<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended September 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission file number 0-26756
GEOGRAPHICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
----------------
WYOMING 87-0305614
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
1555 ODELL ROAD, P.O. BOX 1750, BLAINE, WASHINGTON 98231
(Address and Zip Code of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (360) 332-6711
----------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
NO PAR VALUE
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No |X|
--- ---
The aggregate market value of the common stock held by nonaffiliates of
the registrant as of November 1, 1999 was $13,502,032 based on a closing sales
price of $0.53125 per share on the NASDAQ OTC Bulletin Board on such date.
The number of shares outstanding of the registrant's common stock, no par
value, as of November 1, 1999 was 25,415,589.
DOCUMENTS INCORPORATED BY REFERENCE.
None.
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TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION..........................................................................................1
ITEM 1. FINANCIAL STATEMENTS..................................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................1
FORWARD-LOOKING STATEMENTS............................................................................1
RESULTS OF OPERATIONS.................................................................................2
LIQUIDITY AND CAPITAL RESOURCES.......................................................................3
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................................4
PART II - OTHER INFORMATION.............................................................................................4
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................4
ITEM 5 - OTHER INFORMATION.....................................................................................5
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K......................................................................5
SIGNATURE...............................................................................................................6
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Geographics, Inc. (the "Company" or "Geographics") has attached to this
Report and by this reference incorporated herein the consolidated balance sheets
as of September 30, 1999 (unaudited) and March 31, 1999 (audited), the unaudited
statements of operations for the three months ended September 30, 1999 and
September 30, 1998, and the unaudited consolidated statements of cash flows for
the three months ended September 30, 1999 and September 30, 1998, together with
the notes thereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this Report.
FORWARD-LOOKING STATEMENTS
Statements herein concerning expectations for the future constitute
forward-looking statements which are subject to a number of known and unknown
risks, uncertainties and other factors which might cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. Forward-looking statements herein include, but are not limited to,
those concerning anticipated growth in the preprint paper market; anticipated
growth in the Company's sales; anticipated growth in sales of specialty paper
products as a percentage of revenue; the Company's ability to increase its
market share within the preprint industry; the ability of the Company to
successfully implement price changes for the Company's products when and as
needed; trends relating to the Company's profitability and gross profits
margins; the ability of the Company to implement, or modify its management
information system, adequately to meet operations requirements in the future and
to improve its internal controls; and the ability of the Company to refinance
its existing revolving credit facility and to raise additional debt or equity
financing sufficient to meet its working capital requirements.
Relevant risks and uncertainties include, but are not limited to, slower
than anticipated growth of the preprint paper market; loss of certain key
customers; insufficient consumer acceptance of the Company's specialty paper
products; unanticipated actions, including price reductions, by the Company's
competitors; unanticipated increases in the costs of raw materials used to
produce the Company's products; supply terms, reliable and immediately available
raw material supply and other favorable terms with certain key vendors, greater
than expected costs incurred in connection with the implementation of a
management information system; failure to realize expected economic efficiencies
of the Company's automated production system; the inability to hire and retain
key personnel; unexpected increases in the overall costs of production as a
result of collective bargaining arrangements; and inability to secure additional
working capital when and as needed. Additional risks and uncertainties include
those described under "Risk Factors" in Part I of the Company's Annual Report on
Form 10-K for the year ended March 31, 1999 and those described from time to
time in the Company's other filings with the Securities and Exchange Commission,
press releases and other communications. All forward looking statements
contained in this Report reflect the Company's expectations at the time of this
Report only, and the Company disclaims any responsibility to revise or update
any such forward-looking statement except as may be required law.
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RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 vs. Three Months Ended September 30, 1998
NET SALES. Net sales increased 40.9% to $6,592,301 in the quarter ended
September 30, 1999 from $4,677,270 in the quarter ended September 30, 1998. The
increase was attributable to new business generated from Sam's Club, an increase
in the Company's seasonal programs, and significantly higher sales in Europe,
which increased 48.2% from fiscal 1999. In addition, the Company made higher
accruals for customer program costs and credits ($1,538,127 or 18.9% of gross
sales for the quarter ended September 30, 1999 compared to $1,001,936 or 17.6%
of gross sales for the quarter ended September 30, 1998). The Company's new
management has adopted a philosophy to accrue the realistic amounts due under
our customer programs throughout the year to better reflect anticipated results.
GROSS MARGIN. Gross margin as a percentage of gross sales decreased to
19.6% in the quarter ended September 30, 1999, from 31.4% in the same period in
fiscal 1999. The lower gross margin percentage is attributable to the lower net
sales as a result of the accruals of customer program costs, an increase in the
cost of the Company's paper (4.43%) and supplies, and an increase in freight,
primarily due to an increase in freight accruals, and shipping costs. Management
is continuing to implement ways to improve manufacturing efficiency.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. While selling, general and
administrative expenses increased to $1,457,760 in the quarter ended September
30, 1999 from $1,343,037 in the same period in fiscal 1999, the Company saw a
decrease in these expenses on a percentage of sales basis to 17.9% in the
quarter ended September 30, 1999 from 23.7% during the quarter ended September
30, 1998. The increase is primarily attributable to an increase in
administrative salaries ($52,527) and travel expenses ($50,030).
OTHER INCOME (EXPENSE). Other income for the quarter ended September 30,
1999 amounted to $137,279 compared to other expense of $24,641 for the quarter
ended September 30, 1998. The change is due to the income recognized from
favorable settlements of amounts owed to vendors.
INTEREST EXPENSE. Interest expense decreased to $183,824 (2.3% of gross
sales) during the quarter ended September 30, 1999, compared to $270,429 (4.8%
of gross sales) during the same period in fiscal 1999. The lower interest costs
were caused by a decrease in borrowings of the Company which were refinanced
with the proceeds from the private placement of the Company's common stock. See
"Liquidity and Capital Resources."
Six Months Ended September 30, 1999 vs. Six Months Ended September 30, 1998
NET SALES. Net sales increased 9.0% to $11,092,219 in the six months ended
September 30, 1999 from $10,174,432 in the six months ended September 30, 1998.
The increase was attributable to new business generated from Sam's Club and an
increase in the Company's seasonal programs. In addition, the Company made
higher accruals for customer program costs and credits ($2,583,625 or 18.9% of
gross sales for the six months ended September 30, 1999 compared to $1,665,158
or 14.1% of gross sales for the six months ended September 30, 1998). The
Company's new management has adopted a philosophy to accrue the realistic
amounts due under our customer programs throughout the year to better reflect
anticipated results.
GROSS MARGIN. Gross margin as a percentage of gross sales decreased to
19.0% in the six months ended September 30, 1999, from 31.9% in the same period
in fiscal 1999. The lower gross margin percentage is attributable to the lower
net sales as a result of the accruals of customer program
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costs, an increase in the cost of the Company's paper, wages and supplies, and
an increase in freight, primarily due to an increase in freight accruals, and
shipping costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $2,575,865 (18.8% of gross sales) during
the six months ended September 30, 1999 from $2,868,209 (24.2% of gross sales)
in the same period in fiscal 1999. The decrease is primarily attributable to a
decrease in consulting ($260,000) and legal expenses ($65,000).
