<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TRIARCO INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 2833 22-3081998
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
400 HAMBURG TURNPIKE
WAYNE, NEW JERSEY 07470
(973) 942-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ANGELO R. APPIERTO
CHIEF FINANCIAL OFFICER
400 HAMBURG TURNPIKE
WAYNE, NEW JERSEY 07470
(973) 942-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
LOUIS J. BEVILACQUA, ESQ. EDWARD S. ROSENTHAL, ESQ. FRIED,
CADWALADER, WICKERSHAM & TAFT FRANK, HARRIS, SHRIVER & JACOBSON
100 MAIDEN LANE 350 SOUTH GRAND AVENUE, 32ND FLOOR
NEW YORK, NEW YORK 10038 LOS ANGELES, CALIFORNIA 90071
(212) 504-6000 (213) 473-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share....... 3,795,000 shares $14.00 $53,130,000 $15,930
</TABLE>
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(1) Includes 495,000 shares subject to an over-allotment option granted to the
Underwriters by the Company. See "Underwriting."
(2) Estimated solely for purposes of computing the registration fee pursuant
to Rule 457(f).
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(a), MAY DETERMINE.
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<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 STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 22, 1998
3,300,000 SHARES
LOGO
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Triarco
Industries, Inc. (the "Company"). Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $ and $ per share.
See "Underwriting" for a discussion of factors considered in determining the
initial public offering price. Application has been made for quotation of the
Common Stock on the Nasdaq National Market under the symbol "TRCO."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
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.
<TABLE>
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- ------------------------------------------------------------------------------
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share................................. $ $ $
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Total(3).................................. $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Selling Stockholder has granted to the Underwriters a 30-day option to
purchase up to an additional 495,000 shares of Common Stock solely to
cover over-allotments, if any. If the Underwriters exercise this option in
full, the Price to Public will total $ , the Underwriting Discount will
total $ , the Proceeds to Company will total $ and the Proceeds to
Selling Stockholder will total $ . See "Principal and Selling
Stockholders" and "Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
NationsBanc Montgomery Securities LLC on or about , 1998.
-----------
NationsBanc Montgomery Securities LLC CIBC Oppenheimer
, 1998
<PAGE>
[Pictorial representations on the inside front cover and inside back cover
of the Prospectus are: photos of herbs; photos from the Agricultural Division;
photos of production and laboratory operations; photos of finished goods with
Fingerprint(R) Botanicals logo and Triarco Industries, Inc. reference; and
architectural rendering of the Herbal Processing Facility]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, THE ENTRY OF STABILIZING BIDS,
SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus, including "Risk Factors" and the
Financial Statements and Notes thereto. Except as otherwise noted, all
references to the "Company" include its predecessors and all information in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option and (ii) gives effect to a 4,469-for-1 split of the shares of Common
Stock to be effected prior to consummation of this offering. See "--Corporate
Consolidation," "Description of Capital Stock" and "Underwriting."
THE COMPANY
The Company is a leading vertically integrated supplier of high-quality,
high-purity natural product ingredients in ready-to-run form to nutritional
supplement manufacturers. The Company cultivates, procures, cleans, processes,
grinds, granulates, blends and formulates premium natural products that meet
the increasing demands of its customers for value-added ingredients. The
Company works closely with these customers in developing products that meet the
customers' desired label claims with consistent and measurable compounds. The
Company also develops ready-to-run forms that accommodate customers' existing
tablet, capsule, powder or liquid packaging capabilities. Moreover, the Company
provides to its customers value-added technical and research and development
("R&D") support. In 1997, the Company manufactured over 700 products in three
categories, botanicals (herbs), teas and specialty products, which accounted
for 55.6%, 27.7% and 16.7% of net sales, respectively.
The Company's customers include a diverse range of nutritional supplement
manufacturers which process the Company's natural product ingredients into
consumer salable form which are then marketed through various distribution
channels. These distribution channels include (i) multi-level marketers such as
Herbalife International Inc. ("Herbalife") and Amway Corporation ("Amway"),
(ii) specialty health products retailers such as General Nutrition Companies,
Inc. ("GNC"), Whole Foods Market Inc. ("Whole Foods") and Wild Oats Markets
Inc. ("Wild Oats") and (iii) mass market retailers such as major drug stores,
supermarkets and discount stores. Under the dedication and leadership of the
Rohde family, who share more than 40 years experience in the nutritional
supplements industry, the Company has developed long-standing relationships
with industry leaders including GNC, Global Health Sciences, Inc. ("Global
Health") (a major manufacturer for Herbalife), Pharmavite Corporation
("Pharmavite") and Rexall Sundown, Inc. ("Rexall Sundown"). Each distribution
channel targets consumers with specific purchasing characteristics with respect
to product formulation, quality and price. By maintaining the flexibility to
effectively assist its customers in meeting these diverse consumer
requirements, the Company believes it maximizes its ability to continually
increase the breadth and depth of its customer base.
Quality assurance and quality control are a fundamental aspect of the
Company's business strategy. These disciplines are designed to address both the
quality of the Company's botanical manufacturing process and the identity and
purity of the Company's ingredients. The Company continues to invest in
agricultural, scientific and manufacturing assets and personnel and is
committed to elevating the standards for acceptable purity, consistency and
quality of natural product ingredients, thus establishing a competitive
advantage over other ingredient suppliers. In conjunction with this effort, the
Company launched its agricultural division (the "Agricultural Division") in
late 1996 by leasing a 500 acre certified organic farm, principally for the
purpose of conducting agricultural R&D. In addition, the Company is currently
constructing a state-of-the-art herbal processing facility (the "Herbal
Processing Facility") that will expand its botanical processing capacity and
capabilities.
The Company believes that it is well positioned to capitalize on the
continued growth in the nutritional supplements industry. According to the
Packaged Facts Report (as defined herein), the retail market for vitamins,
minerals and other supplements (excluding sports nutrition and diet products)
has grown at a compound annual growth rate ("CAGR") of 15% from $3.7 billion in
1992 to $6.5 billion in 1996. A large portion of this growth is attributable to
an increase in sales of other supplements (primarily herbal products), which
grew from $570 million in 1992 to $2.3 billion in 1996. According to the
Packaged Facts Report, CAGRs from 1992 through 1996 for vitamins, minerals and
other supplements were 8.0%, 5.2% and 41.7%, respectively. In addition, the
Packaged Facts Report forecasts a 13.6% CAGR in the market for vitamins,
minerals and other supplements (excluding sports nutrition and diet products),
including a 25% CAGR in the market for other supplements, through 2001.
Since its inception in 1978, the Company has experienced rapid growth in net
sales and operating income. From 1993 to 1997, net sales and operating income
have grown at CAGRs of 34.6% and 84.5%, respectively. Net sales were $42.0
million and $11.1 million and operating income was $8.3 million and $2.2
million in 1997 and the three months ended March 31, 1998, respectively.
3
<PAGE>
COMPETITIVE STRENGTHS
INNOVATIVE CUSTOMER SOLUTIONS
Vertical integration provides the Company with the operational flexibility
and breadth of capabilities to offer innovative customer solutions in a rapidly
evolving industry. The Company's botanical ingredient production system begins
with the acquisition of raw botanicals and extends through the shipment of
consistent, high-quality, high-purity ingredients to its customers in ready-to-
run form. As a result, the Company is able to provide to its customers
innovative solutions at each level of botanical production, from R&D at the
agricultural level to branding initiatives at the consumer level, thus meeting
the increasing demand of customers for value-added ingredients and services.
This vertical integration is in contrast to many of the Company's competitors,
which typically possess only a few botanical processing capabilities in-house.
Moreover, the Company believes that its ability and dedication to providing
innovative solutions makes it a supplier of choice.
DOCUMENTED QUALITY ASSURANCE PROGRAM
To ensure the production of high-quality, high-purity natural product
ingredients, the Company utilizes a documented quality assurance program. This
program implements Good Manufacturing Practices ("GMPs") established by the
Food and Drug Administration (the "FDA") that, among other things, address
processing, cleanliness, testing, sampling and formulations. The Company
believes that in appropriate instances its GMPs approach pharmaceutical
standards. Currently, the Company is pursuing ISO 9002 certification (an
internationally recognized quality assurance standard), which it believes will
complement its customers' GMP endeavors and facilitate entry into European
markets.
STRINGENT QUALITY CONTROL
The Company has developed and operates a comprehensive quality control
program that subjects all of the Company's products to a battery of stringent
tests commencing prior to acceptance of raw materials and continuing through
the shipment of finished goods. This program, among other things, identifies
botanical raw materials and measures the active and other "marker" compounds.
By precisely identifying and measuring marker compounds, the Company selects
and standardizes ingredients to customer specifications, thus substantially
reducing the natural inconsistencies of raw botanicals. To support this effort,
the Company has made significant investments in sophisticated testing methods
and equipment, including thin layer chromatography ("TLC"), gas chromatography
("GC") and high performance liquid chromatography ("HPLC"). The Company's
stringent quality control is a value-added service that complements its
customers' internal quality control programs.
BROAD CUSTOMER REACH
The Company supplies natural product ingredients to customers that
manufacture nutritional supplements for sale through three major distribution
channels: multi-level marketers, specialty health products retailers and mass
market retailers. Each distribution channel targets consumers with specific
purchasing characteristics with respect to product formulation, quality and
price. By maintaining the flexibility to effectively assist its customers in
meeting these diverse consumer requirements, the Company believes it maximizes
its ability to continually increase the breadth and depth of its customer base.
EXPERIENCED MANAGEMENT
The Company's management team has extensive experience in the nutritional
supplements industry. Rodger R. Rohde, Sr., who founded the Company in 1978,
has over 30 years of experience in the nutritional supplements, flavors and
fragrance industries. Since the Company's inception, Rodger R. Rohde, Sr. and
each of the other Rohde Family Members (as defined herein) who has subsequently
joined him have been actively involved in the day-to-day operations of the
business. The Rohde Family Members have developed long-standing relationships
with industry leaders, such as GNC, Global Health, Pharmavite and Rexall
Sundown, as well as with major vendors of the Company's raw materials. In an
industry characterized by few long-term contracts, these long-standing
relationships are a significant source of competitive advantage.
4
<PAGE>
GROWTH STRATEGY
The Company's growth strategy is to maintain and strengthen customer
relationships and improve operations and financial performance by focusing on
the following principal elements:
BROADEN MARKET REACH
Develop New Products. The Company, through the efforts of its product
development team, has four patents on enzyme products and is continuing to
aggressively develop patentable formulas and processes, as well as other
proprietary ingredients. The Company's growth strategy entails aiming new
product development initially at the multi-level marketing distribution channel
to capture the benefits of personal selling and maximize consumer acceptance of
the new product or category. This new product development effort will be
marketed to new and existing customers by the Company's new national sales
manager and sales team.
Enter New Markets. The Company plans to leverage its competitive strengths to
enter related markets in the natural products industry, such as the natural
food and cosmetic and beauty aids industries, as well as the pharmaceutical
industry. Each of these related industries is increasingly demanding premium
natural ingredients. The Company also plans to pursue sales into international
markets by recruiting dedicated sales professionals and continuing to register
products and trademarks in attractive foreign markets.
Strengthen Existing Relationships. The Company's long standing customer
relationships are based on its commitment to providing high-quality, high-
purity ingredients and proactive customer service. The Company's growth
strategy entails assembling specialized internal marketing teams to develop
innovative customer solutions, such as specialized ingredient blends and end-
product forms, technical and R&D assistance, and flexible and reliable
deliveries. In addition, senior management continues to support new initiatives
to support customers' new product development and marketing activities.
IMPROVE RAW MATERIAL QUALITY AND AVAILABILITY THROUGH AGRICULTURAL R&D
As a part of its agricultural R&D efforts, the Company is developing improved
farming methods for its raw botanicals at its 500 acre certified organic farm.
These farming initiatives are designed to increase yield, improve plant
strength, accelerate plant growth and reduce related farming costs. Additional
agricultural R&D initiatives are directed at developing methods to cultivate
naturally occurring raw materials which traditionally have been purchased from
gatherers. The Company intends to leverage the proprietary knowledge gained
from its agricultural R&D by assisting other growers in improving the quality
and yield of their raw materials and providing incentives to such growers to
cultivate raw materials on behalf of the Company.
DEVELOP BRAND NAME RECOGNITION
The Company's growth strategy emphasizes building strong recognition, at the
consumer level, of the Company's branded ingredients as premium brands of high-
quality, high-purity natural product ingredients. The Company's Fingerprint(R)
Botanicals trademark is used on a line of products sold by GNC and is
specifically attributed to the Company on the labeling of these GNC products.
The Company will promote this and other brands it is currently developing for
mass market retailers through a widespread multimedia marketing and advertising
strategy aimed at both its customers and the end consumers.
PURSUE STRATEGIC ACQUISITIONS
The Company plans to capitalize on the highly fragmented nature of the
nutritional supplements industry by seeking acquisitions of (i) additional
natural ingredient manufacturing companies, (ii) niche companies that provide
services along the botanical ingredient production process, (iii) agricultural
concerns that produce raw materials, (iv) companies that provide vertical
integration opportunities for the Company's enzyme and mineral product lines
and (v) companies in related industries such as natural foods and cosmetic and
beauty aids.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.... 3,300,000.shares
Common Stock to be outstanding
after this offering................... 12,693,838 shares(1)
Use of proceeds........................ For repayment of outstanding
indebtedness, expansion of the
Company's Agricultural Division and
Herbal Processing Facility, expansion
of R&D and management information
system ("MIS") functions, launching a
branding initiative with respect to
certain of the Company's products, and
working capital and general corporate
purposes, including potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq
National Market
symbol............................... TRCO
</TABLE>
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(1) Excludes shares to be issuable upon exercise of stock options expected
to be granted on or after the consummation of this offering at an exercise
price equal to the closing price of the Common Stock on the Nasdaq National
Market on the date of grant (or 110% thereof in the case of greater than
10% stockholders). See "Capitalization" and "Management--Employee Benefit
Plans--1998 Omnibus Stock Incentive Plan."
--------------------
The Company was incorporated under the laws of Delaware in June 1998, and its
principal executive offices are located at 400 Hamburg Turnpike, Wayne, New
Jersey 07470, telephone number: (973) 942-5100.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Net sales............... $12,783 $28,169 $23,646 $32,012 $41,995 $10,133 $11,074
Gross profit............ 5,651 14,529 9,398 14,018 17,400 4,225 4,522
Operating income........ 718 9,429 3,693 6,506 8,327 2,091 2,189
Net income.............. 294 7,423 3,655 6,250 8,125 2,028 2,269
PRO FORMA DATA (UNAU-
DITED):
Historical income before
income taxes........... 8,460 2,327
Pro forma adjustments
other than income
taxes(2)............... 1 31
------- -------
Pro forma income before
income taxes........... 8,461 2,358
Pro forma provision for
income taxes(3)........ 3,394 934
------- -------
Pro forma net income.... $ 5,067 $ 1,424
======= =======
Pro forma earnings per
share(4)............... $ $
======= =======
Pro forma weighted
average shares
outstanding(4).........
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 2,990 $ 2,990 $
Working capital............................ 13,345 2,731
Total assets............................... 21,756 22,106
Total debt, including current portion...... 1,000 11,965 --
Stockholders' equity....................... 17,061 6,423
</TABLE>
- --------
(1) To the extent set forth in the Financial Statements, each of the
Predecessor Companies (as defined herein) was treated as an S corporation
and therefore was not subject to federal income taxes and was subject to a
reduced corporate rate for state income taxes. As a result, income was
passed through to the respective shareholders for tax purposes. See Note 11
to the Financial Statements and Note 3 below.
(2) Pro forma adjustments other than income taxes represents a reduction in
interest expense assuming the application of proceeds from the sale of
sufficient shares of Common Stock to repay all of the Company's outstanding
debt. See Note 4 below.
(3) Pro forma provision for income taxes is calculated as if the Company had
been subject to federal and additional state income taxes since January 1
of each period and represents an increase in income taxes of approximately
$3,059 and $876 in 1997 and for the three months ended March 31, 1998,
respectively. See "--Corporate Consolidation" and "Use of Proceeds."
(4) Pro forma earnings per share is based on (i) pro forma net income as
indicated and (ii) 9,394 shares of Common Stock outstanding prior to this
offering, increased by the sale of sufficient shares of Common Stock,
assumed to be shares based on an assumed initial public offering price
of $ per share, to repay the Company's outstanding debt, assumed to be
$11,965, composed of $10,965 under the Term Notes (as defined herein) and
$1,000 under the revolving credit facility.
(5) Pro forma to reflect (i) the distribution of $10,965 to the shareholders of
the Predecessor Companies, funded by the Term Notes and (ii) a deferred tax
asset of approximately $327 which the Company will record concurrently with
becoming a C corporation. See "--Corporate Consolidation."
(6) Pro forma as adjusted to reflect the sale of 3,300 shares of Common Stock
offered hereby at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
7
<PAGE>
CORPORATE CONSOLIDATION
The predecessors of the Company consist of three corporations: Leica Sordik,
Inc., a New Jersey corporation ("LSI"), Triarco Industries, Inc., a New Jersey
corporation ("Old Triarco"), and Body Mechanics, Inc., a Florida corporation
("BMI"), (collectively, the "Predecessor Companies"). The Predecessor Companies
were owned, directly or beneficially, in various ownership proportions by
Rodger R. Rohde, Sr., Rodger R. Rohde, Jr., Christopher J. Rohde and Cynthia J.
Rohde (collectively, the "Rohde Family Members"). Each of the Predecessor
Companies had elected to be taxed as an S corporation under the Internal
Revenue Code of 1986, as amended (the "Code"). The Company is a recently
organized Delaware corporation formed for the purpose of effecting the
consolidation of LSI, Old Triarco and BMI and pursuing this offering. The
Company has elected to be taxed as an S corporation under the Code; however, it
will withdraw such election prior to the consummation of this offering and will
thereafter be taxed as a C corporation under the Code.
On July 14, 1998, LSI and BMI were merged with and into Old Triarco, and on
July 20, 1998, Old Triarco was merged with and into the Company (collectively,
the "Mergers"). Prior to their Merger, LSI and Old Triarco borrowed
approximately $7.0 million and $4.0 million, respectively, under term notes
from a bank (the "Term Notes"), the proceeds of which were used by LSI and Old
Triarco to make a distribution of substantially all of their respective
accumulated and previously taxed S corporation earnings as of March 31, 1998 to
their respective shareholders, and BMI used its available cash to make such a
distribution to its shareholders. In addition, the Company anticipates that it
will make a further distribution of S corporation earnings prior to
consummation of this offering. The transactions described in this paragraph,
and the conversion of the Company from an S corporation to a C corporation, are
collectively referred to as the "Consolidation."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements." All statements other
than statements of historical facts included in this Prospectus, including,
without limitation, certain statements under the captions "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and located elsewhere herein may constitute forward-
looking statements. In addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "believe" or "continue" or the
negatives thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results
to differ materially from the Company's expectations ("Cautionary Statements")
are disclosed in this Prospectus, including, without limitation, in conjunction
with the forward-looking statements included in this Prospectus and under "Risk
Factors." All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements. These forward-looking
statements speak only as of the date of this Prospectus. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in
their expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
----------------
The Company uses the following trademarks, "Aminogen(R)," "Body
Mechanics(R)," "Carbogen(R)," "Fingerprint(R) Botanicals," "Legumase(R),"
"3D(R) Extracts" and "3D(R) Botanicals" and phrases, "Agree(TM) Enzymes" and
"Better Products, Better Ideas(TM)," among others, to identify its products.
Unless otherwise indicated, all other trademarks or service marks appearing in
this Prospectus are the trademarks or service marks of the companies that
utilize them.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby.
DEPENDENCE ON SIGNIFICANT CUSTOMERS; LACK OF LONG-TERM CONTRACTS
Net sales to General Nutrition Products, Inc. ("GNP"), a manufacturing
subsidiary of GNC, accounted for approximately 36.0%, 36.6% and 37.7% of the
Company's net sales for 1996, 1997 and the three months ended March 31, 1998,
respectively. Although GNP is primarily a manufacturer for GNC, GNP is also a
contract manufacturer for other customers. Net sales to Global Health, a
primary manufacturer of natural products for Herbalife as well as a contract
manufacturer for other customers, accounted for approximately 38.0%, 35.9% and
26.1% of the Company's net sales for 1996, 1997 and the three months ended
March 31, 1998, respectively. In addition, one product line, teas, represented
approximately 80% of Global Health's purchases from the Company and 27.6% of
the Company's net sales in 1997. No other single customer accounted for 10% or
more of the Company's net sales in 1997. The Company does not have long-term
contracts with any of its customers. There can be no assurance that the
Company's major customers will continue as major customers of the Company. The
loss of a major customer, the loss of a significant number of other customers,
or a significant reduction in purchase volume by or financial difficulty of
such customers, for any reason, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Customers."
EFFECT OF ADVERSE DEVELOPMENTS IN THE NUTRITIONAL SUPPLEMENTS INDUSTRY
The Company is a supplier of botanicals, teas, digestive enzymes, minerals
and other ingredients primarily to the nutritional supplement segment of the
natural products industry. The manufacturers of nutritional supplements
suggest that their offerings are safe natural products that may offer certain
health benefits. Accordingly, the Company is highly dependent upon consumers'
perception of the overall integrity of the nutritional supplements industry,
as well as the safety and quality of nutritional supplements. Although many of
the products supplied by the Company are substances for which there is a long
history of human consumption, some of the Company's products are innovative
ingredients or combinations of ingredients for which there is little long-term
experience with human consumption. Although the Company conducts extensive
quality control testing of its products, the Company generally does not
conduct or sponsor clinical studies relating to the benefits, or the long-term
effects, of its ingredient products or the final consumer products. The
Company has no control over the level of quality control testing of either its
customers or other suppliers of nutritional supplement ingredients, and there
can be no assurance that its customers or other suppliers adhere to the same
quality standards as the Company. Moreover, the Company has no control over
the labeling of most consumer products containing the Company's ingredients.
The Company could be materially adversely affected if a nutritional supplement
should prove, or be asserted to be, harmful to consumers, if scientific
studies provide unfavorable findings regarding the effectiveness of
nutritional supplements or if there are any other adverse developments in the
perception of nutritional supplements. As a supplier of ingredients for
nutritional supplements and other products that are ingested by consumers or
applied topically, the Company may be subjected to various product liability
claims, including, among others, that its products contain contaminants or are
not safe for their intended use. While such claims to date have not been
material to the Company and the Company maintains product liability insurance,
there can be no assurance that product liability claims and the resulting
adverse publicity will not have a material adverse effect on the Company. The
Company's business, financial condition and results of operations could also
be adversely affected if its customers fail to develop new consumer products
on a regular basis or to provide adequate marketing support for new or
existing products. The ability of the Company to supply ingredients for new
products is dependent upon a number of factors, including the Company's
ability to procure sufficient amounts of high-quality raw materials and to
respond to its customers' demands in a timely manner. See "Business--Industry
Growth," "--Governmental Regulation" and "--Product Liability Insurance."
9
<PAGE>
AVAILABILITY OF RAW MATERIALS
Although the Company has begun to cultivate some of its raw botanicals,
substantially all of the Company's raw materials are purchased from third
parties. The Company does not have any long-term supply contracts with respect
to its raw material requirements. Two of the Company's suppliers each
accounted for approximately 13% of the Company's purchases of raw materials in
1997; however, no other single supplier accounted for more than 10% of such
purchases. The raw materials utilized by the Company are agricultural or are
otherwise naturally occurring materials. The availability of agricultural raw
materials is subject to many risks, including agricultural disease, insect or
animal infestation, adverse weather conditions, adverse ground conditions and
natural and other disasters. Certain agricultural raw materials are available
only at specific times during a year due to the seasonality of growing periods
and harvest times. In addition, the available amount of raw materials which
are gathered and not cultivated (such as goldenseal and saw palmetto) may not
adjust in response to increasing demand. A substantial portion of the
Company's raw materials are obtained from foreign sources which are subject to
various restrictions related to imports to the United States, as well as
foreign governmental and other restrictions related to the production of the
raw materials and the export thereof. There can be no assurance that foreign
raw materials are cultivated or gathered subject to quality control standards,
if any, utilized by the Company or its domestic suppliers. Foreign raw
materials are subject to delays due to transportation, handling and/or export
or import controls. There can be no assurance that the Company will be able to
obtain the necessary amounts of its raw materials to meet the demand for its
products. If the Company experiences a raw materials shortage, it could have a
material adverse effect on the Company's business, financial condition and
results of operations.
GOVERNMENTAL REGULATION
The Company's business is subject to comprehensive regulation by numerous
federal governmental agencies, including the FDA, the Occupational Safety and
Health Administration ("OSHA") and the Environmental Protection Agency (the
"EPA"). The FDA regulates the Company's products under the Food Drug and
Cosmetic Act (the "FDCA") and the regulations promulgated thereunder. In
addition, the Company is subject to regulation by various state and local
agencies and will be subject to governmental regulations in foreign countries
where the Company plans to commence or expand sales. The FDA has promulgated
regulations with respect to the manufacture of pharmaceuticals, foods, flavors
and dietary supplements and has established GMPs for, among other things,
foods and pharmaceuticals. The Company's nutritional supplement ingredients
fit within the category of "dietary supplements" and, along with the Company's
teas, must be manufactured in compliance with food GMPs. Recently, however,
the FDA has announced that it is considering promulgating GMPs specific to
dietary supplements, which could adversely affect the Company's business,
financial condition and results of operations if the Company were unable to
comply with such GMPs. The safety of the Company's manufacturing operations
are regulated by OSHA. The Company's operations are subject to laws and
regulations governing, among other things, air emissions, waste water
discharge, solid and hazardous waste treatment and storage, disposal and
remediation of releases of hazardous materials administered by the EPA and
other state and local authorities. The inability or failure of the Company to
comply with any existing, modified or new governmental regulations applicable
to its business could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company manufactures ingredients for nutritional supplements that are further
manufactured, packaged, labeled, distributed and sold by third party
manufacturers, marketers and/or retailers that, along with other similar
participants in the nutritional supplements industry, are subject to
governmental regulations with respect to their businesses, including under the
Dietary Supplement Health and Education Act of 1994 ("DSHEA") which amended
the FDCA to provide increased flexibility in the marketing and sale of dietary
supplements. The Company has no control over the regulatory compliance
activities of these manufacturers, marketers and retailers, and their failure
to comply with applicable laws or regulations, and any detrimental effect such
failure has on the nutritional supplements industry, could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, an increase or change in the nature of the
governmental regulation applicable to the natural products or nutritional
supplements business, even if it were not to affect the Company's operations
directly, could have a material adverse effect on its business, financial
condition and results of operations to the extent such increase or change
impairs the business of its customers. See "Business--Governmental
Regulation."
10
<PAGE>
DEPENDENCE ON PROPRIETARY PROCESSES
Certain of the Company's products are produced pursuant to proprietary
processes which provide the Company a competitive advantage with respect to
those products. Generally, these proprietary processes are not patented and
are protected as trade secrets pursuant to confidentiality agreements with
third parties and key employees. If a competitor were to independently
develop, or otherwise legally obtain, a non-patented proprietary process of
the Company and use such process to produce products competing with those of
the Company, the Company's business, financial condition and results of
operations could be materially adversely affected.
RISKS ASSOCIATED WITH LIMITED MANUFACTURING FACILITIES
The Company's results of operations are dependent upon the continued
operation of its manufacturing facilities. Currently, the Company principally
relies on one manufacturing facility and is constructing another. Accordingly,
if either such principal manufacturing facility should experience any business
interruption, including the breakdown, failure or substandard performance of
equipment, construction delays, or natural and other disasters, it could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Processing" and "--Processing Facilities
and Distribution."
MANAGING AND MAINTAINING GROWTH
The Company is currently experiencing a period of rapid growth and expansion
which has placed, and could continue to place, significant demands on the
Company's management, customer service and support, operations, sales and
administrative personnel, and other resources. In order to serve the needs of
its existing and future customers, the Company has substantially increased and
will continue to increase its workforce, which requires the Company to
attract, train, motivate and manage qualified employees. As a result of recent
hiring to implement the Company's growth strategy, a significant number of the
Company's management team, other than the Rohde Family Members, have been with
the Company for less than one year. The Company's ability to manage its
planned growth requires the Company to continue to expand its operating
management, MIS and financial systems, all of which may significantly increase
its operating expenses. Failure of the Company to achieve its growth as
planned or the inability to manage its anticipated growth could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Growth Strategy."
DEPENDENCE ON KEY PERSONNEL
The success of the Company has been largely dependent on the efforts of
Rodger R. Rohde, Sr., its Chairman of the Board and Chief Executive Officer,
and the other Rohde Family Members. The Company has entered into an employment
agreement with each of the Rohde Family Members which has a three year term
and non-competition provisions generally applying for one year following the
termination of employment. The loss of the services of Rodger R. Rohde, Sr.,
the other Rohde Family Members or other key members of the management team
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."
COMPETITION
The nutritional supplements industry is highly competitive. The Company's
principal competition comes from major domestic and foreign manufacturers of
natural product ingredients, some of which have greater financial and other
resources than the Company. Although the ingredient suppliers segment within
the nutritional supplements industry has been characterized by many relatively
small participants, there can be no assurance that national or international
companies will not seek to enter or to increase their presence in the natural
products industry. Increased competition from current or future competitors or
backward integration by significant customers of the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Competition."
11
<PAGE>
NO ASSURANCE OF FUTURE INDUSTRY GROWTH
Although market data referred to in this Prospectus and otherwise available
to prospective investors regarding the size and projected growth rates of the
nutritional supplements industry indicate that such industry is large and
rapidly growing, there can be no assurance that such industry is as large as
reported or that such projected growth will occur or continue. Market data and
projections, such as those presented in this Prospectus, are inherently
uncertain and subject to change. In addition, the underlying market conditions
are subject to change based on economic conditions, consumer preferences and
other factors that are beyond the Company's control. There can be no assurance
that an adverse change in the size or growth rate of the natural products
industry or the nutritional supplements segment thereof will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
UNCERTAINTY RELATED TO ACQUISITIONS
The Company intends to use a portion of the net proceeds from this offering
to pursue the acquisition of complementary products, product lines or
businesses. Acquisitions involve a number of risks that could adversely affect
the Company's operating results, including the diversion of management's
attention, the assimilation of operations and personnel of the acquired
companies, the amortization of acquired intangible assets and the potential
loss of key employees of the acquired companies. Moreover, the Company has
never completed an acquisition, and currently is not engaged in any
acquisition discussions. There can be no assurance that the Company will
consummate future acquisitions on satisfactory terms, if at all, that adequate
financing will be available on terms acceptable to the Company, if at all,
that any acquired products, product lines or businesses will be successfully
integrated or that such products, product lines or businesses will ultimately
have a positive impact on the Company's business, financial condition or
results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
An element of the Company's growth strategy is to increase the distribution
and sale of the Company's products into international markets. The Company's
existing and planned international operations are subject to political and
economic uncertainties, including, among others, inflation, risk of
renegotiation or modification of existing agreements or arrangements with
governmental authorities, transportation, tariffs, export controls, government
regulation, trademark availability and registration issues, currency exchange
rate fluctuations, foreign exchange restrictions which limit the repatriation
of investments and earnings therefrom, changes in taxation, hostilities or
confiscation of property. Changes related to these matters could have a
material adverse effect on the Company.
BROAD DISCRETION IN USE OF PROCEEDS
Other than the repayment of indebtedness, the Company may not use the net
proceeds immediately upon consummation of this offering, and in some
instances, though the general purpose has been identified, no specific
expenditures have been committed. Accordingly, the Company will have broad
discretion in using the net proceeds of this offering. An investor will not
have the opportunity to evaluate the economic, financial and other relevant
information which will be utilized by the Company in determining the
application of such proceeds. See "Use of Proceeds" and "Business--Growth
Strategy."
CONCENTRATION OF OWNERSHIP
Following this offering, the Rohde Family Members and trusts for their
benefit will beneficially own approximately 74% of the outstanding Common
Stock. Accordingly, these stockholders will continue to have the ability to
elect all of the directors of the Company and to thereby direct or
substantially influence the management, policies and business operations of
the Company and will have the power to control the outcome of any matters
submitted to a vote of the Company's stockholders.
12
<PAGE>
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority to approve the issuance
of 1,000,000 shares of Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of any Preferred Stock that may be issued in the future.
Certain provisions of the Delaware General Corporation Law (the "DGCL"), as
well as the issuance of Preferred Stock, could delay or inhibit the removal of
incumbent directors and could delay, defer, make more difficult or prevent a
merger, tender offer or proxy contest, or any change in control involving the
Company, as well as the removal of management, even if such events would be
beneficial to the interests of the Company's stockholders, and may limit the
price certain investors may be willing to pay in the future for shares of
Common Stock. In addition, the Company's Board of Directors is classified into
three classes serving staggered, three-year terms, and accordingly, at least
two annual meetings of stockholders, instead of one, generally will be
required to change a majority of the Board of Directors. Prior to the
consummation of this offering, the Board of Directors of the Company will
declare a dividend of one Right (as defined) for each outstanding share of
Common Stock of the Company. A Right will also be attached to each share of
Common Stock subsequently issued. The Rights will have certain anti-takeover
effects. If triggered, the Rights would cause substantial dilution to a person
or group that acquires 15% or more of the Common Stock unless the Rights are
first redeemed by the Board of Directors of the Company. The Rights could
discourage or make more difficult a merger, tender offer, sale of all or
substantially all of the Company assets or other similar transactions. See
"Management--Executive Officers and Directors" and "Description of Capital
Stock--Anti-Takeover Matters."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in this offering will incur immediate and
substantial dilution of $ per share in the net tangible book value of their
shares from the initial public offering price. To the extent that currently
outstanding options to purchase Common Stock are exercised, there will be
further dilution. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in a public market
following this offering could adversely affect the market price of the Common
Stock. Holders of all outstanding shares of Common Stock have agreed, pursuant
to lock-up agreements (the "Lock-Up Agreements"), not to sell, offer, contract
or grant any option to sell, pledge, transfer, establish an open put
equivalent position or otherwise dispose of such shares for 180 days after the
date of the final Prospectus. Upon expiration of the Lock-Up Agreements,
approximately 9,393,838 additional shares of Common Stock will be available
for sale in the public market, subject to the provisions of Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). Following the
consummation of this offering, the Company intends to register an aggregate of
1,400,000 shares of Common Stock to be issuable under the 1998 Omnibus Stock
Incentive Plan. The Company is unable to predict the effect that sales made
pursuant to Rule 144 under the Securities Act, or otherwise, may have on the
then prevailing market price of the Common Stock. Sales pursuant to Rule 144
under the Securities Act or an exemption from registration may have an adverse
effect on the market price for the Common Stock and could impair the Company's
ability to raise capital through an offering of its equity securities. See
"Management--Employee Benefit Plans," "Description of Capital Stock," "Shares
Eligible for Future Sale" and "Underwriting."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the Representatives of the Underwriters and
may not be indicative of market prices of the Common Stock after this
offering. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The
13
<PAGE>
market price of the Common Stock may be subject to significant fluctuations in
response to variations in quarterly operating results and other events or
factors, such as announcements of new products by the Company, its customers
or its competitors and changes in financial estimates by securities analysts.
Moreover, the stock market and the market prices of the shares of many natural
products companies in recent years have experienced significant price and
volume fluctuations. These fluctuations often have been unrelated to the
operating performance of specific public companies. Broad market fluctuations,
as well as economic conditions generally, may adversely affect the market
price of the Common Stock.
COMPUTER SYSTEMS AND YEAR 2000 ISSUES
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. The
Company is conducting an assessment of its Year 2000 issues by reviewing
software and hardware requirements of its business systems and process control
environments. Based on this assessment to date, the Company does not
anticipate any significant costs, problems or uncertainties associated with
becoming Year 2000 compliant and is currently developing a plan to ensure that
its computer systems are modified to be compliant on a timely basis. Failure
of the Company or its software providers to adequately address the Year 2000
issue could result in misstatement of reported financial information or
otherwise adversely affect the Company's business, financial condition and
results or operations. In addition, the failure by the Company's customers to
adequately address the Year 2000 issue could adversely affect such customers'
ability to procure raw materials, such as those supplied by the Company, or
otherwise adversely affect such customers' operations, which in turn could
result in a material adverse effect to the Company's business, financial
condition and results of operations.
14
<PAGE>
DIVIDEND POLICY
After conversion to a C corporation, the Company does not expect to declare
or pay any cash dividends on its Common Stock. The Company currently intends
to retain future earnings, if any, to finance operations and expansion of its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Future cash dividends, if any, will be determined by the
Board of Directors and will be based upon the Company's results of operations,
capital, financial condition and other factors deemed relevant by the Board of
Directors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,300,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$ million, after deducting the underwriting discount and estimated offering
expenses. If the Underwriters' over-allotment option is exercised, the Company
will not receive any of the net proceeds from the sale of shares by the
Selling Stockholder. See "Principal and Selling Stockholders."
The Company intends to use the net proceeds from this offering as follows:
(i) approximately $15.0 million to repay indebtedness under the Term Notes and
the Company's revolving credit facility, (ii) approximately $10.0 million to
expand the Agricultural Division and the Herbal Processing Facility, (iii)
approximately $5.0 million to expand the Company's R&D and MIS functions and
(iv) approximately $2.5 million to launch the branding initiative. See
"Capitalization" for additional information regarding the Term Notes and
revolving credit facility.
