SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
September 30, 1997 1-8568
------------------ --------------------
IGI, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 01-0355758
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wheat Road and Lincoln Avenue, Buena, NJ 08310
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(Address of principal executive offices) (Zip Code)
(609) 697-1441
--------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Shares of Common Stock, $.01 par value, outstanding at November 7, 1997
9,466,402
<PAGE>
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share information)
Three months Nine months
ended September 30, ended September 30,
--------------------- -----------------------
1997 1996 1997 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net sales $8,885 $8,291 $27,205 $25,929
Cost of sales 4,129 3,769 12,447 11,694
------ ------ ------- -------
Gross profit 4,756 4,522 14,758 14,235
Selling, general and
administrative expenses 3,366 3,465 10,420 10,457
Research and development expenses 365 515 1,252 1,569
Research revenues -- (124) -- (164)
------ ------ ------- -------
Operating profit 1,025 666 3,086 2,373
Interest expense, net 432 499 1,371 1,494
Other (income) expense -- (10) -- 155
------ ------ ------- -------
Income before provision for income taxes 593 177 1,715 724
Provision for income taxes 213 60 617 246
------ ------ ------- -------
Net income $ 380 $ 117 $ 1,098 $ 478
====== ====== ======= =======
Net income per common and
common equivalent share: $ .04 $ .01 $ .12 $ .05
====== ====== ======= =======
Average number of common and
common equivalent shares 9,479 9,407 9,517 9,613
====== ====== ------- =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
September 30, December 31,
ASSETS 1997 1996
------------- ------------
Current assets:
Cash and equivalents $ 187 $ 317
Accounts receivable, less allowance for
doubtful accounts of $303 and $238
in 1997 and 1996, respectively 7,932 8,709
Receivable due under supply agreement -- 1,000
Inventories 10,958 9,357
Prepaid expenses and other current assets 1,185 1,217
------- -------
Total current assets 20,262 20,600
------- -------
Notes receivable, less current maturities 148 162
------- -------
Property, plant and equipment - at cost:
Land 625 625
Buildings 9,563 9,382
Machinery and equipment 9,494 9,241
------- -------
19,682 19,248
Less accumulated depreciation (9,872) (9,121)
------- -------
9,810 10,127
------- -------
Deferred income taxes 2,562 3,159
Other assets 1,028 746
------- -------
$33,810 $34,794
======= =======
Continued
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(Unaudited)
(Amounts in thousands, except share information)
September 30, December 31,
1997 1996
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 9,610 $ 9,642
Current maturities of long-term debt 3,444 3,443
Accounts payable 3,498 2,665
Accrued payroll 177 470
Other accrued expenses 668 675
Income taxes payable -- 38
------- -------
Total current liabilities 17,397 16,933
------- -------
Long-term debt, less current maturities 4,309 6,893
------- -------
Deferred income from royalty contract 888 1,000
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 30,000,000
shares authorized; 9,597,681 and
9,572,681 shares issued in 1997 and
1996, respectively 96 96
Stock subscribed -- 175
Additional paid-in capital 19,071 19,115
Deficit (5,688) (6,786)
------- -------
13,479 12,600
Less treasury stock; 131,279 and 164,082
shares, at cost, in 1997 and
1996, respectively (2,144) (2,518)
Stockholders' notes receivable (119) (114)
------- -------
Total stockholders' equity 11,216 9,968
------- -------
$33,810 $34,794
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
IGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands)
Nine months ended September 30,
-------------------------------
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,098 $ 478
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 843 669
Provision for loss on accounts
receivable and inventories 113 90
Recognition of deferred income (112) --
Issuance of stock to 401(k) plan 40 28
Stock option compensation expense 70 --
Stock subscribed (50) 175
Change in deferred income taxes 597 --
Changes in operating assets and liabilities:
Accounts receivable 664 165
Receivable due under royalty agreement 1,000 --
Inventories (1,601) (464)
Prepaid and other assets 32 (474)
Accounts payable and accrued expenses 527 (694)
Income taxes payable/refundable (38) 205
------ ------
Net cash provided by operating activities 3,183 178
------ ------
Cash flows from investing activities:
Capital expenditures (434) (808)
Decrease in notes receivable from officer 14 94
Increase in other assets (374) (492)
------ ------
Net cash used by investing activities (794) (1,206)
------ ------
Cash flows from financing activities:
Net (repayments) borrowings under line of credit
agreements (32) 1,346
Payments of long-term debt (2,583) (871)
Proceeds from exercise of common stock options 96 519
------ ------
Net cash (used by) provided by financing activities (2,519) 994
------ ------
Net decrease in cash and equivalents (130) (34)
Cash and equivalents at beginning of year 317 169
------ ------
Cash and equivalents at September 30, 1997 and 1996 $ 18 $ 135
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared by
IGI, Inc. without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission, and reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results for the interim
periods presented. All such adjustments are of a normal recurring nature.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to such rules and regulations, although
the Company believes the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
2. Net Income Per Common Share
Net income per share of common stock is computed by dividing net income by
the weighted average number of shares of common stock and common stock
equivalents, if dilutive, outstanding during the three and nine month periods
ended September 30, 1997 and 1996. Common stock equivalents include shares
issuable upon the exercise of dilutive common stock options. Fully diluted
earnings per share approximate primary earnings per share.