OTHER INCOME (EXPENSE). Other income for the six months ended September 30,
1999 amounted to $309,671 compared to other expense of $40,214 for the six
months ended September 30, 1998. The change is due to the income recognized from
favorable settlements of amounts owed to vendors.
INTEREST EXPENSE. Interest expense decreased to $421,569 (3.1% of gross
sales) during the six months ended September 30, 1999, compared to $607,909
(5.1% of gross sales) during the same period in fiscal 1999. The lower interest
costs were caused by a decrease in borrowings of the Company which were
refinanced with the proceeds from the private placement of the Company's common
stock. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
As a result of the rapid growth of the Company's specialty papers group,
capital expenditures relating to the purchase and installation of an automated
production system and a management information system, prior year operating
losses, the Company has required substantial external working capital. The
Company has previously experienced working capital shortfalls, which required
the Company to delay payments to certain vendors, institute internal cost
reduction measures and take other steps to conserve operating capital. The
recapitalization currently in process has alleviated part of this problem. For
the year ended March 31, 1999, operating losses totaled $3,096,106, however the
Company experienced positive operating cash flows of $1,554,310.
At the date of this Report, the Company's only available source of working
capital consisted of borrowings available under its revolving credit facility.
The revolving credit facility permits borrowings of up to $5.5 million subject
to a borrowing base limitation of 70% of the value of the Company's eligible
accounts and 55% of the value of its inventory, net of certain reserves.
Borrowings under the facility bear interest at the prime rate and are secured by
substantially all of the Company's assets. Under the terms of the facility, the
Company is required to comply with a number of financial covenants relating to,
among other things, the maintenance of minimum net worth, debt-to-equity ratios
and cash flow coverage ratios.
The Company failed to comply with the net worth, debt-to-equity ratios and
cash flow coverage ratios under the revolving credit facility. The Company's
lender has also provided the Company with several mortgage loans and equipment
loans, and the existence of the defaults under the revolving credit facility
constitutes default under these other loans. The report of the Company's
auditors included in this Report states that the Company's fiscal 1999 and 1998
losses and non-compliance with covenants under its revolving credit facility
raise substantial doubt about the Company's ability to continue as a going
concern.
In September of 1999, the Company secured agreement from its principal
lender to extend the seventh forbearance agreement until November 15, 1999. As a
result of new capital raised and favorable changes in management and operations,
the Company has received and accepted a banking proposal with US Bank,
Milwaukee, Wisconsin to refinance the Company's debt arrangements. As of the
date of this Report, Geographics has received over $4,700,000 in a private
placement of common stock, with proceeds to the Company at $0.30 per share,
which included significant investments from Messrs.
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William T. Graham, Director and Executive Vice President of the Company, and
James L. Dorman, Director, Chairman and Chief Executive Officer of the Company,
and their respective affiliates. Further, the Company has engaged Culverwell &
Co., Inc. of Boston, Massachusetts to use their best efforts to raise an
additional $3,000,000 in a private placement of common stock, with net proceeds
to the Company of $0.30 per share. The offering prices were determined after
giving effect to minority discounts, and the fact that the new investors are
receiving unregistered securities. Upon successful refinancing, the Company
intends to eliminate all bank term loans and the defaults associated with those
loans. The Company estimates that the effect of the Company's recapitalization
plan will result in a decrease in interest expense over $600,000 on an
annualized basis. Management anticipates that the recapitalization plan will be
completed during the third fiscal quarter.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Substantially all of the revenue and operating expenses of the Company's
foreign subsidiaries are denominated in local currencies and translated into US
dollars at rates of exchange approximating those existing at the date of the
transactions. Foreign currency translation impacts primarily revenue and
operating expenses as a result of foreign exchange rate fluctuations. The
Company's foreign currency transaction risk is primarily limited to amounts
receivable from its foreign subsidiaries, which are denominated in local
currencies. To minimize foreign currency transaction risk, the Company ensures
that its foreign subsidiaries remit amounts to the U.S. parent in a timely
manner. The Company does not currently utilize foreign currency hedging
contracts.
The Company also has foreign exchange translation exposures resulting from
the translation of foreign currency-denominated earnings into U.S. dollars in
the Company's consolidated financial statements. Foreign currency transaction
exposure arises when an operating unit transacts business denominated in a
currency that is not its own functional currency. The Company's transaction
risks are attributable primarily to inventory purchases from third party
vendors. The introduction of the Euro has significantly reduced such risks, and
transaction exposures on an overall basis are not material.
If the U.S. dollar uniformly increases in strength by 3% in fiscal year
2000 relative to the currencies in which the Company's sales are denominated,
income before taxes would decrease by $55,000 for the quarter ended September
30, 1999. This calculation assumes that each exchange rate would change in the
same direction relative to the U.S. dollar. In addition to the direct effects of
changes in exchange rates, which are a changed dollar value of the resulting
sales, changes in exchange rates also affect the volume of sales or the foreign
currency sales price as competitors' products become more or less attractive.
The Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates does not factor in a potential change in sales levels or local
currency prices.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Sales Of Unregistered Securities
During the quarter ended September 30, 1999, the Company issued 15,558,337
shares of common stock in a private placement at $.30 per share, pursuant to an
exemption from registration under Sections 4(2) and 4(6) of the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder. The following officers
and directors of the Company purchased shares pursuant to the offering:
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<TABLE>
<CAPTION>
NAME POSITION SHARES
- ---- -------- ------
<S> <C> <C>
William T. Graham Director and Executive Vice President 2,000,000
James L. Dorman Chairman and Chief Executive Officer 956,178
C. Joseph Barnette Director 170,000
John G. Rossmiller Chief Operating Officer 150,000
Jeffrey M. Kildow Vice President - Sales 133,333
David Schenker Vice President - Sales 133,333
---------
Total 3,542,844
=========
</TABLE>
The balance of the shares were issued to accredited investors who had been
solicited by officers and directors of the Company. Further, the Company has
engaged Culverwell & Co., Inc. of Boston, Massachusetts to use their best
efforts to raise an additional $3,000,000 in a private placement of common
stock, with net proceeds to the Company of $0.30 per share. See "Liquidity and
Capital Resources." The private placement offering remains open, and the Company
expects to receive additional commitments above and beyond what has been
received and issued as of the date of this report.
ITEM 5 - OTHER INFORMATION
Refinancing Plan
The Company has accepted a proposal from US Bank Milwaukee, Wisconsin, to
refinance its bank debt. US Bank has agreed to extend to the Company a
$7,500,000 credit facility governed by various borrowing base restrictions and
other financial covenants. Upon successful refinancing, the Company intends to
eliminate all bank term loans and the defaults associated with those loans. The
Company expects to complete the refinancing during the third fiscal quarter.
New Products
The Company has entered into an exclusive distribution arrangement in the
United States, Canada and Mexico for a new line of easy to assemble plastic file
cabinet and storage drawer products.
The Company also intends to introduce a line of fine writing papers during
the third quarter to complement our current paper products and appeal to the
small business segment of our markets.
Management believes that sales pending from these products will enhance the
Company's financial results.
