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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1997
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[ ] 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
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RINGER CORPORATION
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(Name of small business issuer in its charter)
Minnesota 41-0848688
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(State of incorporation or organization) (I.R.S. Employer Identification No.)
9555 James Avenue South, Suite 200, Bloomington, Minnesota 55431
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (612) 703-3300
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Revenues for the fiscal year ended September 30, 1997 totaled $18,820,625.
As of December 15, 1997, the Company had 16,681,270 shares of Common Stock
outstanding. The aggregate market value of the 11,185,433 shares of Common Stock
held by non-affiliates of the Company was $16,778,150, based on the closing
share price on December 15, 1997 on the Nasdaq National Market.
Transitional small business disclosure format: [ ] Yes [X] No
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PART I
Item 1. BUSINESS.
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GENERAL
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Ringer Corporation is a developer and marketer of lawn, garden and turf
products for consumer, specialty commercial and professional markets. The
Company's product lines include proprietary and non-proprietary pest control
products and lawn and garden fertilizers.
The Company was founded by C. Judd Ringer and incorporated in 1961. Until
1986, the Company was operated as a regionally-based, closely-held provider of
lawn and garden products. In 1986, the Company was sold to new venture capital
investors who reorganized the Company under new management and expanded its
distribution channels into national lawn, garden and turf care markets.
Since 1986, the Company has raised approximately $27 million in capital
through private equity offerings to venture capital organizations and
individuals, and through public offerings of common stock in 1990 and 1992. The
capital raised was used by the Company to acquire pest control product lines, to
fund programs for advertising, promotion, product development and product
package redesign and to increase working capital. The Company's current pest
control product lines were acquired in 1991 through the acquisition of Safer,
Inc., a wholly-owned subsidiary of the Company, and in 1997 through the purchase
of substantially all of the assets of Dexol Industries, Inc. (See "Dexol
Industries, Inc." below.)
The Company's products are sold primarily in the consumer lawn and garden
and the commercial golf course turf management markets. Product lines are
composed of environmentally-oriented pest control products, traditional
pesticides, granular fertilizers and water soluble fertilizers.
The Company's environmentally-oriented pest control products, sold under
the Safer(R) brand name, use microbial, botanical and mechanical technologies to
effectively control insects, weeds and fungal diseases. These products are
designed to work on targeted pests without harming beneficial insect populations
or leaving harmful residues on turf and garden plants and are developed to
provide premium performance using available technologies with the lowest
environment impact.
The Company's traditional pesticides, sold under the Dexol(R) brand name
and various private label brand names, use synthetic chemical pesticide
compounds commonly used in the lawn and garden industry for the control of
insects, rodents, weeds and fungal diseases. The Company's line of traditional
pesticides was acquired in March 1997 with the acquisition of the assets of
Dexol Industries, Inc. (See "Dexol Industries, Inc." below.)
The Company's granular fertilizer products use proprietary microbially-
based delivery systems that control release of nutrients for extended uniform
plant feeding and are marketed under the Restore(R), Supreme Garden Fertilizers
and Safer(R) Lawn Fertilizer brand names.
The Company's water soluble fertilizer products use proprietary oxygen
releasing compounds that enhance root growth and function to promote more
vigorous and healthy plants. Water soluble fertilizers were added to the
Company's product lines in December 1994 through the acquisition of the assets
of Plant Research Laboratories (See "Plant Research Laboratories" below). These
products were marketed by the Company under the Oxygen Plus(R) brand name in
fiscal 1995 and under the Safer(R) brand name beginning in fiscal 1996.
The Company's products are directed toward wholesale fertilizer and
pesticide markets which exceed $1 billion in annual sales according to the 1991
Kline & Company industry survey report. The Company anticipates that future
growth in its share of these markets will be derived from increased sales of its
existing
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products, from sales of future products developed by the Company or licensed
from others, and from the acquisition of additional product lines or companies
with additional product lines.
DEXOL INDUSTRIES, INC.
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In March 1997, the Company acquired substantially all of the assets of
Dexol Industries, Inc. (the "Dexol acquisition"), a California based
manufacturer and marketer of pesticides to the retail consumer with annual sales
of approximately $10 million. The pesticide products acquired use non-
proprietary traditional chemical technology commonly available in the lawn and
garden industry. (See "Acquisitions" in Note 2 to the Company's consolidated
financial statements included herein.)
PLANT RESEARCH LABORATORIES
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In December 1994, the Company acquired substantially all of the assets of
Plant Research Laboratories ("PRL"), a California based developer and marketer
of water soluble fertilizers for the indoor houseplant and outdoor lawn and
garden markets with annual sales of less than $1 million generated principally
in the western United States. The water soluble fertilizer products acquired
utilize oxygen releasing compounds which are patented technologies under
exclusive license to the Company for use in the lawn, garden, turf management
and agricultural industries.
SUBSEQUENT EVENT - SOUTHERN RESOURCES, INC.
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On December 9, 1997, the Company completed a merger with Southern
Resources, Inc. ("SRI"), a previously privately-owned Georgia-based holding
company, with annual consolidated sales of approximately $25 million. SRI
manufactures and markets traditional pesticides, through its subsidiary, SureCo,
Inc., under a variety of proprietary and private label brand names to
commercial and consumer markets throughout North America. The merger will be
accounted for using the pooling-of-interest method. (See Note 12 to the
Company's consolidated financial statements included herein.)
SALES AND MARKETING
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The Company's products are marketed in the United States through both
retail and commercial distribution channels. Retail channels consist principally
of mass merchants, specialty lawn and garden stores and hardware cooperatives.
Commercial channels consist of specialty distributors who sell products to turf
management professionals primarily in the golf course industry. In fiscal 1997,
U.S. retail and commercial markets accounted for 87% and 3%, respectively, of
the Company's sales. The remaining 10% is attributable to foreign retail and
commercial market sales, primarily in Canada.
Retail sales in the United States are conducted through a variety of retail
outlets in all fifty states. These outlets consist of mass merchandisers and
several lawn and garden wholesale distributors who, in turn, resell to retail
garden centers, nurseries and hardware and home center stores. National
retailers selling the Company's products include The Home Depot, Menards,
Target, Tru-Serve and Frank's Nursery & Crafts, although some of these retailers
currently carry only limited selections of the Company's products or only carry
them in certain regions of the country.
The Company's retail sales efforts in the United States are managed by a
vice president of sales located in the Company's main office, and by six
regional sales managers located in Maryland, Georgia, Illinois, Indiana,
Washington and California. The Company uses a combination of direct sales
personnel and independent manufacturers' representatives to market its products.
The direct sales personnel and independent representatives, who report to the
regional managers, are assigned territories that cover all 50 states. In
addition, Ringer uses its wholesalers' sales and merchandising personnel and
other merchandising service organizations to contact and service some of the
larger retail outlets who sell the Company's products.
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Most of the Company's distribution and marketing activities are
concentrated in the United States and Canada, however, a level of international
over-seas business has been maintained for a number of years. The Company
currently sells certain pest control products to foreign manufacturers and
distributors and has sold products to customers in Germany, Switzerland and
other European markets for over ten years. International sales are currently
managed by Safer, Ltd., the Company's subsidiary in Toronto, Ontario, Canada.
Safer, Ltd. maintains its own sales and marketing organization, its own product
development operation and most of its own sources of supply and manufacturing.
Although management believes there are significant future international market
opportunities, management expects to concentrate the Company's marketing efforts
in the United States and Canada for the foreseeable future while the Company
focuses on establishing profitable operations in these primary market areas.
The Company's commercial sales are supervised by a manager of commercial
sales. Approximately 30 professional turf distributors, with several locations
throughout the U.S. and Canada, buy products from the Company for sale primarily
to golf courses with some sales going to lawn service operators, specialty
landscapers and government landscape services. The commercial product line
includes several microbial fertilizer formulations specifically designed for the
needs of professional turf managers.
In recent years, the Company has used various forms of advertising and
promotion to market its products. These forms primarily consist of cooperative
advertising programs, point-of-purchase marketing materials and radio and print
advertising,.
In fiscal 1997, 1996 and 1995, the Company spent approximately $3.8
million, $3.3 million and $4.8 million, respectively, on sales and marketing
expenses.
DISTRIBUTION AND TRANSPORTATION
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The Company relies primarily on common carrier transportation, leased
warehouse facilities and public warehouse services to distribute its products
nationwide. The Company's distribution and freight costs tend to be significant
as a percentage of sales. This is due to the relatively heavy weight and bulky
nature of the Company's products and the substantial shipping distances from
distribution locations to some of the Company's major market areas.
Freight costs are particularly significant for granular fertilizer
products. Some fertilizer competitors located in closer proximity to some of the
Company's major market areas incur lower freight costs which can be an advantage
when competing against the Company's fertilizer products. Consequently, the
Company's relatively high distribution and freight costs can hinder fertilizer
sales growth in some markets.
In fiscal years 1997, 1996 and 1995, the Company spent approximately $2.2
million, $1.6 million and $1.9 million, respectively, on product transportation
and warehousing costs.
COMPANY TECHNOLOGIES
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The Company applies four major areas of technology to its products. First,
biological and botanical pest control technologies which focus on a broad
spectrum of plant pests including insects, weeds and fungal diseases. Second,
synthetic chemical technologies common to the lawn and garden industry which are
used for the control of various insects, rodents, weeds and fungal diseases.
Third, granular microbially-activated fertilizer systems which have been
developed for specific lawn, garden and commercial turf uses. Fourth, oxygen-
releasing water soluble fertilizer technology which is used in the Company's
water soluble fertilizer products for use on indoor plants, outdoor container
plants, and other lawn and garden uses.
The Company's biological and botanical pest control technology is based on
fatty-acid compounds, naturally occurring plant extracts and microorganisms, and
mechanical traps to control unwanted pests. The
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Company holds numerous patents for fatty-acid based pest control products and
products using fatty-acids as synergists in combination with both natural and
synthetic pesticides.
The Company's synthetic chemical pesticide technologies are based on non-
proprietary synthetic chemical pesticides common to the lawn and garden
industry. These include various forms of chemical insecticides, herbicides,
fungicides and rodenticides which are obtained primarily from large national and
international chemical companies who supply the agricultural, horticultural and
lawn and garden markets.
The Company's granular fertilizer technologies are based on the use of
naturally occurring soil microbes in combination with plant nutrients and high
energy carbohydrate sources to produce a superior controlled release fertilizer
system. These fertilizers promote natural soil microbial activity which helps
make nutrients available to plants and promotes plant health and vigor. Healthy
microbial activity also plays an important role in regulating some plant
diseases.
The Company's water soluble fertilizer technologies use a patented oxygen
releasing compound ("ORC") in combination with high quality plant nutrients.
This fertilizer technology overcomes plant growth problems associated with
oxygen deficient soils caused by physical compaction, heavy clay content, over
watering and flooding. Through the use of ORC, the Company's water soluble
fertilizers help to reduce oxygen deficient conditions and promote a heathy
growing environment by providing a reliable supply of timed-release oxygen and
other beneficial plant nutrients directly to the plant root system.
The Company performs extensive product performance tests through contract
research and development facilities.
To assist the process of investigating new product opportunities, the
Company consults, from time to time, with knowledgeable scientists and other
experts regarding trends and technologies in fertilizers, pesticides and turf
management.
PRODUCTS
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The Company's four major product categories are environmentally-oriented
pest control products, traditional pesticides, microbial fertilizers and water
soluble fertilizers.
ENVIRONMENTALLY ORIENTED PEST CONTROLS
The Company's environmentally oriented pest control products, sold under
the Safer(R) brand name, are based on naturally occurring microbial and
botanical derivatives and synthesized versions of naturally occurring botanical
derivatives. These active ingredients, used alone or in combinations, have been
developed to control specific insects, weeds and fungal diseases. The active
ingredients include fatty-acids, pyrethrum (a derivative of a certain
chrysanthemum flower), pyrethroids (synthetic variations of pyrethrum), neem (a
derivative of the tropical Neem tree), bacterium strains with toxicity specific
to certain insects, and elemental sulfur. The Company's environmentally-oriented
pest controls bio-degrade more rapidly and have a lower mammalian toxicity
rating than most traditional pesticides.
The Company's environmentally-oriented pest control products accounted for
48%, 70% and 63% of sales in fiscal 1997, 1996 and 1995, respectively.
TRADITIONAL PESTICIDES
The Company acquired its line of traditional pesticide products in March
1997 with the purchase of substantially all of the assets of Dexol Industries,
Inc. (See "Dexol Industries, Inc." above.)
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The Company's traditional pesticide products, sold under the Dexol(R) brand
name and various private label brand names, use synthetic chemical pesticides
common to the lawn and garden industry and include insecticides based on
organophosphates (such as Diazinon and Malathion) and carbamates (such as
Carbaryl or Sevin), herbicides based on phenoxy-herbicides and dicamba
compounds, and fungicides based on sulfur or chlorthalonil.
The Company's traditional pesticides accounted for 33% of sales in fiscal
1997 since the acquisition of these products in March 1997. There were no sales
of these products in prior years.
MICROBIAL FERTILIZERS
The Company offers three types of proprietary microbial fertilizer products
which use, in varying degrees, naturally occurring soil microorganisms to slowly
break down materials into nitrogen and other nutrients usable by the plant.
These include all-natural fertilizers marketed under the Restore(R) brand name,
natural and synthetic hybrid fertilizers marketed under the Supreme Garden
Fertilizers and Safer(R) brand names. Hybrid fertilizers, including garden
fertilizers and low phosphate lawn fertilizers, using a natural nutrient
component with synthetic nutrients. These microbial fertilizers provide high
performance, non-burning, slow-release fertilization programs for improved plant
growth and extended feeding. Natural fertilizer components include commodity
feed-grade materials, including a high protein source (such as feather or
leather meal), high carbohydrate ingredients, and natural soil microorganisms.
Synthetic materials include synthetic nitrogen sources such as urea, coated urea
and dicyanodiamide. The Company's microbial fertilizer products accounted for
18%, 26% and 31% of sales in fiscal 1997, 1996 and 1995, respectively.
WATER SOLUBLE FERTILIZERS
The Company offered water soluble fertilizers for the first time in fiscal
1995 which were acquired from Plant Research Laboratories in December 1994. (See
"Plant Research Laboratories" above.) The Company's water soluble fertilizers
are marketed in both liquid and powdered formulas under the Safer(R) brand name.
Safer(R) water soluble fertilizers use macro nutrients in combination with a
patented oxygen releasing compound ("ORC"). ORC was developed to overcome plant
growth problems caused by oxygen deficient soil due to heavy clay content,
physical compaction, over watering or flooding. ORC utilizes the plant's own
soil as an organic catalyst to provide the plant time-released oxygen, activated
by water, for an optimal balance of soil, water, air and nutrients. The
Company's water soluble fertilizer products accounted for 2%, 3% and 4% of sales
in fiscal 1997, 1996 and 1995, respectively
PRODUCT DEVELOPMENT
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The Company conducts ongoing product development efforts to enhance
existing products and develop new products. Current efforts include product
development using the Company's patented pesticide and herbicide technology
which uses fatty-acids as a synergist in combination with traditional synthetic
chemicals. Management believes that the technology will enable the Company to
develop effective pesticides and herbicides that use much less chemical active
ingredient, thus making traditional chemical herbicides and pesticides more
environmentally friendly. Most of the Company's product development, research
and testing is conducted by university and government researchers unaffiliated
with the Company.
In fiscal 1997, 1996 and 1995, the Company spent $972,360, $748,932 and
$981,495, respectively, on research and development expenditures.
MANUFACTURING
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The Company has a leased manufacturing facility in Torrance, California
where it manufactures much of its traditional pesticide products. The
manufacturing facility was acquired with the Dexol acquisition in
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March 1997. (See "Dexol Industries, Inc." above.) The Company also uses
outside subcontract manufacturers to produce the remainder of its products.
The Company's microbial fertilizers and water soluble fertilizers are
produced pursuant to short-term manufacturing agreements with two
subcontractors. The Company's environmentally oriented pest control products
and certain traditional pesticides fertilizers are manufactured by one or both
of two subcontract companies located in Minnesota and Missouri.
The Company believes that its manufacturing facilities and its
subcontractors have sufficient available manufacturing capacity to satisfy the
Company's needs for the foreseeable future. Products for Canada and overseas
markets are manufactured by subcontractors in Canada, Europe and the United
States. The Company believes that adequate alternative subcontractors are
available, if needed.
The Company believes that its fertilizers and composting products and its
pest control products are manufactured using generally available raw materials
and processes common to the industry. The Company does not anticipate any
shortages of such raw materials or manufacturing capacity which would materially
affect the supply of finished goods, although price fluctuations may affect
total product costs.
GOVERNMENT REGULATION AND PRODUCT REGISTRATION
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Government regulation in the United States and other countries is a
significant factor in the research, development, production and marketing of
pesticides and, to a lesser extent, fertilizers. To develop and sell a
pesticide product, federal and state product registration must be obtained for
each pest and plant for which the product is used. In the United States,
pesticides are regulated by the Environmental Protection Agency ("EPA") under
the Federal Insecticide, Fungicide and Rodenticide Act, as amended ("FIFRA"),
which requires extensive efficacy, toxicology and environmental testing to
substantiate product performance and safety prior to registration. In addition,
many states have additional registration requirements that go beyond FIFRA.
Under FIFRA, field efficacy testing may be conducted on a small scale in
certain instances. To conduct large-scale field tests, a company must obtain an
experimental use permit ("EUP"), which generally requires satisfactory
completion of certain toxicology and environmental studies. Initial EPA
registration for a new pesticide may therefore be a lengthy and expensive
process. In addition, the U.S. Congress has mandated that the EPA require that
all pesticide products registered prior to 1984 be re-registered by 1997 using
today's stricter testing protocols. Registration applicants also must submit
their proposed labeling for EPA approval. FIFRA creates a complex and detailed
scheme for pesticide labeling. After a pesticide is registered, it must be sold
with labeling and claims exactly as approved by the EPA.
To regulate the development and use of biological pest controls, including
those based on naturally occurring microorganisms, the EPA established special
guidelines for their registration which are set forth in Subdivision M of the
EPA's Pesticide Assessment Guidelines. Biological pest controls currently are
subject to a three-tier toxicology testing procedure and a four-tier
environmental testing procedure. A biological pest control product that
satisfactorily completes both the toxicology and environmental Tier I tests is
not required to go through the tests specified in subsequent tiers. Should
questions arise during any tier of testing, additional tests may be required.
The cost of registering biological pest control products is generally
substantially lower than that for chemical pesticides. Most of the Company's
products have only required Tier I testing. Stricter registration requirements
apply to products based on genetically engineered organisms. The Company does
not currently use any genetically modified organisms. Based on current EPA
regulations, management believes that biological pest control product
registrations can be obtained at a reasonable cost to the Company.
The fertilizer products produced and marketed by the Company are currently
regulated by individual state departments of agriculture. Requirements for
obtaining registrations to sell fertilizers vary from state to
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state. Every fertilizer product must be registered and licensed in each state
where it is sold, and a registration or license fee to maintain this
registration must be paid on an annual basis.
The Company's product performance claims for its fertilizers are more
extensive than those typical of traditional fertilizers, and include claims that
the products improve soil and minimize conditions that promote certain diseases.
As part of the registration process, research data in support of these claims
must be submitted to the appropriate state agencies. This research must be
independently generated, preferably at the university level. The Company's
fertilizer products have been tested at several state universities across the
country, as well as in a leading independent turf research facility in Europe.
