<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 1998
------------------------------------------------------
or
[ ] 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 0-19487
---------------------------------------------------------
NSA INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1387102
----------------------------- ------------------------------
State or other jurisdiction (I.R.S. Employer
incorporation or organization Identification No.)
4260 East Raines Road, Memphis, Tennessee 38118
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (901) 541-1223
--------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
----------------------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $2,342,312 computed by reference to a price of $1.50 per
share, the last reported sales price of the registrant's Common Stock on July
22, 1998.
<PAGE> 2
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 22, 1998
---------------------------- ----------------------------
Common Stock, $.05 par value 4,695,036
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of the Form
10-K (e.g., Part I, Part II, etc.) into which the document is incorporated:
None.
PART I
Item 1. Business.
General
NSA International, Inc. (the "Company") sells consumer products
domestically and internationally through subsidiaries and third party
distributors ("Master Distributors") primarily utilizing multi-level and/or
direct selling marketing systems. In a limited number of international markets,
the Company does sell its proprietary consumer products to Master Distributors
for traditional retail distribution. The Company's products include nutritional
products, air and water filtration systems, and a sparkling water system, all of
which were designed principally for individual use. The Company's products are
proprietary, and most were developed by or for the Company or an affiliated
entity. In the United States, the Company sells its products to National Safety
Associates, Inc. ("NSA"), an affiliated Tennessee corporation, for resale to
NSA's dealers and distributors. Outside the United States, the Company sells its
products to Master Distributors for retail distribution through local
representative agents, dealers, and distributors in Canada, the United Kingdom,
Ireland, The Netherlands, Belgium, Germany, Switzerland, Austria, Spain,
Denmark, Sweden, the Russian Federation, Australia, New Zealand, Hong Kong,
Taiwan, Philippines, Malaysia, Indonesia, Paraguay, Chile, Peru, and Costa Rica.
The Company continues to maintain its own direct selling operations in
France ("NSA France") and Italy ("NSA Italy") (NSA France and NSA Italy
collectively the "Direct Selling Subsidiaries"). In May 1998, the Company closed
the NSA France offices, although direct selling activities continue in that
country. Currently, the Company serves those dealers and distributors residing
in France through NSA Italy. The Company desires to convert its operations in
Italy into a Master Distributorship, and the Company is actively seeking a
suitable purchaser for the operations.
Operations
Since organization, the Company's philosophy has been to pursue
increased revenues through new product lines and market expansion. In order to
reduce the costs associated with product line expansion, the Company shifted the
manufacturing of all of its products to unaffiliated manufacturing
organizations. The Company adopted a similar approach with regard to market
expansion and support through its Master Distributor Program. The Master
Distributor Program enhances the Company's ability to expand into additional
markets more quickly and efficiently and to transfer from the Company to a third
party distributor the costs and other burdens associated with creating the
corporate infrastructure required to open and support new markets. The Company
intends to continue to enter into distribution agreements with Master
Distributors pursuant to which the Company grants to the Master Distributor the
exclusive right to purchase and resell the Company's products in a defined
geographic area. These distribution agreements generally require that certain
minimum purchase levels be maintained by the Master Distributor in order to
continue their relationship with the Company. The distribution system or method
utilized by the Master Distributors varies from
<PAGE> 3
country to country. Depending on the final terms of the particular distribution
agreement, the Company may provide a Master Distributor with computer support
and management consulting services in addition to selling the Master Distributor
products for resale. Likewise, the distribution agreement may entitle the
Company to receive a separate distributorship fee which is calculated on the
Master Distributor's product sales.
During fiscal 1998, the Company expanded into many new markets. In
July, 1997, and November, 1997, a Master Distributor commenced product sales in
Malaysia and Indonesia, respectively. Likewise, in September, 1997, the Master
Distributor for Paraguay began selling the Company's products in that country.
Also in September, 1997, the Company expanded the territory of the Company's
Master Distributor for Germany, Austria and Switzerland to include Poland.
During October, 1997, the Company entered into a distribution agreement with a
Master Distributor for Denmark (including Greenland and the Faroe Islands),
Sweden, Norway, Finland, and Iceland (the "Scandinavian Distributor"). Pursuant
to the agreement with the Scandinavian Distributor, the Company will provide
computer support and management consulting services in addition to products. In
March, 1998, the Scandinavian Distributor commenced sales of the Company's
products in Denmark and Sweden. In December, 1997, the Company entered into a
limited distribution agreement with a Master Distributor for Costa Rica, Panama,
and Guatemala (the "Central American Distributor"), and the Central American
Distributor immediately began sales of the Company's products in Costa Rica. The
Company subsequently enlarged the Central American Distributor's territory to
include the countries of El Salvador, Honduras and Nicaragua. In December, 1997,
the Company entered into a distribution agreement with a new Master Distributor
for Australia, New Zealand and Fiji (the "Australian Distributor"). The
Australian Distributor commenced operations in Australia and New Zealand in
March, 1998. Finally, the Company concluded a contract with a Master Distributor
for Chile in May, 1998. That Master Distributor began selling Company products
in Chile the same month. The Company is and will be involved in various stages
of negotiations, including the execution of a distribution agreement, with
regard to the appointment of new Master Distributors. However, the Company does
not consider itself to enter a new market until such time as the Master
Distributor commences product sales in that market.
Principal Products
Nutritional Products.
The Company sells a line of nutritional products under its Juice
Plus+(R) trademarks which includes an encapsulated, concentrated nutritional
supplement product, a chewable version of the encapsulated product, a snack and
energy bar called Juice Plus+(R) Snack Bars, a low calorie powdered drink mix
called Juice Plus+(R) Lite, and a dietary food supplement called Juice Plus+(R)
Thins. The principal ingredients of the Juice Plus+(R) product line are
vegetable and fruit juices, fibers, plant enzymes, and food actives which are
reduced to powder through a proprietary process by an unrelated manufacturer. A
second manufacturer encapsulates the powder into Juice Plus+(R) capsules and
prepares the chewable form of the capsules and the Juice Plus+(R) Thins. Another
manufacturer utilizes the powder to produce the Juice Plus+(R) Snack Bars and
Juice Plus+(R) Lite on a purchase order basis for the Company. In addition, the
Company sells nutritional products for pets, Juice Plus +(TM) for Dogs and Juice
Plus +(TM) for Cats. Each of these products is produced by unrelated
manufacturers. In the event that any of the aforementioned manufacturers
terminate their relationship with the Company for any reason, the Company will
be forced to seek out alternative suppliers which the Company believes will be
available.
The Company obtained the rights to manufacture and distribute the Juice
Plus+(R) product line pursuant to a manufacturing and licensing agreement with
an unrelated third party. This agreement provides that the Company will pay a
royalty fee from .5% to 1% of net sales revenues from the Juice Plus+(R)
products, depending upon the volume of such sales. Sales of the Juice Plus+(R)
product line constituted approximately 65% of the Company's revenues for the
fiscal year ended April 30, 1998, compared with 56% of the Company's revenues
for the fiscal year ended April 30, 1997, and 52% of the Company's revenues for
the fiscal year ended April 30, 1996.
2
<PAGE> 4
Air Filtration Systems.
The Company sells five different types of air filtration systems, which
systems are designed to remove a variety of airborne contaminants including
smoke, pollen and dust. The Company sells three basic models which are suitable
for general home or office use: the portable Models 1200 Personal Air Filter,
the 692 AH Personal Air Filter with Heat, and the Model 7100 A/B Stationary Air
Filter. The Company's Auto 600 Environmental Air System is designed for
automobile use. The Model 1200 CS Personal Air Filter is designed for use in any
area where hospital grade appliances are required. Sales of these air filtration
systems constituted approximately 6% of the Company's revenues for the fiscal
year ended April 30, 1998, compared with 11% of the Company's revenues for the
fiscal year ended April 30, 1997 and 13% of the Company's revenues for fiscal
year ended April 30, 1996. The Company's air filtration systems, as well as the
water filtration systems and the Sparkling Water System described below, are
manufactured for the Company by a third party pursuant to a five-year
manufacturing agreement which has approximately four years remaining. In the
event that the aforementioned manufacturer terminates its relationship with the
Company for any reason, the Company will be forced to seek out alternative
suppliers which the Company believes will be available.
Water Filtration Products.
The Company's water filtration product line includes eight water
filtration systems which are designed to remove chlorine from, and improve the
taste, odor and clarity of, drinking water. Although the most recently designed
water unit, the CT-2000, utilizes replaceable cartridges, generally, the units
utilize silver impregnated granular activated carbon to remove chlorine.
Although most of these models are designed for use on treated drinking water,
each model is designed for a specific application or water filtration problem.
The cost of water filtration products sold by the Company which were purchased
from NSA was approximately $288,000 for the fiscal year ended April 30, 1998.
See "Certain Relationships and Related Transactions." Sales of the water
filtration products constituted approximately 14% of the Company's revenues for
the fiscal year ended April 30, 1998, compared to 21% of the Company's revenues
for the fiscal year ended April 30, 1997, and 14% of the Company's revenues for
the fiscal year ended April 30, 1996.
Sparkling Water System.
The Company sells an in-home counter top carbonation appliance (the
"Sparkling Water System") which discharges carbon dioxide contained in a
refillable tank into liquids such as water. Sales of the Sparkling Water System
constituted approximately 5% of the Company's revenues for the fiscal year ended
April 30, 1998, compared to 7% of the Company's revenues for the fiscal year
ended April 30, 1997, and 5% of the Company's revenues for the fiscal year ended
April 30, 1996.
Marketing Plans.
Since the origination of the Master Distributor Program, the Company
has transferred the operations of all of its European direct selling subsidiary
organizations, except the Direct Selling Subsidiaries, to independent Master
Distributors. Likewise, the Company has expanded its product lines into new
markets. Except for the Direct Selling Subsidiaries, resale and retail
distribution of the Company's products will be accomplished by independent
Master Distributors pursuant to contract. The marketing plans utilized by the
various Master Distributors differ slightly by country for each Master
Distributor. Some Master Distributors, for example, utilize a multi-level
marketing system, while other Master Distributors simply sell the Company's
products to retail locations located in the Master Distributors' territory.
Distributors and dealers in a multi-level marketing system are
independent contractors, not employees of the Master Distributors. Distributors
and dealers sell products directly to consumers primarily through individual
in-home demonstrations and trial use. Generally, an individual becomes a dealer
by the execution of an application and the payment of a small processing fee. As
a dealer, the individual is authorized to retail the products purchased from the
Company. An individual becomes a distributor by attaining a set level of sales
activity over a specific time period. Dealers and distributors may purchase
products, at wholesale, directly from the Master Distributors for resale to
other
3
<PAGE> 5
dealers or directly to consumers. Master Distributors and certain of their local
distributors hold training and orientation seminars in their respective
countries. Master Distributors depend on their existing distributors and dealers
to identify, sponsor and train new dealers. Specifically, new dealers are
brought into the multi-level distribution networks by existing distributors and
dealers. In turn, these new dealers are encouraged to identify other new
dealers. The existing distributors benefit from the sponsorship of new dealers
in that the sponsoring distributor receives a percentage commission on the
products purchased for resale by those individuals sponsored directly by the
distributor, as well as commissions on the products purchased by those
distributors or dealers sponsored by such individuals. The commissions vary
depending upon the level of sales activity attained by a distributor and the
individuals such distributor has sponsored. Pursuant to the Company's existing
multi-level marketing plan, the Direct Selling Subsidiaries continue to
distribute the Company's products to consumers through a network of distributors
and dealers in much the same manner as the Master Distributors that utilize the
multi-level marketing system.
Inventory and Backlog.
The Company maintains significant inventory volumes and has no backlog
due to the fact that it attempts to fill dealer, distributor, or Master
Distributor orders within two (2) business days of the date on which the order
was placed. The Company's sales return policy varies as a result of
country-specific governmental regulations. Provision for estimated sales returns
is recorded based on historical return rates and current business conditions.
The Company provides limited warranties for all of its products. Costs related
to warranties have been insignificant.
Management Agreement with NSA.
Pursuant to a written management agreement, NSA provides management,
consulting and advisory services to the Company relating to accounting, data
processing, legal and regulatory compliance, general management, administration
of benefits, contract and lease negotiations, and other such matters for which
the Company requests assistance. In consideration for these services, the
Company paid NSA approximately $119,510 for the fiscal year ended April 30,
1998. In addition, the Company pays to NSA any and all amounts collected by the
Company from the Company's Master Distributors in exchange for data processing
services provided to Master Distributors as such services are in fact provided
by NSA. The total amount paid to NSA for such services during the fiscal year
ended April 30, 1998 was approximately $298,330. See "Certain Relationships and
Related Transactions." The management agreements are renewable annually and may
be terminated by either party by giving written notice of termination to the
other party.
4
<PAGE> 6
Reliance Upon a Few Customers.
Sales to NSA constituted approximately 38% of the Company's revenues
for the fiscal year ended April 30, 1998. See "Certain Relationships and Related
Transactions." Sales to the Company's Master Distributor for Germany,
Switzerland and Austria, and sales to the Company's Master Distributor in Hong
Kong constituted approximately 17% and 10%, respectively, of the Company's
revenues for the fiscal year ended April 30, 1998. The loss of any of these
customers would have a material adverse effect on the Company.
Competition.
The products distributed by the Company are sold in highly competitive
markets. Competitive products are sold by both retail sellers and other
multi-level and direct selling organizations. In addition to competition
relating to the products, the Company and the Master Distributors are subject to
intense competition in the identification, sponsorship, and training of
distributors and dealers from other multi-level direct selling organizations,
whose specific product lines may or may not compete with the products
distributed by the Company.
Patents and Trademarks.
The Company owns five domestic patents which relate to the production
of the Sparkling Water System. The Company owns domestic trademark registrations
for the trademark "Juice Plus+(R)", and has filed several additional domestic
applications for these trademarks for various goods. The Company has also
registered "Juice Plus+(R)" in a number of foreign jurisdictions, and currently
has applications pending in various other foreign jurisdictions. In fiscal 1998,
the Company acquired through assignment the domestic and foreign trademark
applications and registrations for "NSA(R)" owned by NSA in order to improve
efficiency in obtaining foreign trademark registrations.
Regulation.
The Company and the Master Distributors are subject to the laws and
regulations of the countries in which they operate relating to the marketing,
content, labeling and packaging of their products, the operation of their sales
programs, and the sales, advertising, and recruiting practices of their
distributors and dealers. Numerous foreign governmental authorities regulate
selling activities of the Company and Master Distributors in their respective
jurisdictions through complex regulatory schemes which are subject to constant
change. Regulatory agencies previously have requested information regarding the
products distributed by or the respective sales plans of the Company's remaining
direct selling operations (and the Company's other European direct selling
operations prior to their conversion to Master Distributorships). Although
Company management believes that its products, sales materials, and sales plans
are in substantial compliance with applicable laws and regulations, these laws
and regulations are subject to change and interpretation which could adversely
affect the Direct Selling Subsidiaries' operations or the Master Distributors'
operations, which in turn could adversely affect the Company.
Environmental.
From May, 1993, through February, 1995, the Company manufactured a
majority of its own water filtration products. In connection with its past
manufacturing operations, the Company was subject to various federal, state, and
local regulations regarding the discharge of materials into the environment.
Management believes that the Company operated in substantial compliance with
such provisions, and the Company's compliance with these provisions did not have
a material impact upon the capital expenditures, earnings or competitive
position of the Company.
Employees.
At April 30, 1998, the Company had 19 employees. None of the Company's
employees are represented by a labor union or collective bargaining unit. The
Company considers relations with its employees to be satisfactory.
5
<PAGE> 7
Distributors and dealers participating in the marketing plan of the Direct
Selling Subsidiaries are independent contractors of the Direct Selling
Subsidiaries and are not employees of the Direct Selling Subsidiaries or the
Company.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to identify a year in the date field. If not
corrected, upon the change of century this could result in a system failure or
miscalculation causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar, normal business activities.
The Company currently believes that Year 2000 compliance will not pose
significant operational problems, and the Company does not anticipate such
compliance to be material to its financial position or results of operations in
any given year. However, there can be no assurance that the systems of other
companies on which the Company may rely will be timely converted or that the
failure to convert by another company will not have an adverse affect on the
Company.
Financial Information About Foreign and Domestic Operations and Export Sales.
For Geographic Segment Financial Information as to the Company's
operations, see Note 8 in the Notes to Consolidated Financial Statements
included with this report.
Item 2. Properties.
The Company leases approximately 1,500 square feet of office space in
Camberly, England. In addition, several of the Company's subsidiaries are
parties to real property lease agreements. National Safety Associates of America
(U.K.) Limited ("NSA UK") leases approximately 12,800 square feet of office
space in Maidenhead, Berkshire, England pursuant to noncancellable leases. The
NSA UK leases are guaranteed by NSA. See "Certain Relationships and Related
Transactions." NSA UK has licensed the Company's Master Distributor in the
United Kingdom to occupy approximately 4,000 square feet of the leased premises
in Maidenhead, Berkshire, England. NSA UK has subleased the remaining 8,800
square feet of the leased premises in Maidenhead, Berkshire, England to an
independent third party. NSA Italy leases approximately 530 square meters of
office space in Milan, Italy. NSA Polymers, Inc. leases approximately 52,000
square feet of warehouse space in Lake Mary, Florida. In the event any of these
leases are terminated, the Company anticipates that it will be able to locate
and lease other premises, if needed, without a material adverse effect to the
operations of the Company. Neither the Company nor any of its subsidiaries own
any real estate. The Company believes that its properties are suitable and
adequate for the Company's present and future needs.
