<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1998
------------------------------
[ ] 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: 0-18921
--------------------------------------------------------
VERDANT BRANDS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-0848688
- ---------------------------------------- --------------------------------------
(State of incorporation or organization) (I.R.S. Employer Identification No.)
9555 James Avenue South, Suite 200, Bloomington, Minnesota 55431-2543
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 703-3300
-----------------------------------------------
(Issuer's telephone number, including area code)
Ringer Corporation
------------------
(Former name)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
The number of shares outstanding of each of the registrant's classes of
capital stock, as of July 31, 1997, was:
Common Stock, $.01 par value 16,690,261 shares
Transitional Small Business Issuer format: [ ] Yes [X] No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
---------------------
VERDANT BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 159,115 $ 423,272
Accounts receivable 14,702,485 4,437,264
Inventories 11,068,799 8,803,909
Prepaid assets 747,287 1,180,250
------------ ------------
Total current assets 26,677,686 14,844,695
Property and equipment (net) 2,708,931 2,904,094
Intangible assets (net) 13,199,639 13,469,697
Other assets 150,967 204,893
------------ ------------
Total assets $42,737,223 $31,423,379
============ ============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C> <C>
Bank line of credit $ 7,609,641 $ 3,024,910
Accounts payable 10,132,958 7,818,030
Accrued expenses 2,314,785 1,961,898
Current portion of long-term debt 301,703 1,538,866
------------ ------------
Total current liabilities 20,359,087 14,343,704
Long-Term Debt 7,123,003 3,306,821
Shareholders' Equity:
Common Stock, par value $.01 per share,
authorized 25,000,000 shares, issued and
outstanding 16,690,261 and 16,688,061
shares, respectively 166,903 166,881
Additional paid-in capital 37,869,047 37,603,682
Receivable from sale of stock (249,375)
Accumulated deficit (22,295,666) (23,809,763)
Cumulative translation adjustment (235,776) (187,946)
------------ ------------
Total shareholders' equity 15,255,133 13,772,854
------------ ------------
Total liabilities and shareholders' equity $ 42,737,223 $ 31,423,379
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
VERDANT BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
NET SALES $15,886,707 $ 7,358,048 $31,745,288 $12,197,159
COST OF SALES 9,856,355 3,915,140 20,049,368 6,511,481
----------- ----------- ----------- -----------
Gross Profit 6,030,352 3,442,908 11,695,920 5,685,678
OPERATING EXPENSES:
Distribution 1,720,618 806,627 3,049,607 1,314,826
Sales & Marketing 1,681,964 1,527,132 3,526,982 2,414,204
General & Administration 1,045,066 643,476 1,927,579 1,111,023
Product Development & Registrations 557,213 227,559 1,091,432 647,551
----------- ----------- ----------- -----------
5,004,861 3,204,794 9,595,600 5,487,604
----------- ----------- ----------- -----------
INCOME BEFORE OTHER
EXPENSE 1,025,491 238,114 2,100,320 198,074
OTHER EXPENSE, NET (321,699) (54,035) (586,223) (67,575)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 703,792 184,079 1,514,097 130,499
INCOME TAXES
NET INCOME $ 703,792 $ 184,079 $ 1,514,097 $ 130,499
=========== =========== =========== ===========
Net income per common
share - basic and diluted $.04 $.02 $.09 $.01
=========== =========== =========== ===========
Shares used in calculating basic
net income per share 16,689,246 12,117,534 16,688,654 11,525,617
=========== =========== =========== ===========
Shares used in calculating diluted
net income per share 16,939,972 12,175,454 16,870,346 11,554,577
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
VERDANT BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,514,097 $ 130,499
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 768,071 329,532
Loss on disposal of intangible assets 5,055 72,217
Loss on disposal of assets 7,144 1,529
(Increase) decrease in assets:
Trade accounts and notes receivable (10,169,598) 1,027,005
Inventories (2,275,694) 582,808
Prepaid expenses 232,809 (77,166)
Increase (decrease) in liabilities:
Accounts payable 2,552,839 (2,461,549)
Accrued expenses 129,037 527,068
------------ -----------
Net cash used in (provided by) operating activities (7,236,240) 131,943
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (96,269) (9,535)
Proceeds from sale of equipment 1,265 5,705
Purchase of intangible assets (75,707) (23,112)
------------ -----------
Net cash used in investing activities (170,711) (26,942)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from bank line of credit 8,584,731
Cash received in Dexol acquisition 124,073
Proceeds from issuance of common stock 16,012
Principal payments on long-term debt (1,449,791) (6,400)
------------ -----------
Net cash received from financing activities 7,150,952 117,673
Effect of exchange rate changes on cash (8,158) 505
------------ -----------
Increase (decrease) in cash and cash equivalents (264,157) 223,179
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 423,272 1,391,069
------------ -----------
END OF PERIOD $ 159,115 $ 1,614,248
============ ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
VERDANT BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998
Note 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Verdant
Brands, Inc. (formerly Ringer Corporation) have been prepared in
accordance with generally accepted accounting principles for interim
financial information. They should be read in conjunction with the
annual financial statements included in the Company's Annual Report on
Form 10-KSB for the prior fiscal year ended September 30, 1997 and the
Company's Transition Report on Form 10-QSB for the transition period
from October 1, 1997 through December 31, 1997. In the opinion of
management, the interim consolidated financial statements include all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the results for the interim periods presented.
Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the operating results to be expected for the
fiscal year ending December 31, 1998. Certain reclassifications were
made to prior year financial statements to be consistent with those
classifications used in the current year. These reclassifications had
no effect on shareholders' equity or net income or loss as previously
reported.
Effective December 15, 1997, the Company adopted Statement on Financial
Standard No. 128, "Earnings Per Share". Earnings per share for prior
year periods have been restated for the adoption of SFAS No. 128. The
following table reflects the calculation of basic and diluted earnings
per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Earnings Per Share - Basic
--------------------------
Net income $ 703,792 $ 184,079 $ 1,514,097 $ 130,499
----------- ----------- ----------- -----------
Weighted average shares 16,689,246 12,117,534 16,688,654 11,525,617
----------- ----------- ----------- -----------
Net income per share $ .04 $ .02 $ .09 $ .01
=========== =========== =========== ===========
Earnings Per Share - Assuming Dilution
--------------------------------------
Net income $ 703,392 $ 184,079 $ 1,514,097 $ 130,499
----------- ----------- ----------- -----------
Weighted average shares 16,689,246 12,117,534 16,688,654 11,525,617
Dilutive impact of options and warrants 250,726 57,920 181,692 28,960
----------- ----------- ----------- -----------
Weighted average shares and potential dilutive
shares outstanding 16,939,972 12,175,454 16,870,346 11,554,577
----------- ----------- ----------- -----------
Net income per share $ .04 $ .02 $ .09 $ .01
=========== =========== =========== ===========
</TABLE>
Note 2. CHANGE IN FISCAL YEAR
In February 1998, management announced its decision to change the
Company's fiscal year end from September 30 to December 31. In
connection therewith, the Company filed a Transition Report on Form 10-
QSB for the period from October 1, 1997 through December 31, 1997 to
transition to the beginning of its new fiscal year which began on
January 1, 1998. Comparative prior period financial information has
been conformed to the new year end.
5
<PAGE>
Note 3. ACQUISITIONS
Merger with Southern Resources, Inc.
------------------------------------
On December 8, 1997, a subsidiary of Verdant Brands, Inc. (the
"Company") merged with Southern Resources, Inc. ("SRI") which, on that
date, became a wholly-owned subsidiary of the Company. Prior to the
merger, SRI was privately held. SRI is a Fort Valley, Georgia-based
corporation with annual consolidated sales in 1997 of approximately $25
million, which, through its wholly-owned subsidiary, SureCo, Inc.,
manufactures and markets traditional liquid and granular pesticides.
Its products are sold under a variety of proprietary and private label
brand names to commercial and consumer retail markets throughout North
America. Commercial pesticides are sold principally under the AllPro(R)
brand to specialty agricultural, turf ornamental and professional pest
control distributors. Consumer products are sold into the consumer
retail market principally under the Rigo/Black Leaf(R) brand as well as
under various private label store brands. The Company is currently
operating SRI as a stand-alone subsidiary.
The Company acquired all of the outstanding stock of SRI in exchange
for 4,500,000 shares of the Company's restricted common stock with an
aggregate valuation of $4,218,750. The SRI acquisition was accounted
for using the purchase method of accounting rather than the pooling-of-
interest method as originally announced. The change in accounting
methods was required because of management's decision to dispose of
certain assets and activities of the combined business entities. Such a
disposal precludes the pooling of interest method of accounting. The
Company has not yet finalized its analysis of the full financial impact
associated with its disposal plans.
The SRI purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair market values at the
date of acquisition. The excess of purchase price over the estimated
fair market values of assets acquired and liabilities assumed
("goodwill") totals approximately $2,072,000. The goodwill is being
amortized on a straight-line basis over thirty years. SRI's operations
are included in the Company's consolidated statements of operations
subsequent to the effective date of the acquisition which, for
accounting purposes, is December 1, 1997. The Company is completing the
process of establishing fair values of assets acquired and liabilities
assumed. As part of this process, during the three months ended March
31, 1998, the Company reallocated $4,950,000 of the purchase price from
goodwill to product registrations and trademarks, which are being
amortized over twenty years. Since the Company has not formally
completed the valuation process, further adjustments to the allocation
of purchase price based on a final determination of fair values may
occur.
Acquisition of the assets of Dexol Industries, Inc.
---------------------------------------------------
In March 1997, the Company completed the acquisition of substantially
all of the assets of Dexol Industries, Inc. ("Dexol"), a California-
based manufacturer and marketer of home and garden pesticides sold
under the Dexol(R) and various private label brand names, for an
aggregate purchase price of approximately $3,012,790 (the "Dexol
Acquisition"). The purchase price was comprised of the issuance of
1,059,340 shares of the Company's restricted common stock valued at
$1,397,005, the issuance of a promissory note to Dexol with a principal
amount of $1,477,000 bearing simple interest at an annual rate of prime
plus 3/4% and estimated transaction costs of $138,785.
The Dexol Acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair
market values at the date of acquisition. The excess of purchase price
over estimated fair market value of net assets acquired ("goodwill") of
approximately $1,840,000 is being amortized on a straight-line basis
over twenty years. Since the acquisition, the Company has operated the
acquired business as its Dexol division and has continued marketing
Dexol products. Dexol division operations are included in the
6
<PAGE>
Company's consolidated statements of operations from the effective date
of the acquisition which, for accounting purposes, is March 1, 1997.
,
Note 4. Sales of the Company's products are greater during the period of
January 1 through June 30 of each year due to seasonal factors.