The Company's fertilizer products are currently registered in most states
under a national label which makes certain performance claims. Several states
object to certain claims made on the packaging or require claims specific to a
state. The Company, where possible, has designed special packaging, citing
limited claims, to permit as wide of registration and sale as possible. The
Company continues to work with all states to improve registration status
nationwide, and to substantiate the performance claims through studies conducted
at universities.
The Company's products will also be subject to regulation by agencies of
foreign countries in which the products are tested, sold or used. The Company's
activities may be subject to regulation under various other federal and
international laws, regulations and guidelines, and state and local regulatory
requirements, including approvals prior to shipping the products into a country,
state or locality for either experimental or commercial purposes. The Company
currently maintains product registrations in 11 foreign countries and has
registrations pending in three additional foreign countries. The Company cannot
predict the effect of future legislation and regulation on the Company's
operations.
There can be no assurance that any testing approvals or registrations will
be granted on a timely basis, if at all, or that the Company's resources will be
adequate to meet the costs of regulatory compliance. Any or all of those
approvals may be the subject of disputes that could postpone or prevent
research, development, production and/or marketing of the Company's products.
Some states have laws imposing liability on certain parties for the release
of pesticides and/or fertilizers into the environment in a manner or in
concentrations not permitted by law. Such liability could include, among other
things, responsibility for cleaning up the damage resulting from such a release.
In addition, the Comprehensive Environment Response, Compensation and Liability
Act, commonly known as the federal Superfund law, imposes liability on certain
parties for the release into the environment of hazardous substances, which
might include fertilizers and pesticides under certain circumstances. The
federal Superfund law has been interpreted to impose liability on a producer of
pesticides for cleaning up environmental damage resulting from the release of
its products into the environment during their manufacture. The Company has not
been subject to any claims for responsibility relating to impermissible releases
of pesticides under such federal or state statutes. However, there can be no
assurance that the Company will not be subject to claims under such statutes at
some time in the future. The Company believes that it does not need, and it
does not maintain, insurance for any environmental claims which might result
from the release of its products into the environment in a manner or in
concentrations not permitted by law.
COMPETITION
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The Company faces significant competition in the fertilizer and pesticide
industries from numerous manufacturers and suppliers, several of which
significantly dominate their respective markets and many of which have
substantially greater financial, technical, marketing and other resources than
the Company. The principal competitive factors in the Company's markets are
efficacy, ease of application, price, health and environmental compatibility and
name recognition. Many of the Company's products generally cost more than
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those of their conventional chemical counterparts, and therefore the Company
is generally not able to compete on pricing alone.
The Company believes that it has three categories of competitors in the
pesticides market: large chemical pesticide companies, companies with existing
bio-pesticide product lines, and companies developing new bio-pesticide
products. The pesticide industry is dominated by large chemical companies
located in the United States and Europe. These companies generally operate
throughout the world and have the capability to manufacture chemical pesticides
very efficiently.
The Company's principal competitors in the consumer chemical pesticide
market are Solaris (Ortho) and Spectracide. There are several companies which
manufacture and market bio-pesticides for agricultural use, including Abbott
Laboratories and Novartis. Many of the large chemical pesticide companies are
currently conducting research on biological pest control technology. In
addition, the Company is aware that at least one dominant chemical pesticide
manufacturer has introduced a limited line of alternative pest control products.
There are also small biotechnology companies which are conducting research in
the biological pest control area. These companies may represent significant
competition in the future.
The Company's principal competitor in the consumer fertilizer market is The
Scotts-Miracle Grow Company. Other significant competitors include Lebanon
(Greenview), Milwaukee Sewer Improvement District (Milorganite) and Estech
(Vigoro). Freight cost involved in shipping bulk fertilizer products across the
country are a significant factor in national competition. In addition to
national competitors, the Company has many regional and local competitors who
incur lower freight costs and are therefore more price competitive in regional
and local markets. The Company estimates that approximately 35% of the market
share is held by smaller regional and local fertilizer manufacturers.
Products developed by the Company may also be subject to competition from
products developed by companies using other technologies. One potential source
of competition in the future may come from plant science technology, including
development of pest-resistant plants by genetic engineering and other methods.
SEASONALITY
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Sales of the Company's products are highly seasonal, with Company shipments
of fertilizers and pest controls being heavily concentrated in the winter
(second fiscal quarter) and spring (third fiscal quarter). See Item 6,
Management's Discussion and Analysis - Quarterly Performance.
PATENTS AND PROPRIETARY TECHNOLOGIES
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The Company uses proprietary and non-proprietary technologies in its
products. Non-proprietary technologies are use in the Company's traditional
pesticide products sold under the Dexol(R) brand name and various private label
brand names. Proprietary technologies are used in many of the Company's
environmentally-oriented pest control products, microbial fertilizers and water
soluble fertilizers.
The Company seeks to protect its proprietary product technologies through a
variety of means including patents, licences, trade secrets, proprietary know-
how, technological innovation and customer education.
The Company relies on the use of proprietary processes in the formulation
of its microbial fertilizer products to protect them against duplication by
competitors. The Company acknowledges that there can be no assurance that such
proprietary processes will provide sufficient protection.
The Company owns patents covering the herbicidal soap and the soap
synergized pyrethrum (SAP) technology. These patents expire in the years 2008
and 2007, respectively. Also, in connection with the
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December 1994 acquisition from Plant Research Laboratories (see "Plant
Resource Laboratories" above) of a water soluble fertilizer product line,
marketed under the Oxygen Plus(R) brand name, the Company acquired an
exclusive worldwide license to practice patents relating to oxygen releasing
technology in the horticultural, agricultural and lawn and garden markets. The
license covers currently existing patents and any further patents on the
technology that may be issued in the future. The current patents on oxygen
releasing technology expire in the year 2011.
As of December 1997, the Company owned 39 patents, including 20 U.S.
patents, and licensed two additional U.S. patents, which expire at various times
during the year from 2006 through 2012. The Company acknowledges that there can
be no assurances that its owned or licensed patents will provide sufficient
protection for its products or be of commercial benefit to the Company.
The Company obtains confidentiality agreements from current Company
employees, scientific consultants and potential strategic corporate partners
prior to disclosing Company trade secrets and know-how. There can be no
assurance that these confidentiality agreements will be honored or that such
proprietary know-how or trade secrets will not be independently created by third
parties.
EMPLOYEES
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As of December 6, 1997, the Company had 57 employees, all of whom are full-
time, located in the U.S. and Canada. Of these employees, 2 were engaged in
product development, 15 in sales and marketing, 27 in distribution and material
control and 13 in general administration. The Company plans to hire additional
personnel as required by the needs of its business. The Company does not
currently anticipate difficulties in attracting sufficient numbers of qualified
employees. None of the employees are covered by collective bargaining
agreements, and the Company has experienced no work stoppages. The Company
believes that its employee relations are good.
The acquisition of SRI will add approximately 75 additional employees to
the Company. (See "Subsequent Event - Southern Resources, Inc." above.)
Item 2. DESCRIPTION OF PROPERTY.
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The Company leases approximately 6,000 square feet of office facilities
located in Bloomington, Minnesota. In addition, the Company leases approximately
26,000 square feet of warehouse and office space in Eagan, Minnesota and
approximately 32,500 square feet of office, warehouse and production facilities
in Torrance, California. The Company's corporate office lease and its warehouse
lease expire in September 1999 and December 2001, respectively. Its California
facility lease is month to month with a six month notice requirement. A
subsidiary of the Company leases approximately 13,600 square feet of office and
warehouse space in a suburb of Toronto, Canada. The lease for the subsidiary's
office and warehouse space expires in fiscal 2000. The Company anticipates that
it will be able to renew such leases or enter into new leases on substantially
similar terms. See Note 6 of Notes to Consolidated Financial Statements for
annual rental commitments. The Company believes that the properties are
adequately covered by insurance.
Item 3. LEGAL PROCEEDINGS.
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The Company is not a party to any legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted to a vote of stockholders during the quarter
ended September 30, 1997.
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Part II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol: RING. The following table sets forth the
high and low sales prices of the Company's common stock for the last two fiscal
years as reported by Nasdaq.
QUARTERLY STOCK PRICES - FISCAL 1996 AND 1997
Sale Prices
---------------------
High Low
-------- -----------
Quarter of 1996:
First........ $2 1/8 $1 3/8
Second....... $2 $1 5/8
Third........ $2 3/4 $1 3/8
Fourth....... $2 3/8 $1 3/8
Quarter of 1997:
First........ $2 1/8 $1 1/4
Second....... $1 7/16 $1 1/32
Third........ $1 3/4 $1
Fourth....... $1 25/32 $1 1/16
HOLDERS.
As of December 15, 1997, there were 238 holders of record of the Company's
common stock, and the Company estimates there were approximately 2,200
beneficial holders at such date.
DIVIDENDS.
The Company has not paid or declared any cash dividends in the past five
years and has no intention of issuing dividends in the foreseeable future.
-11-
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
ACQUISITION ACTIVITIES
- ----------------------
In March 1997, the Company acquired substantially all of the assets of Dexol
Industries, Inc. ( the "Dexol acquisition"), a California based manufacturer and
marketer of pesticides to the retail consumer market with annual sales of
approximately $10 million. The pesticide products acquired use non-proprietary
traditional chemical technology commonly availably in the lawn and garden
industry. Since the acquisition, the Company has continued the business acquired
as its Dexol division, which has been included in the operations of Ringer
Corporation beginning on March 1, 1997, the effective date of the acquisition
for accounting and reporting purposes.
On May 30, 1996, the Company entered into a letter of intent to acquire all
outstanding stock of The Chas. H. Lilly Company ("Lilly"), a regional provider
of lawn and garden fertilizers, pesticides and packet seeds headquartered in
Portland, Oregon. On December 12, 1996, the Company announced that it elected to
discontinue efforts to acquire Lilly. Accordingly, the costs associated with
this acquisition attempt, which amounted to $312,771, have been charged to
expense in the accompanying fiscal 1996 Consolidated Statement of Operations.
In December 1994, the Company acquired substantially all of the assets of Plant
Research Laboratories ("PRL"), a California based developer and marketer of
water soluble fertilizers for the indoor houseplant and outdoor lawn and garden
care markets with annual sales of less than $1 million. The water soluble
fertilizer products acquired use a proprietary oxygen releasing technology.
These products were sold by PRL prior to the acquisition and have been sold by
the Company thereafter, primarily in the western United States, under the Oxygen
Plus(R) brand name. The Company introduced these products into national markets
in fiscal 1996 and plans to utilize the acquired technology in the development
of future products.
Management believes that new product introductions are essential to the future
growth and profitability of the Company. The Company is actively seeking
additional new product opportunities through a number of internal and external
means including the possibility of licensing arrangements with other companies
and further acquisitions. It should be noted, however, that the successful
culmination of these efforts or the profitable introduction of new products
cannot be assured.
SUBSEQUENT EVENT
- ----------------
On December 9, 1997, the Company completed a merger with Southern Resources,
Inc. ("SRI"), a previously privately-owned Georgia-based holding company, with
annual consolidated sales of approximately $25 million. SRI manufactures and
markets pesticides through its subsidiary SureCo, Inc., under a variety of
proprietary and private label brands names to commercial and consumer markets
throughout North America. The merger will be accounted for using the pooling-of-
interest method. (See Note 12 to the Company's consolidated financial statements
included herein.)
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth selected information derived from the Company's
Consolidated Statements of Operations:
-12-
<PAGE>
Percentage of Net Sales
For Years Ended September 30,
-----------------------------
1997 1996 1995
----- ----- -----
Net sales........................... 100.0% 100.0% 100.0%
Cost of sales....................... 54.5 52.1 49.2
----- ----- -----
Gross margin........................ 45.5 47.9 50.8
Operating expenses:
Distribution and warehousing....... 11.7 10.6 13.3
Sales and marketing................ 20.2 22.7 33.9
General and administrative......... 8.8 9.1 10.2
Research and development........... 5.2 5.1 6.9
Amortization of intangibles........ 2.4 2.7 2.7
----- ----- -----
Total operating expenses... 48.3 50.2 67.0
----- ----- -----
Loss before other (expense) income.. (2.8) (2.3) (16.2)
Other (expense) income........... (.1) (1.6) .9
----- ----- -----
Net loss............................ (2.9)% (3.9)% (15.3)%
===== ===== =====
The following table sets forth the percentage of net sales represented by each
of the Company's major product categories:
Year Ended September 30,
------------------------
1997 1996 1995
---- ---- ----
Pest control.............. 80% 70% 63%
Fertilizer................ 20 30 37
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1996
Net Sales
- ---------
Net sales for the fiscal year ended September 30, 1997 increased by $4,147,841
or 28.3% to $18,820,625 from $14,672,784 for the previous fiscal year ended
September 30, 1996. The sales increase for fiscal 1997 was primarily due to the
Dexol acquisition and the inclusion of sales from the new Dexol division
beginning March 1, 1997. (See "Dexol Industries, Inc" and "Acquisition
Activities" above.)
Gross Margin
- ------------
Gross margins as a percent of sales decreased to 45.5% in fiscal 1997 compared
to 47.9% in fiscal 1996. The decline in gross margin as a percent of sales was
caused by the 1997 addition of Dexol products which carry a lower average gross
margin compared to the Company's other products.
Operating Expenses
- ------------------
Distribution and warehousing expenses increased $643,689, or 41.4%, to
$2,199,586 in fiscal 1997 compared to $1,555,897 in fiscal 1996 and increased as
a percentage of sales in fiscal 1997 to 11.7% compared to 10.6% in fiscal 1996.
The increase was due to the addition of the Dexol division warehousing function
and additional direct distribution costs associated with increased sales. Sales
and marketing expenses increased $481,462 or 14.4%, to $3,813,795 in fiscal 1997
compared to $3,332,333 in fiscal 1996. The increase in sales expenses was due
primarily to the addition of the Dexol sales organization and increased direct
selling costs associated with Dexol sales. In addition, sales and marketing
expenses were favorably impacted by the reversal in fiscal 1997 of approximately
$227,000 in estimated co-operative advertising expenses, which were accrued in
fiscal 1996, resulting from a change in estimate based on actual
-13-
<PAGE>
utilization of co-op advertising allowances. Fiscal 1996 sales and marketing
expenses were favorably impacted by the reversal of approximately $198,000 in
estimated co-operative advertising expenses, which were accrued in fiscal
1995.
General and administrative expenses increased $325,730 or 24.5% to $1,656,996 in
fiscal 1997 compared to $1,331,266 in fiscal 1996. The increase was due largely
to the addition of Dexol division offices and administrative functions. Research
and development expenses increased $223,428 or 29.8% to $972,360 in fiscal 1997
from $748,932 in fiscal 1996 primarily as a result of increased product
registration and development activity related to the Dexol acquisition.
Amortization of intangible assets increased to $447,498 in fiscal 1997 compared
to $402,778 in fiscal 1996. The increase was due primarily to the amortization
of the additional goodwill associated with the Dexol acquisition.
Other income and expense
- ------------------------
Interest income decreased slightly to $72,247 in fiscal 1997 from $73,866 in
fiscal 1996 due primarily to a small decline in the amount of average excess
cash investments. Interest expense increased to $152,729 in fiscal 1997 from
$68,250 in fiscal 1996. The increase in interest expense was due primarily to
additional interest expense incurred on a long-term note payable added in 1997
in connection with the Dexol acquisition. Net royalty income decreased to
$50,885 in fiscal 1997 from $87,136 in fiscal 1996 due largely to decreased
royalty income on sales to foreign licensees.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
Net Sales
- ---------
Net sales for the fiscal year ended September 30, 1996 increased by $478,886, or
3.4%, to $14,672,784 from $14,193,898 for the previous fiscal year ended
September 30, 1995. The sales increase for fiscal 1996 was primarily due to
increased sales of Safer(R) brand pesticide products which were partially offset
by lower sales of fertilizer products. Increased pesticide sales was partially
due to increased retail distribution and to new product sales. Decreased
fertilizer sales were largely due to microbial fertilizer sales.
Gross Margin
- ------------
Gross margins as a percent of sales decreased to 47.9% in fiscal 1996 compared
to 50.8% in fiscal 1995. The decline in gross margin as a percent of sales was
caused primarily by a continuing change in product mix to a higher proportion of
newer products and new promotional combination packs which carry lower average
gross margins.
Operating Expenses
- ------------------
Distribution and warehousing expenses decreased $330,873, or 17.5%, to
$1,555,897 in fiscal 1996 compared to $1,886,770 in fiscal 1995 and decreased as
a percentage of sales in fiscal 1996 to 10.6% compared to 13.3% in fiscal 1995.
The decrease as a percentage of sales in fiscal 1996 compared to fiscal 1995 was
primarily due to lower freight and outside distribution costs resulting from
consolidation of distribution processes and reduced freight rates. Sales and
marketing expenses decreased $1,478,315, or 30.7%, to $3,332,333 in fiscal 1996
compared to $4,810,648 in fiscal 1995 and decreased as a percentage of sales to
22.7% in fiscal 1996 from 33.9% in fiscal 1995. The decrease in sales expenses
was due largely to staffing reductions, offset in part by increased commissions
incurred from expanded utilization of
-14-
<PAGE>
manufacturer representative organizations and to lower advertising expenses.
In addition, sales and marketing expenses were favorably impacted by the
reversal in fiscal 1996 of approximately $198,000 in estimated co-operative
advertising expenses, which were accrued in fiscal 1995, resulting from a
change in estimate based on actual utilization of co-op advertising
allowances. General and administrative expenses decreased $113,844, or 7.9%,
to $1,331,266 in fiscal 1996 compared to $1,445,110 in fiscal 1995 and
decreased as a percentage of sales to 9.1% in fiscal 1996 from 10.2% in fiscal
1995. The decrease was due largely to reduced facility rental costs resulting
from the sublease of approximately half of the Company's former office
facility. Research and development expenses decreased $232,563, or 23.7% to
$748,932 in fiscal 1996 from $981,495 in fiscal 1995. The decrease was largely
due to lower product registration costs resulting from discontinued
registrations on certain products no longer being sold. Amortization of
intangible assets increased to $402,778 in fiscal 1996 compared to $379,358 in
fiscal 1995. The increase was due primarily to multi-year foreign product
registrations obtained in fiscal 1996 which are being amortized over the life
of the registrations.
Other income and expense
- ------------------------
Other income and expense includes a fourth quarter charge of $312,771 for
expenses associated with an election not to proceed with a previously announced
acquisition. (See "Merger and Acquisition Activities" above.) Interest income
decreased $9,164, or 11.0%, to $73,866 in fiscal 1996 compared to $83,030 in
fiscal 1995. The decrease in interest income was largely due to declining
interest rates on investments. Interest expense increased to $68,250 in fiscal
1996 from $66,690 in fiscal 1995. The increase in interest expense was due
primarily to increased average borrowings in fiscal 1996 compared to fiscal
1995. Net royalty income decreased to $87,136 in fiscal 1996 from $106,352 in
fiscal 1995. The decrease in net royalty income was primarily caused by
additional royalty expenses incurred by the Company in fiscal 1996 in connection
with licensed technology used in the Company's water soluble fertilizer line.
INCOME TAXES
- ------------
Income tax benefits of net deferred tax assets have been offset by valuation
allowances for the years ended September 30, 1997, 1996 and 1995 because it is
more likely than not that the tax benefits, which can not be carried back, could
not be realized in future periods.
