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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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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
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Commission file number 0-18921
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VERDANT BRANDS, INC.
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(Name of small business issuer in its charter)
Minnesota 41-0848688
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(State of incorporation (I.R.S. Employer
or organization) 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 (952) 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.
[X]
Revenues for the fiscal year ended December 31, 1999 totaled $74,719,701.
As of March 17, 2000, the Company had 5,112,850 shares of Common Stock
outstanding. The aggregate market value of the 5,032,352 shares of Common Stock
held by non-affiliates of the Company was $12,580,880, based on the closing
share price on March 17, 2000 on the Nasdaq Stock Market.
Documents incorporated by reference: Certain responses to Part III are
incorporated herein by reference to information contained in the Company's
definitive proxy statement for its 2000 annual meeting of shareholders to be
filed with the Securities and Exchange Commission on or before April 29, 2000.
Transitional small business disclosure format: [_] Yes [X] No
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PART I
Item 1. BUSINESS.
Verdant Brands, Inc. This report on Form 10-KSB is for the consolidated
entity of Verdant Brands, Inc. and its subsidiaries. The consolidated entity is
referred to in this Report as "Verdant" or "the Company" and by using the
personal pronouns "we", "us" and "our".
Verdant was formerly known as Ringer Corporation. In July 1998, we changed
the name of the company to Verdant Brands, Inc. and adopted the trading symbol
of "VERD" for our common stock traded on The Nasdaq Stock Market. We were
incorporated in the State of Minnesota in 1961.
We develop, manufacture and market "environmentally sensitive" and
"traditional" lawn and garden products for the consumer and commercial markets.
We also operate full service dealerships that distribute pest control products
to specialty agricultural growers and to turf and ornamental plant growers in
the commercial market. Our product lines consist of proprietary and
non-proprietary pest control products and, to a much lesser extent, fertilizers
and grass seed products.
Environmentally Sensitive Product Lines. We market a broad line of
environmentally sensitive pest control and fertilizer products. Our
environmentally sensitive pest control products are sold to the consumer market
under the Safer(R), SureFire(R), ChemFree(R), Insectigone(R) and Blocker(R)
brands and to the commercial market under the CheckMate(R) and BioLure(R)
brands. Our environmentally sensitive fertilizer products are sold to both
consumer and commercial markets under the Ringer(R) brand.
Our environmentally sensitive pest control products use various patented,
proprietary and non-proprietary technologies to control insects, weeds and
fungal diseases. To the extent possible, our environmentally sensitive products
are designed to control unwanted pests without harming beneficial insect
populations or leaving harmful residues on turf and garden plants. In developing
these products, we use available premium performance technologies with the
lowest environmental impact. These types of products are often referred to as
"environmentally friendly" or "biorational" products.
Some of our environmentally sensitive pest control products use botanical
technologies based on fatty acid compounds and other naturally occurring plant
extracts. Products using botanical technologies may use a single technology or
technologies in combination. We hold patents on various botanical pesticide
technologies that combine fatty acids as a synergist in combination with other
botanical pesticides.
Other products use biochemical compounds called pheromones which mimic the
natural sexual attractant of insects. Phermones are used in various products to
disrupt the natural mating process of harmful insect pests, primarily
undesirable moths, to prevent the occurrence of unwanted larvae or worms that
infest and damage edible fruit, nut and vegetable crops. Other environmentally
sensitive products use mechanical technologies in combination with pheromones or
other attractants. These pest control products are designed to attract and
capture insect pests, such as Japanese beetles, wasps, hornets and moths.
Our environmentally sensitive granular fertilizer products are proprietary
and organically based. They use a unique and highly efficient delivery system
based on natural soil microbes to control the release of nutrients to plants for
extended and uniform feeding.
Our environmentally sensitive products were developed internally or
purchased through the acquisition of other companies. Microbial fertilizer
products sold under the Ringer(R) brand name were all developed internally. A
large portion of our botanical based pest control products were purchased in
1991 through the acquisition of Safer, Inc., a wholly-owned subsidiary. Since
the acquisition of Safer, Inc., we have continued to add botanical based pest
control technologies and products through internal development. The SureFire(R),
ChemFree(R), Blocker(R), CheckMate(R), Insectigone(R) and BioLure(R) brands of
pest control products were purchased in December 1998 through the acquisition of
Consep, Inc., now a wholly-owned subsidiary of Verdant.
Traditional Pest Control Product Lines. We sell a broad line of traditional
pest control products to the consumer market using the Dexol(R) brand. We also
sell various private label brands, including Black Leaf(R) which we began
licensing as a controlled label brand in October 1999. We sell these products to
the commercial market using the AllPro(R) brand. Our traditional pest control
technologies are based on non-proprietary, synthetic chemical formulations which
are common to the consumer and commercial pest control industries. These
traditional pest control products
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include various forms of chemical insecticides, herbicides, fungicides and
rodenticides. The active ingredients in these products are obtained primarily
from large national and international chemical companies who supply chemicals to
formulators of pest control products for the agricultural, horticultural and
lawn and garden markets. We acquired our Dexol(R) branded pest control products
in March 1997 through the acquisition of substantially all the assets of Dexol
Industries, Inc. We acquired our Black Leaf(R) and AllPro(R) branded pest
control products in December 1997 through the acquisition of Southern Resources,
Inc., now a wholly-owned subsidiary of the Company.
Our business was founded upon environmentally sensitive technologies and
products which remain a very important part of product offerings. However,
acquiring traditional pest control product lines has provided us greater
financial and strategic opportunities. Acquiring traditional pest control
product lines has dramatically increased the size of our business. This in turn
has given us opportunities to develop synergies by combining operations and by
leveraging relationships with customers and suppliers. In addition, we now have
access to larger geographic and functional markets. What is more, adding our own
traditional pesticide lines allows us to develop and market "hybrid" pest
control products which combine traditional chemical pesticides with organically
based compounds. These "hybrid" products, based on our patented technology, can
result in reduced overall environmental toxicity and faster acting pest control
performance. We believe there is a significant opportunity to market such
"hybrid" pest control products using the well established brand names which we
obtained with the acquisitions of our traditional pest control product lines.
Acquisitions. We have completed acquisitions that have greatly expanded the
size and nature of our business. These acquisitions are described below.
Dexol Industries, Inc. In March 1997, we acquired substantially all of the
assets of Dexol Industries, Inc. ("Dexol"), a California based manufacturer and
marketer of pesticides to the consumer market with annual sales of approximately
$10 million. The pesticide products acquired from Dexol use non-proprietary,
traditional chemical technology commonly available in the lawn and garden
industry. The acquisition was accounted for using the purchase method of
accounting.
Southern Resources, Inc. In December 1997, we completed a merger with
Southern Resources, Inc. ("SRI"), previously a privately held, Georgia based
company with annual sales of approximately $25 million. SRI manufactured and
marketed traditional pesticides through its subsidiary, SureCo, Inc., under a
variety of proprietary and private label brand names to consumer and commercial
markets throughout North America. The merger was accounted for using the
purchase method of accounting.
Consep, Inc. In December 1998, we completed a merger with Consep, Inc.