Item 3. Legal Proceedings.
The Company is party to various claims and matters of litigation that
arise in the normal course of its business. Management of the Company believes
the resolution of these matters will not have a material adverse effect on the
results of operations or the financial condition of the Company.
On April 2, 1998, the United States District Court for the Middle
District of Florida, Orlando Division, dismissed with prejudice an action filed
against NSA Polymers, Inc., a wholly-owned subsidiary of the Company ("NSA
Polymers"), as well as Polymers, Inc., Futuro, Inc., Tubmaster, L.C., Eckerd
Corporation, Berger Brunswig Corp., Kendall Futuro, Inc., McKesson Corporation,
and Mr. Rushton Bailey, individually. The complaint seeking injunctive relief
and damages was filed originally by Safety Technologies, Inc. and Safetex
International, Inc. in April 1997. However, pursuant to a Mediation Settlement
Agreement dated March 13, 1998, the parties to the action agreed to the terms of
a settlement. In the settlement, NSA Polymers agreed to pay $125,000 to
plaintiffs, and each party agreed to be responsible to its own costs and
attorneys' fees. A portion of the settlement amount and all costs and attorneys'
fees incurred by NSA Polymers were paid ultimately by NSA Polymers' insurance
carrier.
6
<PAGE> 8
Item 4. Submission of Matters to Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Price Range of Common Stock and Dividend Policy
The Company's Common Stock previously was quoted and traded on The
Nasdaq Stock Market under the symbol "NSAI." On December 2, 1997, the Company's
Board of Directors resolved to terminate the listing of the Company's Common
Stock on The Nasdaq Stock Market and to approve listing on the NASD OTC Bulletin
Board. Termination of the Company's listing on The Nasdaq Stock Market became
effective on March 16, 1998. As such, an established public trading market
currently does not exist for the Company's Common Stock, but a few brokers make
a market from time to time over-the-counter. The following table sets forth the
high and low bid quotations for the Common Stock as reported on The Nasdaq Stock
Market and the NASD OTC Bulletin Board, as applicable, for the periods
indicated.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
FISCAL 1998
First Quarter.................................................................. 2 1 9/16
Second Quarter................................................................. 2 7/32 1 7/16
Third Quarter.................................................................. 2 1 1/4
Fourth Quarter................................................................. 1 1/2 1
FISCAL 1997
First Quarter.................................................................. 4 1/4 2 1/2
Second Quarter................................................................. 3 3/4 2
Third Quarter.................................................................. 2 1/4 1 1/2
Fourth Quarter................................................................. 2 1/8 5/8
</TABLE>
On July 22, 1998 the last reported bid quotation of the Common Stock on
the NASD OTC Bulletin Board was $1.50 per share. This quotation was taken from
the National Quotation Bureau Report with the quote supplied by the National
Association of Securities Dealers, Inc. through the NASD OTC Bulletin Board. The
quotation represents an interdealer price without retail markup, markdown, or
commission and may not necessarily represent an actual transaction. As of July
22, 1998, the Company had approximately 890 shareholders of record.
The Company's dividend policy will depend on its earnings, financial
condition, and other factors deemed relevant by the Board of Directors. The
Board of Directors has never declared dividends on the Common Stock and does not
anticipate declaring cash dividends on the Common Stock in the foreseeable
future. The Board of Directors presently intends to retain future earnings, if
any, to finance the growth of the Company's business.
7
<PAGE> 9
Item 6. Selected Financial Data.
The selected historical consolidated financial data set forth below for
the fiscal years ended April 30, 1998, 1997, 1996, 1995, and 1994 have been
derived from the consolidated financial statements of the Company for those
years. The selected consolidated financial data should be read in conjunction
with the consolidated financial statements and related notes and other financial
data included elsewhere herein. The selected consolidated financial data also
should be read in conjunction with the discussion set forth above in Part I,
Item 1, under the heading "Operations."
Income Statement Data:
<TABLE>
<CAPTION>
(In thousands, except for per share data) For the Years Ended April
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
(Historical) (Historical) (Historical) (Historical) (Historical)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 23,048 $ 36,107 $ 73,150 $ 108,689 $ 112,531
Costs and expenses 27,470 45,939 83,963 114,191 115,837
------------ ------------ ------------ ------------ ------------
Income (loss) before taxes and
minority interest and cumulative
effect of change in accounting
principle (4,421) (9,832) (10,813) (5,502) (3,306)
Provision (benefit) for income taxes 65) (22) (103) (761) (892)
------------ ------------ ------------ ------------ ------------
Net income (loss) before minority
interest and cumulative effect of
change in accounting principle (4,156) (9,810) (10,709) (4,741) (2,414)
Cumulative effect of change
in accounting principles 264
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (4,156) $ (9,810) $ (10,709) $ (4,741) $ (2,150)
============ ============ ============ ============ ============
Earnings (loss) per common share:
Before cumulative effect of change in
accounting principle $ (.87) $ (2.02) $ (2.20) $ (.98) $ (.49)
Cumulative effect of change in
accounting principle .05
------------ ------------ ------------ ------------ ------------
Net Income (loss) per common share $ (.87) $ (2.02) $ (2.20) $ (.98) $ (.44)
============ ============ ============ ============ ============
Weighted average number of common
shares outstanding 4,763 4,858 4,858 4,858 4,858
Balance Sheet Data (at period end):
(In thousands)
Total assets $ 17,874 $ 22,365 $ 31,274 $ 44,643 $ 55,138
Note payable to bank -0- -0- -0- -0- -0-
Current maturities of long term debt -0- -0- -0- -0- 1,006
Amounts due to NSA, Inc. 9,291 7,793 7,900 9,310 12,512
Long-term debt less current maturities -0- -0- -0- -0- -0-
Total Shareholders' equity (deficit) 3,881 8,307 10,206 20,917 25,660
</TABLE>
8
<PAGE> 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Management's discussion should be read in conjunction with the
Consolidated Financial Statements and the discussion of the Company's business
and other detailed information appearing elsewhere herein. All information is
based on the Company's fiscal years ended April 30.
RESULTS OF OPERATIONS
Net Revenues
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------
1998 Change 1997 Change 1996
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net Revenues $ 23,048 (36.17)% $ 36,107 (50.64)% $ 73,150
Cost and expenses $ 27,469 (40.21)% $ 45,939 (45.29)% $ 83,963
Percentage of net revenues 119.18% 127.23% 114.78%
Net loss $ (4,156) $ (9,810) $ (10,709)
Loss per share $ (.87) $ (2.02) $ (2.20)
</TABLE>
The Company's declining revenues for fiscal 1998 and 1997 were primarily the
result of the restructuring of its operations which began in 1997 and which
included the sale of all of its European direct selling operations, except for
NSA Italy and NSA France. Approximately 75% of the 1998 revenues decline
resulted from the sales of the direct selling operations. The remaining decrease
resulted from a decrease in sales to the Company's Asian Master Distributor as a
result of the Asian economic and currency condition, coupled with prior year's
initial inventory purchases by the European Master Distributors.
The 1997 restructuring resulted in a 1997 decline in revenues attributable to
the sale of the direct selling operations of approximately $40,719,000. This
decline was partially offset by approximately $5,640,000 from increased sales to
Master Distributors.
Cost and Expenses
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------
1998 Change 1997 Change 1996
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Dealer/Distributor commissions $ 2,626 (64.86)% $ 7,473 (73.39)% $28,082
and allowances
Percentage of net revenues 11.39% 20.69% 38.39%
Cost of products sold $17,017 (11.42)% $19,211 (32.32)% $28,385
Percentage of net revenues 73.83% 53.21% 38.80%
</TABLE>
The decreases in the dealer/distributor commissions and allowances, as a
percentage of net revenues, for 1998 and 1997 resulted primarily from the sale
of direct selling operations and resulting restructuring of the Company's sales
method. Due to these changes, dealer/distributor commissions which would
formerly have been paid by the Company on such product sales are now paid
directly by the Master Distributor.
The 1998 and 1997 increases in the cost of products sold as a percentage of net
revenues resulted from the Company's operational changes. The product sales to
Master Distributors have lower margins than sales which were previously made
through the Company's direct selling operations.
9
<PAGE> 11
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------
1998 Change 1997 Change 1996
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Expenses $ 8,571 (48.17)% $16,537 (37.98)% $26,664
Percentage of net revenues 37.19% 45.80% 36.45%
</TABLE>
The 1998 decline in operating expenses primarily resulted from the closure of
the Company's European central office coupled with the 1997 second quarter sales
of the European direct selling operations. This decline was partially offset by
an additional $1,000,000 reserve for notes receivable.
The 1997 decline in the Company's operating expenses is the result of expense
reductions caused from the 1997 second quarter sale of several of its European
direct selling operations and the April 30, 1996 sale of Canadian operations.
This reduction was partially offset by a $2,000,000 reserve allowance for the
Company's notes receivable.
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------
1998 Change 1997 Change 1996
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest income, net $563 (18.99%) $695 (7.95%) $755
</TABLE>
The 1998 decline in interest income resulted from lower interest from the
re-negotiation of a note receivable and lower average balances of cash and cash
equivalents. The decrease in the 1997 net interest income reflects lower average
balances of cash and cash equivalents.
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------
1998 Change 1997 Change 1996
---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Licensing and management fees $120 (76.05)% $501 (68.65)% $1,598
to NSA, Inc.
Percentage of net revenues .52% 1.39% 2.18%
</TABLE>
The decreases in the 1998 and 1997 management fees are due to the sale of
several of the Company's direct selling operations.
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Other income (expense), net $302 $89 $12
Percentage of net revenues 1.31% .25% .02%
</TABLE>
The increase in the 1998 other income primarily resulted from recognition of
deferred gains from the sale of the direct selling operations of $105,000 and
from foreign currency translation gains.
The 1997 increase in other income primarily resulted from gains in foreign
currency translation.
10
<PAGE> 12
Restructuring Costs
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Restructuring costs $ 0 $3,000 . $ 0
Percentage of net revenues N/A 8.31% N/A
</TABLE>
The Company took a 1997 first quarter charge of $3,000,000 for expenses to be
incurred with the restructuring of its direct selling operations and the closing
of its European central office in Amsterdam.
Benefit (Provision) for income taxes
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Benefit (provision) for income taxes $265 $ 22 $103
Effective tax rate 5.99% .22% .95%
</TABLE>
The 1998 tax benefit resulted from the use of operating losses as a carry-back
claim from the Company's foreign operations.
The low effective tax rates for each year reflect the inability to utilize most
of the operating losses of the Company and its subsidiaries.
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Net loss $(4,156) $(9,810) $(10,709)
Loss per share $ (.87) $ (2.02) $ (2.20)
</TABLE>
The Company's net loss for 1998 resulted primarily from the decline in revenues
from its Asian Master Distributor as a result of the economic and currency
conditions during the past three operating quarters; losses in the Company's
French direct selling operations of $721,182 (the Company closed its offices in
France in May, 1998, although direct selling activities in the country are
ongoing); certain relocation expenses of its current European operations; lack
of sales increases of product sold to the European Master Distributors; and an
additional $1,000,000 reserve to the Company's notes receivable.
The 1997 net loss consists of a $3,000,000 ($.62 per share) restructuring
charge, a note receivable allowance totaling $2,000,000 ($.48 per share), and
approximately $2,674,000 ($.55 per share) of operating losses during the 1997
first and second quarters generated by the European direct selling operations
which were sold during the 1997 second quarter.
The 1996 net loss primarily reflects the Company's required direct selling
operating costs and expenses which exceed its gross margin as a result of
decreased revenues.
11
<PAGE> 13
FUTURE OUTLOOK
The Company has expanded its Master Distributor operations in Australia and the
Scandinavian region, among other areas. Likewise, the Company is aggressively
looking for new market expansion and hopes to add several new Master
Distributors and/or expand geographically during fiscal 1999 and 2000.
The Company is actively seeking a qualified Master Distributor to acquire the
Company's Italian direct selling operations, and the Company is aggressively
looking for new products to add to its current product line.
The Company's management believes that the conversion of its sales and
distributorship operations to the Master Distributor Program and new product
introductions will provide the Company with long term favorable effects on its
operating results. Although the ultimate effect of these changes cannot be
determined, there could be continued adverse short-term results in operations
caused by these changes before the Company realizes the long term success the
changes were designed to create.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Fiscal Year Ended April 30
---------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash and cash equivalents $ 2,121 $ 5,772 $ 8,755
Short-term investments 1,509 11 13
Working capital 1,329 4,301 11,323
Cash provided (used) by operating activities (3,750) (10,609) (6,855)
Cash provided (used) by investing activities (1,128) 745 495
Cash provided (used) by financing activities 1,228 6,881 (489)
</TABLE>
On March 19, 1997, the Company's Board of Directors authorized the repurchase up
to $1 million in shares of its common stock from time to time on the open market
or in privately negotiated purchases. During the year ended April 30, 1998, the
Company repurchased approximately 163,120 shares of common stock pursuant to
this repurchase plan.
The Company has sufficient cash on-hand to finance current operations, and does
not anticipate requiring additional funding in excess of the current cash
balances and cash flow generated from operations. If required, management
believes additional funding will be available from financial institutions or NSA
at satisfactory terms.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements of the Company, together with the
Report thereon of Deloitte and Touche LLP, independent auditors, are set forth
on pages F-1 to F-16 of this Annual Report on Form 10-K.
12
<PAGE> 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information regarding the
directors and executive officers of the Company and its subsidiaries. Pursuant
to the Company's Charter and Bylaws, members of the Board of Directors are
elected for staggered two-year terms. Except for those executive officers with
employment agreements, the executive officers of the Company and its
subsidiaries serve at the discretion of the Company's Boards of Directors. See
"Employment Agreements."
<TABLE>
<CAPTION>
Director Term
Name Age Position(s) Since Expires
- ---- --- ----------- -------- -------
<S> <C> <C> <C> <C>
DIRECTORS:
A. Jay Martin(1) 56 Chief Executive Officer 1989 1998
and President and Director
Charles R. Evans, Jr. 54 Chief Operating Officer 1992 1998
and Executive Vice-
President and Director
J. Neil Rood 65 Director 1989 1998
George R. Poteet 50 Director 1989 1999
L.F. Swords 57 Director 1989 1999
William W. Deupree, Jr. 57 Director 1992 1999
William L. Gurner 52 Director 1996 1999
EXECUTIVE OFFICERS:
Officer
Since
-----
Stan C. Turk 46 Chief Financial Officer and 1989
Secretary-Treasurer
</TABLE>
- ------------
(1) Mr. Martin is also a director and executive officer of NSA. Mr. Martin
devotes approximately 60% of his management time to the operations of the
Company.
A. Jay Martin has served as President and Chief Executive Officer and as a
director of the Company since its inception in March 1989. Mr. Martin founded
National Safety Associates, Inc., a Tennessee corporation ("NSA"), in
13
<PAGE> 15
1969 and has served NSA in various capacities since its inception. Presently,
Mr. Martin is a shareholder and serves as President and a director of NSA.
Charles R. Evans, Jr. has served as a director as well as the Executive
Vice-President and the Chief Operating Officer of the Company since August 1992.
Mr. Evans joined NSA Polymers, Inc. in March 1989 and served as Vice President,
Assistant Secretary and a director of NSA Polymers, Inc. until August 1992. From
1984 until March 1989, he was Treasurer of Florida Polymers, Inc., a Florida
corporation, the assets of which were acquired by the Company in March 1989 and
which was primarily engaged in the business of plastics injection molding and
tool and die manufacturing.
J. Neil Rood has been a director of the Company since its inception. In
April 1992, Mr. Rood was elected President of NSA Holdings, Inc. and, in
December 1992, Mr. Rood was elected Vice President-International Operations for
the Company. In December 1993, Mr. Rood completed his tenure as Vice
President-International Operations. Mr. Rood is a shareholder of NSA. In April
1982, Mr. Rood organized and became President of Jonfor Systems, Inc. In June
1975, Mr. Rood organized and became President of Jonfor, Inc. Both entities are
privately-held Florida corporations which act as holding and operating
companies, respectively, for various retail businesses and real estate
properties. Mr. Rood is also active in various real estate ventures as a
developer and an owner.
L.F. Swords has been a director of the Company since its inception. Mr.
Swords has been employed by NSA since 1971 in a variety of management positions.
From 1989 until March 1, 1994, Mr. Swords served as Secretary-Treasurer and
Chief Financial Officer of the Company and all of its subsidiaries. Presently,
Mr. Swords is a shareholder, and serves as Vice President, Chief Financial
Officer, Secretary-Treasurer, and a director of NSA.
George R. Poteet has served as a director of the Company since its
inception. Since 1971, Mr. Poteet has been employed by NSA and he presently is a
shareholder and serves as Vice President-Manufacturing and a director of NSA.
From 1989 until February 1994, Mr. Poteet served as the Vice President -
Manufacturing of the Company.
William W. Deupree, Jr., a director of the Company since October 1992,
retired as President of Morgan Keegan & Company, Inc. and its parent company,
Morgan Keegan, Inc., a New York Stock Exchange listed company, in 1996 after 10
years in such positions. Mr. Deupree joined Morgan Keegan & Company, Inc. in
1972. He is a past member of the Regional Firms Advisory Committee of the New
York Stock Exchange as well as a past member of the Board of Directors for the
Securities Industry Association. Mr. Deupree is a director of Morgan Keegan &
Company, Inc. and Equity Inns, Inc. Mr. Deupree is a graduate of the University
of the South.