The Company plans to use the balance of the net proceeds from this offering
for working capital and other general corporate purposes, including potential
acquisitions. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, investment-grade, interest-bearing
instruments.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 the capitalization of
the Company (i) on a historical basis, (ii) on a pro forma basis assuming
consummation of the Consolidation, recording of a deferred tax asset
concurrent with the Company becoming a C corporation, and recording of an
$11.0 million distribution of substantially all of the Predecessor Companies'
respective accumulated and previously taxed S corporation earnings to their
respective shareholders (collectively, the "Consolidation Adjustments") and
(iii) on a pro forma basis as adjusted to reflect the issuance and sale of the
3,300,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $ per share and the application of the
estimated net proceeds therefrom. This table should be read in conjunction
with the Company's Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total debt, including current portion(1)......... $ 1,000 $11,965 $ --
Stockholders' equity:
Preferred Stock, par value $1.00 per share,
1,000,000 shares authorized; none issued and
outstanding................................... -- -- --
Common Stock, par value $0.01 per share;
50,000,000 shares authorized; 9,393,838 shares
issued and outstanding actual and pro forma;
12,693,838 shares issued and outstanding pro
forma as adjusted(2).......................... 94 94 127
Additional paid-in capital..................... -- 6,329
Retained earnings.............................. 16,967 -- --
------- ------- -------
Total stockholders' equity................... 17,061 6,423
------- ------- -------
Total capitalization....................... $18,061 $18,388 $
======= ======= =======
</TABLE>
- --------
(1) Represents the revolving credit facility and the Term Notes. The revolving
credit facility expires June 30, 1999 and bears interest at a rate option
selected by the Company or approximately 6.91% per annum as of June 30,
1998. Each of the Term Notes matures on December 15, 1998 and bears
interest at a rate option selected by the Company or approximately 6.66%
per annum as of June 30, 1998. The proceeds of these Term Notes were used
by the Predecessor Companies to make a distribution of substantially all
of their respective accumulated and previously taxed S corporation
earnings to their respective shareholders. See "Prospectus Summary--
Corporate Consolidation."
(2) Excludes shares to be issuable upon exercise of stock options expected
to be granted on or after the consummation of this offering at an exercise
price equal to the initial public offering price. All share amounts
exclude 1,400,000 shares available for issuance under the Company's 1998
Omnibus Stock Incentive Plan. See "Management--Employee Benefit Plans--
1998 Omnibus Stock Incentive Plan."
16
<PAGE>
DILUTION
As of March 31, 1998, the historical net tangible book value of the Company
was $17.0 million, or $1.81 per share of Common Stock, and after giving effect
to the Consolidation Adjustments, the pro forma net tangible book value would
have been approximately $6.3 million, or $0.68 per share of Common Stock.
After giving further effect to the sale by the Company of the 3,300,000 shares
of Common Stock offered hereby, assuming an initial public offering price of
$ per share and after deducting the underwriting discount and estimated
offering expenses, the Company's pro forma as adjusted net tangible book value
as of March 31, 1998 would have been approximately $ million, or $ per
share of Common Stock. This represents an immediate increase in pro forma as
adjusted net tangible book value of $ per share to existing stockholders and
an immediate dilution of $ per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.......................... $
Net tangible book value per share as of March 31, 1998......... $1.81
Decrease per share attributable to the Consolidation Adjust-
ments.........................................................
Increase per share attributable to new investors...............
-----
Pro forma as adjusted net tangible book value after this offer-
ing.............................................................
----
Dilution per share to new investors.............................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration paid per share by the
existing stockholders and by the new investors, assuming an initial public
offering price of $ per share but before deducting the underwriting discount
and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 9,393,838 74.0% $ 93,938 % $0.01
New investors............. 3,300,000 26.0
---------- ----- ---------- --------
Total................... 12,693,838 100.0% $ 100.0%
========== ===== ========== ========
</TABLE>
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected financial data of the Company set forth below should
be read in conjunction with the Financial Statements of the Company, including
the Notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein. The statements
of operations data for the years ended December 31, 1995, 1996 and 1997, and
the balance sheet data as of December 31, 1996 and 1997 are derived from, and
are qualified by reference to, the audited Financial Statements included
elsewhere in this Prospectus. The statements of operations data for the years
ended December 31, 1993 and 1994 and the balance sheet data as of December 31,
1993, 1994 and 1995 are derived from audited financial statements not included
herein. The statements of operations data for the three months ended March 31,
1997 and 1998 and the balance sheet data as of March 31, 1998 are derived from
unaudited financial statements included elsewhere in this Prospectus. The
unaudited financial statements have been prepared by the Company on a basis
consistent with the Company's audited Financial Statements and, in the opinion
of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the information. Historical
results are not necessarily indicative of results to be expected in the
future. The unaudited pro forma statements of operations data give effect to
the Consolidation as if it had occurred at the beginning of the applicable
statements of operations period. The unaudited pro forma data do not purport
to be indicative of the results that would have been obtained had such
transactions in fact been completed after the periods presented or that may be
obtained in the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Net sales............... $12,783 $28,169 $23,646 $32,012 $41,995 $10,133 $11,074
Cost of sales........... 7,132 13,640 14,248 17,994 24,595 5,908 6,552
------- ------- ------- ------- ------- ------- -------
Gross profit............ 5,651 14,529 9,398 14,018 17,400 4,225 4,522
Selling, general and
administrative
expenses............... 4,933 5,100 5,557 7,128 8,666 2,032 2,183
Research and
development............ -- -- 148 384 407 102 150
------- ------- ------- ------- ------- ------- -------
Operating income........ 718 9,429 3,693 6,506 8,327 2,091 2,189
Interest expense........ -- -- 79 76 4 2 31
Other income............ (18) (93) (192) (23) (137) (24) (169)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 736 9,522 3,806 6,453 8,460 2,113 2,327
Income taxes............ 442 2,099 151 203 335 85 58
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 294 $ 7,423 $ 3,655 $ 6,250 $ 8,125 $ 2,028 $ 2,269
======= ======= ======= ======= ======= ======= =======
PRO FORMA DATA
(UNAUDITED):
Historical income before
income taxes........... 8,460 2,327
Pro forma adjustments
other than income
taxes(2)............... 1 31
------- -------
Pro forma income before
income taxes........... 8,461 2,358
Pro forma provision for
income taxes(3)........ 3,394 934
------- -------
Pro forma net income.... $ 5,067 $ 1,424
======= =======
Pro forma earnings per
share(4)............... $ $
======= =======
Pro forma weighted
average shares
outstanding(4).........
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
-------------------------------------- ----------------
PRO
1993 1994 1995 1996 1997 ACTUAL FORMA(5)
------ ------- ------- ------- ------- ------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 865 $ 4,117 $ 677 $ 1,780 $ 3,847 $ 2,990 $ 2,990
Working capital......... 915 6,637 6,147 9,046 12,408 13,345 2,731
Total assets............ 4,755 11,649 11,334 12,130 20,186 21,756 22,106
Total debt, including
current portion........ 590 42 1,289 54 2,000 1,000 11,965
Stockholders' equity.... 1,184 7,543 7,531 10,461 15,524 17,061 6,423
</TABLE>
- --------
(1) To the extent set forth in the Financial Statements, each of the
Predecessor Companies was treated as an S corporation and therefore was
not subject to federal income taxes and was subject to a reduced corporate
rate for state income taxes. As a result, income was passed through to the
respective shareholders for tax purposes. See Note 11 to the Financial
Statements and Note 3 below.
(2) Pro forma adjustments other than income taxes represents a reduction in
interest expense assuming the application of proceeds from the sale of
sufficient shares of Common Stock to repay all of the Company's
outstanding debt. See Note 4 below.
(3) Pro forma provision for income taxes is calculated as if the Company had
been subject to federal and additional state income taxes since January 1
of each period and represents an increase in income taxes of approximately
$3,059 and $876 in 1997 and for the three months ended March 31, 1998,
respectively. See "Prospectus Summary--Corporate Consolidation" and "Use
of Proceeds."
(4) Pro forma earnings per share is based on (i) pro forma net income as
indicated and (ii) 9,394 shares of Common Stock outstanding prior to this
offering, increased by the sale of sufficient shares of Common Stock,
assumed to be shares based on an assumed initial public offering price
of $ per share, to repay the Company's outstanding debt, assumed to be
$11,965, composed of $10,965 under the Term Notes and $1,000 under the
revolving credit facility.
(5) Pro forma to reflect (i) the distribution of $10,965 to the shareholders
of the Predecessor Companies, funded by the Term Notes and (ii) a deferred
tax asset of approximately $327 which the Company will record concurrently
with becoming a C corporation. See "Prospectus Summary--Corporate
Consolidation."
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Historical and Pro Forma Financial Data" and the Company's Financial
Statements and Notes thereto, which are included elsewhere in this Prospectus.
The following discussion contains forward-looking statements. Actual results
could differ materially. See "Risk Factors."
OVERVIEW
The Company is a leading vertically integrated supplier of high-quality,
high-purity natural product ingredients in ready-to-run form to nutritional
supplement manufacturers. These manufacturers further process these
ingredients into consumer salable form which are marketed through various
distribution channels. The Company records revenue upon shipment of natural
product ingredients to its customers. Net sales reflect discounts, allowances
and estimated returns and credits. Cost of sales consists primarily of
material costs, direct labor, manufacturing depreciation, processing and
packaging charges, and includes costs associated with the Agricultural
Division and the new Herbal Processing Facility. Selling, general and
administrative expenses consist primarily of administrative salaries, payroll
taxes, other depreciation, freight, professional fees and marketing and
advertising costs. Research and development costs consist primarily of lab
supplies, equipment and staff and scientists associated with the Company's
product development efforts.
Gross margins are affected by, among other things, changes in the relative
sales mix among and within the Company's three main product categories:
botanicals (herbs), teas and specialty products. Historically, gross margins
from teas have been higher than gross margins on botanicals or specialty
items. Fluctuations in product categories, and product mix within those
categories, are attributable to (i) cyclical and seasonal variations in
consumer demand for individual natural products, (ii) sudden shifts in
consumer demand for particular natural products, (iii) order flow from the
Company's customers, which may or may not correspond directly to consumer
demand and typically reflects the customers' desire for just-in-time inventory
and (iv) timing and availability issues associated with the Company's
purchases of raw materials from vendors, which reflects the agricultural
nature of these raw materials and does not necessarily correlate with order
flow from customers. Gross margins are also currently adversely affected by
the Company's investment in the Agricultural Division and the Herbal
Processing Facility, the benefits of which are expected to positively affect
gross margins in the future. This variability in gross margins makes quarterly
results difficult to predict.
As a result of the Company's conversion to C corporation status in
conjunction with this offering, the Company will become subject to federal and
additional state income taxes. Accordingly, the Company will pay significantly
higher income taxes in the future.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 60.3 56.2 58.6 58.3 59.2
------- ------- ------- ------ ------
Gross profit....................... 39.7 43.8 41.4 41.7 40.8
Selling, general and administrative
expenses.......................... 23.5 22.3 20.6 20.1 19.7
Research and development........... 0.6 1.2 1.0 1.0 1.4
------- ------- ------- ------ ------
Operating income................... 15.6 20.3 19.8 20.6 19.8
Interest expense................... 0.3 0.2 -- -- 0.3
Other income....................... (0.8) (0.1) (0.3) (0.2) (1.5)
------- ------- ------- ------ ------
Income before income taxes......... 16.1% 20.2% 20.1% 20.9% 21.0%
======= ======= ======= ====== ======
</TABLE>
20
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Net sales increased by $941,000, or 9.3%, to $11.1 million for the first
quarter 1998 from $10.1 million for the first quarter 1997. This increase was
due primarily to a $1.4 million increase in the sale of botanicals, offset by
a $141,000 and $276,000 decrease in the sale of teas and specialty products,
respectively. This increase was also attributable to sales to new customers.
Cost of sales increased by $644,000, or 10.9%, to $6.6 million for the first
quarter 1998 from $5.9 million for the first quarter 1997. As a percentage of
net sales, cost of sales increased to 59.2% for the first quarter 1998 from
58.3% for the first quarter 1997. The increase in cost of sales as a
percentage of net sales was primarily due to higher overhead and start-up
costs related to the Herbal Processing Facility and the Agricultural Division,
which were not operating at full capacity. This increase was also due to the
lower proportion of sales of tea, which typically has a lower cost than
botanicals and specialty products.
Selling, general and administrative expenses increased by $151,000, or 7.4%,
to $2.2 million for the first quarter 1998 from $2.0 million for the first
quarter 1997. This increase was primarily attributable to the addition of
senior personnel required to implement the Company's growth strategy. As a
percentage of net sales, selling, general and administrative expenses
decreased to 19.7% for the first quarter 1998 from 20.1% for the first quarter
1997. This decrease was primarily a result of the increase in net sales.
Research and development increased by $48,000, or 47.1%, to $150,000 for the
first quarter 1998 from $102,000 for the first quarter 1997. This increase was
primarily attributable to the hiring of two scientists in late 1997 to
increase the Company's product development efforts. As a percentage of net
sales, research and development increased to 1.4% for the first quarter 1998
from 1.0% for the first quarter 1997. The Company expects research and
development to approximate 1.0% to 1.5% of annual net sales in the future.
Interest expense increased by $29,000 to $31,000 for the first quarter 1998
from $2,000 for the first quarter 1997. This increase in interest expense was
primarily due to a higher average debt balance outstanding under the Company's
revolving line of credit, as the Company did not utilize the revolving line of
credit in the first quarter 1997.
Other income increased by $145,000 to $169,000 for the first quarter 1998
from $24,000 for the first quarter 1997. The increase in other income was
primarily due to the receipt of settlement proceeds relating to litigation
settled in January 1998 for $1.2 million, payable in 60 equal monthly
installments.
Income taxes decreased by $27,000 to $58,000 for the first quarter of 1998
from $85,000 for the first quarter 1997. The decrease in income tax was
primarily due to the Company electing to be treated as an S corporation for
the state of California, which became effective on January 1, 1998. The
Company had previously elected S corporation treatment for federal and New
Jersey purposes. As discussed above, upon termination of the Company's S
corporation status, the Company will become subject to federal and additional
state income taxes.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales increased by $10.0 million, or 31.2%, to $42.0 million for 1997
from $32.0 million for 1996. This increase was due primarily to a $6.3
million, $3.2 million and $534,000 increase in the sale of botanicals, teas
and specialty products, respectively. A portion of the increase in the sale of
botanicals resulted from sales of St. John's wort, which became popular in the
United States in 1997.
Cost of sales increased by $6.6 million, or 36.7%, to $24.6 million for 1997
from $18.0 million for 1996. As a percentage of net sales, cost of sales
increased to 58.6% for 1997 from 56.2% for 1996. The increase in the cost of
sales as a percentage of net sales was primarily due to the start-up nature of
the Herbal Processing Facility and Agricultural Division, which had limited
production in 1997.
21
<PAGE>
Selling, general and administrative expenses increased by $1.5 million, or
21.6%, to $8.7 million for 1997 from $7.1 million for 1996. This increase was
primarily due to higher personnel costs associated with an increase in
executive compensation and profit sharing due to the Company's increased
profitability and an increase in administrative staff to support the Company's
expansion and new operations. There were also increases in consulting costs to
improve the Company's MIS and marketing effort to increase customer awareness
of the Company. As a percentage of net sales, selling, general and
administrative expenses decreased to 20.6% for 1997 from 22.3% for 1996. This
decrease was primarily a result of the increase in net sales.
Research and development increased by $23,000, or 6.0%, to $407,000 for 1997
from $384,000 for 1996. As a percentage of net sales, research and development
decreased to 1.0% for 1997 from 1.2% for 1996.
Interest expense decreased by $72,000 to $4,000 for 1997 from $76,000 for
1996. The decrease in interest expense was primarily due to a higher average
debt balance outstanding during 1996 under a revolving line of credit, which
was fully repaid by December 31, 1996. The Company did not utilize its line of
credit again until the end of 1997.
Other income increased by $114,000 to $137,000 for 1997 from $23,000 for
1996. The increase in other income was primarily due to an increase in
interest income earned on higher average invested cash balances during 1997.
The increase in invested cash was primarily due to the Company's increased
profitability during 1997.
Income taxes increased by $132,000 to $335,000 for 1997 from $203,000 for
1996. The increase in income tax was primarily due to higher income generated
during 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales increased by $8.4 million, or 35.4%, to $32.0 million for 1996
from $23.6 million for 1995. This increase was due primarily to a $2.3 million
and $6.7 million increase in the sale of botanicals and teas, respectively,
offset by a $667,000 decrease in specialty products. Tea sales increased to
$8.4 million in 1996 from $1.7 million in 1995; however, tea sales in 1995
were negatively affected by the Company's primary tea customer procuring a
substantial portion of its 1995 tea requirements in 1994.
Cost of sales increased by $3.7 million, or 26.3%, to $18.0 million for 1996
from $14.2 million for 1995. As a percentage of net sales, cost of sales
decreased to 56.2% for 1996 from 60.3% for 1995. This decrease was primarily
due to the higher proportion of sales of tea, which typically has a lower cost
than botanicals and specialty products.
Selling, general and administrative expenses increased by $1.6 million, or
28.3%, to $7.1 million for 1996 from $5.6 million for 1995. This increase was
a result of increased personnel costs associated with the hiring of additional
management and support staff, primarily to expand human resources and
accounting functions, and an increase in executive compensation as a result of
the Company's improved profitability. In addition, the Company moved into a
new corporate headquarters during early 1996 to accommodate the increased
management and administrative staff. As a percentage of net sales, selling,
general and administrative expenses decreased to 22.3% for 1996 from 23.5% for
1995. This decrease was primarily a result of the increase in net sales.
Research and development increased by $236,000, or 159.5%, to $384,000 for
1996 from $148,000 for 1995. This increase was primarily attributable to the
hiring of additional lab personnel to expand the Company's product development
efforts. As a percentage of net sales, research and development increased to
1.2% for 1996 from 0.6% for 1995.
Interest expense decreased by $3,000 to $76,000 for 1996 from $79,000 for
1995.
22
<PAGE>
Other income decreased by $169,000 to $23,000 for 1996 from $192,000 for
1995. The decrease in other income was primarily attributable to a decrease in
interest income as a result of lower average invested cash balances. The
decrease in invested cash was the result of the pay down of the Company's
revolving line of credit and an effort to reduce trade payables.
Income taxes increased by $52,000 to $203,000 for 1996 from $151,000 for
1995.
SELECTED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
-------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales..................... $10,133 $8,573 $11,171 $12,118 $11,074
Cost of sales................. 5,908 5,160 6,347 7,180 6,552
------- ------ ------- ------- -------
Gross profit.................. 4,225 3,413 4,824 4,938 4,522
Selling, general and adminis-
trative expenses............. 2,032 2,067 2,240 2,327 2,183
Research and development...... 102 101 102 102 150
------- ------ ------- ------- -------
Operating income.............. 2,091 1,245 2,482 2,509 2,189
Interest expense.............. 2 -- 1 1 31
Other income.................. (24) (34) (39) (40) (169)
------- ------ ------- ------- -------
Income before income taxes.... $ 2,113 $1,279 $ 2,520 $ 2,548 $ 2,327
======= ====== ======= ======= =======
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
-------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 58.3 60.2 56.8 59.3 59.2
------- ------ ------- ------- -------
Gross profit.................. 41.7 39.8 43.2 40.7 40.8
Selling, general and adminis-
trative expenses............. 20.1 24.1 20.1 19.2 19.7
Research and development...... 1.0 1.2 0.9 0.8 1.4
------- ------ ------- ------- -------
Operating income.............. 20.6 14.5 22.2 20.7 19.8
Interest expense.............. -- -- -- -- 0.3
Other income.................. (0.2) (0.4) (0.3) (0.3) (1.5)
------- ------ ------- ------- -------
Income before income taxes.... 20.9% 14.9% 22.6% 21.0% 21.0%
======= ====== ======= ======= =======
</TABLE>
The Company believes that its sales are somewhat seasonal, historically
experiencing somewhat higher activity during the second half of the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity and capital resources has been
cash flow generated from operations, supplemented from time to time by
borrowings under revolving credit facilities. Net cash provided by operating
activities was $1.7 million, $5.3 million and $6.0 million for the three
months ended March 31, 1998, and in 1997 and 1996, respectively.
The Company's primary uses of capital have been expansion and maintenance of
manufacturing, processing and agricultural facilities. Net cash used in
investing activities, primarily capital expenditures, was $775,000, $2.1
million and $344,000 for the three months ended March 31, 1998 and in 1997 and
1996, respectively. Capital expenditures for the Company are expected to total
approximately $7.4 million and $1.7 million in 1998 and 1999, respectively.
23
<PAGE>
The Company currently has a $5.0 million revolving credit facility which
expires on June 30, 1999. At March 31, 1998, $1.0 million was outstanding
under the revolving credit facility, which bears interest at the lender's
prime rate or the London Interbank Offered Rate ("LIBOR") plus 1.25%.
Borrowings under the revolving credit facility are collateralized by
substantially all of the Company's assets. The revolving credit facility
contains customary covenants, including a restriction on certain business
combinations.
In June 1998, the Company entered into the Term Notes under which it has
borrowed an aggregate of $11.0 million, which are due December 15, 1998 and
bear interest at the lender's prime rate or LIBOR plus 1.0%. The proceeds from
the Term Notes were utilized to make a distribution of substantially all of
the Company's accumulated and previously taxed S corporation earnings as of
March 31, 1998. Borrowings under the Term Notes are collateralized by
substantially all of the Company's assets. The Term Notes will be repaid with
the proceeds of this offering.
The Company intends on using a portion of the net proceeds from this
offering to repay borrowings under the revolving credit facility and the Term
Notes discussed above. The Company believes that proceeds from this offering,
internally generated funds and amounts available under its revolving credit
facility will be sufficient to meet the Company's capital and other cash
requirements for the foreseeable future.
YEAR 2000
The Company has developed a plan to achieve Year 2000 compliance with
respect to its business systems, including systems and user testing scheduled
to commence in the fourth quarter of 1998. The Company does not currently
expect Year 2000 issues related to its business systems to have any material
effect on the Company's costs or to cause any significant disruption in
operations and expects such systems to be Year 2000 compliant by early 1999.
The Company has completed the necessary modifications and upgrades to its
process control environment to be Year 2000 compliant. The Company relies on
systems maintained by third parties; accordingly, the Company also is
developing a contingency plan designed to minimize the risk of third party
noncompliance. The Company believes that it will incur additional costs
ranging from $125,000 to $175,000 to achieve Year 2000 compliance.
24
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading vertically integrated supplier of high-quality,
high-purity natural product ingredients in ready-to-run form to nutritional
supplement manufacturers. The Company cultivates, procures, cleans, processes,
grinds, granulates, blends and formulates premium natural products that meet
the increasing demands of its customers for value-added ingredients. The
Company works closely with these customers in developing products that meet
the customers' desired label claims with consistent and measurable compounds.
The Company also develops ready-to-run forms that accommodate customers'
existing tablet, capsule, powder or liquid packaging capabilities. Moreover,
the Company provides to its customers value-added technical and R&D support.
The Company's customers include a diverse range of nutritional supplement
manufacturers which process the Company's natural product ingredients into
consumer salable form which are then marketed through various distribution
channels. These distribution channels include (i) multi-level marketers such
as Herbalife and Amway, (ii) specialty health products retailers such as GNC,
Whole Foods and Wild Oats and (iii) mass market retailers such as major drug
stores, supermarkets and discount stores. Under the dedication and leadership
of the Rohde family, who share more than 40 years experience in the
nutritional supplements industry, the Company has developed long-standing
relationships with industry leaders including GNC, Global Health (a major
manufacturer for Herbalife), Pharmavite and Rexall Sundown. Each distribution
channel targets consumers with specific purchasing characteristics with
respect to product formulation, quality and price. By maintaining the
flexibility to effectively assist its customers in meeting these diverse
consumer requirements, the Company believes it maximizes its ability to
continually increase the breadth and depth of its customer base.
Quality assurance and quality control are a fundamental aspect of the
Company's business strategy. These disciplines are designed to address both
the quality of the Company's botanical manufacturing process and the identity
and purity of the Company's ingredients. The Company continues to invest in
agricultural, scientific and manufacturing assets and personnel and is
committed to elevating the standards for acceptable purity, consistency and
quality of natural product ingredients, thus establishing a competitive
advantage over other ingredient suppliers. In conjunction with this effort,
the Company launched its Agricultural Division in late 1996 by leasing a 500
acre certified organic farm, principally for the purpose of conducting
agricultural R&D. In addition, the Company is currently constructing a state-
of-the-art Herbal Processing Facility that will expand its botanical
processing capacity and capabilities.
COMPETITIVE STRENGTHS
INNOVATIVE CUSTOMER SOLUTIONS
Vertical integration provides the Company with the operational flexibility
and breadth of capabilities to offer innovative customer solutions in a
rapidly evolving industry. The Company's botanical ingredient production
system begins with the acquisition of raw botanicals and extends through the
shipment of consistent, high-quality, high-purity ingredients to its customers
in ready-to-run form. As a result, the Company is able to provide to its
customers innovative solutions at each level of botanical production, from R&D
at the agricultural level to branding initiatives at the consumer level, thus
meeting the increasing demand of customers for value-added ingredients and
services. This vertical integration is in contrast to many of the Company's
competitors, which typically possess only a few botanical processing
capabilities in-house. Moreover, the Company believes that its ability and
dedication to providing innovative solutions makes it a supplier of choice.
DOCUMENTED QUALITY ASSURANCE PROGRAM
To ensure the production of high-quality, high-purity natural product
ingredients, the Company utilizes a documented quality assurance program. This
program implements GMPs established by the FDA that, among other things,
address processing, cleanliness, testing, sampling and formulations. The
Company believes that in
25
<PAGE>
appropriate instances its GMPs approach pharmaceutical standards. Currently,
the Company is pursuing ISO 9002 certification (an internationally recognized
quality assurance standard), which it believes will complement its customers'
GMP endeavors and facilitate entry into European markets.
STRINGENT QUALITY CONTROL
The Company has developed and operates a comprehensive quality control
program that subjects all of the Company's products to a battery of stringent
tests commencing prior to acceptance of raw materials and continuing through
the shipment of finished goods. This program, among other things, identifies
botanical raw materials and measures the marker compounds. By precisely
identifying and measuring marker compounds, the Company selects and
standardizes ingredients to customer specifications, thus substantially
reducing the natural inconsistencies of raw botanicals. To support this
effort, the Company has made significant investments in sophisticated testing
methods and equipment, including TLC, GC and HPLC. The Company's stringent
quality control is a value-added service that complements its customers'
internal quality control programs.
BROAD CUSTOMER REACH
The Company supplies natural product ingredients to customers that
manufacture nutritional supplements for sale through three major distribution
channels: multi-level marketers, specialty health products retailers and mass
market retailers. Each distribution channel targets consumers with specific
purchasing characteristics with respect to product formulation, quality and
price. By maintaining the flexibility to effectively assist its customers in
meeting these diverse consumer requirements, the Company believes it maximizes
its ability to continually increase the breadth and depth of its customer
base.
EXPERIENCED MANAGEMENT
The Company's management team has extensive experience in the nutritional
supplements industry. Rodger R. Rohde, Sr., who founded the Company in 1978,
has over 30 years of experience in the nutritional supplements, flavors and
fragrance industries. Since the Company's inception, Rodger R. Rohde, Sr. and
each of the other Rohde Family Members who has subsequently joined him have
been actively involved in the day-to-day operations of the business. The Rohde
Family Members have developed long-standing relationships with industry
leaders, such as GNC, Global Health, Pharmavite and Rexall Sundown, as well as
with major vendors of the Company's raw materials. In an industry
characterized by few long-term contracts, these long-standing relationships
are a significant source of competitive advantage.
GROWTH STRATEGY
The Company's growth strategy is to maintain and strengthen customer
relationships and improve operations and financial performance by focusing on
the following principal elements:
BROADEN MARKET REACH
Develop New Products. The Company, through the efforts of its product
development team, has four patents on enzyme products and is continuing to
aggressively develop patentable formulas and processes, as well as other
proprietary ingredients. The Company's growth strategy entails aiming new
product development initially at the multi-level marketing distribution
channel to capture the benefits of personal selling and maximize consumer
acceptance of the new product or category. This new product development effort
will be marketed to new and existing customers by the Company's new national
sales manager and sales team.
Enter New Markets. The Company plans to leverage its competitive strengths
to enter related markets in the natural products industry, such as the natural
food and cosmetic and beauty aids industries, as well as the pharmaceutical
industry. Each of these related industries is increasingly demanding premium
natural ingredients. The Company also plans to pursue sales into international
markets by recruiting dedicated sales professionals and continuing to register
products and trademarks in attractive foreign markets.
26
<PAGE>
Strengthen Existing Relationships. The Company's long standing customer
relationships are based on its commitment to providing high-quality, high-
purity ingredients and proactive customer service. The Company's growth
strategy entails assembling specialized internal marketing teams to develop
innovative customer solutions, such as specialized ingredient blends and end-
product forms, technical and R&D assistance, and flexible and reliable
deliveries. In addition, senior management continues to support new
initiatives that augment customers' new product development and marketing
activities.
IMPROVE RAW MATERIAL QUALITY AND AVAILABILITY THROUGH AGRICULTURAL R&D
As a part of its agricultural R&D efforts, the Company is developing
improved farming methods for its raw botanicals at its 500 acre certified
organic farm. These farming initiatives are designed to increase yield,
improve plant strength, accelerate plant growth and reduce related farming
costs. Additional agricultural R&D initiatives are directed at developing
methods to cultivate naturally occurring raw materials which traditionally
have been purchased from gatherers. The Company intends to leverage the
proprietary knowledge gained from its agricultural R&D by assisting other
growers in improving the quality and yield of their raw materials and
providing incentives to such growers to cultivate raw materials on behalf of
the Company.
DEVELOP BRAND NAME RECOGNITION
The Company's growth strategy emphasizes building strong recognition, at the
consumer level, of the Company's branded ingredients as premium brands of
high-quality, high-purity natural product ingredients. The Company's
Fingerprint(R) Botanicals trademark is used on a line of products sold by GNC
and is specifically attributed to the Company on the labeling of these GNC
products. The Company will promote this and other brands it is currently
developing for mass market retailers through a widespread multimedia marketing
and advertising strategy aimed at both its customers and the end consumers.
PURSUE STRATEGIC ACQUISITIONS
The Company plans to capitalize on the highly fragmented nature of the
nutritional supplements industry by seeking acquisitions of (i) additional
natural ingredient manufacturing companies, (ii) niche companies that provide
services along the botanical ingredient production process, (iii) agricultural
concerns that produce raw materials, (iv) companies that provide vertical
integration opportunities for the Company's enzyme and mineral product lines
and (v) companies in related industries such as natural foods and cosmetic and
beauty aids.
INDUSTRY GROWTH
The natural products industry is composed of three segments: nutritional
supplements, natural foods, and natural cosmetics and beauty aids. Within the
natural products industry, the Company competes primarily in the nutritional
supplements segment which is composed of vitamins, minerals and other dietary
supplements. The Company is also currently developing products suitable for
sale to the natural foods and natural cosmetics and beauty aid segments.
NUTRITIONAL SUPPLEMENTS
According to The U.S. Market for Vitamins, Supplements, and Minerals, a 1997
market report prepared by Packaged Facts (the "Packaged Facts Report"), an
independent consumer marketing research firm, the retail market for vitamins,
minerals and other supplements (excluding sports nutrition and diet products)
has grown at a CAGR of 15% from $3.7 billion in 1992 to $6.5 billion in 1996.
A large portion of this growth is attributable to an increase in sales of
other supplements (primarily herbal products), which grew from $570 million in
1992 to $2.3 billion in 1996. Growth in this category has been fueled by the
popularity of such herbs as echinacea, garlic, ginseng, ginkgo and, more
recently, saw palmetto and St. John's wort. According to the Packaged Facts
Report, CAGRs from 1992 through 1996 for vitamins, minerals and other
supplements were 8.0%, 5.2% and 41.7%, respectively. In addition, the Packaged
Facts Report forecasts a 13.6% CAGR in the market for vitamins, minerals and
other supplements (excluding sports nutrition and diet products), including a
25% CAGR in the market for other supplements, through 2001.
27
<PAGE>
The Company believes that growth in the nutritional supplements industry has
been driven by (i) the aging of the "baby boom" generation combined with
consumers' tendency to purchase more nutritional supplements as they age, (ii)
the publication of research findings supporting the positive health effects of
certain nutritional supplements, (iii) increased media attention on the use
and efficacy of nutritional supplements, (iv) the nationwide trend toward
preventive medicine in response to rising healthcare costs, (v) increased
consumer interest in herbs and herb-related supplements and (vi) increased
interest in healthier lifestyles and the connection between diet and health.
NATURAL FOODS AND NATURAL COSMETICS AND BEAUTY AIDS
The Company believes that the natural foods and natural cosmetics and beauty
aids industries will also demonstrate growth due to several factors, including
(i) consumer concern over the purity and safety of foods and cosmetics and
beauty aids due to the presence of pesticide residues, preservatives,
artificial ingredients and other chemicals, (ii) consumer awareness of the
link between diet and health, (iii) consumer desire for cosmetics and beauty
aids free from animal testing and (iv) consumer awareness of environmental
issues. The proliferation of natural food supermarkets, including Whole Foods
and Wild Oats, is helping to fuel growth in these industries, as well as the
increasing acceptance of natural food products and cosmetics by traditional
grocery stores and supermarkets.
DISTRIBUTION CHANNELS
The natural products industry growth has been fueled by sales across a
number of distribution channels. Nutritional supplements are sold through
several channels of distribution, primarily mass market retailers, specialty
health products retailers and multi-level marketers, as well as through mail
order and the Internet. In 1996, according to the Packaged Facts Report, 45.8%
of sales of vitamins, minerals and other supplements were generated through
the mass market retailers channel, 38.2% of such sales through specialty
health products retailers and 16.0% of such sales through multi-level
marketers, mail order and the Internet.
The United States mass market retailers distribution channel consists of
major drug stores, supermarkets and discount stores. According to the Packaged
Facts Report, in the mass market retailers distribution channel, sales of
vitamins, minerals and other supplements have increased from approximately
$2.3 billion in 1994 to approximately $3.0 billion in 1996. Sales of herbal
and other supplements have exhibited the highest level of growth in the mass
market distribution channel from 1994 to 1996. Within drug stores and discount
stores, sales of herbal and other supplements increased as a percentage of
total sales from an estimated 13.1% in 1994 to an estimated 20.9% in 1996.
Herbal and other supplements have begun to penetrate food stores as well,
increasing from 8% of total sales in 1994 to 12% in 1996.
The United States specialty health products retailers distribution channel
is composed of over 9,500 stores, which are generally either independently
owned or associated with one of several regional or national chains, such as
GNC, Wild Oats and Whole Foods. According to the Packaged Facts Report,
nutritional supplements account for over 38% of a typical health products
store's sales. The specialty health products retailers channel of distribution
has continued to experience growth in recent years as national chains, as well
as other industry participants, continue to add stores in new and existing
markets.
The distribution of products through multi-level marketing has grown
significantly in recent years. The Direct Sellers Association (the "DSA")
reported total 1996 direct sales at retail of $20.8 billion in the United
States. According to the Survey of Attitudes Toward Direct Selling
commissioned by the DSA, food, nutrition and wellness products are among the
fastest growing categories in the direct selling industry.
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PRODUCTS
The Company offers a broad range of ready-to-run premium ingredients for
nutritional supplements and other natural products. In 1997, the Company
manufactured over 700 products in three categories, botanicals (herbs), teas
and specialty products, which accounted for 55.6%, 27.7% and 16.7% of net
sales, respectively. The Company is continually reviewing and rationalizing
its product line in order to focus on products with higher margins and growth
potential in conjunction with customers' needs.
BOTANICALS (HERBS)
Botanicals are ingredients derived from plants that are cultivated or
collected and processed with the intent to supplement wellness. Examples of
the Company's botanicals include bilberry, black cohosh, chamomile, cranberry,
dong quai, echinacea, feverfew, garlic, ginkgo biloba, ginseng, goldenseal,
guarana, kava kava, milk thistle, St. John's wort, saw palmetto and valerian.
The Company sells botanicals as milled powders and, to a limited extent,
granulations, where the plant has been dried and ground, and extracts, where
the plant has been dried, ground and exposed to solvents designed to
concentrate the constituents of the botanical, with the remaining solvents
being distilled off leaving a concentrated paste. Botanical extracts are sold
as liquid extracts (emulsions) or, if dried, as powdered extracts. The Company
has the capability of producing and blending each of its botanicals in a wide
variety of forms and concentrations to meet the various requirements of its
customers. For example, the Company produces over 20 ginseng products that
vary as to marker compound concentration, density, viscosity and form, a
capability possessed by few of the Company's competitors.
TEAS
The Company has developed a proprietary process to manufacture a granulated
instantized tea mix formulation that meets the specified preparation, flavor,
calorie and energy requirements of Herbalife, which purchases this formulation
from Global Health. These teas were launched in 1994 and have achieved a high
level of consumer acceptance as a weight management product and are promoted
by Herbalife both domestically and internationally. The Company is currently
collaborating with Herbalife and Global Health to develop a line extension of
flavored teas to improve the penetration of, and expand the overall market
for, its tea.