("Consep"), previously a publicly held company based in Bend, Oregon with annual
sales of approximately $38 million. Consep develops, manufactures and markets
biochemical pest control products and, through its subsidiaries, distributes its
biochemical pest control products as well as traditional chemical pest control
products to growers of fruits, nuts and vegetables. The merger was accounted for
using the purchase method of accounting.
Business Segments. We conduct our business in three major market segments.
These segments consist of the consumer products segment, the commercial products
segment and the commercial dealer segment. Each business segment is more fully
described below.
Consumer Products Segment. The products we sell to the consumer products
segment are 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)
and various private label brands, including Black Leaf(R). Sales of consumer
products were approximately $36.3 million in 1999 and $37.7 million in 1998.
Markets. We sell consumer products in the United States through a variety
of retail distribution channels in all fifty states. These distribution channels
include retail mass merchants, hardware co-operatives, catalog operators and
lawn and garden wholesale distributors who resell our products to retail garden
centers, nurseries, hardware stores and home centers. Some significant retailers
selling our products include The Home Depot, Wal-Mart, Lowes, Target, Tru-Serve,
Menards and Frank's Nursery & Crafts.
Sales and Marketing. Our retail sales function in the United States is
managed from our main office in Bloomington, Minnesota, by a vice president and
general manager of the consumer products division. The vice president oversees
five regional sales managers, located in Maryland, Georgia, Washington,
Minnesota and California, and one national accounts sales manager, located in
Minnesota. We use a combination of direct sales personnel and independent
manufacturers' representatives to market our products. Our direct sales
personnel, and the independent manufacturers'
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representatives who report to them, are assigned territories that cover all
fifty states. In addition, we use sales and merchandising personnel, contracted
through our manufacturing representatives, direct wholesalers and other
merchandising service organizations, to contact and service some of the large
retail outlets that sell our products.
Most of our marketing and distribution activities are concentrated in the
United States and Canada. However, a level of international overseas business
has been maintained for a number of years. We currently sell some pest control
products to a small number of foreign formulators and distributors. Over the
past ten years, we have sold products to customers in Germany, Switzerland and
other European markets.
Consumer segment sales to international consumers are managed by Safer,
Ltd., our 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 production. Although there may be future
international growth opportunities, our primary market area is in the United
States and Canada. This area will be the main focus of our marketing efforts for
the foreseeable future.
Competition. We face significant competition in the consumer pest control
and fertilizer markets from numerous competitors. Several of these competitors
dominate various markets and have substantially greater financial, technical,
marketing and other resources than ours. We believe there are three categories
of competitors in the consumer pest control market. Those categories of
competitors are traditional pesticide companies, companies with existing
biorational pest control products and companies developing new biorational pest
control products.
Our principal competitors in the consumer pest control market are Scotts
Miracle Gro (Ortho(R) brand), United Industries (Spectracide(R) brand) and
various regional and niche product competitors. The competitors compete against
both our environmentally sensitive pest control product line and our traditional
pest control product line. There are large traditional pesticide companies in
addition to various small biotechnology companies that are conducting research
in biorational pest control technologies. These companies could represent
significant competition in the future.
Our principal competitor in the consumer fertilizer market is Scotts
Miracle Gro. Other significant competitors include Lebanon (Greenview(R) brand)
and Milwaukee Sewer Improvement District (Milorganite(R) brand). In addition to
national competitors, many regional and local companies compete with us. Some of
these companies incur lower freight costs and are therefore more price
competitive in regional and local markets. We estimate that approximately 35% of
the market share is held by smaller regional and local fertilizer manufacturers
and marketers.
Our products may also be subject to competition from products developed by
companies using other technologies, such as plant science technology. Plant
science technology includes the development of pest resistant plants by genetic
engineering and other methods, which has the potential of significantly reducing
the need for certain pest control products currently on the market.
The principal competitive factors in our markets are product effectiveness,
ease of application, price, toxicity to humans and the environment, and name
recognition. Many of our environmentally sensitive products generally cost more
than those of our competitors' traditional chemical pesticide counterparts.
Therefore, we are generally not able to compete on price alone.
To increase brand identity and sales, we use various forms of advertising
and promotion to market our products. They primarily consist of cooperative
advertising programs, point-of-purchase marketing materials and print
advertising.
Commercial Products Segment. The products we sell to the commercial markets
are environmentally sensitive pest control products using the CheckMate(R) and
BioLure(R) brands, and traditional pest control products using the AllPro(R)
brand. Sales of products to the commercial market were approximately $12.3
million in 1999 and $9.3 million in 1998.
Markets. Our commercial products segment is directed toward markets which
exceed $1 billion in annual sales. These markets are the specialty agricultural
market, the turf and ornamental market and the professional pest control
applicators market. We believe there are many growth opportunities in these
markets which include increased sales of our existing products, sales of future
products which we develop or license from others, and the acquisition of
additional product lines, though certain existing product lines may be phased
out.
Sales and Marketing. Our commercial products are marketed principally in
the United States through commercial distributors and commercial dealerships.
Commercial sales are managed out of Bend, Oregon by a vice president and general
manager of the commercial products division who oversees a 13-person sales
organization.
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Most of our sales to the specialty agricultural market are through full
service agrichemical dealers and agricultural products distributors. We support
the sales of our products by sponsoring grower meetings and educational programs
directed toward groups and individuals influential in the specialty agriculture
market, such as university pest management specialists and researchers,
government agricultural personnel, and independent crop protection
professionals. Agrichemical dealers have an added dimension that is especially
helpful in marketing our products. That is, they employ crop protection
professionals who consult directly with growers, research crop protection needs
and recommend appropriate insect control programs. There is a trend toward
increasing use of crop protection professionals, such as licensed pest control
advisers ("PCAs"). This trend is most developed in California, where pesticides
can only be applied to crops on the recommendation of a state licensed PCA. We
believe this trend will help us further introduce and distribute our insect
control products in the specialty agricultural market. Our growth strategy in
this market is to help educate PCAs and growers about sound integrated pest
management ("IPM") principles and to demonstrate how our products can be
integrated into less toxic and more cost effective insect control programs. Our
commercial sales organization employs nine persons who sell to this market.
Sales to the turf and ornamental market are made primarily to distributors
and dealers who sell pest control and fertilizer products to providers of lawn
care services (such as Tru-Green Chemlawn), and to landscapers, park services,
municipalities and golf courses. Sales to the professional pest control
applicators market are made to distributors who resell products to professional
pest control applicators (such as Orkin and Terminex). The commercial sales
organization includes four persons who sell to the professional pest control
applicator and turf and ornamental markets.
Competition. The commercial pest control industry is highly competitive and
is dominated by multinational chemical companies that have financial, technical
and marketing resources substantially greater than ours. We generally compete
with other providers of traditional pest control products on the basis of price,
service and customer relationships. Because of the strength of competition, we
expect some of our traditional pest control products to be phased out of the
commercial market over time.
Our biorational products account for only a small fraction of industry wide
sales of pest control products. Biorational products generally require
specialized insect control practices, such as timing and method of application
which are different from those typically associated with traditional chemical
products. As a result, in order for biorational products to successfully compete
with chemicals, they must not only be cost competitive but must also provide
other advantages over conventional pesticides. We believe that our biorational
pest control products are generally cost competitive with traditional
insecticides and, because they are non-toxic and leave no harmful residue in
food, soil or groundwater, they provide sufficient advantages over traditional
insecticides to compete effectively against such products.
