in the preceding sentence); provided, however,
that the Bank and its Subsidiaries or Affiliates referred to above may disclose
such information (i) to their legal counsel, auditors, appraisers or consultants
in connection with the transactions contemplated hereby (provided that such
persons are advised of the confidential nature of such information and of the
Bank's confidentiality obligations hereunder), (ii) to any regulatory authority
having jurisdiction over them, (iii) to prospective participants or assignees of
the Loans or Revolving Credit Commitment (provided that such prospective
participants or assignees execute a confidentiality agreement with terms
substantially similar to the terms hereof), (iv) as required by law or (v) in
response to routine credit inquiries.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
By:___________________________
Name: Philip Rosner
Title: President and Chief Executive Officer
By:___________________________
Name:
Title:
Address for Notices:
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
10 Edison Street East
Amityville, New York 11701
Attn: Joseph A. Gemmo
Telephone No.: (516) 842-7600
Telefax No.: (516) 842-8332
55
<PAGE>
BANK:
THE CHASE MANHATTAN BANK
By:___________________________
Name: Scott Creaven
Title: Vice President
Lending Office and Address for Notices:
The Chase Manhattan Bank
395 North Service Road, 3rd Floor
Melville, New York 11747
Attn: Technology Flavors & Fragrances, Inc.
Relationship Manager
Telephone No.: (516) 755-5117
Telefax No.: (516) 755-0139
FOR THE PURPOSES OF THE REPRESENTATIONS SET FORTH IN ARTICLE 7.
TECHNOLOGY FLAVORS & FRAGRANCES INC.
(Canadian Subsidiary)
By:_______________________________
Name: Philip Rosner
Title: President and Chief Executive Officer
TECHNOLOGY FLAVORS & FRAGRANCES INC.
(Canadian Subsidiary)
10 Edison Street East
Amityville, New York 11701
Attn: Joseph A. Gemmo
Telephone No.: (516) 842-7600
Telefax No.: (516) 842-8332
56
<PAGE>
Exhibit 10.18
GUARANTEE
---------
WHEREAS, The Chase Manhattan Bank (the "Bank") has entered into a
Credit Agreement (the "Credit Agreement"), dated October 16, 1997, with
Technology Flavors & Fragrances, Inc. (the "Debtor"); and
WHEREAS, under the terms of the Credit Agreement, the Bank has agreed
to extend credit to the Debtor, which indebtedness will be evidenced by certain
promissory notes of the Debtor issued pursuant to the Credit Agreement (the
"Notes");
WHEREAS, the undersigned (the "Guarantor") is a direct or indirect
subsidiary of the Debtor and has derived or will derive direct benefit from the
extension of credit to the Debtor;
WHEREAS, the Bank will not extend such credit unless, among other
conditions, the undersigned Guarantor shall have executed and delivered this
Guarantee; and
WHEREAS, capitalized terms used herein and not defined herein shall
have the meanings given to them in the Credit Agreement;
NOW, THEREFORE, in consideration of the Bank extending such credit to
the Debtor and other benefits accruing to Guarantor, the receipt and sufficiency
of which are hereby acknowledged, Guarantor hereby makes the following
representations and warranties to the Bank and hereby covenants and agrees with
the Bank as follows:
1. Guarantor irrevocably and unconditionally guarantees to the Bank
(i) timely payment in full by Debtor to Bank of all payments due pursuant to the
Notes (it being understood that this is a guarantee of payment and not of
collection), and (ii) timely payment and/or performance, as applicable, of all
other payment and performance obligations of Debtor pursuant to the Notes, the
Credit Agreement, the Facility Documents and all other documents and instruments
of Debtor executed in connection therewith, or pursuant to any amendment,
modification or supplement to any of the foregoing (all of the foregoing under
clauses (i) and (ii) being collectively referred to as the "Guaranteed
Obligations"). If Debtor shall default in payment of any amount due pursuant to
the Notes beyond any applicable grace period or otherwise default beyond any
applicable grace period in the performance of the Guaranteed Obligations,
Guarantor irrevocably and unconditionally agrees to pay to the Bank upon demand
the amount in default (it being understood, however, that a non-payment may
result in the acceleration of all indebtedness and a demand for payment in full
by the Guarantor under the Guarantee). Guarantor understands, agrees and
confirms that the Bank may enforce this Guarantee up to the full amount of the
Guaranteed Obligations owing against the Guarantor without proceeding against
the Debtor, against any security for the Guaranteed Obligations or against any
other guarantor under any other guarantee covering the Guaranteed Obligations.
2. Guarantor hereby acknowledges the Guaranteed Obligations and
hereby expressly waives: (i) presentment and demand for payment of the principal
of or interest thereon
<PAGE>
or any other sums of any nature whatsoever with respect thereto, (ii) notice of
acceptance of this Guarantee, or of the extension of credit to the Debtor, (iii)
notice of any default hereunder or under any agreements between the Bank and the
Debtor with respect to the Guaranteed Obligations, (iv) demand on the Debtor for
observance or performance of, or enforcement of any terms or provisions of any
agreements between the Bank and the Debtor with respect to the Guaranteed
Obligations, (v) to the maximum extent permitted by applicable law and except as
otherwise provided herein, the benefit of all applicable laws now or hereafter
in effect in any way limiting or restricting the liability of Guarantor under
this Guarantee, including any and all right to stay of execution and exemption
of property in any action to enforce the liability of the Guarantor hereunder
and (vi) any other event or circumstance which may constitute a release of or
defense to the obligor(s) under the Guaranteed Obligations or the Guarantor
under this Guarantee. In the event this Guarantee shall be enforced by suit or
otherwise, the Guarantor shall pay the Bank, on demand, for all reasonable fees
and expenses incurred by the Bank in connection therewith, including, without
limitation, the reasonable fees and expenses of the Bank's counsel.
3. The Bank in its sole and absolute discretion, may at any time and
from time to time without the consent of, or notice to, Guarantor without
incurring responsibility to Guarantor, without impairing or releasing the
obligations of Guarantor hereunder, upon or without any terms or conditions and
in whole or in part (but in all events subject to the applicable provisions of
the Credit Agreement):
(a) by agreement with the Debtor, change the manner, place or
terms of payment of, and/or change or extend the time of payment of, increase
the amount of, or renew or alter any of the Guaranteed Obligations, any security
therefor, or any liability incurred directly or indirectly in respect thereof,
and the Guarantee herein made shall apply to the Guaranteed Obligations as so
changed, extended, increased, renewed or altered;
(b) exercise or refrain from exercising any rights against
Debtor or others or otherwise act or refrain from acting to the extent permitted
by applicable law;
(c) release, settle or compromise any of the Guaranteed
Obligations, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and
may subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of Debtor to creditors of Debtor other than
Guarantor;
(d) consent to or waive any breach of, or any act, omission or
default under, the Credit Agreement, the Notes, or any Facility Documents, or
otherwise amend, modify or supplement any of the foregoing;
(e) agree to the substitution, exchange, release or other
disposition of all or any part of any property securing the Guaranteed
Obligations, if any;
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<PAGE>
(f) make advances for the purposes of performing any term or
covenant contained in the Credit Agreement or any Facility Document with respect
to which the Debtor may be in default;
(g) assign or otherwise transfer all or any part of the
Guaranteed Obligations, to the extent permitted by applicable law and the
Facility Documents; and
(h) deal in all respects with the Debtor as if this Guarantee
were not in effect, to the extent permitted by applicable law and the Facility
Documents.