Business Process and Controls Review
During the second quarter, the Company engaged KPMG Vancouver British
Columbia ("KPMG") to review its business processes and controls. KPMG completed
the review and supplied management with recommendations to enhance the Company's
internal control systems. Management is taking steps to address the control
weaknesses identified by KPMG and disclosed in previous public filings.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Selling Agent Agreement dated as of October 5, 1999, between the
Company and Culverwell & Co., Inc., filed herewith.
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10.2 Amendment to Selling Agent Agreement dated as of October 14,
1999, between the Company and Culverwell & Co., Inc.
10.3 Commitment Letter from US Bank dated October 19, 1999.
27.1 Financial Data Schedule for the quarter ended September 30, 1999.
(b) There were no reports on Form 8-K filed during the quarter ended
September 30, 1999.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 11th day of
November, 1999.
GEOGRAPHICS, INC.
By: /s/ James L. Dorman
---------------------------------
James L. Dorman
Chairman, Chief Executive Officer
By: /s/ William J. Paquin, Jr.
---------------------------------
William J. Paquin, Jr.
Controller
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GEOGRAPHICS, INC.
FORM 10-Q
EXHIBIT INDEX
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Exhibit
Number
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<S> <C>
10.1 Selling Agent Agreement dated as of October 5, 1999, between the
Company and Culverwell & Co., filed herewith.
10.2 Amendment to Selling Agent Agreement dated as of October 14, 1999,
between the Company and Culverwell & Co., Inc.
10.3 Commitment Letter from US Bank dated October 19, 1999.
27.1 Financial Data Schedule
</TABLE>
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GEOGRAPHICS, INC
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, 1999 MARCH 31, 1999
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<S> <C> <C>
CURRENT ASSETS
Cash $ 168,549 $ 130,967
Accounts receivable
Trade receivables, net 4,847,099 3,187,527
Other receivables 133,700 261,091
Inventory, net of allowance for obsolete inventory of
$644,000 and $862,000 at September 30 and March 31, 1999 respectively 4,023,553 3,532,684
Prepaid expenses, deposits, and other current assets 579,935 853,357
------------ ------------
Total current assets 9,752,836 7,965,626
PROPERTY, PLANT AND EQUIPMENT, NET 9,598,314 9,945,634
OTHER ASSETS 763,122 367,501
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TOTAL ASSETS $ 20,114,272 $ 18,278,761
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdrafts $ 167,275 $ 253,425
Note payable to bank 3,406,993 4,896,912
Accounts payable 3,681,100 2,961,079
Accrued liabilities 1,626,655 2,496,178
Current portion of long-term debt 3,122,038 3,072,601
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Total current liabilities 12,004,061 13,680,195
LONG-TERM DEBT 3,034,188 3,776,432
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Total liabilities 15,038,249 17,456,627
============ ============
STOCKHOLDERS' EQUITY (DEFICIT)
No par common stock - 100,000,000 authorized, 25,415,589 and 9,857,252
issued and outstanding at September 30 and March 31, 1999 respectively 20,169,946 15,769,018
Accumulated other comprehensive income (211,326) (157,223)
Accumulated deficit (14,882,597) (14,789,661)
------------ ------------
Total stockholders'equity (deficit) 5,076,023 822,134
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 20,114,272 $ 18,278,761
============ ============
</TABLE>
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GEOGRAPHICS, INC
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Sales $ 8,130,428 $ 5,679,206 $ 13,675,844 $ 11,839,590
Allowances and Credits (1,085,933) (646,442) (1,879,488) (1,209,258)
Sales Returns (452,194) (355,494) (704,137) (455,900)
------------ ----------- ------------ ------------
Net Sales 6,592,301 4,677,270 11,092,219 10,174,432
Cost of Sales 5,002,103 2,896,186 8,498,472 6,400,030
------------ ----------- ------------ ------------
Gross Margin 1,590,198 1,781,084 2,593,747 3,774,402
S.G.& A. Expenses 1,457,760 1,343,037 2,575,865 2,868,209
------------ ----------- ------------ ------------
Operating Income (Loss) 132,438 438,047 17,882 906,193
Other Income (Expense)
Interest Expense (183,824) (270,429) (421,569) (607,909)
Other Income (Expense) 137,279 (24,641) 309,671 (40,214)
------------ ----------- ------------ ------------
Total Other Income (Expense) (46,545) (295,070) (111,898) (648,123)
Net Income (Loss) Before Tax 85,893 142,977 (94,016) 258,070
Discontinued Operations
Income from and gain on disposal of Core Business - - - 5,657,580
Federal Income Tax Benefit - - - -
------------ ----------- ------------ ------------
Net Income (Loss) $ 85,893 $ 142,977 $ (94,016) $ 5,915,650
============ =========== ============ ============
Earnings Per Common and Common Equivalent Share
Basic $ 0.0057 $ 0.0145 $ (0.0076) $ 0.6001
Diluted $ 0.0056 $ 0.0145 $ (0.0073) $ 0.6001
Shares Used in Computing Earnings per Common and
Common Equivalent Share
Basic 15,043,364 9,857,252 12,450,308 9,857,252
Diluted 15,422,953 9,857,252 12,829,897 9,857,252
</TABLE>
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GEOGRAPHICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (94,016) $ 5,915,650
Adjustments to reconcile net income (loss) to net
cash flows from operating activities
Depreciation and amortization 652,148 888,177
(Gain) loss on sale/disposal of property and equipment 1,770 -
Changes in noncash operating assets and liabilities
Trade receivables (1,659,572) (221,805)
Other receivables 127,391 (123,287)
Inventory (490,869) 1,123,223
Prepaid expenses, deposits and current assets 273,422 52,826
Accounts payable 720,021 (178,927)
Accured liabilities (861,594) (252,477)
----------- -----------
Net cash flows from operating activities (1,331,299) 7,203,380
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdrafts (93,150) (69,527)
Net borrowings on note payable to bank (1,489,919) (6,423,408)
Repayment of long-term debt (692,807) (668,565)
Proceeds from notes payable to officers and directors 100,000 -
Repayment of notes payable to officers and directors (100,000) -
Proceeds from the issuance of common stock 4,200,648 -
Proceeds from the issuance of common stock for assets 200,280 -
Net change, foreign currency translation (54,102) (33,899)
---------- ----------
Net cash flows from financing activities 2,070,950 (7,195,399)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (160,738) (76,508)
Purchase of Innovative Storage Design Assets (261,163) -
Increase in other assets (280,168) (42,158)
---------- ----------
Net cash flows from investing activities (702,069) (118,666)
NET CHANGE IN CASH 37,582 (110,684)
CASH, BEGINNING OF PERIOD 130,967 316,078
----------- -----------
CASH, END OF PERIOD $ 168,549 $ 205,394
----------- -----------
</TABLE>
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NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim unaudited consolidated financial statements of
Geographics, Inc. (the "Company" or "Geographics") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. 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, such interim statements reflect all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position and the results of operations and cash flows for
the interim periods presented. The results of operations for these interim
periods are not necessarily indicative of the results to be expected for the
full year. These statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the Company's
consolidated financial statements and notes thereto for the fiscal year ended
March 31, 1999.
The consolidated financial statements include the accounts of Geographics
and its wholly-owned subsidiaries: Geographics Marketing Canada Inc.,
Geographics (Europe) Limited and Geographics Australia, Pty. Limited. All
intercompany balances and transactions have been eliminated.
