<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
-------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission file number: 0-18921
------------------------------------
VERDANT BRANDS, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0848688
- --------------------------------------------------------------------------------
(State of incorporation or organization) (I.R.S. Employer Identification No.)
9555 James Avenue South, Suite 200, Bloomington, Minnesota 55431-2543
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(952) 703-3300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The number of shares outstanding of each of the registrant's classes of
capital stock, as of April 30, 2000, was:
5,112,850 shares of Common Stock, $.01 par value
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 44,937 $ 122,226
Accounts receivable, net 26,351,005 14,512,761
Inventories, net 21,342,359 19,124,200
Prepaid assets 1,796,280 801,063
------------ ------------
Total current assets 49,534,581 34,560,250
Property and equipment, net 6,607,681 6,902,402
Intangible assets, net 10,116,725 10,307,793
Other assets 202,317 232,627
------------ ------------
Total assets $ 66,461,304 $ 52,003,072
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Bank line of credit $ 16,385,714 $ 6,070,296
Accounts payable 17,378,535 12,428,728
Accrued expenses 2,880,893 3,438,120
Current portion of long-term debt 2,705,431 3,006,338
------------ ------------
Total current liabilities 39,350,573 24,943,482
Long-Term Debt 14,898,704 14,965,950
Shareholders' Equity:
Common Stock, par value $.01 per share,
authorized 10,000,000 shares, issued
and outstanding 5,112,850 shares 51,129 51,129
Additional paid-in capital 49,489,653 49,489,653
Receivable from sale of common stock to officers -- (65,625)
Accumulated deficit (36,980,123) (37,030,545)
Cumulative translation adjustment (348,632) (350,972)
------------ ------------
Total shareholders' equity 12,212,027 12,093,640
------------ ------------
Total liabilities and shareholders' equity $ 66,461,304 $ 52,003,072
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 21,524,198 $ 22,030,357
COST OF SALES 14,307,643 14,450,936
------------ ------------
Gross Profit 7,216,555 7,579,421
OPERATING EXPENSES:
Distribution 1,758,702 1,642,227
Sales & Marketing 2,146,843 2,117,980
General & Administration 1,645,915 1,284,150
Product Registrations & Development 722,465 713,887
Amortization of Intangibles 169,307 237,081
------------ ------------
6,443,232 5,995,325
------------ ------------
INCOME BEFORE OTHER EXPENSE 773,323 1,584,096
OTHER EXPENSE, NET (722,901) (365,012)
------------ ------------
INCOME BEFORE INCOME TAXES 50,422 1,219,084
INCOME TAXES -- --
------------ ------------
NET INCOME $ 50,422 $ 1,219,084
============ ============
Net income per common share - basic and diluted $ .01 $ .24
============ ============
Shares used in calculating net income per share - basic and diluted 5,112,850 5,182,850
============ ============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- -----------------------------------------------
NET INCOME $ 50,422 $ 1,219,084
Other comprehensive income (no tax effect):
Foreign currency translations adjustments 2,340 (114,925)
------------ ------------
COMPREHENSIVE INCOME $ 52,762 $ 1,104,159
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,422 $ 1,219,084
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 434,320 810,864
Amortization of deferred debt issuance costs 27,253
(Gain) loss on disposal of assets 4,615 (600)
(Increase) decrease in operating assets:
Trade accounts receivable (11,849,729) (12,489,511)
Inventories (2,215,607) (1,259,470)
Prepaid expenses (993,825) 225,379
Increase (decrease) in operating liabilities:
Accounts payable 4,793,907 2,302,294
Accrued expenses (465,485) (816,097)
------------ ------------
Net cash used in operating activities (10,214,129) (10,008,057)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25,910) (149,831)
Proceeds from sale of equipment 218,283 93,950
Investments in patent and trademark applications (25,499) (1,597)
------------ ------------
Net cash provided by investing activities 166,874 (57,478)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from bank line of credit 10,315,418 9,131,742
Principal payments on long-term debt (409,649) (79,490)
Proceeds on receivable from the sale of common stock 65,625 65,625
------------ ------------
Net cash provided by financing activities 9,971,394 9,117,877
Effect of exchange rate changes on cash (1,428) (6,020)
------------ ------------
Decrease in cash and cash equivalents (77,289) (953,678)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 122,226 1,783,800
------------ ------------
END OF PERIOD $ 44,937 $ 830,122
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Verdant Brands, Inc. and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles
for interim financial information. They should be read in conjunction
with the annual financial statements included in the Company's Annual
Report on Form 10-KSB for the prior year ended December 31, 1999. In
the opinion of management, the interim condensed consolidated financial
statements include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results for the
interim periods presented. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of the operating results
to be expected for the fiscal year ending December 31, 2000.
The following table reflects the calculation of basic and diluted
earnings per share.
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
Earnings Per Share - Basic
Net income $ 50,422 $1,219,084
---------- ----------
Weighted average shares outstanding 5,112,850 5,182,850
---------- ----------
Net income per share $ .01 $ .24
========== ==========
Earnings Per Share - Assuming Dilution
Net income $ 50,422 $1,219,084
---------- ----------
Weighted average shares outstanding 5,112,850 5,182,850
Dilutive impact of options and warrants [*] [*]
---------- ----------
Weighted average shares and potential dilutive
shares outstanding 5,112,850 5,182,850
---------- ----------
Net income per share $ .01 $ .24
========== ==========
[*] The impact of options and warrants are excluded because their
exercise price was higher than the average share price for each period.
Note 2. Sales of the Company's products are greater during the period of
January 1 through June 30 of each year due to seasonal factors.