4. No invalidity, irregularity or unenforceability of all or any part
of the Guaranteed Obligations or of any security therefor shall affect, impair
or be a defense to this Guarantee, and this Guarantee is a primary obligation of
Guarantor.
5. This Guarantee is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of the
Bank (whether acting individually or through an agent), in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein expressly specified are cumulative
and not exclusive of any rights or remedies which the Bank (whether acting
individually or through an agent), or any subsequent holder of any Guaranteed
Obligations would otherwise have. No notice to or demand on Guarantor in any
case shall entitle Guarantor to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the Bank (whether
acting individually or through an agent), or any holder of any Guaranteed
Obligations to any other or further action in any circumstances without notice
or demand.
6. This is a guarantee of payment and not of collection, and the
liability of Guarantor under this Guarantee shall be primary, direct and
immediate, and not conditional or contingent upon pursuit by the Bank of any
remedies it may have against the Debtor with respect to the Guaranteed
Obligations whether pursuant to the terms thereof or by law, or against any
other person or entity or against any other collateral. Without limiting the
generality of the foregoing, the Bank shall not be required to make any demand
on the Debtor, or to sell at foreclosure or otherwise pursue or exhaust its
remedies against the property securing the Debtor's obligations for the
Guaranteed Obligations or against the Debtor, or against any other person or
entity or against any other collateral whatsoever, before, simultaneously with
or after enforcing its rights and remedies hereunder against the Guarantor.
Any one or more successive or concurrent actions may be brought hereon against
the Guarantor either in the same action, if any, brought against the Debtor, or
in separate actions, as often as the Bank may deem advisable.
7. Guarantor represents and warrants to the Bank that:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all corporate power and
3
<PAGE>
authority to own all of its properties and to carry on its business as presently
conducted and as contemplated by this Guarantee and has corporate power and
authority to execute and deliver this Guarantee and to perform its obligations
hereunder.
(b) This Guarantee is the legal, valid and binding obligation of
Guarantor enforceable in accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by
general principals of equity (regardless of whether enforcement is sought in a
proceeding brought in equity or at law). The execution, delivery and
performance of this Guarantee and the performance of the transactions
contemplated hereunder have been and will be duly and validly authorized and
approved by the Board of Directors and do not and will not require any consent
or approval of any third party or of the stockholders of Guarantor other than
consents which have previously been obtained.
(c) The execution and delivery of this Guarantee does not, and
the consummation of the transactions contemplated hereby will not, constitute a
violation of or a default under or conflict with the terms of the Certificate of
Incorporation or By-laws of Guarantor, or any contract, lease, indenture,
agreement, order, judgment, or decree to which it is a party or by which it is
bound or to which any of its assets are subject, which in any case or in the
aggregate could have a material adverse effect on its ability to carry out its
obligations under this Guarantee, and do not violate or constitute a default
under any applicable statute, rule, regulation, order or ordinance of any
governmental, judicial or arbitral body, which in any case, or in the aggregate,
could have a material adverse effect on its ability to carry out its obligations
under this Guarantee.
(d) Neither the execution, delivery or performance of this
Guarantee, nor the consummation of the transactions contemplated hereby,
requires Guarantor to obtain any consent, authorization, approval or
registration under any applicable law, rule or regulation, other than as
contemplated hereby or as previously obtained.
(e) There is no suit, action or legal, administrative,
arbitration or other proceeding of any nature pending, or, to the knowledge of
Guarantor, threatened, against it which might affect the legality or validity of
this Guarantee, or the transactions contemplated hereby, and there is not any
factual basis known to it for any such suit, action or proceeding.
8. This Guarantee shall be binding upon Guarantor and its successors
and assigns and shall inure to the benefit of the Bank and its successors and
permitted assigns. This Guarantee may not under any circumstances be assigned
by Guarantor to any other person or entity without the express prior written
consent of the Bank.
9. Neither this Guarantee nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of the Bank and
the Guarantor.
10. In the event that the Bank shall receive any payments on account
of any of the Guaranteed Obligations, whether directly or indirectly, and it
shall subsequently be
4
<PAGE>
determined that such payments were for any reason improper, or a claim shall be
made against the Bank that the same were improper, and the Bank pursuant to
court order shall return the same, Guarantor shall be liable, with the same
effect as if the said payments had never been paid to, or received by the Bank,
for the amount of such repaid or returned payments, notwithstanding the fact
that they may theretofore have been credited on account of the Guaranteed
Obligations or any of them. Moreover, this Guarantee shall remain effective or
be reinstated, as the case may be, if at any time payment or performance, or any
part thereof, or any or all of the Guarantor's obligations under this Guarantee
is rescinded or must otherwise be restored or returned by the Bank in connection
with the insolvency, bankruptcy or reorganization of the Guarantor or otherwise,
all as though such payment or performance had not been rendered.
Notwithstanding any compromise, release, discharge, settlement, extension or
adjustment of the Debtor's obligations under the Facility Documents or any
amendment, modification or stay of the Bank's rights against the Debtor that may
occur in any bankruptcy or reorganization case or proceeding concerning the
Debtor, whether or not assented to by the Bank, Guarantor shall remain fully
obligated to discharge the Guarantor's obligations hereunder in accordance with
the terms of this Guarantee in effect on the date hereof. Guarantor assumes all
risks of a bankruptcy or reorganization with respect to the Debtor. In
furtherance of this Section, the Bank shall not otherwise indicate the
satisfaction of the obligations of the parties represented herein until the
expiration of all applicable bankruptcy-related periods of time during which the
Debtor, the Guarantor or any third party would have the right to commence a
bankruptcy or reorganization proceeding with regard to the Debtor or Guarantor.
11. All notices and other communications provided for under this
Guarantee and under any other document executed in connection herewith shall be
in writing (including telegraphic or telefax communications) and, unless the
party to be notified otherwise notifies the other party in writing as provided
herein, notices shall be given by telecopier, by certified or registered mail or
by recognized overnight delivery service. If such notice is delivered to
Guarantor, such notice shall be addressed to Guarantor c/o Technology Flavors &
Fragrances, Inc., 10 Edison Street East, Amityville, New York 11701, telecopier
(516) 842-8332 Attn: Joseph Gemmo and, if to the Bank, at its address listed on
the signature pages of the Credit Agreement; or as to each party, at such other
address as shall be designated by such party in a written notice to the other
parties complying as to delivery with the terms of this Section 11. Notices
shall be effective: (a) if given by registered or certified mail, on the third
day after deposit in the mails with postage prepaid, addressed as aforesaid; (b)
if given by recognized overnight delivery service, on the business day following
deposit with such service, addressed as aforesaid; and (c) if given by telecopy,
when the telecopy is transmitted to the telecopy number, as aforesaid; provided
that all notices to the Bank shall be effective on receipt.
12. This Guarantee and the rights and obligations of the Bank and of
the undersigned hereunder shall be governed and be construed in accordance with
the laws of the State of New York applicable to agreements made and to be wholly
performed in the State of New York. Guarantor hereby irrevocably submits to the
jurisdiction of any New York State or United States Federal Court sitting in
Nassau, Suffolk or New York County over any action or proceeding arising out of
or relating to the Guarantee, and the Guarantor hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in
5
<PAGE>
such New York State or Federal court. Guarantor irrevocably consents to service
of any and all process in any such action or proceeding by the mailing (by
registered or certified mail) of copies of such process to it at its address
specified in Section 11. Guarantor agrees that a final judgment in any such
action or proceeding arising hereunder or in connection herewith shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. To the extent permitted by applicable law,
Guarantor further waives any objection to venue in such State or Federal court
and any objection to an action or proceeding in such State or Federal court on
the basis of FORUM NON CONVENIENS. Nothing in this Section shall limit the
rights of the Bank to serve legal process in any other manner permitted by law
or affect the right of the Bank to bring any action or proceeding against
Guarantor in the courts of any other jurisdiction. To the extent that Guarantor
has or hereafter may acquire immunity from jurisdiction of any court or from any
legal process with respect to itself or its property, Guarantor hereby waives,
to the extent permitted by applicable law, such immunity in respect of their
obligations hereunder.