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<PAGE> 1
EXHIBIT 10.1
CULVERWELL & CO., INC.
SELLING AGENT AGREEMENT
October 5, 1999
Culverwell & Co., Inc.
33 Broad Street, 3rd Floor
Boston, MA 02109
Gentlemen:
Geographics, Inc. (the "Company"), on the basis of the representations,
warranties, covenants and conditions contained herein, hereby confirms the
agreement made with respect to the retention of Culverwell & Co., Inc. (the
"Selling Agent") as exclusive agent of the Company to assist the Company in
finding qualified purchasers, pursuant to the terms of this Selling Agent
Agreement (the "Agreement"), for a minimum of $1,000,000 (the "Minimum
Offering") and a maximum of $3,000,000 of common stock, no par value per share
(the "Common Stock" or "Securities"), at a purchase price of $0.33 per share on
a "best efforts, all or none" basis with respect to the Minimum Offering and,
thereafter, on a "best efforts" basis until all of the Securities are sold or
the earlier termination of the offering (the "Offering"). The Securities are
described in the Offering Memorandum (as defined in paragraph 1(a) below). For
purposes hereof, unless the context otherwise requires, the "Company" shall
include Geographics, Inc. and its consolidated subsidiaries.
The Company confirms the agreements made by it with respect to the sale
of the Securities by the Selling Agent, as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with you, the
Selling Agent, as of the date hereof, and as of each Closing Date and until the
last Closing Date (which is hereinafter defined in paragraph 11 of this
Agreement) that:
(1) An offering memorandum, attached hereto as Annex A, which includes
all reports filed by the Company pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act") (such offering memorandum, the exhibits
and attachments thereto, and reports being hereinafter referred to as the
"Offering Memorandum"), relating to the private Offering of the Securities,
copies of which have theretofore been delivered to you, has been prepared by the
Company in order to consummate the Offering pursuant to an exemption contained
under the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder.
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(2) As of the Effective Date of the Offering Memorandum (which is defined
as the date of this Agreement) and at all times subsequent thereto until the
last Closing Date, neither the Offering Memorandum nor any supplement or
amendment thereto will include any untrue statement of a material fact or omit
to state any material fact necessary to make statements therein, in light of the
context in which they were made, not misleading; provided, however, that the
Company makes no representations, warranties or agreement as to information
contained in or omitted from the Offering Memorandum in reliance upon, and in
conformity with, written information furnished to the Company by the Selling
Agent specifically for use in the Offering Memorandum.
(3) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Offering Memorandum, and
is duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions in which the nature of its business or the
character or location of its properties requires such qualification, except
where failure to so qualify will not materially adversely affect the business,
properties or financial condition of the Company taken as a whole (a "Material
Adverse Effect").
(4) The authorized, issued and outstanding securities of the Company as of
the Effective Date and each Closing Date of the Offering is as set forth in the
Offering Memorandum; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Offering Memorandum, duly
authorized, validly issued, fully paid, and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and State securities laws; to the Company's knowledge, the holders
thereof have no rights of rescission against the Company with respect thereto,
and except as set forth in Section 180.0622(b) of the Wisconsin Business
Corporation Law, relating to shareholder liability for wages, as judicially
interpreted ["Section 180.0622(b)"], are not subject to personal liability by
reason of being such holders; none of such securities were issued in violation
of the preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company; except as set forth in the
Offering Memorandum, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Offering Memorandum, conform to all
statements relating thereto contained in the Offering Memorandum.
(5) The warrant and shares of Common Stock issuable upon the exercise of
the warrant to be issued to the Selling Agent, as more fully described in
paragraph 3(a) below, are duly authorized, and when issued and delivered
pursuant to this Agreement, will be validly issued, fully paid and
non-assessable, and no personal liability will attach to the ownership thereof
,except as set forth in Section 180.0622(b).
(6) This Agreement has been duly and validly authorized, executed and
delivered by the Company, and upon due execution of this Agreement by the
Selling Agent, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except that rights
to indemnity hereunder may be limited by applicable Federal and state
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<PAGE> 3
securities laws, and except as such enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally. The
Company has full power and authority to authorize, issue and sell the Securities
on, and subject to, the terms and conditions set forth in the Offering
Memorandum, and no consent, approval, authorization or order of any governmental
authority is required in connection with such authorization, execution and
delivery, except such as may be required under the Act or state securities laws,
in which event, the Company has complied therewith.
(7) Except as described in the Offering Memorandum, the Company is not in
violation, breach of or default under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of the Company or any of the terms of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
any of the property or assets of the Company is subject, except to the extent
that any such conflict, breach, default or imposition would not have a Material
Adverse Effect, nor will such action result in any material violation of the
provisions of the articles of incorporation or by-laws of the Company, as
amended, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental body
having jurisdiction over the Company.
(8) The Company has good and marketable title to all properties and assets
described in the Offering Memorandum as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as are disclosed in
the Offering Documents, or to the extent that the failure to have title or the
existence of such liens, charges, encumbrances or restrictions would not have a
Material Adverse Effect; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Offering Memorandum are in full force and effect, and the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no claim has been asserted by anyone
adverse to the rights of the Company as lessor, sublessor, lessee, or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease; and the Company
owns or leases all such properties described in the Offering Memorandum as are
necessary to its operations as now conducted and, except as otherwise stated in
the Offering Memorandum, as proposed to be conducted as set forth in the
Offering Memorandum.
(9) Moss Adams LLP, Certified Public Accountants, who has given its report
on certain financial statements which are included in the Offering Memorandum,
is, to the Company's knowledge, independent public accountants as required by
the Act and the rules and regulations thereunder.
(10) The financial statements and schedules, together with related notes,
set forth in the Offering Memorandum present fairly the financial condition,
results of operations and cash flows of the Company, on the basis stated in the
Offering Memorandum, at the respective dates and for the
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<PAGE> 4
respective periods to which they apply, provided that financial statements which
are not as of the end of any fiscal year are subject to such adjustments as may
be required in the normal course of preparation of annual financial statements.
Said statements and related notes and schedules have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with generally accepted accounting principles applied on a
basis which is consistent during the periods involved.
(11) Subsequent to the date of the most recent financial statements
incorporated by reference in the Offering Memorandum through the final Closing
Date, and except as set forth in the Offering Memorandum, (i) the Company has
not incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than as contemplated in the Offering Memorandum
except in the ordinary course of business, (ii) the Company has not and will not
have paid or declared any dividends or have made any other distribution on its
capital stock; (iii) there has not been and will not be any material change in
the capital stock of, or any material incurrence of long-term debt by, the
Company; (iv) the Company has not and will not have issued any warrants, options
or other rights to purchase any securities of the Company; and (v) there has not
been and will not have been any change in the business, financial condition or
results of operations of the Company, or in the book value of the assets of the
Company, arising for any reason whatsoever, that would result in a Material
Adverse Effect.
(12) Except as set forth in the Offering Memorandum, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit,
proceeding, inquiry, arbitration or investigation against the Company or any of
its current officers or directors, nor, to the knowledge of the Company, any
such action, suit proceeding, inquiry, arbitration, or investigation, which
would result in a Material Adverse Effect.