Note 3. Inventory consists of the following:
March 31, December 31,
2000 1999
----------- -----------
Raw Materials $ 4,757,440 $ 4,140,908
Finished Goods 16,584,919 14,983,292
----------- -----------
$ 21,342,359 $ 19,124,200
=========== ===========
Note 4. LONG-TERM DEBT
March 31, December 31,
2000 1999
------------ ------------
Line of credit, long-term
portion (Note 5) $ 11,375,000 $ 11,375,000
Notes payable (Note 5) 4,770,511 4,965,466
Mortgage loans 1,300,124 1,522,024
Capital lease obligations 158,500 109,798
Less current portion (2,705,431) (3,006,338)
------------ ------------
$ 14,898,704 $ 14,965,950
============ ============
As of December 31, 1999 and March 31, 2000, Sureco, Inc., a wholly
owned subsidiary, was in default on a note payable to B&I Lending,
totaling $1,060,765 at March 31, 2000, due to noncompliance with
covenants restricting change in the use of the facility and equipment
in Fort Valley, Georgia, reducing inventory and equipment at the
5
<PAGE>
facility, and requiring a minimum tangible net worth ratio. B&I Lending
has agreed to waive noncompliance and to restructure the payments on
the note pending approval by the U. S. Department of Agriculture, a
guarantor on the note. Pending such approval, the full value of the
note has been classified as a current liability.
Note 5. LINE OF CREDIT
The Company relies on financing in the form of lines of credit
to fund seasonal increases in receivables and inventory and to provide
general working capital and long-term financing. On July 14, 1999, the
Company entered into an amended and restated credit agreement with GE
Capital Services ("GE"), which secured a three-year, $37,000,000
million credit facility, of which $35,000,000 is a revolving line of
credit facility and $2,000,000 is a term note. This agreement replaces
a previous $25,000,000 million facility with GE. In connection with the
GE Capital Services line of credit, the Company issued a warrant for
the purchase of 334,793 shares of common stock at an exercise price of
$5.95 per share. The warrant is exercisable immediately and expires in
July 2002. The fair value of the warrant was calculated using the
Black-Scholes method and was estimated at $327,032. This deferred debt
issuance cost reduces the carrying value of the related debt and is
being amortized over the life of the debt on a straight line basis. The
credit facility is secured by substantially all of the assets of the
Company and its subsidiaries.
Borrowings under the line of credit facility are limited to a
borrowing base of up to 85% of eligible receivables, and up to 65% of
eligible inventory, as defined in the credit agreement. Interest on
borrowings is at an Index Rate (the higher of the published prime
interest rate or the Federal Funds Rate plus 0.5 percentage points)
plus a Revolver Index Margin of 0.35 percentage points through May 2,
2000 and of 0.55 percentage points thereafter (borrowing rate of 9.35%
as of March 31, 2000). The Company is required to pay a commitment fee
of 1/2% on any unused portion of the line. Outstanding borrowings
totaled $29,385,898 (net of deferred debt issuance costs of $249,816)
as of March 31, 2000.
The line of credit contains provisions which require the
Company to maintain a minimum level of net worth, a minimum interest
coverage ratio and a limit on the Company's expenditures on capital
assets. In addition, there are provisions which create a default on the
line of credit agreement if the Company defaults on any of the
Company's other debt agreements. On March 29, 2000 the Company entered
into a First Amendment and Waiver to Credit Agreement with GE Capital,
which provided a waiver of the Company's noncompliance at December 31,
1999 with the interest coverage and yearly capital expenditures
covenant of the credit facility. The Company was also not in compliance
with the interest coverage covenant for the quarter ended March 31,
2000, however, the Company subsequently received a waiver of
non-compliance.
The Company continues to be short of cash that would be
necessary to finance all of its business requirements during the
quarter ended March 31, 2000. As a result, the Company continued to
extend accounts payable beyond normal terms in order to minimize
borrowings on its line of credit and to manage short-term cash flow.
The Company was also forced to forgo the purchase of raw materials for
several product lines to avoid excess build-up in inventory. The
Company has commenced a process of reducing costs and adjusting
operating expenses in order to reduce its operating cash requirements
and is considering strategic alternatives, including the possible sale
of product lines, to generate adequate cash through the end of 2000.
Note 6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash (paid) received for interest during the period for:
Three Months Ended
March 31,
----------------------------
2000 1999
------------ -----------
Interest paid $ (557,005) $ (441,427)
Interest received 52,177 78,657
Note 7. FOREIGN OPERATIONS
International sales activity, consisting of sales outside the United
States, primarily in Canada, accounted for approximately 9.2% and 7.6%
of total sales for the three months ended March 31, 2000 and 1999,
respectively. A
6
<PAGE>
reconciliation for these periods of domestic and foreign activity for
net sales, net income and identifiable assets for these periods is as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000: Domestic Foreign Total
---------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Net Sales $ 19,541,462 $ 1,982,736 $ 21,524,198
Net Income (loss) (137,372) 187,794 50,422
Identifiable Assets 61,936,048 4,525,256 66,461,304
<CAPTION>
Three Months Ended March 31, 1999: Domestic Foreign Total
---------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Net Sales $ 20,356,816 $ 1,673,541 $ 22,030,357
Net Income 1,080,336 138,748 1,219,084
Identifiable Assets 65,888,347 4,599,457 70,487,804
</TABLE>
Note 8. BUSINESS SEGMENTS
The Company conducts its business in three major market segments -
consumer products, commercial products and commercial dealers.
Consumer Products Segment - The consumer product segment markets
pesticides and fertilizers through lawn and garden retailers and
through lawn and garden distribution channels to home owners and other
consumers. Consumer products consist of environmentally sensitive pest
control products and fertilizers sold under the Safer(R), SureFire(R),
ChemFree(R), Blocker(R), Insectigone(R) and Ringer(R) brands and
traditional pest control products sold under the Dexol(R), Black
Leaf(R) and various private label brands.