We believe that large chemical pesticide companies are developing new
generations of chemical pesticides and new products based on biorational agents,
which are less toxic to humans and the environment than current chemical
pesticides. These large companies have directed marketing efforts primarily
toward commodity crops, such as wheat, corn, cotton and soybeans, with products
that do not compete directly against our own products. However, the successful
development of new less-toxic chemical and biorational pesticides by these
companies could lead to new products that compete directly against our products.
In such a circumstance, there is no assurance that we would be able to compete
effectively against such products.
In addition to competition from the large chemical pesticide companies, we
are aware of several smaller companies using biorational control agents,
including pheromones, to produce alternative insect control products. We also
believe other companies are currently developing biorational insect control
products. We believe, however, that the pheromone controlled release systems
used in our CheckMate(R) products is superior to technologies used in competing
products. As a result, we believe that our pheromone products will remain
competitive.
We expect competition to intensify among companies promoting biorational
pest control products as regulatory pressures on traditional pesticides increase
and as technology advances are made and become more widely known and available.
Commercial Dealer Segment. Through a wholly-owned subsidiary acquired with
the acquisition of Consep, Inc. (see "Acquisitions. Consep, Inc. above"), we own
and operate seven full-line commercial dealerships which offer products and
services to the specialty agricultural market. Five of the commercial
dealerships are located in the Central Valley of California and two in the
Connecticut River Valley of Massachusetts. These dealerships sell products
obtained from a variety of manufacturers, which include traditional pesticides,
fertilizers, seeds and farm supplies, in addition to our own biorational pest
control products. Revenues from our commercial dealership operations totaled
approximately
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$26.1 million in 1999. Revenues from our commercial dealerships in 1998 included
sales for the month of December 1998 of $1.1 million.
Our commercial dealerships employ a total of 21 licensed Pest Control
Advisors ("PCAs"), who contact growers directly to market products and services.
These professionals evaluate emerging pest problems and provide growers with
recommended pest control solutions using the most appropriate products available
in the industry. Recommended products are generally provided for sale to the
grower through our full service dealerships. In the process of recommending pest
control solutions, the PCAs educate growers about sound integrated pest
management practices and introduce our CheckMate(R) and BioLure(R) products,
where appropriate, as part of an effective pest control program. In addition to
being a valuable sales resource, the crop protection professionals are also a
valuable source of information about new product needs, performance of products
in the field and the competitive position of products in use.
The commercial dealer market is very competitive. We compete against
several commercial dealers and distributors in our geographic markets, including
large distributors, such as Wilbur-Ellis Company, Terra, United AgriProducts and
Britz Chemical Company, all of which have greater financial and operating
resources than our own. Other competitors include smaller independent dealers
and distributors, some of which have lower fixed overhead costs and operating
expenses compared to ours. Our competitive strategy is to provide quality
customer service, to build strong direct grower relationships and to employ
experienced and proven PCAs . We believe this strategy will allow us to compete
successfully, however, our ability to maintain or grow our commercial dealer
business in this highly competitive market is uncertain.
Products. Our major product categories are environmentally sensitive pest
control products, traditional pesticides, and microbial fertilizers.
Environmentally Sensitive Pest Control Products. We sell our
environmentally sensitive pest control products under the Safer(R), SureFire(R),
ChemFree(R), Blocker(R), Insectigone(R), CheckMate(R) and BioLure(R) brand
names.
The Safer(R) branded line of pest control products use naturally occurring
microbes, botanical derivatives, and synthesized versions of natural botanical
derivatives as active ingredients. The active ingredients, used alone or in
combinations, are formulated to control specific insects, weeds and fungal
diseases. 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 that are toxic
to certain specific insects, and elemental sulfur. The Safer(R) branded
environmentally sensitive pest control products biodegrade more rapidly and have
a lower mammalian toxicity rating than most traditional pesticides.
The SureFire(R),ChemFree(R) and Insectigone(R) branded pest control
products consist of a broad line of consumer products used to trap or otherwise
control pests in homes, lawns and gardens. Most of the SureFire(R),ChemFree(R)
and Insectigone(R) branded pest control products use our proprietary
technologies, which include the use of controlled release attractants to lure
insects into traps and the use of patented baits and powdered diatomaceous earth
which kill crawling insects upon contact.
The Blocker(R) branded pest control products consists of a line of
DEET-free insect repellants which repel mosquitos and other insects using
natural oils. We purchase these insect repellants from a third-party owner and
manufacturer of this technology who has granted us exclusive rights to sell
these products in the United States, Canada and Mexico, subject to certain
performance requirements.
The CheckMate(R) branded pest control products are used to suppress
population levels of undesirable insects by disrupting their mating cycles.
CheckMate(R) products employ pheromones in either micro porous or micro capsule
beads. These products are applied to crops by aerial or ground spray equipment
or are dispensed by membrane based reservoir packets that are attached by hand
to the branches or stems of plants in crops to be protected.
The BioLure(R) branded products are insect monitoring and trapping products
for the commercial agriculture market. Insect monitoring products typically
consist of a trap and a lure loaded with either pheromones or food bait to
attract the target insect species. Growers of fruits, nuts and vegetables use
monitoring products in systematic monitoring programs to identify pests as they
emerge, to pinpoint infestation locations, to estimate levels of infestation,
and to project potential crop damage. The information gathered during monitoring
programs assists the grower and professional pest control advisor in determining
the correct pest control products to use, the best time to apply the products,
and the post-application effectiveness of the pest control products used.
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Most of our monitoring and trapping products use a pheromone based lure
contained within a controlled release membrane reservoir. The controlled release
membrane technology dispenses active ingredients uniformly over a longer period
of time compared to competitors' products. Our other monitoring and trapping
products which do not incorporate a pheromone lure use food bait or a color
spectrum as the attractant. We currently offer trapping and monitoring products
for over twenty-five species of insects.
Traditional Pest Control Products. We first acquired our line of
traditional pesticide products in March 1997 with the purchase of substantially
all of the assets of Dexol Industries, Inc. This line was expanded in December
1997 with our merger with Southern Resources, Inc. See "Acquisitions. Dexol
Industries, Inc." and "Acquisitions. Southern Resources, Inc." above.
We sell traditional pest control products to the consumer market using our
Dexol(R) brand name and various private label brands including Black Leaf(R). We
sell our AllPro(R) brand of traditional pest control products to the commercial
market. Our traditional pest control technologies are based on non-proprietary,
synthetic chemical pesticides, which are common to the consumer lawn and garden
and commercial industries. These chemicals include various forms of
insecticides, herbicides, fungicides and rodenticides. The active ingredients in
these pest control products are obtained primarily from large national and
international chemical companies who supply active ingredients to formulators of
products for the agricultural, horticultural and lawn and garden markets.