At September 30, 1997, the Company has approximately $23.2 million in combined
U.S. net operating loss carry forwards for federal income tax purposes. These
loss carry forwards expire between 1998 and 2013. Of the total, approximately
$4.1 million are U.S. net operating loss carryforwards of Safer, Inc., the
Company's wholly owned subsidiary. The use of the unexpired net operating loss
carryforwards of Ringer which were generated prior to September 1990, totaling
approximately $10.2 million, are restricted to $2,025,000 in any one year under
Internal Revenue Code Section 382 because of a significant ownership change
resulting from the Company's initial public offering. The use of net operating
loss carryforwards of Ringer generated after the ownership change are not
restricted. The use of the net operating losses of Safer, Inc. are limited to
approximately $700,000 in any one year under Internal Revenue Code Section 382
because of a significant ownership change resulting from the Company's
acquisition of Safer, Inc. in January 1991. At September 30, 1997, the Company
has approximately $565,000 of net operating loss carryforwards in Canada which
expire between 1999 and 2002.
QUARTERLY PERFORMANCE
- ---------------------
The following table sets forth a summary of quarterly results for the past two
fiscal years in order to show the highly seasonal pattern of the Company's
business and quarterly fluctuations in sales and earnings or losses. This
information is unaudited but contains all adjustments, consisting of normal
recurring accruals, which the Company believes are necessary for a fair
presentation.
-15-
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
Three months ended Three months ended
----------------------------------- --------------------------------------
(In thousands, except income (loss) per share data)
Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30
-------- ------- ------- -------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 3,636 $ 5,613 $ 4,005 $ 1,419 $ 3,481 $ 4,839 $ 7,358 $ 3,143
Gross profit.......... 1,850 2,878 1,709 588 1,774 2,243 3,443 1,105
Operating expenses.... 1,921 2,383 1,619 1,448 1,748 2283 3,205 1,854
Income (loss) before
other income
(expense)........... (71) 495 90 (860) 26 (40) 238 (749)
Other income
(expense)........... 19 12 14 (267) 34 (14) (54) 13
Net income (loss)..... $ (52) $ 507 $ 104 $(1,127) $ 60 (54) $ 184 $ (736)
Income (loss)
per share............. $(.00) $.05 $.01 $(.10) $.01 $(.00) $.02 $(.06)
Average common and
common equivalent
shares outstanding.. 10,922 10,923 10,931 10,922 10,922 10,934 12,175 12,182
</TABLE>
SEASONAL FACTORS AFFECTING OPERATIONS
The Company's operations and cash needs are highly seasonal. During the first
quarter of each year, the Company solicits early orders and plans production,
typically building its inventory of products through January of each year for
shipment during the spring selling season. Most of the shipments for the peak
retail season, and therefore most of the billings that result in revenue
recognition and in receivables, occur in February through May of each year.
Accordingly, the Company typically consumes significant cash in operating
activities during the first and second quarters of each year as it finances
increases in inventory, primarily during the first quarter, and increases in
receivables, primarily during the second and early third quarters.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Historically the Company's cash and working capital needs have been provided
through public and private equity offerings as well as seasonal bank lines of
credit. The Company relies on a bank line of credit to finance its seasonal
working capital needs resulting from the build up of inventory and receivables
during the second and third quarters of each year. Consistent with the Company's
seasonal operations, the Company's outstanding borrowings under its bank line is
the greatest during the third quarter of each year.
On May 2, 1997, the Company secured a three-year, $25 million revolving credit
facility from GE Capital Services, which replaced a $5,000,000 bank line of
credit from a previous lender. (See Note 5 to consolidated financial statements
herein.) Borrowings under the facility are limited to a borrowing base of 85% of
eligible receivables and 50% of eligible inventory, as defined in the credit
agreement. Management believes that this line of credit will meet the Company's
seasonal working capital requirements for fiscal 1998. In 1997, the Company's
maximum borrowings from its bank line of credit were $2,436,527 compared to
maximum borrowings of $3,405,417 in fiscal 1996. There are no outstanding
borrowings under the line of credit as of September 30, 1997.
Management believes that working capital of $5.1 million at September 30, 1997,
together with seasonal bank lines of credit, will be sufficient to fund its
operations through at least fiscal 1998.
-16-
<PAGE>
In fiscal 1997, cash and cash equivalents decreased $24,487 to $3,264,294 from
$3,288,781 at September 30, 1996. The decrease resulted primarily from cash used
in investing activities of $255,863 which was largely offset by cash provided
from operating activities of $116,605 and cash provided from financing
activities of $111,905. Cash used in investing activities was primarily used to
purchase property and equipment of $140,008, to pay expenses relating the Dexol
acquisition of $82,343 and to invest in patent and trademark applications and
other intangible assets of $42,401, partially offset by proceeds from the sale
of fixed assets of $8,889. The $116,605 provided by operating activities was
primarily the result of reductions to receivables and inventory of $1,605,348
and $873,900, respectively, offset in part by reductions in accounts payable and
accrued expenses of $2,150,758 and 195,638, respectively. The cash provided by
financing activities was primarily the result of cash received in the Dexol
acquisition of $124,073 partially offset by payments of $12,168 on long-term
debt.
In fiscal 1996, cash and cash equivalents increased $532,404 to $3,288,781 at
September 30, 1996. The increase resulted primarily from cash provided by
operating activities of $699,044, partially offset by cash used in investing
activities of $158,506. The $699,044 provided by operating activities was
primarily the result of decreased inventory and receivables of $502,224 and
$205,861, respectively, and increased accrued expenses of $249,746, which was
partially offset by cash used to fund the net operating loss of $568,119, less
net non-cash expenses of $511,896, and a reduction in accounts payable of
$194,464. Cash used in investing activities was primarily used to purchase
property and equipment of $60,861 and to invest in patent and trademark
applications and other intangible assets of $118,674, partially offset by
proceeds from the sale of fixed assets of $20,849.
In fiscal 1995, cash and cash equivalents decreased $2,091,246 to $2,756,377 at
September 30, 1995. The decline resulted primarily from cash used in operating
activities of $1,640,482, cash used in investing activities of $440,526 and cash
used in financing activities of $2,063. The $1,640,482 used in operating
activities was used primarily to fund the net loss of $2,173,104 and increases
in inventory of $748,040, which was partially offset by decreases in accounts
receivable and prepaid expenses of $313,494 and $90,174, respectively, and
increases in accounts payable of $331,887. Cash used in investing activities was
primarily used to acquire substantially all the assets of Plant Research
Laboratories (see Item 1. Business, "Plant Research Laboratories"), to purchase
property and equipment of $101,536 and to invest in patent and trademark
applications and other intangible assets of $106,288. Cash used in financing
activities resulted from final payments on capital lease obligations of $3,667
partially offset by cash of $1,604 received from the exercise of employee
incentive stock options.
There are no commitments for capital expenditures in fiscal 1998. The Company's
bank line of credit agreement limits the Company to capital asset purchases to
not more than $300,000 per year during the term of the credit agreement ending
May 2, 2000.
EFFECTS OF INFLATION
- --------------------
The Company believes that, during the periods discussed above, inflation has not
had a material impact on the Company's business.
ACCOUNTING PRONOUNCEMENTS
- -------------------------
In fiscal 1997, the Company adopted Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." As permitted by
SFAS 123, the Company has elected to continue using the "intrinsic value method"
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" for the measurement and recognition of stock-based transactions with
employees. Accordingly, no compensation costs have been recognized for stock
options issued under the Company's stock option plans because the exercise price
of options granted was equal to the fair value of
-17-
<PAGE>
the Company's common stock on the date of grant. See "Stock Based Compensation"
under Note 7 to the consolidated financial statements included herein.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In February 1997, Statement on Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" was issued which is required to be adopted for the quarter
ending December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options, stock warrants and convertible securities
will be excluded from basic earnings per share. The calculation of diluted
earnings per share will remain similar to the current method. The impact of SFAS
No. 128 on the calculation of primary and fully diluted earnings per share is
not expected to be material.
YEAR 2000 CONCERNS
- ------------------
The Company has reviewed its computer systems for year 2000 compliance issues
and has determined that implementations of new software and computer equipment
are required in certain areas. The Company is in the process of implementing
these computer systems changes to be year 2000 compliant. Management believes
that the implementation of new hardware and software required to be year 2000
compliant will not have a material adverse impact on the Company's future
operating results.
FORWARD LOOKING INFORMATION
- ---------------------------
The information contained in this Annual 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 demand from major customers, competition, changes in
product or customer mix or revenues, and changes in product costs and operating
expenses, and other factors disclosed throughout this Annual 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 statements 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.
-18-
<PAGE>
Item 7. FINANCIAL STATEMENTS.
--------------------
The following consolidated financial statements are included as a separate
section following the signature page to this Form 10-KSB:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report......................................... 32
Consolidated Balance Sheets as of
September 30, 1997 and 1996........................................ 33
Consolidated Statements of Operations for the years ended
September 30, 1997, 1996 and 1995.................................. 34
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995.................................. 35
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995.................................. 36
Notes to Consolidated Financial Statements........................... 37 to 46
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
-19-
<PAGE>
PART III
Item 9. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
-------------------------------------------------------
(a) ELECTION OF DIRECTORS
The Board of Directors has set the number of directors to be elected
for the ensuing year at eight and will be recommending in its Proxy Statement
the election of Messrs. Goldberg, Stofer, Fischer, Lovness, Pass, Yanni,
Hetterick and Vansant (the "Nominees") to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified.
Each Nominee, other than David K. Vansant, is presently a director of the
Company.
The following information is given as of December 31, 1997 and has been
furnished to the Company by the respective individuals listed below.
<TABLE>
<CAPTION>
Principal Occupation and
Name and Age Business Experience for Past Five Years Director Since
------------ --------------------------------------- --------------
<S> <C> <C>
Stanley Goldberg Chairman of the Board of Directors of the Company since 1997; September 1992
Age 51 Chief Executive Officer of the Company since 1993; President
of the Company since September 1992. Vice President and
General Manager of Thomson, S.A., World Wide Audio Division,
a defense and electronics company from 1990 to 1992; General
Manager of Thomson S.A., Audio Americas Operations from 1988
to 1990; Manager of Product Development for General Electric
Company, a consumer and industrial products and defense
company, from 1986 to 1988. Director of Destrib-Fearing
Corporation.
Gordon F. Stofer +* President of Cherry Tree Investments, Inc. and Managing December 1985
Age 50 General Partner of Cherry Tree Ventures venture capital
partnerships since 1980. Chairman of the Board of
Directors of the Company from 1986 to 1997. Director of
Coda Music Technology, Inc., Insignia Systems
Incorporated and Harmony Brook, Inc.
Robert W. Fischer +* President of R.W. Fischer & Company, Inc., a corporate June 1981
Age 79 development and investment banking services company,
since 1979. Director of Apertus Technologies
Incorporated.
Donald E. Lovness Former Senior Scientist of the Company until his June 1965
Age 73 retirement in December 1988.
Franklin Pass, M.D. Chairman and Chief Executive Officer of Medi-Ject June 1990
Age 61 Corporation, a manufacturer of needle-free injection
devices, since 1992; President of International
Agricultural Investments, Ltd., an agricultural and
consulting partnership from 1990 to 1993; Chairman
and Chief Executive Officer of Bioseeds International,
Inc., an agricultural seed company, from 1987 to 1990.
Frederick F. Yanni, President and Chief Executive Officer of Health Services June 1993
Jr.+ Medical Corporation of Central New York, Inc., a network
Age 55 health maintenance organization, since 1976; President
and Chief Executive Officer of Health Services Association,
a provider of ambulatory care, since 1972.
</TABLE>
-20-
<PAGE>
<TABLE>
<S> <C>
John F. Hetterick* Independent consultant in the consumer products June 1993
Age 52 industry since 1997; President and Chief Executive
Officer of Rollerblade, Inc., a manufacturer of in-
line skates, from 1992 to 1997; President of Tonka
International, a division of Tonka, Corporation, a
toy manufacturer, from 1989 to 1991; Vice President-
Marketing of Pepsi-Cola International, a
manufacturer and distributor of soft drinks from
1986 to 1989.
David K. Vansant Executive Vice President -Corporate Development of the Nominee
Age 53 Company since 1997. Chairman and Chief Executive Officer
of Southern Resources, Inc. from 1986 until Southern
Resources, Inc. was acquired by the Company in 1997.
</TABLE>
- -----------------------------
+ Member of Audit Committee
. Member of Stock Option Committee
* Member of Compensation Committee
(b) EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Stanley Goldberg 51 Chairman, Chief Executive Officer
and President
Mark G. Eisenschenk 40 Executive Vice President,
Chief Financial Officer, Treasurer
and Secretary
Patrick J. McGinnity, Ph.D. 43 Vice President and
General Manager - Safer and
Ringer Products
Michael R. Goblet 51 Vice President - Sales
</TABLE>
See the biographical information on Mr. Goldberg under "Election of
Directors."
Mark G. Eisenschenk joined the Company in January 1994 as Chief Financial
Officer, Vice President of Finance, Treasurer and Secretary. From 1991 to 1994,
Mr. Eisenschenk was the Vice President and Chief Financial Officer of ECM
Publishers, Inc. From 1986 to 1991, Mr. Eisenschenk was Director of Treasury,
Taxation and Accounting of Sinclair and Valentine, formerly a unit of Allied-
Signal, Inc.
Patrick J. McGinnity, Ph.D. joined the Company in September 1987 as Vice
President-Research and Development. From December 1983 to September 1987, Dr.
McGinnity was Senior Field Research and Development Specialist and Regional
Field Research and Development Manager at PPG Industries, Inc.
Michael R. Goblet joined the Company in March 1993 as Vice President -
Sales. From 1982 to 1993, Mr. Goblet was a Regional Manager at the O. M. Scotts
Company.
(c) SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, persons who beneficially own more than ten percent (10%)
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and greater than ten percent (10%) beneficial
owners are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
-21-
<PAGE>
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with.
Item 10. EXECUTIVE COMPENSATION.
----------------------
The following table sets forth the compensation awarded to or earned in
fiscal years 1997, 1996 and 1995 by the Company's Chief Executive Officer and
each other executive officer who earned salary and bonus in excess of $100,000
during the fiscal year ended September 30, 1997.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Long-Term
Compensation (1)
----------------------
Annual Compensation Restricted Securities
Name and ------------------- Stock Underlying All Other
Principal Position Year Salary Bonus Awards Options Compensation
- ----------------------- ---- ---------- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stanley Goldberg, 1997 $185,250 -- -- 90,000 $21,584(2)
Chairman, President 1996 $178,500 $20,000 -- -- $22,227(2)
and Chief Executive 1995 $171,133 -- -- 225,000 $20,548(2)
Officer
Patrick J. McGinnity, 1997 $105,000 -- -- 5,000 --
Vice President and 1996 $104,167 $ 1,500 -- -- --
General Manager, 1995 $ 94,875 -- -- 35,000 --
Safer and Ringer
Products
Michael R. Goblet, 1997 $104,375 -- -- 5,000 --
Vice President of 1996 $102,083 $ 1,000 -- -- --
Sales 1995 $102,417 -- -- 17,000 --
Mark G. Eisenschenk, 1997 $103,542 -- -- 50,000 --
Executive Vice 1996 $ 90,938 $ 7,500 -- -- --
President, Chief 1995 $ 81,333 $ 4,000 -- 50,000 --
Financial Officer,
Treasurer and Secretary
</TABLE>
- ----------------------------------------
(1) Mr. Goldberg held 15,000 shares of restricted stock valued at $27,188 as of
September 30, 1997.
(2) Includes compensation of $7,343 in 1997, $7,087 in 1996 and $7,417 in 1995
relating to the purchase of disability insurance for Mr. Goldberg.
Fiscal Year-End Option Values
-----------------------------
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at End of In-the-Money Options
Fiscal 1997 at End of Fiscal 1997
--------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mr. Goldberg 136,190 178,810 $68,095 $89,405
Dr. McGinnity 59,628 30,372 29,814 10,186
Mr. Goblet 42,442 11,558 21,221 5,779
Mr. Eisenschenk 48,000 2,000 24,000 1,000
</TABLE>
-22-
<PAGE>
Director Compensation
The Company does not provide cash compensation to its outside directors,
but reimburses them for travel expenses for Board of Directors and committee
meetings attended. In 1993 the Board of Directors adopted the Stock Option Plan
for Non-Employee Directors (the "Director Plan"), which was approved by the
shareholders of the Company at the 1994 Annual Meeting. Such plan provides that
each non-employee director shall receive an option to purchase 10,000 shares of
Common Stock upon initial election as a director and an option to purchase an
additional 5,000 shares of Common Stock on the first business day of each fiscal
year in which he or she remains a director, commencing October 1, 1993. The
exercise price of all options under the Director Plan is equal to the fair
market value on the date of grant. Options granted under the Director Plan (i)
are exercisable in monthly increments of one-sixtieth of the number of shares
subject to such grant until the day following the fifth anniversary of such
grant, at which time the options granted are all fully exercisable and (ii)
expire 10 years from the date of the grant. In the event any dividend,
distribution, recapitalization, stock split, merger, consolidation, or other
event occurs that affects the Company's Common Stock such that an adjustment is
deemed appropriate to prevent dilution or enlargement of benefits under the
Director Plan, such adjustments may be made to preserve the benefits intended
under the Director Plan and such awards. Awards granted under the Director Plan
are not transferable.
Employment Agreements
The Company and Stanley Goldberg entered into an Employment Agreement under
which Mr. Goldberg agreed to serve as the President of the Company. The
agreement, as amended, provides for a minimum annual base compensation payable
to Mr. Goldberg of $200,000. In addition, Mr. Goldberg is eligible for an
annual bonus of up to 40% of his base salary based on personal and company
performance objectives established by the Company's Board of Directors. The
agreement further provides that Mr. Goldberg may be entitled to severance pay in
the event Mr. Goldberg's employment with the Company is terminated under certain
circumstances. Such severance pay is equal to (i) his base monthly salary at
the time of such termination, is payable for a period of three years following
such termination, and offset by any compensation received by Mr. Goldberg after
the date eighteen months following such termination from other employment and
(ii) a lump-sum payment equal to the average bonus received by Mr. Goldberg
during the preceding three years. The Agreement further provides that if the
Company sells substantially all of its assets or a transaction occurs such that
the members of the Board of Directors at the time of the transaction do not
remain on the Board of Directors after such transaction, the Company shall pay
Mr. Goldberg a sale bonus equal to (i) 300% of his annual base salary and (ii)
the average bonus paid to Mr. Goldberg for the three years immediately preceding
such transaction.
The Company and Mark G. Eisenschenk also entered into an Employment
Agreement under which Mr. Eisenschenk agreed to serve as the Executive Vice
President and Chief Financial Officer of the Company. The agreement provides
for a minimum annual base compensation payable to Mr. Eisenschenk of $125,000.
In addition, Mr. Eisenschenk is eligible for an annual bonus of up to 30% of his
base salary based on personal and company performance objectives established by
the Company's Board of Directors. The agreement further provides that Mr.
Eisenschenk may be entitled to severance pay in the event Mr. Eisenschenk's
employment with the Company is terminated under certain circumstances. Such
severance pay is equal to (i) his base monthly salary at the time of such
termination, is payable for a period of twelve months following such
termination, and offset by any compensation received by Mr. Eisenschenk after
the date six months following such termination from other employment and (ii) a
lump sum payment equal to the average bonus received by Mr. Eisenschenk during
the preceding three years. The agreement further provides that if the Company
sells substantially all of its assets or a transaction occurs such that the
members of the Board of Directors at the time of the transaction do not remain
on the Board of Directors after such transaction, the Company shall pay Mr.