Commercial Products Segment - The commercial products segment markets
pest control and fertilizer products to commercial growers in the
agriculture industry through direct sales to growers and through
agricultural product distributors, and commercial applicators in the
pest control industry through commercial pesticide distributors.
Commercial products consist of environmentally sensitive pest control
products sold to the agriculture industry under the CheckMate(R) and
BioLure(R) brands and traditional pest control products sold to the
commercial pest control industry under the AllPro(R) brand.
Commercial Dealer Segment - The commercial dealer segment consists of
dealerships owned by a subsidiary of the Company that sells and
distributes a full-line of commercial products and services to growers
in major agricultural regions of California and in the Connecticut
River Valley of Massachusetts. Products distributed include the
Company's products as well as products produced by other manufacturers,
including traditional pesticides, fertilizers, seeds and farm supplies.
A reconciliation for the three months ended March 31, 2000 and 1999 of
segment activity for net sales, net income (loss) and identifiable
assets is as follows:
<TABLE>
<CAPTION>
Commercial
Three Months Ended March 31, 2000: Consumer Commercial Dealer Total
---------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales............................. $ 10,658,465 $ 5,122,159 $ 5,743,574 $ 21,524,198
Net Income (loss)..................... (109,752) 191,860 (31,686) 50,422
Depreciation and Amortization......... 257,426 99,381 77,513 434,320
Interest Expense...................... 408,157 217,759 80,395 706,311
Interest Income....................... - 24,486 29,127 53,613
Capital Expenditures.................. 25,910 - - 25,910
Identifiable Assets................... $ 40,065,300 $ 15,140,685 $ 11,255,319 $ 66,461,304
<CAPTION>
Commercial
Three Months Ended March 31, 1999: Consumer Commercial Dealer Total
--------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales............................. $ 10,801,437 $ 4,784,866 $ 6,444,054 $ 22,030,357
Net Income (loss)..................... 800,788 (40,913) 459,209 1,219,084
Depreciation and Amortization......... 328,521 303,876 178,467 810,864
Interest Expense...................... 396,144 70,113 46,742 512,999
Interest Income....................... 2,800 54,632 36,421 93,853
Capital Expenditures.................. 18,096 26,347 105,388 149,831
Identifiable Assets................... $ 40,678,655 $ 17,940,762 $ 11,868,387 $ 70,487,804
</TABLE>
7
<PAGE>
Note 9. COMMITMENTS AND CONTINGENCIES
Subcontract Manufacturing - We rely on outside subcontractors for
nearly all of our consumer products manufacturing needs, and
manufacture a significant portion of our products at a single
subcontract manufacturer. During 1999, we transferred title of certain
inventory to this subcontractor. In March 2000, we agreed to reassume
title to this inventory, effective April 3, 2000. At December 31, 1999
and March 31, 2000, accounts receivable included $2,674,490 relating to
inventory title under this agreement.
- -----------
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
Results of Operations
- ---------------------
The following table shows, for the periods indicated, information
derived from the unaudited condensed consolidated statements of operations of
the Company as a percentage of net sales:
Three Months Ended
March 31,
------------------
2000 1999
----- -----
Net sales 100.0 % 100.0 %
Cost of sales 66.5 65.6
----- -----
Gross profit 33.5 34.4
Operating expenses:
Distribution 8.2 7.5
Sales & Marketing 10.0 9.6
General & Administrative 7.6 5.8
Product Registration & Development 3.3 3.2
Amortization of Intangibles .8 1.1
----- -----
29.9 27.2
----- -----
Income before other expense 3.6 7.2
Other expense, net (3.4) (1.7)
----- -----
Net income .2 % 5.5 %
===== =====
Seasonal factors affecting sales and results of operations
Sales during the year are very seasonal. First quarter sales normally
consist of sales on initial orders from direct customers and reorders from
distributors who made their initial purchases for the season in the final
quarter of the preceding year. Second and third quarter sales consist largely of
reorders from direct-ship customers and sales of in-season promotion products.
Fourth quarter sales consist primarily of shipments on early season orders from
distributors who are stocking warehouses for the upcoming spring selling season.
Most of the Company's sales occur during the months of December through June of
each year. The level of sales for the fiscal year depends largely upon the level
of retail sales of the Company's products to home owner consumers and the level
of unsold retail inventory of the Company's products remaining in retail and
wholesale distribution channels carried over from the previous year. Retail
sales to consumers are affected by numerous outside circumstances such as
weather, competitors' products and sales and marketing programs, as well as new
product introductions. Each of these factors can fluctuate substantially from
year to year and from quarter to quarter. Total year sales cannot be accurately
projected with any degree of certainty based on results for the three months
ended March 31, 2000.
Comparison of the three months ended March 31, 2000 to the three months ended
March 31, 1999
Net Sales. Total net sales decreased $506,159 or 2.3% to $21,524,198
for the three months ended March 31, 2000 compared to $22,030,357 for the three
months ended March 31, 1999. The following table shows the increase or decrease
in net sales by business segment for the three months ended March 31, 2000
compared to the three months ended March 31, 1999.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
2000 1999 Increase (Decrease)
------------------- ------------------- --------------------
Net Sales % Net Sales % Net Sales %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Consumer $10,658,465 49.5 $10,801,437 49.0 $ (142,972) (1.3)
Commercial 5,122,159 23.8 4,784,866 21.7 337,293 7.0
Commercial Dealer 5,743,574 26.7 6,444,054 29.3 (700,480) (10.9)
----------- ----- ----------- ----- ----------- -----
21,524,198 100.0 $22,030,357 100.0 $ (506,159) (2.3)
=========== ===== =========== ===== =========== =====
</TABLE>
9
<PAGE>
Consumer segment net sales decreased 1.3% to $10,658,465 for the three
months ended March 31, 2000 compared to $10,801,437 for the three months ended
March 31, 1999. The relatively flat level of sales in the consumer segment
reflects a 20% increase in sales of Safer(R) and Surefire(R) Branded pest
control products more than offset by lower private label pesticide product
sales. Lower private label sales are apparently due to efforts by some key
private label customers to manage year 2000 inventories to lower levels than
those maintained in 1999.