13. THE PARTIES HERETO WAIVE ANY RIGHT TO A TRIAL BY JURY IN
CONNECTION HEREWITH TO THE EXTENT PERMITTED BY APPLICABLE LAW.
IN WITNESS WHEREOF, Guarantor has caused this Guarantee to be executed
and delivered as of October 16, 1997.
THE GUARANTOR:
TECHNOLOGY FLAVORS & FRAGRANCES INC.
(CANADIAN SUBSIDIARY)
By: ______________________
Name:
Title:
6
<PAGE>
Exhibit 10.19
INTERCREDITOR AGREEMENT
-----------------------
THIS INTERCREDITOR AGREEMENT (this "Agreement") is entered into as of
October 16, 1997, by and among THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), SEAFLA, INC., an Ohio corporation ("Seafla; collectively
with Chase, the "Lenders"), and TECHNOLOGY FLAVORS & FRAGRANCES, INC., a
Delaware corporation (the "Borrower").
PRELIMINARY STATEMENTS
A. Borrower and Chase have entered into that certain Credit Agreement
dated as of the date hereof (the "Credit Agreement"), pursuant to which Chase
has agreed, subject to the terms and conditions set forth in the Credit
Agreement, to extend credit to Borrower from time to time (the "Senior Loans").
B. The Chase Loans are to be evidenced by various promissory notes (the
"Senior Notes"), secured, INTER ALIA, by a first lien and security interest in
all existing and after-acquired personal property of Borrower (the
"Collateral").
C. Seafla is the holder of a certain amended and restated note (the
"Seafla Note") dated as of December 6, 1995, issued to it by Borrower in the
principal amount of $888,019 Repayment of the Seafla Note is secured by a lien
and security interest in certain items of the Collateral described on Schedule A
hereto (the "Seafla Collateral").
D. One of the conditions precedent to the making by Chase of the Senior
Loans is the execution by the parties hereto of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
When used herein, the following terms shall have the following meanings (such
meanings to be applicable equally both to the singular and plural terms
defined):
ACQUISITION INSTRUMENTS: The Asset Purchase Agreement dated December 6,
1995 between Borrower and Seafla, the Seafla Note and all other instruments and
documents executed and delivered by Seafla and/or Borrower relating thereto.
BUSINESS DAY: Any day other than a Saturday, Sunday or other day on which
banking institutions in New York, New York are authorized or required to remain
closed to the general public.
<PAGE>
ENFORCEMENT ACTION: The taking by Chase of any foreclosure (whether
judicial or nonjudicial) or other similar action under the UCC or applicable law
seeking to realize upon the Collateral.
NOTE: Any of the Chase Notes or the Seafla Note.
OBLIGATIONS: Collectively, the Subordinated Debt and the Senior Debt.
PROCEEDING: Any insolvency, bankruptcy, receivership, custodianship,
liquidation, reorganization, assignment for the benefit of creditors, or any
other proceeding for the liquidation, dissolution or other winding up of
Borrower or of all or any portion of the property of Borrower.
SECOND LIEN ENFORCEMENT ACTION: The taking by Seafla of any foreclosure
(whether judicial or nonjudicial) or other similar action under the UCC or
applicable law seeking to realize upon the Seafla Collateral.
SENIOR DEBT: The obligations owed by Borrower to Chase pursuant to the
Senior Instruments.
SENIOR DEFAULT: A Default or Event of Default pursuant to any of the
Senior Instruments.
SENIOR DEFAULT NOTICE: A written notice from Chase to Seafla and
Borrower pursuant to which such Senior Lender notifies such persons of the
existence of one or more Senior Defaults.
SENIOR INSTRUMENTS: The Credit Agreement, the Senior Notes and all other
instruments and documents executed and delivered by Borrower and/or Chase in
connection with the consummation of the transactions contemplated by the Credit
Agreement, together with any other agreement or instrument now or hereafter
arising and executed by the Borrower in favor of Chase.
SENIOR WAIVER NOTICE: A written notice from Chase to Seafla that the
Senior Defaults described in a Senior Default Notice have been waived.
SENIOR SECURITY INTEREST: The lien of Chase in the Collateral.
SUBORDINATED DEBT: All indebtedness owed by Borrower to Seafla pursuant to
the Acquisition Instruments.
SUBORDINATED SECURITY INTERESTS: The second lien of Seafla in the Seafla
Collateral.
2. SUBORDINATION; INSOLVENCY; PRIORITY OF LIENS; DESCRIPTION OF
COLLATERAL.
(a) SUBORDINATION. The payment of any Subordinated Debt hereby
expressly is subordinated to the prior payment of the Senior Debt and the
Subordinated Security
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<PAGE>
Interests hereby expressly are subordinated to the Senior Security
Interests to the fullest extent permitted by law.
(b) INSOLVENCY, ETC. In the event of any Proceeding:
(i) all Senior Debt first shall be paid in full in cash before
any payment or distribution shall be made in respect of the
Subordinated Debt;
(ii) any payment or distribution which, but for the terms
hereof, otherwise would be payable or deliverable in respect of the
Subordinated Debt, shall be paid or delivered directly to Chase until
all Senior Debt shall have been paid in full in cash, and Seafla
irrevocably authorizes, empowers and directs all receivers, trustees,
liquidators, custodians, conservators and others having authority in
the premises to effect all such payments and deliveries. Seafla also
irrevocably authorizes and empowers Chase to demand, sue for, collect
and receive every such payment or distribution described herein; and
(iii) Seafla agrees to execute and deliver to Chase or its
representative all such further instruments confirming the
authorization referred to in clause (ii), and agrees to take all such
other actions as Chase reasonably may request in order to enable Chase
to enforce all claims upon or in respect of the Subordinated Debt. In
no event shall Chase be liable to Seafla for any failure to prove the
Subordinated Debt, to exercise any right with respect thereto, or to
collect any sums payable thereon.
(c) PRIORITY. Notwithstanding the date, manner, or order of
perfection or attachment of the security interests, mortgages and liens
granted by Borrower to Chase and to Seafla, and notwithstanding the usual
application of the priority provisions of the UCC or any other applicable
law or judicial decision, or whether either Lender holds possession of all
or any part of the Collateral, Chase shall have a first and prior security
interest in and lien on the Collateral and Seafla shall have a second and
subordinate security interest in the Seafla Collateral only. Seafla,
nevertheless, agrees to make such filings and recordings in the public
records to evidence the subordinations and priorities made herein as Chase
may reasonably request.
(d) TERMINATION, RESCISSION OR MODIFICATIONS. The subordinations,
agreements and priorities set forth in this Agreement shall remain in full
force and effect regardless of whether any party hereto in the future seeks
to rescind, amend, terminate or reform, by liquidation or otherwise, its
respective agreements with Borrower.