3. Inventories
Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method and consist of the following:
(amounts in thousands)
September 30, 1997 December 31, 1996
------------------ -----------------
Finished Goods $ 3,815 $3,570
Work-in-process 3,686 2,975
Raw Materials 3,457 2,812
------- ------
Total $10,958 $9,357
======= ======
Inventory values computed under the first-in, first-out (FIFO) method
approximate the values determined using LIFO.
6
<PAGE>
IGI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. Business Segments
Summary operating results for the Company's Animal Health and Consumer
Products segments for the three and nine month periods ended September 30, 1997
and 1996 appear below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -------------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
(amounts in thousands)
Net Sales:
Animal Health $ 6,889 $ 7,327 $ 22,763 $ 23,403
Consumer Products 1,996 964 4,442 2,526
------- ------- -------- --------
Total $ 8,885 $ 8,291 $ 27,205 $ 25,929
======= ======= ======== ========
Gross Profit:
Animal Health $ 3,750 $ 3,884 $ 12,441 $ 12,404
Consumer Products 1,006 638 2,317 1,831
------- ------- -------- --------
Total $ 4,756 $ 4,522 $ 14,758 $ 14,235
======= ======= ======== ========
Operating profit (loss):
Animal Health $ 1,390 $ 1,603 $ 5,245 $ 5,643
Consumer Products 699 18 906 (555)
Corporate (1,064) (955) (3,065) (2,715)
------- ------- -------- --------
Total $ 1,025 $ 666 $ 3,086 $ 2,373
======= ======= ======== ========
</TABLE>
7
<PAGE>
Item II - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended September 30, 1997 compared to three months ended September
30, 1996
The Company had net income of $380,000, or $.04 per share, for the quarter
ended September 30, 1997, an increase of $263,000, or 225%, over the third
quarter of 1996. This increase was attributable to both lower expenses, and
improved performance by the Company's Consumer Products business, which had an
operating profit of $699,000 before corporate expenses in 1997 compared with an
operating profit of $18,000 in 1996. The improved profitability of the Consumer
Products segment was primarily the result of increased royalty and licensing
revenues, and a reduction in selling and marketing expenses related to the
former Nova Skin Care product line, which was marketed in 1997 by Glaxo Wellcome
("Glaxo") under a license and supply agreement.
Sales for the third quarter of 1997 increased by $594,000, or 7%, over
sales for the third quarter of 1996, despite a decrease in overall sales of
Animal Health products. Sales for the Consumer Products business increased
$1,032,000, or 107%, over the third quarter of 1996. This increase was primarily
attributable to $817,000 of licensing and royalty income recorded in 1997 and
increased product sales to Glaxo Wellcome. Although sales of the Company's
companion pet products increased by $442,000, or 13%, in 1997, total sales for
the Animal Health Products business decreased by $438,000, or 6%. Sales of
poultry vaccines in 1997 were $880,000 less than 1996 sales as a result of a
stop shipment order issued by the United States Department of Agriculture
("USDA") in early June 1997 for certain poultry vaccines made by the Company's
Vineland Laboratories division. This action had originally affected 36 of the
Company's USDA-licensed vaccines. In August 1997, the USDA notified the Company
that it had accepted the Company's amended regulatory compliance program and
would amend the stop shipment order for these products after review of revised
vaccine production outlines. Although the USDA allowed the Company to ship
specific production serials of the affected vaccines in July, the USDA did not
amend the stop shipment order for any products until September 30, 1997. As of
November 7, 1997, the stop shipment order had been lifted for all requested
poultry vaccines. In addition, the Company has elected to abandon licenses for
certain products such as pigeon pox and others which the Company believes are
not economically viable. The USDA conducted a follow-up inspection in October to
verify implementation of the revisions to the Company's compliance program.
Meanwhile, the Company has provided documents under subpoena by the USDA Office
of the Inspector General concerning ten vaccine production serials that were
represented to have been destroyed but in some cases were not totally destroyed.
Gross profit increased $234,000, or 5%, during the third quarter of 1997
due to the higher sales volume. As a percentage of sales, gross profit was 54%
in 1997 compared with 55% in 1996 due primarily to 1) manufacturing variances;
2) a less favorable product sales mix at the Vineland Laboratories division due
to the USDA action, and 3) product sales to Glaxo Wellcome which are made at
cost. These factors were mostly offset by the royalty and licensing income in
the third quarter of 1997.