William L. Gurner has served as a director of the Company since December
1996. Mr. Gurner founded Sector Capital Management, L.L.C. in January 1995. That
entity offers an equity product to public and corporate pension plans,
Taft-Hartly plans and foundations. Prior to starting Sector Capital Management,
L.L.C., Mr. Gurner was the pension officer for Federal Express from 1987 through
1994.
Stan C. Turk was appointed Chief Financial Officer and Secretary-Treasurer
of the Company on July 1, 1996. Mr. Turk was elected Assistant Treasurer of the
Company in May 1991. Since August 1989, Mr. Turk has been employed as Assistant
Treasurer of NSA. Prior to joining NSA in 1989, Mr. Turk served as the Chief
Financial Officer of Barton Equipment Company and Barton Truck Center in
Memphis, Tennessee, and he spent approximately 9 years employed as a certified
public accountant.
Board of Directors Committees.
The Board of Directors has appointed three committees: the Compensation
Committee, the Audit Committee, and the Options Committee. Messrs. Swords,
Deupree and Gurner serve as the members of the Compensation and Audit
Committees. Messrs. Martin and Poteet serve as the members of the Options
Committee.
14
<PAGE> 16
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Such officers, directors and shareholders are required by SEC
regulations to furnish the Company with copies of all such reports that they
file.
Based solely on a review of copies of reports and questionnaires
furnished to the Company, the Company believes that, during the fiscal year
ended April 30, 1998, all persons subject to the reporting requirements of
Section 16(a) filed the required reports on a timely basis.
Item 11. Executive Compensation.
The following table sets forth the aggregate compensation paid by the
Company and its subsidiaries to the Chief Executive Officer of the Company and
the three most highly compensated executive officers of the Company or its
subsidiaries, for services rendered in all capacities during the fiscal years
ended April 30, 1998, 1997, and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------
Other Annual Securities Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)
- --------------------------- ---- ---------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
A. Jay Martin 1998 159,439 3,028 -0- -0-
Chief Executive Officer 1997 150,000 10,528 -0- -0-
of the Company 1996 150,000 6,058 -0- -0-
Charles R. Evans, Jr. 1998 167,410 78,181 8,400 (1) -0-
Chief Operating Officer 1997 160,226 78,029 8,400 (1) 25,000
of the Company 1996 225,000 7,001 -0- -0-
John Greenham 1998 152,845 25,000 13,540 (1) -0-
Vice President - Europe 1997 120,750 25,000 31,704 (1) 25,000
1996 139,844 26,128 40,757 (1) -0-
Stan C. Turk 1998 126,538 2,404 -0- -0-
Chief Financial Officer 1997 40,865 (2) -0- -0- 25,000
of the Company 1996 -0- -0- -0- -0-
</TABLE>
- -----------------
(1) Represents housing, school fees, expenses and/or car allowance.
(2) Represents salary for the period January 1, 1997 through April 30, 1997.
15
<PAGE> 17
The following table provides information with respect to the value of
the unexercised options held by the executive officers named in the above table
as of April 30, 1998. No such executive officer exercised any options during the
fiscal year ended April 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End(1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles R. Evans, Jr. -0- 25,000 -0- $35,500
John Greenham -0- 25,000 -0- $35,500
Stan C. Turk -0- 25,000 -0- $35,500
</TABLE>
(1) Based upon a bid quotation of $1.42 taken from the National Quotation
Bureau Report and supplied by the National Association of Securities Dealers,
Inc. through the NASD OTC Bulletin Board.
The non-employee directors of the Company currently receive $1,000 for
each Board of Directors meeting and $1,000 for each committee meeting. The
directors of the Company's subsidiaries do not receive any compensation for
serving in such capacities.
Employment Agreements.
The Company has an employment agreement with Mr. A. Jay Martin. The
employment agreement is renewable annually and provides for an annual salary of
$150,000. The Company also has an employment agreement with Mr. Charles R.
Evans, Jr. which provides for annual compensation equal to $225,000.
Compensation Committee Interlocks and Insider Participation.
The members of the Compensation Committee of the Company's Board of
Directors are Messrs. L. F. Swords, William Deupree and William Gurner. From
1989 until March 1, 1994, Mr. Swords served as Secretary-Treasurer and Chief
Financial Officer of the Company and all of its subsidiaries. Mr. Swords has not
served as an officer of the Company since March 1, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the number of shares beneficially owned
as of July 17, 1998, by (a) each person known by the Company to beneficially own
more than 5% of the outstanding shares of Common Stock, (b) each director or
executive officer of the Company, and (c) all directors and executive officers
of the Company as a group.
16
<PAGE> 18
<TABLE>
<CAPTION>
Amount and Name
Name and Address of of Beneficial Percent
Beneficial Owner Ownership(1) of Class(2)
---------------- ----------- ----------
<S> <C> <C>
(a) National Safety Associates, Inc. 2,336,180(3) 49.8
4260 East Raines Road
Memphis, Tennessee 38118
A. Jay Martin 2,755,135(4) 58.7
4260 East Raines Road
Memphis, Tennessee 38118
L.F. Swords 2,474,266(5) 52.7
4260 East Raines Road
Memphis, Tennessee 38118
(b) A. Jay Martin 2,755,135(4) 58.7
L.F. Swords 2,474,266(5) 52.7
George R. Poteet 164,041 3.5
4180 Pilot
Memphis, TN 38118
J. Neil Rood 40,733 *
12192 Mandarin Road
Jacksonville, FL 32223
William W. Deupree, Jr. 15,000 *
50 North Front Street, 21st Floor
Memphis, TN 38103
Charles R. Evans, Jr. 8,800 *
4260 East Raines Road
Memphis, TN 38118
William L. Gurner - 0 - *
40 South Main Street
Memphis, TN 38103
John Greenham 7,000 *
80 Park Street
Camberly
GU15 3 PT
Surrey, England
Stan C. Turk 4,700 *
4260 East Raines Road
Memphis, TN 38118
(c) Officers and directors 3,133,495(4) 66.7
as a group (9 persons)
</TABLE>
- -------------------------
(1) Includes shares of Common Stock as to which such person, directly or
indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares voting power and/or investment power.
17
<PAGE> 19
Unless otherwise indicated, each listed shareholder possesses sole voting
and investment power with respect to all of the shares shown opposite his
name. Does not include shares of Common Stock underlying options which are
not exercisable within 60 days.
(2) Based upon 4,695,036 shares issued and outstanding.
(3) Messrs. Martin and/or Swords, as the President and Secretary-Treasurer of
NSA, respectively, acting separately or jointly, have the power to vote or
to direct the vote, and to dispose of or to direct the disposition of, the
shares owned by NSA, unless otherwise instructed by the Board of Directors
of NSA.
(4) Includes the 2,336,180 shares held by NSA for which Messrs. Martin and/or
Swords have the power to vote or to direct the vote, and to dispose of or
to direct the disposition of. Also includes the indirect beneficial
ownership of 9,000 shares held by Mr. Martin's child for which Mr. Martin
disclaims beneficial ownership.
(5) Includes the 2,336,180 shares held by NSA for which Messrs. Martin and/or
Swords have the power to vote or to direct the vote, and to dispose of or
to direct the disposition of.
* Indicates less than 1%.
Item 13. Certain Relationships and Related Transactions.
Sales of Juice Plus+(R) products to NSA totaled approximately
$8,732,000 or approximately 38% of the Company's revenues for the fiscal year
ended April 30, 1998. Messrs. Martin, Swords and Poteet are all directors and
executive officers of NSA, serving in the respective capacities of President,
Chief Financial Officer, and Vice President - Manufacturing.
At April 30, 1998, the Company owed approximately $9,291,356 to NSA for
cash advances for working capital, product purchases and management fees.
The Company purchases certain water filtration and related accessory
products from NSA. The cost of such purchases was approximately $288,000 for the
fiscal year ended April 30, 1998.
NSA provides certain management, consulting and advisory services to
the Company. In consideration for these services, the Company paid to NSA
approximately $119,510 for the fiscal year ended April 30, 1998. In addition,
the Company pays to NSA any and all amounts collected by the Company from the
Company's Master Distributors in exchange for data processing services provided
to Master Distributors as such services are in fact provided by NSA. The total
amount paid to NSA for such services during the fiscal year ended April 30, 1998
was approximately $298,330.
NSA has guaranteed the obligations of National Safety Associates of
America (U.K.) Limited ("NSA UK") under the lease agreements pursuant to which
NSA UK leases approximately 12,800 square feet in Maidenhead, Berkshire,
England.
There have not been, and it is the Company's current intention that
there will not be, loans or other financial transactions between the Company and
its officers, directors or significant employees. However, to the extent such
loans or financial transactions do occur in the future, they will be approved by
the Company's disinterested and independent directors and will be on terms no
less favorable to the Company than could be obtained from unaffiliated parties.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
I. Financial Statements of NSA International, Inc. and Subsidiaries:
18
<PAGE> 20
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of April 30, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years Ended
April 30, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity for the Years
Ended April 30, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the Years Ended
April 30, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
II. The following Financial Statement Schedule is filed as part of
this Annual Report on Form 10-K:
Schedule II Valuation and Qualifying Accounts Years Ended
April 30, 1998, 1997 and 1996 F-16
</TABLE>
III. Exhibits
3.1 Amended and Restated Charter of the Company(1)
3.2 Bylaws of the Company(2)
4.1 Form of Stock Certificate(1)
10.1 Amended and Restated Manufacturing License and Distribution
Agreement between Smokey Santillo and the Company dated March 31,
1994.(3)
10.2 Manufacturing Agreement among the Company, NSA Polymers, Inc. and
Polymers, Inc. dated September 1, 1997.
10.3 Lease Agreement between NSA UK and Crown Life Pensions Limited
dated November 28, 1988.(1)
10.4 Lease Agreement between NSA Italy and Redilco dated June 1,
1994.(3)
10.5 Lease Agreement between NSA Polymers and Hodges Four Way Trust
dated January, 1990.(3)
10.6 Management Agreement between NSA and the Company dated May 1,
1996(7)
10.7 Management Agreement NSA and the Company dated May 1, 1994.(3)
10.8 Distribution and License Agreement between NSA and the Company
dated May 1, 1994.(3)
10.9 Exclusive Manufacturing License Agreement between NSA and the
Company dated May 1, 1993.(3)
10.10 Sales Agreement between NSA and the Company dated May 1, 1994.(3)
10.11 Sales Agreement between NSA and NSA Polymers dated May 1,
1994.(3)
10.12 Warehousing Agreement between NSA B.V. and Expeditiebedrijf Frans
Maas B.V. dated April 21, 1994.(3)
19
<PAGE> 21
10.13 Manufacturing Agreement between the Company and Natural
Alternatives International, Inc. dated April 1, 1993.(3)
10.14 First Amendment to the Exclusive Manufacturing License Agreement
between the Company and NSA dated May 1, 1993.(3)
10.15 Employment Agreement between A. Jay Martin and the Company dated
May 1, 1994.(3)**
10.16 Employment Agreement between Charles R. Evans and the Company
dated August 1, 1994.(3)**
10.17 Distribution Agreement between the Company and Holzmann Holding
AG dated as of September 1, 1996.(5)
10.18 Asset Purchase Agreement between National Safety Associates, Ltd.
and National Safety Associates of Canada, Inc.(4)
10.19 Asset Purchase Agreement between NSA UK and Nova Vita Limited
effective as of October 1, 1996.(6)
10.20 Company's 1997 Incentive and Non-Qualified Stock Option
Plan.(7)**
10.21 Stock Purchase Agreement between NSA Polymers and Polymers, Inc.
dated as of September 9, 1997.
21.1 List of Subsidiaries of the Company.
27 Financial Data Schedule (for SEC purposes only)
(1) Incorporated by reference to exhibits filed with the Company's
Registration Statement on Form 10, Commission File No. 0-19487
(2) Incorporated by reference to exhibits filed with the Company's
Registration Statement on Form S-18 Registration No. 33-42158-A
(3) Incorporated by reference to exhibits filed with the Company's
Form 10-K for the year ended April 30, 1995.
(4) Incorporated by reference to exhibits filed with the Company's
8-K on May 15, 1996.
(5) Incorporated by reference to exhibits filed with the Company's
8-K on September 17, 1996.
(6) Incorporated by reference to exhibits filed with the Company's
8-K on November 27, 1996.
(7) Incorporated by referenced to exhibits filed with the
Company's Form 10-K for the year ended April 30, 1997.
** Management Compensatory Plan
(b) Reports on Form 8-K.
None.
20
<PAGE> 22
(c) Exhibits.
See Item 14(a)(3) above.
(d) Financial Statement Schedules.
See Item 14(a)(2) above.
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NSA INTERNATIONAL, INC.
By: /s/ A. Jay Martin
-------------------------------------
A. Jay Martin, President and Chief Executive
Officer
Date: July 23, 1998
------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ A. Jay Martin Chief Executive Officer, President and July 23, 1998
- ----------------------------- Director
A. Jay Martin
/s/ Stan C. Turk
- ----------------------------- Secretary-Treasurer and Chief Financial July 23, 1998
Stan C. Turk Officer
/s/ George R. Poteet
- ----------------------------- Director July 23, 1998
George R. Poteet
/s/ Charles R. Evans, Jr.
- ----------------------------- Executive Vice-President, July 23, 1998
Charles R. Evans, Jr. Chief Operating Officer and Director
/s/ William L. Gurner
- ----------------------------- Director July 23, 1998
William L. Gurner
/s/ L. F. Swords
- ----------------------------- Director July 23, 1998
L. F. Swords
</TABLE>
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of NSA International, Inc.