3. PROCEEDS OF COLLATERAL.
Seafla shall not be entitled to receive and retain any item of Collateral
or proceeds thereof, including the proceeds of insurance relating thereto, until
all of the Obligations of Borrower to Chase are paid in full in cash and
performed in full. Any item of Collateral or proceeds thereof which comes into
the possession of Seafla or its agent shall be held in trust by
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<PAGE>
Seafla for Chase, promptly delivered in the form received by Seafla to Chase
(with any endorsement necessary to make Chase a holder or a pledgee) and shall
be applied by Chase to the Obligations of Borrower to Chase pursuant to the
Senior Instruments. In the event of the failure of Seafla to make any
endorsement as provided in the preceding sentence, Chase is hereby irrevocably
constituted and appointed attorney-in-fact for Seafla with full power to make
any such endorsement and with full power of substitution. The power of attorney
granted herein shall be deemed to be coupled with an interest. If the
Obligations of Borrower owing to Chase are paid in full in cash and performed in
full, Chase shall deliver (unless otherwise restricted by law and subject in all
events to the receipt of an indemnification of all liabilities arising from such
delivery) or surrender possession to Seafla, without recourse or warranty, any
Seafla Collateral or proceeds thereof then in possession of Chase.
4. PAYMENTS ON SUBORDINATED DEBT.
Until the Senior Debt is paid in full in cash, there shall be no payment
made or accepted with respect to the Subordinated Debt Payment which constitutes
a prepayment of the Subordinated Debt. As long as Borrower has not received a
Senior Default Notice, Borrower may pay, and as long as Seafla has not received
a Senior Default Notice, Seafla may demand or receive from Borrower, annual
interest and principal payments in accordance with the terms of the Seafla Note;
provided, however, that simultaneously with any such payment, Borrower shall
deliver to Chase a certificate from the Chief Financial Officer of Borrower
stating that no Senior Default exists as of the date of such payment or will be
created as a result of such payment. Any payment or distribution on the
Subordinated Debt in violation of this Section 4 shall be paid or delivered
directly to Chase until all Senior Debt shall have been paid in full in cash,
and until such payment or delivery to Chase, such payment or distribution shall
be held in trust for Chase.
5. LEGENDS.
Seafla, simultaneously with the execution and delivery of this Agreement,
shall cause the following legend to be placed on the upper portion of the first
page of the Seafla Note:
This instrument and the obligations evidenced hereby are subordinated, in
the manner and to the extent set forth in an Intercreditor Agreement (the
"Agreement") dated October 16, 1997 by the maker and payee of this Note and
The Chase Manhattan Bank, to certain indebtedness or other obligations
(including interest) of the maker of this Note owed to The Chase Manhattan
Bank. Each holder of this Note, by its acceptance hereof, (i) shall be
bound by the Agreement and (ii) acknowledges that if and to the extent that
any conflict exists between the terms of this instrument and the terms of
the Agreement, the terms of the Agreement shall govern and control.
Seafla shall deliver to Chase photocopies of the original Seafla Note marked in
the manner set forth above.
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<PAGE>
6. ENFORCEMENT ACTIONS.
(a) NO SECOND LIEN ENFORCEMENT ACTION. Prior to the payment in full
in cash the Senior Debt and notwithstanding anything contained in the
applicable Acquisition Instruments to the contrary, Seafla shall not take
any Second Lien Enforcement Action without the prior written consent of
Chase.
(b) REMEDIES. In the event of the commencement of foreclosure,
liquidation or similar action by Chase with respect to the Collateral,
Seafla agrees to cooperate with Chase in the exercise of its remedies,
including, without limitation, rights of entry to premises upon which
personal property is located. If Chase shall be in possession of any
Seafla Collateral after Borrower has satisfied all of its Obligations owing
to Chase, Chase shall deliver (unless otherwise restricted by law and
subject in all events to the receipt of an indemnification of all
liabilities arising from such delivery) or surrender possession of the same
to Seafla, without recourse or warranty.
(c) SEAFLA. Until the Senior Debt is paid in full in cash, Seafla
shall not exercise any of the remedies with respect to the Subordinated
Debt which may be available to Seafla, either at law or in equity,
including but not limited to foreclosure (whether judicial or non-judicial)
or other similar action under the UCC or applicable law seeking to realize
upon the Seafla Collateral. Upon receipt of a Senior Default Notice,
unless and until Seafla shall have received a Senior Waiver Notice, there
shall be no payment made on the Subordinated Debt.
7. AMENDMENTS. So long as any Senior Debt remains unperformed or unpaid,
Seafla shall not agree to any amendment, modification or supplement to any of
the Acquisition Instruments without the prior written consent of Chase.
8. CONTINUED EFFECTIVENESS OF THIS AGREEMENT.
THE TERMS OF THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE LENDERS
ARISING HEREUNDER SHALL NOT BE AFFECTED, MODIFIED OR IMPAIRED IN ANY MANNER OR
TO ANY EXTENT BY: (A) ANY AMENDMENT, MODIFICATION OR TERMINATION OF OR
SUPPLEMENT TO ANY OF THE ACQUISITION INSTRUMENTS OR THE SENIOR INSTRUMENTS; (B)
THE VALIDITY OR ENFORCEABILITY OF ANY OF THE ACQUISITION INSTRUMENTS OR THE
SENIOR INSTRUMENTS; (C) THE RELEASE, SALE, EXCHANGE OR SURRENDER, IN WHOLE OR IN
PART, OF ANY ADDITIONAL COLLATERAL TO WHICH EITHER LENDER BECOMES ENTITLED BY
VIRTUE OF THE OWNERSHIP BY SUCH LENDER OF SUCH LENDER'S PORTION OF THE
COLLATERAL (THE "ADDITIONAL COLLATERAL"); (D) ANY EXERCISE OR NON-EXERCISE OF
ANY RIGHT, POWER OR REMEDY UNDER OR IN RESPECT OF ANY OF THE OBLIGATIONS, THE
ACQUISITION INSTRUMENTS OR THE SENIOR INSTRUMENTS OR ARISING AT LAW; OR (E) ANY
WAIVER, CONSENT, RELEASE, INDULGENCE, EXTENSION, RENEWAL, MODIFICATION, DELAY OR
OTHER ACTION, INACTION OR OMISSION IN RESPECT THEREOF OR IN RESPECT OF ANY SUCH
ADDITIONAL COLLATERAL, ALL WHETHER OR NOT EITHER OF THE LENDERS SHALL HAVE
CONSENTED THERETO.
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9. PROCEEDINGS; WAIVER OF MARSHALLING.
Seafla may not commence or join with any other creditor in commencing any
Proceeding with respect to Borrower, unless the Senior Debt has been paid in
full in cash and payment is not subject to avoidance or Chase shall have
consented in writing to such action. Seafla waives any rights which it
otherwise might have as against Chase to require a marshalling of the assets of
Borrower.
10. WAIVERS OF CHASE.
No waiver shall be deemed to be made by Chase of any of its rights
hereunder, unless the same shall be in writing signed on behalf of Chase, and
each waiver, if any, shall be a waiver only with respect to the specific
instance involved and shall in no way impair the rights of Chase in any other
respect at any other time.
11. MISCELLANEOUS.
(a) PURPOSE OF AGREEMENT. The provisions of this Agreement are
solely for the purpose of defining the relative rights of the Lenders, and
nothing herein shall impair as between Borrower and either Lender the
obligations of Borrower under the Senior Instruments or the Acquisition
Instruments, which are unconditional and absolute, to pay all amounts to
the Lenders as and when the same shall become due thereunder and nothing
herein shall prevent either Lender from exercising all rights and remedies
otherwise permitted by applicable law upon default under the Senior
Instruments or the Acquisition Instruments to which such Lender is a party,
subject, however, to the provisions of this Agreement.