Eisenschenk a sale bonus equal to (i) 100% of his annual base salary and (ii)
the average bonus paid to Mr. Eisenschenk for the three years immediately
preceding such transaction.
-23-
<PAGE>
Stock Option Plans
In 1986, the Board of Directors and the shareholders of the Company
approved the 1986 Employee Incentive Stock Option Plan (the "1986 Plan") which
expired on September 17, 1996. As of such date, 833,068 shares of Common Stock
were subject to outstanding options at a weighted average exercise price of
$1.3125 per share, of which options to purchase 465,875 shares were exercisable
as of such date. As of September 30, 1997, a total of 22 employees held options
under the 1986 Plan.
In 1996, the Board of Directors adopted, and in 1997 the shareholders
approved, the Ringer Corporation 1996 Incentive and Stock Option Plan (the "1996
Plan"). As of September 30, 1997, 40,500 shares of Common Stock were subject to
outstanding options at a weighted exercise price of $1.3125 per share, of which
options to purchase 12,938 shares were exercisable as of such date. As of
September 30, 1997, a total of 24 employees held options under the 1996 Plan.
Stock Option Repricing
The Company's Compensation Committee and Board of Directors repriced all
outstanding stock options to purchase Company Common Stock held by employees and
directors on April 29, 1997. The Compensation Committee and Board of Directors
believed that the market price of the Company's common stock had been negatively
affected by several factors, including general investment market disfavor for
small-cap common stocks, the Company's earnings performance and absence of
investment analyst coverage. As a result, the outstanding stock options, which
had been granted at exercise prices ranging from $1.50 to $2.70 per share, no
longer represented an effective incentive for employees and directors. The
options were reissued at an exercise price equal to the fair market value of the
Common Stock on the date of repricing ($1.3125 per share). The number of shares
subject to the repriced options and the average option exercise price for each
of the named executive officers is as follows: Mr. Goldberg - 90,000 shares at
$2.50 per share; Mr. Eisenschenk -50,000 shares at an average exercise price of
$1.98 per share; Dr. McGinnity - 75,000 shares at an average exercise price of
$2.02 per share; and Mr. Goblet - 49,000 shares at an average exercise price of
$1.96 per share.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The following table sets forth certain information as of December 31, 1997, with
respect to the beneficial ownership of the Company's Common Stock by all persons
known by the Company to be the beneficial owners of more than 5% of its
outstanding shares, by all directors, nominees for election as directors, by the
executive officers named in the executive compensation table and by all officers
and directors as a group. Unless noted below, the address of each of the
following shareholders is the same as the Company.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial
of Beneficial Owner Ownership(1) Percent of Class
------------------- ----------------- ----------------
<S> <C> <C>
Gordon F. Stofer and 680,811 4.1%
Cherry Tree Ventures III (2)
1400 Northland Plaza
3800 West 80th Street
Minneapolis, MN 55431
Parsnip River Company 1,005,388 6.0
4422 IDS Center
80 South 8th Street
Minneapolis, MN 55402
</TABLE>
-24-
<PAGE>
<TABLE>
<S> <C> <C>
William J. DeMare 1,125,000 6.7
14702 Claredon Drive
Tampa, FL 33624
Benjamin F. Law 1,125,000 6.7
2755 Arden Rd, N.W.
Atlanta, GA 30327
D. David Bailey 1,125,000 6.7
2504 Gardener Court
Tampa, FL 33611
David K. Vansant 1,125,000 6.7
132 Princeton Drive
Macon, GA 31220
Dexol Industries, Inc. 1,059,340 6.4
1450 West 228th St.
Torrance, CA 90501
Stanley Goldberg 332,705 2.0
Robert W. Fischer 112,001 *
Donald E. Lovness 35,550 *
Franklin Pass, M.D. 25,000 *
Frederick F. Yanni, Jr. 38,300 *
John F. Hetterick 35,000 *
Richard Mayo 25,000 *
Mark G. Eisenschenk 102,000 *
Michael R. Goblet 53,659 *
Patrick J. McGinnity, Ph.D. 64,477 *
Officers and directors as 1,524,386 8.9%
a group (12 persons) (1)
</TABLE>
- -----------------------------
* Less than one percent
(1) Includes for Stanley Goldberg, options to purchase 158,690 shares of Common
Stock which are exercisable within 60 days; for Robert W. Fischer, options
to purchase 25,000 shares of Common Stock which are exercisable within 60
days; for Donald E. Lovness, options to purchase 25,000 shares of Common
Stock which are exercisable within 60 days; for Franklin Pass, M.D., options
to purchase 25,000 shares of Common Stock which are exercisable within 60
days; for Frederick F. Yanni, Jr., options to purchase 35,000 shares of
Common Stock which are exercisable within 60 days; for John F. Hetterick,
options to purchase 35,000 shares of Common Stock which are exercisable
within 60 days;
-25-
<PAGE>
for Mark G. Eisenschenk, options to purchase 50,000 shares of Common Stock
which are exercisable within 60 days; for Michael R. Goblet, options to
purchase 46,249 shares of Common Stock which are exercisable in 60 days; for
Patrick J. McGinnity, Ph.D., options to purchase 64,477 shares of Common
Stock which are exercisable within 60 days; and for all officers and
directors as a group, options to purchase 519,299 shares of Common Stock
which are exercisable within 60 days.
(2) Includes 648,163 shares held by Cherry Tree Ventures III, of which Mr.
Stofer, the Chairman of the Board of the Company, is a general partner. Mr.
Stofer disclaims beneficial ownership of shares held by Cherry Tree Ventures
III. Also includes options to purchase 20,000 shares of Common Stock which
are exercisable within 60 days.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
On April 29, 1997, the Board of Directors of the Company approved the sale
of 150,000 shares of unregistered and restricted Common Stock to Mr. Goldberg
and 50,000 shares of unregistered and restricted stock to Mr. Eisenschenk, at a
price of $1.3125 per share (the fair market value on the date of the
transaction). Mr. Goldberg is a director, shareholder and executive officer and
Mr. Eisenschenk is a shareholder and executive officer of the Company.
The purchase price for the shares was paid by each of Mr. Goldberg and Mr.
Eisenschenk by delivering to the Company a full recourse promissory note. The
promissory note of Mr. Goldberg is payable in three annual installments of
principal and interest due on the first three anniversaries of the date of the
promissory note. The promissory note of Mr. Eisenschenk is due in five annual
installments of principal and interest due on the first five anniversaries of
the date of the promissory note.
The agreements pursuant to which each of Messrs. Goldberg and Eisenschenk
purchased stock provide that, if the executive officer is employed by the
Company on each anniversary on which payments are due under the promissory note,
the Company will make a cash bonus payment to the executive officer in an amount
equal to the annual debt service payments on such note plus an amount equal to
the federal and state income taxes payable on such cash bonus.
The agreement with Mr. Goldberg provides that, in the event Mr. Goldberg is
terminated for cause or voluntarily terminates his employment with the Company
prior to April 29, 2000, the Company will have the option to repurchase shares
of Company Common Stock purchased by him on April 29, 1997. The number of
shares subject to repurchase decreases by one-third on each anniversary of the
date of purchase, from an initial option to repurchase all of the shares
purchased prior to the first such anniversary.
Similarly, in the event Mr. Eisenschenk is terminated for cause or
voluntarily terminates his employment with the Company prior to April 29, 2002,
the Company will have the option to repurchase shares of Company Common Stock
purchased by him on April 29, 1997. The number of shares subject to repurchase
decreases by one-fifth from an initial option to repurchase all of the shares
purchased prior to the first such anniversary.
The agreements also provide that if (i) Mr. Goldberg or Mr. Eisenschenk is
terminated without cause, (ii) the Company is sold, or (iii) a controlling
interest in the Company is acquired by a third party prior to April 29, 2000,
the Company will make cash payments equal to one-third of the then outstanding
balance of principal and interest on their respective promissory notes for each
anniversary of such promissory notes that has passed as of the date of the above
described events.
-26-
<PAGE>
In connection with such purchases, Mr. Goldberg agreed to the cancellation
of options to purchase 135,000 shares of the Company's Common Stock owned by him
and Mr. Eisenschenk agreed to the cancellation of options to purchase 50,000
shares of Common Stock owned by him.
-27-
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
a. Listing of Exhibits
-------------------
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1 Agreement for Purchase and Sale of Assets by and between Dexol
Industries, Inc. and Ringer Corporation (incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed April
15, 1997, SEC File No. 33-36205-C).
2.2 Amended and Restated Agreement and Plan of Merger between Southern
Resources, Inc. Inc. and Ringer Corporation (incorporated by reference
to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on or
about December 23, 1997, SEC File No. 33-36205-C).
3.1 Restated Articles of Incorporation of the Company, as amended to date
(incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-18, SEC File No. 33-36205-C).
3.2 Bylaws of the Company, as amended to date (incorporated by reference
to Exhibit 3.3 of the Company's Registration Statement on Form S-18,
SEC File No. 33-36205-C).
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 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).
10.3 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.)
10.4 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.)
* 10.5 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).
* 10.6 Amendment of Employment Agreement between the Company and Stanley
Goldberg, dated December 5, 1997.
</TABLE>
-28-
<PAGE>
<TABLE>
<S> <C>
* 10.7 Employment Agreement between the Company and Mark G. Eisenschenk,
dated December 5, 1997.
* 10.8 Stock purchase agreement, and related documents, between the Company
and Stanley Goldberg, dated April 29, 1997.
* 10.9 Stock purchase agreement, and related documents, between the Company
and Mark G. Eisenschenk, dated April 29, 1997.
10.10 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).
10.11 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).
10.12 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).
10.13 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).
*10.14 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.)
21.1 Subsidiaries of the Registrant (filed with Form 10-KSB dated September
30, 1997)
23.1 Consent of Deloitte & Touche LLP (filed with Form 10-KSB dated
September 30, 1997).
24.1 Power of Attorney (filed with Form 10-KSB dated September 30, 1997).
27.1 Financial Data Schedule (filed with Form 10-KSB dated September 30,
1997)
</TABLE>
* Management contract or compensation plan or arrangement.
See Exhibit Index and Exhibits attached as a separate section of this
report.
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed for the quarter ended September 30,
1997.
-29-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RINGER CORPORATION
By /s/ Stanley Goldberg
-------------------------------
Stanley Goldberg
President & CEO
Dated: February 17, 1998
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Stanley Goldberg - Chairman, President, CEO and Director February 17, 1998
- ------------------------ (principal executive officer)
Stanley Goldberg
/s/ Mark G. Eisenschenk - Chief Financial Officer February 17, 1998
- ------------------------ (principal financial officer)
Mark G. Eisenschenk
/s/ Joseph R. Price - Vice President, Finance February 17, 1998
- ------------------------ (principal accounting officer)
Joseph R. Price
Gordon F. Stofer * Chairman of the Board and Director
Robert W. Fischer * Director
Donald E. Lovness * Director
Dr. Franklin Pass * Director
John F. Hetterick * Director
Frederick F. Yanni, Jr. * Director
Richard Mayo * Director
* /s/ Stanley Goldberg Attorney-in-fact February 17, 1998
-----------------------
Stanley Goldberg
</TABLE>
-30-
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report......................................... 32
Consolidated Balance Sheets as of
September 30, 1997 and 1996........................................ 33
Consolidated Statements of Operations for the years ended
September 30, 1997, 1996 and 1995.................................. 34
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995.................................. 35
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995.................................. 36
Notes to Consolidated Financial Statements........................... 37 to 46
-31-
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Board of Directors and Stockholders
Ringer Corporation
Bloomington, Minnesota
We have audited the accompanying consolidated balance sheets of Ringer
Corporation and subsidiary as of September 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ringer
Corporation and subsidiary as of September 30, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
December 5, 1997 (December 9, 1997 as to Note 12)
-32-
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
- ---------------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
September 30
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 3,264,294 $ 3,288,781
Trade accounts receivable, less allowance for doubtful
accounts of $134,000 and $126,000, respectively 1,153,271 992,198
Inventories (Note 3) 2,805,661 1,519,692
Prepaid expenses 221,186 133,746
----------- ------------
Total current assets 7,444,412 5,934,417
PROPERTY AND EQUIPMENT, net (Note 4) 430,138 238,297
INTANGIBLE ASSETS, at cost, less accumulated amortization
of $2,713,002 and $2,264,349, respectively (Note 1) 6,653,501 5,297,329
OTHER ASSETS 87,044
----------- -----------
$14,615,095 $11,470,043
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,273,570 $ 651,546
Accrued expenses:
Co-op advertising 280,475 319,691
Other accrued expenses 807,449 559,908
Current portion of long-term debt 23,207
----------- ------------
Total current liabilities 2,384,701 1,531,145
LONG-TERM DEBT (Note 6) 1,458,799
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Preferred stock, undesignated, par value $.01
per share, authorized 5,000,000 shares,
no shares issued and outstanding
Common stock, par value $.01 per share, authorized
25,000,000 shares, issued and outstanding
12,181,270 and 10,921,930 shares, respectively 121,813 109,219
Additional paid-in capital 33,683,587 32,036,675
Notes receivable from sale of common stock to officers (Note 10) (262,500)
Accumulated deficit (22,613,212) (22,067,276)
Cumulative translation adjustment (158,093) (139,720)
----------- ------------
10,771,595 9,938,898
----------- ------------
$14,615,095 $ 11,470,043
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-33-
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
- ---------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $18,820,625 $14,672,784 $14,193,898
COST OF GOODS SOLD 10,255,353 7,647,293 6,990,175
------------ ------------ ------------
Gross profit 8,565,272 7,025,491 7,203,723
OPERATING EXPENSES:
Distribution and warehousing 2,199,586 1,555,897 1,886,770
Sales and marketing 3,813,795 3,332,333 4,810,648
General and administrative 1,656,996 1,331,266 1,445,110
Research and development 972,360 748,932 981,495
Amortization of intangibles 447,498 402,778 379,358
------------ ------------ ------------
9,090,235 7,371,206 9,503,381
------------ ------------ ------------
Loss before other
(expense) income (524,963) (345,715) (2,299,658)
OTHER (EXPENSE) INCOME:
Interest income 72,247 73,866 83,030
Interest expense (152,729) (68,250) (66,690)
Royalties, net (Note 6) 50,885 87,136 106,352
Other income (expense), net 8,624 (2,385) 3,862
Abandoned acquisition expenses (Note 2) (312,771)
------------ ------------ ------------
(20,973) (222,404) 126,554
------------ ------------ ------------
NET LOSS $ (545,936) $ (568,119) $(2,173,104)
============ ============ ============
NET LOSS PER WEIGHTED
AVERAGE COMMON SHARE ($.05) ($.05) ($.20)
============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,540,885 10,921,930 10,897,704
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-34-
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
- ---------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Receivables Cumulative
Number of paid-in from sale Accumulated translation
shares Amount capital of stock deficit adjustment Total
---------- -------- ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 10,786,013 $107,860 $31,835,805 $(19,326,053) $ (131,619) $12,485,993
Issuance of common stock in
connection with the
purchase of Oxygen Plus 125,000 1,250 186,250 187,500
Issuance of common stock upon
exercise of stock options 917 9 1,595 1,604
Issuance of common stock as
non-cash compensation to officer 10,000 100 13,025 13,125
Foreign currency translation
adjustments 5,188 5,188
Net loss (2,173,104) (2,173,104)
---------- -------- ----------- ------------ ------------ ----------- -----------
BALANCE AT SEPTEMBER 30, 1995 10,921,930 109,219 32,036,675 (21,499,157) (126,431) 10,520,306
Foreign currency translation
adjustments (13,289) (13,289)
Net loss (568,119) (568,119)
---------- -------- ----------- ------------ ------------ ----------- -----------
BALANCE AT SEPTEMBER 30, 1996 10,921,930 109,219 32,036,675 (22,067,276) (139,720) 9,938,898
Issuance of common stock in
connection with the purchase
of Dexol 1,059,340 10,594 1,386,412 1,397,006
Issuance of common stock upon
sale of stock to officers 200,000 2,000 260,500 $ (262,500) --
Foreign currency translation
adjustments (18,373) (18,373)
Net loss (545,936) (545,936)
---------- -------- ----------- ------------ ------------ ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 12,181,270 $121,813 $33,683,587 $ (262,500) $(22,613,212) $ (158,093) $10,771,595
========== ======== =========== ============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
-35-
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
- ---------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 10)
- -----------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30
---------------------------------------
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (545,936) $ (568,119) $(2,173,104)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 616,079 514,940 519,928
Write-off of intangible assets 76,085 1,312 42,564
Stock issued as compensation for services 13,125
Income from investment in joint venture (10,078) (4,356)
(Gain) loss on sale of property
and equipment 29 (11,449) (5,786)
(Increase) decrease in assets:
Trade accounts receivable 1,605,348 205,861 313,494
Inventories 873,900 502,224 (748,040)
Prepaid expenses (152,426) 3,349 90,174
Increase (decrease) in liabilities:
Accounts payable (2,150,758) (194,464) 331,887
Accrued expenses (195,638) 249,746 (24,724)
----------- ---------- -----------
Net cash provided by (used in)
operating activities 116,605 699,044 (1,640,482)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (140,008) (60,681) (101,536)
Purchase of intangible assets (42,401) (118,674) 106,288)
Proceeds from sale of property and equipment 8,889 20,849 24,958
Net cash paid relating to acquisition of Dexol (82,343)
Net cash paid relating to acquisition of
Oxygen Plus (257,660)
----------- ---------- -----------
Net cash used in investing activities (255,863) (158,506) (440,526)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in Dexol acquisition 124,073
Proceeds from issuance of common stock 1,604
Principal payments on long-term debt (12,168) (3,667)
----------- ---------- -----------
Net cash provided by (used in)
financing activities 111,905 (2,063)
Effect of exchange rate changes on cash 2,866 (8,134) (8,175)
----------- ---------- -----------
(Decrease) increase in cash and cash
equivalents (24,487) 532,404 (2,091,246)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 3,288,781 2,756,377 4,847,623
----------- ---------- -----------
END OF YEAR $ 3,264,294 $3,288,781 $ 2,756,377
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
-36-
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
- ---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- ------------------------------------------------------ -
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company develops, manufactures and markets pesticide and
fertilizer products for the retail and commercial lawn, garden and turf
management markets. Products are sold under several nationally recognized
brand names and a variety private labels.
Principles of consolidation - The consolidated financial statements include
the accounts of Ringer Corporation and Safer, Inc., its wholly owned
subsidiary. All material intercompany accounts and transactions have been
eliminated.
Revenue recognition - The Company recognizes revenue on the date of
shipment for sales other than "bill and hold" sales. Revenue on infrequent
"bill and hold" sales is recognized at the time that title and risk of
ownership passes to purchaser.
Translation of foreign financial statements - The Company's foreign
operations are translated from functional foreign currency to U.S. dollars.
Assets and liabilities are translated at year end rates of exchange and the
statements of operations are translated at the average rates of exchange
for the applicable reporting years. Gains and losses resulting from
translating foreign currency financial statements are not included in
operations but are accumulated as a separate component of stockholders'
equity.
Inventories - Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Property and equipment - Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets of three to ten years.
Intangible assets and evaluation of potential impairment - Intangible
assets consist primarily of goodwill which represents the purchase price
and related acquisition costs in excess of the fair value of identifiable
assets acquired. Other intangible assets include patents and trademarks.