Commercial segment sales increased $337,293 or 7.0% to $5,122,159 for
the three months ended March 31, 2000 compared to $4,784,866 for the three
months ended March 31, 1999. The increase in commercial segment sales was the
result of an increase of approximately $1.3 million in sales of the Company's
proprietary phermone products, primarily due to wider acceptance and
distribution of the Company's phermone products in the California, Washington
and Mexican specialty agriculture markets, offset in part by a decrease of
approximately $1.0 million in AllPro(R) brand traditional chemical pesticides.
Commercial Dealer segment sales decreased $700,480 or 10.9% to
$5,743,574 for the three months ended March 31, 2000 compared to $6,444,054 for
the three months ended March 31, 1999. The decrease was due primarily to
prolonged dry weather conditions in California. Dry weather creates
environmental conditions less favorable to the emergence of pests and,
consequently, reduced demand for the Company's products.
Gross Margins. Gross margins as a percent of sales decreased to 33.5 %
for the three months ended March 31, 2000 compared to 34.4% for the three months
ended March 31, 1999. The decrease in gross margins was due in part to higher
procurement costs for chemical ingredients and packaging materials.
Operating Expenses. Distribution expenses increased in absolute dollars
by $116,475 or 7.1% to $1,758,702 for the three months ended March 31, 2000 from
$1,642,227 for the three months ended March 31,1999, and increased as a
percentage of sales to 8.2% for the three months ended March 31, 2000 compared
to 7.5% for the three months ended March 31, 1999. The increase in distribution
expenses was due largely to the costs associated with the Company's increased
use in 2000 of third party warehousing and distribution service providers to
ship certain of its products. These service providers are used by the Company on
the east and west coasts to reduce the amount of time required to deliver
products to key customers.
Sales and marketing expenses in absolute dollars increased $28,863 or
1.4% to $2,146,843 for the three months ended March 31, 1999 from $2,117,980 for
the three months ended March 31, 1999, and increased as a percentage of sales to
10.0% for the three months ended March 31, 2000 compared to 9.6% for the same
period in 1999. The increase in sales and marketing expenses was largely due to
additional expenditures on consumer segment sales and marketing programs.
General and administrative costs increased $361,765 or 28.2% to
$1,645,915 for the three months ended March 31, 2000 from $1,284,150 for the
three months ended March 31, 1999. The increase was primarily due to adjustment
of bad debt reserves in 1999 and corporate legal and recruiting expense in 2000.
Product registration and development expenses increased $8,578 or 1.2%
to $722,465 for the three months ended March 31, 2000 compared to $713,887 for
the three months ended March 31, 1999. The increase was due primarily to
additional product registration expenses for consumer segment products.
Amortization expense decreased $67,774 or 28.6% to $169,307 for the
three months ended March 31, 2000 compared to $237,081 for the three months
ended March 31, 1999. The decrease in amortization expense resulted from the
fourth quarter 1999 reduction in the value of intangible assets by a charge to
operations for the impairment of goodwill associated with an earlier
acquisition. The fourth quarter 1999 adjustment reduced the value of intangible
assets by approximately $6.3 million and thereby reduced future amortization
expense accordingly.
Other Expense, Net. Net other expense increased by $357,889 or 98.0% to
$722,901for the three months ended March 31, 2000 compared to net other expense
of $365,012 for the three months ended March 31, 1999. The increase in net other
expense was primarily caused by the additional interest expense incurred on
increased borrowings on the Company's line of credit.
10
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's operations and cash needs are highly seasonal. During the
three months ended December 31 of each year, the Company usually solicits and
ships early orders and expands production to build inventory needed for its
major selling season. During the three months ended March 31, the Company's
shipments consist of initial sales to direct mass merchant customers and reorder
sales to certain distribution customers. Most of the Company's seasonal
shipments and therefore most of the billings that result in revenue recognition
and in receivables, occur during the months of December through June of each
year. Accordingly, the Company typically consumes significant cash in operating
activities during the periods from October through June from year to year as it
finances increases in its inventory, primarily during the periods from October
through April, and increases in receivables, primarily during the period from
late December through the end of May.
Consistent with these seasonal trends, the Company used $10.2 million
of cash in operating activities during the quarter ended March 31, 2000,
applying $11.8 million to finance seasonally increased receivables and $2.2
million for increased inventories. The Company offset these operating cash uses
by extending payables, resulting in a $4.8 million increase in its accounts
payable during the quarter. The Company generated $167,000 of cash in investing
activities, primarily through the sale of assets. The Company financed the cash
used in its operating activities, as it historically has financed its seasonal
cash requirements, through $10.3 million of additional borrowings under its
credit agreements.
The Company relies on financing in the form of lines of credit to fund
seasonal increases in receivables and inventory and to provide general working
capital and long-term financing. On July 14, 1999, the Company entered into an
amended and restated credit agreement with GE Capital Services ("GE"), which
secured a three-year, $37,000,000 million credit facility, of which $35,000,000
is a revolving line of credit facility and $2,000,000 is a term note. This
agreement replaces a previous $25,000,000 million facility with GE. In
connection with the GE Capital Services line of credit, the Company issued a
warrant for the purchase of 334,793 shares of common stock at an exercise price
of $5.95 per share. The warrant is exercisable immediately and expires in July
2002. The fair value of the warrant was calculated using the Black-Scholes
method and was estimated at $327,032. This deferred debt issuance cost reduces
the carrying value of the related debt and is being amortized over the life of
the debt on a straight line basis. The credit facility is secured by
substantially all of the assets of the Company and its subsidiaries.