(b) SUCCESSORS AND ASSIGNS. This Agreement, without further
reference, shall pass to and may be relied on and enforced by any
transferee or subsequent holder of any of the Obligations. In the event of
any proposed sale, assignment, disposition or other transfer of any of the
Obligations (subject, however, to the restrictions contained herein), the
transferor thereof, prior to the CONSUMMATION of any such transfer, and as
a condition precedent to the rights of any transferee to succeed to such
transferor's position, shall cause the transferee thereof to execute and
deliver to the other parties to this Agreement an agreement (substantially
identical to this Agreement or otherwise in form and substance satisfactory
to such parties) providing for the continued effectiveness of all of the
rights of such parties arising under this Agreement.
(c) CONFLICTS. In the event of any conflict between any term,
covenant or condition of this Agreement and any term, covenant or condition
of any of the Senior Instruments or the Acquisition Instruments, the
provisions of this Agreement shall govern and be controlling.
(d) NOTICES. Any notices required or permitted to be given hereunder
shall be validly given if set forth in writing and delivered by telecopy,
by hand or commercial messenger against receipt or mailed, either by
overnight express carrier or by certified
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mail, postage prepaid, return receipt requested, addressed to the parties
hereto at their respective addresses as set forth on the signature page of
this Agreement. Any notice hereunder shall be deemed given (i) on the day
on which it is delivered by telecopy, by hand or such commercial messenger
service, (ii) if sent by overnight express carrier, on the Business Day
immediately after the day sent or, (iii) if sent by mail, on the earlier of
actual receipt by the recipient or three Business Days after the day
deposited in the mails, postage prepaid. Any notice by telecopy shall be
followed by delivery on the next Business Day by overnight, express carrier
or by hand. Any party hereto may designate any other address to which any
notices shall be given by notice duly given hereunder; provided, however,
that any such notice of other address shall be deemed to have been given
hereunder only when actually received by the party to which addressed.
(e) AMENDMENT OF AGREEMENT; ENTIRE AGREEMENT; COUNTERPARTS. This
Agreement may be amended or modified by written instrument only, signed by
each of the parties hereto. No waiver of any term or provision of this
Agreement shall be effective unless it is in writing, makes specific
reference to this Agreement and is signed by the party against which such
waiver is sought to be enforced. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter
hereof as of the date hereof, and supersedes all prior agreements,
representations and understandings, if any, relating to such subject
matter. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and assigns.
This Agreement may be signed in one or more counterparts which, when taken
together, shall constitute one and the same document.
(f) NO FIDUCIARY. The parties hereto agree that Chase is not and
shall not be deemed to be a fiduciary for or on behalf of Seafla.
(g) NO THIRD PARTY BENEFICIARIES. The terms and provisions of this
Agreement are for the benefit of only the parties hereto and their
respective successors and assigns. No other person shall have any right,
benefit, priority, or interest under or because of this Agreement.
(h) CONTESTING LIENS OR SECURITY INTERESTS. Seafla shall not contest
the validity, perfection, priority or enforceability of any lien or
security interest granted to Chase.
(i) JURY TRIAL WAIVER. EACH PARTY HERETO WAIVES THE RIGHT TO A JURY
TRIAL IN ANY DISPUTE ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT.
(j) SEVERABILITY OF PROVISIONS. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
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(k) CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall neither define nor limit any of the terms or
provisions herein.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
THE CHASE MANHATTAN BANK
By:___________________________________
Title:________________________________
Address: 395 North Service Road
Melville, New York 11747
Attn: Technology Flavors &
Fragrances Account Officer
Telecopy No.: (516) 755-0139
SEAFLA, INC.
By:_____________________________________
Title:__________________________________
Address:________________________________
________________________________
Attention:______________________
Telecopy No.:___________________________
WITH RESPECT TO ITS AGREEMENTS IN ARTICLE 4:
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
By:___________________________________
Title:________________________________
Address:______________________________
_____________________________
_____________________________
Telecopy No.:_________________________
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Exhibit 10.20
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (this "Security Agreement") is made this 16th
day of October, 1997, by and between:
TECHNOLOGY FLAVORS & FRAGRANCES, INC., a Delaware corporation, having
an office at 10 Edison Street, East Amityville, New York 11701 (hereinafter
referred to as the "Debtor"), and
THE CHASE MANHATTAN BANK, a New York banking corporation, having an
office at 395 North Service Road, Melville, New York 11747 (hereinafter referred
to as the "Secured Party").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Secured Party and the Debtor entered into a Credit
Agreement dated October 16, 1997 (as it may hereafter be amended or otherwise
modified from time to time, being the "Agreement") pursuant to which the Secured
Party may lend to the Debtor the aggregate principal amounts set forth therein,
upon and subject to the terms and conditions thereof;
WHEREAS, it is a condition precedent to the obligation of the Secured
Party to extend credit to the Debtor as provided for in the Agreement that the
Debtor shall execute and deliver this Security Agreement; and
WHEREAS, all capitalized terms used herein without definition shall
have the respective meanings ascribed thereto in the Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Secured Party to continue to extend credit to the Debtor, the Debtor
agrees with the Secured Party as follows:
1. SECURITY INTEREST.
(a) GRANT OF SECURITY. As security for the Obligations (as defined
in Section 1(b) hereof), the Debtor hereby assigns and pledges to the Secured
Party, and hereby grants to the Secured Party a security interest in, all of the
Debtor's right, title and interest, whether now existing or hereafter arising or
acquired, in and to the following (collectively, the "Collateral"):
(i) All personal property of the Debtor, whether now or
hereafter existing or now owned or hereafter acquired and wherever located, of
every kind and description, tangible or intangible, including, without
limitation, the balance of every deposit account now or hereafter existing of
the Debtor with the Secured Party or any of its affiliates or with any agent of
the Secured Party or any of its affiliates to the extent such account is
maintained by such agent in its capacity as agent of any kind for the Secured
Party or any of its affiliates, and all goods, equipment, furniture, inventory
(including, without limitation all raw materials, furnished goods and work-in-
<PAGE>
process), accounts, contract rights, chattel paper, notes receivable,
instruments, documents (including, without limitation, documents of title,
warehouse receipts and all other shipping documents and instruments of any kind
whatsoever, whether relating to goods in transit or otherwise), intellectual
property (including, without limitations, all formulations and all records of
any kind or description relating thereto), general intangibles, credits, claims,
demands and any other obligations of any kind, whether now or hereafter arising,
of the Debtor, and, as to all of the foregoing, any and all additions and
accessions thereto, all substitutions and replacements therefor and all products
and proceeds thereof (including, without limitation, all proceeds of insurance
thereon).
The term "accounts" shall mean, without limiting the generality
of the foregoing, any and all now existing or hereafter arising rights to
payment held by the Debtor, whether in the form of accounts receivable, notes,
drafts, acceptances or other forms of obligations and receivables now or
hereafter received by or belonging to the Debtor for (A) inventory sold or
leased by it, (B) services rendered by it, or (C) advances or loans made by it
to customers, together with all guarantees and security therefor and all
proceeds thereof, whether cash proceeds or otherwise, including, without
limitation, all right, title and interest of the Debtor in the inventory which
gave rise to any such accounts, including, without limitation, the right to
stoppage in transit and all returned, rejected, rerouted or repossessed
inventory.
(ii) All choses in action, any rights arising under any
judgment, statute or rule, all corporate and business records, customer lists,
credit files, computer program print-outs, and other computer materials and
records, all inventories, trademarks, trade styles, trade names, designs,
patents, copyrights, licenses, license agreements, and any applications for
patents and/or trademarks.