SPECIALTY PRODUCTS
Minerals. The mineral ingredients sold by the Company are compounds that
seek to increase the effectiveness of elemental minerals by binding them to
other organic materials. Examples of the Company's minerals include calcium,
chromium, iron, magnesium, molybdenum, selenium and zinc. In addition, the
Company blends certain minerals to produce premixed ingredients for customers
which manufacture multivitamins.
Enzymes. Enzymes are proteins that isolate and break down certain compounds
within certain classifications of foods. Examples of the Company's enzymes
include cellulase, lactase, lipase and protease which isolate and break down
cellulose, lactose, fats and protein, respectively. The Company has also
created custom enzyme blends such as Agree(TM) Enzymes that exploit the
specific activities of individual enzymes to address the most common digestive
intolerances associated with dairy products, rich foods, beef, pork and fish,
fruits and vegetables, and pasta and potatoes. In addition, the Company has
patented enzyme systems such as Legumase(R), an anti-flatulent, Aminogen(R), a
sports nutrition product designed to aid in the break down of proteins for
muscle building, and Carbogen(R), which breaks down complex carbohydrates.
Although enzymes accounted for minimal net sales in 1997, the Company believes
that the category exhibits significant growth potential.
Other Specialty Products. Other specialty products include aloe vera, dry
apple cider vinegar, garlic oil, lactobacillus acidophilus, lecithin, parsley
seed oil, shark cartilage, spirulina algae and various specialty ingredients
for the sports nutrition, dietary, and cosmetics and beauty aids industries.
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BRANDING INITIATIVES
One of the Company's growth strategies is to create recognition of the
Company's products at the consumer level through branding initiatives. The
Company expects that creating recognition of its ingredients at the consumer
level and the association of the Company's brand with high-quality, high-
purity ingredients will result in increased demand by the Company's customers
for the Company's ingredients.
GNC was the first customer to support the concept of the Company's branded
ingredients and introduced its Nature's Fingerprint line in 1995. GNC's
Nature's Fingerprint line contains the Company's first line of branded,
premium, natural ingredients, Fingerprint(R) Botanicals. Supported by the use
of TLC, an advanced scientific identifying testing method that reveals a
botanical's "fingerprint," the Fingerprint(R) Botanicals brand has a distinct
consumer marketing appeal. The Company-owned Fingerprint(R) Botanicals
trademark and logo, along with the Company's name, appear on the bottles of
all two-piece capsule and liquid Nature's Fingerprint products for which the
Company supplies ingredients.
The Company is currently developing other branded ingredients for mass
market retailers and plans to promote its branded ingredient products through
a widespread multimedia marketing and advertising strategy aimed at both its
customers and the end consumers.
CUSTOMERS
The Company sells its products to a diverse range of nutritional supplement
manufacturers for multi-level marketers, specialty health products retailers
and mass market retailers, as well as private label manufacturers. Selected
key customers of the Company include:
GNC...................... GNC is a domestic and international
specialty retailer of vitamin and mineral
supplements, sports nutrition products and
herbs and is also a provider of personal
care and other health related products. As
of January 31, 1998, the GNC chain
consisted of approximately 3,210 stores
domestically and approximately 225 owned
and franchised stores in approximately 15
international markets, including the United
Kingdom and Canada. For the year ended
January 31, 1998, net revenue totaled
approximately $1.2 billion. GNC has been a
customer of the Company since 1980 and
accounted for 36.0%, 36.6% and 37.7% of the
Company's net revenues in 1996, 1997 and
the three months ended March 31, 1998,
respectively.
Global Health............ Global Health is a developer and custom
manufacturer of dietary and nutritional
supplements. Global Health develops and
manufactures vitamins, minerals, herbs,
teas and other supplements in tablet,
capsule and powder form in a variety of
shapes, sizes, colors, flavors and textures
designed to meet its customers'
specifications. Global Health's products
are sold to over 60 customers, including
Herbalife, which accounted for a major
portion of Global Health's sales in 1997.
Herbalife is a multi-level marketing
company that sells a wide range of weight
management products, food and dietary
supplements and personal care products
worldwide. In 1997, Herbalife conducted
business in over 36 countries and had
retail sales totaling approximately $1.5
billion. Global Health and its predecessors
have been a customer of the Company since
1987 and accounted for 38.0%, 35.9% and
26.1% of the Company's net sales in 1996,
1997 and the three months ended March 31,
1998, respectively.
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Pharmavite............... Pharmavite is a manufacturer and marketer
of nutritional supplements, including
vitamins, minerals and dietary supplements,
under the Nature Made and Nature's Resource
brand names. Pharmavite also manufactures
private label nutritional supplements on
behalf of various food, drug and mass
market retailers. Pharmavite is a
privately-held company.
Rexall Sundown........... Rexall Sundown develops, manufactures,
markets and sells vitamins, nutritional
supplements and consumer health products
through three channels of distribution:
sales to retailers, direct sales through
independent distributors, and mail order.
Rexall Sundown offers a broad product line
of approximately 1,300 products, including
vitamins in both multivitamin and single-
entity formulas, minerals, herbals,
homeopathic remedies, weight management
products, skin care products and over-the-
counter pharmaceuticals. For the year ended
August 31, 1997, net sales totaled
approximately $263 million.
Additional key customers include (i) Banner Pharmacaps Inc., (ii) Celestial
Seasonings, Inc., (iii) Chem International, Inc., a supplier to Avon Products,
Inc. and other customers, (iv) Leiner Health Products Inc., a private label
manufacturer that also markets nutritional supplements under the Your Life
brand, (v) Natural Alternatives International, Inc., a supplier of dosage form
nutritional supplements to Nu Skin International, Inc., NSA International,
Inc. and Nutrilite Products, a division of Amway, (vi) Nion Laboratories, a
division of Weider Nutrition International, Inc. and (vii) Nutrilite Products.
Other than GNC and Global Health, no other single customer accounted for 10%
or more of the Company's net sales in 1997.
The ultimate consumers of nutritional supplements have varying levels of
product awareness, adoption rates, price sensitivity and quality requirements.
Therefore, the Company works with its customers to maximize their reach to the
broadest possible consumer base. In many instances, the Company works closely
with its customers to identify suitable distribution channels and to formulate
marketing strategies designed to extend product life cycles and maximize sales
and margin potential. The Company's growth strategy entails assembling
internal marketing teams to develop innovative customer solutions, such as
specialized ingredients blends and end-product medium, technical and R&D
assistance, and flexible and reliable deliveries. In addition, senior
management is launching new initiatives to support customers' new product
development and marketing activities.
RAW MATERIALS
The Company procures substantially all of its raw materials from third
parties, with the balance grown at the Agricultural Division.
SOURCING AND PROCUREMENT
The Company sources and procures raw materials for nutritional supplement
ingredients from growers, collectors and brokers. Growers cultivate the
agricultural raw materials for nutritional supplement ingredients, while
collectors gather naturally existing raw materials. In addition to purchasing
raw materials directly from growers or collectors, the Company purchases raw
materials from brokers who typically consolidate the production of various
smaller producers in order to provide the necessary volumes from one source. A
substantial portion of the Company's raw materials are not indigenous to the
United States and must be procured from foreign growers, collectors and
brokers. The Company maintains relationships with approximately 140 growers,
collectors and brokers, thus enabling the Company to offer customers a single
source for a comprehensive line of natural product ingredients.
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The Company's purchasing objective is to ensure a stable supply of natural
product raw materials which consistently meet Company specifications at the
most competitive price. In conjunction with its growth strategy, the Company
has recently hired a new director of purchasing with more than ten years of
procurement experience, including with CPC International, Inc. (now known as
Bestfoods, Inc.) The director of purchasing is currently exploring incremental
efficiencies and economies in the Company's procurement process.
AGRICULTURAL DIVISION
The Company launched its Agricultural Division in the fourth quarter of 1996
and solidified its commitment by entering into a long-term lease for a 500
acre certified organic farm in Jennings, Florida. The Agricultural Division
was formed to develop superior methods of breeding and cultivating its
botanical raw materials and thus increase yield, improve quality and plant
strength, and reduce costs. In addition, the farm supplies a small portion of
the Company's requirements for selected botanicals. The farm currently grows
several botanicals, including echinacea (purpurea, angustifolia and pallida),
St. John's wort and feverfew. Agricultural Division activities include seed
sourcing and identification, germination, planting, harvesting, drying and
preliminary grinding. In addition to 450 acres devoted to growing botanicals,
the Agricultural Division operates a 6,000 square foot warehouse for storing
dried botanicals and a 4,000 square foot cooler for storing fresh botanicals.
After harvesting and drying (where appropriate) and preliminary grinding
(where appropriate), raw botanicals will be shipped by the Company to its
Herbal Processing Facility. The Agricultural Division is headed by a senior
Ph.D. scientist with over 20 years of food chemistry and engineering
experience, including with GNC. The Agricultural Division employs
approximately 16 full-time employees and, based on seasonal needs,
will typically employ up to 27 part-time employees. See "--Processing
Facilities and Distribution--Herbal Processing Facility."
The knowledge already gained during the Agricultural Division's first 18
months of operations has confirmed the Company's opportunity to improve the
raw botanical cultivation process. The Company is continuing to study various
farming methods, including seed selection and germination, irrigation,
planting techniques, photo sensitivities, and harvesting methods and timing.
In addition, by planting a significant crop of a single botanical, the Company
expects to identify plants with more favorable genetic constitution and seeks
to replicate those plants through R&D. The Company intends to leverage its
proprietary knowledge by assisting other growers in improving quality and
yield of raw materials and providing incentives to such growers to cultivate
raw materials on behalf of the Company.
The Agricultural Division has also commissioned a research study at the
Clemson University Agricultural Extension Center in Charleston, South
Carolina. In May 1998, this center commenced a research program to observe
five key botanicals from germination through one year's growth and identify
opportunities to improve the botanicals' life and care. The study is being
conducted by scientists with agricultural doctorates specializing in
entomology, production, germination (pest and weed) and post harvest. Results
of this study are expected to improve the Company's raw botanical cultivation
process, as well as serve as a foundation for further research.
PROCESSING
BOTANICAL PROCESSING
The Company's botanical manufacturing process for the creation of natural
product ingredients starts with receiving raw botanicals. The raw botanicals
are inspected for quality and crushed for ease of handling. The crushed
botanicals are blended for consistency and further subject to grinding and
extracting. Ground botanicals are packaged for sale or further processed by
granulation. Extracts are produced by exposing the ground botanicals to
solvents designed to concentrate the constituents of the botanicals, with the
remaining solvents being distilled off leaving a concentrated paste. The
extract pastes are either spray dried or emulsified into liquid form. Powdered
spray dried extracts are returned for granulating and agglomerating.
Typically, the Company's customers use these botanical preparations as raw
materials for manufacturing consumer products. Currently, the Company
outsources three stages of processing, spray drying, agglomeration and
sterilization; however, upon completion of the Herbal Processing Facility, the
spray drying and agglomeration functions will be performed in-house.
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CUSTOMIZING READY-TO-RUN INGREDIENTS
The Company specializes in custom formulated and blended products designed
to provide its customer base with unique and differentiated products in ready-
to-run form. In many cases, the Company's scientists and formulation experts,
through customer product development teams, work with customers to develop
viable products which meet the customers' desired label claims, end use
requirements and marker compound content. The Company's process engineers also
work with customers to develop dosage delivery forms that accommodate
customers' existing tableting, capsule, powder or liquid packaging
capabilities. A sample of the product is made on a small scale and evaluated
to ensure that it will match the customer's requirements. Upon approval, the
preliminary specifications, including sample, price and other terms are
provided to the customer, and, upon approval thereof by the customer, the
formula and manufacturing technology is transferred to production scale.
QUALITY ASSURANCE AND QUALITY CONTROL
The Company utilizes a documented quality assurance program to ensure the
production of high-quality, high-purity natural product ingredients for
nutritional supplements. This program implements GMPs that, among other
things, address processing, cleanliness, testing, sampling and formulations.
The Company believes that in appropriate instances its GMPs approach
pharmaceutical standards. The Company has also developed and operates a
comprehensive quality control program that subjects all of the Company's
products to a battery of stringent tests commencing prior to acceptance of raw
materials through shipment of finished goods. This program, among other
things, identifies botanical raw materials and measures the marker compounds.
By precisely identifying and measuring marker compounds, the Company is able
to substantially reduce the natural inconsistencies of raw botanicals and
standardize its ingredients to customer specifications. To support this
effort, the Company has made significant investments in sophisticated testing
methods and equipment, including TLC, GC and HPLC. TLC is used to produce a
specific marker compound fingerprint of the material which identifies it in
terms of genus and species. HPLC procedures are used to quantify specific
marker compounds identified from the fingerprint. These techniques are
developed in-house by adapting and modifying methods published in the
scientific literature. Once developed, these techniques are validated with
procedures that are recommended and currently in use by the pharmaceutical
industry. The Company is continually researching and developing new procedures
to enhance the scope of testing capabilities and ensure product quality.
PROCESSING FACILITIES AND DISTRIBUTION
The Company currently produces substantially all of its products at its
production and warehouse facility located in Paterson, New Jersey (the
"Paterson Facility"). In order to further position the Company as a leading
supplier of high-quality, high-purity natural ingredients, the Company is
constructing the state-of-the-art Herbal Processing Facility in Green Pond,
South Carolina.
PATERSON FACILITY
The Paterson Facility is composed of an approximately 60,000 square foot
warehouse and an approximately 20,000 square foot production facility. The
warehouse handles the receipt of raw materials and the delivery of the
Company's products. Accordingly, both raw materials inventory and finished
goods inventory are maintained at the warehouse. In addition, initial quality
control macro sampling of, and separation of contaminants from, the raw
materials is performed at the warehouse. In 1997, the warehouse staged and
shipped approximately 1.8 million kilograms of the Company's finished products
utilizing only a single shift production schedule. The Paterson warehouse has
the capacity to add additional work shifts in response to increased demand for
the Company's products.
At the production facility, approximately 17,500 square feet are devoted to
grinding, distilling, packaging and other production functions and
approximately 2,500 square feet are devoted to quality control, quality
assurance and R&D. The Company operates laboratories that run TLC, GC and HPLC
assaying tests on the raw materials. The company operates blenders that blend
the raw materials, based on the results of the TLC, GC and
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HPLC tests, to produce standardized lots. The Company maintains grinders that
produce powders and granulates and distillation systems that produce extracts,
which can be converted into emulsions. Finally, the Company utilizes packing
machines to package its products for delivery.
HERBAL PROCESSING FACILITY
The Company is currently constructing a state-of-the-art Herbal Processing
Facility, which is located on an approximately 56 acre campus, in Green Pond,
South Carolina, located approximately 40 miles southwest of the Port of
Charleston, a major port on the Southeastern Seaboard. The Company believes
the Herbal Processing Facility is strategically located, providing ready
access to sea, rail and highway transportation, an accessible labor force and
proximity to certain key customers, as well as to the Agricultural Division.
Upon completion, the Herbal Processing Facility will encompass five buildings:
the agricultural pre-processing building, the pharmaceutical building, the
extraction building, the finished products building and the R&D laboratory.
The Herbal Processing Facility is expected to be able to process approximately
8.0 million kilograms annually of the Company's finished products utilizing a
single work shift, thus more than quadrupling the Company's current single
shift production capacity. The Herbal Processing Facility will expand
capacities and capabilities in response to market demands, resulting in more
efficient production of consistent and high-quality products. The Herbal
Processing Facility is expected to be completed in mid-1999 at a total cost of
approximately $10 million, of which approximately $2.5 million has been
expended to date.
The agricultural pre-processing building will house the inspection conveyor,
to be used for visual and metal inspection, the hammer mills, which will crush
the raw materials, and a 325 cubic foot blender, which will blend the crushed
raw materials into standardized lots. The pharmaceutical building will be
designed with the precision and cleanliness associated with pharmaceuticals,
through the use of an air filtration system and negative pressure rooms, among
other things, to create a bacteria and debris free environment. The extraction
building will contain distillation systems using either water or alcohol to
extract the botanicals, which will be spray dried or converted into emulsions.
DISTRIBUTION
The Company primarily utilizes third party common carriers to deliver its
natural product ingredients to customers from its warehouses in Paterson, New
Jersey and Fountain Valley, California. In addition, the Company maintains a
fleet of five large trucks to facilitate local deliveries. As production at
the Herbal Processing Facility increases, products will be shipped directly to
customers utilizing third party common carriers and additional Company-owned
trucks.
RESEARCH AND DEVELOPMENT
A key element in the Company's business strategy is to identify and develop
commercial opportunities from ideas generated through its R&D. These R&D
efforts are generally devoted to four principal areas, (i) development of new
technology, (ii) application of the Company's processing technology to new
products, (iii) improvement of existing processes and (iv) development of
viable alternate raw materials for natural products extraction and
purification. The Company also conducts R&D at the Agricultural Division. See
"--Raw Materials--Agricultural Division."
The Company's internally funded research and development expenditures during
1996, 1997 and the three months ended March 31, 1998 were approximately
$385,000, $407,000, and $150,000, respectively. The Company intends to
continue actively pursuing research and development efforts and these costs
are likely to increase in future periods in conjunction with growth in net
sales.
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INTELLECTUAL PROPERTY
The Company's proprietary technology and knowledge are important to its
business. The Company relies on patents, trade secrets, and confidentiality
agreements, as well as continuing technological innovation, to protect its
proprietary technology and knowledge and thus maintain its competitive
advantage. The Company produces certain products which management believes
could not be duplicated without the use of the Company's proprietary
knowledge.
The Company has developed numerous proprietary assay methods to test
botanicals. The Company's expertise in analyzing, identifying and measuring
marker compounds is important to raw material analysis, process development,
and process and quality control. Designing a particular process application
involves selecting the most appropriate processing steps, determining the
proper sequence, and establishing optimum temperature, pressure, solvent and
other parameters for each process step. The Company develops variations of its
processes based on the nature of the raw material used and the specifications
of the desired product.
The Company patents technology when appropriate to obtain long-term
protection. The Company owns patents for proprietary composition of matter and
manufacturing processes. The Company has three patents for Legumase(R), an
enzyme system for antiflatulence, which expire February 10, 2014; one patent
for Aminogen(R), an enzyme system used to replace free form amino acid
supplementation, which expires March 11, 2013; and one patent claim allowed
for Carbogen(R), an enzyme system designed to break down complex
carbohydrates. In addition, three patents are still pending. With respect to
its proprietary processes for which it has not obtained patent protection, the
Company relies on internal procedures and trade secret laws to protect these
proprietary processing technologies.
The Company protects its proprietary technology and knowledge through
established security practices and confidentiality agreements with employees,
consultants, strategic industry participants, and technical advisors. Few
individuals within the Company possess a full working knowledge of these
processes. Joint development agreements and consultant relationships generally
allow only limited access to Company information, which is protected through
confidentiality agreements with the parties involved. The Company is
continually improving its processes and developing additional technological
knowledge relating to the extraction of natural products.
COMPETITION
The Company's principal competition comes from major domestic and foreign
suppliers of nutritional product ingredients. The Company competes principally
on the basis of product quality, product availability and timely delivery,
price, value-added R&D, product knowledge and formulation capabilities. The
Company believes that it competes favorably with its competitors due to its
documented quality assurance program, stringent quality control and vertically
integrated development and manufacturing capabilities; its ability to
specifically formulate products for distribution along multiple distribution
channels; and its ability to react to market trends and customer demands
through extensive experience with, and understanding of, its products, as well
as its customers and suppliers.
GOVERNMENTAL REGULATION
THE COMPANY
The Company's business is subject to comprehensive regulation by numerous
federal governmental agencies, including the FDA, OSHA and EPA. The FDA
regulates the Company's products under the FDCA and the regulations
promulgated thereunder. In addition, the Company is subject to regulation by
various state and local agencies and will be subject to governmental
regulations in foreign countries where the Company plans to commence or expand
sales.
The FDA has promulgated regulations with respect to the manufacture of
pharmaceuticals, foods, flavors and dietary supplements and has established
GMPs for, among other things, foods and pharmaceuticals. The
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Company's nutritional supplement ingredients fit within the category of
"dietary supplements" and, along with the Company's teas, must be manufactured
in compliance with food GMPs. Recently, however, the FDA has announced that it
is considering promulgating GMPs specific to dietary supplements. If
promulgated, these dietary supplement specific GMPs may be significantly more
rigorous than those currently applicable to the Company's products and may
require quality assurance requirements similar to pharmaceutical GMPs.
Therefore, the Company may be required to expend additional capital and
resources in the future to comply with new FDA regulations. Nevertheless, the
Company believes its quality assurance in certain cases meets or exceeds the
quality assurance levels applicable to pharmaceuticals. The failure of the
Company to comply with applicable FDA regulatory requirements could result in,
among other things, injunctions, product withdrawals, recalls, product
seizures, fines and criminal prosecutions.
The safety of the Company's manufacturing operations are regulated by OSHA.
The Company's facilities are currently classified as low risk by OSHA. The
Company's operations are subject to laws and regulations governing, among
other things, air emissions, waste water discharge, solid and hazardous waste
treatment, and storage, disposal and remediation of releases of hazardous
materials administered by the EPA and other state and local authorities. The
Company has made and intends to continue to make the necessary expenditures
for environmental compliance. Health and safety and/or environmental laws and
regulations may become more stringent in the future which would increase the
costs of compliance.
The Company may be subject to additional laws or regulations by the FDA or
other federal, state or foreign regulatory authorities, the repeal of laws or
regulations which the Company considers favorable, or more stringent
interpretations of current laws or regulations, from time to time in the
future. The Company is unable to predict the nature of such future laws,
regulations, interpretations or applications, nor can it predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require, among other things, the reformulation of certain products to meet new
standards, the discontinuance of certain products not able to be reformulated,
the imposition of additional quality assurance procedures, or expanded or
different scientific substantiation.
NUTRITIONAL SUPPLEMENTS INDUSTRY
The Company manufactures ingredients for nutritional supplements that are
further manufactured, packaged, labeled, distributed and sold by third party
manufacturers, marketers and/or retailers that, along with other similar
participants in the nutritional supplements industry, are subject to
governmental regulations with respect to their businesses. Though not directly
applicable to the Company, the enactment of DSHEA has had a significant effect
on the nutritional supplements industry, which effect the Company believes to
be favorable. DSHEA revised the provisions of the FDCA concerning the
regulation of dietary supplements. The legislation for the first time defined
"dietary supplement" as a product intended to supplement the diet that
contains one or more of certain dietary ingredients, such as a vitamin, a
mineral, an herb or botanical, an amino acid, a dietary substance for use by
humans to supplement the diet by increasing the total dietary intake, or a
concentrate, metabolite, constituent, extract, or combination of the preceding
ingredients. A substantial portion of the products sold by the Company are
ingredients for dietary supplements.
Under the current provisions of the FDCA, there are four categories of
claims that pertain to the regulation of dietary supplements. Health claims
are claims that describe the relationship between a nutrient or dietary
ingredient and a disease or health related condition and can be made on the
labeling of dietary supplements if supported by significant scientific
agreement and authorized by the FDA in advance through notice and comment
rulemaking. Nutrient content claims describe the nutritional value of the
product and may be made if defined by the FDA through notice and comment
rulemaking and if one serving of the product meets the definition. Health
claims and nutrient content claims may also be made if a scientific body of
the U.S. government with official responsibility for the public health has
made an authoritative statement regarding the claim, the claim accurately
reflects that statement and the manufacturer, among other things, provides the
FDA with notice of and basis for the claim at least 120 days before the
introduction of the supplement with a label containing the claim into
interstate commerce. Statements of nutritional support or product performance,
which are permitted on labeling
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of dietary supplements without FDA pre-approval, are defined to include
statements that (i) claim a benefit related to a classical nutrient deficiency
disease and discloses the prevalence of such disease in the United States,
(ii) describe the role of a nutrient or dietary ingredient intended to affect
the structure or function in humans, (iii) characterize the documented
mechanism by which a dietary ingredient acts to maintain such structure or
function or (iv) describe general well-being from consumption of a nutrient or
dietary ingredient. In order to make a nutritional support claim the marketer
must possess substantiation to demonstrate that the claim is not false or
misleading and, if the claim is for a dietary ingredient that does not provide
traditional nutritional value, prominent disclosure of the lack of FDA review
of the relevant statement, and notification to the FDA of using the claim is
required. Drug claims are representations that a product is intended to
diagnose, mitigate, treat, cure or prevent a disease. Drug claims are
prohibited from use in the labeling of dietary supplements.
The advertising of nutritional supplements is subject to regulation by the
Federal Trade Commission (the "FTC") under the Federal Trade Commission Act
(the "FTCA"). The FTCA prohibits unfair methods of competition and unfair or
deceptive acts or practices in or affecting commerce. In addition, the FTCA
provides that the dissemination, or the causing to be disseminated, of any
false advertisement pertaining to drugs or foods, which would include dietary
supplements, is an unfair or deceptive act or practice. Under the FTC's
substantiation doctrine, an advertiser is required to have a "reasonable
basis" for all objective product claims before the claims are made. Failure to
adequately substantiate claims may be considered either deceptive or unfair
practices. Pursuant to this FTC requirement, the manufacturers of nutritional
supplements containing the Company's ingredients are required to have adequate
substantiation for all material advertising claims made for their products.
In recent years, the FTC has initiated numerous investigations of
nutritional supplement and weight loss products and companies. The FTC is
reexamining its regulation of advertising for dietary supplements and has
announced that it will issue a guidance document to assist supplement
marketers in understanding and complying with the substantiation requirement.
Upon release of this guidance document, many of the Company's customers will
be required to evaluate its compliance with the guideline and may be required
to change their advertising and promotional practices.
FACILITIES
The Company maintains offices, production facilities, distribution
facilities and a farm. The following table sets forth the location, total land
area and facility size of each of the Company's facilities:
<TABLE>
<CAPTION>
FACILITY LOCATION SIZE
- -------- -------- ----
<S> <C> <C> <C>
Corporate headquarters(1)........... Wayne, New Jersey 15,000 sq. ft.
Paterson Facility(2) --Production... Paterson, New Jersey 20,000 sq. ft.
- --Warehouse......................... Paterson, New Jersey 60,000 sq. ft.
Fountain Valley facility(1)(3)...... Fountain Valley, California 5,500 sq. ft.
Herbal Processing Facility(4)....... Green Pond, South Carolina 56 acres
Agricultural Division(1)............ Jennings, Florida 500 acres
</TABLE>
- --------
(1) This facility is leased.
(2) This facility is leased from an affiliate of the Company. See "Certain
Transactions."
(3) This facility is used for sales and distribution primarily to West Coast
customers and is leased on a month-to-month basis.
(4) This facility is currently under construction and is expected to be
completed in mid-1999. See "--Production Facilities and Distribution--
Herbal Processing Facility."
EMPLOYEES
As of March 31, 1998, the Company had 117 full time and 27 part-time
employees. Of such employees, 86 employees were devoted to production and
distribution, 40 employees were responsible for management and administration
and 18 employees were scientific personnel. None of the Company's employees
are unionized or subject to any collective bargaining agreement. The Company
considers its relations with its employees to be good.
37
<PAGE>
PRODUCT LIABILITY INSURANCE
The testing and sale of the Company's products include an inherent risk that
product liability claims may be asserted against the Company. The Company has
obtained product liability insurance coverage which it believes to be
adequate. There can be no assurance that the Company will be able to maintain
product liability insurance on acceptable terms or that its insurance will
provide adequate coverage against potential claims. While the Company has not
experienced any product liability claims, if such claims should arise in the
future, they could have a material adverse effect on the Company's business,
financial condition and results of operations.
LEGAL PROCEEDINGS
From time to time, the Company is subject to litigation incidental to its
business, including product liability claims, which could exceed applicable
insurance coverage. The Company currently is not a party to any material legal
proceedings.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current directors and executive officers of the Company and their ages
and positions are listed in the following table.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Rodger R. Rohde, Sr. .......... 56 Chairman of the Board, Chief Executive
Officer and Director
Rodger R. Rohde, Jr. .......... 36 President, Chief Operating Officer and
Director
Angelo R. Appierto............. 46 Vice President--Finance, Chief Financial
Officer, Secretary, Treasurer and
Director
Andres E. Menendez............. 59 Vice President--Special Projects and
Director
Christopher J. Rohde........... 30 Vice President--Operations and Director
Cynthia J. Rohde............... 31 Vice President--Corporate Communication
and Director
David P. Walsh................. 59 Vice President--Technical Services
</TABLE>
References to service with the Company in the following biographies do not
include service with predecessors. Rodger R. Rohde, Sr. is the father of
Rodger R. Rohde, Jr., Christopher J. Rohde and Cynthia J. Rohde.
RODGER R. ROHDE, SR. founded the initial predecessor to the Company in 1978
and has been Chairman of the Board, Chief Executive Officer and a Director of
the Company since its inception. Mr. Rohde was Chairman of the Board of LSI
and BMI from March 1988 and June 1993, respectively, and a Director thereof
from May 1987 and June 1993, respectively, until the consummation of the
Mergers. Mr. Rohde has over 30 years of experience in the nutritional
supplement, flavors and fragrance industries.
RODGER R. ROHDE, JR. has been President, Chief Operating Officer and a
Director of the Company since its inception and joined the Predecessor
Companies in July 1985. Mr. Rohde was President of LSI, Old Triarco and BMI
from March 1988, December 1990 and June 1993, respectively, and was a Director
of Old Triarco and BMI from November 1990 and June 1993, respectively, until
the consummation of the Mergers.
ANGELO R. APPIERTO has been Vice President--Finance, Chief Financial
Officer, Secretary and a Director of the Company since its inception. Mr.
Appierto joined the Predecessor Companies in December 1997 and was Vice
President--Finance, Chief Financial Officer, Secretary and Treasurer of LSI,
Old Triarco and BMI from March 1998, January 1998 and January 1998,
respectively, until the consummation of the Mergers. From June 1993 to October
1997, Mr. Appierto served as Chairman and Chief Executive Officer of The Aegis
Consumer Funding Group, Inc., a national consumer finance company, and was its
Chief Financial Officer from May 1992 to June 1993. Mr. Appierto is a
certified public accountant.
ANDRES E. MENENDEZ has been Vice President--Special Projects and a Director
of the Company since its inception. Mr. Menendez had been with the Predecessor
Companies in various capacities, including Vice President--Production, from
March 1991 until the consummation of the Mergers.
CHRISTOPHER J. ROHDE has been Vice President--Operations and a Director of
the Company since its inception and joined the Predecessor Companies in June
1990. Mr. Rohde was Vice President--Operations of LSI, Old Triarco and BMI
from March 1995, January 1991 and June 1993, respectively, and was a Director
of Old Triarco and BMI from November 1990 and June 1993, respectively, until
the consummation of the Mergers.
CYNTHIA J. ROHDE has been Vice President--Corporate Communication and a
Director of the Company since its inception. Ms. Rohde had been with the
Predecessor Companies in various capacities, including Director of Corporate
Communication and Human Resources, from November 1994 until the consummation
of the Mergers. From February 1993 to November 1994, Ms. Rohde was a Senior
Associate with Burson-Marsteller, an international public relations firm.
39
<PAGE>
DAVID P. WALSH has been Vice President--Technical Services of the Company
since its inception. From March 1991 to June 1998, Dr. Walsh served as Senior
Food and Pharmaceutical Consultant of Simons Engineering, Inc., an engineering
consulting company. Prior to joining Simons Engineering, Inc., Dr. Walsh held
various positions at GNC, including Vice President and Technical Director and
President and Chief Executive Officer of GNP, from 1974 to 1986. Dr. Walsh has
a Ph.D. in Cereal Chemistry/Industrial Engineering from North Dakota State
University.
The Company's Board of Directors is composed of eight members. Currently
there are two vacancies. Within 90 days following the consummation of this
offering, the Company intends to fill those vacancies with individuals who
will be neither officers nor employees of the Company or its affiliates.
The Company's Board of Directors is divided into three classes. Directors of
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve for three years
thereafter. Class I directors, whose term will expire at the first annual
meeting after this offering, currently consist of Andres E. Menendez and
Cynthia J. Rohde; Class II directors, whose term will expire at the second
annual meeting after this offering, currently consist of Christopher J. Rohde
and Rodger R. Rohde, Jr.; Class III directors, whose term will expire at the
third annual meeting after this offering, currently consist of Rodger R.
Rohde, Sr. and Angelo R. Appierto. The two additional directors appointed
after this offering will be appointed to Class II and Class III as determined
by the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Within 90 days following the consummation of this offering, the Board of
Directors will establish an Audit Committee and a Compensation Committee.
Effective upon their election to the Board of Directors, the independent
directors will serve as the members of the Audit Committee and the
Compensation Committee. The Audit Committee's principal functions will include
making recommendations to the Board of Directors regarding the annual
selection of independent public accountants, reviewing the proposed scope of
each annual audit and reviewing the recommendations of the independent public
accountants resulting from the audit of the Company's consolidated financial
statements. The Compensation Committee's principal function will be to
establish the compensation of the Chief Executive Officer and other senior
officers of the Company and to establish and administer the Company's
compensation programs, including the grant of awards under the 1998 Omnibus
Stock Incentive Plan. See "--Employee Benefit Plans." The Board of Directors
may from time to time establish other committees to facilitate the management
of the Company.
DIRECTOR COMPENSATION
Prior to this offering, directors received no compensation for their service
on the Board of Directors. Upon completion of this offering, directors who are
not employees of the Company or its affiliates will receive an annual retainer
of $10,000 plus $1,000 per committee served per committee meeting attended.
Directors will be reimbursed for out-of-pocket expenses incurred in connection
with their service as directors. In addition, each non-employee director is
eligible to receive awards pursuant to the 1998 Omnibus Stock Incentive Plan,
under which such directors will receive an option to purchase 7,500 shares of
Common Stock upon becoming a director and annual awards of options to purchase
2,500 shares of Common Stock. Directors who are officers or employees of the
Company will not receive any additional compensation for their services as
directors. See "--Employee Benefit Plans--1998 Omnibus Stock Incentive Plan."
40
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the annual and
long-term compensation earned during the year ended December 31, 1997 from the
Predecessor Companies by the Chief Executive Officer and certain other
executive officers of the Company (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
- --------------------------- ----------- -----------
<S> <C> <C>
Rodger R. Rohde, Sr. .................................. $ 907,000 $ 450,000
Chairman of the Board and Chief Executive Officer
Rodger R. Rohde, Jr. .................................. 260,000 400,000
President and Chief Operating Officer
Andres E. Menendez..................................... 178,345 75,000
Vice President--Special Projects
Christopher J. Rohde................................... 125,060 250,000
Vice President--Operations
Cynthia J. Rohde....................................... 73,078 100,000
Vice President--Corporate Communication
</TABLE>
- --------
(1) Perquisites and other personal benefits, securities and property, valued
on the basis of the aggregate incremental cost to the Predecessor
Companies, did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported for each of the Named Executive Officers. The
amounts set forth do not include S corporation dividend distributions
sufficient to pay income taxes on the earnings of the Predecessor
Companies that were treated as having been earned by the individual as a
shareholder of the Predecessor Companies. See "--Employment Agreements"
for a description of the compensation of the Named Executive Officers upon
consummation of this offering.
EMPLOYEE BENEFIT PLANS
1998 OMNIBUS STOCK INCENTIVE PLAN
In 1998, the Board of Directors of the Company adopted and the Company's
stockholders approved the 1998 Omnibus Stock Incentive Plan (the "Omnibus
Stock Plan"). The Company has reserved an aggregate of 1,400,000 shares of
Common Stock for issuance under the Omnibus Stock Plan. The purpose of the
Omnibus Stock Plan is to promote the long-term growth and profitability of the
Company by providing individuals with incentives to improve stockholder value
and contribute to the growth and financial success of the Company, and by
enabling the Company to attract, retain and reward the best available persons
for positions of substantial responsibility. The Omnibus Stock Plan provides
for the grant of non-qualified stock options, incentive stock options within
the meaning of Section 422 of the Code, stock appreciation rights and
restricted and non-restricted stock awards, each of which may be granted
separately or in tandem with other awards. Participation in the Omnibus Stock
Plan is open to all employees, officers and directors of the Company or any of
its affiliated entities; however, only employees of the Company or its
subsidiaries may receive incentive stock option awards. No options or other
grants have been granted under the Omnibus Stock Plan to date; however options
to acquire shares of Common stock will be granted upon consummation of
this offering, exercisable at the initial public offering price.
The Omnibus Stock Plan will be administered by the Compensation Committee of
the Board of Directors (the "Administrator"). The Administrator has the
authority to (i) determine the eligible persons to whom, and the time or times
at which, awards shall be granted, (ii) determine the types of awards to be
granted, (iii) determine the number of shares to be covered by or used for
reference purposes for each award, (iv) impose such terms, limitations,
restrictions and conditions upon any such award as the Administrator shall
deem appropriate, (v) modify, amend, extend or renew outstanding awards, or
accept the surrender of outstanding awards and substitute new awards
(provided, however, that except in specified circumstances, any modification
41
<PAGE>
that would materially adversely affect any outstanding award shall not be made
without the consent of the grantee), (vi) accelerate or otherwise change the
time in which an award may be exercised or becomes payable and to waive or
accelerate the lapse, in whole or in part, of any restriction or condition
with respect to such award, including, without limitation, any restriction or
condition with respect to the vesting or exercisability of an award following
termination of any grantee's employment and (vii) establish objectives and
conditions, if any, for earning awards and determining whether awards will be
paid after the end of a performance period. In addition, the Administrator is
authorized to make adjustments in the terms and conditions of, and the
criteria included in, awards in recognition of unusual or nonrecurring events
affecting the Company, or the financial statements of the Company or any
subsidiary, or of changes in applicable laws, regulations or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Omnibus Stock Plan.
