SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1996
------------------------------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 000-18448
AMERICAN CONSOLIDATED LABORATORIES, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2624130
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
1640 NORTH MARKET DRIVE, RALEIGH, NORTH CAROLINA 27609
(Address of principal executive offices) (Zip code)
(919) 872- 0744
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 the registrants Common Stock, par value
$0.05 per share, at October 28, 1996 was 4,008,744 shares.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(Unaudited)
(Begins on the following page)
2
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER
30, 1996 DECEMBER
(UNAUDITED) 31, 1995
--------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash (overdraft) $ (61,419) $ 37,772
Accounts receivable, less allowance
for doubtful accounts of $216,000
($216,000 at December 1995) 751,232 635,032
Inventories, at lower of cost (first in,
first out) or market (note 2) 776,793 1,094,743
Other current assets 146,138 5,181
------------ ------------
Total current assets 1,612,745 1,772,728
------------ ------------
PROPERTY AND EQUIPMENT AT COST:
Land 50,000 50,000
Building and improvements 205,000 205,000
Laboratory equipment 1,041,869 1,114,567
Office Equipment 260,997 320,607
Leasehold improvements 56,024 60,150
------------ ------------
Total property and equipment 1,613,891 1,750,324
Less accumulated depreciation 1,105,356 1,128,838
------------ ------------
Property plant and equipment, net 508,535 621,486
------------ ------------
OTHER ASSETS:
Costs in excess of fair value of assets
acquired 828,419 828,419
Other intangible assets 865,034 865,034
Deferred loan costs 73,781 73,781
Miscellaneous 91,945 91,945
------------ ------------
1,859,179 1,859,179
Less accumulated amortization 609,079 411,835
------------ ------------
Total other assets, net 1,250,100 1,447,344
------------ ------------
TOTAL ASSETS $ 3,371,381 $ 3,841,558
============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER
30, 1996 DECEMBER
(UNAUDITED) 31, 1995
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,378,069 $ 1,796,484
Accrued expenses 411,715 260,097
Current maturates of long-term debt and
obligation under capital lease 71,250 230,267
Revolving credit line 594,160 -
------------- -------------
Total current liabilities 2,455,194 2,286,848
------------- -------------
LONG - TERM DEBT: 2,046,506 1,426,746
DEFERRED RENT 54,069 58,238
COMMITMENTS AND CONTINGENCIES (Note 1)
STOCKHOLDERS' EQUITY
Common stock, $.05 par value, 20,000,000
shares authorized; 4,305,744 shares issued
and 3,998,744 and 4,436,927 outstanding, respectively 220,081 221,847
Capital in excess of par 5,753,016 5,887,834
Receivable for shares issued as collateral - (225,000)
Treasury Stock (307,000) -
(Deficit) (6,850,486) (5,814,955)
------------- -------------
Total stockholders' equity (deficit) (1,184,389) 69,726
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,371,381 $ 3,841,558
============= =============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ------------------------------
1996 1995 1996 1995
--------------------------------- ------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 2,073,964 $ 2,523,295 $ 6,079,522 $ 7,352,936
COST OF SALES 1,434,722 1,545,335 3,984,660 4,736,773
--------------------------------- ------------------------------
Gross profit 639,243 977,960 2,094,863 2,616,163
--------------------------------- ------------------------------
OPERATING COSTS AND EXPENSES:
Selling expenses 247,255 333,396 717,435 748,819
Marketing expenses 40,109 45,494 81,368 99,003
Research and development 12,201 13,720 37,159 43,423
General and administrative expenses 684,925 831,683 2,072,784 2,135,311
--------------------------------- -------------------------------
Total operating costs and expenses 984,489 1,224,293 2,908,745 3,026,556
--------------------------------- ------------------------------
Operating loss (345,246) (246,333) (813,882) (410,393)
OTHER INCOME (EXPENSES):
Interest expense (125,255) (36,876) (269,038) (109,831)
Other income 11,847 949 37,384 34,603
--------------------------------- ------------------------------
Loss before income taxes (458,655) (282,260) (1,045,537) (485,621)
INCOME TAXES - - - -
--------------------------------- ------------------------------
NET LOSS $ (458,655) $ (282,260) $ (1,045,537) $ (485,621)
================================= ==============================
Deficit at beginning of period (6,401,831) (3,923,870) (5,814,949) (3,720,509)
--------------------------------- -----------------------------------
Deficit at end of period $ (6,860,486) $ (4,206,130) $ (6,860,486) $ (4,206,130)
================================= ===================================
Loss per common share - primary ($0.11) ($0.07) ($0.25) ($0.11)
================================= ===================================
Weighted average shares outstanding - primary (note 3) 4,233,663 4,032,286 4,233,663 4,414,736
================================= ===================================
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996 and 1995
1996 1995
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,045,537) $ (485,621)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 132,440 110,286
Amortization 197,244 231,196
Provision for bad debts - (16,397)
Receipt of shares issued as collateral 225,000 -
Adjustments to opening reained earnings 10,000 -
Adjustments to equity for prior period items (136,579) -
(Increase) in accounts receivable (116,200) (162,533)
Decrease in inventories 317,950 143,522
(Increase) decrease in other current assets (140,957) 27,964
(Decrease) in accounts payable (418,415) 195,484
(Decrease) increase in accrued expenses 151,618 (10,558)