Borrowings under the line of credit facility are limited to a borrowing
base of up to 85% of eligible receivables, and up to 65% of eligible inventory,
as defined in the credit agreement. Interest on borrowings is at an Index Rate
(the higher of the published prime interest rate or the Federal Funds Rate plus
0.5 percentage points) plus a Revolver Index Margin of 0.35 percentage points
through May 2, 2000 and of 0.55 percentage points thereafter (borrowing rate of
9.35% as of March 31, 2000). The Company is required to pay a commitment fee of
1/2% on any unused portion of the line. Outstanding borrowings totaled
$29,385,898 (net of deferred debt issuance costs of $249,816) as of March 31,
2000.
The line of credit contains provisions which require the Company to
maintain a minimum level of net worth, a minimum interest coverage ratio and a
limit on the Company's expenditures on capital assets. In addition, there are
provisions which create a default on the line of credit agreement if the Company
defaults on any of the Company's other debt agreements. On March 29, 2000 the
Company entered into a First Amendment and Waiver to Credit Agreement with GE
Capital, which provided a waiver of the Company's noncompliance at December 31,
1999 with the interest coverage and yearly capital expenditures covenant of the
credit facility. The Company was also not in compliance with the interest
coverage covenant for the quarter ended March 31, 2000, however, the Company
subsequently received a waiver of non-compliance.
As of December 31, 1999 and March 31, 2000, Sureco, a wholly owned
subsidiary, was in default on a note payable to B&I Lending, totaling $1,060,765
at March 31, 2000, due to noncompliance with covenants restricting change of use
of the facility and equipment in Fort Valley, Georgia, reducing inventory and
equipment at the facility, and requiring a minimum tangible net worth ratio. B&I
Lending has agreed to waive noncompliance and to restructure the payments on the
note pending approval by the U. S. Department of Agriculture, a guarantor on the
note. Pending such approval, the full value of the note has been classified as a
current liability.
11
<PAGE>
The Company continues to be short of cash that would be necessary to
finance all of its business requirements during the quarter ended March 31,
2000. As a result, the Company continued to extend accounts payable beyond
normal terms in order to minimize borrowings on its line of credit and to manage
short-term cash flow. The Company was also forced to forgo the purchase of raw
materials for several product lines to avoid excess build-up in inventory. The
Company has commenced a process of reducing costs and adjusting operating
expenses in order to reduce its operating cash requirements and is considering
strategic alternatives, including the possible sale of product lines, to
generate adequate cash through the end of 2000.
The Company believes that inflation has not had a significant impact on
the results of its operations.
Forward Looking Information
- ---------------------------
The information contained in this Quarterly Report includes
forward-looking statements as defined in Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements involve a number of
risks and uncertainties, including: changes in demand from major customers;
effects of competition and competitive responses to the Company; changes in
product mix, product costs, inventory levels and customer mix and its effect on
financial performance; changes in operating expenses; the Company's ability to
raise financing to satisfy its operating needs; and other factors disclosed
throughout this Quarterly Report and the Company's other filings with the
Securities and Exchange Commission. The actual results that the Company achieves
may differ materially from any forward-looking statements due to such risks and
uncertainties. The Company undertakes no obligation to revise any
forward-looking statement in order to reflect events or circumstances that may
arise after the date of this report. Readers are urged to carefully review and
consider the various disclosures made by the Company in this report and in the
Company's other reports filed with the Securities and Exchange Commission that
attempt to advise interested parties of the risks and uncertainties that may
affect the Company's financial condition and results of operations.
- ---------
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Subsidiaries of Southern Resources, Inc., our wholly-owned subsidiary,
are parties to a governmental action and to other legal proceedings in Superior
Court of Fulton County, Georgia, brought by or on behalf of property owners in
the area of the subsidiaries' Fort Valley, Georgia former manufacturing site.
These actions and proceedings relate to environmental contamination discovered
on or near the site. Management believes that the contamination occurred prior
to the purchase of the plant site by SRI's subsidiaries from an unaffiliated
predecessor owner. The former owner has been cooperating with governmental
authorities and has begun remedial cleanup activities on the site. The Company
is unable at this time to determine whether the governmental and legal actions
relating to the property will result in a material loss to SRI or Verdant. We
are party to other legal proceedings, which we believe to be individually and
collectively immaterial to our business.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Listing of Exhibits
Exhibit
Number Description
------ -----------
2.1 Agreement for Purchase and Sale of Assets by and between the
Company and Dexol Industries, Inc. (incorporated by reference to
Exhibit 2.1 of the Company's Amended Current Report on Form 8-K/A
filed on June 16, 1997, SEC File No. 0-18921).
2.2 Amended and Restated Agreement and Plan of Merger by and between
the Company and Souther Resources, Inc. (incorporated by reference
to Exhibit 2.1 of the Company's Amended Current Report on Form
8-K/A filed on February 19, 1998, SEC File No. 0-18921).
2.3 Agreement and Plan of Merger, dated September 8, 1998, by and
among Verdant Brands, Inc., Consep Acquisition, Inc. and Consep,
Inc. (incorporated by reference to Appendix A to the Proxy
Statement - Prospectus included in the Company's Amended
Registration Statement on Form S-4/A , dated October 26, 1998).
3.1 Restated Articles of Incorporation of the Company (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 Amendment to the Company's Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 of the Company's Current
Report on Form 8-K, dated July 15, 1998, SEC File No. 0-18921).
3.3 Amendment to the Company's Restated Articles of Incorporation,
dated December 7, 1998 (incorporated by reference to Exhibit 3.3
of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998, SEC File No. 0-18921).