8
<PAGE>
Selling, general and administrative expenses declined $99,000, or 3%,
during the third quarter of 1997 from the comparable 1996 period. As a
percentage of sales, these expenses were 38% in 1997 compared with 42% in 1996.
The principal reason for the decrease was the license and supply agreement with
Glaxo, which enabled the Company to reduce its workforce related to the former
Nova Skin Care product line.
Research and development expenses decreased $150,000, or 29%, during the
third quarter of 1997 as the Company curtailed certain development projects. The
Company does not intend to reinstate these research projects without industry
partners to fund such research efforts.
Net interest expense decreased $67,000 during the third quarter of 1997 due
to reduced borrowings.
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996
The Company had net income of $1,098,000 during the first nine months of of
1997, an increase of $620,000, or 130%, over the first nine months of 1996. This
increase was primarily due to the operations of the Company's Consumer Products
business, which had an operating profit of $906,000, before corporate expenses,
in 1997 compared to an operating loss of $555,000 in 1996. The improved
profitability of the Consumer Products business was primarily the result of
increased royalty and licensing revenues, and a reduction in selling and
marketing expenses related to the former Nova Skin Care product line, which was
marketed in 1997 by Glaxo under a license and supply agreement.
Sales for the first nine months of 1997 increased $1,276,000, or 5%, over
the first nine months of 1996 despite a decrease in overall sales of Animal
Health products. Sales of Consumer Products were $4,442,000 for the first nine
months of 1997, an increase of $1,916,000, or 76%, over 1996. This increase was
due primarily to revenues from Glaxo, which is marketing the Company's former
Nova Skin Care product line, increased product sales to Kimberly-Clark and Estee
Lauder, and increased royalty and licensing income. Although sales of the
Company's companion pet products increased by $1,212,000, or 13%, for the first
nine months of 1997, total sales for the Animal Health Products business
decreased by $640,000, or 3%, compared with 1996. Poultry vaccine sales
decreased by $1,852,000 in the first nine months of 1997 due to the previously
discussed USDA regulatory action.
Gross profit increased $523,000, or 4%, during the first nine months of
1997 due principally to the higher sales volume. As a percentage of sales, gross
profit was 54% in 1997 and 55% in 1996. Selling, general and administrative
expenses decreased by $37,000 during the first nine months of 1997. As a
percentage of sales, these expenses were 38% in 1997 compared to 40% in 1996.
During the first nine months of 1996, the Company's administrative expenses were
reduced by a $210,000 charge to a former subsidiary under the terms of a
transitional services agreement which expired on June 30, 1996. During the first
quarter of 1997, the Company reduced its work force related to the former Nova
Skin Care product line.
Research and development expenses decreased $317,000, or 20%, during the
first nine months of 1997. The Company has curtailed certain development
projects and such projects will not be reinstated unless the Company enters into
collaborative agreements with industry partners that will fund such research
efforts.
9
<PAGE>
Net interest expenses decreased by $123,000, or 8%, during the first nine
months of 1997 due to reduced borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $3,183,000 during the
first nine months of 1997. The principal sources of this cash were the receipt
of $1,000,000 from Glaxo Wellcome under a license and supply agreement and net
income of $1,098,000. The Company used $794,000 for investing activities,
principally capital expenditures including funds to upgrade the Vineland
Laboratories poultry vaccine facilities. The Company repaid $2,615,000 of bank
debt with the cash generated by its operations. The accounts receivable turnover
ratio was 4.36 for the first nine months of 1997 compared to 4.09 for the year
ended December 31, 1996. Balances due from customers in Mexico and Latin America
were 21% of total accounts receivable at September 30, 1997 compared to 28% at
December 31, 1996. The inventory turnover ratio for the first nine months of
1997 was 1.63 compared to 1.75 for the year ended December 31, 1996.
The Company's banks have waived a violation of a covenant in the bank
credit agreement as of September 30, 1997. On September 30, 1997, the banks
amended the credit agreement to increase the working capital line of credit to
$12,000,000. At November 7, 1997, the Company had $2,360,000 of available
borrowing capacity under the $12 million working capital line of credit and no
borrowing available under the revolving credit facility. The Company has
quarterly maturities of $857,000 payable under the revolving credit facility.
The Company believes that cash generated from operating activities as well as
available borrowing under its working capital line of credit facility will be
sufficient to meet these obligations. However, over the longer term the Company
will require additional funds for its business. No assurance can be given that
the Company will be successful in obtaining the required funds and, if not, the
Company may be required to cut back on certain of its operations or otherwise
modify its business strategy.
10
<PAGE>
IGI, INC. AND SUBSIDIARIES
Part II OTHER INFORMATION
Item 1 - Legal Proceedings
There were no material developments in the litigation previously described
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996. The Company has received a subpoena from the United States Department of
Agriculture Office of the Inspector General to provide documents concerning
certain vaccine production serials. The discussion in "Management's Discussion
and Analysis of Financial Condition and Result of Operations - Result of
Operations" is incorporated herein by reference.