(Decrease) in deferred rent (4,169) (2,048)
------------------ ---------------
Net cash (used in) provided by operating activities (827,606) 31,295
------------------ ---------------
Cash flows from investing activities:
Additions to property and equipment (19,489) (243,234)
Purchase of Philcon Laboratories, Inc. - (246,972)
------------------ ----------------
Net cash used in investing activities (19,489) (490,206)
------------------ ----------------
Cash flows from financing activities:
Proceeds from borrowings 1,607,606 300,000
Principal payments on long - term debt (518,139) (466,706)
Principal payments under capital leases (34,563) -
Issuance of common stock - 402,695
Purchase of treasury stock (307,000) -
----------------- ----------------
Net cash provided by financing activities 747,904 235,989
------------------ ----------------
Net (decrease) in cash and cash equivalents (99,191) (222,922)
Cash beginning of period 37,772 320,948
------------------ ----------------
Cash (overdraft) end of period $ (61,419) $ 98,026
================== ================
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of and for the Nine Months Ended September 30, 1996
1. Significant accounting policies
(a) General
American Consolidated Laboratories, Inc. (the Company) is in
the business of manufacturing and distribution of contact lenses. The
accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification that might be
necessary should the Company be unable to continue as a going concern.
The Company has made significant progress since December 31, 1995.
Management successfully closed on a revolving line of credit with
Fidelity Funding during the second quarter. This line of credit
provided the funds to allow the Company to meet its current
obligations. Management continues to aggressively pursue securing
additional debt or equity financing, as well as acquisition of a
profitable entity. Accomplishment of the actions discussed above would
provide sufficient resources to allow the Company to continue as a
going concern.
(b) Basis of presentation and disclosures included
The consolidated balance sheet as of September 30, 1996 and the related
consolidated statements of operations and deficit and statements of
cash flows for the nine month periods ended September 30, 1996 and 1995
are unaudited; in the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal reoccurring items.
Interim results are not necessarily indicative of results for a full
year.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which was effective for the Company
beginning January 1, 1996. SFAS 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages
(but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose the
required pro forma effect for the year ending December 31, 1996, in its
year end financial statements.
The financial statements and notes are presented as permitted by Form
10-QSB and accordingly do not contain certain information included in
the Company's annual consolidated financial statements and notes as
included in its annual filing on Form 10-KSB. It is recommended that
these interim financial statements be read in conjunction with the
Company's latest annual filing on Form 10-KSB.
7
<PAGE>
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
Sept. 30,
1996 December
(unaudited) 31, 1995
<S> <C> <C>
Raw Materials........................................ $ 176,297 $ 180,913
Work in process...................................... 40,891 29,154
Finished Goods....................................... 559,793 884,676
------- --------
Total inventories $ 776,793 $1,094,743
--------- ----------
</TABLE>
3. Loss per share
The Company calculates primary loss per share including the effect of stock
options and warrants. Fully diluted loss per share is not presented as it is
anti-dilutive.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Three Months Ended September 30, 1996 Compared to Three
Months Ended September 30, 1995
Net sales for the three months ended September 30, 1996, totaled $2,073,964, a
decrease of $449,331 or 17.8% from 1995. The percentage decrease in sales
reflects improvement from the 25.1% decrease in the second quarter. The lower
sales in the third quarter of 1996 compared to 1995 continues to be due to the
problems encountered with the change-over of the computer system in August of
1995, which resulted in erosion of sales through December of 1995. Net sales per
day have been increasing steadily during the 1996 and exceeded an average of
$32,000 per day during the third quarter compared to an average of $20,000 per
day in December 1995.
The company incurred a net loss of $458,655 for the three months ended September
30, 1996, compared to a net loss of $282,260 for the three months ended
September 30, 1995. Gross Profit was $338,717 lower for the three months ended
September 30, 1996, compared to September 30, 1995. Had sales not declined, due
to the problems encountered in 1995, the loss in 1996 would have been less than
the loss in 1995 due to tighter control over expenses.
Sales of all products were lower for the three months ended September 30, 1996,
compared to the three months ended September 30, 1995. This is the result of the
effects of the computer change over problems encountered in August 1995. Sales
of all products, especially soft disposable lenses, have been increasing
steadily in 1996. This is supported by the increase in daily sales mentioned
above. Management believes that the computer problems have been corrected and
the system is functioning properly.
The Gross Profit for the three months ended September 30, 1996, was $639,243, or
30.8% compared to $977,960, or 38.7% for the three months ended September 30,
1995. The Gross Profit for the three months ended September 30, 1995 is not
representative due to timing issues in 1995.