Options intended to qualify as incentive stock options under Section 422 of
the Code must have an exercise price at least equal to fair market value on
the date of grant. Incentive stock options may not be exercisable more than
ten years from the date the option is granted. If any employee of the Company
or any subsidiary owns or is deemed to own at the date of grant shares of
stock representing in excess of 10% of the combined voting power of all
classes of stock of the Company, the exercise price for the incentive stock
options granted to such employee may not be less than 110% of the fair market
value of the underlying shares on that date and the option may not be
exercisable more than five years from the date the option is granted. The
option exercise price may be paid in cash, by tender of shares of Common
Stock, by a combination of cash and shares or by any other means the
Administrator approves. Awards of stock appreciation rights, stock and phantom
stock awards and performance awards may be settled in cash, shares of Common
Stock or a combination of both, in the discretion of the Administrator.
The Board of Directors of the Company may terminate, amend or modify the
Omnibus Stock Plan or any portion thereof at any time, except that all awards
made prior to termination of the Omnibus Stock Plan will remain in effect
until such awards have been satisfied or terminated in accordance with the
terms of the Omnibus Stock Plan and such awards.
EMPLOYMENT AGREEMENTS
The Company requires its management and key employees to sign employment
agreements upon joining the Company. The Company has entered into employment
agreements with each Named Executive Officer. The employment agreements
provide for annual base salaries of $400,000, $260,000, $150,000, $175,000,
$125,000, and $125,000 for Rodger R. Rohde, Sr., Rodger R. Rohde, Jr., Angelo
R. Appierto, Andres E. Menendez, Christopher J. Rohde and Cynthia J. Rohde,
respectively. The employment agreement are effective as of , 1998 for an
initial term of three years and automatically renewable for one year terms,
provided that either party may terminate the employment agreement upon 12
months prior notice. The employment agreements generally contain
confidentiality provisions and covenants not to compete during the term of
employment and for one year after termination of employment. Each employment
agreement provides that in the event of a merger or acquisition of the Company
by another entity in which the employee's position is eliminated or radically
altered, the Company must pay up to 2.99 times the employee's base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the Company has had no separate compensation
committee or other board committee performing equivalent functions. As a
result, the functions of a compensation committee were performed by Rodger R.
Rohde, Sr. Upon filling the vacancies on the Board of Directors, the Board of
Directors will create a Compensation Committee composed solely of outside
directors. During the year ended December 31, 1997, no executive officer of
the Company served (i) as a member of the compensation committee (or other
board committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on the Board of Directors of the Company,
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<PAGE>
(ii) as a director of another entity, one of whose executive officers served
on the Board of Directors of the Company or (iii) as a member of the
compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served as a
director of the Company.
CERTAIN TRANSACTIONS
The Company leases the production building and warehouse building at the
Paterson Facility from Rodger R. Rohde, Sr., an executive officer and director
of the Company, and Rohde Holdings, Inc. ("RHI"), respectively. All of the
outstanding capital stock of RHI is owned by Rodger R. Rohde, Sr., Rodger R.
Rohde, Jr. and Christopher J. Rohde, each of whom is an executive officer and
director of the Company. During 1997, the Company made aggregate lease
payments of $204,000 and $96,000 for the production building and the warehouse
building, respectively. In addition, the Company is a guarantor of the
mortgage obligations with respect to each of the buildings, with outstanding
balances as of December 31, 1997 of $99,283 and $182,069 on the mortgages for
the production building and the warehouse building, respectively. The Company
believes that its leasing costs with respect to these facilities were no less
favorable than the costs of leasing comparable facilities from unaffiliated
entities. In connection with the purchase of the warehouse building by RHI,
the Company advanced certain expenses of RHI. As of December 31, 1997, the
outstanding balance of such advanced expenses was $73,725, which bears
interest at the rate of 7% per annum and is being repaid in monthly
installments of $1,500.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of the date of this Prospectus and as
adjusted to reflect the sale by the Company of the shares offered hereby with
respect to (i) each of the directors of the Company, (ii) each of the Named
Executive Officers, (iii) each person known to the Company to own beneficially
more than 5% of the Company's Common Stock and (iv) all officers and directors
as a group. Unless otherwise indicated, each person named in the table has
sole voting power and investment power, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO PERCENT OF
OFFERING(1) SHARES BENEFICIALLY
----------------------- OWNED AFTER
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERING(1)
- --------------------------- ------------ ---------- -------------------
<S> <C> <C> <C>
Rodger R. Rohde, Sr.(2)(3)......... 5,130,412 54.6% 40.4%
Rohde Trust(3)(4).................. 4,022,100 42.8 31.7
Rodger R. Rohde, Jr. .............. 120,663 1.3 *
Andres E. Menendez................. -- * *
Christopher J. Rohde............... 120,663 1.3 *
Cynthia J. Rohde................... -- * *
All officers and directors as a
group (7 persons)................. 5,371,738 57.2 42.3
</TABLE>
- --------
*Less than 1% of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally include voting or
investment power with respect to securities.
(2) If the Underwriters' over-allotment option is exercised in full, Mr. Rohde
will sell all of the 495,000 shares comprising the over-allotment option
and his shares beneficially owned after this offering will be 4,635,412
shares or 36.5% of the total outstanding shares of Common Stock.
(3) The address of this beneficial owner is c/o Triarco Industries, Inc., 400
Hamburg Turnpike, Wayne, New Jersey 07470.
(4) The Rohde Trust is composed of three equal trusts for the benefit of
Rodger R. Rohde, Jr., Christopher J. Rohde and Cynthia J. Rohde. The
beneficiaries have neither voting nor investment power with respect to the
shares of Common Stock held by the Rohde Trust.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 50,000,000 shares of Common Stock
and 1,000,000 shares of Preferred Stock. As of the date of this Prospectus,
(i) 9,393,838 shares of Common Stock are issued and outstanding, held by four
stockholders of record and (ii) no shares of Preferred Stock are issued and
outstanding. An additional shares of Common Stock are issuable upon
exercise of outstanding stock options under the 1998 Omnibus Stock Incentive
Plan.
The following description provides a summary of the material rights and
limitations relating to ownership of the Company's capital stock. For a
complete legal description of the Company's capital stock, reference should be
made to the Company's Certificate of Incorporation and Bylaws, copies of which
are included as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
All outstanding shares of Common Stock are, and the shares to be issued in
this offering will be, fully paid and non-assessable. Upon completion of this
offering, there will be no preemptive, conversion, subscription, redemption or
repurchase rights associated with the shares of Common Stock. Each holder of
Common Stock is entitled to one vote for each share owned of record on matters
submitted to a vote of the stockholders. Holders of Common Stock are not
entitled to cumulative voting rights in the election of directors. Upon
liquidation of the Company, the holders of Common Stock are entitled to
participate ratably in the assets available for distribution after
satisfaction of (i) all claims of the Company's creditors and (ii) the
liquidation preference enjoyed by the holders of any outstanding Preferred
Stock.
The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors, in its discretion, may declare out of funds legally
available therefor. Under the DGCL, dividends may be paid out of either (i)
surplus as defined in the DGCL or (ii) net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year, unless the
capital of the Company has diminished to an amount less than the aggregate
amount of the capital represented by the issued and outstanding shares of
Preferred Stock. See "Dividend Policy."
CERTAIN BYLAW PROVISIONS
The Company's Bylaws provide that stockholders may act by written consent,
without prior notice and without a vote, if a consent is signed by
stockholders having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting of stockholders. The Bylaws
may be amended by a majority vote of the stockholders or Board of Directors.
See "Risk Factors--Concentration of Ownership" and "--Certain Anti-Takeover
Considerations." The foregoing summary of material provisions is qualified in
its entirety by reference to the Company's Bylaws, which are filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
ANTI-TAKEOVER MATTERS
CERTAIN PROVISIONS OF THE DGCL
Section 203 of the DGCL generally restricts a corporation from entering into
certain business combinations with an interested stockholder (defined as any
person or entity that is the beneficial owner of at least 15% of a
corporation's voting stock) or its affiliates, unless (i) the transaction is
approved by the board of directors of the corporation prior to the date such
person became an interested stockholder, (ii) the interested stockholder
acquired 85% of the corporation's stock, excluding voting stock owned by
directors and officers and certain employee stock plans of the corporation, in
the same transaction in which the interested stockholder exceeds 15% or (iii)
the business combination is approved by the board of directors and by a vote
of two-thirds of the outstanding voting stock not owned by the interested
stockholder. The DGCL provides that a corporation may
45
<PAGE>
elect not to be governed by Section 203. At present, the Company does not
intend to make such an election and intends to avail itself of the rights
afforded by Section 203. The effect of Section 203 may be to render more
difficult a change in control of the Company.
The ability of the Company to issue Preferred Stock following this offering
could be deemed to have an anti-takeover effect. It is not possible to state
the actual effects of the issuance after this offering of any shares of a new
class or series of Preferred Stock upon the rights of holders of Common Stock.
However, such effects might include, among other things, restricting dividends
on Common Stock, diluting the voting power of the Common Stock and impairing
the liquidation rights of the Common Stock. Issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the
voting rights of the Common Stock. In addition, the issuance of Preferred
Stock could make it more difficult for a third party to acquire a majority of
the outstanding voting stock. Even if the Preferred Stock were not generally
accorded voting rights, however, approval by the holders of at least 50% of
the outstanding shares of Preferred Stock must be received before any of the
following corporate actions may be taken: (i) the creation of any class of
stock ranking equal or senior to the Preferred Stock, (ii) the amendment,
alteration or repeal of any provision of the Certificate of Incorporation
which adversely affects the rights of preferred stockholders or increases the
authorized number of shares of Preferred Stock and (iii) the authorization of
a merger, consolidation, liquidation or sale of all or substantially all of
the assets of the Company (with certain exceptions). Therefore, a merger,
tender offer, proxy contest, the assumption of control by a holder of a large
block of the Company's securities, or the removal of incumbent management
might be discouraged or rendered more difficult. Accordingly, the issuance
after this offering of a new class or series of Preferred Stock may be used as
an "anti-takeover" device without further action on the part of the
stockholders of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
CLASSIFIED BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes of directors,
designated Class I, Class II and Class III. Each class will consist, as nearly
as possible, of one-third of the total number of directors. The term of the
initial Class I directors will expire on the date of the 1999 annual meeting
of stockholders (an "Annual Meeting"); the term of the initial Class II
directors will expire on the date of the 2000 Annual Meeting; and the term of
the initial Class III directors will expire on the date of the 2001 Annual
Meeting. At each Annual Meeting, beginning in 1999, successors to the class of
directors whose term expires at that Annual Meeting will be elected for a
three-year term. See "Management--Executive Officers and Directors." At least
two annual meetings of stockholders, instead of one, generally will be
required to change the majority of the Company's Board of Directors.
STOCKHOLDER PROTECTION RIGHTS AGREEMENT
Prior to the consummation of this offering, the Board of Directors of the
Company will declare a dividend of one right (a "Right") for each outstanding
share of Common Stock of the Company held of record at the close of business
on a specified date (the "Record Time"), or issued thereafter and prior to the
Separation Time (as defined). Each Right entitles its registered holder to
purchase from the Company, after the Separation Time, one share of Common
Stock for $ (the "Exercise Price"), subject to adjustment. The Rights will
be issued pursuant to a Stockholder Protection Rights Agreement (the "Rights
Agreement"), between the Company and American Stock Transfer & Trust Company,
as Rights Agent, a copy of which will be filed as an exhibit to the
Registration Statement. The following description of the Rights Agreement and
the Rights is qualified in its entirety by reference to the Rights Agreement.
The Rights will be evidenced by the Common Stock certificates until the
close of business on the earlier of (either, the "Separation Time") (i) the
tenth day (or such later date as the Board of Directors of the Company may
from time to time fix by resolution adopted prior to the Separation Time that
would otherwise have occurred) after the date on which any Person (as defined
in the Rights Agreement) (other than the Company, a majority-owned subsidiary
of the Company or an employee stock ownership or other employee benefit plan
of
46
<PAGE>
the Company or a majority-owned subsidiary of the Company) commences a tender
or exchange offer which, if consummated, would result in such Person becoming
the Beneficial Owner of 15% or more of the outstanding shares of Common Stock
(any Person having such Beneficial Ownership being referred to as an
"Acquiring Person") and (ii) the first date (the "Flip-in Date") of public
announcement by the Company or an Acquiring Person that an Acquiring Person
has become such, other than as a result of a Flip-over Transaction or Event
(as defined); provided that if the foregoing results in the Separation Time
being prior to the Record Time, the Separation Time shall be the Record Time
and provided further that if a tender or exchange offer referred to in clause
(i) is canceled, terminated or otherwise withdrawn prior to the Separation
Time, such offer shall be deemed never to have been made. The Rights Agreement
provides that, until the Separation Time, the Rights will be transferred with
and only with the Common Stock. Common Stock certificates issued after the
Record Time but prior to the Separation Time shall evidence one Right for each
share of Common Stock represented thereby and shall contain a legend
incorporating by reference the terms of the Rights Agreement (as such may be
amended from time to time). Notwithstanding the absence of the aforementioned
legend, certificates evidencing shares of Common Stock outstanding at the
Record Time shall also evidence one Right for each share of Common Stock
evidenced thereby. As long as the Rights are attached to the Common Stock, the
Company will issue one Right with each new share of Common Stock so that all
such shares will have Rights attached. Promptly following the Separation Time,
separate certificates evidencing the Rights will be mailed to holders of
record of Common Stock at the Separation Time.
The Rights will not be exercisable until the Business Day (as defined in the
Rights Agreement) following the Separation Time. The Rights will expire on the
earliest of (i) the Exchange Time (as defined), (ii) the close of business on
the tenth anniversary of the Rights Agreement and (iii) the date on which the
Rights are redeemed as described below (in any such case, the "Expiration
Time").
The Exercise Price and the number of Rights outstanding, or in certain
circumstances the securities purchasable upon exercise of the Rights, are
subject to adjustment from time to time to prevent dilution in the event of a
Common Stock dividend on, or a subdivision or a combination into a smaller
number of shares of, Common Stock, or the issuance or distribution of any
securities or assets in respect of, in lieu of, or in exchange for Common
Stock.
In the event that, prior to the Expiration Time, a Flip-in Date occurs, the
Company shall take such action as shall be necessary to ensure and provide
that each Right (other than Rights Beneficially Owned by the Acquiring Person
or any affiliate or associate thereof, which Rights shall become void) shall
constitute the right to purchase from the Company, upon the exercise thereof
in accordance with the terms of the Rights Agreement, that number of shares of
Common Stock of the Company having an aggregate Market Price (as defined in
the Rights Agreement), on the date of the public announcement of an Acquiring
Person's becoming such (the "Stock Acquisition Date") that gave rise to the
Flip-in Date, equal to twice the Exercise Price for an amount in cash equal to
the then current Exercise Price. In addition, the Board of Directors of the
Company may, at its option, at any time after a Flip-in Date and prior to the
time that an Acquiring Person becomes the Beneficial Owner of more than 50% of
the outstanding shares of Common Stock, elect to exchange all (but not less
than all) of the then outstanding Rights (other than Rights Beneficially Owned
by the Acquiring Person or any affiliate or associate thereof, which Rights
become void) for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date of the
Separation Time (the "Exchange Ratio"). Immediately upon such action by the
Board of Directors (the "Exchange Time"), the right to exercise the Rights
will terminate and each Right will thereafter represent only the right to
receive a number of shares of Common Stock equal to the Exchange Ratio.
In the event that prior to the Expiration Time the Company enters into,
consummates or permits to occur a transaction or series of transactions on or
after the Stock Acquisition Date in which, directly or indirectly, (A) the
Company shall consolidate or merge with any other Person or (B) the Company
shall sell or otherwise transfer (or one or more of its subsidiaries shall
sell or otherwise transfer) assets (i) aggregating more than 50% of the assets
(measured by either book value or fair market value) or (ii) generating more
than 50% of the
47
<PAGE>
operating income or cash flow, of the Company and its subsidiaries (taken as a
whole) to any other Person (other than the Company or one or more of its
wholly-owned subsidiaries) or to two or more such Persons which are affiliated
or otherwise acting in concert or (C) any Acquiring Person shall (i) obtain,
with or without consideration, over any period of 12 consecutive calendar
months, any additional shares of any class of capital stock of the Company or
any of its subsidiaries equal in the aggregate to more than 1% of the
outstanding shares of such class, or securities exercisable or exchangeable
for or convertible into more than 1% of the outstanding shares of any class of
capital stock of the Company or any of its subsidiaries (in each case other
than as part of a pro rata distribution to all holders of such stock or
pursuant to the exercise of rights or warrants, or the conversion or exchange
of securities, issued pro rata in such a distribution), (ii) sell, purchase,
lease, exchange, mortgage, pledge, transfer or otherwise acquire or dispose
of, to, from, or with, as the case may be, the Company or any of its
subsidiaries, over any period of 12 consecutive calendar months, assets (x)
having an aggregate fair market value of more than $50,000,000 or (y) on terms
and conditions less favorable to the Company than the Company would be able to
obtain through arm's length negotiations with an unaffiliated third party,
(iii) receive any compensation for services from the Company or any of its
subsidiaries, other than compensation for full-time employment as a regular
employee at rates in accordance with the Company's (or its subsidiaries') past
practices or (iv) receive the benefit, directly or indirectly (except
proportionately as a shareholder), over any period of 12 consecutive calendar
months, of any loans, advances, guarantees, pledges, insurance, reinsurance or
other financial assistance or any tax credits or other tax advantage provided
by the Company or any of its subsidiaries involving an aggregate principal
amount in excess of $50,000,000 or an aggregate cost or transfer of benefits
from the Company or any of its subsidiaries in excess of $15,000,000 or, in
any case, on terms and conditions less favorable to the Company than the
Company would be able to obtain through arm's length negotiations with a third
party, or (D) as a result of any reclassification of securities (including any
reverse stock split), or recapitalization, of the Company, or any merger or
consolidation of the Company with any of its subsidiaries or any other
transaction or series of transactions (whether or not with or into or
otherwise involving an Acquiring Person), the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Company or any of its subsidiaries which is directly or indirectly owned by
any Acquiring Person is increased by more than 1% (a "Flip-over Transaction or
Event"). For purposes of the foregoing description, the term "Acquiring
Person" shall include any Acquiring Person and its Affiliates and Associates
(each as defined in the Rights Agreement) (other than the Company, a wholly-
owned subsidiary of the Company or an employee stock ownership or other
employee benefit plan of the Company or a wholly-owned subsidiary of the
Company), counted together as a single Person, the Company shall take such
action as shall be necessary to ensure, and shall not enter into, consummate
or permit to occur such Flip-over Transaction or Event until it shall have
entered into a supplemental agreement with the Person engaging in such Flip-
over Transaction or Event (the "Flip-over Entity"), for the benefit of the
holders of the Rights, providing, that upon consummation or occurrence of the
Flip-over Transaction or Event (i) each Right shall thereafter constitute the
right to purchase from the Flip-over Entity, upon exercise thereof in
accordance with the terms of the Rights Agreement, that number of shares of
common stock of the Flip-over Entity having an aggregate Market Price on the
date of consummation or occurrence of such Flip-over Transaction or Event
equal to twice the Exercise Price for an amount in cash equal to the then
current Exercise Price and (ii) the Flip-over Entity shall thereafter be
liable for, and shall assume, by virtue of such Flip-over Transaction or Event
and such supplemental agreement, all the obligations and duties of the Company
pursuant to the Rights Agreement.
The Board of Directors of the Company may, at its option, at any time prior
to the Flip-in Date, redeem all (but not less than all) the then outstanding
Rights at a price (calculated to the nearest one one-hundredth of a cent)
equal to the Exercise Price, as in effect at the Redemption Time, divided by
(initially $0.01 per Right) (the "Redemption Price"), as provided in the
Rights Agreement. Immediately upon the action of the Board of Directors of the
Company electing to redeem the Rights, without any further action and without
any notice, the right to exercise the Rights will terminate and each Right
will thereafter represent only the right to receive the Redemption Price in
cash for each Right so held.
The holders of Rights will, solely by reason of their ownership of Rights,
have no rights as stockholders of the Company, including, without limitation,
the right to vote or to receive dividends.
48
<PAGE>
The Rights will not prevent a takeover of the Company. The Rights, however,
may have certain anti-takeover effects. The Rights may cause substantial
dilution to a person or group that acquires 15% or more of the Common Stock
unless the Rights are first redeemed by the Board of Directors of the Company.
Nevertheless, the Rights should not interfere with a transaction that is in
the best interests of the Company and its stockholders on or prior to the
Flip-in Date, because the Rights can be redeemed before the consummation of
such transaction.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
The Company's Certificate of Incorporation and Bylaws provide that, to the
extent not prohibited by law, the Company shall indemnify any person who is or
was made, or threatened to be made, party to any threatened, pending or
completed action, suit or proceeding, by reason of the fact that such person
is or was a director or officer of the Company, or is or was serving in any
capacity at the request of the Company for any other corporation, partnership
or other enterprise, against judgments, fines, penalties, excise taxes,
amounts paid in settlement costs, charges and expenses (including attorneys'
fees). Persons who are not directors or officers of the Company may be
similarly indemnified in respect of service to the Company to the extent the
Board of Directors at any time specifies such persons are entitled to the
benefits of the indemnification provisions contained in the Certificate of
Incorporation or Bylaws of the Company. The Certificate of Incorporation does
not provide for the elimination of or any limitation on the personal liability
of a director for (i) any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) certain
unlawful dividends or redemptions as provided under Section 174 of the DGCL or
(iv) any transaction from which the director derived an improper personal
benefit.
TRANSFER AGENT
American Stock Transfer & Trust Company will be the transfer agent and
registrar for the Common Stock.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at , 1998, there will be 12,693,838 shares of Common
Stock of the Company outstanding (assuming no exercise of the Underwriters'
over-allotment option or options outstanding under the Company's stock option
plans). Of these shares, the 3,300,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 ("Rule 144") under the Securities
Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 9,393,838 shares of Common Stock are deemed "restricted
securities" under Rule 144. Upon expiration of the Lock-Up Agreements, these
shares of Common Stock will be available for sale in the public market,
subject to the provisions of Rule 144 under the Securities Act.
The Lock-Up Agreement provide that, for a period of 180 days after the date
of this Prospectus, the stockholders of the Company prior to this offering
will not sell, offer, contract or grant any option to sell, pledge, transfer,
establish an open put equivalent position or otherwise dispose of any shares
of Common Stock, any options to purchase shares of Common Stock or any shares
convertible into or exchangeable for shares of Common Stock, owned directly by
such persons or with respect to which they have the power of disposition,
without the prior written consent of NationsBanc Montgomery Securities LLC.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least
one year from the later of the date such securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate of
the Company is entitled to sell, within any three-month period, a number of
such shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock (126,938 shares immediately after this offering) or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule
144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the
Company's stock option plan) are also restricted securities and, beginning 90
days after the effective date of the Registration Statement of which this
Prospectus is a part, may be sold by stockholders other than Affiliates of the
Company subject only to the manner of sale provisions of Rule 144 and by
Affiliates under Rule 144 without compliance with its one-year holding period
requirement.
OPTIONS
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1998
Omnibus Stock Incentive Plan. Shares issued upon the exercise of stock options
after the effective date of the registration statements on Form S-8 will be
eligible for resale in the public market without restriction, subject to Rule
144 limitations applicable to Affiliates and the Lock-up Agreements noted
above, if applicable.
50
<PAGE>
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of the Common Stock
in the public market could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
51
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC and CIBC Oppenheimer Corp. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock indicated below opposite their respective
names at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain terms
and conditions precedent and that the Underwriters are committed to purchase
all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
NationsBanc Montgomery Securities LLC..............................
CIBC Oppenheimer Corp..............................................
---------
Total............................................................ 3,300,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters initially propose to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than $
per share, and the Underwriters may allow, and any such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part.
The Selling Stockholder has granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 495,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to
be purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Company and its current stockholders have agreed not to directly or
indirectly offer for sale, sell, solicit an offer to sell, contract or grant
an option to sell, pledge, transfer, establish an open put equivalent position
or otherwise dispose of any rights with respect to any shares of Common Stock,
any options or warrants to purchase Common Stock, or any securities
convertible or exchangeable for equity securities, owned directly by such
holders or with respect to which they have the power of disposition for a
period of 180 days after the date of this Prospectus without the prior written
consent of NationsBanc Montgomery Securities LLC. NationsBanc Montgomery
Securities LLC may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. In addition, the Company has agreed not to directly or indirectly
offer for sale, sell, solicit an offer to sell, contract or grant an option to
purchase, pledge, transfer or otherwise dispose of any shares of Common Stock,
options, warrants to purchase Common Stock or any securities convertible or
exchangeable for equity securities, other than the shares of Common Stock
offered hereby or pursuant to its stock plans or upon the exercise of
outstanding options or warrants, for a period of 180 days after the date of
this Prospectus without the prior written consent of NationsBanc Montgomery
Securities LLC. See "Shares Eligible for Future Sale."
The Underwriting Agreement provides that the Company and, if the over-
allotment option is exercised, the Selling Stockholder will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
52
<PAGE>
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchase for the purpose of pegging, fixing or
maintaining the price of the Common Stock. If the Underwriters create a short
position in the Common Stock in connection with this offering, i.e., if they
sell more shares of Common Stock than are set forth on the cover page of this
Prospectus, the Underwriters may reduce that short position by purchasing
Common Stock in the open market. The Underwriters may also elect to reduce any
short position by exercising all or part of the over-allotment option
described above. The Underwriters may also impose a penalty bid on certain
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or
to stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security. The Underwriters make no
representation or predications as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common
Stock. In addition, the Underwriters make no representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price has been
determined through negotiations among the Company and the Representatives.
Among the factors considered in such negotiations were the history of, and
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, the present state of the Company's
development, the prospects for future earnings of the Company, the prevailing
market conditions at the time of this offering, market valuations of publicly
traded companies that the Company and the Representatives believe to be
comparable to the Company, and other factors deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other matters will be passed upon for the Company and the Selling
Stockholder by Cadwalader, Wickersham & Taft, New York, New York. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), Los Angeles, California.
EXPERTS
The financial statements of Triarco Industries, Inc. at December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
53
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which forms a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement.
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of certain documents filed as exhibits to the Registration Statement
are not necessarily complete and, in each case, are qualified by reference to
the copy of the document so filed. The Registration Statement can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained form the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material also can be reviewed through the Commission's
Electronic Data Gathering, Analysis, and Retrieval System, which is publicly
available through the Commission's web site (http://www.sec.gov.).
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year. The
Company also will furnish to its stockholders such other reports as may be
required by applicable law.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Balance Sheets as of December 31, 1996 and 1997 and as of March 31, 1998
(unaudited).............................................................. F-3
Statements of Income for the years ended December 31, 1995, 1996 and 1997
and for the three months ended March 31, 1997 and 1998 (unaudited)....... F-4
Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997 and for the three months ended March 31, 1998 (unaudited).. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the three months ended March 31, 1997 and 1998 (unaudited).. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Boards of Directors
Triarco Industries, Inc.
We have audited the accompanying balance sheets of Triarco Industries, Inc.
as of December 31, 1997 and 1996, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triarco Industries, Inc.
at December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Hackensack, New Jersey
March 6, 1998, except for Note 10,
as to which the date is July 20, 1998
F-2
<PAGE>
TRIARCO INDUSTRIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
--------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------- ------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 1,780 $ 3,847 $ 2,990
Accounts receivable, less allowance
of $18 in 1996 and 1997........... 4,795 5,790 5,008
Inventories........................ 3,941 7,108 9,656
Due from affiliate................. 74 13 13
Prepaid expenses and other current
assets............................ 92 312 373
------- ------- -------
Total current assets................. 10,682 17,070 18,040
Property, plant and equipment, net... 1,298 2,843 3,446
Due from affiliates--non-current..... 61 61 57
Other assets......................... 89 212 213
------- ------- -------
$12,130 $20,186 $21,756
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving note payable............. -- $ 2,000 $ 1,000
Current portion of notes payable... $ 21 -- --
Accounts payable................... 1,001 1,736 2,616
Accrued expenses................... 560 926 1,079
Due to stockholders................ 54 -- --
------- ------- -------
Total current liabilities............ 1,636 4,662 4,695
Notes payable, net of current por-
tion................................ 33 -- --
Stockholders' equity:
Preferred stock, $1.00 par value,
authorized 1,000,000 shares, none
issued and outstanding............ -- -- --
Common stock, $.01 par value,
authorized 50,000,000 shares,
issued and outstanding 9,393,838
shares............................ 94 94 94 $ 94
Paid-in capital.................... -- -- -- 6,329
Retained earnings.................. 10,367 15,430 16,967 --
------- ------- ------- ------
Total stockholders' equity........... 10,461 15,524 17,061 $6,423
------- ------- ------- ======
$12,130 $20,186 $21,756
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
TRIARCO INDUSTRIES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $23,646 $32,012 $41,995 $ 10,133 $ 11,074
Cost of sales................ 14,248 17,994 24,595 5,908 6,552
------- ------- ------- --------- ---------
Gross profit................. 9,398 14,018 17,400 4,225 4,522
Selling, general and
administrative expenses..... 5,557 7,128 8,666 2,032 2,183
Research and development..... 148 384 407 102 150
Interest expense............. 79 76 4 2 31
Other income................. (192) (23) (137) (24) (169)
------- ------- ------- --------- ---------
Income before income taxes... 3,806 6,453 8,460 2,113 2,327
Income taxes................. 151 203 335 85 58
------- ------- ------- --------- ---------
Net income................... $ 3,655 $ 6,250 $ 8,125 $ 2,028 $ 2,269
======= ======= ======= ========= =========
Pro forma data (unaudited)
Historical income before
income taxes................ $ 8,460 $ 2,327
Pro forma adjustments other
than income taxes........... 1 31
------- ---------
Pro forma income before
income taxes................ 8,461 2,358
Pro forma provision for
income taxes................ 3,394 934
------- ---------
Pro forma net income......... $ 5,067 $ 1,424
======= =========
Pro forma earnings per
share....................... $ $
======= =========
Pro forma common shares
outstanding.................
======= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TRIARCO INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- -------
<S> <C> <C> <C>
Balance at January 1, 1995............................ $94 $ 7,449 $ 7,543
Distribution to stockholders........................ -- (3,667) (3,667)
Net income.......................................... -- 3,655 3,655
--- ------- -------
Balance at December 31, 1995.......................... 94 7,437 7,531
Distribution to stockholders........................ -- (3,320) (3,320)
Net income.......................................... -- 6,250 6,250
--- ------- -------
Balance at December 31, 1996.......................... 94 10,367 10,461
Distribution to stockholders........................ -- (3,062) (3,062)
Net income.......................................... -- 8,125 8,125
--- ------- -------
Balance at December 31, 1997.......................... 94 15,430 15,524
Distribution to stockholders (unaudited)............ -- (732) (732)
Net income (unaudited).............................. -- 2,269 2,269
--- ------- -------
Balance at March 31, 1998 (unaudited)................. $94 $16,967 $17,061
=== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
TRIARCO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................... $ 3,655 $ 6,250 $ 8,125 $ 2,028 $ 2,269
Adjustments to reconcile net
income to net cash (used in)
provided by operating activi-
ties:
Depreciation and amortiza-
tion........................ 224 269 511 69 172
Provision for doubtful ac-
counts...................... 18 -- -- -- --
Loss (gain) on disposal of
property, plant and
equipment................... -- 32 -- -- --
Provision for obsolete inven-
tory........................ -- -- 300 75 --
Changes in operating assets
and liabilities:
Accounts receivable......... (964) 396 (995) (2,373) 782
Inventories................. (1,566) (200) (3,467) (536) (2,548)
Due from affiliate.......... (8) 32 61 -- 3
Prepaid expenses and other.. (140) 121 (220) (115) (61)
Other assets................ (18) -- (123) (58) --
Accounts payable............ 549 (921) 735 1,270 880
Accrued expenses and income
taxes...................... (1,870) 27 366 589 153
------- ------- ------- --------- ---------
Net cash (used in) provided by
operating activities......... (120) 6,006 5,293 949 1,650
INVESTING ACTIVITIES
Purchases of property, plant
and equipment, net........... (671) (344) (2,056) (112) (775)
------- ------- ------- --------- ---------
Net cash used in investing ac-
tivities..................... (671) (344) (2,056) (112) (775)
FINANCING ACTIVITIES
Borrowings on revolving notes
payable...................... 1,250 -- 2,000 -- --
Payments on revolving notes
payable...................... -- (1,250) -- -- (1,000)
Borrowings on term notes pay-
able......................... -- 40 -- -- --
Principal payments on notes
payable...................... (4) (24) (54) (54) --
Decrease in due to stockhold-
er........................... (228) (5) (54) (13) --
Distributions to stockhold-
ers.......................... (3,667) (3,320) (3,062) -- (732)
------- ------- ------- --------- ---------
Net cash used in financing ac-
tivities..................... (2,649) (4,559) (1,170) (67) (1,732)
------- ------- ------- --------- ---------
(Decrease) increase in cash
and cash equivalents......... (3,440) 1,103 2,067 770 (857)
Cash and cash equivalents at
beginning of period.......... 4,117 677 1,780 1,780 3,847
------- ------- ------- --------- ---------
Cash and cash equivalents at
end of period................ $ 677 $ 1,780 $ 3,847 $ 2,550 $ 2,990
======= ======= ======= ========= =========
SUPPLEMENTAL CASH FLOW INFOR-
MATION
Interest paid................. $ 78 $ 76 $ 4 $ 3 $ 29
Taxes paid.................... $ 2,312 $ 60 $ 299 $ -- $ 13
</TABLE>
See accompanying notes.
F-6
<PAGE>
TRIARCO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of Triarco Industries, Inc., a Delaware corporation
(the "Company"), include the combined financial statements of Triarco
Industries, Inc., a New Jersey corporation ("Old Triarco"), Leica Sordik,
Inc., a New Jersey corporation, and Body Mechanics, Inc., a Florida
corporation, (collectively the "Predecessor Companies"). These entities were
under common control and were merged into Old Triarco on July 14, 1998, and on
July 20, 1998 Old Triarco was merged into the Company (see Note 10). The
financial statements have been restated similar to a pooling of interest to
reflect this merger. All significant intercompany transactions have been
eliminated.
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Nature of Business and Concentration of Credit Risk
The Company is engaged in a single industry segment; the production and
distribution of a variety of products used by manufacturers of natural
products, principally nutritional supplements. Substantially all of the
Company's customers are located in the United States. The Company performs
periodic credit evaluations of its customers but generally does not require
collateral.
The Company had sales to two customers (one in 1995) representing 10% or
more of the Company's total net sales totaling approximately 40%, 74%, 73%,
75% and 64% of total net sales for 1995, 1996, 1997 and the three months ended
March 31, 1997 and 1998, respectively. Accounts receivable from these
customers were $3,340, $3,817 and $3,160 at December 31, 1996 and 1997, and
March 31, 1998, respectively.
Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line and certain accelerated
methods over the estimated useful lives of the related assets.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs that do not materially add to the value of the property nor
appreciably extend the useful life of the property are charged to expense as
incurred.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets.
Revenue Recognition
The Company recognizes revenue upon shipment of products to customers.
F-7
<PAGE>
TRIARCO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
Research and Development
Research and development costs are expensed as incurred.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. Statement 128 replaced the calculation of primary and fully-diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
similar to the previously required fully-diluted earnings per share.
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.
Income Taxes
Deferred income taxes are determined using the liability method. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities (i.e., temporary differences) and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to
reverse. No deferred tax asset or liability exists at December 31, 1996 and
1997, or March 31, 1998.
The Company has elected to be treated under Subchapter S of the Internal
Revenue Code for federal and New Jersey purposes. Accordingly, no provision is
made for federal income taxes, and a reduced rate is provided for state income
taxes since the Company's income will be included in the personal income tax
returns of the stockholders. See Note 11.
Interim Financial Statements
The accompanying unaudited interim financial statements as of March 31, 1998
and for each of the three month periods ended March 31, 1997 and 1998 include
all adjustments which, in the opinion of management, are necessary for a fair
presentation of the Company's financial position and results of operations and
cash flows for the periods presented. All such adjustments are of a normal
recurring nature. The results of the Company's operations for the three months
ended March 31, 1997 and 1998 are not necessarily indicative of the results of
operations for a full fiscal year.