Intangible assets are amortized on a straight-line basis over estimated
lives of five to twenty years. The Company regularly evaluates its
intangible assets for potential permanent impairment. Such evaluations take
into consideration anticipated future operating results and cash flows on
an undiscounted basis. Anticipated future operating results and cash flows
are estimated based on current product sales trends, expected sales from
related products in development, general market trends and other market and
business circumstances.
Concentration of credit risks - The percentage of consolidated net sales in
fiscal 1997 to U.S. retail and commercial markets totaled 87.3% and 2.5%,
respectively. The percentage of consolidated net sales in fiscal 1996 to
U.S. retail and commercial markets totaled 79.3% and 4.4%, respectively.
The percentage of consolidated net sales in fiscal 1995 to U.S. retail and
commercial markets totaled 81.0% and 5.1%, respectively. The remaining
percentage of consolidated net sales in fiscal 1997, 1996 and 1995 of
10.2%, 16.3% and 13.9%, respectively, represent foreign sales, primarily in
Canada. In fiscal 1997, 1996 and 1995, sales to one U.S. retail customer
accounted for 12.8%, 15.3% and 14.5%, respectively, of consolidated net
sales while sales during the same periods to one distributor that resells
to retailers accounted for 8.0%, 14.8% and 12.4%, respectively, of
consolidated net sales.
Cash and cash equivalents - Cash and cash equivalents include cash on hand
and in banks and money market funds with maturities of three months or less
when acquired.
Fair value of financial instruments - The estimated fair values of
financial instruments approximate their carrying amounts in the
consolidated balance sheets.
-37-
<PAGE>
Income taxes - The Company accounts for income taxes as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Statement requires recognition of deferred assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statements and the tax basis of assets
and liabilities using enacted tax rates in effect for the years in which
the differences are expected to reverse.
Loss per share - Loss per common share is computed using the weighted
average number of shares outstanding during each period. Common stock
equivalents, consisting of options and warrants, have been excluded from
the computation because their effect is antidilutive.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Change in estimates - Fiscal 1997 and 1996 includes the reversal of
approximately $227,000 and $198,000, respectively, in estimated co-op
advertising expenses, which were accrued in the previous fiscal year,
resulting from a change in estimate based on actual utilization of co-op
advertising allowances.
2. ACQUISITIONS
Acquisition of the assets of Plant Research Laboratories - On December 1,
1994, the Company issued 125,000 shares of its common stock with a fair
market value of $187,500 at December 1, 1994 and paid cash of $257,660 to
acquire substantially all of the assets of Plant Research Laboratories
("PRL"), a California based developer and marketer of water soluble
fertilizers for the indoor houseplant and outdoor lawn and garden markets.
The acquisition was accounted for using the purchase method using a
combination of cash and the issuance of common stock. The products,
marketed under the Oxygen Plus(R) brand name, were previously sold by PRL
primarily in the western United States. The historical annual sales of
Oxygen Plus were less than one million dollars. The 1995 pro forma impact
on net loss and net loss per share is immaterial.
Abandoned Acquisition Expenses - On May 30, 1996, the Company entered into
a letter of intent to acquire all outstanding stock of The Chas. H. Lilly
Company ("Lilly"), a Portland based developer and marketer of lawn and
garden fertilizers, pesticides and packet seeds. On December 12, 1996, the
Company announced that it elected to discontinue efforts to acquire Lilly.
Accordingly, the costs associated with this acquisition attempt, which
amounted to $312,771, have been charged to expense in the accompanying
fiscal 1996 Consolidated Statement of Operations and are included in other
expense.
Acquisition of the assets of Dexol - In March 1997, the Company completed
the acquisition of substantially all of the assets of Dexol Industries,
Inc., 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 $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 $1,397,006, the issuance of a
promissory note to Dexol Industries, Inc. 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 and a performance based earnout of
up to $455,000 if certain contingencies are achieved.
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 $1,915,000 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 of
March 1, 1997.
-38-
<PAGE>
The following unaudited pro forma condensed statement of operations
combines the results of operations of Ringer Corporation and Dexol
Industries, Inc. as if the acquisition had occurred on October 1, 1995. The
pro forma financial information is provided for illustrative purposes only
and are not necessarily indicative of future results of operations of the
Company or of the results of operations that would actually have occurred
had the acquisition been in effect during the periods presented. A balance
sheet in not presented because the acquisition has been reflected in the
Company's balance sheet herein.
Year Ended September 30,
(unaudited)
------------------------
1997 1996
------- -------
Net sales $21,793 $27,392
Net (loss) $(1,128) $(1,480)
======= =======
Net (loss) per share $(.09) $(.12)
======= =======
3. INVENTORIES
Inventories consist of the following:
September 30
------------------------
1997 1996
---------- ----------
Raw materials $1,697,454 $ 726,099
Finished goods 1,108,207 793,593
---------- ----------
$2,805,661 $1,519,692
========== ==========
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
September 30
-------------------------
1997 1996
---------- ----------
Office furniture and equipment $ 680,454 $ 791,464
Machinery and equipment 801,974 786,442
Leasehold improvements 45,798 8,091
Transportation equipment 6,400 6,400
---------- ----------
1,534,626 1,592,397
Less accumulated depreciation (1,104,488) (1,354,100)
---------- ----------
$ 430,138 $ 238,297
========== ==========
5. LINE OF CREDIT
On May 2, 1997, the Company secured a three-year, $25 million revolving
credit facility from GE Capital Services, which replaced a $5,000,000 bank
line of credit from a previous lender. The facility is intended to meet
seasonal working capital needs of up to approximately $5,000,000 and to
provide financing for future business acquisitions. The credit facility is
secured by substantially all of the assets of the Company and its
subsidiary. Borrowings under the facility are limited to a borrowing base
of 85% of eligible receivables and 50% of eligible inventory, as defined in
the credit agreement. Interest is at an Index Rate (published rate for 30-
day dealer-placed high-graded unsecured commercial paper) plus 3 1/4
percentage points (9.0% at September 30, 1997). The Company is required to
pay a commitment fee of 3/8% on any unused portion of the line. Management
believes that this line of credit will meet the Company's seasonal working
capital requirements for fiscal 1998. There are no outstanding borrowings
under the line of credit as of September 30, 1997.
The Company's line of credit contains provisions which require the Company
to maintain certain minimum levels of Borrowing Base availability and
tangible net worth. In addition, there are restrictions on the amount of
fixed assets that may be purchased during a loan year.
-39-
<PAGE>
6. LONG-TERM DEBT, COMMITMENTS AND CONTINGENCIES
Long-Term Debt - Long-term debt at September 30, 1997 consists of a note
payable to Dexol Industries, Inc. and a capital lease obligation, less
current maturities which are classified as currently liabilities. The note
payable and capital lease obligation have carrying values equal to
estimated fair values.
The note payable has a principal amount of $1,465,800 at September 30, 1997
and bears simple interest at prime plus 3/4% per annum (9.25% at September
30, 1997). Current maturities total $19,200. The note requires payments of
$1,600 per month plus accrued interest with a balloon payment of the
remaining principal and interest in December 2000. Yearly principal
maturities under the note for its term are $19,200, $19,200, 19,200 and
$1,408,202 for the fiscal years of 1998, 1999, 2000 and 2001, respectively.
The capital lease obligation totals $16, 206 at September 30, 1997 and
bears implicit interest at an annual rate of 5.4%. Current maturities total
$4,007. Future yearly principal payments under the capital lease obligation
are $4,007, $4,228, $4,463 and $3,508 for the fiscal years of 1998, 1999,
2000 and 2,001, respectively.
Operating Leases - The Company leases office and warehouse space and
various vehicles and equipment under noncancellable operating leases. In
addition to minimum lease payments, these leases require the Company to pay
its proportionate share of real estate taxes, special assessments and
maintenance costs. The lease on the Company's corporate offices expires in
September 1999. The lease on the Company's warehouse facility expires in
December 2001. The Company is also required to carry liability insurance on
the premises.
Costs incurred under operating leases are recorded as rent expense and
totaled $344,587, $220,176 and $290,343 for the years ended September 30,
1997, 1996 and 1995, respectively.
Future minimum operating lease payments - The future minimum lease payments
due under non-cancellable operating leases are as follows:
Operating
Leases
---------
Year ending September 30:
1998 $208,719
1999 184,644
2000 118,391
2001 112,623
2002 28,669
Thereafter --
--------
Total minimum obligation $653,046
========
Royalty agreements - The Company has paid royalties for the use of
technologies licensed under two agreements entered into in connection with
the acquisition of a water soluble fertilizer product line on December 1,
1994. The licenses calls for royalty payments of from 2% to 5% of the net
selling price of applicable water soluble fertilizers. Payments under the
agreements terminate in 1999 and 2011. Royalty expense incurred under these
agreements totaled $34,411, $18,197 and $23,786 for the years ended
September 30, 1997, 1996 and 1995, respectively.
Royalty income of $85,296, $105,333 and $130,138 for the fiscal years ended
September 30, 1997, 1996 and 1995, respectively, was generated by the
Company through licensing pesticide technologies to certain foreign and
commercial pesticide distributors for a royalty fee.
Contingencies
-------------
The Company has a Contingency Retention Plan which provides for payment to
certain key employees of the Company, including all of the officers, of a
lump sum termination benefit plus continuation of life insurance, health
insurance and dental benefits for a period of time in the event the
employment of such employees is terminated within two years after a "change
of control," as defined. The amount of the lump sum termination benefit
varies from the equivalent of three months to two years of salary and bonus
at the time of termination.
-40-
<PAGE>
The period during which health and welfare benefits continue after
termination varies from three months to two years, but is terminated if the
employee obtains other employment with similar benefits. The Contingency
Retention Plan continues in effect unless terminated, prior to a change in
control, by a resolution approved by at least two-thirds of the Board of
Directors.
7. STOCKHOLDERS' EQUITY
Preferred stock - The Board of Directors of the Company is authorized to
issue preferred stock or other senior equity securities in one or more
series, and with certain limitations, to determine preferences as to
dividends, liquidation, conversion and redemption.
Stock warrants - As of September 30, 1997, a total of 1,000 shares of
common stock were reserved for currently exercisable outstanding warrants
described below.
Warrant
Expiration Shares Exercise Price
------------------ --------- --------------
September 20, 1998 1,000 $2.00
1996 Incentive and Stock Option Plan - The 1996 Incentive and Stock Option
Plan was adopted by the board of directors on November 25, 1996 and
approved by shareholders at the Company's annual shareholder meeting on
February 18, 1997. A total of 500,000 shares of the Company's common stock
were initially reserved for issuance pursuant to the exercise of options
granted under the plan.
Under the terms of the 1996 Incentive and Stock Option plan, options to
purchase shares of the Company's common stock are granted at a price not
less than 100% of the fair market value of the stock at the date of grant.
Options have a vesting period of from three to five years and expire ten
years from the date of grant. Options become fully vested upon the
occurrence of a change in control, as defined. The weighted average
remaining contractual life of the outstanding options at September 30, 1997
is 9.1 years. Activity under the plan is as follows:
Average
Option Exercise Price
Shares Per Share
---------- --------------
Balance, September 30, 1996 -0-
Granted 61,600 $1.88
Revalued (*) (.57)
Canceled (16,100) 1.31(*)
-------
Balance, September 30, 1997
(at $1.31 per share) 45,500 $1.31(*)
=======
Exercisable, September 30, 1997 12,938 $1.31
=======
(*) On April 29, 1997, the board of directors approved amendments to all
outstanding stock options to reduce the exercise price of each option to
$1.31 per share. Accordingly, options outstanding on that date which were
previously issued under the 1996 Plan for the purchase of up to 61,600
shares of the Company's common stock were amended to reduce the option
exercise price from $1.88 per share to $1.31 per share.
1986 Employee Incentive Stock Option Plan - The 1986 Employee Incentive
Stock Option Plan terminated according to its terms on September 17, 1996.
After this date no further stock options may be granted under the Plan
although previously granted options remain outstanding and exercisable
under the terms of each option. At September 30, 1997, the Company had
reserved a total of 654,843 shares of common stock for issuance upon the
exercise of outstanding options previously granted under the Plan.
Under the terms of the 1986 Employee Incentive Stock Option plan, options
to purchase shares of the Company's common stock were granted at a price
not less than 100% of the fair market value of the stock at the date of
grant. Options have a vesting period of from three to five years and
expire ten years from the date of grant. The weighted average remaining
contractual life of the outstanding options at September 30, 1997 is
-41-
<PAGE>
6.5 years. Options become fully vested upon the occurrence of a change in
control, as defined. Activity under the plan is as follows:
<TABLE>
<CAPTION>
Average
Option Exercise Price
Shares Per Share
--------- ---------------
<S> <C> <C>
Balance, September 30, 1994 (at $1.75 to $3.25 per share) 488,444 $2.32
Granted 512,050 1.98
Canceled (132,247) 2.34
Exercised (917) 1.75
--------
Balance, September 30, 1995 (at $1.75 to $2.70 per share) 867,330 2.13
Granted 28,500 1.58
Canceled (62,762) 1.98
--------
Balance, September 30, 1996 (at $1.50 to $2.70 per share) 833,068 2.11
Revalued (*) (.72)
Canceled (178,225) 2.39
--------
Balance, September 30, 1997 (at $1.31 per share) 654,843 $1.31(*)
========
Exercisable, September 30, 1997 409,202 $1.31
========
</TABLE>
(*) On April 29, 1997, the board of directors approved amendments to all
outstanding stock options to reduce the exercise price of each option to
$1.31 per share. Accordingly, options outstanding on that date which were
previously issued under the 1986 Plan for the purchase of up to 660,201
shares of the Company's common stock were amended to reduce the option
exercise price from an average of $1.88 per share (ranging from $1.50 to
$2.13 per share) to $1.31 per share.
Stock Option Plan for Non-Employee Directors - The Company has reserved
200,000 shares of the Company's common stock for issuance upon the exercise
of stock options granted under the Stock Option Plan for Non-Employee
Directors.
Under provisions of the Plan, non-employee directors are granted, upon
election or appointment as a director of the Company, options for the
purchase of 10,000 shares of the Company's common stock. In addition, non-
employee directors receive, on the first day of each fiscal year while the
director remains in office, options to purchase 5,000 shares of the
Company's common stock. The exercise price of options granted under the
Plan is 100% of the fair market value of the Company's common stock on the
date of grant. Options are immediately exercisable in full and may be
exercised within five years of the date of grant. The weighted average
remaining contractual life of the outstanding options at September 30, 1997
is 2.3 years. Activity under the plan is as follows:
Average
Option exercise price
Shares per share
-------- --------------
Balance, September 30, 1994 55,000 $2.01
Granted 30,000 2.13
Balance, September 30, 1995 85,000 2.05
Granted 30,000 2.13
Balance, September 30, 1996 115,000 2.07
Granted 40,000 1.88
Revalued (*) (.71)
Balance, September 30, 1997 155,000 $1.31(*)
========
-42-
<PAGE>
(*) On April 29, 1997, the board of directors approved amendments to all
outstanding stock options to reduce the exercise price of each option to
$1.31 per share. Accordingly, options outstanding on that date which were
previously issued under the Plan for the purchase of up to 155,000 shares
of the Company's common stock were amended to reduce the option exercise
price from an average of $2.03 per share (ranging from $1.56 to $2.13 per
share) to $1.31 per share.
Sale of Common Stock to Officers - In exchange for full-recourse
promissory notes and the cancellation of certain incentive stock options,
in April 1997 the company sold, subject to shareholder approval, 200,000
shares of its unregistered, restricted common stock to two executive
officers at a price of $1.3125 per share. The promissory notes are secured
by the stock purchased. Under certain circumstances, the Company will
provide bonuses to the two executives sufficient to pay the annual debt
service requirements of the promissory notes, which have terms of three and
five years. The Company has recognized compensation expense relative to
this matter in the amount of $39,438 for the fiscal year ended September
30, 1997.
Stock Based Compensation - In fiscal 1997, the Company adopted Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." As permitted by SFAS 123, the Company has
elected to continue using the "intrinsic value method" of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
for the measurement and recognition of stock-based transactions with
employees. Accordingly, no compensation costs have been recognized for
stock options issued under the Company's stock option plans because the
exercise price of options granted was equal to the fair value of the
Company's common stock on the date of grant. If compensation cost for
Company stock options plans had been determined and recognized based on the
"fair value method" under SFAS 123, the Company's net loss and net loss per
share would have been as follows:
1997 1996
---------- ----------
Net loss:
As reported $(545,936) $(568,119)
Pro forma $(571,433) $(593,619)
Pro forma per share $ (.05) $ (.05)
The fair value of options granted under the Company stock options plans
during fiscal 1997 and 1996 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions and results:
1997 1996
-------- --------
Dividend yield 0 0
Expected volatility 41.48% 41.48%
Risk-free interest rate 6.55% 6.55%
Expected life of options 4 years 4 years
Average fair value per share
on date of grant $ 1.31 $ 1.84
8. PROFIT SHARING PLAN
The Company has a defined contribution plan which conforms to IRS
provisions for 401(k) plans. Employees are eligible to participate in the
plan providing they have attained the age of twenty-one and have completed
thirty days of service. Participants may contribute up to 10% of their
earnings. The Company can also make matching contributions, as determined
by the Board of Directors. The Company may also make discretionary profit
sharing contributions to the Plan as determined by the Board of Directors.
The Company made employer 401(k) matching contributions of $44,996, $37,607
and none for the years ended September 30, 1997, 1996 and 1995,
respectively. There were no employer discretionary profit sharing
contributions for the years ended September 30, 1997, 1996 and 1995.
9. INCOME TAXES
The Company accounts for income taxes as required by Statement of Financial
Standards No. 109, "Accounting for Income Taxes". The Statement requires
recognition of deferred assets and liabilities for the
43
<PAGE>
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the
financial statements and the tax basis of assets and liabilities using
enacted tax rates in effect for the years in which the differences are
expected to reverse. Net deferred tax assets have been offset by valuation
allowances for the years ended September 30, 1997, 1996 and 1995 because it
is more likely than not that the tax benefits, which can not be carried
back, could not be realized in future years.
Net deferred tax assets at September 30 are comprised of the following:
<TABLE>
<CAPTION>
Current: 1997 1996
------------ ------------
<S> <C> <C>
Prepaid expenses $ (29,000) $ (9,000)
Accrued expenses 184,000 185,000
Reserves for doubtful accounts 48,000 50,000
Inventory valuation reserves 63,000 55,000
Expenses capitalized to inventory for tax
purposes 512,000 274,000
Sales returns and allowance reserves 26,000 69,000
Less valuation allowance (804,000) (624,000)
----------- -----------
$ -0- $ -0-
=========== ===========
Noncurrent:
Excess of tax over book depreciation $ (20,000) $ (11,000)
Packaging design costs 154,000 152,000
U.S. net operating loss carry forwards 8,394,000 8,398,000
Foreign net operating loss carry forwards 226,000 394,000
U.S. and foreign tax credit carry forwards 490,000 704,000
Less valuation allowances (9,284,000) (9,637,000)
----------- -----------
$ -0- $ -0-
=========== ===========
</TABLE>
At September 30, 1997, the Company has approximately $23,200,000 in
combined U.S. net operating loss carry forwards for federal income tax
purposes. These loss carry forwards expire between 1998 and 2013. Of the
total, approximately $4,100,000 are U.S. net operating loss carry forwards
of Safer, Inc., the Company's wholly owned subsidiary.
The use of the unexpired net operating loss carry forwards of Ringer which
were generated prior to September 30, 1990, totaling approximately
$10,200,000 as of September 30, 1997, are limited to $2,025,000 in any one
year under Internal Revenue Code Section 382 because of a significant
ownership change resulting from the Company's initial public offering. The
use of net operating loss carry forwards of Ringer generated after the
ownership change are not limited.