All operating costs and expense's were lower for the three months ended
September 30, 1996, compared to September 30, 1995. Operating costs were lower
by $239,804 for the quarter. Selling expenses were $247,255, a reduction of
$86,141, or 25.8%. Marketing expenses were $40,109, a reduction of $5,385, or
11.8%. Research and development expenses were $12,201, a reduction of $1,519, or
11.1%. General and administrative expenses were $684,925, a reduction of
$146,758, or 17.6%.
Selling expenses are down due to the elimination of the national sales force,
which was established by the previous management in 1995. This industry does not
typically operate with a sales force, and consequently all but one sales
position were eliminated in 1996.
Marketing activities were reinstituted during third quarter as a result of
closing the Fidelity Loan on June 28, 1996. Management intends to continue to
allocate funds to increase marketing efforts in an effort to generate sales
volume. Management is in the process of establishing a two-person telemarketing
group which should be in place by the end of the fourth quarter.
General and administrative expenses for the three months ended September 30,
1996, contained some residual expenses related to the previous management. These
residual expenses, although decreasing, will still have an impact on future
periods.
Interest expense for the three months ended September 30, 1996, totaled $125,255
compared to $36,876 for the same period in 1995. The increase is the result of
the additional funds borrowed to support the 1996 and 1995 losses.
9
<PAGE>
Results of Operations - Nine Months Ended September 30, 1996 Compared to Nine
Months Ended September 30, 1995
Net sales for the nine months ended September 30, 1996 totaled $6,079,522, a
decrease of $1,273,414 or 17.3% from 1995. This decrease is due to the problems
encountered with the change over of the computer system in August of 1995, which
resulted in erosion of sales through December of 1995. Sales have been
increasing steadily on a daily basis in 1996 from the low in December of 1995,
as discussed in the previous section.
The Company incurred a net loss of $1,045,537 for the nine months ended
September 30, 1996 compared to a net loss of $485,621 for the nine months ended
September 30, 1995. Gross Profit was $521,300 lower for the nine months ended
September 30, 1996 compared to September 30, 1995 due to lower sales levels and
lower margins.
Sales of all products were lower for the nine months ended September 30, 1996
compared to September 30, 1995. This is the result of the effects of the
computer change-over problems encountered in August 1995 which affected customer
service levels. Sales of all products, especially soft disposable lenses, have
been increasing steadily in 1996. Management expects sales on a daily basis
continue to increase as discussed in the previous section.
The Gross Profit for the nine months ended September 30, 1996 was $2,094,863, or
34.5%, compared to $2,616,163, or 35.6%, for the nine months ended September 30,
1995. This represents the effect of the continued price pressures on the soft
distributed products from the four major vendors. Management believes the
margins in this segment of the business will continue to decline.
Total operating costs for the nine months ended September 30, 1996 decreased
$121,993 compared to the third quarter of 1995. This is the result of actions
taken by the new management team since May.
Interest expense for the nine months ended September 30, 1996 totaled $269,038
compared to $109,831 for the same period in 1995. The increase is the result of
the additional funds borrowed to support the 1996 and 1995 losses.
FINANCIAL CONDITION
Cash overdraft at September 30, 1996, was ($61,419) due to the timing of cash
receipts, compared to cash at December 31, 1995, of $37,772. Net cash used in
operating activities for the nine months ended September 30, 1996, was $827,606
compared to $31,295 provided by operating activities for the same period in
1995.
The Company had a working capital deficit of $842,449 compared to a working
capital deficit of $514,120 at December 31, 1995.
Management believes the Company's financial condition continues to improve
compared to December 31, 1995. However, management continues to aggressively
pursue obtaining debt or equity financing, as well as acquisitions in order to
improve liquidity and enhance shareholder value. No assurances can be given that
additional financing can be obtained, or that acquisitions will be consummated.
If management is not successful in generating positive cash flow from operations
or raising additional financing the Company may not have adequate cash to meet
its current obligations.
10
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a) Employment Agreement dated April 11, 1996 between the
Registrant and Joseph A. Arena.
10(b) Employment Agreement dated April 11, 1996 between the
Registrant and Kenneth C. Kirkham.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
American Consolidated Laboratories, Inc.
Date : ___________________ By : ______________________________
Joseph A. Arena
Chief Executive Officer
12
<PAGE>
PART II, ITEM 6.
EXHIBIT 10(a)
EMPLOYMENT AGREEMENT
Employment Agreement, dated as of April 11, 1996, between AMERICAN CONSOLIDATED
LABORATORIES, a Florida Corporation (the "Company") and Joseph A. Arena (the
Executive").
1. EMPLOYMENT DUTIES
(a) The Company hereby agrees to employ the Executive as the Chief Executive
Officer of the Company. The Executive shall carry out those duties,
consistent with the usual and customary duties of the position, as set
forth in the By-Laws and as the Board of Directors of the Company may
determine from time to time. The Executive shall employ his full business
time and best efforts to the performance of his duties under this
Agreement.