We have audited the accompanying consolidated balance sheets of NSA
International, Inc. and Subsidiaries (the "Company") as of April 30, 1998 and
1997 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended April 30,
1998. Our audits also included the financial statement schedule listed in the
Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 7 to the financial statements, the Company is party to a
significant number of transactions with National Safety Associates, Inc. ("NSA,
Inc."), the shareholders of which own a majority of the Company's common stock.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NSA International, Inc. and
Subsidiaries as of April 30, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1998 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Memphis, Tennessee
July 17, 1998
F-1
<PAGE> 25
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,121,058 $ 5,771,563
Short-term investments 1,509,004 10,754
Receivables, net 3,078,385 2,972,636
Refundable income taxes 304,000 690,000
Inventories, net 6,587,848 7,104,869
Deferred income taxes 15,000 32,000
Notes receivable - short-term 414,000 550,000
Other current assets 163,996 265,078
------------ ------------
Total current assets 14,193,291 17,396,900
PROPERTY AND EQUIPMENT, At cost:
Leasehold improvements 37,837 195,862
Manufacturing equipment 456,062 455,850
Office furniture and equipment 890,906 1,043,222
Data processing equipment 593,600 558,148
------------ ------------
Total 1,978,405 2,253,082
Less accumulated depreciation and amortization (1,381,910) (1,326,684)
------------ ------------
Property and equipment, net 596,495 926,398
LONG-TERM NOTES RECEIVABLE AND PREFERRED STOCK 2,079,303 2,945,007
OTHER ASSETS 1,005,250 1,096,200
------------ ------------
TOTAL ASSETS $ 17,874,339 $ 22,364,505
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts due to NSA, Inc. $ 9,291,356 $ 7,793,387
Accounts payable, trade 913,567 913,452
Accrued sales commissions and allowances 116,631 246,603
Accrued compensation and expenses 2,005,484 2,834,976
Accrued sales returns 60,038 368,611
Advance payments by dealers/distributors 12,564 95,714
Income taxes payable 321,000 656,000
Other current liabilities 143,585 186,981
============ ============
Total current liabilities 12,864,225 13,095,724
DEFERRED INCOME TAXES 15,000 32,000
OTHER LIABILITIES 1,114,608 929,518
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.05 par value, 100,000,000 shares authorized, 4,695,036 and 4,858,156
shares outstanding at April 30, 1998 and 1997, respectively 234,752 242,908
Additional paid-in capital 28,844,804 29,106,950
Deficit (25,199,050) (21,042,595)
------------ ------------
Total shareholders' equity 3,880,506 8,307,263
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,874,339 $ 22,364,505
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 26
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NET REVENUES:
Net sales $ 22,213,226 $ 35,424,937 $ 70,831,868
Dealer/distributor fee income 835,116 682,374 2,318,464
------------ ------------ ------------
Total 23,048,342 36,107,311 73,150,332
COSTS AND EXPENSES:
Dealer/distributor commissions and allowances (2,626,047) (7,472,932) (28,082,083)
Cost of products sold (17,017,759) (19,211,498) (28,385,494)
Operating expenses (8,571,453) (16,536,955) (26,663,852)
Licensing and management fees to NSA, Inc. (119,510) (500,873) (1,597,737)
Restructuring costs (3,000,000)
Interest income, net 563,070 694,506 754,835
Other income, net 301,902 88,913 11,514
------------ ------------ ------------
Total (27,469,797) (45,938,839) (83,962,817)
------------ ------------ ------------
LOSS BEFORE INCOME TAX BENEFIT (4,421,455) (9,831,528) (10,812,485)
INCOME TAX BENEFIT 265,000 22,000 103,000
------------ ------------ ------------
NET LOSS $ (4,156,455) $ (9,809,528) $(10,709,485)
============ ============ ============
BASIC LOSS PER COMMON SHARE $ (0.87) $ (2.02) $ (2.20)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,763,335 4,858,156 4,858,156
============ ============ ============
TRANSACTIONS WITH NSA, INC. INCLUDED
IN THE ABOVE:
Net sales to NSA, Inc. $ 8,774,000 $ 9,361,000 $ 11,588,030
Cost of products sold (purchased from NSA, Inc.) 288,000 45,596 1,162,501
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 27
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------------- Additional
Number Paid-in
of Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCES AT APRIL 30, 1995 4,858,156 $ 242,908 $ 21,197,616 $ (523,582) $20,916,942
Repurchase of common stock warrants (1,186) (1,186)
Net loss (10,709,485) (10,709,485)
---------- ------------ ------------ ------------ -----------
BALANCES AT APRIL 30, 1996 4,858,156 242,908 21,196,430 (11,233,067) 10,206,271
Net loss (9,809,528 (9,809,528)
Forgiveness of debt by NSA, Inc. 7,910,520 7,910,520
---------- ------------ ------------ ------------ -----------
BALANCES AT APRIL 30, 1997 4,858,156 242,908 29,106,950 (21,042,595) 8,307,263
Net loss (4,156,455) (4,156,455)
Repurchase and retirement of common stock (163,120) (8,156) (262,146) (270,302)
---------- ------------ ------------ ------------ -----------
BALANCES AT APRIL 30, 1998 4,695,036 $ 234,752 $ 28,844,804 $(25,199,050) $ 3,880,506
========== =========== ============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 28
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,156,455) $ (9,809,528) $(10,709,485)
Adjustments to reconcile net loss to net cash used by operations:
Non cash restructuring charges 475,000
Depreciation and amortization 265,570 562,441 977,014
Provision for uncollectible notes receivable 1,000,000 2,000,000
Loss on sale or disposal of property and equipment 141,420 214,473 132,401
(Gain) loss on sale of short-term investments 2,293 (6,902)
Change in deferred income taxes (197,000)
Recognition of deferred gain on notes receivable 105,000
Changes in assets and liabilities, net of the effects of the sale of
significant assets of the Company, as discussed in Note 3:
Receivables, net (105,749) (1,133,143) 187,528
Inventories 517,021 3,128,289 2,005,948
Other assets (147,968) 367,669 579,316
Accounts payable, trade 115 (1,643,079) 191,515
Accrued sales returns (308,573) (827,531) (589,466)
Advance payments by dealers/distributors (83,150) (9,365) (274,317)
Accrued expenses, other (959,464) (3,180,169) (2,368,413)
Income taxes payable and refundable 51,000 (373,051) 2,137,400
Other current liabilities (43,396) (254,319) 79,427
Other liabilities 185,090 (129,144) 1,000,000
----------- ------------ ------------
Net cash used in operating activities (3,749,539) (10,609,164) (6,855,034)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (1,498,250)
Proceeds from sale of short-term investments 515,200
Purchase of property and equipment (77,087) (39,831) (532,941)
Proceeds from sale of property and equipment 29,119 12,732
Proceeds from principal payments on notes receivable and
redemption of preferred stock 446,704 755,912 500,000
----------- ------------ ------------
Net cash provided by (used in) by investing activities (1,128,633) 745,200 494,991
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock and warrants (270,302) (1,186)
Advances from (to) NSA, Inc. 1,497,969 6,880,757 (487,317)
----------- ------------ ------------
Net cash provided by (used in) financing activities 1,227,667 6,880,757 (488,503)
----------- ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,650,505) (2,983,207) (6,848,546)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,771,563 8,754,770 15,603,316
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,121,058 $ 5,771,563 $ 8,754,770
=========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ Nil $ Nil $ 3,381
Income taxes refunded, net 162,000 Nil 2,045,400
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
See discussion of non cash investing and financing activities at Notes 3 and 7.
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 29
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - NSA International, Inc. and Subsidiaries (the "Company") sells
products which include air and water filtration products, an in-home
carbonation appliance, and a line of nutritional supplement products. The
products are distributed through the Company's third-party licensees
("Master Distributors") and its direct multi-level marketing network
outside the United States and through National Safety Associates, Inc.'s
("NSA, Inc.") United States direct multi-level marketing network. Also see
Note 3.
BASIS OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and all subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS - Certificates of deposit and other debt
instruments with a maturity of three months or less from the date of
purchase are considered to be cash equivalents.
SHORT-TERM INVESTMENTS - Short-term investments consist of certificates of
deposit, municipal bonds, and corporate bonds which are classified as
trading securities. The investments are stated at market.
CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS -
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash equivalents, short-term
investments, foreign exchange forward contracts, receivables, including
notes receivable, and preferred stock. Substantially all cash and cash
equivalents were deposited with major banks covered with only a nominal
amount of government provided insurance. Short-term investments are
limited to investment grade bonds or to certificates of deposit with major
banks. The counterparties to foreign exchange forward contracts are
limited to major commodity exchanges. The Company continually evaluates
the financial viability and reputation of each financial institution and
exchange. Regarding receivables and preferred stock, management believes
credit risk beyond that already provided for is limited due to geographic
dispersion and, for notes receivable and preferred stock, collateral
backing. Regarding the Company's financial instruments, management
believes that their recorded value, after consideration of related
allowances, approximates their fair value.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out basis) or market and consisted of the following at April 30,
1998 and 1997:
F-6
<PAGE> 30
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials $ 2,040,031 $ 1,784,662
Finished goods 5,778,977 5,615,235
Accessories 756,425 806,704
----------- -----------
Total at cost 8,575,433 8,206,601
Reserve for excess and obsolete inventories (1,987,585) (1,101,732)
----------- -----------
Inventories, net $ 6,587,848 $ 7,104,869
=========== ===========
</TABLE>
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation of property and equipment is principally computed by the
straight-line method over the estimated useful lives of the assets, which
range as follows:
<TABLE>
<S> <C>
Office furniture and equipment 2 to 7 years
Leasehold improvements 3 to 10 years
Manufacturing equipment 3 to 7 years
Data processing equipment 5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred; major renewals
are capitalized. Gains or losses on retirement or disposition are charged
to income and respective costs and accumulated depreciation are
eliminated.
FOREIGN CURRENCY TRANSLATION AND FOREIGN EXCHANGE FORWARD CONTRACTS - The
Company's functional currency is the U.S. dollar; therefore, the foreign
subsidiaries remeasure monetary assets and liabilities at year-end
exchange rates and inventory, property, equipment, and non-monetary assets
and liabilities at historical rates. Income and expense accounts are
translated at the exchange rates in effect on the day of the transaction,
except for depreciation, which is translated at historical rates. Gains
and losses resulting from foreign currency transactions (transactions
denominated in a currency other than the U.S. dollar) are included in net
income in the period incurred.
The Company attempts to reduce the effects of fluctuations in foreign
currency exchange rates associated with certain aspects of these
investments, principally the monetary assets and liabilities of the
Company's foreign subsidiaries, by buying or selling foreign exchange
forward contracts in manners which will generally replicate the effects
which would occur if related options had been purchased. The size of
positions held vary based principally on the Company's net position of
monetary assets and liabilities and on the duration and magnitude of the
current foreign exchange trend in effect. Management believes this
practice will partially hedge the effects of foreign currency fluctuations
on the Company's financial statements, but of course cannot assure that
this objective will be met. Fair values of the foreign exchange forward
contracts are estimated using quoted market prices of these or comparable
instruments; related gains and losses on these contracts, as well as the
foreign exchange gains and losses resulting from translation of the
financial statements of the Company's foreign subsidiaries, are recognized
in other income or expense. Within the definitions contained in Statement
of Financial Accounting Standards No. 119, management considers these
contracts to be held for purposes other than trading.
F-7
<PAGE> 31
As discussed in Note 3, in fiscal 1997 the Company sold its remaining
significant foreign operations to certain investor groups. Due to these
sales, the Company's foreign subsidiaries now have substantially lower
monetary asset and liability positions. Accordingly, the Company's
positions taken with respect to foreign exchange forward contracts have
been substantially reduced as well.
At April 30, 1998, the Company had foreign currency contracts to sell
forward the dollar equivalent of $1,138,000 of Swiss francs and Canadian
dollars, and to buy forward the dollar equivalent of $1,869,000 of
Deutsche marks and British pounds. These contracts generally mature within
one year and have aggregate unrealized gains of approximately $17,000,
which is included in net income. Margin deposits for these contracts total
$41,000 and are included in other current assets. At April 30, 1997, the
Company was not a party to any foreign exchange forward contracts and
therefore had no unrealized gains or losses or margin deposits related
thereto as of that date.
The foreign currency translation gains, net of the effects of foreign
exchange forward transactions, for the years ended April 30, 1998, 1997,
and 1996 totalled approximately $100,000, $140,000, and $460,000,
respectively.
OTHER ASSETS - Other assets primarily represent the cash surrender value
of officers' life insurance policies.
OTHER LIABILITIES - Other liabilities principally represent amounts
accrued for the excess of future rent expense over estimated sublease
income for two leases, as discussed in Note 5.
REVENUE RECOGNITION - Revenues from product sales are recognized upon
shipment of product. Provision for estimated sales returns is recorded
based on historical returns rates and current business conditions.
INCOME TAXES - Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts.
LOSS PER SHARE - Basic loss per common share has been computed by dividing
net loss by the weighted average number of common shares outstanding. The
adoption of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," had no effect on amounts presented, as no
potentially dilutive securities were outstanding for the years ended April
30, 1998, 1997, and 1996.
NEW ACCOUNTING PRONOUNCEMENT - The Company has not yet adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information," but will be required to do so for the fiscal year ending
April 30, 1999. Management has not yet determined the effects, if any,
adoption of this statement will have on information presented in Note 8.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-8
<PAGE> 32
2. RECEIVABLES
Accounts receivable, trade represents amounts due from the Company's
third-party licensees and from customers of the Company's domestic
subsidiaries. Receivables consisted of the following at April 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Accounts receivable, trade $ 1,685,913 $2,779,995
Fees and interest due from Master Distributors 1,173,372
VAT and other miscellaneous taxes 299,100
Other accounts receivable 155,136
Amounts due under revolving credit agreements 82,767
Less amounts due to dealer/distributors (45,262)
----------- ----------
Total 3,158,385 2,972,636
Less allowance for doubtful accounts (80,000)
----------- ----------
Receivables, net $ 3,078,385 $2,972,636
=========== ==========
</TABLE>
3. DISPOSALS, NOTES RECEIVABLE, AND PREFERRED STOCK
During the second quarter of 1997, the Company completed two dispositions
in which it sold its operating rights and certain fixed assets in Germany,
Switzerland, and Austria to an unrelated group of investors and sold
similar assets of Belgium, Holland, and the United Kingdom to a separate
unrelated group of investors (collectively, the "Buyers"). Consideration
was received in the form of notes receivable which provide for annual
payments of principal and interest over the next six and seven years. As
the rates on the notes are substantially less than current market rates,
these notes were discounted to a present value of $1,510,000 using the
then-current U.S. Prime rate of 8.25%. The gain on the sales of $630,000
is being deferred, as the Buyers did not make any payments to the Company
as of the closing dates; this deferred gain is offset against the related
notes receivable on the accompanying balance sheet and will be ratably
recognized by the Company as the notes are collected. The notes receivable
are secured by liens on substantially all fixed assets, inventories, and
accounts receivable of the Buyers. These dispositions obligate the Buyers
to assume responsibilities for future multi-level direct selling
operations in these countries.
As of the close of business on April 30, 1996, the Company sold certain
inventories, fixed assets, and prepaid expenses of National Safety
Associates, Ltd. (NSA Canada or the "Seller") to a group of investors (the
"Buyer"), which included certain members of the Seller's management. In
conjunction with the acquisition, the Buyer has assumed responsibility for
future multi-level direct selling operations in Canada, with the Company
continuing to sell certain goods at market prices and provide certain
administrative and marketing support for a monthly fee. Consideration was
received in the form of a note receivable totalling $740,495, which
approximated the net book value of the assets sold. The note receivable
bears interest at 8.25% per annum and is secured by liens on substantially
all fixed assets, inventories, and accounts receivable of the Buyer.
F-9
<PAGE> 33
During the third quarter of fiscal 1998, the Company accepted preferred
stock with a face amount of $2,190,000 and a note receivable with a face
amount of $1,500,000 as consideration for its cancellation of a note
receivable with outstanding principal and interest balances totalling
$4,190,000. The cancelled note receivable, which bore interest at 8.5% per
annum, originated in conjunction with an investor group's acquisition of
substantially all assets of the Company's former manufacturing subsidiary,
NSA Polymers, Inc. The Company obtained 4% cumulative non-voting preferred
stock, redeemable at varying rates through 2005 based on certain criteria,
including the Company's level of purchases, and obtained a note receivable
bearing interest at 9% per annum and secured by certain inventories,
receivables, and machinery and equipment of the investor group's company.
The net book value, after consideration of amounts previously reserved as
uncollectible, of the cancelled note receivable is considered to
approximate the fair value of consideration received; therefore, no
significant gain or loss resulted therefrom.
Principal payments on notes receivable and redemptions on preferred stock
relating to the above and prior dispositions are scheduled to be received
as follows:
<TABLE>
<S> <C>
1999 $ 414,000
2000 434,798
2001 478,206
2002 445,906
2003 235,490
Thereafter 3,373,544
-----------
Total 5,381,944
Less:
Allowance for uncollectible items (2,363,641)
Deferred gain (525,000)
Short-term notes receivable (414,000)
-----------
Long-term notes receivable and preferred stock $ 2,079,303
===========
</TABLE>
Based on their rates of interest, security, and other characteristics, and
after consideration of the recorded allowance for uncollectible items,
management believes the recorded values of the notes receivable
approximate their fair values.
4. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal
income tax return. The Company's foreign subsidiaries file separate
returns in the respective countries of domicile.
The components by region of loss before income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 199
<S> <C> <C> <C>
U.S. $(1,908,547) $(2,226,036) $ (208,892)
Foreign (2,512,908) (7,605,492) (10,603,593)
----------- ----------- ------------
Total $(4,421,455) $(9,831,528) $(10,812,485)
=========== =========== ============
</TABLE>
F-10
<PAGE> 34
The components of the income tax benefit are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 22,000 $ (62,000)
Foreign $265,000 (32,000)
-------- -------- ---------
Total 265,000 22,000 (94,000)
Deferred - foreign 197,000
-------- -------- ---------
Total $265,000 $ 22,000 $ 103,000
======== ======== =========
</TABLE>
A reconciliation of the Company's actual income taxes for the years ended
April 30, 1998, 1997, and 1996 to that obtained by applying the U.S.
federal statutory income tax rate against pre-tax income is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Federal income tax benefit, at U.S.
federal statutory rate $ 1,503,000 $ 3,342,720 $ 3,676,000
Effect of unused net operating losses (1,238,000) (3,265,867) (3,579,000)
Other differences (54,853) 6,000
----------- ----------- -----------
Income tax benefit $ 265,000 $ 22,000 $ 103,000
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and (b) operating loss and tax credit
carryforwards. The tax effects of significant items comprising the
Company's deferred taxes as of April 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible $ 826,000 $ 1,280,000
Uniform capitalization of inventory 54,000 69,000
Operating loss carryforwards 3,842,000 884,000
----------- -----------
Total 4,722,000 2,233,000
Valuation allowance (4,707,000) (2,201,000)
----------- -----------
Total deferred tax asset 15,000 32,000
Deferred tax liabilities - net foreign currency translation gain 15,000 32,000
----------- -----------
Net deferred tax asset (liability) $ NIL $ NIL
=========== ===========
</TABLE>
The Company has net operating loss carryforwards totalling approximately
$10,977,000 which are available for future reductions of income taxes in
the United States and which expire in 2017. The Company also has
substantial net operating loss carryforwards available in various other
countries. However, due to the sale of certain operating assets and
operating rights as discussed in Note 3, management does not expect to be
able to utilize the remaining foreign net operating loss carryforwards.
Giving effect to this expectation, the Company now considers only
operating loss carryforwards of the United States to qualify for deferred
tax asset recognition. This change had the effect of reducing each of the
deferred tax asset and the related offsetting valuation allowance by
approximately $5,750,000 as of April 30, 1997.
F-11
<PAGE> 35
The valuation allowance of $4,707,000 and $2,201,000 in 1998 and 1997,
respectively, has been provided because it is more likely than not that a
substantial portion of the deferred tax assets will not be realized. The
valuation allowance increased by $2,506,000 in 1998 and decreased by
$4,825,000 in 1997.
5. LEASES
The Company leases office and warehouse space in the U.K. under two
noncancellable operating leases expiring in 2013 and 2016. In October
1995, the Company abandoned the locations and signed a sublease agreement
with an unrelated party for one of the locations. The other location is
subleased on a month-to-month basis. A loss of approximately $1,000,000,
representing the excess of future rent expense over estimated sublease
income discounted at 8%, was recognized in the second quarter of fiscal
1996.
The Company is currently leasing warehouse and office space under numerous
other non-cancelable operating leases. Lease terms generally range from
one to twenty-five years with options to renew at varying terms. Rent
expense under operating leases totalled approximately $1,386,928,
$1,770,351, and $1,684,153 for the years ended April 30, 1998, 1997, and
1996, respectively. In 1998 and 1997, the Company received sublease
rentals of $757,623 and $52,859, respectively.