Note 5. All comparative data reflect application of consistent accounting
principles. A total of $195,000 in estimated co-op advertising expense
accruals remaining from 1997 were reversed during the quarter based on
actual co-op claims received.
Note 6. Inventory consists of the following:
June 30, December 31,
1998 1997
----------- ------------
Raw Materials $ 7,219,360 $ 5,148,988
Finished Goods 3,849,439 3,654,921
----------- ------------
$11,068,799 $ 8,803,909
=========== ============
Note 7. LONG-TERM DEBT
June 30, December 31,
1998 1997
----------- -------------
Line of credit, long-term portion $ 4,000,000
Term loans 1,587,418 $ 3,025,241
Notes payable 1,824,451 1,805,241
Capital lease obligations 12,837 15,205
Less current portion (301,703) (1,538,866)
----------- -------------
$ 7,123,003 $ 3,306,821
=========== =============
Note 8. Supplemental disclosure of cash flow information.
Cash paid (received) for interest during the period for:
Six Months Ended
June 30,
------------------------
1998 1997
----------- -----------
Interest paid $ 554,468 $ 116,164
Interest received (6,095) (14,198)
Note 9. PRO FORMA FINANCIAL INFORMATION
The following table sets forth unaudited pro forma sales, net income
before taxes, net income and income per share for the Company as if the
Verdant Brands, Inc., Dexol and SRI businesses had been combined at the
beginning of the three months and six months periods ended June 30,
1997. This pro forma financial information is provided for illustrative
purposes only. It is not necessarily indicative of actual operating
results that would have occurred had the acquisition been in effect for
the periods presented and is not necessarily indicative of results
which may be obtained in the future. The operations of Dexol and SRI
are included in the Company's statements of operations for the three
months and six months ended June 30, 1998, therefore pro forma
information is not applicable for those periods.
7
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1997
-------------- --------------
Net sales $15,172,000 $29,373,000
Net income before taxes 275,700 801,000
Net income 275,700 801,000
Income per share -
basic and diluted $ .02 $ .05
NOTE 10. ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income," for its fiscal year beginning
January 1, 1998. Total comprehensive income for the three month and six
month periods ended June 30, 1998 was $654,471 and $1,466,267,
respectively. Components of comprehensive income include net income and
foreign currency translation adjustments.
****
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
Name Change to Verdant Brands, Inc.
- -----------------------------------
At the Company's 1998 Annual Shareholders Meeting, the shareholders
approved a proposal to change the Company's name from Ringer Corporation to
Verdant Brands, Inc. The Company announced its intent to change its name in its
first quarter earnings press release on April 30, 1998. The name change occurred
on July 20, 1998. In connection with the name change, the Company adopted the
new trading symbol of "VERD" for its shares traded on the NASDAQ National Market
System.
Merger with Southern Resources, Inc.
- ------------------------------------
On December 8, 1997, a subsidiary of Verdant Brands, Inc. (the "Company") merged
with Southern Resources, Inc. ("SRI") which, on that date, became a wholly-owned
subsidiary of the Company. Prior to the merger, SRI was privately held. SRI is a
Fort Valley, Georgia-based corporation with annual consolidated sales in 1997 of
approximately $25 million, which, through its wholly-owned subsidiary, SureCo,
Inc., manufactures and markets traditional liquid and granular pesticides. Its
products are sold under a variety of proprietary and private label brand names
to commercial and consumer retail markets throughout North America. Commercial
pesticides are sold principally under the AllPro(R) brand to specialty
agricultural, turf ornamental and professional pest control distributors.
Consumer products are sold into the consumer retail market principally under the
Rigo/Black Leaf(R) brand as well as under various private label store brands.
The Company is currently operating SRI as a stand-alone subsidiary.
The Company acquired all of the outstanding stock of SRI in exchange for
4,500,000 shares of the Company's restricted common stock with an aggregate
valuation of $4,218,750. The SRI acquisition was accounted for using the
purchase method of accounting rather than the pooling-of-interest method as
originally announced. The change in accounting methods was required because of
management's decision to dispose of certain assets and activities of the
combined business entities. Such a disposal precludes the pooling of interest
method of accounting. The Company has not yet finalized its analysis of the full
financial impact associated with its disposal plans.
The SRI purchase price has been allocated to the assets acquired and liabilities
assumed based on their estimated fair market values. The excess of purchase
price over the estimated fair market values of assets acquired and liabilities
assumed ("goodwill") totals approximately $2,072,000. The goodwill is being
amortized on a straight-line basis over thirty years. SRI's operations are
included in the Company's consolidated statements of operations subsequent to
the effective date of the acquisition which, for accounting purposes, is
December 1, 1997. The Company is completing the process of establishing fair
values of assets acquired and liabilities assumed. As part of this process,
during the three months ended March 31, 1998, the Company reallocated $4,950,000
of the purchase price from goodwill to product registrations and trademarks,
which are being amortized over twenty years. Since the Company has not formally
completed the valuation process, further adjustments to the allocation of
purchase price based on a final determination of fair values may occur.
Acquisition of the assets of Dexol Industries, Inc.
- ---------------------------------------------------
In March 1997, the Company completed the acquisition of substantially all of the
assets of Dexol Industries, Inc. ("Dexol"), a California based manufacturer and
marketer of home and garden pesticides sold under the Dexol(R) and various
private label brand names, for an aggregate purchase price of approximately
$3,012,790 (the "Dexol Acquisition"). The purchase price was comprised of the
issuance of 1,059,340 shares of the Company's restricted common stock valued at
$1,397,005, the issuance of a promissory note to Dexol with a principal amount
of $1,477,000 bearing simple interest at an annual rate of prime plus 3/4% and
estimated transaction costs of $138,785.
9
<PAGE>
The Dexol Acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair market values at the date of
acquisition. The excess of purchase price over estimated fair market value of
net assets acquired ("goodwill") of approximately $1,840,000 is being amortized
on a straight-line basis over twenty years. Since the acquisition, the Company
has operated the acquired business as its Dexol division and has continued
marketing Dexol products. Dexol division operations are included in the
Company's consolidated statements of operations from the effective date of the
acquisition which, for accounting purposes, is March 1, 1997.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company as a
percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1998 1997 1998 1997
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 62.0 53.2 63.2 53.4
------ ------ ------ ------
Gross profit 38.0 46.8 36.8 46.6
Operating Expenses:
Distribution 10.8 11.0 9.6 10.8
Sales & Marketing 10.6 20.7 11.1 19.8
General & Administrative 6.6 8.8 6.1 9.1
Product Development & Registration 3.5 3.1 3.4 5.3
------ ------ ------ ------
31.5 43.6 30.2 45.0
------ ------ ------ ------
Income before other expense 6.5 3.2 6.6 1.6
Other expense, net (2.1) (.7) (1.8) (.5)
------ ------ ------ ------
Net income 4.4 % 2.5 % 4.8 % 1.1 %
====== ====== ====== ======
</TABLE>
The following table sets forth the percentage of net sales represented by each
of the Company's major product categories:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1998 1997 1998 1997
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Pest control 90.4 % 85.7 % 89.6 % 80.9 %
Fertilizers and composting 9.6 14.3 10.4 19.1
------ ------ ------ ------
100.0 % 100.0 % 100.0 % 100.0 %
====== ====== ====== ======
</TABLE>
Seasonal factors effecting sales and results of operations
Sales during the year are very seasonal. First quarter sales normally
consist of sales on initial orders from direct customers and reorders from
distributors who made their initial purchases for the season in the final
quarter of the preceding year. Second and third quarter sales consist largely of
reorders from direct-ship customers and sales of in-season promotion products.
Fourth quarter sales consist primarily of shipments on early season orders from
distributors who are stocking warehouses for the upcoming spring selling season.
Most of the Company's sales occur during the months of December through June of
each year. The level of sales for the fiscal year depends largely upon the level
of retail sales of the Company's products to home owner consumers and the level
of unsold retail inventory of the Company's products remaining in retail and
wholesale distribution channels carried over from the previous year. Retail
sales to consumers are affected by numerous outside circumstances such as
weather, competitors' products and sales and marketing programs, as well as new
product introductions. Each of these factors can fluctuate substantially from
10
<PAGE>
year to year and from quarter to quarter. Total year sales cannot be accurately
projected with any degree of certainty based on results for the three months and
six months ended June 30.
Comparison of the three months ended June 30, 1998 to the three months ended
June 30, 1997
Net Sales. Net sales increased $8,528,659 or 116% to $15,886,707 in the
three months ended June 30, 1998 compared to $7,358,048 for the three months
ended June 30, 1997. The increase was due primarily to the addition of
approximately $7.9 million in 1998 net sales generated from business and product
lines added as a result of the acquisition of SRI in December 1997. Increased
sales of the Company's Safer(R) brand pesticides contributed to the remaining
increase in net sales.
Gross Margins. Gross margins as a percent of sales decreased to 38.0% for
the three months ended June 30, 1998 compared to 46.8% for the three months
ended June 30, 1997. The decrease was the result of the SRI product sales added
in 1998 which shifted product mix to an increased proportion of traditional
chemical pesticides sales which carry lower average gross margins compared to
the sales mix in 1997. In addition, unfavorable manufacturing efficiency
variances were incurred at the SRI plant caused by certain material and
packaging shortages, down time associated with manufacturing equipment repair
and other factors, which further contributed to the decrease in gross margins as
a percent of sales.
Operating Expenses. Distribution expenses increased in absolute dollars
by $913,991 or 113% to $1,720,618 for the three months ended June 30, 1998 from
$806,627 for the three months ended June 30, 1997, but decreased as a percentage
of sales to 10.8% for the three months ended June 30, 1998 from 11.0% for the
three months ended June 30, 1997. The increase in distribution expenses in
absolute dollars in 1998 compared to 1997 was primarily due to incremental
distribution expenses incurred on increased sales in 1998 compared to 1997. The
decrease in distribution expenses as a percentage of sales reflects lower
average freight cost on SRI shipments due to closer proximity to customer
locations.
Sales and marketing expenses in absolute dollars increased $154,832 or
10.1% to $1,681,964 for the three months ended June 30, 1998 from $1,527,132 for
the three months ended June 30, 1997, but decreased as a percentage of sales to
10.6% for the three months ended June 30, 1998 compared to 20.7% for the same
period in 1997. The increase in sales and marketing expenses was largely due to
increased variable selling expenses associated with higher sales levels, offset
in part by the reversal of $195,000 in estimated co-op advertising accruals
originally recorded in 1997, and the addition of the SRI sales and marketing
organizations for the three months ended June 30, 1998. The decrease in sales
and marketing expenses as a percentage of sales for the three months ended June
30, 1998 compared to the same period in 1997 was largely the result of synergies
experienced from combining the various sales and marketing organizations and
eliminating redundant expenses and unnecessary overhead.