2. INVENTORIES
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------- MARCH 31,
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
Raw materials....................................... $1,380 $2,488 $4,634
Finished goods...................................... 2,561 4,920 5,322
------ ------ ------
3,941 7,408 9,956
Reserve for obsolete inventory...................... -- (300) (300)
------ ------ ------
$3,941 $7,108 $9,656
====== ====== ======
</TABLE>
F-8
<PAGE>
TRIARCO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1996 1997 1998
------ ------- ---------
<S> <C> <C> <C>
Land and buildings................................ -- $ 676 $ 1,073
Furniture and fixtures............................ $ 243 325 408
Leasehold improvements............................ 844 1,030 1,064
Machinery and equipment........................... 992 2,101 2,362
------ ------- -------
2,079 4,132 4,907
Accumulated depreciation.......................... (781) (1,289) (1,461)
------ ------- -------
$1,298 $ 2,843 $ 3,446
====== ======= =======
</TABLE>
4. ACCRUED EXPENSES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------- MARCH 31,
1996 1997 1998
----- ----- ---------
<S> <C> <C> <C>
Employee compensation................................. $ 89 $ 210 $ 435
Volume rebates........................................ 251 386 400
Other................................................. 220 330 244
----- ----- ------
$ 560 $ 926 $1,079
===== ===== ======
</TABLE>
5. DEBT
The revolving note payable represents borrowings from a bank under a $5.0
million revolving line of credit which expires on June 30, 1998 (see Note 11).
The revolving note payable bears interest, payable monthly, based upon a rate
option selected by the Company. The rate in effect at December 31, 1997 was
7.16% representing the LIBOR rate plus 1.25%.
Borrowings under the revolving line of credit are collateralized by
substantially all of the Company's assets. In addition, the Company is
required to maintain compliance with certain financial covenants.
Notes payable consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Secured term note payable to bank. Payable in monthly installments of $1
plus interest at 8.50% through February 2001............................. $33
Secured term note payable to bank. Payable in monthly installments of $1
plus interest at 8.50% through November 1998............................. 16
Secured term note payable to bank. Payable in monthly installments of $.5
plus interest at 8.25% through November 1997............................. 5
---
54
Less current portion...................................................... 21
---
$33
===
</TABLE>
F-9
<PAGE>
TRIARCO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
The secured term notes were collateralized by vehicles and equipment with an
aggregate net carrying value of $42 at December 31, 1996.
The fair value of the Company's debt, which approximates its carrying value,
is estimated using discounted cash flow analysis based on the Company's
current incremental borrowing rates.
6. RETIREMENT PLAN
The Company maintains a defined contribution profit sharing plan. The profit
sharing plan covers hourly and salaried employees who meet prescribed age and
service requirements. The Company, at its discretion, contributes to the plan
amounts for each employee as determined by the Board of Directors. The Company
accrued for contributions to the plan amounting to approximately $250, $326,
$423, $104 and $125 for the years ended December 31, 1995, 1996, 1997, and the
three months ended March 31, 1997 and 1998, respectively.
7. RELATED PARTY TRANSACTIONS
The Company leases its manufacturing and warehouse facilities from an entity
related through common ownership and a stockholder. Total rent expense on
these leases was approximately $155, $300, $300, $75 and $75 for the years
ended December 31, 1995, 1996 and 1997, and the three months ended March 31,
1997 and 1998, respectively.
The Company is contingently liable as a guarantor of two mortgage
obligations of the entity from which it leases its manufacturing facilities.
The aggregate outstanding balance of these mortgages was $298, $281, and $277
at December 31, 1996 and 1997, and March 31, 1998, respectively.
The balance due from affiliate bears interest at 7% and is due to the
Company in monthly installments of $2.
Other assets includes a note receivable from a stockholder of $49 at
December 31, 1996 which bore interest at 10% and was repaid in 1997.
The balance due to stockholders at December 31, 1996 which bore interest at
8% was repaid in full in 1997.
8. COMMITMENTS
The Company leases manufacturing, distribution and office facilities under
several non-cancelable operating leases. The leases have terms of one to five
years and contain renewal options of similar periods. In addition, certain
leases require the Company to pay maintenance and other operating costs of the
properties.
Future minimum lease payments for noncancelable operating leases having
initial or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998................................................................. $169
1999................................................................. 148
2000................................................................. 160
2001................................................................. 140
</TABLE>
Rental expense for all operating leases, inclusive of the leases described
in Note 6, was approximately $370, $475, $576, $119 and $156 for the years
ended December 31, 1995, 1996, 1997, and the three months ended March 31, 1997
and 1998, respectively.
F-10
<PAGE>
TRIARCO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
9. NOTE RECEIVABLE
Other assets at December 31, 1997 includes a note receivable of $116 from a
landlord of the Company. The note bears interest at 8% and is due to the
Company in monthly installments of $3 through October 2001. Other current
assets at December 31, 1997 include $27 related to this note receivable.
10. SUBSEQUENT EVENTS
In January 1998, a lawsuit relating to the ownership of one of the combined
entities was settled in favor of the Company for $1.2 million, payable in 60
monthly installments of $20. The Company will recognize the revenue as cash is
collected.
As discussed in Note 1, on July 20, 1998 the Predecessor Companies were
merged into Triarco Industries, Inc. The Company was incorporated in Delaware
on June 23, 1998 for the purpose of acquiring and continuing the operations of
the Predecessor Companies, in contemplation of the Offering discussed in Note
11. The Company is authorized to issue up to 50,000,000 shares of common stock
and 1,000,000 shares of preferred stock in one or more series, with each
series to have such designations, rights and preferences as may be determined
by the Board of Directors.
Upon consummation of the merger, the shareholders of the Predecessor
Companies contributed all of the outstanding stock in the Predecessor
Companies to the Company in exchange for 9,393,838 shares of the Company's
common stock, after giving effect to a proposed 4,469-for-1 stock split. The
financial statements have been prepared as if such shares were outstanding for
all periods presented.
On June 25, 1998 two of the Predecessor Companies declared dividends to
their shareholders, which in the aggregate totaled $10,965 (the
"Distributions"), representing estimated accumulated undistributed S
corporation taxable income through March 31, 1998. On June 29, 1998, $7,015 of
the total Distribution was paid, with the remaining $3,950 paid on July 6,
1998.
On the respective Distribution payment dates, the Predecessor Companies
borrowed $10,965 from a bank pursuant to two term notes (the "Term Notes")
which mature on December 15, 1998. The Term Notes bear interest, payable
monthly at LIBOR plus 1.00% and are secured by all of the assets of the
Company. The Company intends to repay the Term Notes from the net proceeds of
the Offering.
On June 24, 1998 the maturity date of the revolving line of credit was
extended to June 30, 1999. See Note 5.
11. PLANNED INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS (UNAUDITED)
Planned Initial Public Offering
In May 1998, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for an
initial public offering (the "Offering") of the Company's Common Stock.
Pro Forma Adjustments
The unaudited pro forma net income for the year ended December 31, 1997 and
the three-month period ended March 31, 1998 reflects the Offering and the
following adjustments as if they had occurred on January 1 of each period: a)
a reduction in interest expense of $1 for the year ended December 31, 1997 and
$31 for the three-month period ended March 31, 1998 assuming the application
of proceeds from the Offering to repay all of the Company's indebtedness; and
b) an increase in income taxes of $3,059 for the year ended December 31, 1997
and $876 for the three-month period ended March 31, 1998 based upon pro forma
pre-tax income as if the Company had been subject to federal and additional
state income taxes.
F-11
<PAGE>
TRIARCO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
The following table sets forth the capitalization of the Company at March
31, 1998 and the pro forma capitalization of the Company as of such date after
giving effect to the Distributions to the stockholders and the recording of a
net deferred tax benefit of approximately $327 in connection with the Company
becoming subject to federal and additional state and local income taxes.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
Common stock........................................... $ 94 $ 94
Additional paid-in capital............................. -- 6,329
Retained earnings...................................... 16,967 --
------- ------
Total Stockholders' equity............................. $17,061 $6,423
======= ======
</TABLE>
Income Taxes
As discussed in Note 1, the Company has elected to be taxed as an S
corporation pursuant to the Internal Revenue Code and certain state and local
tax regulations. In connection with the Offering made hereby, the Company will
become subject to federal and additional state income taxes. Accordingly, in
the quarter in which the Offering is completed, the Company will record
additional deferred tax assets of $350 and additional deferred tax liabilities
of ($23) and a corresponding net tax benefit of $327 in the statement of
income in accordance with the provisions of SFAS No. 109.
The pro forma provision for income taxes represents the income tax
provisions that would have been reported had the Company been subject to
federal and additional state income taxes during the year ended December 31,
1997 and the quarter ended March 31, 1998. The unaudited pro forma net income
for the year ended December 31, 1997 and the quarter ended March 31, 1998,
reflects a decrease of $3,059 and $876 respectively, for income taxes based
upon income before income taxes as if the Company had become subject to
federal and additional state income taxes on that date.
Pro forma deferred income taxes will reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for pro forma financial reporting and the amounts used for income tax
purposes. Significant components of the Company's pro forma net deferred tax
assets and liabilities as of December 31, 1997 and March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Deferred tax assets:
Book depreciation over tax depreciation............. $ 73 $ 89
Allowance for doubtful accounts..................... 7 7
Inventory capitalization and reserves............... 213 247
Other book accruals................................. 7 7
---- ----
Subtotal--deferred tax asset.......................... 300 350
Deferred tax liabilities:
Intangibles......................................... (3) (3)
Unrealized income................................... (20) (20)
---- ----
Subtotal--deferred tax liabilities.................... (23) (23)
---- ----
Net deferred tax asset................................ $277 $327
==== ====
</TABLE>
F-12
<PAGE>
TRIARCO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
The pro forma income tax provisions for the year ended December 31, 1997 and
the three months ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Current:
Federal............................................. $2,759 $762
State and local..................................... 803 222
------ ----
3,562 984
Deferred income tax benefit........................... (168) (50)
------ ----
$3,394 $934
====== ====
</TABLE>
A reconciliation setting forth the differences between the pro forma
effective tax rate of the Company and the U.S. federal statutory tax rate is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Federal statutory rate............................... 34.0% 34.0%
State and local taxes, net of federal tax benefit.... 6.0 6.0
---- ----
Effective tax rate................................... 40.0% 40.0%
==== ====
</TABLE>
Pro Forma Earnings Per Share
Pro forma earnings per share is based on 9,393,838 shares of common stock
outstanding prior to the Offering, increased by the sale of shares of
common stock assuming an initial public offering price of $ per share
($ , net of underwriting discounts and commissions and estimated offering
expenses), the proceeds of which would be necessary to pay approximately
$11,965 representing the borrowings related to the Distributions and amounts
outstanding under the revolving note payable.
12. IMPACT OF YEAR 2000 (UNAUDITED)
The Company has developed a plan to modify its information technology to be
ready for the Year 2000 and convert critical data processing systems. The
Company currently expects the project to be substantially complete by early
1999 and to cost between $125 and $175. This estimate includes internal costs,
but excludes costs which may be required to upgrade and replace systems in the
normal course of business. The Company does not expect this project to have a
significant effect on operations.
F-13
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company, the Selling Stockholder or any Underwriter. This Pro-
spectus does not constitute an offer to sell or a solicitation of any offer to
buy any securities other than the shares of Common Stock to which it relates
or an offer to, or a solicitation of, any person in any jurisdiction where
such an offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company or
that the information contained herein is correct as of any time subsequent to
the date hereof.
-----------------------
TABLE OF CONTENTS
-----------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Dividend Policy.......................................................... 15
Use of Proceeds.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Historical and Pro Forma Financial Data......................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 25
Management............................................................... 39
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not partici-
pating in this distribution, may be required to deliver a Prospectus. This is
in addition to the obligations of dealers to deliver a Prospectus when acting
as Underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,300,000 SHARES
LOGO
COMMON STOCK
--------------
PROSPECTUS
--------------
NationsBanc Montgomery
Securities LLC
CIBC Oppenheimer
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of the offering. All
of such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission, National Association of Securities
Dealers, Inc. ("NASD") and the Nasdaq National Market.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee....................... $15,930
NASD Filing Fee..................................................... 5,813
Nasdaq National Market Listing Fee.................................. 84,875
Printing Fees and Expenses.......................................... *
Legal Fees and Expenses............................................. *
Directors' and Officers' Insurance Premium.......................... *
Accounting Fees and Expenses........................................ *
Blue Sky Fees and Expenses.......................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be completed in an amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of Delaware
(the "DGCL") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
complete action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, 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, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine that despite the adjudication of liability
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith; that indemnification or advancement of
expenses provided for by Section 145 shall not be deemed exclusive of any
other rights to which
II-1
<PAGE>
the indemnified party may be entitled; and empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
The Certificate of Incorporation of the Registrant provides that a director
of the Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director
except to the extent such exemption from liability or limitation thereof is
not permitted under the DGCL as therein effect.
The Bylaws of the Registrant provide, in effect, that the Registrant shall
indemnify every person who was or is a party, or is or was threatened to be
made a party, to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he or she is or
was a director, officer, employee, or agent of the Registrant, or is or was
serving at the request of the Registrant as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or
proceedings, to the fullest extent permitted by applicable law. Such
indemnifications may, in the discretion of the board of directors, include
advances of the person's expenses in advance of final disposition of such
action, suit, or proceeding, subject to the provisions of any applicable
statute. The Registrant is empowered to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the Registrant, or is or was serving at the request of the Registrant as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against any liability incurred by
such person in such capacity, or arising out of such person's capacity.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Registrant has sold unregistered securities in the following transactions,
each of which was intended to be exempt from the registration requirements of
the Securities Act of 1933, as amended, by virtue of Section 4(2) thereunder,
and none of which involved any underwriters:
On June 24, 1998 the Company issued 59 shares of Common Stock to Rodger R.
Rohde at a price of $1.00 per share for cash in connection with the formation
of the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.*
3.1 --Certificate of Incorporation of the Registrant.
3.2 --Bylaws of the Registrant
4.1 --Stockholder Protection Rights Agreement, dated as of , 1998,
between the Registrant and American Stock Transfer & Trust Company,
as Rights Agent.*
5.1 --Opinion of Cadwalader, Wickersham & Taft.*
10.1.1 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Rodger R. Rohde, Sr.*
10.1.2 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Rodger R. Rohde, Jr.*
10.1.3 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Angelo R. Appierto.*
10.1.3 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Andres E. Menendez.*
10.1.4 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Christopher J. Rohde.*
10.1.5 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Cynthia J. Rohde.*
10.2 --1998 Omnibus Stock Incentive Plan*
10.3 --Business Lease, dated November 1, 1996, between Thomas Associates,
as landlord, and the Registrant, as tenant.
10.4 --Real Estate Lease, dated as of January 1, 1997, by and between
Rodger R. Rohde, Sr., as landlord, and the Registrant, as tenant,
related to the premises at 6 Morris, Paterson, New Jersey.
10.5 --Real Estate Lease, dated as of January 1, 1997, by and between Rohde
Holdings, Inc., as landlord, and the Registrant, as tenant, related
to the premises at 8 Morris, Paterson, New Jersey.
10.6.1 --Memorandum of Lease, dated July 17, 1997, executed by Wade Howell
and the Registrant.
10.6.2 --Ground & Equipment Lease, dated July 17, 1997, by and between Wade
Howell and the Registrant.
10.7 --Letter agreement, dated June 30, 1997, between Fleet Bank, National
Association and the Registrant, as amended by letter agreement, dated
June 24, 1998, and promissory note relating to revolving credit
facility.
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).*
23.2 --Consent of Ernst & Young LLP.
24.1 --Power of Attorney (included on signature page).
27.1 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant 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 Registrant 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 of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wayne, State of New
Jersey, on July 22, 1998.
Triarco Industries, Inc.
/s/ Rodger R. Rohde, Sr.
By: _________________________________
RODGER R. ROHDE, SR.
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rodger R. Rohde, Sr., Rodger R. Rohde, Jr. and
Angelo R. Appierto and each of them, such person's true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for
such person and in such person's name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and 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 such and
every act and thing requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, 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 indicated on July 22, 1998
SIGNATURE TITLE
/s/ Rodger R. Rohde, Sr. Chairman of the Board, Chief Executive
- ------------------------------------- Officer and Director (Principal
RODGER R. ROHDE, SR. Executive Officer)
/s/ Rodger R. Rohde, Jr. President, Chief Operating Officer and
- ------------------------------------- Director
RODGER R. ROHDE, JR.
/s/ Angelo R. Appierto Vice President--Finance, Chief
- ------------------------------------- Financial Officer, Secretary,
ANGELO R. APPIERTO Treasurer and Director (Principal
Financial and Accounting Officer)
/s/ Andres Menendez Vice President--Special Projects and
- ------------------------------------- Director
ANDRES MENENDEZ
/s/ Christopher Rohde Vice President--Operations and
- ------------------------------------- Director
CHRISTOPHER ROHDE
/s/ Cynthia Rohde Vice President--Corporate
- ------------------------------------- Communications and Director
CYNTHIA ROHDE
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.*
3.1 --Certificate of Incorporation of the Registrant.
3.2 --Bylaws of the Registrant
4.1 --Stockholder Protection Rights Agreement, dated as of , 1998,
between the Registrant and American Stock Transfer & Trust Company,
as Rights Agent.*
5.1 --Opinion of Cadwalader, Wickersham & Taft.*
10.1.1 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Rodger R. Rohde, Sr.*
10.1.2 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Rodger R. Rohde, Jr.*
10.1.3 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Angelo R. Appierto.*
10.1.3 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Andres E. Menendez.*
10.1.4 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Christopher J. Rohde.*
10.1.5 --Employment Agreement, dated as of , 1998, by and between the
Registrant and Cynthia J. Rohde.*
10.2 --1998 Omnibus Stock Incentive Plan*
10.3 --Business Lease, dated November 1, 1996, between Thomas Associates,
as landlord, and the Registrant, as tenant.
10.4 --Real Estate Lease, dated as of January 1, 1997, by and between
Rodger R. Rohde, Sr., as landlord, and the Registrant, as tenant,
related to the premises at 6 Morris, Paterson, New Jersey.
10.5 --Real Estate Lease, dated as of January 1, 1997, by and between Rohde
Holdings, Inc., as landlord, and the Registrant, as tenant, related
to the premises at 8 Morris, Paterson, New Jersey.
10.6.1 --Memorandum of Lease, dated July 17, 1997, executed by Wade Howell
and the Registrant.
10.6.2 --Ground & Equipment Lease, dated July 17, 1997, by and between Wade
Howell and the Registrant.
10.7 --Letter agreement, dated June 30, 1997, between Fleet Bank, National
Association and the Registrant, as amended by letter agreement, dated
June 24, 1998, and promissory note relating to revolving credit
facility.
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).*
23.2 --Consent of Ernst & Young LLP.
24.1 --Power of Attorney (included on signature page).
27.1 --Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TRIARCO INDUSTRIES, INC.
The undersigned, in order to form a corporation for the purpose
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, hereby certifies that:
First. The name of the Corporation is Triarco Industries, Inc. (the
"Corporation").
Second. The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, in the
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
Third. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
Fourth. The total number of shares of stock which the Corporation
shall have authority to issue is 51,000,000 shares consisting of 50,000,000
shares of Common Stock, par value $.01 per share, and 1,000,000 shares of
Preferred Stock, par value $1.00 per share.
To the full extent permitted by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended, the Board of
Directors is hereby authorized by resolution to divide and issue the shares of
Preferred Stock in classes or series and to fix the voting powers and any
designations, preferences, and relative, participating, optional or other
special rights of any such class or series of Preferred Stock and any
qualifications or restrictions thereof as shall be stated and expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors.
Fifth. The name and address of the incorporator is Louis J.
Bevilacqua, Esq., 100 Maiden Lane, New York, New York 10038.
Sixth. Unless and to the extent that the Bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
<PAGE>
Seventh. In furtherance and not in limitation of the powers conferred
by the General Corporation Law of the State of Delaware, the Board of Directors
of the Corporation shall be authorized to make, alter or repeal the Bylaws of
the Corporation as and to the extent permitted therein.
Eighth. No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as then in effect. Any repeal or modification of this Article
Eighth shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
2
<PAGE>
In Witness Whereof, the undersigned has signed this Certificate of
Incorporation on June 23, 1998.
/s/ Louis J. Bevilacqua, Esq.
-----------------------------------
Louis J. Bevilacqua, Esq.
Sole Incorporator
3
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
TRIARCO INDUSTRIES, INC.
Article I
Offices
Section 1.1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at the principal place of
business in such state of the corporation or individual acting as the
Corporation's registered agent in Delaware.
Section 1.2. Other Offices. In addition to its registered office in
the State of Delaware, the Corporation may have an office or offices in such
other places as the Board of Directors may from time to time designate or the
business of the Corporation may require.
Article II
Meeting of Stockholders
Section 2.1. Time and Place. All meetings of the stockholders of the
Corporation shall be held at such time and place, either within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2.2. Annual Meeting. The annual meeting of stockholders of
the Corporation shall be held at such date, time and place, either within or
without the State of Delaware, as shall be determined by the Board of Directors
and stated in the notice of meeting.
Section 2.3. Special Meetings of Stockholders. Special meetings of
stockholders for any purpose or purposes if not otherwise prescribed by statute
or by the Certificate of Incorporation, may be called by the Board of Directors,
the President, or the Secretary and shall be called by the President or
Secretary at the request of stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote at
a meeting of stockholders. Such request shall state the purpose or purposes of
the proposed meeting. The time of any such special meeting shall be fixed by
the officer calling the meeting and shall be stated in the notice of such
meeting, which notice shall specify the purpose or purposes thereof. Business
transacted at any special meeting shall be confined to the purposes stated in
the notice of meeting and matters germane thereto.
Section 2.4. Notice of Meetings. Notice of the time and place of
every annual or special meeting of the stockholders shall be given not less than
ten nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting, in the manner prescribed by Section 6.1 of
these Bylaws, except that where the matter to be acted upon is a merger or
consolidation of the Corporation, or a sale, lease or exchange of all or
substantially all of its assets, such notice shall be given not less than 20 nor
more than 60 days prior to such meeting.
<PAGE>
Section 2.5. Quorum and Adjournment of Meetings. The holders of a
majority of the shares of capital stock issued and outstanding and entitled to
vote thereat, present in person, or represented by proxy, shall be requisite and
shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by the Certificate of
Incorporation. If a majority shall not be present in person or represented by
proxy at any meeting of the stockholders at which action is to be taken by the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time
without notice other than announcement at the meeting, until holders of the
requisite number of shares of stock entitled to vote shall be present or
represented by proxy. At such adjourned meeting at which such holders of the
requisite number of shares of capital stock shall be present or represented by
proxy, any business may be transacted which might have been transacted at the
meeting as originally called. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 2.6. Vote Required. At any meeting of stockholders,
directors shall be elected by a plurality of votes, and all other matters shall
be decided by a majority of votes, cast by the stockholders present in person or
represented by proxy and entitled to vote, unless the matter is one for which,
by express provisions of statute, of the Certificate of Incorporation or of
these Bylaws, a different vote is required, in which case such express provision
shall govern and control the determination of such matter.
Section 2.7. Voting. At any meeting of the stockholders, each
stockholder having the right to vote shall be entitled to vote in person or by
proxy. To determine the stockholders entitled to notice of or to vote at any
meeting of the stockholders or any adjournment thereof, the Board of Directors
may fix, in advance, a record date which shall be not more than 60 days nor less
than ten days before the date of such meeting. Except as otherwise provided by
the Certificate of Incorporation or by statute, each stockholder of record shall
be entitled to one vote for each outstanding share of capital stock standing in
his or her name on the books of the Corporation as of the record date. A
complete list of the stockholders entitled to vote at any meeting of
stockholders arranged in alphabetical order with the address of each and the
number of shares held by each, shall be prepared by the Secretary. Such list
shall be open to the examination of any stockholder for any purpose germane to
the meeting during ordinary business hours for a period of at least ten days
prior to the meeting, at the locations specified by the Delaware General
Corporation Law. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 2.8. Proxies. Each proxy shall be in writing executed by the
stockholder giving the proxy or his or her duly authorized attorney. No proxy
shall be valid after the expiration of three years from its date, unless a
longer period is provided for in the proxy. Unless and until voted, every proxy
shall be revocable at the pleasure of the person who executed it or his or her
legal representatives or assigns, except in those cases where an irrevocable
proxy permitted by statute has been given.
2
<PAGE>
Section 2.9. Consents. The provision of these Bylaws covering
notices and meetings to the contrary notwithstanding, any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would have been
necessary to authorize or take such action at a meeting at which all shares of
stock entitled to vote thereon were present and voted. Where corporate action
is taken in such manner by less than unanimous written consent, prompt written
notice of the taking of such action shall be given to all stockholders who have
not consented in writing thereto and who, if the action had been taken at a
meeting, would have been entitled to notice of the meeting.
Article III
Directors
Section 3.1. Board of Directors. The business and affairs of the
Corporation shall be managed by a Board of Directors. The Board of Directors
may exercise all such powers of the Corporation and do all such lawful acts and
things on its behalf as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 3.2. Number; Election and Tenure. The number of directors
shall be fixed initially by the incorporator of the Corporation and thereafter
such number shall be determined from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors; provided that
no decrease in the number of directors shall shorten the term of any incumbent
director. The directors shall be divided into three classes, designated as
Class I, Class II and Class III. All classes shall be as nearly equal in number
as possible. The initial Class I directors shall hold office until the 1999
annual meeting of stockholders; the initial Class II directors shall hold office
until the 2000 annual meeting of stockholders; and the initial Class III
directors shall hold office until the 2001 annual meeting of stockholders. At
each annual meeting of stockholders after such initial classification, directors
to replace those whose terms expire at such annual meeting of stockholders shall
be elected to hold office until the third succeeding annual meeting. Each
director shall hold office until the expiration of his or her term and until his
or her successor is elected and has qualified or until his or her earlier death,
resignation or removal.
Section 3.3. Resignation and Removal. A director may resign at any
time by giving written notice to the Board of Directors or to the President of
the Corporation. Such resignation shall take effect upon receipt thereof by the
Board of Directors or by the President, unless otherwise specified therein. Any
one or more of the directors may be removed, either with or without cause, at
any time by the affirmative vote of a majority of the stockholders at any
special meeting of the stockholders called for such purpose.
Section 3.4. Vacancies. A vacancy occurring for any reason and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by
3
<PAGE>
the vote of a majority of the directors then in office, although less than a
quorum, or by the sole remaining director, or by the stockholders.
Section 3.5. Compensation. Each director shall receive for services
rendered as a director of the Corporation such compensation as may be fixed by
the Board of Directors. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
Article IV
Meetings of the Board
Section 4.1. Time and Place. Meetings of the Board of Directors
shall be held at such places, within or without the State of Delaware, and
within or without the United States of America, as shall be determined in
accordance with these Bylaws.
Section 4.2. Annual Meeting. Immediately after and at the place of
the annual meeting of the stockholders, or at such other place as the Board of
Directors may designate, a meeting of the Board of Directors for the purpose of
organization and the election of officers and otherwise may be held. Such
meeting may be held without notice.
Section 4.3. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice, at such time and place as shall, from time
to time, be determined by the Board of Directors.
Section 4.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time and place as shall be determined by resolution
of the Board of Directors or upon the call of the President, the Secretary, or
any member of the Board of Directors on two days' notice to each director by
mail or on one day's notice personally or by telecopy, telephone or telegraph.
Meetings of the Board of Directors may be held at any time without notice if all
the directors are present, or if those not present waive notice of the meeting
in writing, either before or after the meeting.
Section 4.5. Quorum and Voting. A majority of the entire Board of
Directors shall constitute a quorum at any meeting of the Board of Directors and
the act of a majority of the directors shall be the act of the Board of
Directors, except as may otherwise be specifically provided by law, the
Certificate of Incorporation or by these Bylaws. If at any meeting of the Board
of Directors there shall be less than a quorum present, the director or
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall have been
obtained.
Section 4.6. Consents. Any action required or permitted to be taken
at any meeting of the Board of Directors may be taken without a meeting if all
members of the Board of Directors consent to such action in writing, and such
writing or writings are filed with the minutes of the proceedings of the Board
of Directors.
4
<PAGE>
Section 4.7. Telephonic Meetings of Directors. The Board of
Directors may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation by such means shall constitute
presence in person at such meeting.
Article V
Committees of the Board
Section 5.1. Designation and Powers. The Board of Directors may in
its discretion designate one or more committees. Each committee shall consist
of one or more of the directors of the Corporation. Such committee or
committees shall have duties and powers not inconsistent with the laws of the
State of Delaware, the Certificate of Incorporation, these Bylaws, and the
respective resolution or resolutions of the Board of Directors. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in place of any such absent or disqualified member.
Article VI
Notices
Section 6.1. Delivery of Notices. Notices to directors and
stockholders shall be in writing and may be delivered personally or by mail.
Notice by mail shall be deemed to be given at the time when deposited in the
United States mail, postage prepaid, and addressed to directors or stockholders
at their respective addresses appearing on the books of the Corporation, unless
any such director or stockholder shall have filed with the Secretary of the
Corporation a written request that notices intended for him or her be mailed or
delivered to some other address, in which case the notice shall be mailed to or
delivered at the address designated in such request. Notice to directors may
also be given by telegram or by telecopy.
Section 6.2. Waiver of Notice. Whenever notice is required to be
given by statute, the Certificate of Incorporation or these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to such notice
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Attendance of a person at a meeting of stockholders,
directors or any committee of directors, as the case may be, shall constitute a
waiver of notice of such meeting, except where the person is attending for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of stockholders, directors or committee of directors
need be specified in any written waiver of notice.
Article VII
Officers
Section 7.1 Executive Officers. At the annual meeting of directors
the Board of Directors shall elect a Chairman of the Board, President, Secretary
and Treasurer and may
5
<PAGE>
elect one or more Vice Presidents, Assistant Secretaries or Assistant Treasurers
and such other officers as the Board of Directors may from time to time
designate or the business of the Corporation may require. Except for the
Chairman of the Board, no executive officer need be a member of the Board. Any
number of offices may be held by the same person, except that the office of
Secretary may not be held by the Chairman of the Board or the President.
Section 7.2 Other Officers and Agents. The Board of Directors may
also elect such other officers and agents as the Board of Directors may at any
time or from time to time determine to be advisable, such officers and such
agents to serve for such terms and to exercise such powers and perform such
duties as shall be specified at any time or from time to time by the Board of
Directors.
Section 7.3 Tenure; Resignation; Removal; Vacancies. Each officer of
the Corporation shall hold office until his or her successor is elected and
qualified, or until his or her earlier resignation or removal; provided, that if
the term of office of any officer elected or appointed pursuant to Section 7.2
of these Bylaws shall have been fixed by the Board of Directors, he or she shall
cease to hold such office no later than the date of expiration of such term
regardless of whether any other person shall have been elected or appointed to
succeed him or her. Any officer elected by the Board of Directors may be
removed at any time, with or without cause, by the Board of Directors; provided,
that any such removal shall be without prejudice to the rights, if any, of the
officer so employed under any employment contract or other agreement with the
Corporation. An officer may resign at any time upon written notice to the Board
of Directors. If the office of any officer becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office or otherwise, the
Board of Directors may choose a successor or successors to hold office for such
term as may be specified by the Board of Directors.
Section 7.4 Compensation. Except as otherwise provided by these
Bylaws, the salaries of all officers and agents of the Corporation appointed by
the Board of Directors shall be fixed by the Board of Directors.
Section 7.5 Authority and Duties. All officers as between themselves
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these Bylaws. In addition
to the powers and duties hereinafter specifically prescribed for the respective
officers, the Board of Directors may from time to time impose or confer upon any
of the officers such additional duties and powers as the Board of Directors may
see fit, and the Board of Directors may from time to time impose or confer any
or all of the duties and powers hereinafter specifically prescribed for any
officer upon any other officer or officers.
Section 7.6 Chairman of the Board. The Chairman of the Board of
Directors, who shall be a director, shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors. The Chairman of the
Board may be the chief executive officer. As director, he or she shall perform
such other duties as may be assigned from time to time by the Board of
Directors.
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Section 7.7 President. The President, who may be the chief executive
officer of the Corporation, shall perform such duties as may be assigned to him
or her by the Board of Directors, and in the event of disability or absence of
the Chairman of the Board, perform the duties of the Chairman of the Board,
including presiding at meetings of stockholders and directors. He or she shall
from time to time report to the Board of Directors all matters within his or her
knowledge which the interest of the Corporation may require to be brought to
their notice, and shall also have such other powers and perform such other
duties as may be specifically assigned to him or her from time to time by the
Board of Directors. The President shall see that all resolutions and orders of
the Board of Directors are carried into effect, and in connection with the
foregoing, shall be authorized to delegate to any Vice President and the other
officers such of his or her powers and such of his or her duties as he or she
may deem to be advisable.
Section 7.8 Vice President(s). The Vice President, or if there be
more than one, the Vice Presidents, shall perform such duties as may be assigned
to them from time to time by the Board of Directors or as may be designated by
the President. In case of the absence or disability of the President the duties
of the office shall, if the Board of Directors or the President has so
authorized, be performed by the Vice President, or if there be more than one
Vice President, by such Vice President as the Board of Directors or President
shall designate.
Section 7.9 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors or by any officer of the Corporation authorized by the Board of
Directors to make such designation. The Treasurer shall exercise such powers
and perform such duties as generally pertain or are necessarily incident to his
or her office and shall perform such other duties as may be specifically
assigned to him or her from time to time by the Board of Directors or by the
President or any Vice President.
Section 7.10 Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for any committee when required. He or she shall
give, or cause to be given, notice of all meetings of the stockholders and, when
necessary, of the Board of Directors. The Secretary shall exercise such powers
and perform such duties as generally pertain or are necessarily incident to his
or her office and he or she shall perform such other duties as may be assigned
to him or her from time to time by the Board of Directors, the President or by
any Vice President.
Article VIII
Certificates of Stock
Section 8.1. Form and Signature. The certificates of stock of the
Corporation shall be in such form or forms not inconsistent with the Certificate
of Incorporation as the
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<PAGE>
Board of Directors shall approve. They shall be numbered, the certificates for
the shares of stock of each class to be numbered consecutively, and shall be
entered in the books of the Corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the Chairman of
the Board, the President or a Vice President and the Treasurer (or any Assistant
Treasurer) or the Secretary (or any Assistant Secretary); provided, however,
that where any such certificate is signed by a transfer agent or an assistant
transfer agent, or by a transfer clerk acting on behalf of the Corporation, and
registered by a registrar, the signature of any such President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, may be a
facsimile. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates, shall cease to be such officer or officers of the Corporation,
whether because of death, resignation, removal or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates, or whose
facsimile signature or signatures shall have been used thereon, had not ceased
to be such officer or officers of the Corporation.
Section 8.2. Lost or Destroyed Certificates. The Board of Directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate or stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his or her legal representatives, to advertise the same in such
manner as it shall require, and to give a bond in such sum as the Board of
Directors may direct, indemnifying the Corporation, any transfer agent and any
registrar against any claim that may be made against them or any of them with
respect to the certificate alleged to have been lost or destroyed.
Section 8.3. Registration of Transfer. Upon surrender to the
Corporation of a certificate for shares, duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Corporation
shall issue a new certificate to the person entitled thereto, cancel the old
certificate, and record the transaction on its books.
Article IX
General Provisions
Section 9.1. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than 60 nor less than ten
days before the date of such meeting, nor more than 60 days prior to any other
action.
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<PAGE>
Section 9.2. Registered Stockholders. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
Section 9.3. Dividends. Dividends upon the capital stock of the
Corporation shall in the discretion of the Board of Directors from time to time
be declared by the Board of Directors out of funds legally available therefor
after setting aside of proper reserves.
Section 9.4. Checks and Notes. All checks and drafts on the bank
accounts of the Corporation, all bills of exchange and promissory notes of the
Corporation, and all acceptances, obligations and other instruments for the
payment of money drawn, signed or accepted by the Corporation, shall be signed
or accepted, as the case may be, by such officer or officers, agent or agents as
shall be thereunto authorized from time to time by the Board of Directors or by
officers of the Corporation designated by the Board of Directors to make such
authorization.
Section 9.5. Fiscal Year. The fiscal year of the Corporation shall
be fixed by the Board of Directors.
Section 9.6. Voting of Securities of Other Corporations. In the
event that the Corporation shall at any time own and have power to vote any
securities (including, without limitation, shares of stock) of any other issuer,
such securities shall be voted by such person or persons, to such extent and in
such manner, as may be determined by the Board of Directors.
Section 9.7. Transfer Agent. The Board of Directors may make such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of stock. It may appoint one or more transfer agents and one
or more registrars and may require all stock certificates to bear the signature
of either or both.
Section 9.8. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware."
Article X
Indemnification
Section 10.1. Indemnification.
(a) Actions, Suits or Proceedings Other Than by or in the Right of the
Corporation. The Corporation shall indemnify any current or former director or
officer of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of
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the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent (including trustee) of another corporation,
partnership, joint venture, trust or other enterprise (including employee
benefit plans) (funds paid or required to be paid to any person as a result of
the provisions of this Section 10.1 shall be returned to the Corporation or
reduced, as the case may be, to the extent that such person receives funds
pursuant to an indemnification from any such other corporation, partnership,
joint venture, trust or enterprise) to the fullest extent permissible under
Delaware law, as then in effect, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with re spect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was unlawful.
(b) Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any current or former director or officer of the
Corporation and may, at the discretion of the Board of Directors, indemnify any
current or former employee or agent of the Corporation who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit, by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person 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 (including trustee) of
another corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans) (funds paid or required to be paid to any
person as a result of the provisions of this Section 10.1 shall be returned to
the Corporation or reduced, as the case may be, to the extent that such person
receives funds pursuant to an indemnification from any such other corporation,
partnership, joint venture, trust or enterprise) to the fullest extent permitted
under Delaware law, as then in effect, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit, if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) Indemnification for Expenses of Successful Party. To the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or
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otherwise in defense of any action, suit or proceeding referred to in paragraph
(a) or (b) of this Section 10.1, or in defense of any claim, issue or matter
therein, such person shall be indemnified by the Corporation against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
(d) Determination of Right to Indemnification. Any indemnification
under paragraph (a) or (b) of this Section 10.1 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in paragraphs (a) and (b) of this Section 10.1.