(b) The Executive agrees to serve as a member of the Board of Directors of the
Company without additional compensation.
(c) The Company hereby permits the Executive to continue to residence outside
of the State of North Carolina until December 31, 1996. Thereafter, if
shall be a condition of continued employment that the Executive shall
relocate to Raleigh-Durham.
2. TERM OF EMPLOYMENT
(a) The Term of the Executive's employment shall commence on April 11, 1996
(the "Initial Employment Date") and will end on the first anniversary of
such date (such term, including any extensions thereof pursuant to this
section 2, being hereafter referred to as the "Term") unless extended or
sooner terminated as herein provided.
(b) Unless earlier terminated pursuant to Section 5 of this Agreement, the term
of this Agreement will be extended automatically in one year increments of
each anniversary of the Initial Employment Date, unless either party to
this agreement gives notice of its intent to terminate this Agreement at
least 90 days prior to the next termination date of this Agreement. The
Executive shall abstain from any vote of the Board of Directors as an
interested party in any determination by the Board of Directors whether to
terminate this Agreement pursuant to this Section 2 or Section 5 of this
Agreement.
3. COMPENSATION
(a) Base Salary. The Executive shall receive a Base Salary of $125,000 per
annum. The Compensation payable to the Executive shall be payable in
accordance with the payroll policies of the Company as from time to time in
effect, and will be subject to customary withholdings for income taxes,
FICA and similar charges.
13
<PAGE>
(b) Bonus. In addition to a base salary, the Executive will be eligible to
receive a bonus of up to 33.33% of his Base Salary determined by the
Compensation Committee of the Board of Directors based on the Executive's
performance and the Company's performance for the preceding calendar year.
(c) Participation in Executive Benefit Plans. The Executive will be eligible to
participate in the Company's group life, hospitalization or disability
insurance plan, health program, pension plan or other similar benefit plan
of the Company on the same terms and conditions as are available to the
other executives of the Company.
(d) Business Expenses. Subject to such policies and procedures as may from time
to time be established by the Board of Directors, the Company will
reimburse the Executive for all reasonable expenses actually incurred or
paid by the Executive in the performance of services under this Agreement,
upon presentation of expense statements or vouchers or such other
supporting information as the Company may reasonably require.
(e) Vacation. The Executive will be entitled to annual paid vacation leave of
three weeks per annum. Unused vacation leave will not accrue.
(f) Relocation expense. The Executive shall be reimbursed up to $10,000 in
relocation expenses, against appropriate documentation.
4. STOCK OPTIONS
(a) Options Grant and Vesting. The Executive will be granted options to
purchase 250,000 shares of Company Common Stock, priced at the average of
the bid and ask price on the NASDAQ system in the ten trading days prior to
the Initial Employment Date. The Company shall, as soon as feasible, issue
the options pursuant to a stock option plan for key executives, officers,
directors and employees of the Company. The options will vest on the
following Anniversary Dates of the Initial Employment Date:
First Anniversary Date 25%
Second Anniversary Date 25%
Third Anniversary Date 25%
Fourth Anniversary Date 25%
(b) Option Term. The options will expire 10 years from the date of grant,
subject to the earlier termination of the Executive for any reason, or upon
the occurrence of a Transaction Event, (which will include a distribution
by Tullis-Dickerson Capital Focus, L.P. of its shares of Common Stock to
its limited partners), with forfeiture of unvested options upon termination
of employment.
14
<PAGE>
(c) Transaction Event. In the event of a Transaction Event, the Executive's
unvested shares shall vest immediately. A "Transaction Event" shall
include:
(i) The sale, exchange or other transfer, directly or indirectly, of
substantially all of the assets of the Company (in one transaction or a
series of related transactions) to a person or entity that is not
controlled by the Company; or,
(ii) a merger or consolidation to which the Company is a party if the
shareholders of the Company immediately prior to the effective
date of such merger or consolidation have "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act), immediately
following the effective date of such merger or consolidation of
securities of the surviving corporation, representing less than
50% of the combined voting power of the surviving corporation's
then outstanding securities ordinarily having the right to vote at
elections of Directors.
(d) Exercise on Termination of Employment. The Executive shall be entitled to
exercise his vested options within 90 days of his death, disability, resignation
or termination of employment. Any unvested options shall expire.
5. TERMINATION
(a) Termination for Cause; Voluntary Resignation by Executive.
"Termination for Cause" will include termination by the Company on any of the
following grounds only:
(i) The Executive's engaging in misconduct materially injurious to
the Company;
(ii) Any uncured breach of this Agreement by the Executive;
(iii) The Executive's conviction of any crime (whether or not
involving the Company) which constitutes a felony in the jurisdiction involved;
(iv) The Executive's failure or refusal to perform his duties as
required by this Agreement.