(13) The Company has filed all necessary federal, state and foreign income
and franchise tax returns and has paid all taxes shown as due thereon; and there
is no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company that has not been provided for in the financial
statements or otherwise disclosed in the Offering Memorandum.
(14) Except where the same would not have a Material Adverse Effect, the
Company has sufficient licenses, permits and other governmental authorizations
currently required for the conduct of its business or the ownership of its
property as described in the Offering Memorandum and is complying therewith and
owns or possesses adequate rights to use all material patents, patent
applications trademarks, service marks, trade-names, trademark registrations,
service mark registrations, copyrights, and licenses necessary for the conduct
of such business and has not received any notice of conflict with the asserted
rights of others in respect thereof. None of the activities or businesses of the
Company are in violation of, or cause the Company to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or body of the United States or of any state, county or locality, the
violation of which would have a Material Adverse Effect.
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<PAGE> 5
(15) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution, in violation of law or (ii) made any payment to any
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law.
(16) On the Closing Date, all transfer or other taxes (including franchise,
capital stock or other tax, other than income taxes, imposed by any
jurisdiction) if any, which are required to be paid in connection with the sale
and transfer of the Securities will have been fully paid or provided for by the
Company and all laws imposing such taxes will have been fully complied with.
(17) Except as described in the Offering Memorandum, the Company has no
subsidiary corporations. The Company does not have any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Offering Memorandum.
(18) The Company is in compliance in all material respects with all
federal, state and local laws and regulations respecting the employment of its
employees and employment practices, terms and conditions of employment and wages
and hours relating thereto. To the Company's knowledge, there are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal, state
or local laws and regulations. To the Company's knowledge, there is un unfair
labor practice charge or complaint against the Company pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any predecessor entity. No question
concerning representation exists respecting the employees of the Company and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company. The Company has received no notice of any grievance
or arbitration proceeding under any expired or existing collective bargaining
agreements of the Company, if any.
(19) Other than as set forth in the Offering Memorandum, the Company has
not entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company, from the Selling
Agent, or from any other person, for services as a finder in connection with the
proposed private Offering, and the Company agrees to indemnify and hold harmless
the Selling Agent against any losses, claims, damages or liabilities, joint or
several, which shall include, but not be limited to , all costs to defend
against any such claim, so long as such claim arises out of agreements made or
allegedly made by the Company.
(20) Except as disclosed in the Offering Memorandum, during the past five
years, none of the officers or directors of the Company have been:
(1) the subject of a petition under the federal bankruptcy laws or
any state insolvency law filed by or against them, or a receiver, fiscal
agent or similar officer appointed by a court for their business or
property, or any partnership in which any or them was a general partner at
or within two years before the time of such filing, or any corporation
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<PAGE> 6
or business association of which any of them was an executive officer at or
within two years before the time of such filing;
(2) convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) the subject of any order, judgment or decree not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining any of them from, or otherwise
limiting, any of the following activities:
(1) acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the
Commodity Futures Trading Commission, or an associated person of any
of the foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association or
insurance company, or engaging in or continuing any conduct or
practice in connection with any such activity;
(2) engaging in any type of business practice; or
(3) engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any violation
of federal or state securities law or federal commodity laws.
(4) The subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated of any federal or state authority barring,
suspending or otherwise limiting for more than sixty (60) days their right
to engage in any activity described in paragraph (3)(i) above, or be
associated with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil action or
by the Commission to have violated any federal or state securities law, and
the judgment in such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil action or
by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
2. Representations and Warranties of Selling Agent. Selling Agent represents
and warrants to and agrees with the Company that:
(1) Selling Agent is a member in good standing of the National Association
of Securities Dealers, Inc., is registered as a broker/dealer under the
Securities Exchange Act of 1934 (the
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"Exchange Act"), and is licensed as a broker/dealer under each state securities
law applicable to its offer and sale of the Securities, and will immediately
notify the Company in writing of any change in its status as such.
(2) This Agreement has been duly authorized, executed and delivered by
Selling Agent; and constitutes the valid, legal and binding obligation of
Selling Agent, enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by applicable federal or state securities
laws, and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and general equitable considerations.
(3) The consummation of the transactions contemplated hereby will not
result in any breach of the terms or conditions of, or constitute a default
under, any agreement or other instrument to which Selling Agent is a party, or
violate any order, applicable to Selling Agent, of any court or federal or state
regulatory body or administrative agency having jurisdiction over Selling Agent
or over any of its property.
3. Appointment of Selling Agent to Sell the Securities.
(1) Subject to the terms and conditions of this Agreement and based upon
the representations, warranties and agreements herein contained, the Company
hereby appoints the Selling Agent as an agent of the Company, until the last
Closing Date, to find qualified purchasers for the Securities in accordance with
the Act and the rules and regulations thereunder, who shall be accredited
investors as that term is defined in Rule 501(a) under the Act, and the Selling
Agent, on the basis of the representations and warranties of the Company herein,
accepts such appointment and agrees to use its best efforts to find qualified
purchasers for the Securities in accordance with the Act and the rules and
regulations thereunder. The price of the Common Stock shall be $0.33 per share.
The Company shall pay to the Selling Agent a commission of ten percent (10%) of
the gross proceeds derived from the sale of Securities. In addition, the Company
shall pay to the Selling Agent a $10,000 non-accountable expense allowance to
cover out-of-pocket expenses, $5,000 of which has been paid. At each Closing,
the Company shall issue to Selling Agent a warrant to purchase Common Stock
equal to ten percent (10%) of the Common Stock attributable to that Closing.
This warrant shall be exercisable at $0.33 per share and shall expire on August
31, 2001.
(2) The Selling Agent shall have the right to designate one individual to
attend all meetings through August 31, 2000, of the Company's Board of Directors
or committees thereof.
(3) The Selling Agent shall use its best efforts to find qualified
purchasers for the Securities on behalf of the Company, and otherwise perform
its services hereunder, in accordance with the Act and the rules and regulations
thereunder. Any and all funds received from such sale, without any deduction
therefrom whatsoever, including, but not limited to, any commission or any
dealer concession or otherwise, shall be forthwith deposited in escrow or trust
with such agent as is mutually satisfactory to the Company and the Selling
Agent, and shall not be delivered to the Company until such time as
subscriptions to the Minimum Offering have been accepted. In the
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event subscriptions to the Minimum Offering are not received and accepted prior
to October 31, 1999, all subscription proceeds shall be refunded to subscribers
without interest thereon or deduction therefrom. The Company shall have
reasonable grounds to believe that each subscriber to the Securities whose
subscription is accepted is an "accredited investor" within the meaning of Rule
501(a) under the Act. Funds received from any subscriber whose subscription is
rejected shall be promptly refunded, without interest thereon or deduction
therefrom.
4. Delivery of the Securities.
Delivery of the Securities sold by the Selling Agent shall take place
at the offices of the Selling Agent (or at such other place as may be designated
by the Selling Agent), on each Closing Date.
5. Offering the Securities on Behalf of the Company.
It is understood that the Selling Agent proposes to find qualified
purchasers for the Securities in private sales exempt from registration under
the Act as contemplated on the Offering Memorandum, solely as agent for the
Company, upon the terms and conditions set forth in the Offering Memorandum. The
Selling Agent shall commence making such offer as agent for the Company on the
Effective Date, or as soon thereafter as the Selling Agent and the Company deem
advisable. The Selling Agent reserves the right to engage one or more selected
dealers to assist in the placement of the Securities.