Such determination shall be made (1) by the Board of Directors by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the holders of a majority of the shares of capital stock of the Corporation
entitled to vote thereon.
(e) Advancement of Expenses. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Section 10.1. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
(f) Other Rights. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of this Section 10.1
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office.
(g) Insurance. By action of the Board of Directors, notwithstanding
an interest of the directors in the action, the Corporation may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who 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 (including trustee) of another corporation,
partnership, joint venture, trust or other enterprise (including employee
benefit plans), against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation shall have the power to indemnify such
person against such liability under the provisions of this Section 10.l.
(h) Continuation of Rights to Indemnification. The indemnification
and advancement of expenses provided by, or granted pursuant to, this Section
10.1 shall, unless oth-
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erwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(i) Protection of Rights Existing at Time of Repeal or Modification.
Any repeal or modification of this Section 10.1 shall not adversely affect any
right or protection of an indemnified person existing at the time of such repeal
or modification.
Article XI
Amendments
Section 11.1. By the Stockholders. These Bylaws may be altered,
amended or repealed in whole or in part, and new Bylaws may be adopted, by the
affirmative vote of the holders of a majority of the shares of capital stock
issued and outstanding and entitled to vote at any annual or special meeting of
the stockholders, if notice thereof shall be contained in the notice of the
meeting.
Section 11.2 By the Board of Directors. These Bylaws may be altered,
amended or repealed by the Board of Directors at any regular or special meeting
of the Board of Directors if notice thereof shall be contained in the notice of
the meeting.
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EXHIBIT 10.3
Consult your lawyer before signing this lease -- it has important legal
consequences.
BUSINESS LEASE
The Landlord and the Tenant agree to lease the Rental Space for the Term and at
the Rent stated, as follows: (The Words Landlord and Tenant include all
landlords and all tenants under this Lease.)
Landlord THOMAS ASSOCIATES Tenant TRIARCO INDUSTRIES
-------------------------- -----------------------------
Print or type Print or type
213 HAMBURG TURNPIKE 400 HAMBURG TURNPIKE
- ------------------------------------ -------------------------------------
Address Residence Address
WAYNE NJ 07470 WAYNE NJ 07470
- ------------------------------------ -------------------------------------
Rental Space APPROX. 13,800 SF
------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
in the Building at 400 HAMBURG TURNPIKE, WAYNE, NJ 07470
-------------------------------------------------------
Address
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Date of Lease NOVEMBER 1, 1996 Rent for the Term is $100,000 per year
- ------------------------------------- plus CPI increases yearly
Term FIVE (5) YEARS The Rent is payable in advance on the
------------------------------- first day of each month, as follows:
Beginning DECEMBER 15, 1996 $8,334.00 per month (first year)
-------------------- ----------------------------------------
Ending DECEMBER 15, 2001 To be adjusted yearly per CPI increase
-------------------- ----------------------------------------
- -------------------------------------
Security $ ----------------------------------------
------------
- ------------------------------------- ----------------------------------------
Broker. The Landlord and the Tenant
recognize NO BROKER ----------------------------------------
-------------------
as the Broker who brought about this ----------------------------------------
Lease. The __________ shall pay the
pay the Broker's commission. ----------------------------------------
- ------------------------------------- ----------------------------------------
Landlord & Tenant will hold each
other harmless ----------------------------------------
Liability Insurance. Minimum amounts:
for each person injured $1,000,000 ----------------------------------------
----------
for any one accident $1,000,000 for ----------------------------------------
----------
property damage $100,000. ----------------------------------------
---------
- ------------------------------------- ----------------------------------------
Provide Ins. Policy per para. 6
Municipal Real Estate Taxes $ ----------------------------------------
paid by landlord
- ------------------------------------- ----------------------------------------
Base Year 19 ___ Percent of Increase
_____% ----------------------------------------
- -------------------------------------------------------------------------------
Use of Rental Space office space
-----------------------------------------------------------
- -------------------------------------------------------------------------------
Additional agreements Premises kept clean and maintained in its' present
- -------------------------------------------------------------------------------
condition until lease is expired. Upon expiration, the
- -------------------------------------------------------------------------------
tenant will surrender to the landlord, the premises
- -------------------------------------------------------------------------------
cleaned, in good order and condition.
- -------------------------------------------------------------------------------
Parking spaces required: 20
- -------------------------------------------------------------------------------
*Note, 2nd floor plan, per Drawing A2 of 18, as limitation of space being
- -------------------------------------------------------------------------------
utilized.
- -------------------------------------------------------------------------------
Overages of $200.00/month in electrical consumption will be paid for by
- -------------------------------------------------------------------------------
tenant in excess of prior years. Prior bills will be issued.
- -------------------------------------------------------------------------------
Table of Contents
<TABLE>
<S> <C>
1. Possession and Use 16. No Alterations
2. Delay in Giving of Possession 17. Signs
3. No Assignment or Subletting 18. Access to Rental Space
4. Rent and Additional Rent 19. Fire and Other Casualty
5. Security 20. Eminent Domain
6. Liability Insurance 21. Subordination to Mortgage
7. Unavailability of Fire Insurance, Rate Increases 22. Tenant's Certificate
8. Water Damage 23. Violation, Eviction, Re-entry and Damages
9. Liability of Landlord and Tenant 24. Notices
10. Real Estate Taxes 25. No Waiver
11. Acceptance of Rental Space 26. Survival
12. Quiet Enjoyment 27. End of Term
13. Utilities and Services 28. Binding
14. Tenant's Repairs, Maintenance, and Compliance 29. Full Agreement
15. Landlord's Repairs and Maintenance
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
1. Possession and Use
The Landlord shall give possession of the Rental Space to the Tenant for
the Term. The Tenant shall take possession of and use the Rental Space for the
purpose stated above. The Tenant may not use the Rental Space for any other
purpose without the written consent of the Landlord.
The Tenant shall not allow the Rental Space to be used for any unlawful
or hazardous purpose. The Tenant is satisfied that the Rental Space is zoned
for the Use stated. The Tenant shall obtain any necessary certificate of
occupancy or other certificate permitting the Tenant to use the Rental Space for
that Use.
The Tenant shall not use the Rental Space in any manner that results in
(1) an increase in the rate of fire or liability insurance or (2) cancellation
of any fire or liability insurance policy on the Rental Space. The Tenant shall
comply with all requirements of the insurance companies insuring the Rental
Space. The Tenant shall not abandon the Rental Space during the Term of this
Lease or permit it to become vacant for extended periods.
2. Delay in Giving of Possession
This paragraph applies if (a) the Landlord cannot give possession of the
Rental Space to the Tenant on the beginning date and (b) the reason for the
delay is not the Landlord's fault. The Landlord shall not be held liable for the
delay. The Landlord shall then have 30 days in which to give possession. If
possession is given within that time, the Tenant shall accept possession and pay
the Rent from that date. The ending date of the Term shall not change. If
possession is not given within that time this Lease may be cancelled by either
party on notice to the other.
3. No Assignment or Subletting
The Tenant may not do any of the following without the Landlord's
written consent: (a) assign this Lease (if the Tenant is a corporation, the sale
of a majority of its shares shall be treated as an assignment), (b) sublet all
or any part of the Rental Space or (c) permit any other person or business to
use the Rental Space.
4. Rent and Additional Rent
Tenant shall pay the Rent to the Landlord at the Landlord's address.
If the Tenant fails to comply with any agreement in this Lease, the
Landlord may do so on behalf of the Tenant. The Landlord may charge the cost to
comply, including reasonable attorney's fees, to the Tenant as "additional
rent". The additional rent shall be due and payable as Rent with the next
monthly Rent payment. Non-payment of additional rent shall give the Landlord the
same rights against the Tenant as if the Tenant failed to pay the Rent.
5. Security
The Tenant has given to the Landlord the Security stated above. The
Security shall be held by the Landlord during the Term of this Lease. The
Landlord may deduct from the Security any expenses incurred in connection with
the Tenant's violation of any agreement in this Lease. For example, if the
Tenant does not leave the Rental Space in good condition at the end of the Term,
the Security may be used to put it in good condition. If the amount of damage
exceeds the Security, the Tenant shall pay the additional amount to the Landlord
on demand.
If the Landlord uses the Security or any part of it during the Term, the
Tenant shall on demand pay the Landlord for the amount used. The amount of the
Security is to remain constant throughout the Term. The Security is not to be
used by the Tenant for the payment of Rent. The Landlord shall repay to the
Tenant any balance remaining within a reasonable time after the end of the Term.
The Tenant shall not be entitled to interest on the Security.
If the Landlord's interest in the Rental Space is transferred, the
Landlord shall turn over the Security to the new Landlord. The Landlord shall
notify the Tenant of the name and address of the new Landlord. Notification must
be given within 5 days after the transfer, by registered or certified mail. The
Landlord shall then no longer be responsible to the Tenant for the repayment of
the Security. The new Landlord shall be responsible to the Tenant for the
return of the Security in accordance with the terms of this Lease.
*Security returned within 30 days after Tenant vacates premises.
The Tenant shall obtain, pay for, and keep in effect for the benefit of
the Landlord and the Tenant public liability insurance on the Rental Space. The
insurance company and the broker must be acceptable to the Landlord. This
coverage must be in at least the minimum amounts stated above.
All policies shall state that the insurance company cannot cancel or
refuse the renew without at least 10 days written notice to the Landlord.
The Tenant shall deliver the original policy to the Landlord with proof
of payment of the first year's premiums. This shall be done not less than 15
days before the Beginning of the Term. The Tenant shall deliver a renewal policy
to the Landlord with proof of payment not less than 15 days before the
expiration date of each policy.
7. Unavailability of Fire Insurance, Rate Increases
If due to the Tenant's use of the Rental Space the Landlord cannot
obtain and maintain fire insurance on the Building in an amount and form
reasonably acceptable to the Landlord, the Landlord may cancel this Lease on 30
days notice to the Tenant. If due to the Tenant's use of the Rental Space the
fire insurance rate is increased, the Tenant shall pay the increase in the
premium to the Landlord on demand.
8. Water Damage
The Landlord shall not be liable for any damage or injury to any persons
or property caused by the leak or flow of water from or into any part of the
Building.
*Unless due to Landlords act or neglect.
9. Liability of Landlord and Tenant
The Landlord shall not be liable for injury or damage to any person or
property unless it is due to the Landlord's act or neglect. The Tenant is liable
for any loss, injury or damage to any person or property caused by the act or
neglect of the Tenant or the Tenant's employees. The Tenant shall defend the
Landlord from and reimburse the Landlord for all liablity and costs resulting
from any injury or damage due to the act or neglect of the Tenant or the
Tenant's employees.
11. Acceptance of Rental Space
The Tenant has inspected the Rental Space and agrees that the Rental
Space is in satisfactory condition. The Tenant accepts the Rental Space "as is".
12. Quiet Enjoyment
The Landlord has the right to enter into this Lease. If the Tenant
complies with this Lease, the Landlord must provide the Tenant with undisturbed
possession of the Rental Space.
13. Utilities and Services
The Landlord shall arrange and pay for all utilities and services
required for the Rental Space, including the following:
(a) Heat (c) Electric
(b) Hot and cold water (d) Gas
*Except as noted on page 1.
The Landlord shall pay for the following utilities and services:
The Landlord is not liable for any inconvenience or harm caused by any
stoppage or reduction of utilities and services beyond the control of the
Landlord. This does not excuse the Tenant from paying Rent.
<PAGE>
The Tenant shall:
(a) Promptly comply with all laws, orders, rules and
requirements of governmental authorities, insurance carriers, board of fire
underwriters, or similar groups.
(b) Maintain the Rental Space and all equipment and fixtures in
it in good repair and appearance.
(c) Make all necessary repairs to the Rental Space and all
equipment and fixtures in it, except structural repairs.
(d) Maintain the Rental Space in a neat, clean, safe, and
sanitary condition, free of all garbage.
(e) Keep the walks, driveway, parking area, yard, entrances,
hallways, and stairs clean and free from trash, debris, snow and ice.
(f) Use all electric, plumbing and other facilities in the
Rental Space safely.
(g) Use no more electricity than the wiring or feeders to the
Rental Space can safely carry.
(h) Promptly replace all broken glass in the Rental Space.
(i) Do nothing to destroy, deface, damage, or remove any part of
the Rental Space.
(j) Keep nothing in the Rental Space which is inflammable,
dangerous or explosive or which might increase the danger of fire or other
casualty.
(k) Promptly notify the Landlord when there are conditions which
need repair.
(l) Do nothing to destroy the peace and quiet of the Landlord,
other tenants, or persons in the neighborhood.
(m) Avoid littering in the building or on its grounds.
The Tenant shall pay any expenses involved in complying with the above.
15. Landlord's Repairs and Maintenance
The Landlord shall:
(a) Maintain the public areas, roof and exterior walls in good
condition.
(b) Make all structural repairs unless these repairs are made
necessary by the act or neglect of the Tenant or the Tenant's employees.
(c) Make necessary replacements of the plumbing, cooling,
heating and electrical systems, except when made necessary by the act or neglect
of the Tenant or the Tenant's employees.
(d) Maintain the elevators in the Building, if any.
16. No Alterations
The Tenant may not make any changes or additions to the Rental Space
without the Landlord's written consent. Any changes or additions made without
the Landlord's written consent shall be removed by the Tenant on demand.
All changes or additions made with the Landlord's written consent shall
become the property of the Landlord when completed and paid for the Tenant. They
shall remain as part of the Rental Space at the end of the Term. The Landlord
may demand that the Tenant remove any changes or additions at the end of the
Term. The Tenant shall promptly pay for all costs of any permitted changes or
additions. The Tenant shall not allow any mechanic's lien or other claim to be
filed against the Building. If any lien or claim is filed against the Building,
the Tenant shall have it promptly removed.
17. Signs
The Tenant shall obtain the Landlord's written consent before placing
any sign on or about the Rental Space. Signs must conform with all applicable
municipal ordinances and regulations.
The Landlord shall have access to the Rental Space on reasonable notice
to the Tenant to (a) inspect the Rental Space (b) make necessary repairs,
alterations, or improvements, (c) supply services, and (d) show it to
prospective buyers, mortgage lenders, contractors or insurers.
The Landlord may show the Rental Space to rent applicants at reasonable
hours on notice to the Tenant with 6 months before the end of the Term.
The Landlord may enter the Rental Space at any time without notice to
the Tenant in case of emergency.
19. Fire and Other Casualty
The Tenant shall notify the Landlord at once of any fire or other
casualty in the Rental Space. The Tenant is not required to pay Rent when the
Rental Space is unusable. If the Tenant uses part of the Rental Space, the
Tenant must pay Rent pro-rata for the usable part.
If the Rental Space is partially damaged by fire or other casualty, the
Landlord shall repair it as soon as possible. This includes the damage to the
Rental Space and fixtures installed by the Landlord. The Landlord need not
repair or replace anything installed by the Tenant.
Either party may cancel this Lease if the Rental Space is so damaged
by fire or other casualty that it cannot be repaired within 90 days. If the
parties cannot agree, the opinion of contractor chosen by the Landlord and the
Tenant will be binding on both parties.
This Lease shall end if the Rental Space is totally destroyed. The
Tenant shall pay Rent to the date of destruction.
If the fire or other casualty is caused by the act or negligence of the
Tenant or the Tenant's employees, the Tenant shall pay for all repairs and all
other damage.
20. Eminent Domain
Eminent domain is the right of a government to lawfully condemn and take
private property for public use. Fair value must be paid for the property. The
taking occurs either by court order or by deed to the condemning party. If any
part of the Rental Space is taken by eminent domain, either party may cancel
this lease on 30 days notice to the other. The entire payment for the taking
shall belong to the Landlord. The Tenant shall make no claim for the value of
this Lease for the remaining part of the Term.
21. Subordination to Mortgage
In a foreclosure sale all mortgages which now or in the future affect
the Building have priority over this Lease. This means that the holder of a
mortgage may end this Lease on foreclosure sale. The Tenant shall sign all
papers needed to give any mortgage priority over this Lease. If the Tenant
refuses, the Landlord may sign the papers on behalf of the Tenant.
22. Tenant's Certificate
At the request of the Landlord, the Tenant shall sign a certificate
stating that (a) this Lease has not been amended and is in effect, (b) the
Landlord has fully performed all of the Landlord's agreements in this Lease, (c)
the Tenant has no rights to the Rental Space except as stated in this Lease, (d)
the Tenant has paid all Rent to date, and (e) the Tenant has not paid Rent for
more than one month in advance. The Certificate shall also list all the property
attached to the Rental Space owned by the Tenant.
23. Violation, Eviction, Re-entry and Damages
The Landlord reserves a right of re-entry which allows the Landlord to
end this Lease and re-enter the Rental Space if the Tenant violates any
agreement in this Lease. This is done by eviction. Eviction is a court procedure
to remove a tenant. Eviction is started by the filing of a complaint in court
and the service of a summons on a tenant to appear in court. The Landlord may
also evict the Tenant for any one of the other grounds of good cause provided by
law. After a court order of eviction and compliance with the warrant of removal,
the Landlord may re-enter and take back possession of the Rental Space. If the
cause for eviction is non-payment of Rent, notice does not have to be given to
the Tenant before the Landlord
<PAGE>
Notices
All notices given under this Lease must be in writing. Each party must
accept and claim the notices given by the other. Unless otherwise provided by
law, they may be given by personal delivery, or (b) certified mail, return
receipt requested. Notices shall be addressed to the Landlord at the address
written at the beginning of this Lease and to the tenant at the Rental Space.
No Waiver
The Landlord's failure to enforce any agreement in this case shall not
prevent the Landlord from enforcing the agreement for any violations occurring
at a later time. Landlord may (a) dispose of it and charge the Tenant for the
cost of disposal, or (b) keep it as abandoned property.
28. Binding
This Lease binds the Landlord ant the Tenant and all parties who
lawfully succeed to their rights or take their places.
29. Full Agreement
The parties have read this Lease. It contains their full agreement. It may
not be changed except in writing signed by the Landlord and the Tenant.
* See Addendum to Lease Agreement attached hereto and made a part
hereof.
Signatures
The Landlord and the Tenant agree to the terms of this Lease by signing
below. If a party is a corporation, this Lease is signed by its proper corporate
officers and its corporate seal is affixed.
Witnessed or attested by:
<TABLE>
<S> <C>
/s/ /s/ Bernard Thomas SEAL
- --------------------------------- ---------------------------------
As to Landlord Bernard Thomas, Sr. Landlord
/s/ Jane Pritchard /s/ Bernard Thomas, Jr. SEAL
- --------------------------------- ---------------------------------
As to Tenant Bernard Thomas, Jr. Landlord
/s/ Rodger Rohde SEAL
-------------------------------------
Triarco Industries by Roger Rohde, Sr.
</TABLE>
<PAGE>
ADDENDUM TO LEASE AGREEMENT DATED November 1, 1996 between THOMAS ASSOCIATES,
LANDLORD AND TRIARCO INDUSTRIES, TENANT
30. Tenant shall have two (2) five (5) year options to extend this Lease
beyond the expiration date provided on page one of the Lease Agreement on the
following terms and conditions:
Should Tenant fully and faithfully perform all of the terms and
conditions of this Lease, Tenant may extend the term of this Lease for a period
of five (5) years, with the extended term to begin on the day following the
expiration date of the lease term specified on page one of the Lease Agreement.
All the terms, covenants and provisions of the original lease term shall apply
to all extended lease terms.
Tenant may exercise the option to extend this Lease by giving Landlord
notice of its intention to do so not later than six (6) months prior to the
expiration of the lease term.
The terms stated above shall apply to the second five (5) year option to
extend this Lease.
<PAGE>
EXHIBIT 10.4
REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of January 1, 1997 by
and between Rodger R. Rohde Sr. ("Landlord"), and Leica Sordik, Inc. ("Tenant").
The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant a One and One Half-story masonry building, (the
"Premises") located at 6 Morris Street, Paterson, New Jersey 07501.
TERM. The lease term will begin on January 1, 1997 and will terminate on
December 31, 2002.
RENEWAL TERMS. This Lease shall automatically renew for an additional period of
twelve months per renewal term on the same terms as this Lease, unless either
party gives written notice of the termination no later than 60 days prior to
the end of the term or renewal term.
HOLDOVER. If Tenant maintains possession of the Premises for any period after
the termination of this Lease ("Holdover Period"), Tenant shall pay to Landlord
a lease payment for the Holdover Period based on the terms of the following
Lease Payments paragraph. Such holdover shall constitute a month to month
extension of this Lease.
LEASE PAYMENTS. Tenant shall pay to Landlord, a total annual lease payment of
$204,000.00, payable in advance, in installments of $17,000 per month on the 5th
day of each month. Lease payments shall be made to the Landlord at 400 Hamburg
Turnpike, Wayne, NJ 07470, as may be changed from time to time by Landlord.
POSSESSION. Tenant shall be entitled to possession on the first day of the term
of this Lease, and shall yield possession to Landlord on the last day of the
term of this Lease, unless otherwise agreed by both parties in writing.
REMODELING OR STRUCTURAL IMPROVEMENTS. Tenant shall have the obligation to
conduct any construction or remodeling (at Tenant's expense) that may be
required to use the Premises as specified above. Tenant may also construct such
fixtures on the Premises (at Tenant's expense) that appropriately facilitate its
use for such purposes. Such construction shall be undertaken and such fixtures
may be erected only with the prior written consent of the Landlord which shall
not be unreasonably withheld. At the end of the lease term, Tenant shall be
entitled to remove (or at the request of Landlord, shall remove) such fixtures,
and shall restore the Premises to substantially the same condition of the
Premises at the commencement of this Lease.
MAINTENANCE. Tenant's obligation for maintenance shall include:
- the roof, outside walls, and other structural parts of the building
- the parking lot, driveways, and sidewalks including snow and ice
removal
<PAGE>
- the sewer, water pipes, and other matters related to plumbing
- the electrical wiring
- the air conditioning system
- the heating system
- all other items of maintenance not specifically delegated to Landlord
under this Lease
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not be
unreasonably withheld), Landlord shall have the right to enter the Premises to
make inspections, provide necessary services, or show the unit to prospective
buyers, mortgagees, tenants or workers. As provided by law, in the case of an
emergency, Landlord may enter the Premises without Tenant's consent.
UTILITIES AND SERVICES. Tenant shall be responsible for all utilities and
services in connection with the Premises.
PROPERTY INSURANCE. Tenant shall maintain casualty insurance on the Premises in
an amount equal to 100% of the full replacement value. Landlord shall be named
as an insured in such policies. Tenant shall deliver appropriate evidence to
Landlord as proof that adequate insurance is in force. Landlord shall have the
right to require that the Landlord receive notice of any termination of such
insurance policies. Tenant shall also maintain any other insurance which
Landlord may reasonably require for the protection of Landlord's interest in the
Premises.
INDEMNITY REGARDING USE OF PREMISES. Tenant agrees to indemnify, hold harmless,
and defend Landlord from and against any and all losses, claims, liabilities,
and expenses, including reasonable attorney fees, if any, which Landlord may
suffer or incur in connection with Tenant's use of the Premises.
TAXES. Taxes attributable to the Premises or the use of the Premises shall be
allocated as follows:
Real Estate Taxes - Landlord shall pay all real estate taxes and
assessments for the Premises
MECHANICS LIENS. Neither the Tenant nor anyone claiming through the Tenant shall
have the right to file mechanics liens or any other kind of lien on the Premises
and the filing of this Lease constitutes notice that such liens are invalid.
Further, Tenant agrees to give actual advance notice to any contractors,
subcontractors or suppliers of goods, labor or services that such liens will not
be valid.
DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to fulfill
any lease obligation or term by which Tenant is bound. Subject to any governing
provisions of law to the contrary, if Tenant fails to cure any financial
obligation within 45 day(s) (or any other obligation within 60 day(s)) after
written notice of such default is provided by Landlord to Tenant, Landlord may
take possession of the Premises without further notice, and without prejudicing
Landlord's rights to
<PAGE>
damages. In the alternative, landlord may elect to cure any default and the cost
of such action shall be added to Tenant's financial obligations under this
Lease. Tenant shall pay all costs, damages, and expenses suffered by Landlord by
reason of Tenant's defaults.
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in the
Premises without the prior written consent of Landlord, which shall not be
unreasonably withheld.
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as follows:
Landlord: Rodger R. Rohde, Sr.
400 Hamburg Turnpike
Wayne, NJ 07470
Tenant: Leica Sordik, Inc.
6 Morris Street
Paterson, NJ 07501
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement
of the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Lease may be modified or amended in
writing, if the writing is signed by the party obligated under the amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of the Lease shall
not be construed as a waiver or limitation of that party's right to subsequently
enforce and compel strict compliance with every provision of this Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative,
and shall not be construed as exclusive unless otherwise required by law.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of the
State of New Jersey.
<PAGE>
SUBORDINATION OF LEASE. This lease is subordinate to any mortgage that now
exists, or may be given later by Landlord, with respect to the Premises.
Landlord: Rodger R. Rohde, Sr.
/s/ Rodger R. Rohde, Sr.
------------------------
Rodger R. Rohde, Sr.
Tenant: Leica Sordik, Inc.
/s/ Rodger R. Rohde, Sr.
------------------------
By: Rodger R. Rohde, Sr.
President
<PAGE>
EXHIBIT 10.5
REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of January 1, 1997 by
and between Rohde Holdings, Inc. ("Landlord"), and Triarco Industries, Inc.
("Tenant"). The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant a Five-story masonry building, (the "Premises") located
at 8 Morris Street, Paterson, New Jersey 07501.
TERM. The lease term will begin on January 1, 1997 and will terminate on
December 31, 2002.
RENEWAL TERMS. This Lease shall automatically renew for an additional period of
twelve months per renewal term on the same terms as this Lease, unless either
party gives written notice of the termination no later than 60 days prior to the
end of the term or renewal term.
HOLDOVER. If Tenant maintains possession of the Premises for any period after
the termination of this Lease ("Holdover Period"), Tenant shall pay to Landlord
a lease payment for the Holdover Period based on the terms of the following
Lease Payments paragraph. Such holdover shall constitute a month to month
extension of this Lease.
LEASE PAYMENTS. Tenant shall pay to Landlord, a total annual lease payment of
$96,000.00, payable in advance, in installments of $8,000 per month on the 5th
day of each month. Lease payments shall be made to the Landlord at 400 Hamburg
Turnpike, Wayne, NJ 07470, as may be changed from time to time by Landlord.
POSSESSION. Tenant shall be entitled to possession on the first day of the term
of this Lease, and shall yield possession to Landlord on the last day of the
term of this Lease, unless otherwise agreed by both parties in writing.
REMODELING OR STRUCTURAL IMPROVEMENTS. Tenant shall have the obligation to
conduct any construction or remodeling (at Tenant's expense) that may be
required to use the Premises as specified above. Tenant may also construct such
fixtures on the Premises (at Tenant's expense) that appropriately facilitate its
use for such purposes. Such construction shall be undertaken and such fixtures
may be erected only with the prior written consent of the Landlord which shall
not be unreasonably withheld. At the end of the lease term, Tenant shall be
entitled to remove (or at the request of Landlord, shall remove) such fixtures,
and shall restore the Premises to substantially the same condition of the
Premises at the commencement of this Lease.
MAINTENANCE. Tenant's obligation for maintenance shall include:
- the roof, outside walls, and other structural parts of the building
- the parking lot, driveways, and sidewalks including snow and ice
removal
<PAGE>
- the sewer, water pipes, and other matters related to plumbing
- the electrical wiring
- the air conditioning system
- the heating system
- all other items of maintenance not specifically delegated to
Landlord under this Lease
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not be
unreasonably withheld), Landlord shall have the right to enter the Premises to
make inspections, provide necessary services, or show the unit to prospective
buyers, mortgagees, tenants or workers. As provided by law, in the case of an
emergency, Landlord may enter the Premises without Tenant's consent.
UTILITIES AND SERVICES. Tenant shall be responsible for all utilities and
services in connection with the Premises.
PROPERTY INSURANCE. Tenant shall maintain casualty insurance on the Premises in
an amount equal to 100% of the full replacement value. Landlord shall be named
as an insured in such policies. Tenant shall deliver appropriate evidence to
Landlord as proof that adequate insurance is in force. Landlord shall have the
right to require that the Landlord receive notice of any termination of such
insurance policies. Tenant shall also maintain any other insurance which
Landlord may reasonably require for the protection of Landlord's interest in the
Premises.
IDEMNITY REGARDING USE OF PREMISES. Tenant agrees to indemnify, hold harmless,
and defend Landlord from and against any and all losses, claims, liabilities,
and expenses, including reasonable attorney fees, if any, which Landlord may
suffer or incur in connection with Tenant's use of the Premises.
TAXES. Taxes attributable to the Premises or the use of the Premises shall be
allocated as follows:
Real Estate Taxes - Landlord shall pay all real estate taxes and
assessments for the Premises.
MECHANICS LIENS. Neither the Tenant nor anyone claiming through the Tenant shall
have the right to file mechanics liens or any other kind of lien on the Premises
and the filing of this Lease constitutes notice that such liens are invalid.
Further, Tenant agrees to give actual advance notice to any contractors,
subcontractors or suppliers of goods, labor or services that such liens will not
be valid.
DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to fulfill
any lease obligation or term by which Tenant is bound. Subject to any governing
provisions of law to the contrary, if Tenant fails to cure any financial
obligation within 45 day(s) (or any other obligation within 60 day(s)) after
written notice of such default is provided by Landlord to Tenant, Landlord may
take possession of the Premises without further notice, and without prejudicing
Landlord's rights to
<PAGE>
damages. In the alternative, landlord may elect to cure any default and the cost
of such action shall be added to Tenant's financial obligations under this
Lease. Tenant shall pay all costs, damages, and expenses suffered by Landlord by
reason of Tenant's defaults.
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in the
Premises without the prior written consent of Landlord, which shall not be
unreasonably withheld.
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as follows:
Landlord: Rohde Holdings, Inc.
400 Hamburg Turnpike
Wayne, NJ 07470
Tenant: Triarco Industries, Inc.
400 Hamburg Turnpike
Wayne, NJ 07470
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement
of the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Lease may be modified or amended in
writing, if the writing is signed by the party obligated under the amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of the Lease shall
not be construed as a waiver or limitation of that party's right to subsequently
enforce and compel strict compliance with every provision of this Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative,
and shall not be construed as exclusive unless otherwise required by law.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of the
State of New Jersey.
<PAGE>
SUBORDINATION OF LEASE. This lease is subordinate to any mortgage that now
exists, or may be given later by Landlord, with respect to the Premises.
Landlord: Rohde Holdings, Inc.
/s/ Rodger R. Rohde
-------------------------
Rodger R. Rohde
President
Tenant: Triarco Industries, Inc.
/s/ Rodger R. Rohde, Sr.
-------------------------
By: Rodger R. Rohde, Sr.
President
<PAGE>
EXHIBIT 10.6(1)
Record & Return to:
Johnson, Murphy, Hubner,
McKeon, Wubbenhorst & Appelt
51 Route 23 South
Riverdale, New Jersey 07457-70
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is for official filing purposes only and embodies
for those purpose a certain GROUND & EQUIPMENT LEASE ("Lease") made and entered
into on day of , 1997, by and between Wade Howell, having an
residence at Route 1, Jennings, Florida 32503 ("Lessor") and Triarco Industries,
Inc., a New Jersey Corporation, with a principal place of business at 400
Hamburg Turnpike, Wayne, New Jersey 07470 ("Lessee").
ARTICLE 1. DEMISE OF LEASED PROPERTY
- ------------------------------------
Description of Leased Land
--------------------------
Lessor leases to Lessee, and Lessee rents and accepts from Lessor, those
certain parcels of land in the Township of Jennings, County of Hamilton, State
of Florida, identified as (A) Section 18, Township 1 North, Range 12 East, (B)
Section 7, Township 1 North, Range 12 East, (C) Section 6, also known as The
Howell Farm, Route 1, Jennings, Florida 32503 and more particularly described on
Exhibit "A" annexed hereto and made a part hereof together with the buildings,
improvements and the appurtenances thereto appertaining and including, without
limitation, rights in streets, easements and rights of way, the land and
premises (the "Leased Land").
ARTICLE 2. TERM AND RENT
- ------------------------
Term of Lease
-------------
Lessee's obligation to pay rent in accordance with this Lease shall be for
a term of five (5) years ("Term"), commencing on September l, 1996, and ending
on September 1, 2001, unless terminated at an earlier date for any reason set
forth in this Lease.
Option - Terms and Conditions
-----------------------------
Lessee shall have three (3) five (5) year options to extend this Lease
beyond the expiration date provided in Subsection 2.1.
Rent
----
Lessee shall pay rent to Lessor, without notice or demand and without
abatement, reduction or set-off for any reason, at the office of Lessor or such
other place as Lessor may designate in writing.
<PAGE>
ARTICLE 3. USE AND CONSTRUCTION OF IMPROVEMENTS
- -----------------------------------------------
Primary Use
-----------
Lessee shall have the right to use the Leased Land & Equipment for any
lawful purposes. In this connection, and without detracting from the foregoing,
it is understood and agreed that the primary purpose for which the Leased Land &
Equipment have been leased is agriculture.
Lessee's Right to Construct Improvements
----------------------------------------
Lessee shall have the right to construct structures, buildings and other
improvements ("Improvements") on the Leased Land, for use in connection with the
use of the Leased Land as an agricultural facility, at Lessee's sole cost and
expense, with the prior approval of Lessor, which consent shall not be
unreasonably withheld. Lessee shall be responsible to obtain all necessary
permits and governmental approvals for the Improvements. At the termination of
this Lease, Lessee may, but shall not be required to, remove and keep all
Improvements but in such case, Lessee shall patch the Leased Land so that any
damage done because of the removal of the Improvements is repaired. In the
alternative, Lessee may leave the Improvements, which shall become the property
of Lessor. The Lessor shall have input, but no decision making authority except
as set forth above, in the design and building materials of the Improvements.
The Lessor shall have the option at the completion or termination of this
Agreement to require Lessee to remove any improvement within ninety (90) days.
ARTICLE 6. LIENS AND ENCUMBRANCES
- ---------------------------------
Creation Not Allowed
--------------------
Lessee shall not create, permit or suffer any mechanic's or other lien or
encumbrance on or affecting the Leased Land or the fee estate or reversion of
Lessor except as specifically permitted in this Lease. Except as exist on the
date of this Lease, Lessor shall keep the Leased Lands, Equipment and
Improvements free and clear of all levies, liens and claims.
Discharge After Filing or Imposition
------------------------------------
If any lien or encumbrance shall at any time be filed or imposed against
the Leased Land or the fee estate or reversion of Lessor, resulting from
Lessee's activities, Lessee shall cause the same to be discharged of record
within ninety (90) days after notice of the filing or imposition by payment,
deposit, bond, order of a court of competent jurisdiction, or as otherwise
permitted by law.
This is a Memorandum of Lease and it no way alters the terms of a certain
GROUND & EQUIPMENT LEASE ("Lease") made and entered into on day of ,
1997, by and between Lessor and Lessee. This Memorandum of Lease in no way
changes the terms and conditions of the GROUND & EQUIPMENT LEASE, which GROUND &
EQUIPMENT LEASE shall control in the event of a conflict.
2
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed and signed this Lease
or have caused this Lease to be executed and signed, and corporations have
affixed their proper corporate seals on the date above first written.
ATTEST:
/s/ Margie Crozier By: /s/ Wade Howell
- ------------------------- ------------------------------
Wade Howell
Dated: 17 July 1997
ATTEST:
Margie Crozier By: /s/ Christopher Rohde
- ------------------------- ------------------------------
Triarco Industries, Inc.
Christopher Rohde
Dated: 17 July 1997
3
<PAGE>
EXHIBIT 10.6(2)
Record & Return to:
Johnson, Murphy, Hubner,
McKeon, Wubbenhorst & Appelt
51 Route 23 South
Riverdale, New Jersey 07457-70
GROUND & EQUIPMENT LEASE
THIS GROUND & EQUIPMENT LEASE ("Lease") made and entered into this day
of , 1997, by and between Wade Howell, having an residence at Route 1, Jennings,
Florida 32503 ("Lessor") and Triarco Industries, Inc., a New Jersey Corporation,
with a principal place of business at 400 Hamburg Turnpike, Wayne, New Jersey
07470 ("Lessee").
ARTICLE 1. DEMISE OF LEASED PROPERTY
- ------------------------------------
1.1 Description of Leased Land
--------------------------
Lessor leases to Lessee, and Lessee rents and accepts from Lessor,
those certain parcels of land in the Township of Jennings, County of Hamilton,
State of Florida, identified as (A) Section 18, Township 1 North, Range 12 East,
(B) Section 7, Township 1 North, Range 12 East, (C) Section 6, also known as The
Howell Farm, Route 1, Jennings, Florida 32503 and more particularly described on
Exhibit "A" annexed hereto and made a part hereof together with the buildings,
improvements and the appurtenances thereto appertaining and including, without
limitation, rights in streets, easements and rights of way, the land and
premises (the "Leased Land").