General and administrative costs increased $401,590 or 62.4% to
$1,045,066 for the three months ended June 30, 1998 from $643,476 for the three
months ended June 30, 1997. The increase was primarily due to the addition of
SRI general and administrative expenses and increased amortization of intangible
assets associated with the SRI acquisition.
Product development and registration expenses increased $329,654 or
144.9% to $557,213 for the three months ended June 30, 1998 compared to $227,559
for the three months ended June 30, 1997. The increase was due primarily to
increased product registration costs for products added in the SRI acquisitions.
Other Expense, Net. Net other expense increased by $267,664 to $321,699
for the three months ended June 30, 1998 compared to net other expense of
$54,035 for the three months ended June 30, 1997. The increase in net other
expense was mainly due to additional interest expense on increased borrowings on
the Company's lines of credit and interest expense incurred on long-term and
short-term debt assumed in the SRI acquisition.
11
<PAGE>
Comparison of the six months ended June 30, 1998 to the six months ended June
30, 1997
Net Sales. Net sales increased $19,548,129 or 160.3% to $31,745,288 in
the six months ended June 30, 1998 compared to $12,197,159 for the six months
ended June 30, 1997. The increase was due primarily to additional sales
generated from the Dexol and SRI acquisitions. Net sales for the six months
ended June 30, 1998 contained approximately $15.9 million in SRI net sales
compared to no SRI net sales for the six months ended June 30, 1997. In
addition, the six month period ended June 30, 1998 included six months of Dexol
product sales totaling approximately $6.8 million compared to only four months
of Dexol product sales totaling $4.8 million included in the six months ended
June 30, 1997. Increased sales of the Company's Safer(R) brand pesticides
contributed to the remaining increase in net sales.
Gross Margins. Gross margins as a percent of sales decreased to 36.8% for
the six months ended June 30, 1998 compared to 46.6% for the six months ended
June 30, 1997. The decrease was the result of the SRI product sales added in
1998 which shifted product mix to an increased proportion of traditional
chemical pesticide sales which carry lower average gross margins compared to the
sales mix in 1997. In addition, unfavorable manufacturing efficiency variances
incurred at the SRI plant caused by certain material and packaging shortages,
down time associated with manufacturing equipment repair and other factors,
further contributed to the decrease in gross margins as a percent of sales.
Operating Expenses. Distribution expenses increased in absolute dollars
by $1,734,781 or 131.9% to $3,049,607 for the six months ended June 30, 1998
from $1,314,826 for the three months ended June 30, 1997, but decreased as a
percentage of sales to 9.6% for the six months ended June 30, 1998 from 10.8%
for the six months ended June 30, 1997. The increase in distribution expenses in
absolute dollars in 1998 compared to 1997 was primarily due to incremental
distribution expenses incurred on increased sales in 1998 compared to 1997. The
decrease in distribution expenses as a percentage of sales reflects lower
average freight cost on SRI shipments due to closer proximity to customer
locations.
Sales and marketing expenses in absolute dollars increased $1,112,778 or
46.1% to $3,526,982 for the six months ended June 30, 1998 from $2,414,204 for
the three months ended June 30, 1997, but decreased as a percentage of sales to
11.1% for the six months ended June 30, 1998 compared to 19.8% for the same
period in 1997. The increase in sales and marketing expenses was largely due to
increased variable selling expenses associated with higher sales levels, offset
in part by the reversal of $195,000 in estimated co-op advertising accruals
originally recorded in 1997, and the addition of the SRI sales and marketing
organizations for the six months ended June 30, 1998. The decrease in sales and
marketing expenses as a percentage of sales for the three months ended June 30,
1998 compared to the same period in 1997 was largely the result of synergies
experienced from combining the various sales and marketing organizations and
eliminating redundant expenses and unnecessary overhead.
General and administrative costs increased $816,556 or 73.5% to
$1,927,579 for the six months ended June 30, 1998 from $1,111,023 for the six
months ended June 30, 1997. The increase was primarily due to the addition of
SRI general and administrative expenses and increased amortization of intangible
assets associated with the SRI acquisition.
Product development and registration expenses increased $443,881 or 68.5%
to $1,091,432 for the six months ended June 30, 1998 compared to $647,551 for
the three months ended June 30, 1997. The increase was due primarily to
increased product registration costs for products added in the SRI acquisitions.
Other Expense, Net. Net other expense increased by $518,648 to $586,223
for the six months ended June 30, 1998 compared to net other expense of $67,575
for the six months ended June 30, 1997. The increase in net other expense was
mainly due to additional interest expense on increased borrowings on the
Company's lines of credit and interest expense incurred on long-term and short-
term debt assumed in the SRI acquisitions.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's operations and cash needs are highly seasonal. During the
three months ended December 31 of each year, the Company usually solicits and
ships early orders and expands production to build inventory needed for its
major selling season. During the three months ended March 31, the Company's
shipments consist of initial sales to direct mass merchant customers and reorder
sales to certain distribution customers. Most of the Company's seasonal
shipments and therefore most of the billings that result in revenue recognition
and in receivables, occur during the months of December through June of each
year. Accordingly, the Company typically consumes significant cash in operating
activities during the periods from October through June from year to year as it
finances increases in its inventory, primarily during the periods from October
through April, and increases in receivables, primarily during the period from
late December through the end of May. The Company has historically relied upon
bank lines of credit to fund seasonal cash needs.
Consistent with such seasonal fluctuations, cash decreased by $264,157
during the six months ended June 30, 1998. The decrease in cash reflects the
following: cash of $7,236,240 consumed in operating activities, primarily to
finance increased receivables and inventory which was offset in part by cash
provided by increased accounts payable, cash of $170,711 consumed in investing
activities to purchase equipment and intangible assets, and cash provided from
financing activities of $7,150,952 consisting of $8,584,731 in borrowings
against the Company's bank lines of credit, $16,012 proceeds from the sale of
common stock, offset by principal payments on long-term debt of $1,449,791.
The Company relies on bank financing in the form of working capital lines
of credit to fund seasonal increases in receivables and inventory. The Company
currently has in place a three-year $25,000,000 credit facility with GE Capital
Services that expires in May 2000, which funds working capital needs of the
parent company and its wholly owned subsidiaries, Safer, Inc. and SRI.
Borrowings under the line of credit are limited to an aggregate borrowing base
calculated using 85% of qualified accounts receivable and 60% to 65% of
qualified inventory. The credit facility is intended to finance the Company's
seasonal working capital needs and to provide working capital financing for
future acquisitions. The Company's wholly-owned subsidiary, SRI, previously had
in place an $8,000,000 working capital credit facility with a commercial finance
corporation which matured on April 22, 1998. In April 1998, the Company
consolidated this line into its GE Capital Services line. Outstanding borrowings
on the GE Capital Services line of credit at June 30, 1998 totaled $11,609,641
of which $4,000,000 is classified as long-term debt.
Due to increased cash demands caused by unusually slow collections on
certain large customers' accounts receivable, relatively high inventory levels,
cash demands required to fund SRI operations and payment of certain components
of SRI debt, the Company has had to extend accounts payable beyond normal
payment terms in order to minimize borrowings and manage short-term cash flow.
The Company is aggressively pursuing collections on past due accounts receivable
and is working to reduce inventory levels to help reduce immediate cash needs.
In addition, the Company anticipates that it may need additional long-term
financing to meet projected working capital and operating needs for 1999 and is
currently pursuing such financing. The Company believes it will be successful in
acquiring the long-term financing needed; however, there is no assurance that
adequate long-term financing will be secured. The Company believes that cash on
hand and its credit facilities will be adequate to meet the Company's cash needs
for the remainder of fiscal 1998.
The Company has no material purchase commitments. Although the Company
continues to evaluate companies and product lines for possible acquisition, no
such agreements are currently in place.
The Company believes that inflation has not had a significant impact on
the results of its operations.
FORWARD LOOKING INFORMATION
- ---------------------------
The information contained in this Quarterly Report includes forward-
looking statements as defined in Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements involve a number of risks
and uncertainties, including: changes in demand from major customers; effects of
competition and competitive
13
<PAGE>
responses to the Company; changes in product mix, product costs, inventory
levels and customer mix and its effect on financial performance; changes in
operating expenses; the Company's ability to raise long-term financing to
satisfy its operating needs; and other factors disclosed throughout this
Quarterly Report and the Company's other filings with the Securities and
Exchange Commission. The actual results that the Company achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties. The Company undertakes no obligation to revise any forward-
looking statement in order to reflect events or circumstances that may arise
after the date of this report. Readers are urged to carefully review and
consider the various disclosures made by the Company in this report and in the
Company's other reports filed with the Securities and Exchange Commission that
attempt to advise interested parties of the risks and uncertainties that may
affect the Company's financial condition and results of operations.
Year 2000 Concerns
- ------------------
The Company has completed an upgrade of its computer systems which bring the
systems into year 2000 compliance. The Company invested approximately $250,000
over the last two years in these upgrades. The Company is in the process of
evaluating other computer related administrative systems to determine year 2000
compliance and expects to complete this review by December 31, 1998. Costs to
bring these systems into compliance are not expected to be material to the
Company. The Company has also begun to survey major customers, vendors and
suppliers to determine year 2000 compliance issues and the potential financial
impact of non-compliance by outside parties on the Company. The Company expects
to have this review completed by December 31, 1998.
*********
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company's wholly-owned subsidiary, SRI, is a party to a governmental
action and certain legal proceedings in Superior Court of Fulton County,
Georgia, brought by or on behalf of property owners in the area of SRI's Fort
Valley, Georgia, manufacturing site, relating to contamination discovered on or
near the site. Management believes that the contamination arose prior to the
purchase of the plant site by SRI from an unaffiliated predecessor owner. The
former owner has been cooperating with governmental authorities and has
initiated remedial activities on the site. Management believes that the
governmental and legal actions relating to the property will not result in loss
to SRI.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to shareholders for a vote at the
Company's annual shareholders meeting on April 15, 1998. All items of business
at the annual shareholder meeting were approved by a vote of a majority of
outstanding shares. There were 16,688,061 shares of common stock entitled to
vote at the meeting and a total of 16,198,299 shares (97.07%) were represented
at the meeting. Items of business conducted at the meeting and corresponding
votes are as follows:
1. The election of eight directors as stated in the proxy statement. All
directors were incumbents standing for reelection, except for
David K. Vansant, who was elected as a new director to increase the
current number of directors to eight.