6. Covenants of the Company. The Company covenants and agrees with the Selling
Agent that:
(1) The Company has caused to be delivered to you copies of the Offering
Memorandum, and the Company has consented and hereby consents to the use of such
copies for the purposes permitted by the Act. The Company authorizes the Selling
Agent to use the Offering Memorandum in connection with the sale of the
Securities during the offering period and until the last Closing Date, in
compliance with the Act and the rules and regulations thereunder, and for such
period as in the opinion of counsel to the Company and the Selling Agent the use
thereof is required to comply with the applicable provisions of the Act and the
rules and regulations thereunder. If at any time within the offering period
there occurs an event of which the Company has knowledge and which in the
opinion of counsel for the Company or counsel for the Selling Agent should be
set forth in a supplement to the Offering Memorandum in order to make the
statements therein not then materially misleading, in light of the circumstances
existing at the time the Offering Memorandum, is required to be delivered to a
purchaser of the Securities, or in case it shall be necessary to amend or
supplement the Offering Memorandum to comply with law or with the Act and the
rules and regulations thereunder, the Company will notify you promptly and
forthwith prepare and furnish to you copies of such amended Offering Memorandum
or of such supplement to be attached to the Offering Memorandum, in such
quantities as you may reasonably request, in order that the Offering Memorandum,
as so amended or supplemented, will not contain any untrue statement of a
material fact or omit to state any material facts necessary in order to make the
statements in the Offering Memorandum, in the light of the circumstances under
which they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Offering Memorandum shall
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be without expense to the Selling Agent. After notice by the Company to the
Selling Agent of the requirement for amendment or supplement to the Offering
Memorandum in accordance with this paragraph, the Selling Agent agrees that it
will not deliver further copies of the Offering Memorandum to any prospective
purchaser until the appropriate amendment or supplement has been supplied by the
Company.
(2) The Company will comply with the Act, the rules and regulations
thereunder, and the provisions of the Exchange Act and the rules and regulations
thereunder in connection with the Offering and issuance of the Securities.
(3) The Company will, at its sole cost and expense, use its best efforts
to perfect any exemption of the sale of the Securities under the securities or
"blue sky" laws of such jurisdictions as are reasonably requested by the Selling
Agent, and will make such applications and furnish such information as may be
required for that purpose and to comply with such laws, provided the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service of process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the Selling Agent may reasonably request,
until the last Closing Date.
(4) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with the Company's statements as set
forth in the Offering Memorandum.
(5) The Company will reserve a sufficient number of shares of Common Stock
issuable upon exercise of the Selling Agent's warrant.
(6) The Company shall at or prior to closing cause all of its officers and
directors to enter into a "lockup" agreement in a form satisfactory to the
Selling Agent whereby such officers and directors agree not to publicly sell any
shares of any class of capital stock of the Company owned by them pursuant to
Rule 144 of the Act or otherwise until March 31, 2000. Notwithstanding the
foregoing, Mr. William T. Graham may sell shares acquired by him prior to April
16, 1999.
(7) Between the final closing of the Offering and August 31, 2001, the
Company agrees to provide the purchasers of Common Stock in this Offering, with
respect to the Selling Agent's warrant and the Common Stock underlying same and
the Selling Agent, (collectively, the "Piggyback Shares") with "piggyback"
registration rights for any shares registered by the Company on a registration
statement on Form SB-1, SB-2, S-1, S-3 or any successors thereto. If the
underwriter of such an offering determines that the inclusion of the Piggyback
Shares will adversely affect the market price of the securities offered by such
a registration statement, the Piggyback Shares shall none-the-less be
registered; however, the holders of the Piggyback Shares agree to delay sale of
the Piggyback Shares until such a time as the underwriter shall permit, in its
sole reasonable discretion.
7. Conditions of Selling Agent's Obligations. The obligations of the Selling
Agent to act as agent for the Company are subject, as of the date hereof and as
of each Closing Date, to the
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<PAGE> 10
continuing accuracy of, and compliance with, the representations and warranties
of the Company herein, to the accuracy of statements of officers of the Company
made to the Selling Agent pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder, and to the following additional
conditions:
(1) Each of the representations and warranties of the Company contained
herein shall be true and correct in all material respects as of this date and at
each Closing Date as if made at the Closing Date, and all covenants and
agreements herein contained to be performed on the part of the Company and all
conditions herein contained to be fulfilled or complied with by the Company at
or prior to the Closing Date shall have been duly performed, fulfilled or
complied with.
(2) The Selling Agent shall have received certificates dated as of each
Closing Date, signed by the Chief Executive Officer and the Principal Accounting
Officer of the Company, certifying that:
(1) they do not know of any litigation instituted or
threatened against the Company or any officer or director of the
Company, of a character required to be disclosed in the Offering
Memorandum which is not disclosed therein;
(2) they have each carefully examined the Offering
Memorandum and, to the best of their knowledge, neither the Offering
Memorandum nor any amendment or supplement thereto contains any untrue
statement of any material fact or omits to state any material fact
required to be stated therein or necessary to make the statement
therein in light of the context in which it was made, not misleading;
and since the Effective Date, to the best of their knowledge, there
has occurred no event required to be set forth in an amendment or
supplement to the Offering Memorandum which has not been so set forth;
(3) since the respective dates as of which information is
given in the Offering Memorandum, there has not been any material
adverse change in the condition of the Company, financial or
otherwise, or in the results of its operations, except as reflected in
or contemplated by the Offering Memorandum; and
(4) each of the representations and warranties set forth in
this Agreement are true and correct as of the Effective Date and as of
each Closing Date, and the Company has complied with all of its
agreements and performed all of its obligations under this Agreement.
(3) The Selling Agent shall have received an opinion of counsel to the
Company in form and substance reasonably satisfactory to the Company.
(4) If any of the conditions provided for in this Section shall not have
been fulfilled as of the date indicated, this Agreement and all obligations of
the Selling Agent under this Agreement may be canceled by the Selling Agent
notifying the Company of such cancellation in writing or by
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facsimile at or prior to the last Closing Date. Any such cancellation shall be
without liability of the Selling Agent to the Company.
8. Indemnification.
(1) The Company agrees to indemnify and hold harmless the Selling Agent
and each person, if any, who controls the Selling Agent within the meaning of
the Section 15 of the Act against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include but
not be limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which the Selling Agent or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of the Company's warranties and representations contained
herein, or (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Offering Memorandum, or any amendment or supplement
thereto, or (ii) the omission or alleged omission to state in the Offering
Memorandum, or any amendment or supplement thereto, a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such cases to the
extent, but only to the extent, that any such losses, claim, damages or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Selling Agent specifically for us in the preparation of the Offering
Memorandum or any such amendment or supplement thereof. This indemnity will be
in addition to any liability which the Company may otherwise have.