Microbial Fertilizers. We sell our microbial fertilizers to consumers using
the Ringer(R) brand and the Lawn Restore(R) and Supreme Gardens(R) subbrands. We
also sell microbial fertilizers to the commercial turf care and commercial
ornamental plant growers markets using the Ringer(R) brand name. They are
environmentally sensitive products based on organic, granular formulations using
proprietary microbial delivery systems that control the release of nutrients for
extended and uniform plant feeding.
Distribution and Transportation. We distribute our products primarily
through common carrier transportation, leased warehouse facilities and public
warehouse services. Distribution and freight costs are a significant part of our
operating expenses. Our products are relatively heavy and bulky and require
substantial warehouse space to store and high freight costs to ship. Freight
costs are especially high when we ship products in small quantities over long
distances, which can be a frequent occurrence during the spring and summer
seasons. We spent approximately $5.9 million in 1999 and $ 4.9 million in 1998
on product distribution, transportation and warehousing costs.
Government Regulation. The pest control industry is heavily regulated
worldwide. In the United States, the pest control industry is regulated by the
Environmental Protection Agency ("EPA") and the Federal Insecticide, Fungicide
and Rodenticide Act ("FIFRA"). Pest control products are also subject to state
and foreign regulations. Some states, such as California, have their own
extensive registration requirements, as do certain foreign governments. Both
Federal and State regulations require pest control products to be registered
before they can be marketed or used. To be registered, a new product must be
shown to be safe and effective. This is accomplished through extensive testing
programs designed to determine a product's efficacy, toxicology and
environmental impact. Regulations and laws that govern pest control product
registration change from time to time. The current trend is toward increasing
regulations and greater restrictions on registration. For example, proposed
regulations in the Food Quality Protection Act ("FQPA") could place stricter
rules on the sale and use of pest control products, especially traditional
chemistries such as organophosphates and carbamates.
Efficacy studies usually require outdoor field testing, which is time
consuming and expensive. Unfavorable weather conditions during field tests may
require that testing programs be extended into subsequent growing seasons,
resulting in delays in the product registration process. In addition, failure to
receive regulatory approval prior to the growing season could delay market
introduction of a new product by up to a year or more. Such delays in new
product development and registration would have a material adverse effect on our
results of operations.
A traditional chemical pesticide must undergo extensive toxicology tests to
substantiate a product's safety before it can be registered with the EPA.
Testing is further expanded for a commercial chemical pesticide, because the
pesticide must be registered for each insect it is intended to control and for
each crop on which it will be used. Initial EPA registration for a new chemical
pesticide can take seven years or longer, and can cost $15 million or more. In
contrast to traditional chemical pesticides, biorational pest control products
have fewer regulatory requirements before commercial use is permitted. For
example, substantially fewer toxicity studies are required for biorational
insect control products than for traditional chemical insecticides. Due to such
differences, registration of a biorational insect control product costs much
less and takes less time to complete than registration of a traditional chemical
pesticide.
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Regulations governing biorational pesticide registration are subject to
change. Consequently, the advantages of registering biorational pesticides may
not continue. The EPA could impose further requirements on the registration of
biorational insect control products which could increase the cost and time
necessary for registration, or could require further testing and review of
previously registered products. Furthermore, even without any such additional
regulatory requirements, the process of obtaining regulatory approvals can be a
time consuming, costly, and complex process with frequent unpredictable delays.
For these reasons, the completion or timing of a registration approval can not
be predicted with any degree of certainty.
Government regulations have been enacted in recent years to encourage the
development and introduction of non-toxic alternatives to traditional
insecticides, including the streamlined registration of alternative pest control
products under the EPA's "Safer Pesticide Policy." In September 1993, the EPA,
the Food and Drug Administration ("FDA"), and the United States Department of
Agriculture ("USDA") released a joint summary of the principles guiding their
legislative and regulatory agenda. The principles include (i) a firm commitment
to reducing risks to people and the environment that may be associated with
toxic pesticides while ensuring the availability of cost-effective pest
management techniques; (ii) recognition of the need to work with growers to
develop and implement improved means of pest control, reduce use of higher-risk
toxic pesticides and promote greater use of integrated pest management
techniques; and (iii) implementation of regulatory reforms and incentives for
the development of pesticides that will eliminate or reduce health and
environmental risks. Further, in 1994, the EPA established its Biopesticides and
Pollution Prevention Division for the purpose of reviewing and approving
registration of safer, less-toxic alternatives to conventional pesticides. Such
product reviews and registrations are performed by a staff dedicated to this new
division and are generally completed over a shorter time period and at less
expense than with conventional insecticides. In addition, in 1996, Congress
passed the Food Quality Protection Act ("FQPA") which requires the EPA to
perform a new type of risk assessment for the total exposure from pesticides.
Because of these actions by the government and the relative cost and timing
advantages associated with registering biorational products, we believe
biorational products have significant advantages in the commercial agriculture
insect control market. Field testing, manufacture and sale of our products
outside the United States may be subject to regulatory approval by other
jurisdictions which may be more or less rigorous than in the United States.
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. This would
include our 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. We have 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 we will not be subject to claims under such statutes at some time
in the future.
Patents, Proprietary Rights and Technologies. We use both proprietary and
non-proprietary technologies in our products. Non-proprietary technologies are
used in traditional pesticide products sold under the Dexol(R), Black Leaf(R),
AllPro(R) and various private label brands. Proprietary technologies are used in
many of our environmentally sensitive pest control products and microbial
fertilizers. We protect our proprietary product technologies through a variety
of means including patents, licenses, trade secrets, proprietary know-how and
technological innovation. We also obtain confidentiality agreements from our
employees, scientific consultants and potential strategic corporate partners
prior to disclosing any trade secrets and know-how. More detailed descriptions
of our patents, proprietary rights and technologies follow.
Patents. As of December 31, 1999, we owned 54 patents, including 28 U.S.
patents, and licensed two patents, which expire at various times during the
years from 2006 through 2012. All of our owned patents are for technologies used
in our environmentally sensitive and "hybrid" pest control products. Although we
may own or license patents, there is no assurance that patents will provide
sufficient protection for proprietary technologies, or that we will ever gain
any commercial benefit from patented technology.
Proprietary Rights. Proprietary protection of our products is important to
our business. In addition to our patents, we rely on trade secrets, un-patented
know-how and continuing technological innovation to develop and maintain our
competitive position.
Much of our technology and many of our processes are dependent upon the
knowledge, experience and skills of certain scientific and technical personnel.
To protect our proprietary information and technology, we require key
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<PAGE>
employees, consultants, advisors and collaborators to enter into confidentiality
agreements which prohibit the disclosure of confidential information to persons
unaffiliated with the Company. These agreements also require disclosure and
assignment to the Company of any ideas, developments, discoveries and inventions
made by such persons.
Technology Licensed from Bend Research, Inc. We are currently licensing
proprietary technology owned by Bend Research, Inc. ("BRI") relating to the
membrane based reservoir system, micro porous bead system and dispersed
(flowable) micro capsule system technologies used in our pheromone based
products. The license agreement gives us world wide rights to use BRI patents,
patent applications, trade secrets and un-patented know-how in the development,
manufacture and sale of products related to our current business in the
agriculture market. The membrane based reservoir system technology used in many
of our CheckMate(R), BioLure(R) and SureFire(R) products is the subject of a
United States patent owned by BRI expiring in 2002. The micro porous bead system
technology used in some of our existing and development stage CheckMate(R)
products is the subject of a pending United States patent application owned by
BRI. The dispersed (flowable) micro capsule system technology used in some of
our existing and development stage CheckMate(R) products is not patented in any
country.