Voting: Stanley Goldberg: For: 16,119,041 Withhold: 79,258
Gordon F. Stofer For: 16,119,441 Withhold: 78,858
Robert W. Fischer For: 16,080,181 Withhold: 118,118
Donald E. Lovness For: 16,114,851 Withhold: 83,448
Franklin Pass For: 16,122,591 Withhold: 75,708
Frederick J. Yanni, Jr. For: 16,122,741 Withhold: 75,558
John F. Hetterick For: 16,124,251 Withhold: 74,048
David K. Vansant For: 16,128,151 Withhold: 70,148
2. The approval to amend the Articles of Incorporation to change the name of
the Company from "Ringer Corporation" to "Verdant Brands, Inc."
Voting: For 14,953,110; Against 1,182,045; Abstain 63,144;
Broker non-votes -0-
3. The approval of an amendment to the Stock Option Plan
for Non-Employee Directors to increase the number of shares of Common Stock
reserved for issuance upon the exercise of stock
options granted under the Plan from 200,000 shares to 400,000 shares.
Voting: For 14,426,059; Against 1,710,258; Abstain 61,982;
Broker non-votes -0-
4. The ratification of the sale of 150,000 shares of unregistered restricted
common stock to Stanley Goldberg and the sale of 50,000 shares of
unregistered restricted common stock to Mark G. Eisenschenk.
Voting: For 14,514,824; Against 1,546,433; Abstain 137,042;
Broker non-votes -0-
5. The ratification of the selection of Deloitte and Touche to serve as the
Company's independent auditors.
Voting: For 16,113,164; Against 59,920; Abstain 28,215;
Broker non-votes -0-
15
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
Exhibit
- -------
Number Description
- ------ -----------
2.1 Agreement for Purchase and Sale of Assets by and between Ringer
Corporation and Dexol Industries, Inc. (incorporated by reference to
Exhibit 2.1 of the Company's Amended Current Report on Form 8-K/A
filed on June 16, 1997, SEC File No. 0-18921).
2.2 Amended and Restated Agreement and Plan of Merger by and between
Ringer Corporation and Souther Resources, Inc. (incorporated by
reference to Exhibit 2.1 of the Company's Amended Current Report on
Form 8-K/A filed on February 19, 1998, SEC File No. 0-18921).
4.1 Specimen certificate of Common Stock, $.01 par value (incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-18, SEC File No. 33-36205-C).
* 10.1 1986 Employee Incentive Stock Option Plan (incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on Form S-8,
SEC File No. 33-37806).
* 10.2 Amendment No.1 dated January 1, 1988, Amendment No. 2 dated September
9, 1992 and Amendment No. 3 dated January 4, 1995 to the Company's
1986 Employee Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.2 of the Company's Quarterly Report on Form 10-QSB dated
March 31, 1998, SEC File No. 0-18921).
* 10.3 Stock Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.2 of the Company's Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1993, SEC File No. 0-
18921).
* 10.4 Amendment No.1 to the Company's Stock Option Plan for Non-Employee
Directors dated December 8, 1997 (incorporated by reference to Exhibit
10.4 of the Company's Quarterly Report on Form 10-QSB dated March 31,
1998, SEC File No. 0-18921).
10.5 Lease Agreement between the Company and 94th Street Associates, a
Minnesota Partnership, dated August 15, 1996 (incorporated by
reference to Exhibit 10.3 of the Company's Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1996, SEC File No. 0-
18921.)
10.6 Lease Agreement between the Company and MEPC American Properties,
Inc., a Delaware corporation, dated August 16, 1996 (incorporated by
reference to Exhibit 10.4 of the Company's Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1996.)
* 10.7 Employment Agreement between the Company and Stanley Goldberg dated
September 13, 1992 (incorporated by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992, SEC File No. 0-18921).
* 10.8 Amendment of Employment Agreement between the Company and Stanley
Goldberg, dated December 5, 1997 (incorporated by reference to Exhibit
10.6 of the Company's Amended Annual Report on Form 10-KSB/A for the
fiscal year ended September 30, 1997, SEC File No. 0-18921).
16
<PAGE>
* 10.9 Employment Agreement between the Company and Mark G. Eisenschenk,
dated December 5, 1997 (incorporated by reference to Exhibit 10.7 of
the Company's Amended Annual Report on Form 10-KSB/A for the fiscal
year ended September 30, 1997, SEC File No. 0-18921)..
* 10.10 Stock purchase agreement, and related documents, between the Company
and Stanley Goldberg, dated April 29, 1997 (incorporated by reference
to Exhibit 10.8 of the Company's Amended Annual Report on Form 10-
KSB/A for the fiscal year ended September 30, 1997, SEC File No. 0-
18921).
* 10.11 Stock purchase agreement, and related documents, between the Company
and Mark G. Eisenschenk, dated April 29, 1997 (incorporated by
reference to Exhibit 10.9 of the Company's Amended Annual Report on
Form 10-KSB/A for the fiscal year ended September 30, 1997, SEC File
No. 0-18921).
10.12 Credit Agreement between the Company and General Electric Capital
Corporation dated May 2, 1997 (incorporated by reference to Exhibit
10.6 of the Company's Quarterly Report on Form 10-QSB for the third
fiscal quarter ended June 30, 1997, SEC File No. 0-18921).
10.13 Consent and First Amendment to Credit Agreement, dated December 9,
1997, between the Company and General Electric Capital Corporation
dated May 2, 1997.
10.14 Consent to Credit Agreement, dated December 11, 1997, between the
Company and General Electric Capital Corporation dated May 2, 1997.
10.15 Second Amendment, dated April 22, 1997, to Credit Agreement between
the Company and General Electric Capital Corporation dated May 2,
1997.
10.16 Stock Subscription Warrant between the Company and Robert W. Fischer
Co., Inc. dated July 18, 1990 (incorporated by reference to Exhibit
10.16 of the Company's Registration Statement on Form S-18, SEC File
No. 33-36205-C).
10.17 Cross-Licensing and Joint Licensing/Sale Agreement between Ringer
Corporation and Mycogen Corporation, dated May 31, 1994 (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1994, SEC File No. 0-
18921).
10.18 Patent License Agreement between Ringer Corporation, Mycogen
Corporation and Monsanto Company, dated June 29, 1994 (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10
-QSB for the fiscal quarter ended June 30, 1994, SEC File
No. 0-18921).
* 10.19 Ringer Corporation 1996 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1996.)
27.1 Financial Data Schedule
* Management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
-------------------
The Company filed no Current Reports on Form 8-K during the three months
ended June 30, 1998.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
VERDANT BRANDS, INC.
Dated: August 11, 1998 By /S/ Stanley Goldberg
----------------------
Stanley Goldberg
President and Chief Executive Officer
Dated: August 11, 1998 By /S/ Mark G. Eisenschenk
-------------------------
Mark G. Eisenschenk
Executive Vice President and Chief Financial
Officer
(principal financial officer)
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
- -------
Number Description
- ------ -----------
10.13 Consent and First Amendment to Credit Agreement, dated December 9,
1997, between the Company and General Electric Capital Corporation
dated May 2, 1997.
10.14 Consent to Credit Agreement, dated December 11, 1997, between the
Company and General Electric Capital Corporation dated May 2, 1997.
10.15 Second Amendment, dated April 22, 1997, to Credit Agreement between
the Company and General Electric Capital Corporation dated May 2,
1997.
27.1 Financial Data Schedule
* Management contract or compensation plan or arrangement.
------------
19
<PAGE>
Exhibit 10.13
CONSENT AND FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------------------
This CONSENT AND FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"),
dated as of December 9, 1997, is among RINGER CORPORATION ("Ringer") and SAFER,
INC. ("Safer") (Ringer and Safer are sometimes referred to herein individually
as a "Borrower" and collectively as the "Borrowers"), and GENERAL ELECTRIC
CAPITAL CORPORATION, as Lender.
RECITALS
--------
A. Borrowers and Lender are parties to that certain Credit Agreement
dated as of May 2, 1997 (as from time to time amended, restated, supplemented or
otherwise modified and in effect, the "Credit Agreement"), pursuant to which
Lender has made and may hereafter make loanS and advances and other extensions
of credit to Borrowers.
B. Borrowers desire to consummate, and Lender is willing to consent to,
the "Transactions" (as hereinafter defined), all on the terms and conditions set
forth in this Amendment.
C. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment; capitalized terms used herein
without definition are so used as defined in Annex A to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. Request. Borrowers hereby request that Lender consent to: (a) Ringer's
creation of a wholly-owed Subsidiary of Ringer to be merged with and into SRI,
with SRI remaining as the surviving corporation and a wholly-owned Subsidiary of
Ringer; (1,) SRI's maintenance of (i) the Fremont Loan and (ii) all other
Indebtedness of SRI outstanding and in effect as of the date hereof (the "Other
Debt"); and (c) the changing of each Borrower's and SRI's Fiscal Year to
December 31 (collectively the "Transactions").
2. Consent. Subject to the conditions set forth in this Amendment,
Lender hereby consents to the Transactions; provided that: (a) the Fremont Loan
shall be refinanced in full on or prior to April 30, 1998; (b) Lender shall have
the right, at its sole discretion, but not an obligation, to refinance the
Fremont Loan and no Person shall enter into any agreement or understanding with
any other Person to provide such refinancing without first offering such
opportunity to Lender and Lender having declined such opportunity; (c) except as
may be granted to Lender, no Stock of SRI shall at any time be subject to any
Lien; (d) after the consummation of the Transactions, all Financial Statements
of Ringer shall be provided on a consolidated and consolidating basis; (e) SRI
shall not be considered a Subsidiary of Ringer for purposes of calculating
Borrowers' compliance with the Financial Covenants set forth in Annex G to the
Credit Agreement; (f) no Credit Party shall advance to SRI, or cause or permit
to be advanced to SRI, and SRI shall not incur, any intercompany Indebtedness of
whatsoever nature; (g) no Credit Party shall incur, or cause or permit to be
incurred, any Guaranteed Indebtedness in respect of any Indebtedness or other
obligation of SRI of whatsoever nature; (h) no Credit Party shall make, or cause
or permit to be made, any investment in SRI of whatsoever nature; and (i) SRI
shall at no time incur or otherwise assume any Indebtedness or Guaranteed
Indebtedness in addition to the Fremont Loan and the Other Debt.
1
<PAGE>
3. Amendment. The Credit Agreement is hereby amended as follows:
(a) The following clause (o) is inserted immediately after clause (n)
contained in Section 8.1 of the Credit Agreement:
(o) A default, event of default or other failure of SRI to perform
any of its obligations in respect of the Fremont Loan, or any document or
other instrument executed or delivered in connection therewith, shall
occur.
(b) The term "Fiscal Year" contained in Annex A to the Credit Agreement is
replaced with the following defined term:
"Fiscal Year" shall mean any of the annual accounting periods of
Borrowers ending with December 31 of each year.