13
<PAGE>
3.4 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 Annual Report on Form
10-KSB for the year ended December 31, 1998, SEC File No.
0-18921).
*10.1 1986 Employee Incentive Stock Option Plan (incorporated by
reference to Exhibit 4.4 of the Company's Registration Statement
on Form S-8, SEC File No. 33-37806).
*10.2 Amendment No.1 dated January 1, 1988, Amendment No. 2 dated
September 9, 1992 and Amendment No. 3 dated January 4, 1995 to the
Company's 1986 Employee Incentive Stock Option Plan (incorporated
by reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-QSB dated March 31, 1998, SEC File No. 0-18921).
*10.3 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.)
*10.4 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).
*10.5 Amendment No.1 to the Company's Stock Option Plan for Non-Employee
Directors dated December 8, 1997 (incorporated by reference to
Exhibit 10.4 of the Company's Quarterly Report on Form 10-QSB
dated March 31, 1998, SEC File No. 0-18921).
*10.6 Consep, Inc. 1992 Stock Incentive Plan (incorporated by reference
to Exhibit 10.6 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, SEC File No. 0-18921).
*10.7 Consep, Inc. 1993 Stock Incentive Plan (incorporated by reference
to Exhibit 10.7 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, SEC File No. 0-18921).
*10.8 Consep, Inc. 1997 Stock Incentive Plan (incorporated by reference
to Exhibit 10.8 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, SEC File No. 0-18921).
10.9 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.)
10.10 Amendment to Lease Agreement between the Company and 94th Street
Associates, a Minnesota Partnership, dated November 17, 1998
(incorporated by reference to Exhibit 10.6 of the Company's Annual
Report on Form 10-KSB for the year ended December 31,1998, SEC
File No. 0-18921).
10.11 Lease Agreement between Verdant Brands, Inc. and L&A Development,
LLC, dated December 1, 1999 (incorporated by reference to Exhibit
10.11 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999, SEC File No. 0-18921).
*10.12 Employment Agreement between the Company and John F. Hetterick,
dated December 1, 1999 (incorporated by reference to Exhibit 10.12
of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, SEC File No. 0-18921).
*10.13 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).
*10.14 Amendment of Employment Agreement between the Company and Stanley
Goldberg, dated December 5, 1997 (incorporated by reference to
Exhibit 10.6 of the Company's Amended Annual Report on Form
10-KSB/A for the fiscal year ended September 30, 1997, SEC File
No. 0-18921).
14
<PAGE>
*10.15 Termination and Consulting Agreement between the Company and
Stanley Goldberg, dated December 6, 1999 (incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999, SEC File No.
0-18921).
*10.16 Employment Agreement between the Company and Mark G. Eisenschenk,
dated December 5, 1997 (incorporated by reference to Exhibit 10.7
of the Company's Amended Annual Report on Form 10-KSB/A for the
fiscal year ended September 30, 1997, SEC File No. 0-18921).
*10.17 Separation Agreement and General Release between the Company and
Mark G. Eisenschenk, dated December 6, 1999 (incorporated by
reference to Exhibit 10.17 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999, SEC File No.
0-18921).
*10.18 Stock purchase agreement, and related documents, between the
Company and Stanley Goldberg, dated April 29, 1997 (incorporated
by reference to Exhibit 10.8 of the Company's Amended Annual
Report on Form 10- KSB/A for the fiscal year ended September 30,
1997, SEC File No. 0-18921).
*10.19 Stock purchase agreement, and related documents, between the
Company and Mark G. Eisenschenk, dated April 29, 1997
(incorporated by reference to Exhibit 10.9 of the Company's
Amended Annual Report on Form 10-KSB/A for the fiscal year ended
September 30, 1997, SEC File No. 0-18921).
10.20 Amended and Restated Credit Agreement between the Company and
General Electric Capital Corporation dated July 14, 1999
(incorporated by reference to Exhibit 10.12 of the Company's
Quarterly Report on Form 10-QSB for the three months ended June
30, 1999, SEC File No. 0-18921).
10.21 First Amendment and Waiver to Credit Agreement dated July 14, 1999
between the Company and General Electric Capital Corporation dated
March 29, 2000. **
10.22 Warrant to Purchase Common Stock in connection with the Amended
and Restated Credit Agreement between the Company and General
Electric Capital Corporation dated July 14, 1999 (incorporated by
reference to Exhibit 10.13 to the Company's Quarterly Report on
Form 10-QSB for the three months ended September 30, 1999, SEC
File No. 0-18921).
10.23 Cross-Licensing and Joint Licensing/Sale Agreement between the
Company 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).
10.24 Patent License Agreement between the Company and 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).
27.1 Financial Data Schedule **
* Management contract or compensation plan or arrangement.
** Filed with this report.
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K during the three
months ended March 31, 2000.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
VERDANT BRANDS, INC.
Dated: May 15, 2000 By /S/ John F. Hetterick
----------------------
John F. Hetterick
President and Chief Executive Officer
Dated: May 15, 2000 By /S/ Volker Oakey
-----------------
Volker Oakey
Executive Vice President and Chief
Financial Officer
(principal financial officer)
16
<PAGE>
EXHIBIT 10.21
FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT
----------------------------------------------
This FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment"),
dated as of March 30, 2000, is by and among VERDANT BRANDS, INC., a Minnesota
corporation ("Verdant"), SAFER, INC., a Delaware corporation ("Safer"), SURECO,
INC., a Georgia corporation ("SureCo"), CONSEP, INC., an Oregon corporation
("Consep"), RICHARD HUNT INC., a California corporation ("Hunt"), PACOAST INC.,
a California corporation ("Pacoast"), and VALLEY GREEN CENTER, INC., a
Massachusetts corporation ("Valley Green") (Verdant, Safer, SureCo, Consep,
Hunt, Pacoast, and Valley Green are sometimes referred to herein individually as
a "Borrower" and collectively, the "Borrowers") and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation, for itself, as Lender, and as Agent for
Lenders, and the other Lenders signatory hereto.