The future minimum lease payments and related sublease payments receivable
under these agreements are as follows:
<TABLE>
<CAPTION>
Minimum Sublease
Lease Payments
Year Ending April 30 Payments Receivable
<S> <C> <C>
1999 $ 1,315,752 $ 657,375
2000 1,090,801 513,031
2001 529,644 200,496
2002 529,644 200,496
2003 529,644 200,496
Thereafter 6,585,458 4,646,070
----------- ----------
Total $10,580,942 $6,417,964
=========== ==========
</TABLE>
6. EMPLOYEE BENEFITS PLAN
The Company's domestic subsidiaries participate in NSA, Inc.'s defined
contribution plan to provide full-time employees, with a minimum of 1,000
hours of service and who are employed at year-end, with additional income
upon retirement or termination. The Company may elect to make annual
contributions to the plan equal to a discretionary percentage of the
participant's annual salary, to the extent the participant's salary does
not exceed $150,000, as defined. The Company made no contributions to the
plan during 1998, 1997, and 1996.
F-12
<PAGE> 36
7. TRANSACTIONS WITH NSA, INC.
At April 30, 1998 NSA, Inc. owns 2,336,180 shares of the Company. Four of
the shareholders of NSA, Inc. also serve as directors of the Company.
The Company sells nutritional supplement products, air treatment systems,
in-home beverage appliances, and certain water filtration product
components to NSA, Inc. The Company purchases certain water filtration
products and certain related accessory products from NSA, Inc. The Company
is party to licensing and management agreements with NSA, Inc. that
provide for fees payable to NSA, Inc. equal to a percentage of sales
and/or allocation of certain costs incurred by NSA, Inc. in providing
management and administrative services. Costs incurred by NSA, Inc. in
providing management and administrative services include general
management, financial reporting, benefits administration, insurance,
information-systems, and other miscellaneous services. These allocations
are based primarily on the percentage of sales of each company to total
sales of both. Management believes that these allocations were made on a
reasonable basis. However, the allocations are not necessarily indicative
of the level of expenses that might have been incurred had the Company
operated on a stand-alone basis. Management has not made a study or any
attempt to obtain quotes from third parties to determine what the cost of
obtaining such services from third parties would have been.
NSA, Inc. has also provided funding on a payable upon demand and
non-interest bearing basis for equipment purchases and working capital.
NSA, Inc. also guarantees the terms and obligations of the Company's two
U.K. operating leases which are discussed in Note 5. The annual rental
payments total approximately $500,000, excluding the sublease rentals.
On July 9, 1996, the Board of Directors of NSA, Inc. made a $7,910,520
capital contribution to the Company in the form of forgiveness of amounts
due from certain direct selling subsidiaries of NSA International.
8. GEOGRAPHIC SEGMENT DATA AND MAJOR CUSTOMERS
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
Year Ended April 30, 1998 United States Canada/Mexico Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Total revenues:
Unaffiliated customers $ 2,404,900 $ 11,870,395 $14,275,295
Sales to NSA, Inc. 8,773,047 8,773,047
Interarea sales 984,165 $ (984,165)
------------ ------------ ------------ -----------
Total $ 12,162,112 $ 11,870,395 $ (984,165) $23,048,342
============ ============ ============ ===========
Loss before income taxes $ 1,908,547 $ (53,390) $ 2,566,298 $ 4,421,455
============ =========== ============ ===========
Identifiable assets $ 23,562,802 $ 2,137,318 $ 8,120,646 $(15,978,003) $17,842,763
============ =========== ============ ============ ===========
Corporate assets 31,576
-----------
Total assets $17,874,339
===========
Depreciation and amortization expense $ 32,875 $ 232,695 $ 265,570
============ ============ ===========
Capital expenditures $ 3,567 $ 73,520 $ 77,087
============ ============ ===========
</TABLE>
F-13
<PAGE> 37
<TABLE>
<CAPTION>
Year Ended April 30, 1997 United States Canada/Mexico Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Total revenues:
Unaffiliated customers $ 5,406,373 $ 21,339,226 $ 26,745,599
Sales to NSA, Inc. 9,361,712 9,361,712
Interarea sales 2,126,976 $ (2,126,976)
------------ ------------ ------------- ------------
Total $ 16,895,061 $ 21,339,226 $ (2,126,976) $ 36,107,311
============ ============ ============= ============
Loss before income taxes $ (2,226,036) $ 105,165 $ (7,710,657) $ (9,831,528)
============ ============= ============ ============
Identifiable assets $ 24,846,365 $ 2,746,729 $ 9,295,773 $ (14,809,078) $ 22,079,789
============ ============= ============ ============= ============
Corporate assets 284,716
------------
Total assets $ 22,364,505
============
Depreciation and amortization expense $ 91,241 $ 471,200 $ 562,441
============ ============ ============
Capital expenditures $ 2,169 $ 37,662 $ 39,831
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30, 1996 United States Canada/Mexico Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Total revenues:
Unaffiliated customers $ 3,459,376 $ 4,805,151 $ 53,297,775 $ 61,562,302
Sales to NSA, Inc. 11,588,030 11,588,030
Interarea sales 3,455,008 $ (3,455,008)
------------ ----------- ------------ ------------ ------------
Total $ 18,502,414 $ 4,805,151 $ 53,297,775 $ (3,455,008) $ 73,150,332
============ =========== ============ ============ ============
Loss before income taxes $ (208,892) $ 14,902 $(10,618,495) $(10,812,485)
============ =========== ============ ============
Identifiable assets $ 21,238,400 $ 2,174,434 $ 17,442,971 $ (9,807,542) $ 31,048,263
============ =========== ============ ============
Corporate assets 225,728
------------
Total assets $ 31,273,991
============
Depreciation and amortization expense $ 134,714 $ 56,981 $ 785,319 $ 977,014
============ =========== ============ ============
Capital expenditures $ 27,815 $ 505,126 $ 532,941
=========== ============ ============
</TABLE>
In addition to NSA, Inc., the Company had one major customer in 1998,
accounting for 17% of the Company's total revenue. Another major customer
accounted for 10% of the Company's total revenue in 1997.
9. LITIGATION, COMMITMENTS, AND OTHER CONTINGENCIES
The Company is party to various claims and matters of litigation that
arise in the normal course of business. Management believes the resolution
of these matters will not have a material adverse effect on the results of
operation or the financial condition of the Company.
The Company has an employment contract with certain officers. Remaining
minimum commitments under the agreements total approximately $395,000 at
April 30, 1998.
The Company has an unused $5,000,000 line of credit at prime which expires
August 31, 1998.
F-14
<PAGE> 38
10. RESTRUCTURING CHARGES
During the first quarter of 1997, the Company announced its decision to
close its European headquarters. Accordingly, a restructuring charge
totalling $3,000,000 was reflected during the first quarter of fiscal
1997. As of April 30, 1997, the restructuring reserve was fully utilized
as follows: $475,000 to writedown fixed assets to net realizable value;
$1,125,000 to write-off certain sales materials which are obsolete as a
result of the restructuring; $425,000 to recognize costs associated with
early terminations of leases; $500,000 to recognize termination costs of
certain employees; and $475,000 for salary and other shutdown expenses
related to the restructuring.
11. STOCK OPTION PLAN
On February 18, 1997, the Board of Directors of the Company approved the
adoption of the NSA International, Inc. 1997 Incentive and Non-Qualified
Stock Option Plan (the "Plan"). Under the terms of the Plan, options on up
to 500,000 shares of the Company's common stock may be issued to eligible
officers, directors, and key employees of the Company and its
subsidiaries, as well as advisors and consultants thereto. Vesting
provisions, exercise price, and duration of the options shall be as
determined by the Plan committee, which will consist of at least two
directors of the Company; in no event, however, will the exercise price be
below fair market value of the Company's common stock at the date of
grant, nor will the duration of the options exceed ten years from date of
grant. No stock options may be issued under the Plan after the expiration
of ten years from the date the Plan becomes effective, and in no event
after November 30, 2007. Options on 250,000 of the Company's shares have
been issued under the Plan as of April 30, 1998. No compensation expense
resulted from the issuance of the options as their exercise price equaled
the quoted market price of the Company's stock on the date of grant. These
options are not potentially dilutive securities, as the Company has an
arrangement with NSA, Inc. pursuant to which NSA, Inc. will sell shares
to the Company at the option exercise price.
12. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Year ended April 30, 1998:
Total revenues $ 6,546,608 $ 5,543,726 $ 5,237,708 $ 5,720,300
Gross margin 1,905,327 1,287,286 1,651,160 1,186,810
Net loss (487,081) (947,749) (632,309) (2,089,316)
Basic loss per common share (0.10) (0.20) (0.13) (0.44)
</TABLE>
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Year ended April 30, 1997:
Total revenues $ 13,609,726 $ 9,441,997 $ 7,433,358 $ 5,622,230
Gross margin 7,645,498 4,400,138 2,523,467 2,326,710
Net loss (4,507,001) (854,312) (1,440,409) (3,007,806)
Basic loss per common share (0.93) (0.17) (0.30) (0.62)
</TABLE>
SIGNIFICANT FOURTH QUARTER ADJUSTMENTS - During the fourth quarters of
fiscal 1998 and 1997, the Company wrote down the value of certain notes
receivable by $1,000,000 and $2,000,000, respectively, to reflect the
estimated collectible amounts. These writedowns were reflected as
operating expenses in the accompanying financial statements.
13. SUBSEQUENT EVENT
Effective May 31, 1998, the Company closed its offices in France. These
operations had total revenues of less than $400,000 during the year ended
April 30, 1998, and costs incurred relating to the closure were not
significant.
*******
F-15
<PAGE> 39
SCHEDULE II
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Charged to Charged
Balance at Sales or to Other Balance
1998 Beginning Expenses Accounts Deductions at End
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 80,000 $ 80,000
Allowance for uncollectible notes receivable $2,000,000 1,000,000 $(636,359) 2,363,641
Accrued sales returns 368,611 48,870 (357,443) 60,038
1997
Allowance for doubtful accounts 95,880 (11,770) (84,110)
Allowance for uncollectible notes receivable 2,000,000 2,000,000
Accrued sales returns 1,196,142 (10,454) (817,077) 368,611
1996
Allowance for doubtful accounts 745,145 (113,928) (535,337) 95,880
Accrued sales returns 1,785,608 32,447 (621,913) 1,196,142
</TABLE>
(1) Accounts written off during the period.
(2) Actual sales returns during the period consisted of:
<TABLE>
<CAPTION>
Sales Inventory Commissions Net Sales
Returns Returned Charged Back Returns
<C> <C> <C> <C> <C>
1998 $ (765,610) $ 17,706 $ 390,461 $(357,443)
1997 (1,919,213) 123,337 978,799 (817,077)
1996 (2,188,681) 450,541 1,116,227 (621,913)
</TABLE>
F-16
<PAGE> 1
EXHIBIT 10.2
MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT dated September 1, 1997, is made by and
among NSA POLYMERS, INC., a Florida corporation having a place of business at
1000 Sand Pond Road, Lake Mary, Florida 32746 and NSA INTERNATIONAL, INC., a
Tennessee corporation having a place of business at 4260 East Raines Road,
Memphis, Tennessee 38118 on the one hand (collectively the "Buyer") and
POLYMERS, INC., a Florida corporation (hereafter referred to as "Polymers")
having a place of business of 1000 Sand Pond Road, Lake Mary, Florida on the
other hand.
W I T N E S S E T H:
WHEREAS, Buyer owns and controls technology and other assets required
for the manufacture, marketing and sale of certain sparkling water systems,
certain air filtration systems, and certain water filtration systems;
WHEREAS, Buyer presently has no manufacturing facility of its own;
WHEREAS, Buyer has determined that it is in the best interest of Buyer
to close its manufacturing facilities and to contract with Polymers for the
manufacturing and production of certain of its products;
WHEREAS, Polymers wishes to manufacture certain of the products of
Buyer for and on behalf of Buyer;
WHEREAS, the Buyer has an existing inventory of Raw Materials which it
desires to sell to Polymers; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
PART I. INTRODUCTION
SECTION 1. DEFINITIONS
1.1 "Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
1.2 "Agreement" shall mean this document, including its Exhibits and
Purchase Orders issued hereunder.
1.3 "Days" shall mean calendar days unless otherwise specified
hereunder.
1.4 "Delivery" shall mean the delivery of Units in accordance with
Section 9 hereof.
1.5 "OEM Business" means all sales made by Polymers to entities or
individuals other than NSA International, Inc., or any of its affiliates.
1.6 "Purchase Price" shall mean the purchase price of the Units as set
forth on EXHIBIT A.
1.7 "Raw Materials" means the Buyer's existing inventory of raw
materials and component parts described on EXHIBIT B, which is attached hereto
and incorporated herein by this reference.
1.8 "Section," "Sub-Section," and/or "Exhibits" shall mean Sections,
Sub-Sections and/or Exhibits of this Agreement.
<PAGE> 2
1.9 "Technical Information" shall mean any information, whether
confidential or otherwise, which is applicable to or useful in the
demonstration, testing, use, operation, maintenance, manufacture or repair of
Units, including, by way of example only, engineering drawings, electrical or
electronic schematics, specifications, equipment and parts lists, test
procedures, and operating, maintenance, and repair procedures and instructions.
1.10 "Unit(s)" shall mean each individual product listed on EXHIBIT A
and all future modifications, replacement parts or components thereto. The term
"replacement parts," as used above shall be deemed to include, without
limitation, replacement filters, but shall exclude the HEPA filter.
PART II. PERFORMANCE
SECTION 2. UNIT ORDERS
2.1 Purchase Order(s). The actual authorization to perform work under
this Agreement will be given by Buyer in the form of a Purchase Order executed
by the Authorized Purchasing Agent as communicated to Polymers by Buyer. Buyer
will issue Purchase Orders to Polymers for Units required. Polymers shall
deliver Units to the Buyer within thirty (30) days after receipt of a Purchase
Order, subject to customary raw material and component part lead-in times and
subject to the maximum production capacity of existing molds. Such Purchase
Order(s) shall set forth a quantity of Units which Buyer requires from Polymers.
The Purchase Order is the authorization by Buyer to order materials, allocate
labor or equipment, or enter into any other commitments for the assembly of the
Unit(s). Buyer shall not be liable for any costs incurred by Polymers in its
anticipation of quantities in excess of the quantities set forth in the Purchase
Orders or in performing work in excess of that authorized by Buyer in such
Purchase Orders. Furthermore, Polymers shall fulfill such requests only when a
valid Buyer purchase order number has been issued by Buyer.
SECTION 3. DESCRIPTION OF WORK
3.1 During the term of this Agreement, Polymers agrees to manufacture
and sell to Buyer and Buyer agrees to buy its and its Affiliates entire
requirements of the Units from Polymers upon the terms and conditions set forth
in this Agreement. In the event that Polymers is unable for any reason,
including production capacity of molds, to produce a Unit or Units in sufficient
volume to satisfy the Buyer's requirements for such Units and is unable to cure
such inability within thirty (30) days plus reasonable mold development and
applicable raw material lead-in times, Buyer shall have the option to utilize
another manufacturer to manufacture the Units required in excess of Polymers
production capacity if Polymers is unable or unwilling to within a reasonable
period of time to subcontract out the manufacturing of any Units required in
excess of Polymers production capacity. Polymers and Buyer shall discuss and
agree upon mutually acceptable minimum amounts of Units to be purchased
hereunder from time to time during the term hereof.
3.2 The Units to be purchased under this Agreement are specifically
detailed and described in EXHIBIT A, which is attached hereto and incorporated
herein by reference. In the event the provisions of Section 17 hereof are
satisfied, such new product shall be added to EXHIBIT A, and shall become a
"Unit" as such term is used in this Agreement.
3.3 Polymers shall produce the Units in accordance with Section 6.
3.4 Polymers shall conduct in-process inspections, final inspection and
perform functional testing as needed to insure that the quality control levels
specified pursuant to Section 6 are satisfied.
3.5 Polymers shall package the Units in accordance with the Buyer
packaging specifications and drawings.
<PAGE> 3
SECTION 4. PRICE
4.1 The prices to be paid by Buyer for the Units are as described in
Exhibit A.
4.2 Polymers agrees and acknowledges to take all customary reasonable
steps to maintain manufacturing costs at levels consistent with or below such
costs as of the date of this Agreement. Buyer acknowledges that the prices set
forth in EXHIBIT A as of the date hereof are reasonable. However, in the event
that manufacturing costs increase as a result of increased labor costs,
materials costs, rent, custom charges, state taxes, import or export fees,
freight costs, or utility rates, Polymers shall provide Buyer documentation
supporting such cost increases in a form reasonably satisfactory to Buyer. Upon
Buyer's reasonable satisfaction and confirmation of the increased manufacturing
costs, not to exceed thirty (30) days from Buyer's receipt of such
documentation, the increased costs shall be "passed through" to Buyer on a per
Unit basis to be determined by Buyer and Polymers, with such increase to reflect
a direct pass through of such increased manufacturing costs. For the purpose of
this Section 4.2, manufacturing costs shall be examined on six (6) month
intervals, with the first such examination to occur on August 1, 1995.