The use of the net operating losses of Safer, Inc. are limited to
approximately $700,000 in any one year under Internal Revenue Code Section
382 because of a significant ownership change resulting from the Company's
acquisition of Safer, Inc. in January 1991.
At September 30, 1997, the Company has approximately $565,000 net operating
loss carry forwards in Canada which expire between 1999 and 2002.
10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company (paid) and received cash for the following items:
Year ended September 30
--------------------------------
1997 1996 1995
--------- --------- ---------
Interest paid $(152,727) $(68,106) $(66,690)
Interest received 71,687 69,908 82,064
44
<PAGE>
Investing and financing transactions not affecting cash during the years
ended September 30, 1997, 1996 and 1995 are described below:
- In 1997, the Company issued 1,059,340 shares of its common stock and
a promissory note in the amount of $1,477,000 as consideration paid
for the acquisition of substantially all of the assets of Dexol
Industries, Inc. In connection with this issuance of common stock, the
Company recorded $1,397,006 to common stock and additional paid-in
capital, which represented the fair market value of the common stock
on the date of issuance.
- In 1997, the Company received full-recourse secured promissory notes
in an aggregate amount of $262,500 as payment for the sale of common
stock to two executive officers of the Company.
- In 1995, the Company issued 125,000 shares of its common stock as a
portion of the total consideration paid for the acquisition of
substantially all of the assets of Plant Research Laboratories. In
connection with this issuance of common stock, the Company recorded
$187,500 to common stock and additional paid-in capital, which
represented the fair market value of the common stock on the date of
issuance. Additional acquisition costs included $257,660 in cash
consideration and direct acquisition expenses.
- In 1995, the Company issued 10,000 shares of restricted common stock
to an officer in lieu of cash compensation and recorded a $13,125
increase to compensation expense and to common stock and additional
paid-in capital which was the fair market value of the restricted
stock on the date of issuance.
11. FOREIGN OPERATIONS
International sales activity, consisting of sales outside the United
States, primarily in Canada, accounted for approximately 10%, 16% and 14%
of total sales for the years ended September 30, 1997, 1996 and 1995,
respectively. A reconciliation of fiscal 1997, 1996 and 1995 domestic and
foreign activity for net sales, net income (loss) and identifiable assets
is as follows:
Fiscal 1997: Domestic Foreign Total
- ------------ ------------ ----------- ------------
Net Sales $16,892,897 $1,927,728 $18,820,625
Net Income (Loss) (528,136) (17,800) (545,936)
Identifiable Assets $13,805,008 $1,072,587 $14,877,595
Fiscal 1996: Domestic Foreign Total
- ------------ ------------ ----------- ------------
Net Sales $12,274,927 $2,397,857 $14,672,784
Net Income (Loss) (743,106) 174,987 (568,119)
Identifiable Assets $10,488,502 $ 981,541 $11,470,043
Fiscal 1995: Domestic Foreign Total
- ------------ ------------ ----------- ------------
Net Sales $12,223,014 $1,970,884 $14,193,898
Net Income (Loss) (2,231,595) 58,491 (2,173,104)
Identifiable Assets $10,621,910 $1,376,738 $11,998,648
12. SUBSEQUENT EVENT
On December 9, 1997, the Company completed a merger with Southern
Resources, Inc. ("SRI"), a previously privately-owned Georgia-based holding
company, with approximately $25 million in annual consolidated sales, which
owns 100% of the common stock of Sureco, Inc. ("SureCo"), SRI's operating
company, and Peach County Properties, Inc. ("PCP"), a real estate
subsidiary, both of which are located in Georgia. SureCo manufactures and
markets pesticides, which it sells under a variety of proprietary and
private label brand names to commercial and consumer markets throughout
North America. The merger will be accounted for using the pooling-of-
interest method. The Company issued 4,500,000 shares of the Company's
restricted common stock, valued at $6,679,688, in exchange for all of the
outstanding common stock of SRI, which will be operated as a wholly-owned
subsidiary of the Company.
-45-
<PAGE>
The following table sets forth unaudited combined net sales, net (loss) and
(loss) per share as if the business combination had been consummated at the
date of the financial statements presented herein. Amounts and in
thousands, except loss per share. The 1997 and 1996 amounts include the pro
forma impact of the Dexol acquisition (Note 2).
Year Ended September 30, (Unaudited)
---------------------------------------
1997 1996 1995
------------ ------------ -----------
Net sales $46,827 $53,400 $44,597
Net (loss) $(1,537) $(1,383) $(2,201)
======= ======= =======
Net (loss) per share $ (.09) $ (.09) $ (.14)
======= ======= =======
-46-
<PAGE>
INDEX OF EXHIBITS
Exhibit Number Description Pages
- -------------------------------------------------------------------------------
* 10.6 Amendment of Employment Agreement between the Company and Stanley
Goldberg, dated December 5, 1997.
* 10.7 Employment Agreement between the Company and Mark G. Eisenschenk,
dated December 5, 1997.
* 10.8 Stock purchase agreement, and related documents, between the
Company and Stanley Goldberg, dated April 29, 1997.
* 10.9 Stock purchase agreement, and related documents, between the
Company and Mark G. Eisenschenk, dated April 29, 1997.
21.1 Subsidiaries of the Registrant (filed with Form 10-KSB dated
September 30, 1997, File No. 000-18921.)
23.1 Consent of Deloitte & Touche LLP (filed with Form 10-KSB dated
September 30, 1997, File No. 000-18921.)
24.1 Power of Attorney (filed with Form 10-KSB dated September 30, 1997,
File No. 000-18921.)
27.1 Financial Data Schedule (filed with Form 10-KSB dated September 30,
1997, File No. 000-18921.)
* Management contract or compensation plan or arrangement.
<PAGE>
Exhibit 10.6
AMENDMENT TO EMPLOYMENT AGREEMENT
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the employment agreement, dated September 23, 1992 (the
"Employment Agreement"), between Ringer Corporation, a Minnesota corporation
(the "Company"), and Stanley Goldberg, an individual resident of Eden Prairie,
Minnesota ("Executive"), is hereby amended as follows:
1. Base Salary. Section 4.01 of the Employment Agreement is amended to
-----------
provide that the base salary payable to Executive for each year during the term
of the Employment Agreement shall, effective as of February 1, 1998, be
increased to $200,000 per year. Section 4.01 shall also be amended by revising
the last sentence of section 4.01 to read as follows: "The base salary payable
to Executive during each subsequent year during the term of this agreement shall
be mutually agreed upon by the Company and Executive prior to the commencement
of each such year, but in no event shall the base salary for any year be less
than the base salary for the previous year."
2. Severance Payments. (a) Section 8.02 of the Employment Agreement is
------------------
hereby amended in its entirety and shall hereafter read as follows:
"8.02 Severance Payments. (a) If Executive's employment with the
------------------
Company is terminated by the Company pursuant to subsection 8.01(d), the
Company shall use its best efforts to assist Executive in obtaining new
employment and, in furtherance of such commitment, shall provide Executive
with up to $12,000 in out-placement services. Subject to the provisions of
subsection (b) of this section 8.02, in such event, the Company shall also
pay to Executive, as severance pay, (i) his base monthly salary for a
period of thirty-six (36) months after the date of termination of
employment, and (ii) an amount equal to the average bonus paid to Executive
for the three (3) years immediately prior to the year of termination of
employment, and shall continue to provide health insurance benefits for
Executive (or, at the Company's option, to reimburse Executive for the cost
to him of maintaining comparable health insurance benefits) for a period of
twelve (12) months after the date of termination of employment. The base
salary payments shall continue to be made on a monthly basis. The bonus
payment shall be paid to Executive in one (l) lump sum within thirty days
after the date of termination.
(b) Notwithstanding the provisions of subpart (a) of this section
8.02, if Executive obtains subsequently obtains other full-time employment,
the amount of the compensation he receives from such other employment from
and after the date which is eighteen (18) months after the date of
termination of employment shall be offset against the Company's obligations
under this section 8.02.
(c) If Executive voluntarily leaves the employment of the Company,
or his employment is terminated pursuant to subsection 8.01(a), 8.01(b) or
8.01(c), his right to base salary and benefits shall immediately terminate,
except as may otherwise be required by applicable law.
(d) If Executive's employment by the Company terminates within six
(6) months of the end of any fiscal year of the Company, Executive shall
also be entitled to receive a pro rata portion (based on the number of days
of employment during that fiscal year) of any bonus payment that would have
been payable to him for that fiscal year pursuant to section 4.02 if he had
been in the
-1-
<PAGE>
employ of the Company for the full fiscal year. No bonus will be payable to
Executive with respect to any fiscal year in which he was employed by the
Company for less than six (6) months or with respect to any fiscal year
after the fiscal year in which his employment terminated."
(b) Section 8.04 of the Employment Agreement is hereby amended in its
entirety and shall hereafter read as follows:
"8.04 Sale Bonus. (a) If, during the term of this agreement, (i)
----------
the Company sells substantially all of its assets or (ii) a sale or merger
transaction involving the Company occurs under circumstances in which the
members of the Company's Board of Directors at the time of such sale or
merger do not constitute a majority of the Company's Board of Directors
after such sale or merger (a "Sale Event"), the Company shall pay to
Executive, as a sale bonus, an amount equal to the sum of (A) three hundred
percent (300%) of his annual base salary on the date of the Sale Event, and
(B) the average bonus paid to Executive for the three (3) years immediately
preceding the date of the Sale Event (the "Sale Bonus"). The Sale Bonus
shall be payable to Executive in cash in one lump sum concurrently with the
closing of the Sale Event.
(b) The Company shall also continue to provide health insurance
benefits for Executive (or, at the Company's option, to reimburse Executive
for the cost to him of maintaining comparable health insurance benefits)
for a period of twelve (12) months after the date of the Sale Event."
3. Ratification. As modified by sections 1 and 2 of this amendment
------------
agreement, the Employment Agreement is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, The Company and Executive have executed this amendment
agreement as of this 5th day of December, 1997.
RINGER CORPORATION
By
Gordon F. Stofer, authorized signatory
Stanley Goldberg
-2-
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated December 5, 1997, by and between Ringer
Corporation, a Minnesota corporation (the "Company"), and Mark G. Eisenschenk,
an individual resident of Minnesota ("Executive").
WHEREAS, the Company wishes to employ Executive to render services for
the Company on the terms and conditions set forth in this agreement, and
Executive wishes to be retained and employed by the Company on such terms and
conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. Employment. The Company hereby employs Executive, and Executive
----------
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this agreement.
2. Term. The term of Executive's employment hereunder shall
----
commence on the date of this agreement and shall continue until terminated in
accordance with section 8 of this agreement (the "Termination Date").
3. Position and Duties.
-------------------
3.01 Service with Company. During the term of this agreement,
--------------------
Executive agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time. Executive shall
have the title of Executive Vice President and Chief Financial Officer.
Executive also agrees to serve, for any period for which he is elected, as an
officer or director of the Company; provided, however, that Executive shall not
be entitled to any additional compensation for serving as an officer or
director.
3.02 Performance of Duties. Executive agrees to serve the
---------------------
Company faithfully and to the best of his ability and to devote his full time,
attention and efforts to the business and affairs of the Company during the term
of this agreement. Executive represents to the Company that he is under no
contractual commitments inconsistent with his obligations set forth in this
agreement, and that during the term of this agreement, he will not render or
perform services for any other corporation, firm, entity or person which are
inconsistent with the provisions of this agreement.
<PAGE>
4. Compensation.
------------
4.01 Base Salary. As base compensation for all services to be
-----------
rendered by Executive under this agreement during the first year of the term of
this agreement, the Company shall pay to Executive a base salary of $125,000,
which salary shall be paid on a semi-monthly basis in accordance with the
Company's normal payroll procedures and policies. The base salary payable to
Executive during each subsequent year during the term of this agreement shall be
established by the Compensation Committee of the Company's Board of Directors
following an annual performance review.
4.02 Incentive Compensation. In addition to the compensation
----------------------
described in section 4.01, Executive shall be eligible to participate in an
executive compensation incentive plan that provides for aggregate bonus payments
of up to 30% of base salary based on a combination of personal and business
performance objectives that are established by the Company's Board of Directors.
4.03 Participation in Benefit Plans. Executive shall be entitled
------------------------------
to participate in all employee benefit plans or programs of the Company to the
extent that his position, title, tenure, salary, age, health and other
qualifications make him eligible to participate. The Company does not guarantee
the adoption or continuance of any particular employee benefit plan or program
during the term of this agreement, and Executive's participation in any such
plan or program shall be subject to the provisions, rules and regulations
applicable thereto.
4.04 Expenses. The Company will pay or reimburse Executive for
--------
all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
5. Confidential Information. Except as permitted or directed by the
------------------------
Company's Board of Directors, during the term of this agreement or at any time
thereafter, Executive shall not divulge, furnish or make accessible to anyone or
use in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of the Company
which Executive has acquired or become acquainted with or will acquire or become
acquainted with prior to the termination of the period of his employment by the
Company (including employment by the Company or any affiliated companies prior
to the date of this agreement), whether developed by Executive or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company and represents a substantial investment
of time and expense by the Company and its predecessors, and that any disclosure
or other use of such knowledge or information other than for the sole benefit of
the Company would be wrongful
<PAGE>
and would cause irreparable harm to the Company. Both during and after the term
of this agreement, Executive will refrain from any acts or omissions that would
reduce the value of such knowledge or information to the Company. The foregoing
obligations of confidentiality, however, shall not apply to any knowledge or
information which is now published or which subsequently becomes generally
publicly known in the form in which it was obtained from the Company, other than
as a direct or indirect result of the breach of this agreement by Executive.
6. Ventures. If, during the term of this agreement, Executive is
--------
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in such project, program or venture shall belong to the Company. Except
as formally approved by the Company's Board of Directors, Executive shall not be
entitled to any interest in such project, program or venture or to any
commission, finder's fee or other compensation in connection therewith other
than the salary to be paid to Executive as provided in this agreement.
7. Noncompetition Covenant.
-----------------------
7.01 Agreement Not to Compete. Executive agrees that, during the
------------------------
period of his employment by the Company and for a period of one (1) year after
the termination of such employment (whether such termination is occasioned by
Executive or the Company), he shall not, directly or indirectly, engage in
competition with the Company in any manner or capacity (e.g., as an advisor,
principal, agent, partner, officer, director, stockholder, employee, member of
any association, or otherwise) in any phase of the business which the Company is
conducting during the period of Executive's employment with the Company,
including the design, development, manufacture, distribution, marketing, leasing
or selling of accessories, devices, or systems related to the products or
services being sold by the Company.
7.02 Geographic Extent of Covenant. The obligations of Executive
-----------------------------
under section 7.01 shall apply to any geographic area in which the Company or
its affiliates:
(a) have engaged in business during the term of this agreement
through production, promotional, sales or marketing
activity, or otherwise, or
(b) have otherwise established its goodwill, business
reputation, or any customer or supplier relations.
7.03 Limitation on Covenant. Ownership by Executive, as a
----------------------
passive investment, of an immaterial amount of the outstanding shares of capital
stock of any corporation listed on a national securities exchange or publicly
traded in the over-the-counter market shall not constitute a breach of this
section 7.
7.04 Indirect Competition. Executive further agrees that, during
--------------------
the term of this agreement, he will not, directly or indirectly, assist or
encourage any other person in carrying out, directly or indirectly, any activity
that would be prohibited by the above provisions
<PAGE>
of this section 7 if such activity were carried out by Executive, either
directly or indirectly; and in particular Executive agrees that he will not,
directly or indirectly, induce any employee of the Company to carry out,
directly or indirectly, any such activity. Executive further agrees that,
Executive will not hire, directly or indirectly, any individual who is an
employee of the Company or its affiliates at the time of termination.
8. Termination.
-----------
8.01 Termination by the Company. This agreement may be
--------------------------
terminated by the Company at any time upon the occurrence of any of the
following events:
(a) Executive shall die, or
(b) The Board of Directors of the Company has determined (with
Executive abstaining from such determination if he is then
a member of the Board of Directors) that Executive has
become disabled, or
(c) The Board of Directors of the Company shall notify
Executive that the agreement is being terminated for
"cause", or
(d) Either the Company or Executive elects to terminate this
agreement (which election may be made with or without
cause) and gives the other party at least sixty (60) days
prior written notice of such election.
For purposes of this section 8.01, the term "cause" shall mean:
(i) Executive has breached the provisions of section 5 or 7 of
this agreement in any material respect, or
(ii) Executive has engaged in willful and material misconduct,
including willful and material failure to perform his
duties as an officer or employee of the Company or its
affiliates or excessive absenteeism unrelated to illness or
vacation, or
(iii) Executive has committed fraud, misappropriation or
embezzlement in connection with the Company's or its
affiliates' business, or
(iv) Executive has been convicted or has pleaded guilty or nolo
contendere to criminal misconduct constituting a gross
misdemeanor or a felony, or
(v) Executive's use of narcotics, liquor or illicit drug has
had a detrimental effect on the performance of his
employment
<PAGE>
responsibilities.
Notwithstanding any termination of this agreement, Executive, in
consideration of his employment hereunder to the date of such termination, shall
remain bound by the provisions of this agreement which specifically relate to
periods, activities or obligations upon or subsequent to the termination of
Executive's employment.
8.02 Severance Payments. (a) If Executive's employment with
------------------
the Company is terminated by the Company pursuant to subsection 8.01(d), the
Company shall use its best efforts to assist Executive in obtaining new
employment and, in furtherance of such commitment, shall provide Executive with
up to $12,000 in out-placement services. Subject to the provisions of
subsection (b) of this section 8.02, in such event, the Company shall also pay
to Executive, as severance pay, (i) his base monthly salary for a period of
twelve (12) months after the date of termination of employment, and (ii) an
amount equal to the average bonus paid to Executive for the three (3) years
immediately prior to the year of termination of employment, and shall continue
to provide health insurance benefits for Executive (or, at the Company's option,
to reimburse Executive for the cost to him of maintaining comparable health
insurance benefits) for a period of twelve (12) months after the date of
termination of employment. The base salary payments shall continue to be made
on a monthly basis. The bonus payment shall be paid to Executive in one (l)
lump sum within thirty (30) days after the date of termination.
(b) Notwithstanding the provisions of subpart (a) of this section
8.02, if Executive subsequently obtains other full-time employment, the amount
of the compensation he receives from such other employment from and after the
date which is six (6) months after the date of termination of employment shall
be offset against the Company's obligations under this section 8.02.
(c) If Executive voluntarily leaves the employment of the
Company, or his employment is terminated pursuant to subsection 8.01(a), 8.01(b)
or 8.01(c), his right to base salary and benefits shall immediately terminate,
except as may otherwise be required by applicable law.
(d) If Executive's employment by the Company terminates within
six (6) months of the end of any fiscal year of the Company, Executive shall
also be entitled to receive a pro rata portion (based on the number of days of
employment during that fiscal year) of any bonus payment that would have been
payable to him for that fiscal year pursuant to section 4.02 if he had been in
the employ of the Company for the full fiscal year. No bonus will be payable to
Executive with respect to any fiscal year in which he was employed by the
Company for less than six (6) months or with respect to any fiscal year after
the fiscal year in which his employment terminated.