Item 3 - Defaults Upon Senior Securities
At September 30, 1997, the Company was in violation of a covenant in its
bank credit agreement. The banks have waived such default as of September 30,
1997. The discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" is
incorporated herein by reference.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
The exhibits listed in the Exhibit Index immediately preceding such
exhibits are filed as part of this quarterly report on Form 10-Q.
(b) Reports on Form 8-K
On August 1, 1997 and September 5, 1997, the Company filed reports on
Form 8-K dated July 23, 1997, reporting (under Item 4 - Changes in
Registrant's Certifying Accountant) the resignation of Coopers & Lybrand,
L.L.P. as the Company's auditors effective July 23, 1997.
On September 10, 1997, the Company filed a report on Form 8-K dated
September 8, 1997, reporting (under Item 4 - Changes in the Registrant's
Certifying Accountant) that Price Waterhouse LLP had been engaged as the
Company's independent certified public accountant.
11
<PAGE>
IGI, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IGI, INC.
(Registrant)
Date: November 13, 1997
By: /s/ Lawrence R. Hoffman
--------------------------------------------
Lawrence R. Hoffman
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit 10(a) - Amendment to Employment Agreement by and between the
Company and Edward B. Hager dated October 1, 1997.
Exhibit 10(b) - Amendment to Employment Agreement by and between the
Company and John P. Gallo dated October 1, 1997.
Exhibit 10(c) - Sixth Amendment to Second Amended and Restated Loan
Agreement by and between Fleet Bank-NH, Mellon Bank, N.A. and
IGI, Inc.,together with its subsidiaries dated June 30, 1997.
Exhibit 10(d) - Seventh Amendment to Second Amended and Restated Loan
Agreement by and between Fleet Bank-NH, Mellon Bank, N.A. and
IGI, Inc.,together with its subsidiaries dated July 31, 1997.
Exhibit 10(e) - Eighth Amendment to Second Amendment and Restated Loan
Agreement by and between Fleet Bank-NH, Mellon Bank, N.A. and
IGI, Inc., together with its subsidiaries dated September 30,
1997.
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 27 - Financial Data Schedule
13
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of the 1st day of October 1997, between IGI, Inc.,
a Delaware corporation having its principal place of business at Wheat Road and
Lincoln Avenue, Buena NJ 08310 (the "Company") and Edward B. Hager ("Employee")
residing at Pinnacle Mountain Farms, Lyndeboro, New Hampshire 30382 hereby
amends that certain Employment Agreement dated as of the 1st day of January
1990, which was previously amended on March 11, 1993 and March 14, 1995.
The Company and Employee hereby agree as follows:
1. Article 2, Duties, is hereby amended to provide that subsequent to December
31, 1999, Employee shall be required to devote one week per month rather than
his entire time and energies in performing services on behalf of the Company.
2. Article 4(a), Base Compensation, is hereby amended to provide that the
Company shall pay the Employee the following amounts as compensation for
services rendered during each of the following calendar year periods as
stipulated below:
Year Base Compensation
---- -----------------
1997 $285,000
1998 $250,000
1999 $174,180
2000 $174,180
2001 $174,180
2002 $174,180
2003 $174,180
2004 $174,180
2005 $174,180
3. Article 7(d), Termination of Employment, is hereby amended to provide that
in the event the Employee dies subsequent to December 31, 1999, the Employee's
heirs or assigns shall be entitled to receive the present value of any remaining
unpaid Base Compensation through the year 2005 as listed above. Such payment
shall be made by the Company to the Employee's heirs or assigns within sixty
days of the Employee's death.
4. In all other respects, all of the provisions of the Employment Agreement
dated January 1, 1990 as amended, are hereby ratified and confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed
this Agreement this 1st day of October, 1997.
IGI, Inc.
By: /s/ John P. Gallo
-----------------------------
John P. Gallo
President & Chief Operating
Officer
By: /s/ Edward B. Hager
-----------------------------
Edward B. Hager
Chairman of the Board &
Chief Executive Officer
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of the 1st day of October 1997, between IGI, Inc.,
a Delaware corporation having its principal place of business at Wheat Road and
Lincoln Avenue, Buena NJ 08310 (the "Company") and John P. Gallo ("Employee")
residing at Country Club Lane, Buena, New Jersey 08310 hereby amends that
certain Employment Agreement dated as of the 1st day of January 1990, which was
previously amended on March 11, 1993 and March 14, 1995.
The Company and Employee hereby agree as follows:
1. Article 2, Duties, is hereby amended to provide that subsequent to December
31, 1999, Employee shall be required to devote one week per month rather than
his entire time and energies in performing services on behalf of the Company.