(2) The Selling Agent will indemnify and hold harmless the Company, each
of its directors, each nominee (if any) for director named in the Offering
Memorandum, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof), arise out of or are based upon (i) any breach
of the Selling Agent's warranties and representations contained herein, or (ii)
any untrue statement or alleged untrue statement of any material fact contained
in the Offering Memorandum, or any amendment or supplement thereto; or (iii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statements or
alleged untrue statement or omission or alleged omission was made in the
Offering Memorandum, or any amendment or supplement thereto, in reliance upon
and in conformity with written information furnished to the Company by the
Selling Agent specifically for use in the Offering Memorandum.
(3) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, promptly notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
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it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it promptly notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the named parties to any such action (including any impeded parties)
include both the indemnified party and the indemnifying party and in the
reasonable judgment of the indemnified party, it is advisable for the
indemnified party to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for
such indemnified party, which firm shall be designated in writing by the
indemnified party). No settlement of any action against an indemnified party
shall be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
9. Contribution.
(1) If the indemnification provided for in this Agreement is unavailable
to any indemnified party in respect to any losses, claims, damages, liabilities
or expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, will contribute to the amount paid or
payable by such indemnified party, as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand, and by the Selling
Agent on the other hand, from the offering, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above, but also the relative fault of the Company on the one hand, and of the
Selling Agent on the other hand, in connection with any statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses as well
as any other relevant equitable considerations; provided, that any contribution
hereunder by the Selling Agent shall not exceed the amount of consideration
received by the Selling Agent hereunder. The relative benefits received by the
Company on the one hand, and by the Selling Agent on the other hand, shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of sales commissions, and the non-accountable expense allowance, but before
deducting expenses) received by the Company, bear to the commissions and
12
<PAGE> 13
the non-accountable expense allowance received by the Selling Agent. The
relative fault of the Company on the one hand, and of the Selling Agent on the
other hand, will be determined with reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company, and its
relative intent, knowledge, access or information and opportunity to correct or
prevent such statement or omission. The Company and the Selling Agent agree that
it would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to in this
paragraph. Notwithstanding anything to the contrary, that in any such case, no
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contributions for any person who is
not guilty of such fraudulent misrepresentation.
(2) Within fifteen (15) days after receipt by any party to this Agreement
(or its representative) of notice of the commencement of any action, suit, or
proceeding, such party will, if a claim for contribution in respect thereof is
to be made against another party ("Contributing Party"), notify the Contributing
Party of the commencement thereof, but the omission to so notify the
contributing Party will not relieve it from any liability which it may have to
any other party other than for contribution hereunder. In case any such action,
suit or proceeding is brought against any party, and such party notifies a
Contributing Party or its representative of the commencement thereof within the
aforesaid fifteen (15) days, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing Party
similarly notified. Any such Contributing Party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding which was effected by such party seeking contribution on account of
any settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such Contributing Party. The
contribution provisions contained in this Section are intended to supersede, to
the extent permitted by law, any right to contribution under the Act, the
Exchange Act or otherwise available.
10. Costs and Expenses.
(1) Whether or not the sale of the Securities by the Company is
consummated, the Company will pay all costs and expenses incident to the
performance of this Agreement by the Company including but not limited to the
fees and expenses of counsel to the Company and of the Company's accountants;
the costs and expenses incident to the preparation, printing and distribution of
the Offering Memorandum (including the financial statements therein and all
amendments and exhibits thereto); all state filing fees, expenses and
disbursements and legal fees to counsel to the Company who shall serve as Blue
Sky counsel to the Company in connection with perfection of the exemption of the
Securities under the state securities or blue sky laws, in such jurisdictions
which the Selling Agent shall reasonably designate; the cost of printing the
certificates evidencing the Securities; the cost of preparing and delivering to
the Selling Agent and its counsel bound volumes containing copies of all
documents and appropriate correspondence, and all closing documents; and the
fees and disbursements of the transfer agent for the Company's securities. The
Company shall pay any and all taxes (including any transfer, franchise, capital
stock or other tax imposed by any jurisdiction) on sales hereunder. The Company
will also pay all costs and expenses incident to the furnishing of any
supplement to be attached to the Offering Memorandum .
13
<PAGE> 14
(2) Other than as described in the Offering Memorandum, no person is
entitled, either directly or indirectly, to compensation from the Company, from
the Selling Agent or from any other person for services as a finder in
connection with the proposed offering, and each of the Company and the Selling
Agent agrees to indemnify and hold harmless the other against any losses,
claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees, to which the Selling Agent or the Company
may become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
11. Closing Date. The offering will terminate on the last Closing Date, which
shall be:
(1) the Termination Date described in the Offering Memorandum, unless
extended mutually by the Company and the Selling Agent to a later date;
(2) the date all of the Securities are sold; or
(3) such earlier date agreed to in writing by the Company and the
Selling Agent.
12. Representations, Warrants and Agreement to Survive Delivery. The respective
indemnities, agreements, representations, covenants, conditions, warranties and
other statements of the Company and/or its officers and/or directors, where
appropriate, and the Selling Agreement set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Selling Agent, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment for
the securities and the termination of the Agreement.
13. Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, will be mailed, delivered or faxes and
confirmed:
If to the Selling Agent: Culverwell & Company, Inc.
33 Broad Street, 3rd Floor
Boston, Massachusetts 02109
Attention: Mr. Edward Culverwell
Copy to: Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
Attention: Steven I. Weinberger, Esq.
14
<PAGE> 15
If to the Company: Geographics, Inc.
1555 Odell Road
P.O. Box 1750
Blaine, Washington 98231
Attention: Mr. James L. Dorman
Copy to: Michael Best & Friedrich L.L.P.
One South Pinckney Street
Madison, Wisconsin 53703
Attention: Gregory J. Lynch, Esq.
14. Parties in Interest. This Agreement herein set forth is made solely for the
benefit of the Selling Agent, the Company and, to the extent expressed, any
person controlling the Company or of the Selling Agent, and directors of the
Company, and their respective executors, administrators, successors, assigns and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser of
the Securities or other securities from the Selling Agent.
15. Applicable Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Massachusetts applicable to agreement
made and to be entirely performed within Massachusetts. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in Suffolk
County, Massachusetts. A party to this Agreement named as a Defendant in any
action brought in connection with this Agreement in any court outside of the
above-named designated county or district shall have the right to have the venue
of said action changed to the above designated county or district or, if
necessary, have the case dismissed, requiring the other party to refile such
action in an appropriate court in the above designated county or federal
district.
16. Counterparts. This Agreement may be executed in any number of counterparts
and each of such counterparts shall bear all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
17. Entire Agreement. This Agreement and the agreements referred to within this
Agreement constitute the entire agreement of the parties, and supersedes all
prior agreement, understanding, negotiations and discussions, whether written or
oral, of the parties hereto.
15
<PAGE> 16
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the Selling Agent in accordance with
its terms.
Very truly yours,
GEOGRAPHICS, INC.
By:/s/ James L. Dorman
--------------------------
President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
CULVERWELL & CO., INC.
By: /s/ Edward Culverwell
--------------------------
President
16
<PAGE> 1
EXHIBIT 10.2
October 14, 1999
Reference is made to the Placement Agency Agreement dated as of October
5, 1999, by and between Geographics, Inc. (the "Company") and Culverwell & Co.,
Inc. (the "Placement Agent"), relating to the offering of up to $3,000,000 in
shares of the Company's common stock (the "Placement Agency Agreement").