8.03 "Disability" Defined. The Board of Directors may
--------------------
determine that Executive has become disabled, for the purpose of this agreement,
(a) if Executive shall qualify, because of illness or incapacity, to begin
receiving disability income insurance payments under any disability income
insurance policy that the Company is then maintaining for the benefit of its
executive-level employees, or (b) if the Company is not then maintaining
disability income
<PAGE>
insurance for its executive-level employees, if Executive is unable because of
illness or incapacity, to render normal employment services pursuant to this
agreement for a period of ninety (90) days out of any consecutive 180 day
period.
8.04 Sale Bonus. (a) If, during the term of this agreement,
----------
(i) the Company sells substantially all of its assets or (ii) a sale or merger
transaction involving the Company occurs under circumstances in which the
members of the Company's Board of Directors at the time of such sale or merger
do not constitute a majority of the Company's Board of Directors after such sale
or merger (a "Sale Event"), the Company shall pay to Executive, as a sale
bonus, an amount equal to the sum of (A) one hundred percent (100%) of his
annual base salary on the date of the Sale Event, and (B) the average bonus paid
to Executive for the three (3) years immediately preceding the date of the Sale
Event (the "Sale Bonus"). The Sale Bonus shall be payable to Executive in cash
in one lump sum concurrently with the closing of the Sale Event.
(b) The Company shall also continue to provide health insurance
benefits for Executive (or, at the Company's option, to reimburse Executive for
the cost to him of maintaining comparable health insurance benefits) for a
period of twelve (12) months after the date of the Sale Event.
8.05 Surrender of Records and Property. Upon termination of his
---------------------------------
employment with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in his possession or
under his control.
9. Miscellaneous.
-------------
9.01 Governing Law. This agreement is made under and shall be
-------------
governed by and construed in accordance with the laws of the state of Minnesota.
9.02 Prior Agreements. This agreement contains the entire
----------------
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this agreement which are not set forth herein.
9.03 Withholding Taxes. The Company may withhold from any
-----------------
benefits payable under this agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
9.04 Amendments. No amendment or modification of this agreement
----------
shall be deemed effective unless made in writing and signed by the parties
hereto.
<PAGE>
9.05 No Waiver. No term or condition of this agreement shall be
---------
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9.06 Severability. To the extent any provision of this agreement
------------
shall be invalid or unenforceable, it shall be considered deleted from this
agreement and the remainder of such provision and of this agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this agreement be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this agreement be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
9.07 Injunctive Relief. Executive agrees that it would be
-----------------
difficult to compensate the Company fully for damages for any violation of the
provisions of this agreement, including without limitation the provisions of
sections 5, 7 and 8.05. Accordingly, Executive specifically agrees that the
Company shall be entitled to temporary and permanent injunctive relief to
enforce the provisions of this agreement and that such relief may be granted
without the necessity of proving actual damages. This provision with respect to
injunctive relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
IN WITNESS WHEREOF, Executive and the Company have executed this agreement
as of the date set forth in the first paragraph.
RINGER CORPORATION
By
Stanley Goldberg
President/Chief Executive Officer
Mark G. Eisenschenk
<PAGE>
Exhibit 10.8
AGREEMENT
---------
AGREEMENT, made and entered into as of the 29th day of April, 1997, by
and between Ringer Corporation, a Minnesota corporation (the "Company"), and
Stanley Goldberg, an individual resident of Eden Prairie, Minnesota
("Executive").
WHEREAS, Executive is employed by the Company; and
WHEREAS, as an inducement to Executive to remain in the employment of
the Company, the Company wishes to sell to Executive shares of the Company's
common stock so that Executive will have a significant vested interest in the
successful and profitable operation of the Company; and
WHEREAS, Executive desires to purchase shares of the Company's common
stock on the terms and provisions set forth in this agreement; and
WHEREAS, as an inducement to the Company to sell shares of its common
stock to him on the terms set forth in this agreement, Executive is willing to
modify the terms of his currently outstanding options to purchase shares of the
Company's common stock; and
WHEREAS, the Company and Executive desire to establish a mechanism for
the purchase and sale of the shares of the Company stock owned by Executive in
the event that Executive leaves the employment of the Company.
NOW THEREFORE, in consideration of the premises, the respective
undertakings of the parties set forth below and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and Executive agree as follows:
1. Stock Subscription. Executive agrees to purchase from the
------------------
Company, and the Company hereby agrees to sell to Executive, in accordance with
the terms of this agreement, a total of one hundred fifty thousand (150,000)
shares of the Company's common stock (the "Shares").
2. Purchase Price and Manner of Payment. The total purchase
------------------------------------
price for the Shares shall be One Hundred Ninety-six Thousand Eight Hundred
Seventy-five Dollars ($196,875), which amount will be payable to the Company
contemporaneously with the execution of this agreement by delivery to the
Company of Executive's promissory note (the "Promissory Note") in such amount,
which Promissory Note shall be in the identical form of the attached exhibit A.
3. Delivery of Shares. Upon receipt from Executive of the
------------------
Promissory Note, the Company shall issue and deliver to Executive a duly
authorized and executed stock certificate representing the Shares. So long as
Executive is not in default in the payment of principal or interest on the
Promissory Note, the Shares shall be entitled to full voting rights and to share
in all dividends payable on shares of the Company's common stock.
4. Stock Pledge. To secure the full performance of Executive's
------------
obligation to the Company under the Promissory Note, Executive hereby grants to
the Company a security interest in the
<PAGE>
Shares. Such security interest shall be evidenced by a stock pledge agreement in
the identical form of the attached exhibit B.
5. Investment Representation. Executive hereby represents and
-------------------------
agrees that the Shares are being acquired pursuant to this agreement for
investment purposes and not with the view toward the distribution or sale
thereof in a public offering within the meaning of the federal Securities Act of
1933. Executive acknowledges that the Shares will not be registered under either
the federal or applicable state securities law, and that the Company will be
relying upon the foregoing investment representation in selling the Shares to
Executive. Executive acknowledges that the transferability of the Shares will
be subject to restrictions imposed by all applicable federal and state security
laws and agrees that the certificates evidencing the Shares may be imprinted
with an appropriate legend setting forth these restrictions on transferability.
6. Retention Bonus Commitments. As an inducement to Executive
---------------------------
to remain in the full-time employment of the Company, the Company agrees to make
the following bonus payments to Executive:
(a) The Company shall make a cash bonus payment to Executive on each
of the first through the third anniversary dates of the date of this
agreement if, but only if, Executive is employed by the Company on such
anniversary date. The amount of each such annual bonus payment shall be
equal to the sum of (i) the amount of the payment due from Executive on the
Promissory Note on such anniversary date, plus (ii) such additional amount
as shall be equal to the lesser of (1) the actual federal and state income
taxes and federal Medicare taxes that will be payable by Executive on such
bonus payment (including amounts payable pursuant to this subpart (ii)), or
(2) the amount that would be payable pursuant to subpart (ii)(1) if the
combined federal and state tax rate was fifty percent (50%).
(b) In the event that (i) the Company is sold, (ii) a controlling
interest in the Company is acquired by a third party, or (iii) Executive's
employment with the Company is terminated without "cause" on or before
April 29, 2000, the Company shall make a one-time bonus payment to
Executive within fifteen (15) days after the date of sale, acquisition or
termination. Such bonus payment shall be equal to the applicable
percentage (as set forth below) of the outstanding balance of principal and
accrued interest owing by Executive under the Promissory Note on the date
of sale or termination:
Date of Sale or Termination Applicable Percentage
--------------------------- ---------------------
Before 4/29/98 33 1/3%
After 4/28/98 and before 4/29/99 66 2/3%
After 4/28/99 and before 4/29/2000 100%
Such bonus payment shall be made as an offset to the next payments due
and owing by Executive under the Promissory Note.
(c) The bonus payments described in this section 6 shall be subject
to all required tax withholdings, but shall be excluded from Executive's
compensation for purposes of calculating
-2-
<PAGE>
severance or change of control payments under other benefits/compensation
plans made available to Executive by the Company.
7. Insurance. As soon as practicable following the date of
---------
this agreement, the Company shall obtain and, until the Promissory Note is paid
in full, shall pay the premium costs of, a term life insurance policy and
disability benefits policy which would pay benefits to Executive or his
designated beneficiary in such amounts as would enable them to make all payments
due and owing on the Promissory Note after the death or disability of Executive.
This insurance commitment shall be subject to the availability of such insurance
policies at commercially-reasonable premium rates.
8. Stock Options. Executive and the Company hereby agree to
-------------
amend in its entirety the Incentive Stock Option Agreement, dated September 23,
1992, between the Company and Executive by entering into an amended agreement
which shall be in the identical form of the attached exhibit C. Executive and
the Company hereby agree to amend in its entirety the Incentive Stock Option
Agreement, dated January 31, 1995, between the Company and Executive by entering
into an amended agreement which shall be in the identical form of the attached
exhibit D.
9. Option to Repurchase the Shares Upon Termination of Employment.
--------------------------------------------------------------
In the event that Executive's employment with the Company is voluntarily
terminated by Executive or is terminated by the Company for "cause", the Company
shall have the irrevocable right and option (the "Option") to purchase from
Executive, or Executive's heirs, successors or assigns, and Executive, on behalf
of his heirs, successors and assigns, agrees to sell to the Company upon the
exercise of the Option that number of the Shares as is determinable from the
following schedule:
Date of Termination Shares Subject to Repurchase
------------------- ----------------------------
Prior to 4/29/98 150,000
After 4/28 and before 4/29/99 100,000
After 4/28/99 and before 4/29/2000 50,000
After 4/28/2000 0
The Company shall exercise the Option, if at all, by delivering a
written notice of exercise to Executive or Executive's personal representative,
as the case may be, within sixty (60) days after the date of termination of
Executive's employment with the Company.
The purchase price for the Shares that are repurchased by the Company
pursuant to the exercise of the Option, shall be the per share amount paid by
Executive for such shares pursuant to this agreement. The Company shall make
payment of the purchase price for any shares reacquired pursuant to the exercise
of the Option by offsetting and reducing the outstanding principal balance, and
any accrued interest on, of the Promissory Note. The balance of the purchase
price owing to the Executive, if any, shall be paid by delivering to Executive
or Executive's representative, as the case may be, within sixty (60) days of the
date of termination of Executive's employment with the Company, the Company's
check in the amount of the balance of such purchase price.
Upon receipt of such payment from the Company, Executive or his
personal representative, as the case may be, shall deliver to the Company for
cancellation the stock certificates
-3-
<PAGE>
evidencing the Shares being repurchased by the Company, which certificate shall
be duly endorsed for cancellation by the Company.
The certificates evidencing the Shares shall be legended to disclose
the existence of the repurchase rights set forth in this section 9.
10. Condition to Sale of Shares. Executive understands that the sale
---------------------------
of the shares to him on the terms contemplated by this agreement is subject to
the approval of the Company's shareholders in accordance with the applicable
rules of the NASD. The Company agrees to submit the sale of the shares to
Executive to the shareholders for approval at the next annual shareholders'
meeting. In the event that such shareholder approval is not received, the
Company will provide Executive with another mutually-acceptable compensation
package to replace the compensation program contemplated by this agreement.
11. Miscellaneous. This agreement shall be binding upon, shall inure
-------------
to the benefit of and shall be enforceable against the Company and Executive and
their respective heirs, successors and assigns. This agreement shall in all
respects be governed, enforced and interpreted in accordance with the laws of
the state of Minnesota.
IN WITNESS WHEREOF, the Company and Executive have executed this
agreement as of the date set forth in the first paragraph.
RINGER CORPORATION
By
------------------------------------------
Gordon R. Stofer, Authorized Signatory
[the "Company"]
--------------------------------------------
Stanley Goldberg
["Executive"]
-4-
<PAGE>
Exhibit A
PROMISSORY NOTE
$196,875.00 Bloomington, Minnesota
April 29, 1997
FOR VALUE RECEIVED, Stanley Goldberg, an individual resident of Eden
Prairie, Minnesota ("Maker"), hereby promises to pay to the order of Ringer
Corporation, a Minnesota corporation, or its successors or assigns, as the case
may be ("Payee"), at Bloomington, Minnesota, or such other place as may be
specified in writing by Payee, the principal sum of One Hundred Ninety-six
Thousand Eight Hundred Seventy-five and no/100 Dollars ($196,875.00), plus
simple interest on the outstanding principal balance at the rate of five and
91/100 percent (5.91%) per annum.
The principal amount of this promissory note shall be paid in three (3)
equal annual installments of Sixty-five Thousand Six Hundred Twenty-five and
no/100 Dollars ($65,625.00) each, commencing on April 29, 1998, and continuing
on the same day in each succeeding year, and accrued interest shall be payable
on the same day as principal installments are due. Notwithstanding the
foregoing, this promissory note shall become due and payable in full ninety (90)
days after the date of death of Maker.
Maker shall have the right to prepay all or any part of this promissory
note at any time without penalty or premium, but any such prepayment shall be
applied first to the payment of accrued interest and then to the installments of
principal due hereunder in the inverse order of maturity.
Upon the failure by Maker to make timely payments of any of the
installments of principal or interest due hereunder, which default is not cured
within thirty (30) days after written notice of such nonpayment is delivered to
Maker, Payee may, at Payee's option, declare the unpaid principal amount of this
promissory note and any accrued interest thereon immediately due and payable.
This promissory note is secured by a security interest granted to Payee in
150,000 shares of Payee's common stock pursuant to a stock pledge agreement,
dated the same date as this promissory note.
Maker hereby waives presentment for payment, notice of dishonor, protest
and notice of protest and, in the event of default hereunder, Maker agrees to
pay all costs of collection, including reasonable attorneys' fees. This
promissory note shall be governed by the laws of the state of Minnesota.
IN WITNESS WHEREOF, Maker has executed this promissory note as of the date
first above written.
-----------------------------------------
Stanley Goldberg
-5-
<PAGE>
STOCK PLEDGE AGREEMENT
----------------------
AGREEMENT, made this 29th day of April, 1997 by and between Stanley
Goldberg, an individual resident of the state of Minnesota ("Pledgor"), and
Ringer Corporation, a Minnesota corporation ("Company").
WHEREAS, Pledgor and Company have entered into an agreement, dated the
29th day of April, 1997, pursuant to which Pledgor agreed to purchase from
Company, and Company agreed to sell to Pledgor, one hundred fifty thousand
(150,000) shares of Company's common stock (the "Pledged Shares"); and
WHEREAS, Pledgor has delivered to Company a promissory note (the
"Promissory Note") in payment of the purchase price for the Pledged Shares; and
WHEREAS, Company has required that Pledgor grant to Company, and
Pledgor is willing to grant to Company, a security interest in the Pledged
Shares as security for the payment by Pledgor of his obligations under the
Promissory Note.
NOW THEREFORE, in consideration of the premises, the respective
covenants of Company and Pledgor set forth below and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Pledgor and Company agree as follows:
1. Pledge of Stock.
---------------
1.1 Pledge. As security for the prompt payment of any amount at any time
------
due, whether or not by acceleration, to Company from Pledgor pursuant to the
Promissory Note, Pledgor hereby grants a security interest to Company in the
Pledged Shares.
1.2 Delivery. Immediately upon execution of this agreement, Pledgor will
--------
deliver to Company the certificates representing all of the Pledged Shares,
which certificates shall be endorsed in blank or with executed stock powers
attached.
2. Rights and Benefits of Pledged Shares.
-------------------------------------
2.1 General. Except as provided in section 2.2, Company shall receive and
-------
hold (by Company or by an agent of Company) the Pledged Shares and any property
(including without limitation monies or securities) distributed or issued with
respect to the Pledged Shares, whether as a dividend, in partial or complete
liquidation, pursuant to a merger or reorganization plan or otherwise. Pledgor
shall cause any securities distributed or issued with respect to the Pledged
Shares to be assigned and transferred to Company and delivered to Company in the
manner provided in section 1.2, and such securities shall be subject to the
terms and conditions of this agreement.
-6-
<PAGE>
2.2 Voting. Unless and until a default is declared by Company pursuant to
------
section 5, Pledgor shall be entitled to vote the Pledged Shares.
2.3 Assignment, Etc. Except as provided or specifically permitted herein,
----------------
Pledgor shall not pledge, sell, assign, transfer or otherwise dispose of the
Pledged Shares without the prior written approval of Company's Board of
Directors.
3. Legend. The certificates representing the Pledged Shares shall bear
------
an endorsement in substantially the following form:
"The shares of stock represented by this certificate are pledged under, and
are subject to the terms and conditions of a Stock Pledge Agreement, dated
April 29, 1997, between Ringer Corporation and the registered owner of this
certificate as security for the performance of the registered owner's
obligations under a promissory note to Ringer Corporation. Such shares
cannot be sold, assigned, transferred, pledged or disposed of except as
provided in such Stock Pledge Agreement."
4. Appointment of Company as Attorney-in-Fact. Pledgor hereby appoints
------------------------------------------
and constitutes Company as Pledgor's true and lawful attorney-in-fact and with
full power of substitution in the premises to execute such assignments and/or
endorsements of the Pledged Shares as may be necessary to effect the rights and
remedies which Company has under this agreement in the event of a default under
this agreement.
5. Event of Default. The occurrence of an event of default under the
----------------
Promissory Note constitutes a default under this agreement.
Upon the occurrence of an event of default, Company shall have the
option to declare this agreement in default and thereupon Company is authorized
to exercise and shall have, in addition to the rights and remedies provided in
this agreement and all other applicable rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code of the state of
Minnesota and any other applicable laws. In particular, and without limitation,
Company is authorized at its option and without further notice or demand, to
cause the Pledged Shares to be transferred of record to Company or its agent or
nominee and shall be entitled to exercise all rights of ownership in respect to
the Pledged Shares and all property received with respect to the Pledged Shares.
Company shall also have the right to hold and vote the Pledged Shares and, at
its option and upon twenty (20) days' notice in writing to Pledgor of such
default, shall have the right to sell and transfer the Pledged Shares and the
property received with respect to the Pledged Shares or any portion thereof at
any public or private sale, including private placement based upon investment
representations, and for cash or such other consideration as Company shall, in
its sole discretion, determine to be reasonable, and Pledgor shall have no right
or equity of redemption in connection with any such sale; provided, however,
that during such twenty (20) day period Pledgor shall have the right to cure any
default by paying all obligations under the Promissory Note, together with all
expenses incurred by Company including, without limitation, reasonable
attorneys' fees and expenses in obtaining, holding and preparing for sale the
Pledged Shares and the property received with respect to the Pledged Shares and
in arranging for the sale. After deducting the expenses of such sale, including
reasonable attorneys' fees, the proceeds therefrom shall be applied to the
payment of Pledgor's obligations under the Promissory Note and the surplus, if
any, shall be paid to Pledgor.
-7-
<PAGE>
6. Release of Collateral. At such time as the Promissory Note has been
---------------------
paid in full, Company shall deliver the Pledged Shares and any property
distributed with respect to the Pledged Shares to Pledgor in accordance with
Pledgor's written directions, and Pledgor shall thereafter be discharged in full
from any and all obligations under this agreement. Upon receipt by Company of
any payments of principal under the Promissory Note, Company shall deliver to
Pledgor, in accordance with Pledgor's instructions, that number of Pledged
Shares (and any property distributed with respect to such Pledged Shares) as is
equal to the total Pledged Shares initially subject to this agreement,
multiplied by a fraction, the numerator of which is the amount of the principal
payment and the denominator which is the original principal amount of the
Promissory Note.