The BRI license agreement provides for no royalty payments on certain of
our existing controlled-release products, and for royalty payments of from 2.5%
to 5.0% of direct gross margin, as defined, on certain other existing products
and certain future products developed using BRI technology. The license
agreement expires the later of either 2012 or upon the expiration of the last
patent licensed by the Company under the agreement. The license agreement may be
terminated by a sixty-day written notice. If the license agreement is terminated
for any reason, we would retain rights to the use of all BRI technologies in any
of our products that were existing or in development at the time of termination.
Technologies. We believe there are significant opportunities to promote
sales growth in our biorational pest control products that use pheromone and
fatty acid based technologies.
Pheromone Technologies. Our principal commercial agricultural products
combine proprietary controlled release delivery systems with synthesized
pheromones to provide effective biorational pest control. We have devoted
considerable resources to investigating the chemical makeup of pheromones, their
reaction with our delivery systems and their behavior in a variety of
environmental conditions.
Pheromones are natural compounds produced by insects, which when released
and detected by other insects of the same species, will elicit a specific
response. According to scientific literature, over 1,600 insect pheromones have
been identified and additional insect pheromones continue to be discovered. We
have focused our product development efforts on one class of pheromones, sex
pheromones. Sex pheromones in insects are usually produced by females in order
to attract males and to elicit mating behavior. Male insects locate females for
mating purposes by using sensors on their antennae to follow the pheromone trail
emitted by the female.
These compounds can be used to control specific insect populations by
disrupting normal mating cycles. This can be done by the planned release of
these pheromones in a manner that overwhelms the male insects and renders them
unable to locate females. This system of control, called "mating disruption,"
produces a substantial population drop of the target insect. The crop is thereby
protected from feeding larvae, which are the primary source of crop damage.
The effectiveness and profitability of insect trapping or mating disruption
products is dependant upon the ability to store and protect pheromones in the
product packaging and to release pheromones at the optimum rate. Most pheromones
are highly unstable compounds which break down quickly when exposed to normal
environmental conditions. The proprietary controlled release systems used in our
products protect the pheromones from the environment and maximize their useful
life. These devices are designed to release pheromones at a planned rate over
periods ranging from a few weeks to a few months, depending on the targeted pest
and crop. The controlled release technologies used in our products include
membrane based reservoirs, micro porous beads and dispersed (flowable) micro
capsules.
Membrane Based Reservoir System. The patented, membrane based reservoir
system used in some of our products consists of a reservoir containing the
active ingredient, a rate controlling membrane through which the active
ingredient diffuses and a protective impermeable backing. By varying the surface
area, membrane thickness and type of membrane materials, we are able to adapt
this technology to a variety of applications. Membrane based reservoir systems
are used in the CheckMate(R) and BioLure(R) product lines and in certain
products within the SureFire(R) product line.
Micro porous Bead System. A micro porous bead is a miniature polymer pellet
with an internal pore structure encased in an external controlled release
structure. The internal pore structure is permeated with micro pores designed to
effectively store or hold a maximum amount of liquid active ingredients. The
external controlled release structure is an
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outer membrane that is engineered to control the rate of dispersion of the
active ingredients stored inside. The micro porous nature of the bead's internal
structure permits the bead to carry more active ingredients than other
micro-encapsulation methods, with up to 80% of the bead weight consisting of
biorational agents. By comparison, only 5% to 30% of the weight of conventional
micro-encapsulated systems is represented by biorational agents. The micro
porous beads are compatible with a wide range of active ingredients and can be
readily mixed with water and applied by ground or aerial spray equipment. By
controlling the size of the beads and their micro porous structure, optimum
rates of release can be achieved. Micro porous bead systems are used in current
and development stage CheckMate(R) products.
Dispersed (Flowable) Micro capsule System. A dispersed (flowable) micro
capsule system is a method of encapsulating biorational agents by polymerizing a
protective capsule wall around colloidal size particles of the active agent. The
release rate of the active agent is adjusted by controlling the size of the
micro capsule and the amount of polymer cross linking in the capsule wall.
Dispersed (flowable) micro capsule systems are used in certain current and
development stage CheckMate(R) products.
Fatty Acid Based Pest Control Technologies. We own and license patents
covering a variety of fatty acid pest control technologies, including fatty acid
only technologies and "hybrid" technologies which combine fatty acid with
biorational and traditional pesticides.
Fatty acids are a form of natural soap derived from various species of
plants. They work in pesticides and herbicides by opening the pores in the outer
tissues of certain insects and plants causing death by dehydration. They are
environmentally friendly because they are generally non-toxic to mammals and
degrade rapidly in the environment. Fatty acid technologies are used in our
Safer(R) branded insect killer products for soft-bodied insects and in our
Safer(R) branded non-selective weed killers.
Fatty acid technologies are also used in combination with other pesticides
or herbicides. These combined "hybrid" formulations use fatty acids as a
synergist to open the pores or cuticle of the insect or plant allowing the
biorational or traditional pesticide or herbicide component of the formulations
to enter the insect or plant more rapidly and efficiently. These combined
"hybrid" formulations are generally faster acting and require less active
ingredients for effective control. Also, "hybrid" formulations with traditional
chemical pesticides are less toxic to the environment compared to the
traditional pesticides alone. We own or license various patents for the
formulation of fatty acids with biorational pesticides and traditional synthetic
chemical pesticides. We actively market a patented, environmentally sensitive
insecticide which is a combination of fatty acids and pyrethrum, a natural
insecticide extracted from chrysanthemum flowers. In addition, we have licensed
one of these "hybrid" technologies to a major chemical company for use in its
Roundup(R) branded non-selective weed and grass killer, a leading herbicide, for
the consumer market in the United States, Australia and Canada.
Product Registrations and Development. The pest control industry is highly
regulated by various federal and state agencies. Many of the Company's products
must be registered annually with such agencies. The Company's product
registration costs were $1,639,402 in 1999 and $1,313,365 in 1998.
We invest in ongoing product development efforts which may fluctuate
significantly from year to year. These efforts are directed toward enhancing
existing products and developing new products using available technologies. We
are currently developing products that use our patented "hybrid" pesticide and
herbicide technologies which use fatty acids as a synergist in combination with
traditional synthetic chemicals. We believe these "hybrid" products can be
developed as a more effective and environmentally friendly alternative to
traditional chemical products. The synergistic properties of fatty acids in
these formulations allow the use of much smaller amounts of traditional chemical
active ingredients to accomplish the same level of control compared to using the
traditional chemical alone. We are also actively conducting research and
development on our pheromone based technologies. We believe that additional
investment in new product development will continue to be necessary to remain
competitive in the biorational pest control market.
We develop and test products by using internal professional and technical
employees and by contracting with external resources, including unaffiliated
universities and government researchers. Our expenditures on product development
activities totaled $671,593 in 1999 and $743,711 in 1998.