(iii) Any and all additions and accessions to the foregoing
Collateral, all substitutions and replacements therefor and all products and
proceeds thereof (including, without limitation, proceeds of insurance thereon).
(b) SECURITY FOR OBLIGATIONS. This Security Agreement secures the
payment of all obligations of Debtor to the Secured Party now or hereafter
existing under the Agreement or this Security Agreement, including in each case,
any modifications or amendments thereto, or under any promissory notes or other
documents evidencing indebtedness under or related to or contemplated by the
Agreement, or any other obligation of Debtor to the Secured Party arising
pursuant to the Agreement or the Facility Documents, whether for principal,
interest, fees, expenses or otherwise, together with all costs of collection or
enforcement, including, without limitation, reasonable attorneys' fees incurred
in any collection efforts or in any judicial proceeding (including, without
limitation, bankruptcy or reorganization) (all such obligations being the
"Obligations").
(c) DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) the Debtor shall remain liable to perform all of its duties
and obligations under the Agreement and the Facility Documents to the same
extent as if this Security Agreement had not been executed, (ii) the exercise by
the Secured Party of any of the rights hereunder shall not release the Debtor
from any of its duties or obligations under the Agreement and the Facility
Documents, which shall
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remain unchanged as if this Security Agreement had not been executed, and (iii)
except as otherwise specifically provided in the Agreement, this Security
Agreement or by law, the Secured Party shall have no obligation or liability
under the transactions giving rise to the Collateral by reason of this Security
Agreement, nor shall the Secured Party be obligated to perform any of the
obligations or duties of the Debtor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
(d) CONTINUING AGREEMENT. This Security Agreement shall create a
continuing security interest in the Collateral and shall remain in full force
and effect until payment in full of the Obligations and until the Revolving
Credit Commitment shall no longer be in effect.
2. DEBTOR'S TITLE; LIENS AND ENCUMBRANCES.
The Debtor represents and warrants that the Debtor is, or to the
extent that this Security Agreement states that the Collateral is to be acquired
after the date hereof, will be, the owner of the Collateral, having good and
marketable title thereto, free from any and all liens, security interests,
encumbrances and claims, other than Permitted Liens. The Debtor will not create
or assume or permit to exist any such lien, security interest, encumbrance or
claim on or against the Collateral except as created by this Security Agreement
or as permitted pursuant to Section 9.2 of the Agreement, and the Debtor will
notify the Secured Party of any such other claim, lien, security interest or
other encumbrance made or asserted against the Collateral promptly after
obtaining knowledge thereof and will defend the Collateral against any such
claim, lien, security interest or other encumbrance.
3. REPRESENTATIONS AND WARRANTIES;
LOCATION OF COLLATERAL AND RECORDS;
BUSINESS AND TRADE NAMES OF DEBTOR.
(a) The Debtor represents and warrants that it has no place of
business, offices where Debtor's books of account and records are kept, or
places where the Collateral is used, stored or located, except as set forth on
Schedule I annexed hereto, and covenants that the Debtor will promptly notify
the Secured Party of any change in the foregoing representation. The Debtor
shall at all times maintain its records as to the Collateral at its chief place
of business or at such other address referred to on Schedule I (other than any
location not in the United States) and at none other. The Debtor further
covenants that except for Collateral delivered to the Secured Party or an agent
for the Secured Party, the Debtor will not store, use or locate any of the
Collateral at any place other than as listed on Schedule I annexed hereto. To
the extent that any Collateral is located at a location which is not owned by
the Debtor, the Debtor shall, at Secured Party's request, deliver to the Secured
Party, landlords waivers in form and substance satisfactory to the Secured
Party.
(b) The Debtor represents and warrants that it currently uses, and
during the last five years has used, no business or trade names, except as set
forth in Schedule 1 annexed hereto, and covenants that the Debtor will promptly
notify the Secured Party, in sufficient detail, of any changes in, additions to,
or deletions from the business or trade names used by the Debtor for billing
purposes.
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<PAGE>
(c) The Debtor represents and warrants that upon the filing of
properly completed and executed financing statements on Form UCC-1 in the
jurisdictions listed on Schedule I hereto, the liens granted hereunder shall be
perfected in such jurisdictions and, subject to the Permitted Liens, shall
constitute first priority security interests in the Collateral.
(d) The Debtor represents and warrants that it has complied and is in
compliance, in all material respects, with the applicable provisions of the Fair
Labor Standards Act, including, without limitation, the minimum wage and
overtime rules of that Act, and covenants that the Debtor will continue to
comply, in all material respects, with the applicable provisions of such Act.
4. PERFECTION OF SECURITY INTEREST.
The Debtor will execute all such financing statements pursuant to the
Uniform Commercial Code or other notices appropriate under applicable law, as
the Secured Party may require to perfect the security interest in the Collateral
created hereunder, each in form satisfactory to the Secured Party and will pay
all filing or recording costs with respect thereto, and all costs of filing or
recording this Security Agreement or any other instrument, agreement or document
executed and delivered pursuant hereto or to the Agreement (including the cost
of all federal, state or local mortgage, documentary, stamp or other taxes), in
each case, in all public offices where filing or recording is deemed by the
Secured Party to be necessary or desirable. The Debtor hereby authorizes the
Secured Party to take all action (including, without limitation, the filing of
any Uniform Commercial Code financing statements or amendments thereto without
the signature of the Debtor or by signing of the Debtor's name to any such
financing statements as its attorney-in-fact) which the Secured Party may deem
necessary or desirable to perfect or otherwise protect the liens and security
interests created hereunder and to obtain the benefits of this Security
Agreement.
5. GENERAL COVENANTS.
The Debtor shall:
(a) furnish the Secured Party from time to time at the Secured
Party's reasonable request written statements and schedules further identifying
and describing the Collateral in such detail as the Secured Party may reasonably
require;
(b) advise the Secured Party promptly, in sufficient detail, of any
substantial change in the Collateral, and of the occurrence of any event which
would have a material adverse effect on the value of the Collateral or on the
Secured Party's security interest therein;
(c) comply with all acts, rules, regulations and orders of any
legislative, administrative or judicial body or official applicable to the
Collateral or any part thereof or to the operation of the Debtor's business
except where the failure to comply (a) is non-material and (b) has no effect on
the value of the Collateral or on the ability of the Secured Party to exercise
its rights and remedies hereunder; PROVIDED, HOWEVER, that the Debtor may
contest any acts, rules,
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<PAGE>
regulations, orders and directions of such bodies or officials in any reasonable
manner which will not, in the Secured Party's reasonable opinion, adversely
affect the Secured Party's rights or the priority of its security interests in
the Collateral;
(d) perform and observe all covenants, restrictions and conditions
contained in the Agreement providing for payment of taxes, maintenance of
insurance and otherwise relating to the Collateral, as though such covenants,
restrictions and conditions were fully set forth in this Security Agreement;
(e) promptly notify the Secured Party of all disputes with account
debtors involving amounts in excess of $100,000;
(f) promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements or other instruments,
documents, certificates and assurances and take such further action as the
Secured Party may from time to time in its sole discretion deem necessary to
perfect, protect or enforce the Secured Party's security interests in the
Collateral or otherwise to effect the intent of this Security Agreement and the
Agreement;
(g) keep or cause to be kept the Collateral in good working order,
repair, running and marketable condition, ordinary wear and tear excepted, at
the Debtor's own cost and expense; and
(h) not assign, sell, mortgage, lease, transfer, pledge, grant a
security interest in or lien upon, encumber or otherwise dispose of or abandon,
any part or all of the Collateral, without the express prior written consent of
the Secured Party, except (i) for the sale from time to time in the ordinary
course of business of the Debtor of such items of Collateral as may constitute
part of the business inventory of the Debtor; or (ii) as otherwise expressly
provided in the Agreement.