(b) In the event that the Executive shall be Terminated for Cause or the
Executive resigns or quits:
(i) all compensation hereunder in respect to periods after such
termination, resignation or quitting will terminate upon such termination or
resignation;
(ii) all unvested stock options to the Executive will be forfeited and
the expiration date for all vested stock options granted to the Executive will
be the date 90 days after the date of such termination, resignation, or
quitting;
(iii) The Executive shall cease to be a member of the Board of
Directors.
15
<PAGE>
(c) Termination at the end of the Term or Not for Cause. Upon termination of
the Executive's employment hereunder at the end of the Term, or upon Termination
Not for Cause;
(i) The Executive shall receive an amount equal to the Executive's Base
Salary calculated on the basis of his then prevailing annual salary rate for a
period of six months after such Term or Termination Not for Cause, as the case
may be;
(ii) all unvested stock options granted to the Executive will be
forfeited and the expiration date for all vested stock options granted to the
Executive will be the date 90 days after such Term or Termination Not for Cause.
(iii) The Executive shall cease to be a member of the Board of Directors.
6. COVENANTS AGAINST COMPETITION, NO SOLICITATION
(a) During the term of this Agreement, and for a period of one (1) year
following the termination of the Executive's employment hereunder, and in
consideration of the Company's agreement to pay the Executive the salary, bonus
and benefits described in Section 3 of this Agreement, the Executive agrees that
he will not, directly or indirectly, engage or be interested in any business
that engages anywhere in the continental United States in the business of
producing, manufacturing, marketing or distributing contact lenses or the raw
materials from which contact lenses are made or any other product manufactured
by the Company during the Term, except within the scope of his duties as Chief
Executive Officer of the Company.
The Executive will not directly or indirectly for a period of one (1) year
following the termination of the Executive's employment hereunder actively
solicit for employment or hire any person who is employed by the Company.
7. PROPERTY OF THE COMPANY
All memoranda, notes, lists, records and other documents or papers (and all
copies thereof), including such items stored in computer memories, on microfiche
or by any other means, made or compiled by or on behalf of the Executive or made
available to him relating to the Company are and will be the Company's property
and will be delivered to the Company promptly upon the termination for his
employment with the Company or any other time on request and such information
shall be held confidential by the Executive after the termination of his
employment with the Company.
8. CONFIDENTIALITY
Anything herein to the contrary notwithstanding, Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data of the Company not generally known to the public
16
<PAGE>
obtained by Executive during his employment by the Company, and Executive shall
not during his employment by the Company or at any time during the three-year
period after the termination of such employment, communicate or divulge any such
information, knowledge or data to any person, firm or corporation other than the
Company, or persons, firms or corporations designated by the Company.
9. RIGHTS AND REMEDIES UPON BREACH
The parties hereto agree and stipulate that the restraints imposed by Sections
6, 7 and 8 of this Agreement (the "Protective Provisions" shall be enforceable
through injunction as well as an action for damages, that such restraints upon
the Executive are reasonable with regard to their limitations and necessary for
the protection of the Company and its business, and that such restraints will
not be unduly burdensome to the Executive.
17
<PAGE>
10. SEVERABILITY OF COVENANTS
The parties hereto acknowledge and agree that the Protective Provisions are
reasonable and valid in geographical and temporal scope, and in all other
respects. If any court determines that any of the Protective Provisions, or any
part thereof, are invalid or unenforceable, the remainder of the Protective
Provisions will not thereby be affected and will be given full effect, without
regard to the invalid portions. It is agreed by the Company and the Executive
that if any portion of the covenants set forth in these Sections 6 - 11 are held
to be invalid, arbitrary or against public policy, such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and the Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to these Sections 6 - 11 to be invalid, unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, non-arbitrary and not against public policy may be
enforced against the Executive.
11. ENFORCEABILITY IN JURISDICTIONS
The Company and the Executive intend to and hereby confer jurisdiction
to enforce the Protective Provisions upon the courts of any jurisdiction within
the geographical scope of such covenants. If the courts of any one or more of
such jurisdictions hold the Protective Provisions unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company' s
right to the relief provided in these Sections 6 -11 in the courts of any other
jurisdiction within the geographical scope of such Protective Provisions, as to
breaches of such Protective Provisions in such other respective jurisdictions,
such Protective Provisions as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
18
<PAGE>
12. MANAGEMENT OF THE COMPANY
Nothing in this Agreement shall limit the right of the Board of Directors to
manage the business and affairs of the Company or otherwise establish policy for
the benefit of the Company.
13. NOTICE
Any notice or other communication required or permitted to be given hereunder
shall be in writing and shall be delivered personally or sent by certified,
registered, or express mail, postage prepaid. Any such notice will be deemed
given when so delivered personally, or if mailed, two days after the date of
deposit in the United States mails, as follows:
If to the Company, to:
American Consolidated Laboratories
1640 North Market Street
Raleigh, North Carolina 27609
With a copy to each of:
Thomas P. Dickerson
Tulllis-Dickerson & Co., Inc.