Manufacturing. We manufacture our pheromone based products at our own
facility in Bend, Oregon, which was acquired in December 1998 in the merger with
Consep, Inc., a wholly-owned subsidiary. (See "Acquisitions. Consep, Inc."
above). These products use our membrane based reservoir dispensers, micro porous
beads and dispersed (flowable) micro capsules products. Manufacturing these
products requires specialized equipment, highly technical processes and
proprietary know-how, which can be controlled most effectively through the use
of our own
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manufacturing facility. Our other products are typical commodity type products
that require no unusual equipment or know-how to produce. Because of this, we
currently use outside subcontractors to manufacture our non-pheromone related
products. The use of subcontract manufacturers allows us to better control
production costs and manage our highly seasonal production needs. Most of our
subcontract manufacturing is done at HPI, Inc. ("HPI"), located in St. Joseph,
Missouri.
In 1999, we ceased manufacturing operations at our Ft. Valley, Georgia, and
Torrance, California facilities and transferred manufacturing activities to HPI
and other subcontract manufacturers. The Ft. Valley, Georgia facility was
acquired in December 1997 in the merger with Southern Resources, Inc., our
wholly-owned subsidiary. (See "Acquisitions. Southern Resources, Inc." above.)
The Torrance, California, facility was acquired in March 1997 with the purchase
of substantially all of the assets of Dexol Industries. (See "Acquisitions.
Dexol Industries, Inc." above.)
We believe that there is sufficient manufacturing capacity available
through various subcontractors to satisfy our production needs for the
foreseeable future. Products for Canada and overseas markets are manufactured by
subcontractors in Canada, Europe and the United States. We believe that adequate
alternative subcontractors are available, if needed.
Except for the natural pesticide pyrethrum, our products use raw materials
that are readily available and in plentiful supply. However, some of our
products use pyrethrum which is, at times, available only in controlled amounts.
Pyrethrum is a natural extract from certain species of chrysanthemum flowers
grown in limited climatic regions of the world. Occasionally pyrethrum
production is limited and only available in allocated quantities. This occurred
at times in 1999, which created some production delays and lost sales on a
limited number of products. To limit the affect of future shortages, we
converted some pyrethrum based products to the use of synthetic pyrethroids,
which are man-made variations of the natural insecticide pyrethrum. Pyrethroids
are readily available and in plentiful supply, although generally more expensive
than pyrethrum. With these changes, we do not anticipate any shortages of raw
materials in the foreseeable future which would materially affect the supply of
finished goods, although price fluctuations may affect total product costs.
Employees. As of December 31, 1999, we had a total of 185 full-time and 3
part-time employees located in the U.S. and Canada. Of these employees, 26 were
engaged in manufacturing, 21 were employed as Pest Control Advisers, 14 were
engaged in product registration and development, 35 were engaged in sales and
marketing, 45 were engaged in distribution and material control and 47 were in
general administration. We believe that there is a sufficient number of
qualified persons available to meet any employee staffing needs that may
develop. None of our employees are covered by collective bargaining agreements.
In addition, we have experienced no work stoppages and believe that our employee
relations are good.
Seasonality. Our business is very seasonal. Most of our sales occur during
the seven month period from December through June. This seasonality in driven by
the growing season in the Northern Hemisphere and the consumer home, lawn and
garden buying season.
Variations in the weather during the growing season can have a material
influence on crop production, and environmental conditions affecting the
emergence of insect or weed pests. This in turn affects the demand for our
products. For instance, many of our commercial products, and the products sold
by our commercial dealers, are dependent upon the emergence of certain pests in
the crops they are designed to protect. The occurrence of weather patterns
unfavorable to the emergence of these pests could have a material adverse impact
on our results of operations. Similarly, unfavorable weather patterns can reduce
demand in the consumer market.
Item 2. DESCRIPTION OF PROPERTY.
We lease approximately 11,000 square feet of office facilities located in
Bloomington, Minnesota, as our corporate headquarters. We also lease
approximately 130,000 square feet of warehouse space in St. Joseph, Missouri, as
our primary distribution facility. Our headquarters office lease and our
distribution warehouse lease expire in January 2002 and October 2003,
respectively. We also lease approximately 13,600 square feet of office and
warehouse space in a suburb of Toronto, Canada, for the operations of our
wholly-owned subsidiary, Safer, Ltd., which expires in 2000. We believe these
leases can be renewed or new leases obtained on reasonable terms.
In addition, our wholly-owned subsidiary, Southern Resources, Inc., through
its wholly-owned subsidiaries, owns a 100,000 square feet production,
distribution and office facility in Fort Valley, Georgia. This facility is
largely inactive and is being prepared for future sale.
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Consep, Inc., our wholly-owned subsidiary in Bend, Oregon, owns a 28,800
square foot facility which is used for administrative and sales offices and for
research and development and manufacturing operations. Consep, through certain
of its commercial dealer subsidiaries, also owns office and warehousing
facilities for its agrichemical dealer operations in Sacramento, Fresno and
Patterson, California. Consep's commercial dealer operations also lease, on a
month-to-month basis, sales and distribution facilities in Livingston and
Escalon, California and in Worcester and Chicopee, Massachusetts. We believe
that replacement facilities are readily available should the Company need them.
We also believe our properties are adequately covered by insurance.
We believe that our existing facilities will be adequate to serve our needs
at least through the year 2000. Facility lease costs were approximately $815,000
in 1999 and $644,000 in 1998.
Item 3. 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. We believe 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. We are 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to shareholders for a vote during the three
month period ended December 31, 1999.
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Part II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Common Stock trades on The Nasdaq Stock Market under the symbol "VERD".
The following table shows the high and low sales prices for our common stock for
the years ended December 31, 1998 and 1999. Stock prices have been restated to
show the effect of the Company's one-for-five reverse stock split on August 24,
1999.
Quarterly Stock Prices
For the Years Ended
December 31, 1998 and 1999
Sale Prices
-------------------
High Low
------- ------
Quarter of Calendar 1998:
First...................................... $10.625 $6.250
Second..................................... $14.688 $8.750
Third ..................................... $12.50 $5.313
Fourth..................................... $8.438 $5.000
Quarter of Calendar 1999:
First...................................... $6.875 $4.375
Second..................................... $5.938 $3.594
Third ..................................... $5.000 $2.250
Fourth..................................... $4.000 $1.500
Holders.
As of March 17, 2000, there were 325 holders of record of the Company's
common stock, and the Company estimates there were approximately 3,311
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.
Issuance of Securities
On August 19, 1999, the Company issued 25,000 shares of common stock to a
service provider in consideration of the cancellation of an account payable to
the service provider in the amount of $100,000. The issuance was made in
reliance on the exemption from registration contained in section 4(2) of the
Securities Act of 1933 for transactions not involving a public offering.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Acquisition Activities
In December 1998, we completed a merger with Consep, Inc. ("Consep"), a publicly
held Oregon-based company with annual consolidated sales of approximately $38
million. Consep develops, manufactures and markets biorational pest control
products, and operates several commercial product sales and service dealerships.
We sell Consep's products to commercial and consumer markets using a variety of
proprietary brands names. The merger was accounted for using the purchase method
of accounting.