(c) The following defined term is inserted into Annex A to the Credit
Agreement in appropriate alphabetical order:
"Fremont Loan" shall mean that certain revolving credit facility
outstanding between SRI and Fremont Financial Corp. having a maximum
principal amount of $8,000,000, as in effect as of December 9, 1997
(d) The following defined term is inserted into Annex A to the Credit
Agreement in appropriate alphabetical order:
"SRI" shall mean Southern Resources Inc., a Georgia corporation.
4. Conditions to Effectiveness. This Amendment shall become effective on
the date first set forth above, provided that:
(a) Credit Parties and Lender have duly executed and delivered all
appropriate signature pages to this Amendment;
(b) the Transactions shall be consummated in accordance with all
applicable provisions of the Credit Agreement, after giving effect to
Section 2 of this Amendment; and
(c) the representations and warranties of Borrowers contained in
Section 5 below shall be true, accurate and complete in all respects as of
the effective date of this Amendment.
5. Representations and Warranties. Borrowers hereby represent and warrant
to Lender that:
(a) As of the date of this Amendment, and after giving effect to this
Amendment and the transactions contemplated hereby, no Default or Event of
Default shall have occurred or be continuing;
(b) As of the date of this Amendment, and after giving effect to this
Amendment and the transactions contemplated hereby, the representations and
warranties of Borrowers contained in the
2
<PAGE>
Loan Documents are true, accurate and complete in all respects on and as of
the date hereof to the same extent as though made on and as of such date,
except to the extent such representations and warranties specifically
relate to an earlier date; and
(c) (i) The execution, delivery and performance by each Borrower of
this Amendment and each of the documents and agreements described herein,
or contemplated hereby, to which such Borrower is a party are within its
corporate powers and have been duly authorized by all necessary corporate
action on the part of such Borrower, (ii) this Amendment and such documents
and agreements are the legal, valid and binding obligation of each Borrower
enforceable against each Borrower in accordance with their respective terms
and (iii) neither this Amendment or any such other document or agreement,
nor the execution, delivery or performance by any Borrower thereof (A)
violates any law or regulation, or any order or decree of any court or
Governmental Authority, (B) conflicts with or results in the breach or
termination of, constitutes a default under or accelerates any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or
other instrument to which any Borrower is a party or by which any Borrower
or any of its property is bound or (C) results in the creation or
imposition of any Lien (other than Permitted Encumbrances) upon any of the
Collateral.
6. Effect on Credit Agreement. This Amendment is limited to the specific
purpose for which it is granted and, except as specifically set forth above (i)
shall not be construed as a consent, waiver or other modification with respect
to any term, condition or other provision of the Credit Agreement or any other
Loan Document and (ii) the Credit Agreement and the other Loan Documents shall
remain in lull force and effect and are each hereby ratified and confirmed.
7. Miscellaneous.
7.1 Successors and Assigns. This Amendment shall be binding on and shall
inure to the benefit of Credit Parties, Lender and their respective successors
and assigns, except as otherwise provided herein or therein; provided that no
Credit Patty may assign its rights, obligations, duties or other interests
hereunder without the prior written consent of Lender. The terms and provisions
of this Amendment are for the purpose of defining the relative rights and
obligations of the Credit Parties and Lender with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Amendment.
7.2 Entire Agreement. This Amendment, including all documents attached
hereto, incorporated by reference herein or delivered in connection herewith,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all other understandings, oral or written, with
respect to the subject matter hereof.
7.3 Fees and Expenses. As provided in Section 11.3 of the Credit
Agreement, Borrowers agree to pay on demand all fees, costs and expenses
incurred by Lender in connection with the preparation, execution and delivery of
this Amendment, together with all fees, costs and expenses incurred by Lender
prior to the date hereof which are payable by Borrowers pursuant to Section 11.3
of the Credit Agreement.
7.4 Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
3
<PAGE>
7.5 Counterparts. This Amendment may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one
document.
7.6 Incorporation of Credit Agreement. The provisions contained in
Sections 11.9 and 11.13 of the Credit Agreement are incorporated herein by
reference to the same extent as if reproduced herein in their entirety.
7.7 Acknowledgment. Each Credit Party hereby represents and warrants that
there are no liabilities, claims, suits, debts, liens, losses, causes of action,
demands, rights, damages or costs, or expenses of any kind, character or nature
whatsoever, known or unknown, fixed or contingent (collectively, the "Claims"),
which any Credit Patty may have or claim to have against Lender, or any of their
respective affiliates, agents, employees, officers, directors, representatives,
attorneys, successors and assigns (collectively, the "Lender Released Parties"),
which might arise out of or be connected with any act of commission or omission
of the Lender Released Parties existing or occurring on or prior to the date of
this Amendment, including, without limitation, any Claims arising with respect
to the Obligations or any Loan Documents. In furtherance of the foregoing, each
Credit Party hereby releases, acquits and forever discharges the Lender Released
Parties from any and all Claims that any Credit Party may have or claim to have,
relating to or arising out of or in connection with the Obligations or any Loan
Documents or any other agreement or transaction contemplated thereby or any
action taken in connection therewith from the begin'-of time up to and including
the date of the execution and delivery of this Amendment. Each Credit Party
further agrees forever to refrain from commencing, instituting or prosecuting
any lawsuit, action or other proceeding against any Lender Released Parties with
respect to any and all Claims.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first
written above.
RINGER CORPORATION
By: /s/ Mark Eisenschenk
---------------------
Title: Executive Vice President and CFO
--------------------------------
SAFER, INC.
By: /s/ Mark Eisenschenk
---------------------
Title: Executive Vice President and CFO
--------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
By: /s/ Trevor J. Clark
--------------------
Title: Duly Authorized Signatory
-------------------------
4
<PAGE>
The following Person is a signatory to this Amendment in its capacity as a
Credit Party and not as a Borrower.
SAFER LTD.
By: /S/ Mark Eisenschenk
---------------------
Title: Executive Vice President
-------------------------
5
<PAGE>
Exhibit 10.14
CONSENT TO CREDIT AGREEMENT
---------------------------
This CONSENT TO CREDIT AGREEMENT (this "Consent"), dated as of
December 11,1997, is among RINGER CORPORATION ("Ringer") and SAFER, INC. ("
Safer") (Ringer and Safer are sometimes referred to herein individually as a
"Borrower" and collectively as the "Borrowers"), and GENERAL ELECTRIC CAPITAL
CORPORATION, as Lender.
RECITALS
--------
A. Borrowers and Lender are parties to that certain Credit Agreement
dated as of May 2, 1997 (as from time to time amended, restated, supplemented or
otherwise modified and in effect, the "Credit Agreement"), pursuant to which
Lender has made and may hereafter make loans and advances and other extensions
of credit to Borrowers.
B. Borrowers desire that Lender consent to the "SureCo Loan" (as
hereinafter defined), all on the terms and conditions set forth in this Consent.
C. This Consent shall constitute a Loan Document and these Recitals shall
be construed as part of this Consent; capitalized terms used herein without
definition are so used as defined in Annex A to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenant hereinafter contained, the parties hereto agree as follows:
1. Request. Borrowers hereby request that Lender consent to the extension
by Ringer to SureCo, Inc., a Georgia corporation ("SureCo"), of Indebtedness
(the "SureCo Loan"), subject to the terms and conditions set forth in this
Consent.
2. Consent. Subject to the terms and conditions set forth in this
Consent, Lender hereby consents to the SureCo Loan; provided that: (a) SureCo
shall have first executed and delivered to Ringer a demand note (the "SureCo
Note") to evidence the SureCo Loan, which SureCo Note shall be in the form
attached as Exhibit A hereto and shall be pledged and delivered to Agent as
additional Collateral for the Obligations; (b) Ringer shall record all advances
under the SureCo Loan on its books and records in a manner satisfactory to
Agent; (c) at the time any advance under the SureCo Loan is made and after
giving effect thereto, SureCo and Ringer shall be Solvent; (d) no Default or
Event of Default would occur and be continuing after giving effect to any such
proposed advance under the SureCo Loan; (e) no more than five (5) advances shall
be made under the SureCo Loan; (f) the aggregate principal amount of
Indebtedness owing by SureCo under the SureCo Loan shall not exceed $500,000 at
any one time outstanding; (g) the cumulative amount of Indebtedness advanced
under the SureCo Loan shall not exceed $500,000; (h) no amount of the SureCo
Loan which is repaid shall be re-borrowed; and (i) SureCo shall at all times be
a direct wholly- owned Subsidiary of SRI and SRI shall at all times be a direct
wholly-owned Subsidiary of Ringer.
3. Conditions to Effectiveness. This Consent shall become effective on
the date first set forth above, provided that:
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(a) Credit Parties and Lender have duly executed and delivered all
appropriate signature pages to this Consent;
(b) Lender shall have received the duly executed and delivered SureCo
Note, pledged by Ringer to Lender;
(c) Lender shall have received written evidence satisfactory to it
that the execution and delivery of the SureCo Note, the pledge of the
SureCo Note to Lender, and the consummation of the SureCo Loan are
permitted in accordance with the documentation evidencing the Fremont Loan,
which evidence shall be certified by Ringer's secretary as being true,
accurate and complete; and
(d) the representations and warranties of Borrowers contained in
Section 4 below shall be true, accurate and complete in all respects as of
the effective date of this Consent.
4. Representations and Warranties. Borrowers hereby represent and warrant
to Lender that:
(a) As of the date of this Consent, and after giving effect to this Consent
and the transactions contemplated hereby, no Default or Event of Default shall
have occurred or be continuing;
(b) As of the date of this Consent, and after giving effect to this
Consent and the transactions contemplated hereby, the representations and
warranties of Borrowers contained in the Loan Documents are true, accurate and
complete in all respects on and as of the date hereof to the same extent as
though made on and as of such date, except to the extent such representations
and warranties specifically relate to an earlier date; and
(c) (i) The execution, delivery and performance by each Borrower of this
Consent and each of the documents and agreements described herein, or
contemplated hereby, to which such Borrower is a party are within its corporate
powers and have been duly authorized by all necessary corporate action on the
part of such Borrower, (ii) this Consent and such documents and agreements are
the legal, valid and binding obligation of each Borrower enforceable against
each Borrower in accordance with their respective terms and (iii) neither this
Consent or any such other document or agreement, nor the execution, delivery or
performance by any Borrower thereof (A) violates any law or regulation, or any
order or decree of any court or Governmental Authority, (B) conflicts with or
results in the breach or termination of, constitutes a default under or
accelerates any performance required by, any indenture, mortgage, deed of trust,
lease, agreement or other instrument to which any Borrower is a party or by
which any Borrower or any of its property is bound or (C) results in the
creation or imposition of any Lien (other than Permitted Encumbrances) upon any
of the Collateral.