One Greenwich Plaza
Greenwich, CT 06830
Bonnie Pinzel, Esq.
Schifino & Fleischer
One Tampa City Center
201 North Franklin St.
Tampa, FL 33602-5174
Thomas Kruger, Esq.
Battle, Fowler LLP
75 East 55th St.
New York, NY 10022
If to the Executive, to:
Joseph A. Arena
Carolina Contact Lens
1640 North Market Drive
Raleigh, North Carolina 27609
19
<PAGE>
14. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements, written or oral, with respect thereto.
15. WAIVERS AND AMENDMENTS; REMEDIES
This Agreement may be amended, superseded, canceled, renewed, or extended and
the terms of this Agreement may be waived, only by a written instrument signed
by the parties, or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of
any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
16. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
North Carolina (other than any North Carolina law respecting conflict-of-laws
that would make the laws of any other jurisdiction applicable).
17. ASSIGNMENT
This Agreement, and the Executive's rights and obligations hereunder, are
personal in nature and may not be assigned by the Executive. The Company may
assign this Agreement and its rights, together with its obligation, hereunder in
connection with any sale, transfer or other disposition of all or substantially
all of its assets or business, whether by merger, consolidation or otherwise.
18. COUNTERPARTS
This Agreement may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original but all such
counterparts together shall constitute one and the same instrument.
19. HEADINGS
The headings in this Agreement are for reference only, and shall not affect the
interpretation of this Agreement.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the 11th day of April 1996.
AMERICAN CONSOLIDATED LABORATORIES
By /s/ Thomas P. Dickerson
Thomas P. Dickerson
Chairman and Director
/s/ Joseph A. Arena
Joseph A. Arena
21
<PAGE>
PART II, ITEM 6.
EXHIBIT 10(b)
EMPLOYMENT AGREEMENT
Employment Agreement, dated as of April 11, 1996, between AMERICAN CONSOLIDATED
LABORATORIES, a Florida Corporation (the "Company") and Kenneth C. Kirkham (the
"Executive").
1. EMPLOYMENT DUTIES
(a) The Company hereby agrees to employ the Executive as the Chief Financial
Officer of the Company. The Executive shall carry out those duties,
consistent with the usual and customary duties of the position, as set
forth in the By-Laws and as the Board of Directors of the Company may
determine from time to time. The Executive shall employ his full business
time and best efforts to the performance of his duties under this
Agreement.
2. TERM OF EMPLOYMENT
(a) The Term of the Executive's employment shall commence on April 11, 1996
(the "Initial Employment Date") and will end on the first anniversary of
such date (such term, including any extensions thereof pursuant to this
section 2, being hereafter referred to as the "Term") unless extended or
sooner terminated as herein provided.
(b) Unless earlier terminated pursuant to Section 5 of this Agreement, the term
of this Agreement will be extended automatically in one year increments of
each anniversary of the Initial Employment Date, unless either party to
this agreement gives notice of its intent to terminate this Agreement at
least 90 days prior to the next termination date of this Agreement.
3. COMPENSATION
(c) Base Salary. The Executive shall receive a Base Salary of $75,000 per
annum. The Compensation payable to the Executive shall be payable in
accordance with the payroll policies of the Company as from time to time in
effect, and will be subject to customary withholdings for income taxes,
FICA and similar charges.
(b) Bonus. In addition to a base salary, the Executive will be eligible to
receive a bonus of up to 33.33% of his Base Salary determined by the
Compensation Committee of the Board of Directors based on the Executive's
performance and the Company's performance for the preceding calendar year.
Provided, however, that $12,500 of such Bonus in the first year of
employment only shall be paid if the Executive has a substantial
participation in the receipt by the Company of over $1 million in financing
from third parties.
(c) Participation in Executive Benefit Plans. The Executive will be eligible to
participate in the Company's group life, hospitalization or disability
insurance plan, health program, pension plan or other similar benefit plan
of the Company on the same terms and conditions as are available to the
other executives of the Company.
22
<PAGE>
(d) Business Expenses. Subject to such policies and procedures as may from time
to time be established by the Board of Directors, the Company will
reimburse the Executive for all reasonable expenses actually incurred or
paid by the Executive in the performance of services under this Agreement,
upon presentation of expense statements or vouchers or such other
supporting information as the Company may reasonably require.
(e) Vacation. The Executive will be entitled to annual paid vacation leave of
three weeks per annum. Unused vacation leave will not accrue.
(f) Relocation expense. The Executive shall be reimbursed up to $4,000 in
relocation expenses, against appropriate documentation.