Results of Operations
The following table shows, as a percentage of sales, selected information from
our Consolidated Statements of Operations for the years ended December 31, 1999
and 1998.
Year Ended
--------------------------
1999 1998
----------- ----------
Net sales....................................... 100.0% 100.0%
Cost of sales................................... 69.1 65.6
----------- ----------
Gross margin.................................... 30.9 34.4
Operating expenses:
Distribution and warehousing.................. 7.9 10.1
Sales and marketing........................... 13.1 14.1
General and administrative.................... 8.0 6.6
Product registration and development.......... 3.1 4.3
Impairment of intangibles..................... 8.5 --
Amortization of intangibles................... 0.9 1.6
Reorganization expense........................ 1.1 --
----------- ----------
Total operating expenses 42.6 36.7
----------- ----------
Loss before other (expense) income.............. (11.7) (2.3)
Other (expense) ............................. (2.9) (2.5)
----------- ----------
Net loss........................................ (14.6)% (4.8)%
=========== ==========
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales
Net sales for the year ended December 31,1999 increased by $26,567,713 or 55.2%
to $74,719,701 from $48,151,988 for the year ended December 31, 1998. The sales
increase was due primarily to a $34.9 million increase in sales resulting from
the Consep acquisition (see "Acquisition Activities" above), offset by a
decrease in base-business sales of $8.3 million. The decrease in base-business
sales in 1999 compared to 1998 was due in part to lost orders resulting from
production and distribution delays during critical seasonal periods.
Gross Margin
Gross margin for the year ended December 31, 1999 increased by $6,490,034 or
39.1% to $23,076,508 from $16,586,474 for the year ended December 31, 1998.
Gross margin as a percent of sales decreased to 30.9% in 1999 compared to 34.4%
in 1998. The decline in gross margin as a percent of sales was caused by the
addition of Consep commercial and commercial dealer sales, which carry lower
average gross margins compared to our other products.
Operating Expenses
Distribution and warehousing expenses increased $1,012,365 or 20.7% to
$5,898,838 in 1999 compared to $4,886,473 in 1998 and decreased as a percentage
of sales in 1999 to7.9% compared to 10.1% in fiscal 1998. The absolute dollar
increase was due to the addition of the Consep, Inc. warehousing and
distribution functions and to the additional direct distribution costs
associated with increased sales. The decrease as a percentage of sales is the
result of adding Consep's commercial dealer business in 1999 which has
relatively low distribution costs.
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Sales and marketing expenses increased $2,971,252 or 43.7% to $9,765,123 in 1999
compared to $6,793,871 in fiscal 1998 and decreased as a percentage of sales in
1999 to 13.1% compared to 14.1% in 1998. The increase in sales expenses in
absolute dollars was due primarily to the addition of Consep sales organizations
and the direct selling costs associated with Consep sales. The decrease as a
percent of sales in 1998 compared to fiscal 1997 was due to cost reductions
resulting from the consolidation of our sales organization with that of Consep
and to a greater relative proportion of commercial sales which require
relatively lower sales and marketing costs compared to retail sales. If twelve
months of Consep's 1998 sales and marketing expenses are included in the
comparison on a pro forma basis, the total expense declined approximately $2.7
million from 1998 to 1999.
General and administrative expenses increased $2,841,813 or 89.1% to $6,032,693
in 1999 compared to $3,190,880 in 1998 and increased as a percentage of sales in
1999 to 8.0% compared to 6.6% in 1998. The increase in absolute dollars and as a
percentage of sales was primarily due to the addition of Consep offices and
administrative functions and the addition of executive, management, accounting
and administrative personnel.
Product registration and development expenses increased $253,920 or 12.3% to
$2,310,996 in 1999 from $2,057,076 in 1998, primarily as a result of increased
product registration and development costs added as a result of the Consep
acquisition. Many of the Company's products must be registered each year with
various government agencies. Product registration expenses included in this
caption totaled $1,639,403 and $1,313,365, in 1999 and 1998, respectively. The
remaining expenses are associated with product development activities.
In 1999, we recognized a permanent impairment in the value of the goodwill
originally recorded in connection with the acquisition of Southern Resources,
Inc. due to significantly reduced operations related to the acquired products.
In connection with this impairment evaluation , as required by Statement of
Financial Accounting Standards No. 121, we recorded a charge to operations of
$6,360,887 to write-down the impaired goodwill to an amount equal to the net
present value of estimated future cash flows. This charge to write down
intangible assets is shown as Impairment of Intangible Assets in our 1999
statement of operations.
Normal amortization of intangible assets decreased $67,362 to $709,496 in 1999
compared to $776,858 in 1998. The decrease was due primarily to reduced
intangible asset values resulting from the impairment adjustment referred to
above.
We also recorded a one-time $788,284 charge in 1999 related to reorganization
activities associated with the integration of our acquisitions and certain other
personnel changes.
Other income and expense
Interest income increased $147,729 to $183,087 in 1999 from $35,358 in 1998 due
primarily to interest income generated by finance charges imposed on seasonal
dating terms associated with certain commercial accounts. Interest expense
increased $1,026,258 or 79.4% to $2,319,501 in 1999 from $1,293,243 in 1998. The
increase in interest expense was primarily due to increased line of credit
borrowings required to finance operating losses and to interest incurred on
long-term debt assumed in the Consep acquisition. Net royalty income decreased
$30,086 or 43.6% to $38,915 in 1999 from $69,001 in 1998 due to decreased
royalty income on sales to foreign licensees and increased royalty payments on
technology licensed by Consep.
Income Taxes
Income tax benefits of net deferred tax assets have been offset by valuation
allowances for the year ended December 31, 1999 and 1998, because it is
uncertain that we could realized the benefits in future periods.
At December 31, 1999, we had approximately $65.8 million in combined U.S. net
operating loss carryforwards for federal income tax purposes. These loss
carryforwards expire between 2000 and 2017. Of the total, approximately $26.0
million, $2.9 million and $20.5 million are U.S. net operating loss
carryforwards of Safer, Inc., Southern Resources, Inc., and Consep, Inc.,
respectively, the Company's wholly-owned subsidiaries. The remaining $16.4
million of net operating loss carryforwards relate to the parent company.
The use of the unexpired net operating loss carryforwards of Verdant Brands,
Inc. and Safer, Inc. are limited to about $1.2 million in any
one year under Internal Revenue Code Section 382 because of a significant
ownership change resulting from our acquisition of SRI and Consep during 1997
and 1998, respectively.
The use of the net operating losses of SRI are limited to approximately
$222,000 in any one year under Internal Revenue Code Section 382 because of a
significant ownership change resulting from the acquisition in December 1997.
The use of the net operating losses of Consep, Inc. are limited to approximately
$550,000 in any one year
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under Internal Revenue Code Section 382 because of a significant ownership
change resulting from our merger with Consep, Inc. in December 1998. At December
31, 1999, the Company has approximately $469,000 net operating loss
carryforwards in Canada which expire between 2001 and 2003.
Quarterly Performance
The following table summarizes quarterly results during the years ended December
31, 1999 and 1998. The table is intended to show the highly seasonal variations
in our business and quarterly fluctuations in its sales and earnings or losses.