7. Delay; Waiver. All rights and remedies of Company under this
-------------
agreement are cumulative and are in addition to, but not in limitation of, any
rights or remedies which it may have under applicable law. No delay on the part
of Company in the exercise of any right or remedy under this agreement shall
operate as a waiver thereof, and no single or partial exercise by Company of any
right or remedy under this agreement shall preclude other or further exercise
thereof or the exercise of any other right or remedy. No waiver by Company of
any right or remedy under this agreement shall be deemed to be or construed as a
further or continuing waiver of such right or remedy or as a waiver of any other
right or remedy.
8. Cooperation. Upon the execution of this agreement and at any time or
-----------
from time to time thereafter, Pledgor and Company agree to cooperate in carrying
out the terms of this agreement, including the execution and delivery of such
further instruments and documents as may be reasonably requested in order to
more effectively carry out the terms and conditions of this agreement.
9. Miscellaneous. This agreement shall be binding upon, and inure to the
-------------
benefit of and be enforceable by Pledgor and Company and their respective
successors and assigns, but this agreement shall not be assignable without
written permission of the other party. The section headings are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this agreement. This agreement shall be governed by, and, construed and
enforced in accordance with, the laws of the state of Minnesota.
IN WITNESS WHEREOF, Pledgor and Company have executed this agreement
as of the date set forth in the first paragraph.
RINGER CORPORATION
By
--------------------------------------
Gordon F. Stofer, Authorized
Signatory
[the "Company"]
-----------------------------------------
Stanley Goldberg
["Pledgor"]
-8-
<PAGE>
Exhibit 10.9
AGREEMENT
---------
THIS AGREEMENT made and entered into as of the 29th day of April,
1997, by and between Ringer Corporation, a Minnesota corporation (the
"Company"), and Mark G. Eisenschenk, an individual resident of North Oaks,
Minnesota ("Executive").
WHEREAS, Executive is employed by the Company; and
WHEREAS, as an inducement to Executive to remain in the employment of
the Company, the Company wishes to sell to Executive shares of the Company's
common stock so that Executive will have a significant vested interest in the
successful and profitable operation of the Company; and
WHEREAS, Executive desires to purchase shares of the Company's common
stock on the terms and provisions set forth in this agreement; and
WHEREAS, as an inducement to the Company to sell shares of its common
stock to him on the terms set forth in this agreement, Executive is willing to
modify the terms of his currently outstanding options to purchase shares of the
Company's common stock; and
WHEREAS, the Company and Executive desire to establish a mechanism for
the purchase and sale of the shares of the Company stock owned by Executive in
the event that Executive leaves the employment of the Company.
NOW THEREFORE, in consideration of the premises, the respective
undertakings of the parties set forth below and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and Executive agree as follows:
1. Stock Subscription. Executive agrees to purchase from the
------------------
Company, and the Company hereby agrees to sell to Executive, in accordance with
the terms of this agreement, a total of fifty thousand (50,000) shares of the
Company's common stock (the "Shares").
2. Purchase Price and Manner of Payment. The total purchase price
------------------------------------
for the Shares shall be Sixty-five Thousand Six Hundred Twenty-five Dollars
($65,625), which amount will be payable to the Company contemporaneously with
the execution of this agreement by delivery to the Company of Executive's
promissory note (the "Promissory Note") in such amount, which Promissory Note
shall be in the identical form of the attached exhibit A.
3. Delivery of Shares. Upon receipt from Executive of the
------------------
Promissory Note, the Company shall issue and deliver to Executive a duly
authorized and executed stock certificate representing the Shares. So long as
Executive is not in default in the payment of principal or interest on the
Promissory Note, the Shares shall be entitled to full voting rights and to share
in all dividends payable on shares of the Company's common stock.
4. Stock Pledge. To secure the full performance of Executive's
------------
obligation to the Company under the Promissory Note, Executive hereby grants to
the Company a security interest in the
<PAGE>
Shares. Such security interest shall be evidenced by a stock pledge agreement in
the identical form of the attached exhibit B.
5. Investment Representation. Executive hereby represents and
-------------------------
agrees that the Shares are being acquired pursuant to this agreement for
investment purposes and not with the view toward the distribution or sale
thereof in a public offering within the meaning of the federal Securities Act of
1933. Executive acknowledges that the Shares will not be registered under either
the federal or applicable state securities law, and that the Company will be
relying upon the foregoing investment representation in selling the Shares to
Executive. Executive acknowledges that the transferability of the Shares will
be subject to restrictions imposed by all applicable federal and state security
laws and agrees that the certificates evidencing the Shares may be imprinted
with an appropriate legend setting forth these restrictions on transferability.
6. Retention Bonus Commitments. As an inducement to Executive to
---------------------------
remain in the full-time employment of the Company, the Company agrees to make
the following bonus payments to Executive:
(a) The Company shall make a cash bonus payment to Executive on each
of the first through the fifth anniversary dates of the date of this
agreement if, but only if, Executive is employed by the Company on such
anniversary date. The amount of each such annual bonus payment shall be
equal to the sum of (i) the amount of the payment due from Executive on the
Promissory Note on such anniversary date, plus (ii) such additional amount
as shall be equal to the lesser of (1) the actual federal and state income
taxes and federal Medicare taxes that will be payable by Executive on such
bonus payment (including amounts payable pursuant to this subpart (ii)), or
(2) the amount that would be payable pursuant to subpart (ii)(1) if the
combined federal and state tax rate was fifty percent (50%).
(b) In the event that (i) the Company is sold, (ii) a controlling
interest in the Company is acquired by a third party, or (iii) Executive's
employment with the Company is terminated without "cause" on or before
February 10, 2000, the Company shall make a one-time bonus payment to
Executive within fifteen (15) days after the date of sale, acquisition or
termination. Such bonus payment shall be equal to the applicable percentage
(as set forth below) of the outstanding balance of principal and accrued
interest owing by Executive under the Promissory Note on the date of sale
or termination:
Date of Sale or Termination Applicable Percentage
--------------------------- ---------------------
Before 4/29/98 33 1/3%
After 4/28/98
and before 4/29/99 66 2/3%
After 4/28/99
and before 4/29/2000 100%
Such bonus payment shall be made as an offset to the next payments due and
owing by Executive under the Promissory Note.
2
<PAGE>
(c) The bonus payments described in this section 6 shall be subject
to all required tax withholdings, but shall be excluded from Executive's
compensation for purposes of calculating severance or change of control
payments under other benefits/compensation plans made available to
Executive by the Company.
7. Insurance. As soon as practicable following the date of this
---------
agreement, the Company shall obtain and, until the Promissory Note is paid in
full, shall pay the premium costs of, a term life insurance policy and
disability benefits policy which would pay benefits to Executive or his
designated beneficiary in such amounts as would enable them to make all payments
due and owing on the Promissory Note after the death or disability of Executive.
This insurance commitment shall be subject to the availability of such insurance
policies at commercially-reasonable premium rates.
8. Stock Options. The two (2) separate Incentive Stock Option
-------------
Agreements, dated October 1, 1994, and the Incentive Stock Option Agreement,
dated February 9, 1995, between the Company and Executive, shall be amended by
(a) reducing the number of options granted to Executive pursuant to such
agreements from 86,000 to 50,000 and (b) reducing the option exercise prices
from $1.9375 and $2.1275 to $1.3125 per share, and by otherwise restating such
agreements. Executive and the Company shall enter into a modified incentive
stock option agreement, in the form attached to this agreement as exhibit C, to
effectuate such amendments. Executive waives all rights to receive the
incentive stock option that was approved by the Company's Board of Directors in
November, 1996, and such stock option shall be terminated in all respects and
shall be of no force and effect.
9. Option to Repurchase the Shares Upon Termination of Employment.
--------------------------------------------------------------
In the event that Executive's employment with the Company is voluntarily
terminated by Executive or is terminated by the Company for "cause", the
Company shall have the irrevocable right and option (the "Option") to purchase
from Executive, or Executive's heirs, successors or assigns, and Executive, on
behalf of his heirs, successors and assigns, agrees to sell to the Company upon
the exercise of the Option that number of the Shares as is determinable from the
following schedule:
Date of Termination Shares Subject to Repurchase
------------------- ----------------------------
Prior to 4/29/98 50,000
After 4/28/98 and
before 4/29/99 40,000
After 4/28/99 and
before 4/29/2000 30,000
After 4/28/2000 and
before 4/29/2001 20,000
After 4/28/2001 and
before 4/29/2002 10,000
After 4/28/2002 0
The Company shall exercise the Option, if at all, by delivering a
written notice of exercise to Executive or Executive's personal representative,
as the case may be, within sixty (60) days after the date of termination of
Executive's employment with the Company.
3
<PAGE>
The purchase price for the Shares that are repurchased by the Company
pursuant to the exercise of the Option, shall be the per share amount paid by
Executive for such shares pursuant to this agreement. The Company shall make
payment of the purchase price for any shares reacquired pursuant to the exercise
of the Option by offsetting and reducing the outstanding principal balance, and
any accrued interest on, of the Promissory Note. The balance of the purchase
price owing to the Executive, if any, shall be paid by delivering to Executive
or Executive's representative, as the case may be, within sixty (60) days of the
date of termination of Executive's employment with the Company, the Company's
check in the amount of the balance of such purchase price.
Upon receipt of such payment from the Company, Executive or his
personal representative, as the case may be, shall deliver to the Company for
cancellation the stock certificates evidencing the Shares being repurchased by
the Company, which certificate shall be duly endorsed for cancellation by the
Company.
The certificates evidencing the Shares shall be legended to disclose
the existence of the repurchase rights set forth in this section 9.
10. Condition to Sale of Shares. Executive understands that the sale
---------------------------
of the shares to him on the terms contemplated by this agreement is subject to
the approval of the Company's shareholders in accordance with the applicable
rules of the NASD. The Company agrees to submit the sale of the shares to
Executive to the shareholders for approval at the next annual shareholders'
meeting. In the event that such shareholder approval is not received, the
Company will provide Executive with another mutually-acceptable compensation
package to replace the compensation program contemplated by this agreement.
11. Miscellaneous. This agreement shall be binding upon, shall inure
-------------
to the benefit of and shall be enforceable against the Company and Executive and
their respective heirs, successors and assigns. This agreement shall in all
respects be governed, enforced and interpreted in accordance with the laws of
the state of Minnesota.
IN WITNESS WHEREOF, the Company and Executive have executed this
agreement as of the date set forth in the first paragraph.
RINGER CORPORATION
By
----------------------------------
Stanley Goldberg, President & CEO
[the "Company"]
------------------------------------
Mark G. Eisenschenk
["Executive"]
4
<PAGE>
Exhibit A
---------
PROMISSORY NOTE
---------------
$65,625.00 Bloomington, Minnesota
April 29, 1997
FOR VALUE RECEIVED, Mark G. Eisenschenk, an individual resident of
North Oaks, Minnesota ("Maker"), hereby promises to pay to the order of Ringer
Corporation, a Minnesota corporation or its successors or assigns, as the case
may be ("Payee"), at Bloomington, Minnesota, or such other place as may be
specified in writing by Payee, the principal sum of Sixty-five Thousand Six
Hundred Twenty-five and no/100 Dollars ($65,625.00), plus simple interest on the
outstanding principal balance at the rate of six and one-half percent (6.5%) per
annum.
The principal amount of this promissory note shall be paid in five (5)
equal annual installments of Thirteen Thousand One Hundred Twenty-five and
no/100 Dollars ($13,125.00) each, commencing on April 29, 1998, and continuing
on the same day in each succeeding year, and accrued interest shall be payable
on the same day as principal installments are due. Notwithstanding the
foregoing, this promissory note shall become due and payable in full ninety (90)
days after the date of death of Maker.
Maker shall have the right to prepay all or any part of this
promissory note at any time without penalty or premium, but any such prepayment
shall be applied first to the payment of accrued interest and then to the
installments of principal due hereunder in the inverse order of maturity.
Upon the failure by Maker to make timely payments of any of the
installments of principal or interest due hereunder, which default is not cured
within thirty (30) days after written notice of such nonpayment is delivered to
Maker, Payee may, at Payee's option, declare the unpaid principal amount of this
promissory note and any accrued interest thereon immediately due and payable.
This promissory note is secured by a security interest granted to
Payee in 50,000 shares of Payee's common stock pursuant to a stock pledge
agreement, dated the same date as this promissory note.
Maker hereby waives presentment for payment, notice of dishonor,
protest and notice of protest and, in the event of default hereunder, Maker
agrees to pay all costs of collection, including reasonable attorneys' fees.
This promissory note shall be governed by the laws of the state of Minnesota.
IN WITNESS WHEREOF, Maker has executed this promissory note as of the
date first above written.
------------------------------------
Mark G. Eisenschenk
5
<PAGE>
Exhibit B
---------
STOCK PLEDGE AGREEMENT
----------------------
AGREEMENT, made as of the 29th day of April, 1997 by and between Mark
G. Eisenschenk, an individual resident of the state of Minnesota ("Pledgor"),
Ringer Corporation, a Minnesota corporation ("Company").
WHEREAS, Pledgor and Company have entered into an agreement, dated the
29th day of April, 1997, pursuant to which Pledgor agreed to purchase from
Company, and Company agreed to sell to Pledgor, fifty thousand (50,000) shares
of Company's common stock (the "Pledged Shares"); and
WHEREAS, Pledgor has delivered to Company a promissory note (the
"Promissory Note") in payment of the purchase price for the Pledged Shares; and
WHEREAS, Company has required that Pledgor grant to Company, and
Pledgor is willing to grant to Company, a security interest in the Pledged
Shares as security for the payment by Pledgor of his obligations under the
Promissory Note.
NOW THEREFORE, in consideration of the premises, the respective
covenants of Company and Pledgor set forth below and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Pledgor and Company agree as follows:
1. Pledge of Stock.
---------------
1.1 Pledge. As security for the prompt payment of any amount at any
------
time due, whether or not by acceleration, to Company from Pledgor pursuant to
the Promissory Note, Pledgor hereby grants a security interest to Company in the
Pledged Shares.
1.2 Delivery. Immediately upon execution of this agreement, Pledgor
--------
will deliver to Company the certificates representing all of the Pledged Shares,
which certificates shall be endorsed in blank or with executed stock powers
attached.
2. Rights and Benefits of Pledged Shares.
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2.1 General. Except as provided in section 2.2, Company shall
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receive and hold (by Company or by an agent of Company) the Pledged Shares and
any property (including without limitation monies or securities) distributed or
issued with respect to the Pledged Shares, whether as a dividend, in partial or
complete liquidation, pursuant to a merger or reorganization plan or otherwise.
Pledgor shall cause any securities distributed or issued with respect to the
Pledged Shares to be assigned and transferred to Company and delivered to
Company in the manner provided in section 1.2, and such securities shall be
subject to the terms and conditions of this agreement.
2.2 Voting. Unless and until a default is declared by Company
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pursuant to section 5, Pledgor shall be entitled to vote the Pledged Shares.
2.3 Assignment, Etc. Except as provided or specifically permitted
----------------
herein, Pledgor shall not pledge, sell, assign, transfer or otherwise dispose of
the Pledged Shares without the prior written approval of Company's Board of
Directors.
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<PAGE>
3. Legend. The certificates representing the Pledged Shares shall
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bear an endorsement in substantially the following form:
"The shares of stock represented by this certificate are pledged
under, and are subject to the terms and conditions of a Stock Pledge
Agreement, dated April 29, 1997, between Ringer Corporation and the
registered owner of this certificate as security for the performance
of the registered owner's obligations under a promissory note to
Ringer Corporation. Such shares cannot be sold, assigned,
transferred, pledged or disposed of except as provided in such Stock
Pledge Agreement."
4. Appointment of Company as Attorney-in-Fact. Pledgor hereby
------------------------------------------
appoints and constitutes Company as Pledgor's true and lawful attorney-in-fact
and with full power of substitution in the premises to execute such assignments
and/or endorsements of the Pledged Shares as may be necessary to effect the
rights and remedies which Company has under this agreement in the event of a
default under this agreement.
5. Event of Default. The occurrence of an event of default under
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the Promissory Note constitutes a default under this agreement.
Upon the occurrence of an event of default, Company shall have the
option to declare this agreement in default and thereupon Company is authorized
to exercise and shall have, in addition to the rights and remedies provided in
this agreement and all other applicable rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code of the state of
Minnesota and any other applicable laws. In particular, and without limitation,
Company is authorized at its option and without further notice or demand, to
cause the Pledged Shares to be transferred of record to Company or its agent or
nominee and shall be entitled to exercise all rights of ownership in respect to
the Pledged Shares and all property received with respect to the Pledged Shares.
Company shall also have the right to hold and vote the Pledged Shares and, at
its option and upon twenty (20) days' notice in writing to Pledgor of such
default, shall have the right to sell and transfer the Pledged Shares and the
property received with respect to the Pledged Shares or any portion thereof at
any public or private sale, including private placement based upon investment
representations, and for cash or such other consideration as Company shall, in
its sole discretion, determine to be reasonable, and Pledgor shall have no right
or equity of redemption in connection with any such sale; provided, however,
that during such twenty (20) day period Pledgor shall have the right to cure any
default by paying all obligations under the Promissory Note, together with all
expenses incurred by Company including, without limitation, reasonable
attorneys' fees and expenses in obtaining, holding and preparing for sale the
Pledged Shares and the property received with respect to the Pledged Shares and
in arranging for the sale. After deducting the expenses of such sale, including
reasonable attorneys' fees, the proceeds therefrom shall be applied to the
payment of Pledgor's obligations under the Promissory Note and the surplus, if
any, shall be paid to Pledgor.
6. Release of Collateral. At such time as the Promissory Note has
---------------------
been paid in full, Company shall deliver the Pledged Shares and any property
distributed with respect to the Pledged Shares to Pledgor in accordance with
Pledgor's written directions, and Pledgor shall thereafter be discharged in full
from any and all obligations under this agreement. Upon receipt by Company of
any payments of principal under the Promissory Note, Company shall deliver to
Pledgor, in accordance with Pledgor's instructions, that number of Pledged
Shares (and any property distributed with respect to such Pledged Shares) as is
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<PAGE>
equal to the total Pledged Shares initially subject to this agreement,
multiplied by a fraction, the numerator of which is the amount of the principal
payment and the denominator which is the original principal amount of the
Promissory Note.
7. Delay; Waiver. All rights and remedies of Company under this
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agreement are cumulative and are in addition to, but not in limitation of, any
rights or remedies which it may have under applicable law. No delay on the part
of Company in the exercise of any right or remedy under this agreement shall
operate as a waiver thereof, and no single or partial exercise by Company of any
right or remedy under this agreement shall preclude other or further exercise
thereof or the exercise of any other right or remedy. No waiver by Company of
any right or remedy under this agreement shall be deemed to be or construed as a
further or continuing waiver of such right or remedy or as a waiver of any other
right or remedy.
8. Cooperation. Upon the execution of this agreement and at any
-----------
time or from time to time thereafter, Pledgor and Company agree to cooperate in
carrying out the terms of this agreement, including the execution and delivery
of such further instruments and documents as may be reasonably requested in
order to more effectively carry out the terms and conditions of this agreement.
9. Miscellaneous. This agreement shall be binding upon, and inure
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to the benefit of and be enforceable by Pledgor and Company and their respective
successors and assigns, but this agreement shall not be assignable without
written permission of the other party. The section headings are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this agreement. This agreement shall be governed by, and, construed and
enforced in accordance with, the laws of the state of Minnesota.
IN WITNESS WHEREOF, Pledgor and Company have executed this agreement
as of the date set forth in the first paragraph.
RINGER CORPORATION
By
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Stanley Goldberg, President & CEO
[the "Company"]
------------------------------
Mark G. Eisenschenk
["Pledgor"]
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