1.2 Land Subject to Liens. Encumbrances and Other Conditions
--------------------------------------------------------
This Lease and the Leased Land are subject to all present liens,
encumbrances, conditions, rights, easements, restrictions, rights of way,
covenants, other matters of record, and zoning and building laws, ordinances,
regulations, and codes affecting or governing the Leased Land or that may affect
and govern the leased Land after the execution of this Lease, and all matters
that may be disclosed by inspection or survey.
1.1 Description of Leased Equipment
-------------------------------
Lessor hereby leases to the Lessee and Lessee hereby leases and
hires from the Lessor all equipment and property currently in use on the Leased
Land, that equipment and property more particularly being described on Schedule
"B" attached hereto (the "Equipment"), subject to the terms and conditions of
this Agreement.
ARTICLE 2. TERM AND RENT
- ------------------------
2.1 Term of Lease
-------------
Lessee's obligation to pay rent in accordance with this Lease shall
be for a term of five (5) years ("Term"), commencing on September 1, 1996, and
ending on September 1, 2001, unless terminated at an earlier date for any reason
set forth in this Lease.
<PAGE>
2.2 Option - Terms and Conditions
-----------------------------
Lessee shall have three (3) five (5) year options to extend this
Lease beyond the expiration date provided in Subsection 2.1 on the following
terms and conditions:
As long as Lessee is not in default of any of the terms and
conditions of this Lease, Lessee may extend the term of this Lease for a
total period of fifteen (15) years, with the extended term to begin on
the day following the expiration date of the lease term specified in
Subsection 2.1. However, if at the date of expiration of the original
term, Lessee is in default beyond any grace period provided in this
Lease in the performance of any of the terms or provisions of this
Lease, this option shall be null and void. All the terms, covenants and
provisions of the original lease term shall apply to all extended lease
terms.
Lessee may exercise the option to extend this Lease by giving
Lessor notice of its intention to do so not later than three (3) months
prior to the expiration of the Lease Term. To constitute effective
notice of an intention to exercise an option under this Lease, the
notice must be sent by certified mail or registered mail to Lessor at
the address provided on page one of this Lease or hand delivered.
2.3 Holdover
--------
If Lessee holds over after the expiration of the Lease Term and
continues to pay rent without objection from the Lessor, then the Lessee's
tenancy shall be from month to month on all the terms and conditions of this
Lease.
2.4 Early Termination
-----------------
In the event the agricultural venture contemplated hereby is
unsuccessful for a period of two successive years, Lessee shall have the option
of cancelling this lease on thirty (30) days written notice (the "Early
Termination Date"). Upon Early Termination, this Lease shall be of no further
force or effect. Upon early termination of this agreement under any provision of
this contract, any crops left in the ground shall become the property of Wade
Howell to dispose of or continue to grow as he sees fit.
2.5 Rent
----
Lessee shall pay rent to Lessor, without notice or demand and
without abatement, reduction or set-off for any reason, at the office of Lessor
or such other place as Lessor may designate in writing. The rate shall be three
thousand five hundred ($3,500.00) Dollars per month for the first three (3)
years, then $5,000.00 per month for the next two (2) years. The rent shall be
renegotiated for a Cost of Living Adjustment each five years thereafter. All
rent due hereunder shall be payable in accordance with the terms and conditions
of this Subsection 2.5.
Rent shall be payable in equal monthly installments in advance on
the first day of each calendar month. If payment is not received within twenty
(20) days after the date when due, Lessee shall pay a late charge of five (5%)
percent of the payment due for that month. This late charge payment shall be
included with the next monthly installment of rent, or on the date this Lease is
terminated, whichever is earlier. If this Lease is to commence on a date other
than the first day of a month, then on the date of commencement the Lessee shall
2
<PAGE>
pay rent for the fractional portion of the month on a per diem basis from the
date of commencement until the first day of the next succeeding month.
Lessee shall have the right, but not the obligation, to make such
lease payments directly to any mortgage, lien or other encumbrance holder in
order to avoid default.
ARTICLE 3. USE AND CONSTRUCTION OF IMPROVEMENTS
- -----------------------------------------------
3.1 Primary Use
-----------
Lessee shall have the right to use the Leased Land & Equipment for
any lawful purposes. In this connection, and without detracting from the
foregoing, it is understood and agreed that the primary purpose for which the
Leased Land & Equipment have been leased is agriculture.
3.2 Lessee's Right to Construct Improvements
----------------------------------------
Lessee shall have the right to construct structures, buildings and
other improvements ("Improvements") on the Leased Land, for use in connection
with the use of the Leased Land as an agricultural facility, at Lessee's sole
cost and expense, with the prior approval of Lessor, which consent shall not be
unreasonably withheld. Lessee shall be responsible to obtain all necessary
permits and governmental approvals for the Improvements. At the termination of
this Lease, Lessee may, but shall not be required to, remove and keep all
Improvements but in such case, Lessee shall patch the Leased Land so that any
damage done because of the removal of the Improvements is repaired. In the
alternative, Lessee may leave the Improvements, which shall become the property
of Lessor. The Lessor shall have input, but no decision making authority except
as set forth above, in the design and building materials of the Improvements.
The Lessor shall have the option at the completion or termination of this
Agreement to require Lessee to remove any improvement within ninety (90) days.
3.3 Lessor's Assistance with Zoning and Building Permits
----------------------------------------------------
Lessor shall execute all necessary documents and otherwise assist
Lessee in applying for and obtaining any zoning changes or variances, use
permits or building permits necessary for the construction of any Improvements.
The costs of all application changes, variances, permits etc. shall be borne by
the Lessee.
3.4 Lease Contingent on Zoning Approval
-----------------------------------
This Lease is expressly made contingent on the existence and/or
granting of the necessary approvals for the use of the Leased Land as a farm. If
the above-described approval does not exist or is not granted, or is later
rescinded, this Lease shall be void at Lessee's option.
ARTICLE 4. OPERATING COSTS AND IMPOSITIONS
- ------------------------------------------
4.1 Rent to be Absolutely Net
-------------------------
The Rent paid to Lessor in accordance with Article 2 of this Lease
shall be
3
<PAGE>
absolutely net to Lessor. This means that, in addition to the rent, Lessee shall
pay all "Operating Costs" and "Impositions" defined in Paragraphs 4.2 and 4.3
below, in connection with the Leased Land.
4.2 Definition of Operating Costs
-----------------------------
"Operating Costs" shall include, but shall not be limited to, all
expenses paid or incurred in connection with the following activities:
1. Necessary repairs, maintenance,
replacements and painting;
2. Landscaping;
3. Snow removal;
4. Insurance;
5. Water, sewer, gas, electricity, fuel oil and other utilities;
6. Rubbish removal;
7. All other expenses, whether or not mentioned in this Lease,
that are incurred with respect to operation of the Leased Land,
including any replacements where necessary for repairs and
maintenance or otherwise.
4.3 Definition of Impositions
-------------------------
"Impositions" shall include all fines and levies that result
from construction activities or the normal operation of the Leased Land, all
tangible property and ad valorem taxes, all real estate property taxes,
assessments, and other governmental charges that are laid, assessed, levied, or
imposed on the Leased Land & Equipment and become due and payable during the
term of this Lease, or any lien that arises during the time of this Lease on the
Leased Land, Equipment or Improvements as a result of Lessee's activities, any
portion of these, or the sidewalks or streets in front of or adjoining the
Leased Land and Improvements.
ARTICLE 5. LAWS AND GOVERNMENTAL REGULATIONS
- --------- ---------------------------------
5.1 Compliance with Legal Requirements
----------------------------------
Lessee shall promptly comply with all laws and ordinances, and all
orders, rules, regulations and requirements of federal, state and municipal
governments and appropriate departments, commissions, boards, and officers of
these governments ("Legal Requirements") throughout the term of this Lease and
without cost to Lessor. Lessee shall promptly comply with these Legal
Requirements whether they are foreseen or unforeseen, or ordinary or
extraordinary.
5.2 Contest of Legal Requirements
-----------------------------
Lessee shall have the right, after prior written notice to Lessor,
to contest the validity of any Legal Requirements by appropriate legal
proceedings, provided Lessor shall not be subject to any criminal or civil
liability as a result of any legal contest.
ARTICLE 6. LIENS AND ENCUMBRANCES
- --------- ----------------------
6.1 Creation Not Allowed
--------------------
.
4
<PAGE>
Lessee shall not create, permit or suffer any mechanic's or other
lien or encumbrance on or affecting the Leased Land or the fee estate or
reversion of Lessor except as specifically permitted in this Lease. Except as
exist on the date of this Lease, Lessor shall keep the Leased Lands, Equipment
and Improvements free and clear of all levies, liens and claims.
6.2 Discharge After Filing or Imposition
------------------------------------
If any lien or encumbrance shall at any time be filed or imposed
against the Leased Land or the fee estate or reversion of Lessor, resulting from
Lessee's activities, Lessee shall cause the same to be discharged of record
within ninety (90) days after notice of the filing or imposition by payment,
deposit, bond, order of a court of competent jurisdiction, or as otherwise
permitted by law.
ARTICLE 7. INSURANCE AND INDEMNITY
- --------- -----------------------
7.1 Property and Personal Injury Liability Insurance
------------------------------------------------
At all times during the term of this Lease, Lessee shall maintain,
at its sole cost, comprehensive broad-form general public liability insurance
against claims and liability for personal injury, death and property damage
arising from the use, occupancy, disuse or condition of the Leased Land and
Improvements and adjoining areas. The insurance shall be carried by insurance
companies authorized to transact business in Florida, selected by Lessee. In
addition, the following conditions shall be met:
(a) The insurance provided pursuant to Paragraph 7.2 shall be in an
amount not less than $ 1,000,000.00 property damage, and in an amount no
less than $ 1,000,000.00 for one person and $ 3,000,000.00 for one
accident for personal injury.
(b) The insurance shall be maintained for the mutual benefit of
Lessor and Lessee, and any succeeding owners of the fee title in the
Leased Land, and any successors and assigns of this Lease. The insurance
policy or policies shall name both Lessor and Lessee as insured.
(c) Worker's compensation insurance shall be provided for all
employees of Lessee.
------
7.2 Certificates of Insurance
-------------------------
Lessee shall furnish Lessor with a certificate of insurance for the
policies required by this Article 7. Lessee agrees that if it does not keep this
insurance in full force and effect, Lessor may notify Lessee of this failure,
and if Lessee does not deliver to Lessor certificates showing all such insurance
to be in full force and effect within fifteen (15) days after this notice,
Lessor may, at its option, take out and/or pay the premiums on the insurance
needed to fulfill Lessee's obligations under the provisions of this Article 7.
On demand from Lessor, Lessee shall reimburse Lessor the full amount of any
insurance premiums paid by Lessor, with interest at the rate of seven (7)
percent per annum from the date of Lessor's demand until reimbursement by
Lessee.
5
<PAGE>
7.3 Indemnification of Lessor
-------------------------
Lessor shall not be liable for any loss, damage or injury of any
kind or character to any person or property arising from Lessee's use of the
Leased Land & Equipment or Improvements, or caused by or arising from any act or
omission of Lessee, or any of its agents, employees, licensees, or invitees, or
by or from any accident, fire, or other casualty on the land, or occasioned by
the failure of Lessee to maintain the premises in safe condition. Lessee agrees
to indemnify and hold Lessor entirely free and harmless from all liability for
any loss, damage, costs, or injury of other persons, and from all costs and
expenses arising from any claims or demands of other persons concerning any
loss, damage, or injury, caused other than by the negligent or intentional act
or omission of Lessor.
7.4 Indemnification of Lessee
-------------------------
Lessee shall not be liable for any loss, damage or injury of any
kind or character to any person or property not arising from its use of the
Leased Land & Equipment or Improvements, or caused by any defect in any
building, structure, equipment, facility or other improvement on the Leased
Land, or caused by or arising from any act or omission of Lessor, or any of its
agents, employees, licensees, or invitees, or by or from any accident, fire, or
other casualty on the land, or occasioned by the failure of Lessor to maintain
the premises in safe condition. Lessor agrees to indemnify and hold Lessee
entirely free and harmless from all liability for any loss, damage, costs, or
injury of other persons, and from all costs and expenses arising from any claims
or demands of other persons concerning any loss, damage, or injury, caused other
than by the negligent or intentional act or omission of Lessee.
ARTICLE 8. DAMAGE OR DESTRUCTION
- --------- ---------------------
8.1 Damage or destruction; Option to Terminate or Repair
----------------------------------------------------
In the event that the Leased Land, the Improvements, or any part of
them are significantly damaged or destroyed which essentially precludes further
operation by any cause whatsoever, Lessee may elect either of the following
options:
(1) Within fifteen (15) days, Lessee shall commence and diligently
pursue to completion the repair, restoration, replacement or removal of
the damaged or destroyed Leased Land and Improvement, and this Lease
shall remain in full force and effect, with no abatement; or
(2) Lessee shall terminate this Lease on ninety (90) days written
notice to Lessor.
8.2 Damage or Destruction of Equipment
----------------------------------
In the event the Equipment, or any piece thereof, is damaged or
destroyed by any cause whatsoever, Lessee may elect either of the following
options:
(1) In the event all or any part of the Equipment is damaged, the
rental therefor shall continue to be paid by Lessee, notwithstanding
such damage. Lessee shall forthwith repair or cause such Equipment to be
repaired. In every such instance, Lessor agrees to assign to Lessee any
and all rights Lessor may have under insurance policies carried by
Lessor or Lessee with respect to such damage, as well as any rights
6
<PAGE>
that Lessor may have to be reimbursed for such damage pursuant to
insurance coverage carried by others, as reimbursement to Lessee for any
sum or sums expended by Lessee in connection with the repair of the
Equipment.
(c) In the event the Equipment is destroyed or stolen, or is
damaged to such an extent that Lessee finds it undesirable or impossible
to continue its use, Lessee's obligation to pay the "pro rata rental
value" for that equipment shall terminate. To determine the "pro rata
rental value" of a particular piece of equipment, the then existing Rent
as determined in accordance with paragraph 2.5 hereof, shall be divided
by ten, and the resulting amount shall be considered the rental value of
all Equipment leased hereunder. The Schedule of Equipment Leased,
attached as Exhibit "B", shall then be consulted to determine the
approximate value of the Equipment in issue in relationship to the
entire Schedule of Equipment as a percentage thereof. That percentage
shall represent the pro rata rental value.
ARTICLE 9. CONDEMNATION
- --------- ------------
9.1 Interest of Parties
-------------------
If the Leased Land and Improvements or any part of these premises
is taken for public or quasi-public purposes by condemnation in any action or
proceeding in eminent domain, or are transferred in lieu of condemnation to any
authority entitled to exercise the power of eminent domain, the interests of
Lessor and Lessee in the award or consideration for the taking or transfer and
the effect of the taking or transfer on this Lease shall be governed by this
Article 9.
9.2 Termination on Total Taking
---------------------------
If all or substantially all of the Leased Land and/or Improvements
are taken or transferred as described in Paragraph 9.1, this Lease and all of
the rights, title and interest under this Lease shall cease on the date title to
the Leased Land and/or Improvements vests in the condemning authority, and the
proceeds of the condemnation shall be divided among the Lessee and Lessor with
Lessor receiving that part of the award allocated to the Leased Land and Lessee
receiving that part of the award allocated to the Improvements. For purposes of
this Article 9, "all or substantially all of the Leased Land and Improvements"
shall be deemed to have been taken if, in the opinion of Lessee, it is not
suitable for the conduct of the business conducted on the Leased Land and
Improvements prior to the taking.
9.3 Continuation with Rent Abatement After Partial Taking
-----------------------------------------------------
If less than all or substantially all of the Leased Land and
Improvements is taken or transferred as described in Paragraph 9.1, and if in
Lessee's opinion the remainder of the Leased Land and Improvements is in a
location and a form, shape, or size that makes it possible for Lessee to
effectively and practicably operate Lessee's business on the remaining Leased
Land and Improvements, this Lease shall terminate as to the portion of the
Leased Land and Improvements taken or transferred as of the date title to the
portion vests in the condemning authority. However, this Lease shall continue in
full force and effect as to the portion of the Leased Land and Improvements not
taken or transferred. From and after the
7
<PAGE>
date of taking or transfer, the rental required to be paid by Lessee to Lessor
shall be reduced during the unexpired portion of this Lease by that proportion
of the annual rent that the square footage of the part of the Leased Land taken
or transferred bears to the square footage of the total Leased Land. These
values shall be determined as of the date immediately before any actual taking.
The proceeds of the condemnation shall be divided in the same manner set forth
in Subsection 9.2
ARTICLE 10. DEFAULT
- ----------- -------
10.1 Events of Default
(a) Any one or more of the events listed in Subparagraphs (b) through
(f) of this Paragraph 10.1 shall constitute a default under this Lease.
(b) Lessee's failure to pay rent within thirty (30) days after the
rent becomes due and payable in accordance with the terms, covenants and
agreements of this Lease shall constitute a default under this Lease.
(c) Lessee's failure to observe or perform or cause to be observed or
performed any other term, covenant or agreement under this Lease, and
continuation of this failure for a period of ninety (90) days after
Lessor's written notice to Lessee specifying the nature of the Lessee's
failure shall constitute a default under this Lease. However, a failure
as described in this Subparagraph (b) shall not constitute a default if
it is curable but cannot with reasonable diligence be cured by Lessee
within a period of one hundred and twenty (120) days, and if Lessee
proceeds to cure the failure with reasonable diligence and in good
faith.
(d) Lessee's abandonment of the Leased Land and Improvements shall
constitute a default under this Lease. For the purposes of this Lease,
"abandonment" shall be defined as non-use of the Leased Land for two and
one half (21/2) years.
(e) The occurrence of the following event at the date of the
commencement of this Lease or during its effective term shall constitute
a default under this Lease.
(l) Filing a petition in bankruptcy or insolvency, for
reorganization or the appointment of a receiver or trustee of all or
a portion of Lessee's property, by or against Lessee in any court
pursuant to any statute either of the United States or of any state;
and
(2) Lessee's failure to secure a dismissal of the petition within
one hundred and twenty (120) days after its filing.
(f) Lessee's assignment of the leasehold interest under this Lease
for the benefit of creditors shall constitute a default under this
Lease.
10.2 Notice of Election to Terminate Lessee's Possession
---------------------------------------------------
If any event creating default occurs, Lessor may elect to
terminate Lessee's right of possession under this Lease after ninety (90) days
from the date of service of notice of the election. If this notice is given,
then at the expiration of the ninety (90) days all Lessee's right, title and
interest in the Leased Land embodied in this Lease shall expire completely, and
Lessee shall quit and surrender the Leased Land and any Improvements erected on
the Leased Land to Lessor.
8
<PAGE>
10.3 Lessor's Entry After Termination of Lessee's Possession
-------------------------------------------------------
At any time after the termination of Lessee's right of possession
under this Lease pursuant to Paragraph 10.2 of this Lease, Lessor may enter and
possess the Leased Land and Improvements by summary proceedings, ejectment, or
otherwise, and Lessor may remove Lessee and all other persons and property from
the Leased Land and Improvements. If the Lessor takes the actions described in
this Paragraph 10.3, Lessor may then possess the Leased Land and Improvements
and assume the right to receive all rents, income and profits from the Leased
Land and Improvements and Lessor may also sell any of the Improvements.
10.4 Lessee's Liability for Accrued Rent
-----------------------------------
The expiration of this Lease or termination of the Lessee's right
of possession pursuant to Paragraph 2.1 or 10.2 shall not relieve Lessee of its
liability and obligation to pay the rent and any other charges accrued prior to
these events, or relieve the Lessee of liability for damages for breach. These
liabilities and obligations of the Lessee shall survive any expiration or
termination of the Lease or any entry and possession by the Lessor.
10.5 Reletting Land and Improvements
-------------------------------
After the expiration of this Lease or termination of the Lessee's
right of possession under this Lease pursuant to Paragraphs 2.1 or 10.3, Lessor
shall use reasonable efforts to mitigate damages by reletting the Leased Land
and Improvements in whole or in part, either in its own name or as agent of
Lessee, for a term or terms which, at Lessor's option, may be for the remainder
of the then current term of this Lease or for any longer or shorter period.
10.6 Rent from Reletting
-------------------
Lessee shall be entitled to a credit if the rent received on
reletting exceeds the rent required pursuant to this Lease. Lessee shall remain
liable for the difference between the rent reserved under this Lease, and the
rent collected and received, if any, by Lessor during the remainder of the
unexpired term.
10.7 Costs Incurred Due to Breach
----------------------------
In the event a party is found to have breached this agreement, the
breaching party agrees to pay all expenses a non-breaching party may incur for
reasonable attorneys' fees and all other costs paid or incurred by the non-
breaching party in enforcing the terms and provisions of this Lease.
ARTICLE ll. EXPIRATION OF TERM
- ----------- ------------------
ll.l Lessee's Delivery of Possession After Termination or Expiration
---------------------------------------------------------------
On the expiration date of this Lease as set forth in Paragraph
2.1, or the termination of the Lessee's possession under this Lease pursuant to
Paragraph 10.2, or any entry or possession of the Leased Land and Improvements
by Lessor pursuant to Paragraph 10.3 (collectively referred to as the
"Expiration Date"), Lessee shall promptly quit and surrender the Leased Land and
Improvements and deliver to Lessor actual possession and
9
<PAGE>
ownership of the Leased Land and Improvements in good order, condition and
repair.
11.2 Lessee shall have the right to remove from the Leased Land and
Improvements all movable trade fixtures, movable equipment and articles of
personal property used, excepting the Equipment leased hereunder, or procured
for use in connection with the operation of its business on or before the
Expiration Date, provided that Lessee shall promptly repair, or cause to be
repaired, any damage resulting to the Leased Land by reason of this removal. Any
trade fixtures, equipment or articles of personal property of Lessee that remain
at or on the Leased Land after the Expiration Date shall be deemed to have been
abandoned by Lessee, and may either be retained by Lessor as its property or
disposed of by the Lessor without accountability to Lessee for the value of
these trade fixtures, equipment or articles of personal property or any proceeds
derived from the sale of these items.
ARTICLE 12. GENERAL PROVISIONS
- ----------- ------------------
12.1 No Waiver of Breach by Lessor's Actions
---------------------------------------
The failure of Lessor to seek redress for violation of, or to
insist on the strict performance of any covenant, agreement, term, provision or
condition of this Lease shall not constitute a waiver of the covenant,
agreement, term, provision, or condition. The receipt by Lessor of rent with
knowledge of the breach of any covenant, agreement, term, provision or condition
of this Lease shall not be deemed a waiver of that breach.
12.2 Waiver of Any Provision Must Be Written
---------------------------------------
No provision of this Lease shall be deemed to have been waived,
unless the waiver is in writing and signed by the party against whom enforcement
is sought. No payment by Lessee or receipt by Lessor of a lesser amount that the
rent stipulated in this Agreement shall be deemed to be other than for the
payment of rent or other charge owing by Lessee, as Lessor shall elect. No
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall be deemed binding on Lessor or deemed an accord and
satisfaction, and Lessor may accept a check or payment from Lessee without
prejudice to Lessor's right to recover the balance of the rent or other charges
owing by Lessee, and without limitation on Lessor's right to pursue each and
every remedy in this Lease or provided by law. Each right and remedy of Lessor
provided for in this Lease shall be cumulative and in addition to every right or
remedy provided for in this Lease or now or later existing at law, in equity, by
statute or otherwise.
12.3 Entire Agreement
----------------
This Lease and the Exhibits annexed to this Lease contain the
entire agreement between Lessor and Lessee, and any agreement made after the
execution of this Lease between Lessor and Lessee shall be ineffective to
change, modify, waive, release, discharge, terminate or effect a surrender or
abandonment of this Lease, in whole or in part, unless that agreement is in
writing and signed by the party against whom enforcement is sought.
10
<PAGE>
12.4 Notices
-------
All notices and demands of any kind that either party may be
required or may desire to give to the other in connection with this Lease must
be given by registered or certified mail, return receipt requested, with postage
fully prepaid, and addressed to the party to be served at the party's address as
set forth above. Any notice shall be deemed received on first attempted
delivery. Any party may change the address to which notices to such party are to
be directed by notice given in the manner provided in this Paragraph 12.4.
12.5 Lessor's Entry and Inspection of Premises.
------------------------------------------
Lessor or its agents or designees, shall have the right to enter
the Leased Land and Improvements during reasonable business hours for
inspection, or to complete any work that may be necessary because of Lessee's
default under any of the terms, covenants and conditions of this Lease
continuing beyond the applicable period of grace, or to exhibit the Leased Land
and Improvements to potential buyers and agents in the event Lessee fails to
exercise its option to renew this Lease.
12.6 Partial Invalidity or Unenforceability.
---------------------------------------
If any term, covenant or condition of this Lease shall be invalid
or unenforceable to any extent, the remainder of the terms, covenants and
conditions of this Lease shall be invalid or unenforceable to any extent, the
remainder of the terms, covenants, and conditions of this Lease shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
12.7 Individual Benefited by Lease.
------------------------------
This Lease shall inure to the benefit of and be binding on Lessor
and Lessee and their respective distributees, personal representatives,
executors, successors and assigns except as otherwise provided in this Lease.
12.8 Assignment and Subletting.
--------------------------
This Lease and the term and estate granted by this Lease, or any part of
this Lease or that term and estate, may be subleased or assigned, without
Lessor's written consent. However, no assignment or subleting shall release or
discharge Lessee from the terms of this Lease without Lessor's consent.
12.9 Quiet Enjoyment. Lessor covenants and agrees that Lessee, on
----------------
payment of the rent and other charges provided for in this Lease and fulfillment
of the obligations under the covenants, agreements, and conditions of this
Lease, shall lawfully and quietly hold, occupy and enjoy the Leased Land during
the term of this Lease without any interference from anyone claiming through or
under Lessor.
12.10 Brokers. Lessor and Lessee each represent and warrant one to the
--------
other that except as may be hereinafter set forth, neither of them has employed
any broker in connection with the negotiations of the terms of this Lease or the
execution thereof. Lessor and Lessee hereby agree to indemnify and to hold each
other harmless against any loss, expense or liability
11
<PAGE>
with respect to any claims for commissions or brokerage fees arising from or out
of any breach of the foregoing representation and warranty.
12.11 Relationship of Parties. Nothing contained herein shall be deemed
------------------------
or construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of rent, nor any other provision contained herein, nor any
acts of the parties herein, shall be deemed to relationship of Lessor and
Lessee.
ARTICLE 13. DOCUMENTATION AND RECORDING OF LEASE.
- ----------- -------------------------------------
13.1 Estoppel Certificates
----------------------
Lessor or Lessee shall have the right to request the other party to
provide an estoppel certificate, as described below, without charge, at any time
on or after ten (10) days after the requesting party sends a written notice.
This estoppel certificate shall consist of a written statement certifying the
following information to the requesting party or to any person specified by that
party:
(1) That this Lease is unmodified and in full force and effect; or,
if there have been any modifications in this Lease, that this Lease is in full
force and effect as modified, specifying the nature of each modification.
(2) The dates through which the rent and other charges payable
under this Lease have been paid.
(3) Whether the other party to this Lease is in default in the
performance or observance of any covenant, agreement, condition, term or
provision contained in this Lease, to the best knowledge of the certifying party
and, if so, specifying the nature of each default the certifying party has
knowledge of.
(4) Any other information with respect to this Lease and the Leased
Land that the requesting party shall reasonably request.
13.1 Recordation. Lessee may record this Lease or a memorandum thereof,
------------
at its sole election, and Lessor agrees to execute such memorandum upon request
by Lessee.
ARTICLE 14. OPTION TO PURCHASE
- ----------- ------------------
14.1 Option to Purchase. In the event Lessor decides to sell the
-------------------
property, he grants to the Lessee the option to purchase the leased property at
such time during the original term, or any renewal period, on the terms and
conditions contained herein for a consideration to be agreed upon with Lessor.
14.2 Exercise of Option. The election of a Lessee to exercise this
-------------------
option must be evidenced by a notice in writing addressed to the Lessor, sent by
registered or certified mail, to the office of the Lessor or to such other place
as the Lessor may from time to time designate by notice in writing to the
Lessee. If the Lessee elects to exercise the option, such written notice must be
given not less than four (4) months nor more than five (5) months prior to the
12
<PAGE>
intended date of closing of title.
14.3. Option Price. If the parties fail to agree upon the amount of the
-------------
purchase price, the amount of such purchase price shall be determined by
appraisal, the Lessee and the Lessee each appointing one (1) appraiser who shall
in turn jointly choose another. The three (3) appraisers then named shall act
with promptness, and the decision of any two (2) as to the proper consideration
for the purchase of such property shall be binding upon the parties hereto.
14.4. Expenses. The option price to be paid to the Lessor shall be a net
---------
amount to the Lessor and each party shall pay his or its own respective expenses
in connection with the transfer of title. In the event there is any mortgage on
the premises that can be assumed by the Lessee, the option price shall be
reduced by the amount of any such mortgage due and owing as of the date of
conveyance.
14.5. Transfer of Title. The leased property shall be conveyed by the
------------------
Lessor to the Lessee free and clear of any mortgage or other encumbrance, except
as may be assumed by the Lessee.
14.6. Adjustments. Adjustments and pro rations of taxes, water rents,
------------
insurance premiums, and similar items shall be made as of the date of closing of
title in accordance with the practice approved by the parties.
14.7. Priority. This option shall be a covenant running with the land
---------
described above, and no conveyance, transfer, easement, or encumbrance of such
land shall defeat or adversely affect this option.
14.8. Assignment: Binding Effect. The Lessee shall have the right to
---------------------------
assign this option to an affiliated entity, and such option shall inure to the
benefit of the respective successors and assigns of the Lessee.
IN WITNESS WHEREOF, Lessor and Lessee have executed and signed
this Lease or have caused this Lease to be executed and signed, and corporations
have affixed their proper corporate seals on the date above first written.
ATTEST:
/s/ Margie Crozier
- ---------------------------- BY. /s/ Wade Howell
--------------------
Wade Howell
Dated: 17 Jul 97
-------------------
13
<PAGE>
ATTEST:
/s/ Margie Crozier By: /s/ Christopher Rohde
- ------------------------- ------------------------
Christopher Rohde
Dated: 17 July 1997
----------------------------
14
<PAGE>
EXHIBIT "A"
DESCRIPTION OF LEASED LAND
OR
DIAGRAM OF LEASED LAND
15
<PAGE>
EXHIBIT "B"
SCHEDULE OF LEASED EQUIPMENT
16
<PAGE>
EQUIPMENT LEASED TO TRIARCO AS OF 1-27-97
-----------------------------------------
Quantity Equipment Name
-------- --------------
5 Filing Cabinets
4 Desks
3 Storage Cabinets
3 Space Heaters
Air Conditioning system
4 Phones
6 Chairs
Michigan 75B 4WD loader
International 1250 Portable Grinder
Lilliston 2W Cultivator with Cole Fertilizer Distributor
2 Holland 2 Row Transplanters
2 Pittsburgh Ridgid Shank Cultivator
6 Row Sprayer
Taylor Way 12 foot Harrow
International Harvester 2 row Dickie Vater
John Deere 6 Bottom Plow
Pipe Trailer
Terrain King 15 foot Bat Wing Mower
Fuel Trailer 300 gal
John Deere 71 Planters 2 row
Stan Hay Precision Planter 2 row
Cole 2 row Planter
International Harvester 656 70 Hsp Tractor
John Deere 4020 94 Hsp Tractor
John Deere 6030 180 Hsp Tractor
John Deere 4 cyl power unit 7 hsp
John Deere 450 C Crawler Tractor
John Deere 4440 145 hsp Tractor
Komatsu FD 25 Forklift
Walden 5000 4 WD Forklift
Equipment Trailer
Chauncy 40 ton low boy trailer
Wallace 42 foot flat bed trailer
Ford Tandem Dump Truck 16 yard bed
Gooseneck Equipment Trailer
2 Labor Trailers
2 Storage Trailers
Semi 40 foot storage trailer
84 Chev Pickup
83 Chev one ton Truck
88 Nissan Pickup Truck
Hawkeye 42 foot Hopper Bottom Trailer
2 Rainbow Cable tow irrigation gun with reel
Randolph Gear head and turbine 8 inch
2 Rain Cut pivot irrigation systems 40 acres
Butler pivot irrigation systems 40 acres
13400' 6" & 8" underground pipe and risers
Cooler 40' X 80'
Mahoney Ice machine 4000 lb day
Hobart 400 amp welder
Torches
Shop tools
Shop Press
<PAGE>
Drill Press
Clipper super 68 D Cleaner
Taylor Valve Bagger Scales
2 Fishbien Bag Closers
Steinlite Moisture Tester
Gustafson Seed Treater
6' x 10' cooler
2 Batter Chargers
Shop Fan
5 Grain Bins - 27,000 bu cap
Truck Hoist Harrison Ellis
60' elevator Harrison Ellis
8 Peerless Drying Wagons
2 Peerless Double Dryers
Carolina Grading line with box dump and washer
Mortar mixer
John Deere 8000 Grain Drill 14'
International Harvester 2400 Round Baler
International Harvester #35 Side Delivery Rake
Lilley disk mower 6'
Cross bulk fertilizer spreader
16' livestock trailer
Service Trailer
1630 John Deere Harrow
KMC rototiller 14'
Pinberton stacking rake
Calumet Slurry tank
Pin wheel rake
2 wheel Farm trailer
2 wheel bin box trailer
40,000 lb truck scales
Case 21' Fold Harrow
Lilliston 6 row ripper bedder
4 wheel dump trailer
Ditch witch V-30 trencher
Brown 6' brush cutter
Parts washer
<PAGE>
EXHIBIT 10.7
[LOGO] FLEET Fleet Bank
208 Harristown Road
Glen Rock, NJ 07452
201-251-5367
Fax 201-251-5388
As of June 30, 1997
Triarco Industries, Inc.
400 Hamburg Turnpike
Wayne, New Jersey 07470
Gentlemen:
We are pleased to advise you that Fleet Bank, N.A. (the "Bank") holds available
for the use of Triarco Industries, Inc. ("Triarco") and Leica Sordik, Inc.
("Leica"; Triarco and Leica may be collectively referred to as the
"Companies"), on a joint and several basis, a line of credit in the amount of
$5,000,000 upon the following terms and conditions:
1. Facilities. (a) The line of credit (the "Line") shall include the
----------
following facilities: short-term loans for working capital purposes ("Loans"),
documentary letters of credit for the importation of merchandise inventory
("Letters of Credit") and standby letters of credit ("SBLC's") (Loans, Letters
of Credit and SBLC's are at times individually referred to as a "Credit" and
collectively as the "Credits"), provided, that, the aggregate principal amount
of Credits at any time outstanding shall not exceed $5,000,000.
(b) Credits shall be extended upon either Company's prior written notice
to the Bank (duly executed by an authorized officer of such Company) such notice
to be in a form satisfactory to the Bank which may be accomplished by facsimile
transmission.
2. Credit Period. The Line shall be available for the period commencing
-------------
with the date of the Company's acceptance and satisfaction of the terms hereof
and ending June 30, 1998 (the "Credit Period"). All Loans shall mature on the
last day of the Credit Period. All Letters of Credit shall expire no later than
90 days after the last day of the Credit Period. All SBLC's shall expire no
later than 180 days after the last day of the Credit Period.
<PAGE>
3. Clean-Up Requirement. Notwithstanding the foregoing, during a single
--------------------
period comprised of any 30 consecutive days during the Credit Period there shall
be no Loans outstanding under the Line.
4. Interest and Fees.
-----------------
(a) Loans shall bear interest at a per annum rate selected by either
Company pursuant to the notice requirements set forth in the attached
promissory note equal to either (i) a fluctuating rate per annum equal to the
Prime Rate, or (ii) a fixed rate equal to 1 1/4% in excess of LIBOR (for
interest periods selected as set forth in the attached promissory note), as
Prime Rate and LIBOR are defined in the attached promissory note. Interest shall
be computed on the basis of a 360-day year for actual days elapsed and shall be
payable as set forth in the attached promissory note. Interest, together with
any other amounts owing by the Company to the Bank, may be charged to any
deposit account maintained by either Company with the Bank.
(b) Letters of Credit shall be issued at the Bank's standard fees and
charges in effect from time to time therefor. No Letter of Credit shall expire
more than 90 days from issuance. All shipping documents for Letters of Credit
must be consigned to the Bank.
(c) The Companies shall pay to the Bank upon the issuance of each
SBLC a fee agreed to between the Company and the Bank prior to issuance of such
SBLC, together with the Bank's other standard fees and charges in effect from
time to time therefor. No SBLC shall expire more than 180 days from issuance.
5. Guarantees. All obligations of the Companies owing to the Bank
-----------
shall be unconditionally guaranteed by the following guarantors (collectively,
the "Guarantors") pursuant to the Bank's standard form of guarantee
(collectively, the "Guarantees"): Body Mechanics, Inc., Rohde Holdings, Inc. and
each other entity that controls, is controlled by, or is under common control
with either or both Companies.
6. Collateral. All obligations of the Companies to the Bank shall be
----------
secured by a first-priority perfected security interest in all present and
future personal property and fixtures of the Company as more fully described
in one or more security agreements executed by the Company in favor of the Bank.
All obligations of either or both Companies to the Bank shall be
cross-collateralized.