5. Effect on Credit Agreement. This Consent is limited to the specific
purpose for which it is granted and, except as specifically set forth above (i)
shall not be construed as a consent, waiver or other modification with respect
to any term, condition or other provision of the Credit Agreement or any other
Loan Document and (ii) the Credit Agreement and the other Loan Documents shall
remain in full force and effect and are each hereby ratified and confirmed.
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6. Miscellaneous.
6.1 Successors and Assigns. This Consent shall be binding on and shall
inure to the benefit of Credit Parties, Lender and their respective successors
and assigns, except as otherwise provided herein or therein; provided that no
Credit Party may assign its rights, obligations, duties or other interests
hereunder without the prior written consent of Lender. The terms and provisions
of this Consent are for the purpose of defining the relative rights and
obligations of the Credit Parties and Lender with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Consent.
6.2 Entire Agreement. This Consent, including all documents attached
hereto, incorporated by reference herein or delivered in connection herewith,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all other understandings, oral or written, with
respect to the subject matter hereof
6.3 Fees and Expenses. As provided in Section 11.3 of the Credit
Agreement, Borrowers agree to pay on demand all fees, costs and expenses
incurred by Lender in connection with the preparation, execution and delivery of
this Consent, together with all fees, costs and expenses incurred by Lender
prior to the date hereof which are payable by Borrowers pursuant to Section 11.3
of the Credit Agreement.
6.4 Headings. Section headings in this Consent are included herein for
convenience of reference only and shall not constitute a part of this Consent
for any other purpose.
6.5 Counterparts. This Consent may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one
document.
6.6 Incorporation of Credit Agreement. The provisions contained in
Sections 11.9 and 11.13 of the Credit Agreement are incorporated herein by
reference to the same extent as if reproduced herein in their entirety.
6.7 Acknowledgment. Each Credit Party hereby represents and warrants that
there are no liabilities, claims, suits, debts, liens, losses, causes of action,
demands, rights, damages or costs, or expenses of any kind, character or nature
whatsoever, known or unknown, fixed or contingent (collectively, the "Claims"),
which any Credit Party may have or claim to have against Lender, or any of their
respective affiliates, agents, employees, officers, directors, representatives,
attorneys, successors and assigns (collectively, the "Lender Released Parties"),
which might arise out of or be connected with any act of commission or omission
of the Lender Released Parties existing or occurring on or prior to the date of
this Consent, including, without limitation, any Claims arising with respect to
the Obligations or any Loan Documents. In furtherance of the foregoing, each
Credit Party hereby releases, acquits and forever discharges the Lender Released
Parties from any and all Claims that any Credit Party may have or claim to have,
relating to or arising out of or in connection with the Obligations or any Loan
Documents or any other agreement or transaction contemplated thereby or any
action taken in connection therewith from the beginning of time up to and
including the date of the execution and delivery of this Consent. Each Credit
Party further agrees forever to refrain from commencing, instituting or
prosecuting any lawsuit, action or other proceeding against any Lender Released
Parties with respect to any and all Claims.
(Signature page to follow)
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IN WITNESS WHEREOF, this Consent has been duly executed as of the date first
written above.
RINGER CORPORATION
By: /s/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
SAFER, INC.
By: /s/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
By: /s/ Trevor J. Clark
--------------------
Title: Duly Authorized Signatory
--------------------------
The following Person is a signatory to this Consent in its capacity as
a Credit Party and not as a Borrower.
SAFER LTD.
By: /s/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
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Exhibit 10.15
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of April 22, 1998, is by and among RINGER CORPORATION ("Ringer"), SAFER, INC.
('"Safer") and SURECO, INC. ("SureCo") (Ringer, Safer and SureCo are sometimes
referred to herein individually as a "Borrower and collectively as the
"Borrowers") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation,
as Lender.
RECITALS
--------
A. Borrowers and Lender are parties to that certain Credit Agreement
dated as of May 2, 1997 (as from time to time amended, restated, supplemented or
otherwise modified and in effect, the "Credit Agreement"), pursuant to which
Lender has made and may hereafter make loans and advances and other extensions
of credit to Borrowers.
B. Borrowers wish, and Lender is willing, to amend certain provisions of
the Credit Agreement, all on the terms and conditions set forth in this
Amendment.
C. Pursuant to Section 1.1(b) of the Credit Agreement, Borrowers have
requested an Effective Commitment Increase in the amount of $5,000,000.
D. Ringer desires to effectuate, and Lender is willing to consent to, a
change in its corporate name, all on the terms and conditions set forth in this
Amendment.
E. This Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment. Capitalized terms used herein
without definition are so used as defined in Annex A to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Consent and Waiver
Lender hereby consents to the corporate name change of Ringer
Corporation to Verdant Brands, Inc. and hereby waives any Default or Event of
Default that may arise as a result thereof. Upon the effectiveness of such name
change and at all times thereafter, all references in the Loan Documents to
"Ringer" and Ringer Corporation shall be deemed to mean Verdant Brands, Inc.
2. Amendment of Credit Agreement.
(a) The definition of "Borrowers" contained in the recitals to the Credit
Agreement is hereby amended to include SureCo therein. In addition, each
reference to "Borrower" or "Borrowers" contained in the other Loan Documents
shall be, deemed to include SureCo therein. By its execution of this Amendment,
SureCo agrees, from and after the date hereof, to be a Borrower under the Credit
Agreement and to be liable for all of the Obligations of a Borrower under the
terms of the Loan Documents.
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(b) The Effective Revolving Credit Commitment is hereby increased to
$15,000,000.
(c) Section 3 of the Credit Agreement is hereby amended by adding the
following subsections at the end thereof:
3.26 SRI Acquisition Agreement Ringer has delivered to Lender a
complete and correct copy of the SRI Acquisition Agreement (including all
schedules, exhibits, amendments, supplements, modifications, assignments
and all other documents delivered pursuant thereto or in connection
therewith). No Credit Party and no other Person party thereto is in default
in the performance or compliance with any provisions thereof. The SRI
Acquisition Agreement complies with, and the Dexol Transaction has been
consummated in accordance with, all applicable laws. The Dexol Acquisition
Agreement is in full force and effect and has not been terminated,
'rescinded or withdrawn. All requisite approvals by Governmental
Authorities having jurisdiction over SRI, any other Credit Party and other
Persons referenced therein, with respect to the transactions contemplated
by the SRI Acquisition Agreement, have been obtained, and no such approvals
impose any conditions to the consummation of the transactions contemplated
by the SRI Acquisition Agreement or to the conduct by any Credit Party of
its business thereafter. To the best of each Credit Party's knowledge,
none of SRI's representations or warranties in the SRI Acquisition
Agreement contain any untrue statement of a material fact or omit any fact
necessary to make the statements therein not misleading. Each of the,
representations and warranties given by each applicable Credit Party in the
SRI Acquisition Agreement is true and correct in all material respects.
3.27 SureCo Notes. Ringer has delivered to Lender a complete and
correct copy of each of the Sur~o Notes (including all schedules, exhibits,
amendments, supplements, modifications, assignments and all other documents
delivered pursuant thereto or in connection therewith). The subordination
provisions related to certain of the SureCo Notes are enforceable against
the holders' thereof by Lender. All Obligations, including the Obligations
to pay principal of and interest, on the Revolving Loan and the Letter of
Credit Obligations, constitute senior Indebtedness entitled to the benefits
of such subordination provisions.
(d) Section 6.2(c) of the Credit Agreement is hereby amended by deleting it
in its entirety and replacing it with the following:
(c) Ringer may make Permitted Acquisitions;
(e) Section 6.3 of the Credit Agreement is hereby amended by deleting it in
its entirety and replacing it with the following:
6.3 Indebtedness. (a) No Credit Party shall create, incur, assume or
permit to exist any Indebtedness, except (without duplication):
(i) Indebtedness secured by purchase money security interests
permitted in clause (c) of Section 6.7;
(ii) the Revolving Loan and the other Obligations;
(iii) deferred taxes;
(iv) unfunded pension fund and other employee benefit plan
obligations and liabilities to the extent they are permitted to remain
unfunded under applicable law;
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(v) the Subordinated Note;
(vi) existing Indebtedness described in Disclosure Schedule (6.3) and
refinancings thereof or amendments or modifications thereof which do not
have the effect of increasing the principal amount thereof or changing the
amortization thereof (other than to extend the same) and which are
otherwise on terms and conditions no less favorable to any Credit Party or
Lender, as determined by Lender, than the terms of the Indebtedness being
refinanced, amended or modified;
(vii) Indebtedness specifically permitted under Section 6.1;
(viii) Indebtedness consisting of intercompany loans and advances made
by any Borrower to any other Borrower, provided that (A) each Borrower
shall have executed and delivered to each other Borrower, on the Closing
Date or, if later, the date upon which a Person becomes a "Borrower"
hereunder, a demand note (collectively, the "Intercompany Notes") to
evidence any such intercompany Indebtedness owing at any time by such
Borrower to such other Borrowers, which Intercompany Notes shall be in form
and substance satisfactory to Lender and shall be pledged and delivered to
Lender pursuant to the applicable Pledge Agreement or Security Agreement as
additional collateral security for the Obligations; (B) each Borrower shall
record all intercompany transactions on its books and records in a manner
satisfactory to Lender; (C) the obligations of each Borrower under any such
Intercompany Notes shall be subordinated to the Obligations of such
Borrower hereunder in a manner satisfactory to Lender; (D) at the time any
such intercompany loan or advance is made by any Borrower to any other
Borrower and after giving effect thereto, each such Borrower shall be
Solvent; and (E) no Default or Event of Default would occur and be
continuing after giving effect to any such proposed intercompany loan; and
(ix) the SureCo Notes.
(b) No Credit Party shall, directly or indirectly, voluntarily
purchase, redeem, defease or prepay any principal of, premium, if any,
interest or other amount payable in respect of any Indebtedness, other
than (i) the Obligations and (ii) Indebtedness secured by a Permitted
Encumbrance if the asset securing such Indebtedness has been sold or
otherwise disposed of in accordance with Sections 6.8(b) or (c).
(f) Section 6.4(b) of the Credit Agreement is hereby amended by deleting it
in its entirety and replacing it with the following:
(b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except loans to their
respective employees on an arm's-length basis in the ordinary course of
business consistent with past practices for travel expenses, relocation
costs and similar purposes up to a maximum of $100,000 to any employee and
up to a maximum of $300,000 at any one time outstanding in the aggregate
for all Loan Parties.