RECITALS
--------
A. Borrowers, Agent and Lenders are parties to that certain Amended and
Restated Credit Agreement dated as of July 14, 1999 (as from time to time
amended, restated, supplemented or otherwise modified and in effect, the "Credit
Agreement"), pursuant to which Agent and Lenders have made and may hereafter
make loans and advances and other extensions of credit to Borrowers.
B. On and subject to the terms and conditions hereof, Borrowers wish, and
Agent and Lenders are willing, to amend certain provisions of, and give certain
waivers with respect to, the Credit Agreement, all on the terms and conditions
set forth in this Amendment.
C. This Amendment shall constitute a Loan Document and these Recitals shall
be construed as part of this Amendment. Capitalized terms used herein without
definition are so used as defined in Annex A to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. Amendment. The Credit Agreement is hereby amended as follows:
(a) The following term is hereby inserted into Annex A of the
Credit Agreement in alphabetical order:
"B&I Loan Agreement" shall mean Term Loan Agreement dated August
21, 1997 among SureCo., Southern Resources, Inc., Peach County
Property, Inc., the guarantors thereunder and B&I Lending, LLC
("B&I"), without giving effect to any amendment or modification
thereof.
<PAGE>
(b) Section 1.1(b)(ii) is hereby amended by deleting it in its
entirety and substituting therefor the following:
(ii) Borrower shall pay the principal amount of the Term
Loan in eight (8) quarterly installments, commencing March 30,
2000, as follows:
Payment Date Installment Amount
------------ ------------------
March 30, 2000 $125,000
July 1, 2000 $250,000
October 1, 2000 $250,000
April 1, 2001 $375,000
July 1, 2001 $250,000
October 1, 2001 $250,000
January 1, 2002 $250,000
April 1, 2002 $250,000
Notwithstanding anything contained herein to the contrary,
Verdant shall pay the aggregate outstanding principal balance of
the Term Loan on the Commitment Termination Date, if not sooner
paid in full.
2. Waiver. The Agent and the Lenders hereby waive the Events of
Default arising under:
(a) Section 8.1(b) of the Credit Agreement resulting solely from
Borrowers' failure to (x) comply with the Capital Expenditures
limitation set forth in Annex G to the Credit Agreement for Fiscal
Year 1999 and (y) maintain the Interest Coverage Ratio set forth in
Annex G to the Credit Agreement for the Fiscal Quarter ended December
31, 1999; and
(b) Section 8.1(e) of solely by virtue of certain defaults set
forth on Schedule A hereto (collectively, the "Specified Defaults") by
SureCo under the terms of the B&I Loan Agreement, which defaults
permit B&I to cause Indebtedness in excess of $250,000 to become due
prior to its stated maturity date.
3. Representations and Warranties of Credit Parties. In order to
induce Agent and Lenders to enter into this Amendment, each Credit Party
hereby jointly and severally represents and warrants to Agent and Lenders
that:
(a) Representations and Warranties. After giving effect to this
Amendment, no representation or warranty of any Credit Party contained
in the Credit Agreement or any of the other Loan Documents, including
this Amendment, shall be untrue or incorrect in any material respect
as of the date hereof, except to the extent that such representation
or warranty expressly relates to an earlier date.
2
<PAGE>
(b) Authorization, etc. Each Credit Party has the power and
authority to execute, deliver and perform this Amendment. Each Credit
Party has taken all necessary action (including, without limitation,
obtaining approval of its stockholders, if necessary) to authorize its
execution, delivery and performance of this Amendment. No consent,
approval or authorization of, or declaration or filing with, any
Governmental Authority, and no consent of any other Person, is
required in connection with any Credit Party's execution, delivery and
performance of this Amendment, except for those already duly obtained.
This Amendment has been duly executed and delivered by each Credit
Party and constitutes the legal, valid and binding obligation of each
Credit Party, enforceable against it in accordance with its terms. No
Credit Party's execution, delivery or performance of this Amendment
conflicts with, or constitutes a violation or breach of, or
constitutes as default under, or results in the creation or imposition
of any Lien upon the property of any Credit Party by reason of the
terms of (i) any contract, mortgage, lease, agreement, indenture or
instrument to which any Credit Party is a party or which is binding
upon it, (ii) any law or regulation or order or decree of any court
applicable to any Credit Party, or (iii) the certificate or articles
of incorporation or by-laws of any Credit Party.
4. Conditions to Effectiveness. The effectiveness of this Amendment is
expressly conditioned upon the satisfaction of each condition set forth in
this Section 4 on or prior to the date hereof and consummation of all of
the transactions contemplated thereby:
(a) Documentation. Borrowers shall have delivered to Agent (on
behalf of itself and Lenders) all of the following documents, all in
form and substance acceptable to Agent in its discretion:
(i) Amendment. Duly executed originals of this Amendment.
(ii) Other Documents. All other agreements, certificates,
opinions and other documents as Agent may reasonably request to
accomplish the purposes of this Amendment.
(b) Term Loan Paydown. Agent shall have received immediately
available funds in an amount not less than $125,000 to be applied by
Agent in accordance with Section 1.3(a) of the Credit Agreement.
(c) Fee. Agent shall have received a fee in the amount of
$50,000.
(d) No Default. No Default or Event of Default shall have
occurred and be continuing, or would result after giving effect
hereto.
(e) Representations and Warranties. After giving effect to this
Amendment, no representation or warranty of any Credit Party contained
in the Credit Agreement or any of the other Loan Documents, including
this Amendment, shall be untrue or incorrect in any material respect
as of the date hereof, except to the extent that such representation
or warranty expressly relates to an earlier date.