4. STOCK OPTIONS
(a) Options Grant and Vesting. The Executive will be granted options to
purchase 200,000 shares of Company Common Stock, priced at the average of
the bid and ask price on the NASDAQ system in the ten trading days prior to
the Initial Employment Date. The Company shall, as soon as feasible, issue
the options pursuant to a stock option plan for key executives, officers,
directors and employees of the Company. The options will vest on the
following Anniversary Dates of the Initial Employment Date:
First Anniversary Date 25%
Second Anniversary Date 25%
Third Anniversary Date 25%
Fourth Anniversary Date 25%
(b) Option Term. The options will expire 10 years from the date of grant,
subject to the earlier termination of the Executive for any reason, or upon
the occurrence of a Transaction Event, (which will include a distribution
by Tullis-Dickerson Capital Focus, L.P. of its shares of Common Stock to
its limited partners), with forfeiture of unvested options upon termination
of employment.
(c) Transaction Event. In the event of a Transaction Event, the Executive's
unvested shares shall vest immediately. A "Transaction Event" shall
include:
(i) The sale, exchange or other transfer, directly or indirectly, of
substantially all of the assets of the Company (in one transaction or a series
of related transactions) to a person or entity that is not controlled by the
Company; or,
(ii) a merger or consolidation to which the Company is a party if the
shareholders of the Company immediately prior to the effective
date of such merger or consolidation have "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act), immediately
following the effective date of such merger or consolidation of
securities of the surviving corporation, representing less than
50% of the combined voting power of the surviving corporation's
then outstanding securities ordinarily having the right to vote at
elections of Directors.
23
<PAGE>
(d) Exercise on Termination of Employment. The Executive shall be entitled to
exercise his vested options within 90 days of his death, disability, resignation
or termination of employment. Any unvested options shall expire.
5. TERMINATION
(a) Termination for Cause; Voluntary Resignation by Executive.
"Termination for Cause" will include termination by the Company on any of the
following grounds only:
(i) The Executive's engaging in misconduct materially injurious to
the Company;
(ii) Any uncured breach of this Agreement by the Executive;
(iii) The Executive's conviction of any crime (whether or not
involving the Company) which constitutes a felony in the jurisdiction involved;
(iv) The Executive's failure or refusal to perform his duties as
required by this Agreement.
(b) In the event that the Executive shall be Terminated for Cause or the
Executive resigns or quits:
(i) all compensation hereunder in respect to periods after such
termination, resignation or quitting will terminate upon such termination or
resignation;
(ii) all unvested stock options to the Executive will be forfeited and
the expiration date for all vested stock options granted to the Executive will
be the date 90 days after the date of such termination, resignation, or
quitting;
(iii) The Executive shall cease to be a member of the Board of
Directors.
(c) Termination at the end of the Term or Not for Cause. Upon termination of
the Executive's employment hereunder at the end of the Term, or upon Termination
Not for Cause;
(i) The Executive shall receive an amount equal to the Executive's Base
Salary calculated on the basis of his then prevailing annual salary rate for a
period of six months after such Term or Termination Not for Cause, as the case
may be;
(ii) all unvested stock options granted to the Executive will be
forfeited and the expiration date for all vested stock options granted to the
Executive will be the date 90 days after such Term or Termination Not for Cause.
(iii) The Executive shall cease to be a member of the Board of
Directors.
24
<PAGE>
6. COVENANTS AGAINST COMPETITION, NO SOLICITATION
(a) During the term of this Agreement, and for a period of one (1) year
following the termination of the Executive's employment hereunder, and in
consideration of the Company's agreement to pay the Executive the salary, bonus
and benefits described in Section 3 of this Agreement, the Executive agrees that
he will not, directly or indirectly, engage or be interested in any business
that engages anywhere in the continental United States in the business of
producing, manufacturing, marketing or distributing contact lenses or the raw
materials from which contact lenses are made or any other product manufactured
by the Company during the Term, except within the scope of his duties as Chief
Financial Officer of the Company.
The Executive will not directly or indirectly for a period of one (1) year
following the termination of the Executive's employment hereunder actively
solicit for employment or hire any person who is employed by the Company.
7. PROPERTY OF THE COMPANY
All memoranda, notes, lists, records and other documents or papers (and all
copies thereof), including such items stored in computer memories, on microfiche
or by any other means, made or compiled by or on behalf of the Executive or made
available to him relating to the Company are and will be the Company's property
and will be delivered to the Company promptly upon the termination for his
employment with the Company or any other time on request and such information
shall be held confidential by the Executive after the termination of his
employment with the Company.
8. CONFIDENTIALITY
Anything herein to the contrary notwithstanding, Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data of the Company not generally known to the public
obtained by Executive during his employment by the Company, and Executive shall
not during his employment by the Company or at any time during the three-year
period after the termination of such employment, communicate or divulge any such
information, knowledge or data to any person, firm or corporation other than the
Company, or persons, firms or corporations designated by the Company.
9. RIGHTS AND REMEDIES UPON BREACH
The parties hereto agree and stipulate that the restraints imposed by Sections
6, 7 and 8 of this Agreement (the "Protective Provisions" shall be enforceable
through injunction as well as an action for damages, that such restraints upon
the Executive are reasonable with regard to their limitations and necessary for
the protection of the Company and its business, and that such restraints will
not be unduly burdensome to the Executive.