6. ASSIGNMENT OF INSURANCE.
At or prior to the date hereof, the Debtor shall deliver to Secured
Party copies of, or certificates of the issuing companies with respect to,
endorsements of any and all policies of insurance owned by the Debtor covering
or in any manner relating to the Collateral, in form and substance reasonably
satisfactory to the Secured Party naming the Secured Party as additional insured
party as its interests may appear with respect to liability coverage and the
Secured Party as loss payee with respect to property and extended insurance
coverage, and indicating that no such policy will be terminated, or reduced in
coverage or amount, without at least thirty (30) days prior written notice from
the insurer to the Secured Party. As further security for the due payment and
performance of the Obligations, the Debtor hereby assigns to the Secured Party
all sums which may become payable under or in respect of any policy of insurance
owned by the Debtor covering or in any manner relating to the Collateral, and
the Debtor hereby directs each insurance company issuing any such policy to make
payment of sums directly to the Secured Party. In addition to the foregoing,
Debtor hereby assigns to Secured Party all of Debtor's rights to returned or
unearned premiums after the occurrence and during the continuance of an Event of
Default. The Debtor hereby appoints the Secured Party as the Debtor's
attorney-in-fact and authorizes the Secured Party
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<PAGE>
in the Debtor's or in the Secured Party's name to endorse any check or draft
representing any such payment and to execute any proof of claim, subrogation
receipt and any other document required by such insurance company as a condition
to or otherwise in connection with such payment, and, upon the occurrence of any
Default or Event of Default, to cancel, assign or surrender any such policies.
All such sums received by the Secured Party shall be applied by the Secured
Party to satisfaction of the Obligations or, to the extent that such sums
represent unearned premiums in respect of any policy of insurance on the
Collateral refunded by reason of cancellation, toward payment for similar
insurance protecting the respective interests of the Debtor and the Secured
Party, or as otherwise required by applicable law.
7. FIXTURES.
It is the intent of the Debtor and the Secured Party that none of the
Collateral is or shall be regarded as fixtures, as that term is used or defined
in Article 9 of the Uniform Commercial Code, and the Debtor represents and
warrants that it has not made and is not bound by any lease or other agreement
which is inconsistent with such intent. Nevertheless, if the Collateral or any
part thereof is or is to become attached or affixed to any real estate owned or
leased by Debtor, the Debtor will, upon request, furnish the Secured Party with
a disclaimer or subordination in form reasonably satisfactory to the Secured
Party of the holder of any interest in the real estate to which the Collateral
is attached or affixed, together with the names and addresses of the record
owners of, and all other persons having interest in, and a general description
of, such real estate.
8. COLLECTIONS.
(a) The Debtor may collect all checks, drafts, cash or other
remittances (i) in payment of any of its accounts, contract rights or general
intangibles constituting part of the Collateral, (ii) in payment of any
Collateral sold, transferred, leased or otherwise disposed of, or (iii) in
payment of or on account of its accounts, contracts, contract rights, notes,
drafts, acceptances, general intangibles, choses in action and all other forms
of obligations relating to any of the Collateral so sold, transferred, or leased
or otherwise disposed of, and all of the foregoing amounts so collected after
the occurrence of an Event of Default and during its continuance shall be held
in trust by the Debtor for, and as the property of, the Secured Party and shall
not be commingled with other funds, money or property of the Debtor.
(b) Upon the written request of the Secured Party, during the
occurrence and continuance of an Event of Default, the Debtor will immediately
upon receipt of all such checks, drafts, cash or other remittances in payment of
any of its accounts, contract rights or general intangibles constituting part of
the Collateral, deliver any such items to the Secured Party accompanied by a
remittance report in form supplied or approved by the Secured Party, such items
to be delivered to the Secured Party in the same form received, endorsed or
otherwise assigned by the Debtor where necessary to permit collection of such
items and, regardless of the form of such endorsement, the Debtor hereby waives
presentment, demand, notice of dishonor, protest, notice of and all other
notices with respect thereto.
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<PAGE>
(c) Upon the written request of the Secured Party during the
occurrence and continuance of an Event of Default, the Debtor will immediately
upon receipt of all such checks, drafts, cash or other remittances in payment
for any Collateral sold, transferred, leased or otherwise disposed of, or in
payment or on account of its accounts, contracts, contract rights, notes,
drafts, acceptances, general intangibles, choses in action and all other forms
of obligations relating to any of the Collateral so sold, transferred, leased or
otherwise disposed of, deliver any such items to the Secured Party accompanied
by a remittance report in form supplied or approved by the Secured Party, such
items to be delivered to the Secured Party in the same form received, endorsed
or otherwise assigned by the Debtor where necessary to permit collection of such
items and, regardless of the form of such endorsement, the Debtor hereby waives
presentment, demand, notice of dishonor, protest, notice of protest and all
other notices with respect hereto.
(d) Upon the written request of the Secured Party, the Debtor will
promptly notify the Secured Party in writing of the return or rejection of any
goods represented by any accounts, contract rights or general intangibles and,
upon the occurrence and continuance of an Event of Default, the Debtor shall
forthwith account therefor to the Secured Party in cash without demand or notice
and until such payment has been received by the Secured Party the Debtor will
receive and hold all such goods separate and apart, in trust for and subject to
the security interest in favor of the Secured Party, and the Secured Party is
authorized to sell, for the Debtor's account and at the Debtor's sole risk, all
or any part of such goods.
(e) All of the foregoing remittances shall be applied and credited by
the Secured Party first to satisfaction of the Obligations or as otherwise
required by applicable law, and to the extent not so credited or applied, shall
be paid over to the Debtor.
9. RIGHTS AND REMEDIES.
In the event of the occurrence and continuance of any Event of
Default, the Secured Party shall at any time thereafter have the right, with or
without (to the extent permitted by applicable law) notice to the Debtor, as to
any or all of the Collateral, by any available judicial procedure or without
judicial process, to take possession of the Collateral and without liability for
trespass to enter any premises where the Collateral may be located for the
purpose of taking possession of or removing the Collateral, and, generally, to
exercise any and all rights afforded to a secured party under the Uniform
Commercial Code or other applicable law. Without limiting the generality of the
foregoing, the Debtor agrees that the Secured Party shall have the right to
sell, lease, or otherwise dispose of all or any part of the Collateral, whether
in its then condition or after further preparation or processing, either at
public or private sale or at any broker's board, in lots or in bulk, for cash or
for credit, with or without warranties or representations, and upon such terms
and conditions, all as the Secured Party in its sole discretion may deem
advisable, and it shall have the right to purchase at any such sale; and, if any
Collateral shall require rebuilding, repairing, maintenance, preparation, or is
in process or other unfinished state, the Secured Party shall have the right, at
its sole option and discretion, to do such rebuilding, repairing, preparation,
processing or completion of manufacturing, for the purpose of putting the
Collateral in such saleable or disposable form as it shall deem appropriate. At
the Secured Party's request, the Debtor shall assemble the Collateral and make
it available to the Secured Party at places which the Secured
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Party shall reasonably select, whether at the Debtor's premises or elsewhere,
and make available to the Secured Party, without rent, all of the Debtor's
premises and facilities for the purpose of the Secured Party's taking possession
of, removing or putting the Collateral in saleable or disposable form, all in
accordance with applicable law. The proceeds of any such sale, lease or other
disposition of the Collateral shall be applied first to the expenses of
retaking, holding, storing, processing and preparing for sale, selling, and the
like, and to the reasonable attorneys' fees and legal expenses incurred by the
Secured Party, and then to satisfaction of the Obligations, and to the payment
of any other amounts required by applicable law to be paid prior to receipt of
such proceeds by Debtor, after which the Secured Party shall account to the
Debtor for and pay any surplus proceeds. If, upon the sale, lease or other
disposition of the Collateral, the proceeds thereof are insufficient to pay all
amounts to which the Secured Party are legally entitled, the Debtor will be
liable for the deficiency, together with interest thereon, at the rate
prescribed in the Agreement, and the reasonable fees of any attorneys employed
by the Secured Party to collect such deficiency. To the extent permitted by
applicable law, the Debtor waives all claims, damages and demands against the
Secured Party arising out of the repossession, removal, retention or sale of the
Collateral except for the gross negligence or willful misconduct of the Secured
Party.