2. Article 4(a), Base Compensation, is hereby amended to provide that the
Company shall pay the Employee the following amounts as compensation for
services rendered during each of the following calendar year periods as
stipulated below:
Year Base Compensation
---- -----------------
1997 $285,000
1998 $250,850
1999 $200,000
2000 $200,000
2001 $200,000
2002 $200,000
2003 $200,000
2004 $200,000
2005 $200,000
3. Article 7(d), Termination of Employment, is hereby amended to provide that
in the event the Employee dies subsequent to December 31, 1999, the Employee's
heirs or assigns shall be entitled to receive the present value of any remaining
unpaid Base Compensation through the year 2005 as listed above. Such payment
shall be made by the Company to the Employee's heirs or assigns within sixty
days of the Employee's death.
4. In all other respects, all of the provisions of the Employment Agreement
dated January 1, 1990 as amended, are hereby ratified and confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed
this Agreement this 1st day of October, 1997.
IGI, Inc.
By: /s/ Edward B. Hager
-----------------------------
Edward B. Hager
Chairman of the Board &
Chief Executive Officer
By: /s/ John P. Gallo
-----------------------------
John P. Gallo
President & Chief Operating
Officer
June 30, 1997
IGI, Inc. and Subsidiaries
Wheat Road and Lincoln Avenue
Buena, New Jersey 08310
Re: Sixth Amendment to Second Amended
and Restated Loan Agreement
---------------------------------
Dear Sirs:
Reference is made to the Second Amended and Restated Loan Agreement, dated
as of December 13, 1995, by and among Fleet Bank-NH, Mellon Bank, N.A., and IGI,
Inc. and certain of its subsidiaries (as heretofore amended, the "Loan
Agreement"). All capitalized terms used herein without definition have the
respective meanings ascribed to them in the Loan Agreement.
This will confirm our mutual agreement to amend the Loan Agreement as
follows:
1. Extension of Line of Credit Commitment. The line of credit termination
date is hereby extended to July 31, 1997, and the reference to "June 30, 1997"
currenctly contained in Section 2.02(a)) of the Loan Agreement is hereby amended
to refer to "July 31, 1997."
2. No Novation; Confirmation and Reaffirmation.
(a) Each of the Borrowers hereby reaffirms all of its representation
and warranties in the Loan Agreement (as amended hereby) and the Security
Documents on and as of the date hereof, as if expressly made on and as of the
date hereof.
(b) Each of the Borrowers hereby confirms the ongoing validity of all
of the Obligations outstanding on the date hereof (including but not limited to
Obligations under the Notes), and further acknowledges, confirms and agrees that
the amendment effected by this agreement does not constitute a novatation of any
of the Obligations outstanding on the date hereof.
(c) Each of the Borrowers hereby reaffirms the validity of all of the
liens and security interests heretofore granted to the Agent as collateral
security for the Obligations, and acknowledges that all of such liens and
security interests, and all collateral heretofore pledged as security for the
Obligations, continue to be and remain collateral for the Obligations from and
after the effectiveness of this agreement.
(d) Each of the Borrowers hereby represents, warrants and confirms
that, as of the date hereof, no Default or Event of Default has occurred and is
continuing.
<PAGE>
3. Ongoing Force and Effect. Except as and to the extent expressly provided
in this agreement, all covenants, terms and conditions of the Loan Agreement
shall remain unchanged and in full force and effect. All references to the Loan
Agreement contained in the Notes and the Security Documents shall hereafter mean
and refer to the Loan Agreement as amended by this agreement.
Kindly confirm the Borrowers' agreement to the foregoing by countersigning
a counterpart Copy of this letter in the spaces provided below.
Very truly yours,
FLEET BANK-NH
By: /s/ Marcia LaTorre
-------------------------------
MELLON BANK, N.A.
By: /s/ John R. Gelsinger, Jr.
-------------------------------
Acknowledged, Confirmed
and Agreed to:
IGI, INC.
By: /s/ John P. Gallo
------------------------------
IGEN, INC.
By: /s/ George P. Warren, Jr.
------------------------------
IMMUNOGENETICS, INC.
By: /s/ John P. Gallo
------------------------------
BLOOD CELLS, INC.
By: /s/ John P. Gallo
------------------------------
July 31, 1997
IGI, Inc. and Subsidiaries
Wheat Road and Lincoln Avenue
Buena, New Jersey 08310
Re: Seventh Amendment to Second Amended and Restated Loan Agreement
---------------------------------------------------------------
Dear Sirs:
Reference is made to the Second Amended and Restated Loan Agreement, dated
as of December 13, 1995, by and among Fleet Bank-NH, Mellon Bank, N.A., and IGI,
Inc. and certain of its subsidiaries (as heretofore amended, the "Loan
Agreement"). All capitalized terms used herein without definition have the
respective meanings ascribed to them in the Loan Agreement.
This will confirm our mutual agreement to amend the Loan Agreement as
follows:
1. Extension of Line of Credit Commitment. The line of credit
termination date is hereby extended to September 30, 1997, and the reference to
"July 31, 1997" currently contained in Section 2.02(a) of the Loan Agreement is
hereby amended to refer to "September 30, 1997."