25
<PAGE>
10. SEVERABILITY OF COVENANTS
The parties hereto acknowledge and agree that the Protective Provisions are
reasonable and valid in geographical and temporal scope, and in all other
respects. If any court determines that any of the Protective Provisions, or any
part thereof, are invalid or unenforceable, the remainder of the Protective
Provisions will not thereby be affected and will be given full effect, without
regard to the invalid portions. It is agreed by the Company and the Executive
that if any portion of the covenants set forth in these Sections 6 - 11 are held
to be invalid, arbitrary or against public policy, such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and the Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to these Sections 6 - 11 to be invalid, unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, non-arbitrary and not against public policy may be
enforced against the Executive.
11. ENFORCEABILITY IN JURISDICTIONS
The Company and the Executive intend to and hereby confer jurisdiction
to enforce the Protective Provisions upon the courts of any jurisdiction within
the geographical scope of such covenants. If the courts of any one or more of
such jurisdictions hold the Protective Provisions unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company' s
right to the relief provided in these Sections 6 -11 in the courts of any other
jurisdiction within the geographical scope of such Protective Provisions, as to
breaches of such Protective Provisions in such other respective jurisdictions,
such Protective Provisions as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
12. MANAGEMENT OF THE COMPANY
Nothing in this Agreement shall limit the right of the Board of Directors to
manage the business and affairs of the Company or otherwise establish policy for
the benefit of the Company.
13. NOTICE
Any notice or other communication required or permitted to be given hereunder
shall be in writing and shall be delivered personally or sent by certified,
registered, or express mail, postage prepaid. Any such notice will be deemed
given when so delivered personally, or if mailed, two days after the date of
deposit in the United States mails, as follows:
If to the Company, to:
American Consolidated Laboratories
1640 North Market Street
Raleigh, North Carolina 27609
26
<PAGE>
With a copy to each of:
Thomas P. Dickerson
Tulllis-Dickerson & Co., Inc.
One Greenwich Plaza
Greenwich, CT 06830
Bonnie Pinzel, Esq.
Schifino & Fleischer
One Tampa City Center
201 North Franklin St.
Tampa, FL 33602-5174
Thomas Kruger, Esq.
Battle, Fowler LLP
75 East 55th St.
New York, NY 10022
If to the Executive, to:
Kenneth C. Kirkham
Carolina Contact Lens
1640 North Market Drive
Raleigh, North Carolina 27609
14. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements, written or oral, with respect thereto.
15. WAIVERS AND AMENDMENTS; REMEDIES
This Agreement may be amended, superseded, canceled, renewed, or extended and
the terms of this Agreement may be waived, only by a written instrument signed
by the parties, or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of
any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
16. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
North Carolina (other than any North Carolina law respecting conflict-of-laws
that would make the laws of any other jurisdiction applicable).
27
<PAGE>
17. ASSIGNMENT
This Agreement, and the Executive's rights and obligations hereunder, are
personal in nature and may not be assigned by the Executive. The Company may
assign this Agreement and its rights, together with its obligation, hereunder in
connection with any sale, transfer or other disposition of all or substantially
all of its assets or business, whether by merger, consolidation or otherwise.
18. COUNTERPARTS
This Agreement may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original but all such
counterparts together shall constitute one and the same instrument.
19. HEADINGS
The headings in this Agreement are for reference only, and shall not affect the
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the 25th day of April 1996.
AMERICAN CONSOLIDATED LABORATORIES
By /s/ Thomas P. Dickerson
Thomas P. Dickerson
Chairman and Director
/s/ Kenneth C. Kirkham
Kenneth C. Kirkham
28
<PAGE>
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<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 96,405 481,031 (61,419)
<SECURITIES> 0 0 0
<RECEIVABLES> 1,042,141 832,802 967,232
<ALLOWANCES> 216,000 216,000 216,000
<INVENTORY> 1,013,395 707,116 776,793
<CURRENT-ASSETS> 1,963,814 1,973,058 1,612,745
<PP&E> 1,763,724 1,767,388 1,613,891
<DEPRECIATION> 1,174,799 1,217,967 1,105,356
<TOTAL-ASSETS> 3,935,370 3,838,844 3,371,381
<CURRENT-LIABILITIES> 3,179,545 2,399,872 2,455,194
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0 0 0
0 0 0
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<OTHER-SE> (375,000) (375,000) (307,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,935,370 3,838,844 3,371,381
<SALES> 2,026,450 1,979,108 2,073,964
<TOTAL-REVENUES> 2,026,450 1,979,108 2,073,964
<CGS> 1,190,945 1,358,993 1,434,722
<TOTAL-COSTS> 1,025,871 898,385 984,489
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (59,663) (84,120) (125,255)
<INCOME-PRETAX> (235,252) (351,630) (458,655)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (235,252) (351,630) (458,655)
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<NET-INCOME> (235,252) (351,630) (458,655)
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