(g) Section 6.6 of the Credit Agreement is hereby amended by deleting it in
its entirety and replacing it with the following:
6.6 Guaranteed Indebtedness. No Credit Party shall create, incur,
assume or permit to exist any Guaranteed Indebtedness except (a) by
endorsement of instruments or items of payment for
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deposit to the general account of any Credit Party, (b) for Guaranteed
Indebtedness incurred for the benefit of any other Credit Party if the
primary obligation is expressly permitted by this Agreement other than
Indebtedness, if any, of a Target existing at the time such Target is
acquired and (c) Guaranteed Indebtedness summarized on Disclosure Schedule
(6.6).
(h) Section 6.7(b) of the Credit Agreement is hereby amended by deleting it
in its entirety and replacing it with the following:
(b) Liens summarized on Disclosure Schedule (6.7); and
(i) Section 6.8(b) of the Credit Agreement is hereby amended by deleting it
in 'its entirety and replacing it with the following:
(b) the sale, transfer, conveyance or other disposition by a Credit
Party of Equipment, Fixtures, Real Estate or Inventory that are obsolete or
no longer used or useful in such Credit Party's business and having a value
not exceeding $250,000 in any single transaction or $450,000 in the
aggregate in any Fiscal Year for all Credit Parties;
(j) Section 6.8(c) of the Credit Agreement is hereby amended by deleting it
in its entirety and replacing it with the following:
(c) other Equipment and Fixtures having a value not exceeding $100,000
in any single transaction or $250,000 in the aggregate in any Fiscal Year
for all Credit Parties; and
(k) the last paragraph of Section 6.8 of the Credit Agreement is hereby
amended by deleting it in its entirety and replacing it with the following:
With respect to any disposition of assets or other properties
permitted pursuant to clause p,) and clause (c) above, Lender agrees on
reasonable prior written notice to release its Lien on such assets or other
properties in order to permit the applicable Credit Party to effect such
disposition and shall execute and deliver to Borrower Representative, at
Borrowers' expense, appropriate UCC-3 termination statements and other
releases as reasonably requested by Borrower Representative.
(l) Section 6.14(d) of the Credit Agreement is hereby amended by deleting
it in its entirety and replacing it with the following:
(d) regularly scheduled payments of principal and interest with
respect to the Subordinated Debt in accordance with the terms of the
Subordination Agreement or other agreement related to such Subordinated
Debt;
3. Amendment of Annexes to Credit Agreement.
(a) Annex A to the Credit Agreement is hereby amended by adding the
following definitions in their proper alphabetical order:
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<PAGE>
"Intercreditor Agreement" shall mean that certain agreement, dated as
of April 22, 1998, between B & I Lending, LLC and Lender, as the same may
hereafter be amended, restated, modified or otherwise supplemented from
time to time.
"Interest Coverage Ratio" shall mean the ratio of EBITDA to Interest
Expense.
"Interest Expense" shall mean, for any applicable fiscal period, the
aggregate of all interest paid in cash by the Borrowers and their
Subsidiaries on a consolidated basis during such fiscal period including
interest paid with respect to the Obligations.
"Net Worth" shall mean, at any date of determination, the consolidated
stockholders' equity of Ringer and its Subsidiaries.
"SRI Acquisition Agreement" shall mean that certain Agreement and Plan
of Merger, dated as of October 3, 1997, by and among SRI, SRI Acquisition
Corp. and Ringer, together with all schedules and exhibits related thereto,
as the same may have been heretofore or may hereafter be amended, restated,
modified or otherwise supplemented from time to time.
"SRI Guarantee" shall mean the Guarantee, dated as of April 22, 1998,
executed by SRI in favor of Lender.
"SRI Pledge Agreement" shall mean the Pledge Agreement, dated as of
April 22, 1998, executed by SRI in favor of Lender, pledging the Stock of
SureCo and all Intercompany Notes owing to or held by it.
"SRI Transaction" shall mean the acquisition by Ringer pursuant to the
SRI Acquisition Agreement of all of the stock of SRI and its Subsidiaries.
"SureCo" shall mean SureCo, Inc., a Georgia corporation.
"SureCo Borrowing Base" shall mean, as of any date of determination by
Lender, from time to time, an amount equal to the sum at such time of:
(a) eighty-five percent (85%) of the Eligible Accounts of SureCo,
less any Reserves established by Lender at such time; and
(b) (i) for any Revolving Credit Advance occurring during the months
of July through November of any Fiscal year, sixty percent (60%) of the
book value of the Eligible Inventory of SureCo, and (ii) for any Revolving
Credit Advance occurring during the months of January through June or the
month of December of any Fiscal Year, sixty-five percent (65%) of the book
value of the Eligible Inventory of SureCo; the book value of Eligible
Inventory shall be valued on a first-in, first-out basis (at the lower of
cost or market), less any Reserves established by Lender at such time.
"SureCo Notes" shall mean, collectively, (a) that certain Term Note,
dated August 21, 1997, in the original principal amount of $1,650,000
issued by SureCo in favor of B&I Lending, LLC, (b) that certain Demand
Promissory Note, dated July 31, 1997, in the aggregate original principal
amount of $1,044,479 issued by SRI in favor of Benjamin F. Law, and (c)
that certain promissory note, dated
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December 14, 1994, in the original principal amount of $140,525 issued by
SRI in favor of First Liberty Bank f/k/a Middle Georgia Bank.
"SureCo Security Agreement" shall mean the Security Agreement, dated
as of April 22, 1998, entered into between Lender and SureCo.
(b) Annex A to the Credit Agreement is hereby amended by deleting the
definitions of "Aggregate Borrowing Base", "Borrowing Base", "Collateral
Documents", and "Pledge Agreements" and replacing such definitions with the
following:
"Aggregate Borrowing Base" shall mean, as of any date of
determination, an amount equal to the sum of the Ringer Borrowing Base, the
Safer Borrowing Base and the SureCo Borrowing Base and, following the
consummation of any Permitted Acquisition in which the Target acquired
therein (or any Subsidiary of the Target) becomes a Subsidiary of Ringer
and a Borrower in accordance with the terms of the Agreement, the Target
Borrowing Base of such Person.
"Borrowing Base" shall mean, as the context may require, the Ringer
Borrowing Base, the Safer Borrowing Base and the SureCo Borrowing Base and,
following the consummation of any Permitted Acquisition in which the Target
acquired therein (or any Subsidiary of the Target) becomes a Subsidiary of
Ringer and a Borrower in accordance with the terms of the Agreement, the
Target Borrowing Base of such Person, or any such Borrowing Base.
"Collateral Documents" shall mean the Security Agreement, the Safer
Canada Security Agreement, the SureCo Security Agreement, the Pledge
Agreements, the Guaranties, the Patent Security Agreements, the Trademark
Security Agreements, the Copyright Security Agreements and all similar
agreements entered into guaranteeing payment of, or granting a Lien upon
property as security for payment of, the Obligations.
"Pledge Agreements" shall mean, collectively, the Ringer Pledge
Agreement, the Safer Pledge Agreement, the SRI Pledge Agreement and any
pledge agreements entered into after the Closing Date by any Credit Party
(as required by the Agreement or any other Loan Document).
(c) Annex A to the Credit Agreement is hereby amended by deleting the
definition of "Tangible Net Worth" in its entirety.
(d) Annex G to the Credit Agreement is hereby deleted in its entirety and
replaced with the attached Annex G.
(e) Annex H to the Credit Agreement is hereby deleted in its entirety and
replaced with the attached Annex H.
4. Representations and Warranties of Borrower. In order to induce Lender
to enter into this Amendment, Borrowers hereby jointly and severally represent
and warrant to Lender that:
(a) No Default. After giving effect to this Amendment, no Default or Event
of Default has occurred and is continuing;
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(b) Representations and Warranties. After giving effect to this Amendment,
all of the representations and warranties of Borrowers contained in the Loan
Documents are true, accurate and complete in all respects on and as of the date
hereof to the same extent as though made on and as of the date hereof; and
(c) Authorization. etc. Each Borrower has the power and authority to
execute, deliver and perform this Amendment. Each Borrower has taken all
necessary action (including, without limitation, obtaining approval of its
stockholders, if necessary) to authorize its execution, delivery and performance
of this Amendment. No consent, approval or authorization of, or declaration or
filing with, any Governmental Authority, and no consent of any other Person, is
required in connection with any Borrower's execution, delivery and performance
of this Amendment, except for those already duly obtained. This Amendment has
been duly executed and delivered by each Borrower and constitutes the legal,
valid and binding obligation of each Borrower, enforceable against it in
accordance with its terms. Each Borrowers execution, delivery and performance of
this Amendment does not conflict with, or constitute a violation or breach of;
or constitute a default under, or result in the creation or imposition of any
Lien upon the property of such Borrower by reason of the terms of (a) any
contract, mortgage, lease, agreement, indenture or instrument to which any
Borrower is a party or which is binding upon it, (b) any law or regulation or
order or decree of any court applicable to any Borrower, or (c) the certificate
or articles of incorporation or by-laws of any Borrower.
5. Conditions to Effectiveness. The effectiveness of this Amendment is
expressly conditioned upon the satisfaction of each condition set forth in this
Section 5 and the delivery of the following documents to Lender on or prior to
the date hereof (unless another date shall be specified) and consummation of all
of the transactions contemplated by each such document, all in form and
substance acceptable to Lender in its sole and absolute discretion:
(a) Documentation. Borrowers shall have delivered to Lender all of the
following documents:
(i) Amendment. Duly executed originals of this Amendment.
(ii) Disclosure Schedules. Disclosure Schedule 6.6~and other revised
Disclosure Schedules to the extent necessary to comply with Section 5.6 of
the Loan Agreement.
(iii) Revolving Note. A Revolving Note executed by SureCo in the
aggregate principal amount of Twenty Five Million Dollars ($25,000,000)
payable to Lender.
(iv) Ringer Pledge Agreement. Duly executed originals of an amendment
to the Ringer Pledge Agreement, accompanied by (a) share certificates
representing all of the outstanding Stock of SRI and undated stock powers
for such share certificates executed in blank and (b) the original
Intercompany Notes of SureCo in favor of Ringer, duly endorsed in blank.
(v) SRI Guaranty. Duly executed originals of the SRI Guaranty.
(vi) SRI Pledge Agreement. Duly executed originals of the SRI Pledge
Agreement, accompanied by share certificates representing all of the
outstanding Stock being pledged pursuant to such Pledge Agreement and
undated stock powers for such share certificates executed in blank.
(vii) SureCo Security Agreement. Duly executed originals of the SureCo
Security Agreement.
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(viii) Insurance. Satisfactory evidence that the insurance policies of
SRI and its Subsidiaries required by Section 5.4 of the Credit Agreement
are in full force and effect and, within five (5) days after the date
hereof, appropriate evidence showing loss payable and/or additional insured
clauses or endorsements, as requested by Lender in favor of Lender.