10. COSTS AND EXPENSES.
Any and all fees, costs and expenses, of whatever kind or nature,
including the reasonable attorneys' fees and legal expenses incurred by the
Secured Party, in connection with the preparation of this Security Agreement and
all other documents relating hereto (subject to the provisions of Section 12.3
of the Agreement) and the consummation of this transaction, the filing or
recording of financing statements and other documents (including all taxes in
connection therewith) in public offices, the payment or discharge of any taxes,
insurance premiums, encumbrances or otherwise protecting, maintaining or
preserving the Collateral and the Secured Party's security interest therein,
whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions or proceedings arising out of or related to the
transaction to which this Security Agreement relates shall be borne and paid by
the Debtor on demand by the Secured Party and until so paid shall be added to
the principal amount of the Obligations and shall bear interest at the rate
prescribed in the Agreement.
11. POWER OF ATTORNEY.
The Debtor authorizes the Secured Party and does hereby make,
constitute and appoint the Secured Party, and any officer or agent of the
Secured Party, with full power of substitution, as the Debtor's true and lawful
attorney-in-fact, with power, in its own name or in the name of the Debtor upon
the occurrence and, during the continuance of an Event of Default: (a) to
endorse any notes, checks, drafts, money orders, or other instruments of payment
(including payments payable under or in respect of any policy of insurance) in
respect of the Collateral that may come into possession of the Secured Party;
(b) to sign and endorse any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to Collateral; (c) to pay or discharge any taxes, liens, security
interest or other encumbrances at any time levied or placed on or threatened
against the Collateral which are not permitted under the Agreement; (d) to
8
<PAGE>
demand, collect, receipt for, compromise, settle and sue for monies due in
respect of the Collateral; (e) to receive, open and dispose of all mail
addressed to the Debtor and to notify the Post Office authorities to change the
address for delivery of mail addressed to the Debtor to such address as the
Secured Party may designate; and (f) generally to do, at the Secured Party's
option and at the Debtor's expense, at any time, or from time to time, all acts
and things which the Secured Party deems necessary to protect, preserve and
realize upon the Collateral and the Secured Party's security interest therein in
order to effect the intent of this Security Agreement and the Agreement, all as
fully and effectually as the Debtor might or could do; and the Debtor hereby
ratifies all that said attorney shall lawfully do or cause to be done by virtue
hereof. All acts of said attorney or designee are hereby ratified and approved
and said attorney or designee shall not be liable for any acts of commission or
omission, nor for any error or judgment or mistake of fact or law except for its
own gross negligence or willful misconduct. This power of attorney shall be
irrevocable for the term of this Security Agreement and thereafter as long as
any of the Obligations shall be outstanding.
12. NOTICES.
Unless the party to be notified otherwise notifies the other party in
writing as provided in this Section, notices shall be given hereunder by
telecopy, by certified or registered mail or by recognized overnight delivery
services to any party at its address on the signature page of this Security
Agreement. Notices shall be effective (a) if given by registered or certified
mail, on the third day after deposit in the mails with postage prepaid,
addressed as aforesaid; (b) if given by recognized overnight delivery service,
on the business day following deposit with such service, addressed as aforesaid;
or (c) if given by telecopy, when the telecopy is transmitted to the telecopy
number as aforesaid; provided that all notices to the Secured Party shall be
effective on receipt.
13. OTHER SECURITY.
To the extent that the Obligations are now or hereafter secured by
property other than the Collateral or by the guarantee, endorsement or property
of any other person, then the Secured Party shall have the right in its sole
discretion to pursue, relinquish, subordinate, modify or take any other action
with respect thereto, without in any way modifying or affecting any of the
Secured Party's rights and remedies hereunder.
14. DEPOSITS.
Any and all deposits or other sums at any time credited by or due from
the Secured Party to the Debtor, whether in regular or special depository
accounts or otherwise, shall at all times constitute additional Collateral for
the Obligations, and may, upon the occurrence and during the continuance of an
Event of Default, be set-off by the Secured Party against any Obligations at any
time, whether or not other collateral held by the Secured Party is considered to
be adequate.
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<PAGE>
15. MISCELLANEOUS.
(a) Beyond the safe custody thereof, the Secured Party shall as to
the Debtor have no duty as to the collection of any Collateral in its possession
or control or in the possession or control of any agent or nominee of the
Secured Party, or any income thereon or as to the preservation of rights against
prior parties or any other rights pertaining thereto.
(b) No course of dealing between the Debtor and the Secured Party,
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder or under the Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
(c) All of the Secured Party's rights and remedies with respect to
the Collateral, whether established hereby or by the Agreement, or by any other
agreements, instruments or documents executed by Debtor or by applicable law,
shall be cumulative and may be exercised singly or concurrently.
(d) The provisions of this Security Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Security Agreement in any jurisdiction.
(e) This Security Agreement (including this subsection) is subject to
modification only by a writing signed by all of the parties hereto.
(f) The benefits and burdens of this Security Agreement shall inure
to the benefit of and be binding upon the respective successors and assigns of
the parties hereto; provided, however, that the rights and obligations of the
Debtor under this Security Agreement shall not be assigned or delegated without
the prior written consent of the Secured Party, and any purported assignment or
delegation without such consent shall be void.
WITNESS the execution hereof as of the day and year first above
written.
TECHNOLOGY FLAVORS &
FRAGRANCES, INC., as Debtor
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
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<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
---------------------
Trade
Name Jurisdiction of Incorporation Names
- ---- ------------------------------- ------
Technology Flavors & Ontario, Canada TFF
Fragrances, Inc. (Canada)
Technology Flavors & Chile TFF
Fragrances Chile S.A.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 25, 1997 (except for Note 10, as to which the
date is April 7, 1997 and Note 16, as to which the date is January 19, 1998) in
the Registration Statement (Form SB-2) and the related Prospectus of Technology
Flavors & Fragrances, Inc. for the registration of 1,693,905 shares of its
common stock.
/s/ERNST & YOUNG LLP
Melville, New York
January 19, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of our
report dated March 25, 1996, on our audit of the consolidated financial
statements of Technology Flavors & Fragrances, Inc. as of and for the year ended
December 31, 1995. We also consent to the reference to our firm under the
caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
Janaury 22, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form SB-2 and to the inclusion therein of our report
dated March 1, 1996, with respect to the financial statements of Seafla (a
division of Technology Flavors and Fragrances, Inc.) as of December 31, 1995 and
for the period from inception (December 7, 1995) to December 31, 1995.
/s/ TABB, CONIGLIARO & McGANN, P.C.
New York, NY
January 19, 1998