2. No Novation; Confirmation and Reaffirmation.
(a) Each of the Borrowers hereby reaffirms all of its
representations and warranties in the Loan Agreement (as amended hereby) and the
Security Documents on and as of the date hereof, as if expressly made on and as
of the date hereof.
(b) Each of the Borrowers hereby confirms the ongoing validity of
all of the Obligations outstanding on the date hereof (including but not limited
to Obligations under the Notes), and further acknowledges, confirms and agrees
that the amendment effected by this agreement does not constitute a novation
of any of the Obligations outstanding on the date hereof.
(c) Each of the Borrowers hereby reaffirms the validity of all of
the liens and security interests heretofore granted to the Agent as collateral
security for the Obligations, and acknowledges that all of such liens and
security interests, and all collateral heretofore pledged as security for the
Obligations, continue to be and remain collateral for the Obligations from and
after the effectiveness of this agreement.
(d) Each of the Borrowers hereby represents, warrants and confirms
that, as of the date hereof, no Default or Event of Default has occurred and is
continuing.
<PAGE>
3. Ongoing Force and Effect. Except as and to the extent expressly
provided in this agreement, all covenants, terms and conditions of the Loan
Agreement shall remain unchanged and in full force and effect. All references to
the Loan Agreement contained in the Notes and the Security Documents shall
hereafter mean and refer to the Loan Agreement as amended by this agreement.
Kindly confirm the Borrowers' agreement to the foregoing by countersigning
a counterpart Copy of this letter in the spaces provided below.
Very truly yours,
FLEET BANK-NH
By: /s/ Marcia LaTorre
-------------------------------
MELLON BANK, N.A.
By: /s/ John P. Gallo
-------------------------------
Acknowledged, Confirmed
and Agreed to:
IGI, INC.
By: /s/ Lawrence R. Hoffman
------------------------------
IGEN, INC.
By: /s/ George P. Warren, Jr.
------------------------------
IMMUNOGENETICS, INC.
By: /s/ Kevin J. Batton
------------------------------
BLOOD CELLS, INC.
By: /s/ Kevin J. Batton
------------------------------
2
EIGHTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AGREEMENT
AGREEMENT (this "Agreement"), made as of this 30th day of September,
1997, by and among FLEET BANK-NH, a trust company organized under the laws of
New Hampshire ("Fleet"); MELLON BANK, N.A., a national banking association
("Mellon"); and IGI, INC., a Delaware corporation ("IGI"), IGEN, INC., a
Delaware corporation ("IGEN"), IMMUNOGENETICS, INC., a Delaware corporation
("ImmunoGen"), and BLOOD CELLS, INC., a Delaware corporation ("BCI"). Fleet and
Mellon are hereinafter sometimes individually referred to as a "Lender" and
collectively referred to as the "Lenders", and IGI, IGEN, ImmunoGen and BCI are
hereinafter sometimes individually referred to as a "Borrower" and collectively
referred to as the "Borrowers".
W I T N E S S E T H:
-------------------
WHEREAS, the Lenders and the Borrowers are parties to a Second Amended
and Restated Loan Agreement between them dated as of December 13, 1995 (as
amended to date, the "Loan Agreement"), the terms and conditions of which are
hereby incorporated herein by reference; and
WHEREAS, the Borrowers have requested an increase in amount and
extension of maturity of the Line of Credit Commitment under the Loan Agreement;
and
WHEREAS, the Lenders are willing to grant such increase and extension
on the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. Definitions.
Except as otherwise defined herein, all capitalized terms used in this
Agreement have the respective meanings ascribed to them in the Loan Agreement.
2. Amendment to Line of Credit Commitment.
(a) Sections 2.02(a) and 2.02(b) of the Loan Agreement are hereby
amended so as to read in full as follows:
"Section 2.02. Line of Credit Loans.
(a) Subject at all times to all of the terms and conditions of
this Agreement, the Lenders hereby severally (and not jointly and severally)
agree to extend to the Borrowers
<PAGE>
(jointly and severally) a secured line of credit loan facility, to December 31,
1997 (the "Line of Credit Termination Date"), in an aggregate principal amount
not to exceed, at any time outstanding, Twelve Million ($12,000,000) Dollars
(the "Line of Credit Commitment"). Such line of credit loans are herein
sometimes referred to individually as a "Line of Credit Advance" and
collectively as the "Line of Credit Advances". Subject at all times to all of
the terms and conditions of this Agreement, to the Line of Credit Termination
Date and within the limits of the Line of Credit Commitment, Fleet shall lend
fifty-five (55%) percent and Mellon shall lend forty-five (45%) percent of the
aggregate amount of each Line of Credit Advance and of all Line of Credit
Advances, and the Borrowers (including, without limitation, any one or more of
the now-existing Subsidiaries directly) shall jointly and severally, as to all
Borrowers, borrow, prepay (without penalty, except as otherwise provided in the
Line of Credit Notes) and reborrow under this Section 2.02. Each request for a
Line of Credit Advance by the Lenders shall be made in writing by the Chairman,
the President or the Chief Financial Officer of IGI or other authorized Person
designated by IGI in writing, or by telephonic communication by such officer of
IGI or other designated Person to the Lenders, which shall be confirmed by
written notice to the Lenders to be delivered to the Lenders by the third
Business Day next following the subject request, which notice shall be in
substantially the form of the Borrowing Request Certificate annexed as Exhibit
"J" to the Original Agreement.