(ix) Security Interests and Code Filings. (a) Evidence satisfactory
to Lender that Lender has a valid and perfected first priority security
interest in the Collateral of the Borrowers, including (i) such documents
duly executed by the Borrowers (including financing statements and
amendments thereto under the Code and other applicable documents under the
laws of any jurisdiction with respect to the perfection. of Liens) as
Lender may request in order to perfect its security interests in such
Collateral and (ii) copies of Code search reports listing all effective
financing statements that name SureCo or SRI as debtor, together with
copies of such financing statements, none of which shall cover the
Collateral, except for those relating to the Fremont Loan (all of which
shall be terminated on the Closing Date) and Permitted Encumbrances.
(b) Evidence satisfactory to Lender, including copies, of all UCC1 and
other financing statements filed in favor of SureCo with respect to each
location, if any, at which Inventory may be consigned.
(x) Payoff Letters: Termination Statements: Releases. Payoff letters
from Fremont Financial Corp. and Wilbur-Ellis Company, respectively, itemizing
amounts of principal, interest, fees, expenses or other amounts payable to it;
UCC-3 or other appropriate termination statements and mortgage releases,
executed by Fremont Financial Corp. and Wilbur-Ellis Company, as applicable,
releasing all Liens of such Person upon any of the personal property of SRI and
its Subsidiaries, and termination of all blocked account agreements, bank agency
agreements or other similar agreements or arrangements in favor of such Person
or relating to the loans.
(xi) Intellectual Property Security Agreement. Duly executed originals of
a Trademark Security Agreement, dated the date hereof and signed by SureCo,
together with all instruments, documents and agreements executed pursuant
thereto.
(xii) Power of Attorney. Originals of the Power of Attorney executed by
SureCo.
(xiii) Borrowing Base Certificate. Duly executed originals of a Borrowing
Base Certificate from each Borrower, dated the dated hereof, reflecting
information concerning Eligible Accounts and Eligible Inventory of such
Borrower.
(xiv) Letter of Direction. Duly executed originals of a letter of
direction from Borrower Representative addressed to Lender with respect to the
disbursement on the date hereof of the proceeds of any Revolving Credit Advance.
(xv) Cash Management System: Blocked Account Agreements. Evidence
satisfactory to Lender that, within ten (10) days after the date hereof Cash
Management Systems with respect to SureCo complying with Annex C to the
Agreement have been established and are currently being maintained in the manner
set forth in such Annex C, together with copies of duly executed tri -parry
blocked account and lock box agreements, satisfactory to Lender, with the banks
as required by Annex C; provided that until such time as such agreements are
executed, SureCo shall direct SunTrust Bank on a daily basis to wire transfer
available funds in all SunTrust Bank accounts of SureCo to the Collection
Account.
8
<PAGE>
(xvi) Charter and Good Standing. For each of SRI and its Subsidiaries,
such Person's (a) charter and all amendments thereto, (b) good standing
certificates in its state of incorporation and (c) good standing certificates
and certificates of qualification to conduct business in each jurisdiction where
its ownership or lease of property or the conduct of its business requires such
qualification, each dated a recent date prior to the date hereof and certified
by the applicable Secretary of State or other authorized Governmental Authority.
(xvii) Bylaws and Resolutions. For each of Ringer and its Subsidiaries, (a)
such Person's bylaws, together with all amendments thereto and (b) resolutions
of such Person's Board of Directors (and shareholders, if necessary), approving
and authorizing the execution, delivery and performance of the Loan Documents to
which such Person is a party and the transactions to be consummated in
connection therewith, each certified as of the date hereof by such Person's
corporate secretary or an assistant secretary as being in full force and effect
without any modification or amendment.
(xviii) Incumbency Certificates. For each of Ringer and its Subsidiaries,
signature and incumbency certificates of the officers of each such Person
executing any of the Loan Documents, certified as of the date hereof by such
Person's corporate secretary or an assistant secretary as being true, accurate,
correct and complete.
(xix) Opinion of Counsel. Duly executed originals of opinions of Dorsey &
Whitney LLP, counsel for the Credit Parties, and Cushing, Morris, Armbruster &
Jones, LLP, Georgia counsel for the Credit Parties, each dated the date hereof,
and accompanied by a letter addressed to such counsel from Ringer and its
Subsidiaries, authorizing and directing such counsel to address its opinion to
Lender and to include in such opinion an express statement to the effect that
Lender is authorized to rely on such opinion.
(xx) Appointment of Agent for Service. An appointment of CT Corporation
as agent for service of process for SRI and SureCo.
(xxi) Waivers. Duly executed originals of landlord waivers and consents and
bailee letters with respect to SureCo, in each case as required pursuant to
Section 5.9.
(xxii) Law Agreement Originals of a duly executed Intercreditor agreement
with respect to the SureCo Note issued in favor of Benjamin Law, together with a
copy of such SureCo Note.
(xxiii) Intercreditor Agreement. Duly executed originals of the
Intercreditor Agreement.
(xxiv) Other Documents. All other documents, certificates and agreements as
the Lender may reasonably request to accomplish the purposes of this Amendment.
(b) No Default. As of the date hereof after giving effect to this
Amendment, no Default or Event of Default shall have occurred and be continuing.
(c) Warranties and Representations. After giving effect to this Amendment,
all of the warranties and representations of Borrowers contained in the Credit
Agreement and the other Loan Documents (including, without limitation, this
Amendment) shall be true and correct in all material respects to the same extent
as though made on and as of the date hereof.
9
<PAGE>
(d) Consents and Acknowledgments. Borrowers shall have obtained all
consents, approvals and acknowledgments which may be required with respect to
the execution, delivery and performance of this Amendment.
(e) Fees Costs and Expenses. Lender shall have received payment of (a) an
amendment fee of $25,000, and (b) all other fees, costs and expenses, including,
without limitation, reasonable attorneys' fees and expenses invoiced to Borrower
Representative and as otherwise due pursuant to the Loan Documents, incurred by
Lender in connection herewith.
6. Reference to and Effect on Loan Documents.
6.1 Ratification. Except as specifically amended above, the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
each Borrower hereby ratifies and confirms each such Loan Document.
6.2 No Waiver. The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Lender under the
Credit Agreement or any of the other Loan Documents, or, except as expressly
provided herein, constitute a consent, waiver or modification with respect to
any provision of the Credit Agreement or any of the other Loan Documents. Upon
the effectiveness of this Amendment each reference in (a) the Credit Agreement
to "this Agreement," "hereunder," "hereof," or words of similar import and ~)
any other Loan Document to "the Agreement" shall, in each case and except as
otherwise specifically stated therein, mean and be a reference to the Credit
Agreement as amended hereby.
7 Affirmation of Subsidiary Guarantee.
Safer Canada (i) consents to and approves the execution and delivery of
this Amendment by Borrowers and Lender, (ii) agrees that this Amendment does not
and shall not limit or diminish in any manner its obligations under the
Subsidiary Guarantee or under any of the other Loan Documents executed and/or
delivered by it in connection therewith, (iii) agrees that this Amendment shall
not be construed as requiring the consent of Safer Canada in any other
circumstance, (iv) reaffirms its obligations under the Subsidiary Guarantee and
all of the other Loan Documents to which it is a party, and (v) agrees that the
Subsidiary Guarantee and such other Loan Documents remain in full force and
effect and are each hereby ratified and confirmed.
8. Miscellaneous.
8.1 Successors and Assigns. This Amendment shall be binding on and shall
inure to the benefit of Borrowers, Lender and their respective successors and
assigns, except as otherwise provided herein or therein. The terms and
provisions of this Amendment are for the purpose of defining the relative rights
and obligations of Borrowers and Lender with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Amendment.
8.2 Entire Agreement. This Amendment, including all schedules and other
documents attached hereto or incorporated by reference herein or delivered in
connection herewith, constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all other understandings,
oral or written, with respect to the subject matter hereof.
10
<PAGE>
8.3 Fees and Expenses. As provided in Section 11.3 of the Credit
Agreement, Borrowers agree to pay on demand all fees, costs and expenses
incurred by the Lender in connection with the preparation, execution and
delivery of this Amendment.
8.4 Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
8.5 Severability. Wherever possible, each provision of this Amendment
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Amendment shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
8.6 Conflict of Terms. Except as otherwise provided in this Amendment, if
any provision contained in this Amendment is in conflict with, or inconsistent
with, any provision in any of the other Loan Documents, the provision contained
in this Amendment shall govern and control.
8.7 Counterparts. This Amendment may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopy shall be effective as delivery of a manually executed
counterpart of this Amendment.
8.8 incorporation of Loan and Security Agreement. The provisions contained
in Sections 11.9 and 11.13 of the Credit Agreement are incorporated herein by
reference to the same extent as if reproduced herein in their entirety.
8.9 Acknowledgrnent. Each Credit Party hereby represents and warrants that
there are no liabilities, claims, suits, debts, liens, losses, causes of action,
demands, rights, damages or costs, or expenses of any kind, character or nature
whatsoever, known or unknown, fixed or contingent (collectively, the "Claims"),
which any Credit Party may have or claim to have against Lender, or any of their
respective affiliates, agents, employees, officers, directors, representatives,
attorneys, successors and assigns (collectively, the "Lender Released Parties"),
which might arise out of or be connected with any act of commission or omission
of the Lender Released Parties existing or occurring on or prior to the date of
this Amendment, including, without limitation, any Claims arising with respect
to the Obligations or any Loan Documents. In furtherance of the foregoing, each
Credit Party hereby releases, acquits and forever discharges the Lender Released
Parties from any and all Claims that any Credit Party may have or claim to have,
relating to or arising out of or in connection with the Obligations or any Loan
Documents or any other agreement or transaction contemplated thereby or any
action taken in connection therewith from the beginning of time up to and
including the date of the execution and delivery of this Amendment. Each Credit
Party further agrees forever to refrain from commencing, instituting or
prosecuting any lawsuit, action or other proceeding against any Lender Released
Parties with respect to any and all Claims.
(Signature page follows)
11
<PAGE>
IN WITNESS WHEREOF, this Second Amendment to Loan and Security Agreement has
been duly executed as of the date first written above.
RINGER CORPORATION
By: /S/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
SAFER, INC.
By: /S/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
SURECO, I NC.
By: /S/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION, as Lender
By: /S/ Trevor J. Clark
---------------------
Title: Duly Authorized Signatory
--------------------------
Each of the following Persons is a signatory to this Amendment in its
capacity as a Credit Party and not as a Borrower.
SAFER, INC.
By: /S/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
SOUTHERN RESOURCES, INC.
By: /S/ Mark Eisenschenk
---------------------
Title: Executive Vice President & CFO
-------------------------------
12
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