The Company and the Placement Agent hereby agree that the Placement
Agency Agreement is amended to provide that:
1. the offering contemplated by the Placement Agency Agreement
(the "Offering") shall not include a "Minimum Offering" (as defined in the
Placement Agency Agreement);
2. the Offering shall be conducted on a $3,000,000, "best efforts" basis;
and
3. subscription proceeds will not be required to be maintained in escrow
or trust pending receipt of any specified minimum proceeds amount; and
4. each delivery of Offering proceeds to the Company shall be deemed a
Closing Date for purposes of the Placement Agency Agreement, and nothing herein
shall relieve the Company of its obligations under the Placement Agency
Agreement on each such Closing Date.
Except as contemplated hereby, all of the terms of the Placement Agency
Agreement shall remain in full force and effect.
GEOGRAPHICS, INC. CULVERWELL & CO., INC.
By:/s/ James L. Dorman By:/s/ Ed Culverwell
------------------------- --------------------
James L. Dorman Ed Culverwell
President President
<PAGE> 1
[USBANK LETTERHEAD]
October 19, 1999
Mr. James L. Dorman, CEO
Geographics, Inc.
1555 Odell Road
Blaine, WA 98231
Dear Jim:
The Bank is pleased to advise Geographics, Inc. (the "Company") that the Bank
proposes to extend credit to the Company up to $7,500,000 upon the terms and
conditions set forth below.
The Bank's commitment is subject to the negotiation and execution of definitive
Credit, Security and related loan documents (the "Credit Documents")
satisfactory to the Bank. The Credit Documents will embody the structure,
pricing and other terms described in the attached Summary of Terms and
Conditions. They will also include provisions viewed by the Bank and its counsel
as appropriate for this transaction and for transactions of this type.
Accordingly, it should be recognized that this letter and the Summary of Terms
and Conditions are indicative, but not exhaustive, as to the terms and
conditions which shall govern this facility.
The Bank's commitment is further subject to the condition that there shall not
have occurred: (i) any material adverse change in the business, operations or
financial condition of the Company or any of its subsidiaries; (ii) any material
diminution of value of the collateral proposed for the loan, in each case
determined by the Bank, or (iii) discovery of any adverse environmental
conditions which cannot be adequately resolved to the Bank's satisfaction.
<PAGE> 2
By acknowledging and agreeing to the terms of this letter, the Company agrees to
be responsible for all reasonable costs and expenses incurred by the Bank
(including fees and expenses of counsel and other professionals) in connection
with the negotiation and preparation of the Credit Documents and the
transactions contemplated hereby, whether or not the Credit Documents are
executed and whether or not loans are made available under the Credit Documents.
This obligation survives the termination or expiration of the commitment.
The Credit Documents shall be entered into not later than November 15, 1999,
after which date the commitment of the Bank hereunder shall expire. If the
foregoing is acceptable, please indicate your agreement and acceptance by
signing and return the enclosed copy of this letter. If the commitment hereunder
is not accepted by the Company on or before October 27, 1999, it will be deemed
to have been terminated.
The Bank looks forward to the opportunity to work with Geographics, Inc. on this
transaction.
Sincerely,
/s/ Dennis J. Ciche
Dennis J. Ciche
Assistant Vice President
Accepted: Oct. 20, 1999
------------------
Date
Geographics, Inc.
By: John C.
-------------------------------
Title: Chairman/CEO
-------------------------------
<PAGE> 3
GEOGRAPHICS, INC.
Summary of Terms and Conditions
October 19, 1999
- --------------------------------------------------------------------------------
FACILITY 1:
BORROWER: Geographics, Inc.
FACILITY: Revolving Credit Facility
AMOUNT: Up to $7,500,000 subject to a borrowing base.
$2,500,000 sub-limit for inventory and
$1,000,000 sub-limit for real estate
PURPOSE: Refinance and working capital needs
TERM: Two years
RATE: Daily LIBOR + 250 bps, interest due monthly. In
addition, 30, 60, and 90 day LIBOR period
borrowings will be permitted.
FEES: Non-use fee of 25 bps, to be paid quarterly
BORROWING BASE: 75% of eligible accounts receivable
50% of eligible inventory, not to
exceed $2,500,000, plus $1,000,000*.
* Upon attainment of the following
financial covenants (EBITDA of
$2,500,000 and total liabilities to
net worth less than 2.25:1) as of
fiscal year-end (3/31/00), the
borrowing base component relating to
the real estate will be allowed to
increase to the lower of $2,400,000,
or 75% of appraised value of
property located at 1555 Odell Road,
Blaine, WA
TERMS COMMON
COLLATERAL: - GBSA on all assets of Geographics, Inc.
- Mortgage on real estate located at 1555 Odell
Road
GUARANTEES: None
1
<PAGE> 4
GEOGRAPHICS, INC.
Summary of Terms and Conditions
October 19, 1999
- --------------------------------------------------------------------------------
COVENANTS: A Credit Agreement will contain all
representations and warranties contained in
other similar agreements. Covenants will
include those listed below, based upon the
Geographics, Inc. financial statements:
- Minimum new equity contribution prior to
closing of $5,000,000
- Minimum net worth of $5,500,000, tested
quarterly
- Minimum interest coverage (EBIT/Interest) of
1.10x, tested quarterly
- Minimum net income of $1, tested annually
- Minimum debt service coverage
(EBITDA/Interest+MDR) of 1.20x, tested
annually beginning with FYE 3/31/01
- No mergers, acquisitions or divestitures
without prior Bank approval
- No material adverse change
FINANCIAL REPORTING: Geographics, Inc. will deliver the following
documents to the Bank. All documents are to be
certified to be true and correct by the Chief
Executive Officer or Chief Financial Officer.
- Balance Sheet and Income Statement
within thirty days of each month-end
- Compliance Certificate
- Borrowing Certificate to be
submitted with each advance request,
with receivables updated not less
than weekly and inventory updated
not less than monthly.
Within 90 days of the company's fiscal year
end, the following will be delivered to the
Bank, certified as above:
- Audited financial statements,
carrying an unqualified opinion,
prepared by an accounting firm
acceptable to the Bank
- Compliance Certificate
BANK ACCOUNTS: All major operating accounts of the companies
will be maintained at U.S. Bank.
COSTS & EXPENSES: All legal, collateral exam, appraisal, and
environmental survey costs, if required, would
be for the account of the borrower.
2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 168,549
<SECURITIES> 0
<RECEIVABLES> 5,647,431
<ALLOWANCES> 866,632
<INVENTORY> 4,023,553
<CURRENT-ASSETS> 9,752,836
<PP&E> 14,948,192
<DEPRECIATION> 5,349,879
<TOTAL-ASSETS> 20,114,272
<CURRENT-LIABILITIES> 12,004,061
<BONDS> 3,034,188
0
0
<COMMON> 20,169,946
<OTHER-SE> (15,093,923)
<TOTAL-LIABILITY-AND-EQUITY> 20,114,272
<SALES> 6,592,301
<TOTAL-REVENUES> 6,592,301
<CGS> 5,002,103
<TOTAL-COSTS> 1,457,760
<OTHER-EXPENSES> (137,279)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,824
<INCOME-PRETAX> 85,893
<INCOME-TAX> 0
<INCOME-CONTINUING> 85,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,893
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