(b) The Borrowers shall jointly and severally pay the Lenders
interest on all Line of Credit Advances at the rate(s) per annum as in effect
from time to time in accordance with the Line of Credit Notes. Such interest
shall be payable monthly in arrears, and shall be computed on the daily unpaid
balance of all Line of Credit Advances made under the Borrowers' revolving
credit loan accounts with the Lenders, based on a three hundred sixty (360) day
year, counting the actual number of days elapsed. In addition, the Borrowers
shall jointly and severally pay to the Lenders, quarterly through the Line of
Credit Termination Date, in arrears, a fee (the "Line of Credit Commitment Fee")
computed by multiplying (i) one-ha1f of one (1/2%) percent, times (ii) the
actual number of days in the subject quarterly period, times (iii) the
difference of (x) $12,000,000 minus (y) the average daily principal amount of
all outstanding Line of Credit Advances to the Borrowers during such quarterly
period, and then dividing such product by three hundred sixty (360). The
Borrowers jointly and severally hereby authorize the Lenders to charge the
Borrowers' line of credit loan accounts for all such interest and Line of Credit
Commitment Fees. The Agent will report to IGI monthly as to the status of such
line of credit loan accounts, and each such report shall be fully binding on all
Borrowers, except to the extent that IGI gives the Lenders written notice of
exceptions
2
<PAGE>
within thirty (30) days after its receipt of such report."
(b) Subsections (c), (d), (e) and (f) of Section 2.02 of the
Loan Agreement shall remain unchanged, subject to the replacement of the
existing Line of Credit Notes in accordance with paragraph 3 below.
(c) In order to conform each Lender's adjusted share of the
outstanding Line of Credit Advances in accordance with the amendment set forth
in paragraph 2(a) above, the Agent shall make all necessary reconciliations and
adjustments as promptly as practicable and in any event not later than the next
settlement as between the Lenders, pursuant to Section 9.10 of the Loan
Agreement, in respect of any disbursements or collections in respect of Line of
Credit Advances; and the Lenders shall make any and all required payments
pursuant to such reconciliation in accordance with such Section 9.10 of the Loan
Agreement.
3. Replacement of Existing Line of Credit Notes.
The Line of Credit Notes outstanding immediately prior to the
execution and delivery of this Agreement shall be superseded and replaced by new
Line of Credit Notes in substantially the forms attached hereto as Exhibits A-l
and A-2, respectively, and such replacement Line of Credit Notes shall, from and
after the effectiveness of this Agreement, be deemed to be the Fleet Line of
Credit Note and the Mellon Lane of Credit Note, respectively, for all purposes
of the Loan Agreement, Security Documents and other agreements and instruments
under and pursuant to the Loan Agreement.
4. Representations and Warranties.
The Borrowers hereby confirm that (a) all representations and
warranties made by the Borrowers in the Loan Agreement are true and correct on
and as of the date hereof, and (b) no Default or Event of Default has occurred
and is continuing on the date hereof.
5. Conditions Precedent.
The effectiveness of this Agreement and the amendments to be
effected hereby are expressly subject to (a) the execution and delivery of this
Agreement by the Borrowers and the Lenders, (b) the execution and delivery by
the Borrowers to the respective Lenders of the replacement Notes contemplated by
paragraph 3 above, and (c) the truth and accuracy, at the time of satisfaction
of the conditions set forth in the foregoing paragraphs 5(a) and 5(b), of the
Borrower's representations and warranties contained in paragraph 4 above.
3
<PAGE>
6. No Novation; Confirmation and Reaffirmation.
(a) Each of the Borrowers hereby reaffirms all of its
representations and warranties in the Loan Agreement (as amended hereby) and the
Security Documents on and as of the date hereof, as if expressly made on and as
of the date hereof.
(b) Each of the Borrowers hereby confirms the ongoing validity of
all of the Obligations outstanding on the date hereof (including but not limited
to Obligations under the Notes), and further acknowledges, confirms and agrees
that none of the amendments effected by this Agreement constitutes a novation of
any of the Obligations outstanding on the date hereof or immediately prior to
the effectiveness of this Agreement.