4.3 In the event manufacturing costs decrease, Polymers shall inform
Buyer of such decrease and shall negotiate with the Buyer, in good faith, a
reduction in the Purchase Price of each Unit. The decreased costs shall be
"passed through" to Buyer on a per Unit basis to be determined by Buyer and
Polymers, with such decrease to reflect a direct pass through of such decreased
manufacturing costs. For the purposes of this Section 4.3, manufacturing costs
shall be reviewed on six (6) month intervals with the first such examination to
occur on August 1, 1995.
4.4 All prices are expressed and all payments shall be made in U.S.
Dollar currency.
SECTION 5. ORDERING
5.1 Buyer shall issue Purchase Order(s) for delivery of Units in
accordance with the delivery schedules set forth in EXHIBIT A, which is attached
hereto and incorporated herein by this reference. Units will be delivered within
thirty (30) days after receipt of a Purchase Order and subject to customary
lead-in times which occur as a result of raw material or component part ordering
and the maximum production capacity of existing molds. In the event that such
lead-in times change, the delivery schedule set forth in EXHIBIT A, shall
automatically, without required action by either party, be modified to indicate
the change in such lead-in times.
5.2 Buyer shall not be responsible for work performed, material
purchased or other commitments or expenses incurred by Polymers other than as
stated in the Purchase Order provided by Buyer, unless otherwise agreed to in
writing by both parties.
SECTION 6. MANUFACTURING
6.1 Polymers shall provide all parts, labor, and materials necessary to
perform Polymers' obligations.
6.2 Polymers shall manufacture each Unit to meet an outgoing quality
level which is in accordance with the specifications historically maintained by
NSA Polymers, Inc. which will be attached hereto as EXHIBIT A. It is agreed and
acknowledged by the parties hereto that current specifications are not reduced
to writing at the time of this Agreement and will be developed jointly by the
parties. Upon completion of the specifications, they will be attached hereto as
EXHIBIT A and become a part of this Agreement as if they had been attached at
the date hereof. Until such time as such specification are attached hereto,
Polymers shall manufacture the Units to maintain quality control levels
consistent to those which have been historically maintained by NSA Polymers,
Inc., on a per Unit basis.
6.3 Buyer may review Polymers' performance of the work under this
Agreement including development, fabrication and tests of the Units, the design
of the tools used to produce them, and their operation.
<PAGE> 4
6.4 To review the work, Buyer may visit the sites where Polymers
performs it. Buyer shall visit the sites during normal business hours, with
reasonable notice to Polymers.
6.5 Polymers shall notify Buyer promptly of any errors found in
drawings and specifications for any new products manufactured for Buyer in
accordance with the provisions of Section 17.
SECTION 7. PACKAGING
7.1 Packaging shall conform to the existing drawings and specifications
and any future drawings and specifications of Buyer provided that Buyer pays any
expenses and costs associated with changes to its packaging. Polymers shall be
responsible for procurement of materials, any testing required and obtaining
Buyer's approval of packaging.
7.2 All labeling and packing lists containing the purchase order
number, Unit part numbers and quantity shipped shall accompany each shipment.
SECTION 8. WARRANTIES
8.1 Polymers warrants that Units delivered to Buyer by Polymers
hereunder shall conform in every respect to all specifications described in
Section 6.2 or on EXHIBIT A and be free from defects in material and workmanship
under normal use and operation for a period of two (2) years from the date of
initial shipment to Buyer, and, provided, further, that with respect to
replaceable air filters, Polymers warrants that such replaceable filters
delivered to Buyer by Polymers hereunder shall conform in every respect to all
specifications described in Section 6.2 or on EXHIBIT A and be free from defects
in material and workmanship for a period of twelve (12) months from the date of
initial shipment to Buyer. After a period of two (2) years from the date hereof,
Polymers and Buyer shall negotiate, in good faith, a new warranty period for
each Unit, such warranty period not to be less than one (1) year.
8.2 In the event that a new product is added to the definition of
"Unit" pursuant to the terms of Section 17, such new product will not fall
within the terms and conditions of Section 8.1 and the parties will negotiate in
good faith and reasonably agree on a warranty for such new products which is
acceptable to both parties.
8.3 During the warranty periods set forth herein, Polymers shall, at
Polymers' option, either replace or repair Units manufactured in breach of the
warranties contained herein, with Units which conform to the specifications
which are part of this Agreement and in force at the time the defective Units
were originally delivered. In the case of replacement, Polymers shall deliver to
Buyer replacement Units within sixty (60) days from the date Polymers receives
the defective Units from Buyer.
8.4 If the Units are returned to Polymers for a suspected breach of
warranty, Buyer shall bear the shipping costs of returning the Units to
Polymers. If the returned Unit(s) are in breach of Polymers' warranty then
Polymers shall pay the costs of shipping repaired or replaced Units back to
Buyer's designated destination. If the returned Unit(s) are not in breach of
Polymers' warranty, Buyer shall bear the cost of shipping the returned Unit(s)
back to Buyer's designated destination.
8.5 Polymers shall not be responsible and shall have no liability for
any design or specification defect in products produced for the Buyer or arising
out of defects of tooling, molds or other equipment provided by the Buyer to
Polymers unless such defect is the result of Polymers failure to maintain the
molds, tooling, or equipment in accordance with the terms of this Agreement.
8.6 Polymers sole obligation in the event of a breach of the warranties
contained in this Section 8 is to repair or replace at Polymers' option any
defective product and to indemnify and hold harmless the Buyer from any
liability, loss, damages, costs and expenses (including, without limitation, any
court costs and attorneys' fees, both at trial and on appeal) incurred by reason
defects in violation of Polymers' warranty.
<PAGE> 5
8.7 THE WARRANTIES DESCRIBED IN THE FOREGOING SECTION 8 ARE THE SOLE
WARRANTIES OF POLYMERS AND POLYMERS HAS NOT MADE, AND HEREBY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTIES
REGARDING FITNESS FOR A PARTICULAR PURPOSE OR A PARTICULAR USE.
SECTION 9. DELIVERY
9.1 Polymers shall deliver Units to Buyer F.O.B. Buyer's warehouse at
1050 Sand Pond Road, Lake Mary Florida 32746. In the event Buyer's warehouse is
no longer leased by either Buyer or Polymers, delivery shall be F.O.B. Polymers'
dock. It is the responsibility of Polymers to schedule production and delivery
of all Units ordered under this Agreement by the scheduled delivery date
contained in the Buyer Purchase Order subject to the other provisions in this
Agreement.
SECTION 10. TITLE
10.1 The risk of loss and title to the Units shall pass to Buyer upon
delivery to Buyer's warehouse in Lake Mary, Florida.
SECTION 11. ACCEPTANCE OR REJECTIONS
11.1 Polymers shall provide and maintain an inspection procedure and
quality assurance program for Units and their production processes. This
procedure shall permit Polymers to meet the level of quality described in
Section 6.3. Inspection records maintained by Polymers, including gauge
inspection, tool inspection, and equipment calibration, shall be made available
to Buyer, at a reasonable time, upon request.
11.2 Buyer may inspect and test all Units prior to acceptance or
rejection, and may refuse to accept Units which do not conform to the
specifications in this Agreement. All Units shall be subject to preliminary and
final inspection by Buyer. If, after thirty (30) working days from Delivery of
Units, Buyer has not notified Polymers of rejection, the Units shall be deemed
to be accepted by Buyer. In the event that Units are delivered to Buyer's
European subsidiaries, Buyer shall have thirty (30) working days from delivery
of the goods to such European subsidiaries' warehouse to give notice of
rejection to Polymers. The act of payment for Units shall not of itself signify
Buyer's acceptance.
11.3 If Buyer rejects any Units, Polymers shall, at Polymers'
discretion, repair, adjust, replace or refund any monies paid for any Units
which fail to meet the specifications set forth in this Agreement.
11.4 The rights granted to Buyer pursuant to this Section 11 are in
addition to and shall not be construed as a limitation upon the Warranties given
by Polymers to the Buyer in Section 8 of this Agreement.
SECTION 12. PAYMENT
12.1 Buyer will not pay Polymers for Units or charges for Units unless
the Units are produced, and the charges were incurred to fill an authorized
Purchase Order previously submitted to Polymers by Buyer.
12.2 Polymers shall submit invoice(s) to Buyer upon shipment of Units.
Invoice(s) shall be sent to:
NSA International, Inc.
4180 Pilot Drive
Memphis, Tennessee 38118
Attention: Joy Lewis
12.3 Terms of payment shall be as follows: Invoices received between
the 1st and 15th of any month will be paid by Buyer on the last business day of
such month. Invoices received between the 16th and the end of
<PAGE> 6
any month will be paid by Buyer prior to the 15th day of the next month. Any
amounts owed for Units purchased hereunder which are not paid when due shall
bear interest at a rate of ten percent (10%) per annum.
12.4 The following information is required to be clearly stated on the
invoice:
Buyer Purchase Order Number
Quantity
Terms of Payment
Unit Price
12.5 The payments described in this Section 12, fully compensate
Polymers for all work performed under this Agreement.
12.6 The Buyer shall pay to Polymers any sales or use tax which may be
assessed on any sale of the Units, and any freight, transit, handling and
insurance costs of the Units. Said payment shall be made at the time of payment
of the invoices for the Units who sale gives rise to such costs and taxes.
12.7 Cost of any services other than manufacturing which Buyer
requests Polymers to perform including without limitation, marketing, research
and development, engineering, testing and obtaining certifications from
Underwriters Laboratories for any product, shall be born by the Buyer and shall
only be performed if a mutually acceptable written work order establishing the
price for, and scope of, such services is signed by the Buyer and Polymers.
SECTION 13. UNIT REPAIR
POLYMERS SHALL REPAIR OR REPLACE THE DEFECTIVE UNITS WHICH DO NOT MEET
THE SPECIFICATION REQUIREMENTS OR ARE OTHERWISE DEFECTIVE, AND RETURN THEM TO
THE ADDRESS SPECIFIED BY BUYER.
PART III. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY
SECTION 14. CONFIDENTIAL INFORMATION
14.1 Polymers agrees and acknowledges that as a result of this
Agreement, it shall receive and have access to information, including, without
limitation, information regarding the Unit specifications, costs of manufacture,
and pricing, and information regarding the customers of the Buyer, which is
proprietary to and a trade secret of Buyer and which is governed by this Section
14.1. Buyer agrees and acknowledges that all financial information received from
Polymers, all costs of manufacture and pricing of products which Polymers
produces, and the identity of customers and all information regarding customers
of Polymers shall be considered confidential information, which is proprietary
to and a trade secret of Polymers and which is governed by this Section 14.1.
Polymers covenants and warrants to Buyer that Polymers shall not, and Buyer
covenants and warrants to Polymers that Buyer shall not, disclose or divulge
confidential information except to the extent: (a) required by law, (b) to
protect its interests in any dispute or litigation, (c) necessary to perform its
obligations under this Manufacturing Agreement, or (d) if such information
becomes publicly available without breach of this Section 14.1.
14.2 The parties hereby acknowledge that breach of the covenants
contained in Section 14.1 will cause irreparable harm to the party whose trade
secret or confidential information is disclosed. Notwithstanding any other
provision of this Agreement, the parties may enforce the above-described
covenants and warranties by injunction, both preliminary and permanent, it being
agreed that the posting of an injunction bond of no more that $5,000 shall be
sufficient to indemnify the parties against costs of damages which might be
incurred by virtue of any temporary injunction. Nothing herein shall be
construed as prohibiting any party from pursuing any other legal or equitable
remedy available due to the breach of the provisions of this Section 14.
<PAGE> 7
14.3 Nothing in this Section 14 shall be interpreted or construed in
any manner which prevents Buyer from having its products produced by any third
party manufacturer in the event that this Agreement is terminated for any reason
or such manufacture does not violate the terms of this Agreement.
SECTION 15. INTELLECTUAL PROPERTY
15.1 The Buyer warrants and represents to Polymers that the Units
produced pursuant to this Agreement will not be a violation of, or infringement
on, any trademark, patent, trade secret or other proprietary right of any third
party.
15.2 Polymers will promptly advise Buyer if it, and Buyer will promptly
advise Polymers if it, develops a reasonable basis for believing that the
delivered material and/or items may violate any intellectual property rights of
a third party.
15.3 Buyer agrees to notify Polymers promptly in writing of any such
claim.
15.4 Buyer hereby warrants that it has the right to manufacture or have
manufactured the Units that are the subject of this Agreement.
15.5 Polymers acknowledges Buyer's exclusive ownership of the
trademarks affixed to and any patents embodied in the Units and will do nothing
at any time, during or after the term of this Agreement, which could adversely
affect their validity or enforceability, including any modification or
obliteration of the trademark or patent markings on the Units as sold. This
Agreement shall not give Polymers any right to use the NSA name and marks, or
any other trademarks of Buyer, except as specifically authorized by Buyer.
Promptly following the termination of this Agreement for any reason, Polymers
agrees to discontinue use of the NSA marks, and any other Buyer names and
trademarks and to remove, or dispose of, as Buyer shall direct, any signs or
other indicia relating to Buyer's name and trademarks to Buyer and further to
return any molds belonging to Buyer. Following termination of the Agreement,
Polymers shall not be permitted to use the NSA name or marks or any other Buyer
name or trademark in connection with any product. Polymers shall not have any
right to register any trademarks identical with or similar Buyer's trademarks.
All use of Buyer's trademarks by Polymers in connection with this Agreement
shall be subject to Buyer's control and shall inure to the benefit of Buyer.
15.6 The Buyer hereby licenses during the terms of this Agreement to
Polymers the use of the NSA trademark and NSA patents and other intellectual
property rights solely for Polymers' use in the manufacture and sale of products
to the Buyer. Any and all improvements, modifications, inventions or discoveries
by Buyer or its employees relating to the Units shall be the sole and exclusive
property of Buyer. All discoveries, improvements, inventions or modifications
relating to the Units made by Polymers shall be the sole and exclusive property
of Polymers, provided, however, that Polymers hereby grants to Buyer an
irrevocable, non-exclusive, world-wide, royalty-free license to manufacture or
have manufactured and to sell to end consumers such improvements, inventions, or
modifications.
15.7 The Buyer will, at its cost, during the term of this Agreement,
provide the following to Polymers at the manufacturing facility of Polymers
located at 1000 Sand Pond Road, Lake Mary, Florida or any future manufacturing
facility of Polymers; (i) molds for all Units to be manufactured and sold under
this Agreement; (ii) tooling for all Units to manufactured and sold under this
Agreement; (iii) assembling and testing apparatus and equipment for the Units to
manufactured and sold under this Agreement. Polymers shall have possession of
the tooling, testing equipment, assembly equipment and molds owned by Buyer
listed on SCHEDULE 15.6 which is attached hereto. Polymers acknowledges that
these molds are the property of Buyer and will hold such molds in trust for the
benefit of Buyer and use such molds only pursuant to the terms of this
Agreement. Polymers shall be responsible for any and all routine maintenance
required to be performed on the molds consisting of cleaning, lubrication, and
any other customary routine maintenance required to be performed on the molds.
In the event that a mold is damaged as a result the misuse of the mold or
Polymers' failure to properly maintain such mold. Polymers shall repair or
replace such mold at no cost to Buyer. If a mold is damaged as a result of
ordinary wear
<PAGE> 8
and tear that could not be prevented by routine maintenance, Polymers shall have
no obligation to repair or replace the mold.
PART IV. NEW PRODUCTS
SECTION 16. NEW PRODUCTS
16.1 During the term of this Agreement, in the event the Buyer
identifies a potential product in Polymers' area of expertise (hereinafter
defined) not yet in existence which the Buyer feels that could be desirable or
profitable then the Buyer will provide in writing to Polymers its price,
manufacturing and other requirements with respect to that product (the "New Idea
Notice"). Polymers shall have sixty (60) days after delivery to it of the New
Idea Notice to elect to manufacture the potential product under the terms of the
New Idea Notice or other terms to which the parties are mutually agreed with
such election made by Polymers only by written election delivered to the Buyer
within the above-described sixty (60) day period. In the event of such election,
the parties shall mutually agree upon designs and specifications which shall be
attached hereto as a part of EXHIBIT A and that product shall thereafter be
considered a Unit, as such term is defined in this Agreement.
16.2 During the term of this Agreement and to the extent not prohibited
by applicable patent or other law or any applicable agreement, Buyer hereby
grants to Polymers a right of first refusal to manufacture (i) new air and water
filter products which are not set forth on EXHIBIT A, (ii) new products similar
in nature to those products set forth on EXHIBIT A, and (iii) all other products
within the following areas: plastic product manufacturing and assembly, plastic
molding, manufacture and assembly of fragrance products, chemical sales and
manufacture, and sparkling water product manufacture and assembly (hereinafter
all of the foregoing shall be considered collectively "Polymers Area of
Expertise" and each such product shall be a "New Product." Provided, however,
that nothing in this right of first refusal shall be construed or interpreted in
any way to prevent the Buyer from obtaining competitive bids from third party
manufacturers to produce any New Product.