<PAGE>
7. Other Conditions; Financial Covenants.
-------------------------------------
In addition to the foregoing, at all times during the Credit Period and
as long as any Credit remains outstanding, each Company, and each Guarantor,
shall:
(a) furnish to the Bank:
(i) within 120 days of the close of each Company's fiscal year,
the consolidated and consolidating balance sheet, statements of income and
retained earnings and cash flows of the Company and its subsidiaries, and, to
the extent not furnished therewith, like consolidated statements of each
corporate Guarantor and their respective subsidiaries, as of the last day of and
for such fiscal year, each such statement to be prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
certified by a firm of independent certified public accountants satisfactory to
the Bank;
(ii) within 45 days of the close of each fiscal quarter of each
Company, the consolidated and consolidating balance sheet, statements of income
and retained earnings and cash flows of the Company and its subsidiaries, and,
to the extent not furnished therewith, like consolidated and consolidating
statements of each corporate Guarantor and their respective subsidiaries, as of
the last day of and for such quarter and for the portion of the fiscal year then
elapsed, each such statement to be certified by the chief financial or
accounting officer of the Company and such Guarantor, as the case may be, in
each case as having been prepared in accordance with GAAP consistently applied;
(iii) quarterly, and not later than the 30th day following the
last day of each fiscal quarter, an aging of the accounts receivable of each
Company as of the last day of the immediately preceeding quarter;
(iv) annually, within 15 days of when filed with the Internal
Revenue Service, a tax return for Rohde Holdings, Inc.;
(v) such other statements and reports as shall be reasonably
requested by the Bank.
(b) during the periods indicated, on a consolidated basis, maintain:
(i) as at the last day of each fiscal year during the Credit
Period, minimum Debt Service Coverage of 2.0 to 1.0 ("Debt Service Coverage"
shall mean, with respect to
<PAGE>
any fiscal year, the ratio of (i) net income plus depreciation and other
non-cash charges plus interest expense for such fiscal year minus distributions
and dividends to stockholders in such fiscal year to (ii) the sum of interest
paid in such fiscal year and the current portion of Long Term Debt at such time
("Long Term Debt" means indebtedness for borrowed money which by its terms
matures more than 12 months after the date incurred of if maturing sooner, the
maturity thereof may be extended at the option of the debtor beyond such 12
month period)).
(ii) as at the last day if each fiscal quarter, a maximum ratio
of total liabilities to Tangible Net Worth of 1.5 to 1.0 ("Tangible Net Worth"
shall mean the sum of capital surplus, earned surplus and capital stock minus
deferred charges, intangibles, loans and receivables due from officers,
affiliates and stockholders and treasury stock).
(c) except for indebtedness owing to the Bank, not incur or permit to
exist any indebtedness for borrowed money;
(d) except for obligations owing to the Bank, not assume, endorse, be or
become liable for or guarantee the obligations of any corporation, partnership,
limited liability company, individual or other entity excluding the endorsement
of negotiable instruments for deposit or collection in the ordinary course of
business;
(e) except for liens in favor of the Bank, not allow the mortgage or
pledge of, or creation of security interest in, any of its assets.
8. Events of Default. Upon the occurrence of any of the following
-----------------
events:
(a) the usual credit factors not remaining favorable with respect to
either Company or any Guarantor in the sole determination of the Bank or one or
more conditions existing or events occurring which have resulted or may result
in a material adverse change in the business, properties or financial condition
of either Company or any Guarantor as determined in the sole discretion of the
Bank;
(b) either Company or any Guarantor failing to perform any condition
or obligation described in this agreement or in any other agreement, document or
instrument executed and delivered pursuant to or in connection with this
agreement within the time periods specified;
(c) either Company or any Guarantor defaulting under any agreement,
document or instrument executed and delivered pursuant to or in connection with
this
<PAGE>
agreement (whether executed prior or subsequent to the date hereof) or in
connection with any obligation then outstanding with the Bank;
(d) either Company or any Guarantor defaulting under any
agreement, document or instrument with any other person or entity; or
(e) any Guarantee ceasing to be in full force and effect;
then, in any such event (each an "Event of Default" and collectively the "Events
of Default"), any or all of the following actions may be taken: The Bank may in
its sole discretion and without presentment, demand, protest or notice to the
Company or any Guarantor, all of which are hereby waived, (i) declare all sums
outstanding under the Credits and all indebtedness, obligations and liabilities
owing in connection therewith due and payable and the same shall forthwith
become due and payable without presentment, demand, protest or notice, (ii)
curtail or eliminate the Line and/or any or all of the Credits, and (iii) take
whatever other action it shall deem appropriate as permitted by applicable law
or by any agreement, document or instrument executed and delivered pursuant to
or in connection with the Credits.
9. Documentation; Conditions Precedent. There shall be no extension of
-----------------------------------
credit hereunder until (i) the Bank shall have received the Company's June 30,
1997 and September 30, 1997 financial statements and the Bank has determined
that such statements are in form and substance satisfactory to the Bank, and
(ii) there shall have been executed documentation acceptable to the Bank,
including without limitation a promissory note, security agreement, financing
statements, Guarantees and Letter of Credit and SBLC applications and
agreements.
10. Joint and Several Obligations. All obligations of the Companies
-----------------------------
under this Line shall be on a joint and several basis.
11. Governing Law. This letter agreement and each extension of credit
-------------
hereunder shall be governed by and construed in accordance with the laws of the
State of New Jersey and the Company hereby submits to the jurisdiction of the
United States federal courts and the courts of the State of New Jersey located
in any county or city as selected by the Bank within the State of New Jersey.
12. Acceptance. If the foregoing is acceptable, please have the enclosed
----------
copy of this letter signed by a duly authorized officer of the Company and by
the Guarantor in the spaces provided below and returned to the Bank on or before
November 30, 1997.
<PAGE>
This letter shall be of no force or effect and shall be unenforceable against
the Bank unless signed and returned to the Bank by such date.
Very truly yours,
FLEET BANK, N.A.
By: /s/ John P. Cole
-------------------------
Name: John P. Cole
Title: Vice President
ACCEPTED AND AGREED
this 24th day of November, 1997
BORROWERS:
- ---------
TRIARCO INDUSTRIES, INC.
By: /s/ Rodger R. Rohde, Sr.
--------------------------------
Name: Rodger R. Rohde, Sr.
Title: President
LEICA SORDIK, INC
By: /s/ Rodger R. Rohde, Sr.
--------------------------------
Name: Rodger R. Rohde, Sr.
Title: President
GUARANTORS:
- ----------
BODY MECHANICS, INC.
By: /s/ Rodger R. Rohde, Sr.
--------------------------------
Name: Rodger R. Rohde, Sr.
Title: President
ROHDE HOLDINGS, INC
By: /s/ Rodger R. Rohde, Sr.
--------------------------------
Name: Rodger R. Rohde, Sr.
Title: President
<PAGE>
[LOGO] Fleet
June 24, 1998
Triarco Industries, Inc.
400 Hamburg Turnpike
Wayne, New Jersey 07470
Re: Fleet Bank, National Association (the "Bank") Facility to
Triarco Industries, Inc. and Leica Sordik, Inc. (individually
referred to as a "Company" and collectively as the "Companies")
---------------------------------------------------------------
Gentlemen:
Reference is made to (i) a Letter Agreement dated as of June 30, 1997 from the
Bank to the Companies (as the same may have been previously amended, the
"Letter Agreement;" capitalized terms defined in the Letter Agreement and not
otherwise defined herein shall have their respective meanings set forth in the
Letter Agreement); (ii) a Promissory Note dated _____________ in the face amount
of $5,000,000 made by the Companies in favor of the Bank (the "Note"), and
(iii) certain other documents executed by the Companies pursuant to or in
connection with the Line, which, among other things, evidence the other
facilities under the Line. All documents, instruments executed pursuant to our
in connection with the Letter Agreement are collectively referred to herein as
the "Loan Documents."
With respect to the Line, each Company and the Bank covenant and agree as
follows:
1. The Letter agreement is amended as follows:
(a) Section 2 is amended by replacing the phrase "commencing with the
date of the Company's acceptance of the terms hereof and ending
June 30, 1998" with the phrase "commencing June 30, 1998 and
ending June 30, 1999."
(b) Section 7(b) is amended to read in its entirety as follows:
(b) during the periods indicated, on a combined and consolidated
basis, maintain:
<PAGE>
(i) as at the last day of each fiscal quarter, a ratio of total
liabilities to Effective Net Worth in a proportion not more than (A) 5.0 to 1.0
from the date hereof through and including December 30, 1998 and (B) 1.5 to 1.0
as at December 31, 1998 and at all times thereafter (total liabilities to be
determined in accordance with GAAP) ("Effective Net Worth" shall mean the sum of
capital surplus, earned surplus, capital stock and Subordinated Debt minus
deferred charges, intangibles, treasury stock and amount due from officers,
directors, and/or shareholders of either Company or an affiliate of any of the
foregoing, all determined in accordance with GAAP and "Subordinated Debt" shall
mean indebtedness of either Company owing to any other person or entity that is
completely subordinated to all of each Company's obligations to the Bank
pursuant to the Bank's standard form of subordination agreement and otherwise on
terms reasonably satisfactory to the Bank).
(ii) as at the last day of each fiscal quarter during the Credit Period,
minimum Debt Service Coverage Ratio of 2.0 to 1.0 ("Debt Service Coverage Ratio"
shall mean with respect to any period, on a rolling four quarter basis, the
ratio of (A) net income after taxes plus depreciation, asset amortization and
other non-cash charges plus interest expense minus dividends and distributions
to shareholders of the each minus capital expenditures which have not been
financed to (B) the current portion of long term debt plus interest expense in
such fiscal year ("long term debt" mean indebtedness for borrowed money which by
its terms matures more than 12 months after the date incurred or if maturing
sooner, the maturity thereof may be extended at the option of the debtor beyond
such 12 month period). For purposes of the determination of this ratio, the 1998
Dividends plus the amount of any payments or distributions to the extent of the
Companies' accumulated adjustments account as of December 31, 1998, shall be
excluded from this calculation.
(iii) as at the dates set forth below, Effective Net Worth of not less
than the amount set forth opposite each date:
Date Net Worth
---- ---------
June 30, 1998 $4,250,000
September 30, 1998 $5,000,000
December 31, 1998 $12,750,000
March 31, 1999 $13,500,000
<PAGE>
As used in this Section, "1998 Dividends" means the aggregate
approximately $15,000,000 dividend payable by the Companies to their
shareholders and any other dividend paid by the Companies in 1998 to
their shareholders in the form of a promissory note made payable by the
applicable Company to its shareholders, but solely to the extent such
promissory note constitutes Subordinated Debt.
2. Enclosed is a renewal promissory note (the "Renewal Note") reflecting
the applicable amendments referred to above. The Renewal Note shall be the Note
for all purposes of the Letter Agreement. The Renewal Note shall not be deemed
to be a new extension of credit, but shall renew and amend and restate in its
entirety the existing Note.
3. All obligations in connection with the Letter Agreement are and shall
continue to be (i) secured by the collateral referenced in the Letter Agreement
and more fully described in one or more security agreements in favor of the Bank
and (ii) guaranteed by the Guarantors referenced in the Letter Agreement
pursuant to Guarantees in favor of the Bank.
4. The Bank reserves the right to require that such other documents as
it deems necessary be executed by each Company embodying or implementing the
terms hereof. Either Company's failure to so execute, acknowledge and return
all such other documents within ten (10) days after receipt by such Company of
the Bank's request shall constitute an additional default under the Letter
Agreement.
5. The amendments set forth herein are limited precisely as written and
shall not be deemed to be a consent to or a waiver of any other term or
condition of the Letter Agreement or any of the other Loan Documents. All Loan
Documents remain in full force and effect and are unchanged except for the
amendments provided above.
6. By their execution of this agreement in the space provided below,
each of the Guarantors hereby consents to the amendments provided herein and
reaffirms their continuing liability under their respective Guarantees, in
respect of the Letter Agreement and other Loan Documents as amended hereby,
without offset, defense or counterclaim (any such offset, defense or
counterclaim as may exist being hereby irrevocably waived by such Guarantors).
7. This agreement shall not be effective until June 30, 1998 and in any
event shall not be binding upon the Bank unless and until it is accepted and
agreed to by each Company and the Guarantors by signing below as indicated and
returning a copy of this letter to the undersigned on or before June 25, 1998.
<PAGE>
Very truly yours,
FLEET BANK, NATIONAL ASSOCIATION
By: /s/ John P. Cole
---------------------
Accepted and Agreed to this
25th day of June, 1998:
- ----
COMPANY:
TRIARCO INDUSTRIES, INC.
By: /s/ Rodger R. Rohde, Sr.
-------------------------
Name:
Title:
LEICA SORDIK, INC.
By: /s/ Rodger R. Rohde, Sr.
-------------------------
Name:
Title:
GUARANTORS:
BODY MECHANICS, INC.
By: /s/ Rodger R. Rohde, Sr.
-------------------------
Name:
Title:
ROHDE HOLDINGS, INC.
By: /s/ Rodger R. Rohde, Sr.
-------------------------
Name:
Title:
<PAGE>
FLEET BANK, N.A.
PROMISSORY NOTE
---------------
$5,000,000.00 As of June 30, 1998
Office Address: 208 Harristown Road
Glen Rock, New Jersey 07452
On June 30, 1999 (the "Maturity Date"), for value received, TRIARCO
INDUSTRIES, INC. and LEICA SORDIK, INC. (collectively the "Borrower"), promises
to pay to the order of FLEET BANK, NATIONAL ASSOCIATION (the "Bank"), on a joint
and several basis, at the office of the Bank located at the place first above
stated or at such other place as the holder hereof may from time to time appoint
in writing, in lawful money of the United States of America in immediately
available funds, the principal sum of Five Million and 00/100 ($5,000,000.00)
Dollars or such lesser amount as may then be the aggregate unpaid principal
balance of all loans made by the Bank to the Borrower hereunder (each a "Loan"
and collectively the "Loans") as shown on the schedule attached to and made a
part of this Note. The Borrower also promises to pay interest (computed on the
basis of a 360 day year for actual days elapsed) at said office in like money on
the unpaid principal amount of each Loan from time to time outstanding at a rate
per annum, to be elected by the Borrower at the time each Loan is made, equal to
either (i) a fluctuating rate equal to the Prime Rate, which rate will change
when and as the Prime Rate changes (a Loan bearing interest at this rate is
sometimes hereinafter called a "Prime Loan"), or (ii) a fixed rate equal to
1 1/4% per annum plus LIBOR for an Interest Period of 1, 2 or 3 months (a Loan
bearing interest at this rate is sometimes hereinafter called a "LIBOR Loan" or
a "Fixed Rate Loan"); provided, however, that no Interest Period with respect to
a Fixed Rate Loan shall extend beyond the Maturity Date; and provided, further,
that if prior to the end of any such Interest Period the Borrower and the Bank
fail to agree upon a new Interest Period therefor so as to maintain such Loan
as either a LIBOR Loan within the pertinent time set forth in Section 1 hereof,
such Fixed Rate Loan shall automatically be converted into a Prime Loan at the
end of such Interest Period and shall be maintained as such until a new Fixed
Rate and a new Interest Period therefor are agreed upon. Interest on each Loan
shall be payable monthly on the first day of each month commencing the first
such day to occur after a Loan is made hereunder and, together with principal,
on the Maturity Date. Interest on Fixed Rate Loans shall also be payable on
<PAGE>
the last day of each Interest Period applicable thereto. The Borrower further
agrees that after any stated or any accelerated maturity of Loans hereunder, all
Loans shall bear interest (computed daily) at, (i) with respect to Fixed Rate
Loans, a rate equal to the greater of 4% per annum in excess of the applicable
fixed rate and 4% per annum in excess of the rate applicable to Prime Loans,
payable on demand, and (ii) with respect to Prime Loans, a rate equal to 4% per
annum in excess of the rate applicable to Prime Loans, payable on demand.
Furthermore, if the entire amount of any principal and/or interest required to
be paid pursuant to this Note is not paid in full within ten (10) days after the
same is due, the Borrower shall further pay to the Bank a late fee equal to five
percent (5%) of the required payment. In no event shall interest payable
hereunder be in excess of the maximum rate of interest permitted under
applicable law.
All payments made in connection with this Note shall be in lawful money
of the United States in immediately available funds. The Borrower hereby
expressly authorizes the Bank to record on the attached schedule the amount and
date of each Loan, the rate of interest thereon, Interest Period thereof and the
date and amount of each payment of principal. All such notations shall be
presumptive as to the correctness thereof; provided, however, the failure of the
Bank to make any such notation shall not limit or otherwise affect the
obligations of the Borrower under this Note.
In consideration of the granting of the Loans evidenced by this Note,
the Borrower hereby agrees as follows:
1. Loan Requests. Requests for LIBOR Loans, and for Interest Periods
-------------
subsequent to the initial Interest Period applicable thereto, shall be made not
less than three Business Days prior to the first day of each Interest Period for
each such Loan. Requests for Prime Loans may be made up until 1 p.m. on the date
the Loan is to be made. Any request for a Loan may be written or oral, but if
oral, written confirmation thereof must be received by the Bank within 3
Business Days thereafter. The Bank shall have no obligation to make any Loan
hereunder.
2. Prepayment. The Borrower may prepay any Prime Loan at any time in
----------
whole or in part without premium or penalty. Each such prepayment shall be made
together with interest accrued thereon to and including the date of prepayment.
Fixed Rate Loans may not be prepaid except as provided under Paragraph 3 of this
Note.
<PAGE>
3. Indemnity: Yield Protection. If, at any time (i) the interest rate on
---------------------------
any Loan is a Fixed Rate, and (ii) the Bank in its sole discretion should
determine that current market conditions can accommodate a prepayment request,
Borrower shall have the right at any time and from time to time to prepay the
Loan in whole (but not in part), and the Borrower shall pay to the Bank a yield
maintenance fee in an amount computed as follows: The current rate for United
States Treasury securities (bills on a discounted basis shall be converted to a
bond equivalent) with a maturity date closest to the maturity date of the term
chosen pursuant to the Fixed Rate Election as to which the prepayment is made,
shall be subtracted from the Cost of Funds component of the fixed rate in effect
at the time of prepayment. If the result is zero or a negative number, there
shall be no yield maintenance fee. If the result is a positive number, then the
resulting percentage shall be multiplied by the amount of the principal balance
being prepaid. The resulting amount shall be divided by 360 and multiplied by
the number of days remaining in the term chosen pursuant to the Fixed Rate
Election as to which the prepayment is made. Said amount shall be reduced to
present value calculated by using the number of days remaining in the designated
term and using the above-referenced United States Treasury security rate and the
number of days remaining in the term chosen pursuant to the Fixed Rate Election
as to which the prepayment is made. The resulting amount shall be the yield
maintenance fee due to the Bank upon prepayment of the Fixed Rate Loan. Each
reference in this paragraph to "Fixed Rate Election" shall mean the election by
the Borrower pursuant to Section 1 of this Promissory Note.
If by reason of an Event of Default the Bank elects to declare the Loans
evidenced by this Promissory Note to be immediately due and payable, then any
yield maintenance fee with respect to such Loans shall become due and payable in
the same manner as though the Borrower had exercised such right of prepayment.
For the purpose of this Section 3 the determination by the Bank of such
losses and reasonable expenses shall be conclusive if made reasonably and in
good faith.
4. Increased Costs. If the Bank determines that the effect of any
---------------
applicable law or government regulation, guideline or order or the
interpretation thereof by any governmental authority charged with the
administration thereof (such as, for example, a change in official reserve
requirements which the Bank is required to maintain in respect of loans or
deposits or other funds procured for funding such
<PAGE>
loans) is to increase the cost to the Bank of making or continuing Fixed Rate
Loans hereunder or to reduce the amount of any payment of principal or interest
receivable by the Bank theron, then the Borrower will pay to the Bank on demand
such additional amounts as the Bank may determine to be required to compensate
the Bank for such additional costs or reduction. Any additional payment under
this section will be computed from the effective date at which such additional
costs have to be borne by the Bank. A certificate as to any additional amounts
payable pursuant to this Section 4 setting forth the basis and a method of
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 any amounts so certified to it by the Bank within
10 days of receipt of any such certificate.
5. Alternate Rate of Interest. In the event, and on each occasion, that
--------------------------
on the day two Business Days prior to the commencement of any Interest Period
for a LIBOR Loan, the Bank shall have determined (a) that dollar deposits in the
amount of the requested principal amount of such LIBOR Loan are not generally
available in the London interbank market, (b) that the rate at which such dollar
deposits are being offered will not adequately and fairly reflect the cost to
the Bank of making or maintaining such LIBOR Loan during such Interest Period,
or (c) that reasonable means do not exist for ascertaining LIBOR, the Bank
shall, soon as practicable thereafter, give written or telex notice of such
determination to the Borrower. In the event of a ny such determination, until
the circumstances giving rise to such notice no longer exist, no LIBOR Loans
will be made hereunder. Each determination by the Bank hereunder shall be
conclusive absent manifest error.
6. Change in Legality.
-------------------
(a) Notwitstanding anything to the contrary herein contained, if
any change in any law or regulation or in the interpretation thereof by any
governmental authority charged with the administration or interpretation thereof
shall make it unlawful for the Bank to make or maintain any LIBOR Loan, then, by
written notice to the Borrower, the Bank may:
(i) declare that LIBOR Loans will not thereafter be made by
the Bank hereunder, whereupon the Borrower shall be prohibited from requesting
LIBOR Loans from the Bank hereunder unless such declaration is subsequently
withdrawn; and
<PAGE>
(ii) require that all outstanding LIBOR Loans made by it
be converted to Prime Loans, in which event (x) all such LIBOR Loans shall be
automatically converted to Prime Loans as of the effective date of such notice
as provided in paragraph (b) below and (y) all payments and prepayments of
principal which would otherwise have been applied to repay the converted LIBOR
Loans shall instead by applied to repay the Prime Plans resulting from the
conversion of such LIBOR Loans.
(b) For purposes of this Section 6, a notice to the Borrower by
the Bank pursuant to paragraph (a) above shall be effective, if lawful, on the
last day of the then current Interest Period; in all other cases, such notice
shall be effective on the day of receipt by the Borrower.
7. Warranties and Representations. The Borrower represents and warrants
------------------------------
that: a) it is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and is qualified to do
business and is in good standing under the laws of every state where its failure
to so qualify would have a material and adverse effect on the business,
operations, property or other condition of the Borrower; b) the execution,
issuance and delivery of this Note by the Borrower are within its corporate
powers and have been duly authorized, and the Note is valid, binding and
enforceable in accordance with its terms, and is not in violation of law or of
the terms of the Borrower's Certificate of Incorporation or By-Laws and does not
result in the breach of or constitute a default under any indenture, agreement
or undertaking to which the Borrower is a party or by which it or its property
may be bound or affected; c) no authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the Borrower
of this Note, except those as have been obtained; d) the financial statements of
the Borrower heretofore furnished to the Bank are complete and correct and
fairly represent the financial condition or the Borrower and its subsidiaries as
at the dates thereof and for the periods covered thereby, which financial
condition has not materially, adversely, changed since the date of the most
recently dated balance sheet heretofore furnished to the Bank; e) no Event of
Default (as hereinafter defined) has occurred and no event has occurred which
with the giving of notice or the lapse of time or both would constitute an Event
of Default; f) the Borrower shall not use any part of the proceeds of any Loan
to purchase or carry any margin stock within the meaning of the Regulation U of
the Board of Governors of the Federal Reserve System or to extend credit to
others for the purpose of purchasing or carrying any margin stock; g) there is
no pending or, to the
<PAGE>
knowledge of the Borrower, threatened action or proceeding affecting the
Borrower before any court, governmental agency or arbitrator which, if
determined adversely to the Borrower would have a materially adverse effect on
the financial condition or operations of the Borrower except as described in the
financial statements of the Borrower heretofore furnished to the Bank; and h) on
the occasion of the granting of each Loan all representations and warranties
contained herein shall be true and correct and with the same force and effect as
though such representations and warranties had been made on and as of the date
of the making of each such Loan.
8. Events of Default. Upon the occurrence of any of the following
-----------------
specified events of default (each an "Event of Default"): a) default in making
any payment of principal, interest, or any other sum payable under this Note
when due; or b) default by the Borrower in the due payment of any other
indebtedness for borrowed money or default in the observance or performance of
any covenant or condition contained in any agreement or instrument evidencing,
securing, or relating to any such indebtedness, which causes or permits to
acceleration of the maturity thereof; or c) any representation or warranty made
by the Borrower herein or in any certificate furnished by the Borrower in
connection with the Loans evidenced hereby or pursuant to the provisions hereof,
proves untrue in any material respect; or d) the Borrower becomes insolvent or
bankrupt, is generally not paying its debts as they become due, or makes an
assignment for the benefit of creditors, or a trustee or receiver is appointed
for the Borrower or for the greater part of the properties of the Borrower with
the consent of the Borrower, or if appointed without the consent of the
Borrower, such trustee or receiver is not discharged within 30 days, or
bankruptcy, reorganization,a liquidation or similar proceedings are instituted
by or against the Borrower under the laws of any jurisdiction, and if instituted
against the Borrower are consented to by it or remain undismissed for 30 days,
or a writ or warrant of attachment or similar process shall be issued against a
substantial part of the property of the Borrower and shall not be released or
bonded within 30 days after levy; or e) the Bank shall have determined, in its
sole discretion, that one or more conditions exist or events have occurred which
have resulted, or may result, in a material adverse change in the business,
properties or financial condition of the Borrower; then, in any such event, and
at any time thereafter, if any Event of Default shall then be continuing, the
Bank may declare the principal and the accrued interest in respect of all Loans
under this Note to be, whereupon the Note shall become, immediately due and
payable
<PAGE>
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived by the Borrower.
9. Collateral Security. As collateral security for the payment of this
Note and of all other notes and/or obligations or Liabilities (as hereinafter
defined) of the Borrower, now of hereafter owned or held by the Bank, the
Borrower grants the Bank a security interest in, pledges and assigns to the Bank
all monies and/or other property now or hereafter held by the Bank (and/or any
entity, controlling, controlled by or under common control with the Bank, each
such entity referred to herein as an "Affiliate") on deposit, in safekeeping, or
otherwise, for the account of or to the credit of or belonging to the Borrower
or in which the Borrower shall have any interest, all of which is hereinafter
termed the collateral security. At any time, without demand or notice, the Bank
may set off all deposits, credits, collateral and property, now or hereafter in
the possession, custody, safekeeping or control of the Bank or any Affiliate, or
in transit to any of them, or any part thereof and apply the same to any of the
Liabilities even though unmatured and regardless of the adequacy of any other
collateral securing the Liabilities. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE LIABILITIES, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO
SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR OR
OTHER PARTY OBLIGATED ON THIS NOTE, ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED. The Bank at any time, before or after an Event or Default
(as hereinafter defined), may but shall not be obligated to, transfer into or
out of its own name or that of its nominee all or any of the collateral
security, including stocks, bonds, and other securities, and the Bank or its
nominee may demand, sue for, collect, receive and hold as like collateral
security any or all interest, dividends and income thereon and if the securities
are held in the name of the Bank or its nominee, the Bank may, after an Event of
Default, exercise all voting and other rights pertaining thereto as if the Bank
were the absolute owner thereof, but the Bank shall not be obligated to demand
payment of, protest, or take any steps necessary to preserve any rights in the
collateral against prior parties, or to take any action whatsoever in regard to
the collateral security or any part thereof, all of which the Borrower assumes
and agrees to do. Without limiting the generality of the foregoing, the Bank
shall not be obligated to take any action in connection with any conversion,
call, redemption, retirement or any other event relating to any of the
collateral security, unless the Borrower gives written notice to the Bank that
such action shall be taken not more than thirty (30) days prior to the time such
action may first be
<PAGE>
taken and not less than ten (10) days prior to the expiration of the time during
which such action may be taken. The term "Liabilities" shall include this Note
and all other indebtedness and obligations and liabilities of any kind of the
Borrower to the Bank, now or hereafter existing, arising directly between the
Borrower and the Bank of acquired by assignment, conditionally or as
collateral security by the Bank, absolute or contingent, joint and/or several,
secure or unsecured, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, direct or indirect,
including, but without limiting the generality of the foregoing, indebtedness,
obligations or liabilities to the Bank of the Borrower as a member of any
partnership, syndicate, association or other group, and whether incurred by the
Borrower as principal, surety, endorser, guarantor accommodation party or
otherwise. This Note and all of the aforementioned obligations and Liabilities
are also secured by (a) any and all property of the Borrower and/or any
guarantor and/or any other party obligated on this Note, now or hereafter
subject to a security agreement, mortgage, pledge agreement, assignment,
hypothecation or other document granting the Bank or an Affiliate a security
interest or other lien or encumbrance and (b) any and all collateral described
in any and all credit accommodations, notes, loan agreements, and any other
agreements and documents, now or hereafter existing, creating, evidencing,
guaranteeing, securing or relating to any or all of the Liabilities, together
with all amendments, modifications, renewals, or extensions thereof.
10. Definitions. As used herein:
-----------
(a) "Business Day" means, in respect of any city, any date on which
commercial banks are open for business in that city.
(b) "Cost of Funds" means the per annum rate of interest which the
Bank is required to pay, or is offering to pay, for wholesale liabilities,
adjusted for reserve requirements and such other requirements as may be imposed
by federal, state or local government and regulatory agencies, as determined by
the Bank.
(c) "Fixed Rate" means LIBOR, plus the applicable margin.
(d) "Interest Period" means that period selected by the Borrower,
within the limitations of the first paragraph of this Note, during which a Fixed
Rate Loan may bear interest at the applicable Fixed Rate.
<PAGE>
(e) "LIBOR" means, as applicable to any LIBOR Loan, the rate per annum
(rounded upward, if necessary, to the nearest 1/32 of one percent) as
determined on the basis of the offered rates for deposits in U.S. dollars, for a
period of time comparable to such LIBOR Loan which appears on the Telerate page
3750 as of 11:00 a.m. London time on the day that is two London Business Days
preceding the first day of such LIBOR Loan; provided, however, if the rate
described above does not appear on the Telerate System on any applicable
interest determination date, the LIBOR rate shall be the rate (rounded upwards
as described above, if necessary) for deposits in dollars for a period
substantially equal to the interest period on the Reuters Page "LIBO" (or such
other page as may replace the LIBO Page on that service for the purpose of
displaying such rates), as of 11:00 a.m. (London Time), on the day that is two
(2) London Business Days prior to the beginning of such interest period.
If both the Telerate and Reuters system are unavailable, then the rate
for that date will be determined on the basis of the offered rates for deposits
in U.S. dollars for a period of time comparable to such LIBOR Advance which are
offered by four major banks in the London interbank market at approximately
11:00 a.m. London time, on the day that is two (2) London Business Days
preceding the first day of such LIBOR Loan as selected by the Calculation Agent.
The principal London office of each of the four major London banks will be
requested to provide a quotation of its U.S. dollar deposit offered rate. If at
least two such quotations are provided, the rate for that date will be the
arithmetic mean of the quotations. If fewer than two quotations are provided as
requested, the rate for that date will be determined on the basis of the rates
quoted for loans in U.S. dollars to leading European banks for a period of time
comparable to such LIBOR Loan offered by major banks in New York City at
approximately 11:00 a.m. New York City time, on the day that its two London
Business Days preceding the first day of such LIBOR Loan. In the event that Bank
is unable to obtain any such quotation as provided above, it will be deemed that
LIBOR pursuant to a LIBOR Loan cannot be determined.
In the event that the Board of Governors of the Federal Reserve System
shall impose a Reserve Percentage with respect to LIBOR deposits of the Bank
then for any period during which such Reserve Percentage shall apply, LIBOR
shall be equal to the amount determined above divided by an amount equal to 1
minus the Reserve Percentage.
(f) "Prime Rate" means the variable per annum rate of interest so
designated from time to time by the Bank as its
<PAGE>
prime rate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate being charged to any customer.
11. Miscellaneous.
-------------
(a) The Borrower agrees to pay on demand all of the Bank's costs
and expenses, including reasonable counsel fees, in connection with collection
of any sums due to the Bank and enforcement of its rights under this Note.
(b) No modification or waiver of any provision of this Note
shall be effective unless such modification or waiver shall be in writing and
signed by a duly authorized officer of the Bank, and the same shall then be
effective only for the period and on the conditions and for the specific
instances specified in such writing. No failure or delay by the Bank in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any rights, power or privilege.
(c) The Borrower hereby waives presentment, demand for payment,
notice of protest, notice of dishonor, and any and all other notices or demands
except as otherwise expressly provided for herein.
(d) This Note shall be construed in accordance with and governed
by the laws of the State of New Jersey and the Borrower consents to the
jurisdiction of the courts of New Jersey in any action brought to enforce any
rights of the Bank under this Note.
(e) The Bank may at any time pledge all or any portion of its
rights under this Note and the loan documents executed in connection therewith
(the "Loan Documents") to any of the twelve (12) Federal Reserve Banks organized
under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such
pledge or enforcement thereof shall release the Bank from its obligations under
any of such loan documents.
(f) All agreements between the Borrower (and each guarantor and
each other party obligated for payment on this Note) and the Bank are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to the Bank for the use or
the forbearance of the indebtedness evidenced hereby exceed the maximum
permissible under
<PAGE>
applicable law. As used herein, the term "applicable law" shall mean the law in
effect as of the date hereof provided, however, that in the event there is a
change in the law which results in a higher permissible rate of interest, then
this Note shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it is the intent of the Borrower and the
Bank in the execution, delivery and acceptance of this Note to contract in
strict compliance with the laws of the State of New Jersey from time to time in
effect. If, under or from any circumstances whatsoever, fulfillment of any
provision hereof or at the time of performance of such provision shall be due,
shall involve transcending the limit of such validity prescribed by applicable
law, then the obligation to be fulfilled shall automatically be reduced to the
limits of such validity, and if under or from circumstances whatsoever the Bank
should ever receive as interest an amount which would exceed the highest
lawful rate, such amount which would be excessive interest shall be applied
to the reduction of the principal balance evidenced hereby and not to the
payment of interest. This provision shall control every other provision of all
agreements between each and every Obligor and the Bank.
(g) THE BORROWER AND THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY, AND THE BORROWER WAIVES THE
RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM, IN ANY LITIGATION IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE
OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH
OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
FOR THE BANK TO ACCEPT THIS NOTE AND EXTEND CREDIT TO THE BORROWER.
(h) Upon receipt of an affidavit of an officer of the Bank as to the
loss, theft, destruction or mutilation of this Note or any other security
document which is not of public record, and, in the case of any such loss,
theft, destruction or mutilation, upon surrender and cancellation of such Note
or other security document, the Borrower will issue, in lieu thereof, a
replacement Note or other security document in the same principal amount thereof
and otherwise of like tenor.
(i) The Bank shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to the Borrower or any other
party obligated on this Note, to grant to one or more banks or other financial
institutions (each, a "Participant") participating interests
<PAGE>
in the Bank's obligation to lend hereunder and/or any or all of the Credits held
by the Bank hereunder. In the event of any such grant by the Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower, the Bank shall remain responsible for the performance of its
obligations hereunder and the Borrower shall continue to deal solely and
directly with the Bank in connection with the Bank's rights and obligations
hereunder. The Bank may furnish any information concerning the Borrower in its
possession from time to time to prospective assignees and Participants, provided
that the Bank shall require any such prospective assignee or Participant to
agree in writing to maintain the confidentiality of such information.
(j) All obligations of each Borrower under this Promissory Note shall be
on a joint and several basis.
(k) This Note shall replace and supersede the Promissory Note made by
Triarco Industries, Inc. to the order of the Bank dated as of June 30, 1997 (the
"Other Note"); provided, however, that the execution and delivery of this Note
shall not in any circumstance be deemed to have terminated, extinguished or
discharged any indebtedness under such Other Note, all of which indebtedness
shall continue under and be governed by this Note (and in connection therewith
Leica Sordik, Inc. shall be obligated with respect to such indebtedness as if it
were originally a signatory to such Other Note) and the documents, instruments
and agreements executed pursuant hereto or in connection herewith. This Note is
a replacement, consolidation, amendment and restatement of the Other Note and IS
NOT A NOVATION.
TRIARCO INDUSTRIES, INC.
By: /s/ Rodger R. Rohde, Sr.
-------------------------------------
Name:
Title:
LEICA SORDIK, INC.
By: /s/ Rodger R. Rohde, Sr.
-------------------------------------
Name:
Title:
<PAGE>
LOAN AND REPAYMENT SCHEDULE
PROMISSORY NOTE DATED AS OF JUNE 30, 1998
TRIARCO INDUSTRIES, INC. and
LEICA SORDIK, INC.
to FLEET BANK, NATIONAL ASSOCIATION
Last Day
of Amount of Unpaid
Amount Rate of Interest Principal Principal Notation
Date of Loan Interest Period Repayment Balance Made By
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Registrant, Triarco Industries, Inc., a Delaware corporation, does
not have any subsidiaries.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 6, 1998 (except Note 10, as to which the date is
July 20, 1998), in the Registration Statement (Form S-1 dated July 22, 1998) and
related Prospectus of Triarco Industries, Inc. for the registration of 3,300,000
shares of its common stock.
Ernst & Young LLP
Hackensack, New Jersey
July 20, 1998
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0
0
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</TABLE>