(c) Each of the Borrowers hereby reaffirms the validity of all of
the liens and security interests heretofore granted to the Agent as collateral
security for the Obligations, and acknowledges that all of such liens and
security interests, and all collateral heretofore pledged as security for the
Obligations, continue to be and remain collateral for the Obligations (whether
heretofore created, now existing and/or hereafter arising) from and after the
effectiveness of this Agreement.
7. Ongoing Force and Effect.
Except as and to the extent expressly provided in this Agreement,
all covenants, terms and conditions of the Loan Agreement shall remain unchanged
and in full force and effect. All references to the Loan Agreement contained in
the Notes and the Security Documents shall hereafter mean and refer to the Loan
Agreement as amended by this Agreement, and all references to the Notes
contained in the Loan Agreement and the Security Documents shall hereafter mean
and refer to the Notes as amended and supplemented pursuant to this Agreement.
8. Miscellaneous.
(a) The Borrowers will jointly and severally reimburse the Lenders
and the Agent upon demand for all out-of-pocket costs, charges and expenses of
the Lenders and the Agent (including, without limitation, the reasonable fees
and disbursements of counsel to the Lenders and the Agent) in connection with
the preparation, execution and delivery of this Agreement, the replacement Notes
pursuant to paragraph 3 above, any and all further agreements and instruments in
connection herewith, and any amendments, modifications, consents, waivers or
enforcement action in connection herewith.
4
<PAGE>
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New Hampshire (without giving effect to principles
of conflicts of laws).
(c) Neither this Agreement nor any provision hereof may be waived,
amended or modified except by means of a written agreement signed by the party
to be charged therewith, and then only in the specific instance and for the
specific purpose stated therein.
(d) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns
except that none of the Borrowers shall have any right to assign any of its
rights or obligations hereunder or any interest herein without the prior written
consent of the Lenders.
(e) Each of the Borrowers hereby consents to the jurisdiction of all
courts (state and federal) sitting in the State of New Hampshire, and of all
courts from which an appeal may be taken from any of such courts, for the
purpose of any suit, action or other proceeding arising out of any of its
obligations hereunder or with respect to the transactions contemplated hereby.
Each of the Borrowers hereby expressly waives any and all objections which it
may have as to venue in any of such courts, and also hereby knowingly WAIVES
TRIAL BY JURY in any such suit, action or other proceeding.
(f) The paragraph headings in this Agreement are included for
convenience of reference only, and shall not affect the construction or
interpretation of any of the provisions hereof.
(g) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
(h) The parties acknowledge and agree that each of them and
its counsel have reviewed and negotiated the terms and provisions of this
Agreement, and have contributed to its final form; accordingly, any rules of
construction to the effect of construing ambiguities against the drafting party
shall not be employed in the interpretation of this Agreement, which shall be
construed fairly as to all parties hereto and not in favor of or against any
particular party who might generally have been responsible for the preparation
hereof.
(i) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective
5
<PAGE>
successors and permitted assigns, and no other person or entity shall have any
right to rely on this Agreement or to derive any benefit herefrom absent the
express written consent of the party to be charged with such reliance or
benefit.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first set forth above.
FLEET BANK-NH
By: /s/ Marcia LaTorre
------------------------------
Vice President
MELLON BANK, N.A.
By: /s/ John R. Gelsinger, Jr.
------------------------------
Vice President
IGI, INC.
By: /s/ Kevin J. Bratton
------------------------------
IGEN, INC.
By: /s/ George P. Warren, Jr.
------------------------------
IMMUNOGENETICS, INC.
By: /s/ Kevin J. Bratton
------------------------------
BLOOD CELLS, INC.
By: /s/ Kevin J. Bratton
------------------------------
6
EXHIBIT 11
IGI, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Unaudited)
(thousands, except per share information)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income for primary
earnings per share $ 380 $ 117 $1,098 $ 478
====== ====== ====== ======
Weighed average shares outstanding 9,477 9,354 9,455 9,307
Common stock equivalents (net of
common stock deemed reacquired)
based on average market price 2 53 62 306
------ ------ ------ ------
Total equivalent shares for primary
computation 9,479 9,407 9,517 9,613
====== ====== ====== ======
Per share amounts:
Primary:
Net income $ .04 $ .01 $ .12 $ .05
====== ====== ====== ======
</TABLE>
Fully diluted earnings per share have been omitted as they approximate primary
earnings per share.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Financial Statements included in this Quarterly Report and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 187
<SECURITIES> 0
<RECEIVABLES> 8,235
<ALLOWANCES> 303
<INVENTORY> 10,958
<CURRENT-ASSETS> 20,262
<PP&E> 19,682
<DEPRECIATION> 9,682
<TOTAL-ASSETS> 33,810
<CURRENT-LIABILITIES> 17,397
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,810
<SALES> 27,205
<TOTAL-REVENUES> 27,205
<CGS> 12,447
<TOTAL-COSTS> 11,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,371
<INCOME-PRETAX> 1,715
<INCOME-TAX> 617
<INCOME-CONTINUING> 1,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,098
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