16.3 In the event Buyer wishes to manufacture a New Product, after
obtaining competitive bids on the New Product from third party manufacturers
Buyer shall provide a written notice (the "New Product Notice") to Polymers. The
New Product Notice will contain design and product specifications and all price,
manufacturing, delivery and other material terms agreed to or offered in writing
by any third party manufacturer who has offered to manufacture that New Product
for Buyer. Polymers shall have a period of sixty (60) days from the date upon
which the New Product Notice is received to determine whether or not to exercise
its right of first refusal. If Polymers exercises its right of first refusal, it
must have the ability to produce the New Product in quality, quantity, and at
costs competitive with those specified in New Product Notice. If Polymers does
not exercise its right of first refusal, Buyer shall have the right to have the
New Product produced by a third party manufacturer on the terms specified in the
New Product Notice. If Buyer is unable to have the New Product manufactured upon
the terms set forth in the New Product Notice, Buyer shall be required to
resubmit and New Product Notice to Polymers and Polymers shall have an
additional thirty (30) days from the date of resubmittal to exercise its right
of first refusal.
16.4 If Polymer is granted the right to produce any new products for
Buyer pursuant to Sections 17.1 or 17.2, such new products shall be listed
EXHIBIT A, and shall fall within the definition of a Unit subject to the terms
of this Agreement.
16.5 During the term of this Agreement, if Polymers develops a new
product, other than products developed under contract for third parties, Buyer
shall have the right of first refusal to purchase such product. Polymers shall
submit a product description and term sheet to Buyer. Buyer shall have sixty
(60) days during which to determine whether or not it desires to purchase such
product from Polymers. If Buyer agrees to purchase such product, it will be
added to EXHIBIT A and become a Unit hereunder. If Buyer does not agree to
purchase the product as provided herein, Polymers shall not offer such product
at a lower price to any individual or entity unless it first offers such product
to Buyer at such lower price.
<PAGE> 9
SECTION 17. RAW MATERIALS
17.1 Buyer shall sell to Polymers and Polymers shall purchase from
Buyer the entire requirements of Raw Materials from Buyer's now existing
inventory which Polymers shall require for use in Polymers' business from the
date hereof until such time as Buyer's existing inventory of Raw Materials is
depleted. Buyer is not required to sell Raw Materials in excess of Polymers' own
requirements.
17.2 The price for the Raw Materials shall be Buyer's invoice cost. The
Raw Materials will be sold and billed to the Polymers F.O.B. Buyer's warehouse.
17.3 Polymers shall pay the purchase price to Seller in the following
manner: invoices received by the Polymers between the 1st and 15th of any month
will be paid no later than the last business day of the month in which such
invoices were received. Invoices received between the 16th and the end of a
month shall be paid no later than the 15th of the next month. In the event any
amounts due under this paragraph are unpaid when due, they shall bear interest
at a rate of ten percent (10%) per annum.
17.4 THE RAW MATERIALS ARE BEING SOLD AS IS AND SELLER DOES NOT WARRANT
THAT THE RAW MATERIALS ARE MERCHANTABLE OR FIT FOR ANY PARTICULAR PURPOSE.
HOWEVER, POLYMERS SHALL HAVE THE RIGHT TO REJECT ANY RAW MATERIALS WHICH ARE
DEFECTIVE, IN THE REASONABLE OPINION OF POLYMERS NOTWITHSTANDING ANYTHING HEREIN
TO THE CONTRARY.
PART V. TERM AND TERMINATION
SECTION 18. TERM OF THE AGREEMENT
18.1 The term of this Agreement shall commence on September 1, 1997 and
shall expire on August 31, 2002, provided that Buyer shall have the option to
renew this Agreement for five additional periods of one year each. Buyer shall
provide Polymers one hundred eighty (180) days notice of its intention to
exercise the extension option.
18.2 Either Buyer or Polymers may end this Agreement at any time
without further obligation to the other party pursuant to Section 20,
"CANCELLATION FOR DEFAULT."
SECTION 19. CANCELLATION FOR DEFAULT
19.1 Upon the Buyer delivering to Polymers written notice specifying
the nature of Polymers' default and the expiration of ninety (90) days following
that delivery of that notice of default without Polymers curing that default
then, and only then, shall Buyer have the right to terminate or cancel this
Manufacturing Agreement. A "default" with respect to Polymers, shall mean that
Polymers:
(a) Becomes insolvent or has a petition in bankruptcy, reorganization
or similar action filed by or against it;
(b) Is unable to produce the Units in sufficient volume as required by
this Agreement or maintain the quality control levels specified pursuant to
Section 6 of this Agreement.
(c) Has all or a substantial portion of its capital stock or assets
expropriated or attached by any government entity;
(d) Is dissolved or liquidated or has a petition for dissolution or
liquidation filed with respect to it;
<PAGE> 10
(e) Is subject to property attachment, court injunction, or court
order materially affecting its operations under this Agreement; or
(f) Materially breaches any representation, warranty, covenant or
other agreement contained in that certain Asset Purchase Agreement by and among
NSA Polymers, Inc., NSA International, Inc. and Polymers dated of even date
herewith or any document which is an exhibit thereto or defaults in the payment
of any amounts owed to NSA Polymers, Inc. as a result of such Asset Purchase
Agreement or any document which is an exhibit thereto.
19.2 Upon Polymers delivering to Buyer written notice specifying the
nature of Buyer's default and the expiration of ninety (90) days following that
delivery of that notice of default without Buyer curing that default then and
only then shall Buyer have the right to terminate or cancel this Manufacturing
Agreement. A default with respect to Buyer shall mean that NSA International,
Inc.:
(a) Becomes insolvent or has a petition in bankruptcy, reorganization
or similar action filed by or against it;
(b) Has all or a substantial portion of its capital stock or assets
expropriated or attached by any government entity;
(c) Is dissolved or liquidated or has a petition for dissolution or
liquidation filed with respect to it;
(d) Is subject to property attachment, court injunction, or court
order materially affecting its operations under this Agreement; or
(e) Fails to pay any amount due pursuant to the terms of this
Agreement, provided, however that if Buyer is in good faith contesting any
amount owed to Polymers as a result of this Agreement through appropriate
proceedings, such failure to pay shall not be considered an event of default
under this Agreement;
19.3 In the event of a default and the lapse of any applicable cure
period, the non-defaulting party may agree to continue the Agreement rather than
cancelling it. To do so, that party shall send a notice to the defaulting party
specifying the conditions under which the non-defaulting party will agree to
continue the Agreement. By agreeing to continue the Agreement in this manner,
the non-defaulting party does not waive its right to later cancel the Agreement
for default based on the event of default that is the subject of the notice.
19.4 If Polymers cancels this Agreement for default by Buyer, Buyer
shall pay Polymers all payments for work completed, if it was in response to a
Purchase Order, on the effective date of cancellation. In the event of such a
cancellation, Polymers shall have the right to offset, against payments due
pursuant to those certain promissory notes between Polymers and the Buyer in the
principal amounts of $500,000 and $4,000,000 the amounts of liquidated damages,
calculated in accordance with the provisions of Section 16 which are due from
the Buyer to Polymers, on the dates that such liquidated damages accrue pursuant
to the terms of Section 16.
19.5 If Buyer cancels this Agreement for default by Polymers Buyer
shall pay Polymers the Purchase Price for all Units and work completed in
accordance with this Agreement. Additionally, Buyer shall pay to Polymers,
Buyer's actual costs for any raw materials or components ordered in response to
a purchase order or work-in-process. Polymers shall deliver to Buyer all
documents, information, and work in process produced in performance of this
Agreement. In the event that Buyer cancels this Agreement for default by
Polymers, Buyer shall have no obligation to pay any amounts of liquidated
damages to Polymers, other than those liquidated damages which have accrued
prior to the date upon which this Agreement is terminated.
SECTION 20. CANCELLATION OF PURCHASE ORDERS
20.1 Buyer may cancel Purchase Order(s) or any portions thereof for any
reason by notifying Polymers in writing fifteen (15) days prior to the scheduled
delivery date. Cancellation shall be effective upon Polymers
<PAGE> 11
receipt of the written cancellation notice from Buyer, or thereafter upon the
date specified in such cancellation notice. Polymers shall cease operation on
subject Purchase Orders in accordance with the cancellation notice and shall
make every reasonable effort to cancel commitments for, resale of or divert
materials and/or work-in-process (with the exception of the case such resale or
diversion infringes Buyer's rights under this Agreement).
20.2 In the event of a cancellation of a Purchase Order under this
Section, Buyer will pay Polymers the Purchase Price for completed Units and
shall reimburse Polymers for its actual costs for raw materials, components, and
work-in-process as a result of the cancelled purchase order. Polymers will
deliver to Buyer all completed Units and work-in-process procured on account of
the cancelled Purchase Order(s).
SECTION 21. EXCUSABLE DELAYS
21.1 Neither party shall be in default or liable to the other for any
failure to perform directly caused by events beyond that party's reasonable
control, such as acts of nature, labor strikes, war, insurrections, riots, acts
of governments, embargoes and unusually severe weather provided the effected
party notifies the other party within ten (10) days of the occurrence. Such an
event is an Excusable Delay. THE PARTY EFFECTED BY AN EXCUSABLE DELAY SHALL TAKE
ALL REASONABLE STEPS TO PERFORM DESPITE THE DELAY. If the party is unable to
perform within a reasonable period, this Agreement shall end without any further
obligation of the unaffected party.
SECTION 22. RETURN OF MATERIALS AND RIGHT OF ENTRY
22.1 Unless otherwise notified by Buyer, within one month of the date
of expiration, termination or cancellation of this Agreement, upon payment of
all amounts owed to Polymers other than any liquidated damages accruing in the
future, Polymers shall return to Buyer all materials containing Buyer
Confidential Information or Technical Information, documents produced in the
performance of this Agreement, work-in-process, molds, parts, tools and test
equipment paid for, owned or supplied by Buyer at Buyer's expense.
22.2 In the event of termination of this Agreement by either party,
upon payment of all amounts owed to Polymers other than any liquidated damages
accruing in the future, Buyer shall have the immediate right to enter Polymers
premises and take possession of all Buyer owned tooling or property, to file a
security interest in such tooling or property or to invoke any other legal or
equitable remedy available to protect its interest in the tooling or property.
PART VI. LIABILITY AND INSURANCE
SECTION 23. LIENS, CLAIMS, AND ENCUMBRANCES
23.1 Polymers shall deliver Units, free and clear of all Liens,
Claims, or Encumbrances.
SECTION 24. LIABILITY FOR ACTS OF EMPLOYEES
24.1 Each party is solely responsible for the acts of its employees and
agents, including any negligent acts. Each party shall hold harmless, defend and
indemnify the other against all claims based on acts of its employees or agents.
24.2 Polymers shall maintain comprehensive general liability insurance
for claims for damages because of bodily injury or death and property damage
caused by or arising out of acts or omissions of its employees. Polymers shall
not cancel the insurance without notifying Buyer in writing in advance.
<PAGE> 12
SECTION 25. INSURANCE
25.1 Polymers will, at Polymers' expense, maintain product liability
insurance in such amounts, against such risks, in such form as historically
maintained by NSA Polymers, Inc.
25.2 Each such policy shall (a) name Buyer and Polymers as additional
insured parties thereunder (without any representation or warranty by or
obligation upon Buyer) (b) and provide that at least thirty (30) days prior
written notice of cancellation, amendment, or of lapse shall be given to Buyer
by the insurer.
25.3 Polymers will deliver to Buyer original or duplicate policies of
such insurance, or satisfactory certificates of insurance.
SECTION 26. RELATIONSHIPS WITH EMPLOYEES
26.1 Neither party's employees shall be considered employees or agents
of the other party. Each party shall be solely responsible for paying,
supervising, and directing the manner of work of its employees.
PART VII. GENERAL
SECTION 27. NONEXCLUSIVE AGREEMENT
27.1 This Agreement does not preclude either party from entering
similar agreements with others, or from developing, manufacturing, buying or
selling any product or service, except to the extent that the terms and
conditions of this Agreement would indicate otherwise.
SECTION 28. AMENDMENTS TO THE AGREEMENT
28.1 This Agreement may only be changed or supplemented by a written
amendment, signed by authorized representatives of each party.
SECTION 29. ASSIGNMENT OR DELEGATION
29.1 Neither party may assign its rights or delegate its obligations
under this Agreement without the prior written approval of the other party. Any
attempted assignment or delegation without such an approval shall be void.
Provided, however, that Buyer may assign this Agreement to NSA International,
Inc. or any subsidiary thereof, without being released from its obligations
hereunder.
SECTION 30. GOVERNING LAW
30.1 This Agreement shall be governed by the laws of the State of
Florida.
SECTION 31. FORUM
31.1 All disputes arising under or in connection with this Agreement
shall be determined by actions filed in the courts within the State of Florida.
SECTION 32. SEVERABILITY
32.1 If any provision of this Agreement is held to be illegal, invalid
or unenforceable, the remaining provisions shall not be affected.
<PAGE> 13
SECTION 33. EFFECT OF TITLE AND HEADINGS
33.1 The title of the Agreement and the headings of its Sections are
included for convenience, and shall not affect the meaning of the Section.
SECTION 34. NOTICE
34.1 All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<TABLE>
<CAPTION>
If to the Seller: Copy to:
<S> <C>
NSA Polymers, Inc. G. Robert Morris, Esq.
4260 East Raines Road Baker, Donelson, Bearman & Caldwell
Memphis, Tennessee 38115 165 Madison Avenue, Suite 2000
Attention: Charles R. Evans, Jr. Memphis, Tennessee 38103
If to the Buyer: Copy to:
Polymers, Inc. Robert S. MacDonald, Esq.
1000 Sand Pond Road Subin, Shams, Rosenbluth, Moran
Lake Mary, Florida 32746 Losey & Brennan, P.A.
Attention: J. Rushton Bailey 111 North Orange Avenue, Suite 900
Orlando, Florida 32801
</TABLE>
SECTION 35. WAIVER
35.1 Failure of either party to insist in any strict conformance to any
term herein, or in Purchase Orders issued hereunder or failure by either party
to act in the event of a breach or default shall not be construed as a consent
to or waiver of that breach or default or any subsequent breach or default of
the same or any other term contained herein.
SECTION 36. INDEMNITY
36.1 Indemnification of Polymers by Buyer. Buyer shall indemnify,
defend, and hold harmless, Polymers, its officers, directors, shareholders and
agents against and in respect of, any and all claims, losses, expenses, costs,
obligations, and liabilities, including reasonable attorney fees, incurred by
Polymers as a result of any injury to or death of any person, or damage to
property caused by any design defect or product specification in any Unit
manufactured pursuant to this Agreement or in tooling, molds or other equipment
provided by Buyer, provided, however, that Buyer shall not be required to
indemnify Polymers for any liability incurred by Polymers as a result of its
failure to maintain such tooling, molds, or other equipment as provided in this
Agreement or Polymers improper use or operation of such tooling, molds, or other
equipment.
36.2 Notice to Buyer; Opportunity to Defend. Polymers agrees to give
prompt notice to Buyer of the assertion of any claim, or the commencement of any
suit, regulatory investigation, action or proceeding in respect of which
indemnity may be sought under PARAGRAPH 38.1. Buyer may participate in, or at
its election assume the defense of any such suit, action or proceeding at
Buyer's expense. Buyer shall not be liable under PARAGRAPH 38.1 for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder, which consent shall not
be unreasonably withheld.
<PAGE> 14
36.3 Indemnification of Buyer by Polymers. Polymers shall indemnify,
defend, and hold harmless, the Buyer, its officers, directors, shareholders and
agents against and in respect of, any and all claims, losses, expenses, costs,
obligations, and liabilities, including reasonable attorney fees, incurred by
Buyer as a result of (a) any injury to or death of any person, or damage to
property caused by a Unit manufactured in breach of Polymers' Warranties
contained in Section 8 or resulting from an individual's use of any Unit
manufactured in breach of Polymers' Warranties in Section 8, or (b) the actual
withdrawal and recall costs and expenses and any incidental and consequential
damages incurred by Buyer due to Polymer's manufacture of the Units in breach of
its Warranties contained in Section 8 or if a recall of Units manufactured in
breach of Section 8 is ordered by a court of competent jurisdiction or
governmental agency.
36.4 Notice to Polymers; Opportunity to Defend. Buyer agrees to give
prompt notice to Polymers of the assertion of any claim, or the commencement of
any suit, regulatory investigation, action or proceeding in respect of which
indemnity may be sought under PARAGRAPH 38.3). Polymers may participate in, or
at its election assume the defense of any such suit, action or proceeding at
Polymers' expense. Polymers shall not be liable under PARAGRAPH 38.1 for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder, which consent shall not
be unreasonably withheld.
SECTION 37. AGENCY
37.1 Nothing contained herein shall be deemed to authorize or empower
Polymers or its Subsidiaries to act as an agent for Buyer or to conduct business
in the name of Buyer.
SECTION 38. SURVIVAL OF TERMS
38.1 All obligations and duties that by thus nature survive the
expiration, cancellation, or termination of this Agreement shall remain in
effect after expiration, cancellation or termination, including Section 8
(Warranties), 13 (Unit Repair Section), 14 (Confidential Information), and 15
(Intellectual Property) and shall bind the parties and their legal
representatives, successors and assigns.
SECTION 39. COMPLETE AGREEMENT
39.1 This Agreement including its Exhibits and Purchase Orders issued
under it is the complete statement of the parties' agreement, and supersedes all
previous and contemporaneous written and oral communication about its subject.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
NSA POLYMERS, INC.
By:
----------------------------------------
Title:
-------------------------------------
NSA INTERNATIONAL, INC.
By:
----------------------------------------
Title:
-------------------------------------
POLYMERS, INC.