(f) Consents and Acknowledgments. Each Credit Party shall have
obtained all consents, approvals and acknowledgments which may be
required with respect to the execution, delivery and performance of
this Amendment.
3
<PAGE>
5. Reference to and Effect on Loan Documents.
(a) Ratification. Except as specifically amended above, the
Credit Agreement and the other Loan Documents shall remain in full
force and effect and each Credit Party hereby ratifies and confirms
each such Loan Document.
(b) No Waiver. Except as specifically provided in this Agreement,
the execution, delivery and effectiveness of this Amendment shall not
operate as a waiver or forbearance of any right, power or remedy of
Agent or any Lender under the Credit Agreement or any of the other
Loan Documents, or constitute a consent, waiver or modification with
respect to any provision of the Credit Agreement or any of the other
Loan Documents. Upon the effectiveness of this Amendment each
reference in (a) the Credit Agreement to "this Agreement,"
"hereunder," "hereof," or words of similar import and (b) any other
Loan Document to "the Agreement" shall, in each case and except as
otherwise specifically stated therein, mean and be a reference to the
Credit Agreement as amended hereby.
6. Miscellaneous.
(a) Successors and Assigns. This Amendment shall be binding on
and shall inure to the benefit of the Credit Parties, Agent and
Lenders and their respective successors and assigns, except as
otherwise provided herein. No Credit Party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or
duties hereunder without the prior express written consent of Agent
and Lenders. The terms and provisions of this Amendment are for the
purpose of defining the relative rights and obligations of the Credit
Parties, Agent and Lenders will respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of
any of the terms and provisions of this Amendment.
(b) Entire Agreement. This Amendment, including all schedules and
other documents attached hereto or incorporated by reference herein or
delivered in connection herewith, constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes
all other understandings, oral or written, with respect to the subject
matter hereof.
(c) Fees and Expenses. As provided in Section 11.3 of the Credit
Agreement, Borrower agree to pay on demand all fees, costs and
expenses incurred by Agent in connection with the preparation,
execution and delivery of this Amendment.
(d) Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
(e) Severability. Wherever possible, each provision of this
Amendment shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Amendment
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Amendment.
4
<PAGE>
(f) Conflict of Terms. Except as otherwise provided in this
Amendment, if any provision contained in this Amendment is in conflict
with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Amendment shall govern and
control.
(g) Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement. Delivery of an executed signature page to
this Amendment by telecopy shall be effective as delivery of a
manually executed signature page to this Amendment.
(h) Incorporation of Credit Agreement. The provisions contained
in Sections 11.9 and 11.13 of the Credit Agreement are incorporated
herein by reference to the same extent as if reproduced herein in
their entirety, except with reference to this Amendment rather than
the Credit Agreement.
(i) Acknowledgment. Each Credit Party hereby represents and
warrants that there are no liabilities, claims, suits, debts, liens,
losses, causes of action, demands, rights, damages or costs, or
expenses of any kind, character or nature whatsoever, known or
unknown, fixed or contingent (collectively, the "Claims"), which any
Credit Party may have or claim to have against Agent or any Lender, or
any of their respective affiliates, agents, employees, officers,
directors, representatives, attorneys, successors and assigns
(collectively, the "Lender Released Parties"), which might arise out
of or be connected with any act of commission or omission of the
Lender Released Parties existing or occurring on or prior to the date
of this Amendment, including, without limitation, any Claims arising
with respect to the Obligations or any Loan Documents. In furtherance
of the foregoing, each Credit Party hereby releases, acquits and
forever discharges the Lender Released Parties from any and all Claims
that any Credit Party may have or claim to have, relating to or
arising out of or in connection with the Obligations or any Loan
Documents or any other agreement or transaction contemplated thereby
or any action taken in connection therewith from the beginning of time
up to and including the date of the execution and delivery of this
Amendment. Each Credit Party further agrees forever to refrain from
commencing, instituting or prosecuting any lawsuit, action or other
proceeding against any Lender Released Parties with respect to any and
all Claims.
[signature pages follow]
5
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.
VERDANT BRANDS, INC.
SAFER, INC.
SURECO, INC.
By: /s/ Volker Oakey
-----------------------------------
Title: Executive Vice President,
and Treasurer
CONSEP, INC.
PACOAST INC.
RICHARD HUNT INC.
VALLEY GREEN CENTER, INC.
By: /s/ Volker Oakey
-----------------------------------
Title: Vice President, Secretary and
Treasurer
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By: /s/ (Illegible)
-----------------------------------
Title: Duly Authorized Signatory
Each of the following Persons is a signatory to this Agreement in its
capacity as a Credit Party and not as a Borrower.
SAFER, LTD.
SOUTHERN RESOURCES, INC.
By: /s/ John Hetterick
-----------------------------------
Title: Executive Vice President,
Secretary and Treasurer
FARCHAN LABORATORIES, INC.
By: /s/ Volker Oakey
-----------------------------------
Title: Vice President, Secretary and
Treasurer
6
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 44,937
<SECURITIES> 0
<RECEIVABLES> 27,575,005
<ALLOWANCES> (1,224,000)
<INVENTORY> 21,342,359
<CURRENT-ASSETS> 49,534,581
<PP&E> 9,400,630
<DEPRECIATION> (2,792,949)
<TOTAL-ASSETS> 66,461,304
<CURRENT-LIABILITIES> 50,725,573
<BONDS> 3,523,704
0
0
<COMMON> 49,540,782
<OTHER-SE> (37,328,755)
<TOTAL-LIABILITY-AND-EQUITY> 66,461,304
<SALES> 21,524,198
<TOTAL-REVENUES> 21,524,198
<CGS> 14,307,643
<TOTAL-COSTS> 6,443,232
<OTHER-EXPENSES> 16,590
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