By:
----------------------------------------
Title:
-------------------------------------
<PAGE> 1
EXHIBIT 10.21
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 9th
day of September, 1997, by and between NSA POLYMERS, INC., a Florida corporation
("NSA"), and POLYMERS, INC., a Florida corporation ("Polymers"). NSA and
Polymers occasionally are collectively referred to herein as the "parties," and
individually as a "party."
W I T N E S S E T H:
WHEREAS, Polymers is the maker of that certain promissory note dated
February 1, 1994, payable to NSA in the original principal amount of Four
Million Dollars ($4,000,000) (the "Original Note");
WHEREAS, the current outstanding balance of principal and interest
under the Original Note is Four Million One Hundred Ninety Thousand Dollars
($4,190,000);
WHEREAS, Polymers desires to restructure the indebtedness owed to NSA
as evidenced by the Original Note and to obtain a working capital revolving line
of credit from United American Bank ("UAB"), or another third party lender
satisfactory to Polymers and NSA;
WHEREAS, NSA has agreed to restructure such indebtedness owed by
Polymers, subject, however, to the consummation of the above-described financing
arrangement between Polymers and UAB or such other third party;
WHEREAS, pursuant to the debt restructuring, Polymers has agreed to
issue, and NSA has agreed to accept, shares of Polymers' preferred stock in
exchange for the cancellation of a portion of the indebtedness evidenced by the
Original Note and the execution by Polymers of a revised, replacement promissory
note in the original principal amount of One Million Five Hundred Thousand
Dollars ($1,500,000) (the "Polymers Note").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Preferred Stock. Polymer shall adopt and file
with the Secretary of State of Florida on or before the Closing (as hereinafter
defined) Amended and Restated Articles of Incorporation in the form attached
hereto as EXHIBIT A (the "Amended Articles"). Subject to the terms and
conditions of this Agreement, NSA agrees to purchase,and the Company agrees to
sell and issue to NSA at the Closing 2,190,000 shares of Polymers' preferred
stock (the "Preferred Stock") having the rights, preferences, privileges and
designations set forth in the Amended Articles. NSA shall purchase, and Polymers
shall sell, such Preferred Stock at a price of One Dollar ($1.00) per share,
such amount to be paid by NSA by the exchange of $2,190,000 of the aggregate
outstanding indebtedness owed by Polymers to NSA as evidenced by the Original
Note.
1.2 Closing. The purchase and sale of the Preferred Stock shall be
consummated at such time and location as NSA and Polymers shall mutually agree
in writing (which time and location are designated as the "Closing"); provided,
however, that the Closing shall not be later than December 1, 1997. At the
Closing, Polymers shall deliver to NSA a certificate representing the Preferred
Stock.
2. Representations and Warranties of Polymers. Polymers hereby
represents and warrants to NSA that:
2.1 Organization; Good Standing; Qualifications. Polymers is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Florida, has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be
1
<PAGE> 2
conducted, to execute and deliver this Agreement, to issue and sell the
Preferred Stock (upon filing of the Amended Articles), and to carry out the
provisions of this Agreement. Polymers is duly qualified to transact business
and is in good standing in each jurisdiction in which the failure so to qualify
would have a material adverse effect on its business, properties, prospects or
financial condition.
2.2 Authorization. All corporate action on the part of Polymers, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of Polymers
hereunder, and the authorization, issuance, sale, and delivery of the Preferred
Stock being sold hereunder has been taken or will be taken prior to the Closing,
and this Agreement constitutes the valid and legally binding obligation of
Polymers, enforceable in accordance with its terms.
2.3 Valid Issuance of Preferred Stock. The Preferred Stock, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully-paid
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer imposed under applicable state and federal securities
laws.
2.4 Governmental/Third Party Consents. No consent, approval,
qualification, order or authorization of, or filing with, any local, state or
federal governmental authority or any third party is required on the part of
Polymers in connection with Polymers' valid execution, delivery or performance
of this Agreement, or the offer, sale or issuance of the Preferred Stock, except
the filing of the Amended Articles with the Secretary of State of the State of
Florida.
2.5 Capitalization. The authorized capital of Polymers will consist
prior to the Closing of:
(i) Preferred Stock. Two Million One Hundred Ninety Thousand
(2,190,000) shares of preferred stock, without par value, all of which
will be sold and issued pursuant to this Agreement. The rights,
privileges, preferences and designations of the Preferred Stock will be
as provided in the Amended Articles.
(ii) Common Stock. 1,000,000 shares of common stock, no par
value, of which three (3) shares are issued and outstanding. The issued
and outstanding shares of common stock are owned by the shareholders in
the amounts specified on SCHEDULE 2.5(II) hereto.
(iii) There are not outstanding any options, warrants, rights
(including conversion or preemptive rights and rights of first refusal)
or agreements for the purchase or acquisition from Polymers of any
shares of its capital stock. Polymers is not a party or subject to any
agreement or understanding, and there is no agreement or understanding
between any persons, that affects or relates to the voting or giving of
written consents with respect to any security or the voting by a
director of Polymers.
2.6 Subsidiaries. Polymers does not own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity. The company is not a participant in any joint venture,
partnership, or other similar arrangement.
2.7 Financial Statements; Undisclosed Liabilities. Attached hereto as
EXHIBIT B are the unaudited financial statements of Polymers as of August 31,
1997, as prepared by the Company (collectively the "Polymers Financial
Statements"). The Polymers Financial Statements present fairly the financial
condition of Polymers as of such date. As of the date of the Polymers Financial
Statements, Polymers had no material liabilities (matured or unmatured, fixed or
contingent) which are not fully reflected or provided for on the Polymers
Financial Statements.
2.8 Events Subsequent to Polymers Financial Statements. Since the date
of the Polymers Financial Statements, there has not been any Material Adverse
Change in the business, financial condition, operations, results of operations,
or future prospects of Polymers. "Material Adverse Change" means any occurrence
or omission the
2
<PAGE> 3
effect of which reduces the value of the assets of Polymers, or reduces the
gross sales by Polymers, in an amount equal to or greater than ten percent
(10%).
3. Representations and Warranties of NSA. NSA hereby represents and
warrants to Polymers that:
3.1 Organization; Authorization. NSA is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Florida.
NSA has full power and authority to enter into this Agreement, and, subject to
approval by the Board of Directors of NSA, to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of NSA,
subject, however, to approval by the Board of Directors of NSA.
3.2 Purchase for Own Account. The Preferred Stock will be acquired for
investment for NSA's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof. NSA has no present intention
of selling or granting any participation in, or otherwise distributing, the
Preferred Stock. NSA does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to the Preferred Stock.
3.3 Holder of Original Note. NSA currently is the holder of the
Original Note, and NSA has not negotiated, assigned, sold, disposed of or
otherwise transferred the Orginal Note.
4. Pre-Closing Covenants. The parties agree as follows with respect
with the period between the execution of this Agreement and the Closing:
4.1 General. Each of the parties will use its best efforts to take all
actions and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in SECTION 5 below).
4.2 Operation of Business. Except as contemplated pursuant to this
Agreement, Polymers will not engage in any practice, take any action, or enter
into any transaction outside its ordinary course of business consistent with
past practice. Without limiting the generality of the foregoing, Polymers will
not declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase or otherwise acquire any of its
capital stock.
4.3 Preservation of Business. Polymers will keep its business
properties substantially intact, including its present operations, physical
facilities, working conditions and relationships with lessors, licensors,
suppliers and employees.
4.4 Full Access. Polymers will permit representatives of NSA to have
full access at all reasonable times, and in a manner so as not to interfere with
the normal business operations of Polymers, to all premises, properties,
personnel, books, records, contracts and documents of or pertaining to Polymers.
4.5 Notice of Developments. Polymers will give prompt written notice to
NSA of any material adverse development causing a breach of any of the
representations and warranties in SECTION 2 above or any of the covenants set
forth in this SECTION 4. No disclosure pursuant to this SECTION 4.5, however,
shall be deemed to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
5. Conditions Precedent to Obligation to Close.
5.1 Conditions to Obligation of NSA. The obligation of NSA to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
3
<PAGE> 4
(i) The representations and warranties of Polymers set
forth in SECTION 2 shall be true and correct in all material respects
at and as of the Closing;
(ii) Polymers shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) Those certain shareholders of Polymers identified on
SCHEDULE 2.5(II) hereto shall have made an additional capital
contribution to Polymers of at least $200,000 in the aggregate;
(iv) Polymers shall have delivered to NSA an officer's
certificate to the effect that the conditions specified above in this
SECTION 5.1(I)-(III) are satisfied in all respects;
(v) Polymers shall have filed with the Secretary of State of
the State of Florida the Amended Articles in the form attached hereto
as EXHIBIT A, which Amended Articles shall be in effect at and as of
the Closing;
(vi) Polymers shall have consummated its financing from UAB,
or such other third party lender satisfactory to NSA, to provide
Polymers with a minimum $1,500,000 revolving line of credit to fund the
working capital requirements of Polymers;
(vii) The Board of Directors of NSA shall have approved this
Agreement, as well as all transactions contemplated herein and hereby;
and
(viii) All actions to be taken by Polymers in connection with
the consummation of the transactions contemplated herein and all
certificates, opinions, and instruments, and other documents required
to effect the transactions contemplated herein shall have been taken or
executed and delivered, as applicable, and shall be satisfactory in
form and substance to NSA.
NSA may waive any conditions specified in this SECTION 5.1 in
its sole discretion if it executes a writing so stating at or prior to
the Closing.
5.2 Conditions to Obligation of Polymers. The obligation of Polymers to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) The representations and warranties of NSA set forth in
SECTION 3 above shall be true and correct in all material respects at
and as of the Closing;
(ii) NSA shall have conformed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) NSA shall have delivered to Polymers a certificate to
the effect that the condition specified above in this SECTION 5.2(I) is
satisfied in all respects;
(iv) All actions to be taken by NSA in connection with the
consummation of the transactions contemplated herein and all
certificates, instruments and other documents required to effect the
transactions contemplated herein shall have been taken or executed and
delivered, as applicable, and shall bereasonably satisfactory in form
and substance to Polymers.
Polymers may waive any conditions specified in this SECTION
5.2 if it executes a writing so stating at or prior to the Closing.
4
<PAGE> 5
6. Deliveries at Closing.
6.1 Deliveries by Polymers. At the Closing, Polymers shall deliver the
following instruments and documents to NSA:
(i) The Polymers Note in the form attached hereto as
EXHIBIT C in the principal amount of One Million Five Hundred Thousand
Dollars ($1,500,000);
(ii) The Amended and Restated Security Agreement in the form
attached hereto as EXHIBIT D;
(iii) The stock certificate representing 2,190,000 shares of
the Preferred Stock of Polymers;
(iv) A copy of the "Filed-stamped" Amended Articles as filed
with the Secretary of State of the State of Florida;
(v) Evidence of the consummation of the bank financing
described in SECTION 5.1(V) above;
(vi) An opinion of Polymers' counsel in a form reasonably
satisfactory to NSA and its legal counsel;
(vii) The certificate described in SECTION 5.1(IV) above;
(viii) Such UCC-1 and UCC-3 financing statements as may be
reasonably requested by NSA; and
(ix) Such other documents as NSA may reasonably request to
effect the transactions contemplated by this Agreement.
6.2 Deliveries by NSA. At the Closing, NSA shall deliver the following
instruments and documents to Polymers:
(i) The certificate described in SECTION 5.2(III) above;
(ii) Such certificates, instruments or documents set forth
in SECTION 6.1 above that require execution by NSA; and
(iii) Such other documents as Polymers may reasonably request
to effect the transactions contemplated by this Agreement.
7. Termination.
7.1 Termination of Agreement. This Agreement may be terminated by the
parties as provided below:
(i) NSA and Polymers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) NSA may terminate this Agreement by giving written
notice to Polymers at any time prior to Closing if the Closing shall
not have occurred on or before December 1, 1997, by reason of the
failure of any condition precedent under SECTION 5.1 hereof (unless
the failure results primarily from NSA itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(iii) Polymers may terminate this Agreement by giving written
notice to NSA at any time prior to the Closing if the Closing shall not
have occurred on or before December 1, 1997 by reason of the failure
5
<PAGE> 6
of any condition precedent under SECTION 5.2 hereof (unless the failure
results primarily from Polymers itself breaching any representation,
warranty, or covenant contained in this agreement).
7.2 Effect of Termination. If any party terminates this agreement
pursuant to SECTION 7.1 above, all rights and obligations of the parties
hereunder shall terminate without any liability of any party to any other party
(except for any liability of the party then in breach).
8. Idemnification.
8.1 Survival of Representations and Warranties. All of the
representations and warranties of Polymers contained in this Agreement shall
survive the Closing for a term of two (2) years. The representations and
warranties of NSA contained in this Agreement shall not survive the Closing.
8.2 General Indemnification Provisions for Benefit of NSA. In the event
Polymers breaches any of its representations, warranties, and covenants
contained herein, then Polymers shall indemnify NSA from and against the
entirety of any loss, liability or expense NSA may suffer through and after the
date of claim for indemnification (including any loss, liability or expense NSA
may suffer after the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of or caused by the breach.
9. Miscellaneous.
9.1 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
9.2 Entire Agreement. This Agreement (specifically including all
documents referred to herein) constitutes the entire agreement between the
parties and supersedes any prior understandings, agreements, or representations
by or between the parties, written or oral, to the extent they related in any
way to the subject matter hereof.
9.3 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other party.
9.4 Relationship between the Parties. This Agreement shall not create
the relationship of principal and agent between the parties. NSA shall have no
authority to make any commitment on behalf of Polymers and Polymers shall have
no authority to make any commitment on behalf of NSA.
9.5 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
6
<PAGE> 7
<TABLE>
<CAPTION>
If to the Seller: Copy to:
<S> <C>
Charles Evans G. Robert Morris, Esq.
NSA Polymers, Inc. Baker, Donelson, Bearman & Caldwell, P.C.
4260 E. Raines Road 165 Madison Ave., Suite 2000
Memphis, Tennessee 38118 Memphis, Tennessee 38103
Fax: (901) 541-1335 Fax: (901) 577-2303
If to the Buyer: Copy to:
J. Rushton Bailey Emery Rosenbluth
Polymers, Inc. Subin, Rosenbluth, Losey, Brennan,
1000 Sand Pond Road Bittman & Moore
Lake Mary, Florida 32746 Suite 900, 111 North Orange Ave.
Fax: (407) 333-7317 Orlando, Florida 32802
Fax: (407) 648-0660
</TABLE>
Any party may send any notice, request, demand, claim or other
communication hereunder to the intended recipient at the address set forth
above, using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, facsimile, ordinary mail, or electronic
mail), but no such notice, request, demand, claim or other communication shall
be deemed to have been duly given unless and until it is actually received by
the intended recipient. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder or to be delivered
by giving the other party notice in the manner herein set forth.
9.8 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by NSA
and Polymers. NSA may consent to any such amendment at any time prior to the
Closing subject to authorization of its Board of Directors. No waiver by any
party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
9.9 Severability. Any term or provision of this Agreement that is
adjudged to be invalid or unenforceable by a court of competent shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.10 Expenses. NSA and Polymers will bear their own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
9.11 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
9.12 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by this reference
and made a part hereof. The parties agree and acknowledge that the Exhibits and
Schedules will be prepared jointly by the parties.
7
<PAGE> 8
9.13 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Florida without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Florida or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Florida.
9.14 Mediation. Should any dispute, controversy, difference or claim
arise among the parties concerning the interpretation, performance or
enforcement of this Agreement, the parties shall use their best efforts to
settle such disputes amicably between themselves. However, if such efforts fail
to resolve the dispute within thirty (30) days from the date written notice of
the dispute was given by one party to the other party, the parties agree that
such dispute will be submitted to mediation in accordance with the Commercial
Mediation Rules of the American Mediation Association (the "Rules") before a
panel of three (3) mediators appointed in accordance with the Rules (the
"Mediation Panel"). The mediation will be held as promptly as possible at such
time as the Mediation Panel may determine.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NSA:
NSA POLYMERS, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
POLYMERS:
POLYMERS, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
8
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
NSA N.V.
(Belgium)
National Safety Associates, Ltd.
(Ontario, Canada)
National Safety Associates of America (U.K.) Limited
(England)
National Safety Associates of America (Ireland) Limited
(Ireland)
NSA International GmbH
(Germany)
NSA Polymers, Inc.
(Florida)
NSA Direktverkauf A.G.
(Switzerland)
NSA B.V.
(The Netherlands)
NSA S.A.R.L.
(France)
NSA s.r.1.
(Italy)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NSA INTERNATIONAL, INC. FOR THE YEAR ENDED APRIL 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,121
<SECURITIES> 1,509
<RECEIVABLES> 3,158
<ALLOWANCES> 80
<INVENTORY> 6,588
<CURRENT-ASSETS> 14,193
<PP&E> 1,978
<DEPRECIATION> 1,382
<TOTAL-ASSETS> 17,874
<CURRENT-LIABILITIES> 12,864
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 3,646
<TOTAL-LIABILITY-AND-EQUITY> 17,864
<SALES> 22,213
<TOTAL-REVENUES> 835
<CGS> 17,018
<TOTAL-COSTS> 19,643
<OTHER-EXPENSES> 8,691
<LOSS-PROVISION> 1,080
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,421)
<INCOME-TAX> (265)
<INCOME-CONTINUING> (4,156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,156)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
</TABLE>