This information is unaudited but contains all adjustments, consisting of normal
recurring accruals, which we believe are necessary for a fair presentation.
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
(In thousands, except income (loss) per share data)
Dec 31 Sept 30 June 30 Mar 31 Dec 31 Sept 30 June 30 Mar 31
-------- --------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 11,293 $ 13,837 $ 27,560 $ 22,030 $ 8,842 $ 7,564 $ 15,887 $ 15,859
Gross margin 3,487 3,369 8,641 7,579 3,022 1,868 6,030 5,666
Operating expenses 13,933 5,173 6,765 5,995 4,179 3,930 5,005 4,591
Income (loss) before
other income
(expense) (10,446) (1,804) 1,876 1,584 (1,157) (2,062) 1,025 1,075
Other income
(expense) (500) (654) (592) (365) (357) (258) (321) (265)
Net income (loss) $(10,946) $ (2,458) $ 1,284 $ 1,219 $ (1,514)$ (2,320)$ 704 $ 810
Income (loss)per share
- basic and diluted $ (2.12) $ (.48) $ .25 $ .25 $ (.40)$ (.70)$ .20 $ .25
Shares used to calculate
income (loss) per share-basic 5,153 5,134 5,183 5,183 3,802 3,341 3,338 3,338
Shares used to calculate
income (loss) per share-diluted 5,153 5,134 5,187 5,183 3,802 3,341 3,388 3,360
</TABLE>
Seasonal Factors Affecting Operations
Our operations and cash needs are highly seasonal. During November and December
of each year, we solicit early orders and plan production, typically building
our inventory of products through February 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 January through June of each year. Accordingly, we
typically consume cash in operating activities during the first and second
quarters of each year to finance increases in inventory, primarily during the
first quarter, and increases in receivables, primarily during the first and
second quarters.
Liquidity and Capital Resources
In the past, we have funded our long-term cash and working capital needs through
public and private equity offerings, long-term secured and unsecured notes
payable, a term loan and a significant portion of our revolving bank lines of
credit. In addition, we rely on a revolving bank line of credit to fund our
seasonal cash needs, primarily to fund seasonal increases in inventory and
receivables. Because of our seasonal cash needs, our outstanding borrowings on
our bank line are the greatest during January through June of each year.
In 1999, we secured a three-year $37,000,000 credit facility with GE Capital
Services, that expires in July 2002, to replace a previous $25,000,000 facility
from the same lender. The $37,000,000 includes a term loan of $2,000,000 due in
varying quarterly installments through April 2002, and a revolving line of
credit for up to $35,000,000. The credit facility funds working capital needs of
the Company and its wholly-owned subsidiaries.
Borrowings under the GE Capital Services revolving line of credit are limited to
an aggregate borrowing base of up to 85% of qualified accounts receivable and up
to 65% of qualified inventory. At December 31, 1999, availability on the GE
Capital Services line of credit was approximately $2.1 million. Outstanding
borrowings at December 31,
-16-
<PAGE>
1999 were $17,445,296, of which $11,375,000 is classified as long-term debt in
our financial statements. Under the terms of the credit agreement, we are
required to maintain certain financial ratios and other financial conditions. We
were not in compliance with the interest coverage ratio and capital asset
purchase limitation covenants for the quarter ended December 31, 1999, but were
granted a waiver of non-compliance with those covenants by the lender.
At December 31, 1999, Sureco, a wholly owned subsidiary, was in default on a
$1,139,336 note payable with B&I Lending 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.
During portions of 1998 and 1999, we experienced cash flow difficulties caused
to a large extent by the unexpected cash demands of Southern Resources, Inc., a
wholly-owned subsidiary. Parent company working capital issues also contributed
significantly to cash flow problems due to slow collections on accounts
receivable, excessive inventory levels, the seasonal nature of our business and
continued operating losses. As a result, during these years, accounts payable
were frequently extended beyond normal payment terms in order to minimize
borrowings on the bank line of credit and to manage short-term cash flow. In
July 1999, we renegotiated our credit facility and obtained a $2 million dollar
term loan, which together provided some additional cash availability to lessen
the cash flow pressures on the business. Even with this additional cash, cash
flow pressures caused a negative impact on operations during the year. Cash
continues to be tight though cash flow is improving. Accounts payable, however,
continue to be extended beyond normal terms as part of managing cash flow. We
continue to evaluate various forms of long-term financing to augment cash
available through our line of credit though such financing may not be available
at terms acceptable to the Company. We have taken steps to control our operating
costs, principally by consolidating several functions, which we believe will
enable us to improve operating results in 2000. If expected profitability is not
achieved or additional financing is not obtained by the fourth quarter of 2000,
the Company may need to reduce costs and adjust its operating expenses to assure
adequate liquidity to fund operations through the end of 2000. These reductions,
if necessary, may cause further negative effects on the results of operations.
Management believes, however, that, either through improved profitability or
additional financing, we will have adequate working capital to fund operations
through 2000. In 1999, our maximum borrowings from our line of credit were
$24,608,175 compared to maximum borrowings of $13,577,568 in 1998. This increase
relates in part to the seasonal funding of the working capital needs of a larger
operation due to the acquisition of Consep in late 1998.
Cash and cash equivalents decreased $1,661,574 to $122,226 at December 31, 1999
compared to $1,783,800 at December 31, 1998. The decrease resulted primarily
from cash used in operating activities of $7,192,258 and cash used in investing
activities of $436,343, offset by cash provided by financing activities of
$5,973,646. Cash provided by financing activities came principally from
borrowings under a term loan and under the Company's line of credit. Cash used
in investing activities was primarily used to purchase property and equipment.
Cash used by operating activities was used principally to fund increases in
working capital and to fund the Company's operating loss.
There were no significant commitments for capital expenditures in 1999. Our line
of credit agreement limits capital asset purchases to not more than $750,000 in
2000 and $1,000,000 in 2001 and thereafter.
Accounting Pronouncements - In June 1998, the Financial Accounting Standards
Board issued Statement on Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Investments and Hedging Activities". SFAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains or losses resulting from the change in
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. Management has not
completed its review of the effect of the adoption of this standard.
Effects of Inflation
We believe that, during the periods discussed above, inflation has not had a
material impact on the our business.
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 including statements regarding our ability to fund future operations and
obtain future financing and statements that relate to our ability to effectively
compete and improve our performance. 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, changes in product
costs and operating expenses, the availability of additional financing,
unfavorable weather conditions, 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.
----------
-17-
<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 ........................................... F - 2
Consolidated Balance Sheets as of December 31, 1999 and 1998............ F - 3
Consolidated Statements of Operations and Consolidated Statements
of Comprehensive Income (Loss) for the years ended December 31, 1999
and 1998.............................................................. F - 4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999 and 1998............................................ F - 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998............................................ F - 6
Notes to Consolidated Financial Statements.......................F - 7 to F - 18
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-18-
<PAGE>
PART III
Item 9. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
The information set forth under the heading "ELECTION OF DIRECTORS",
"EXECUTIVE OFFICERS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE" in the Company's definitive proxy statement for its 2000 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 29, 2000 (the "Proxy Statement") is hereby incorporated by
reference.
Item 10. EXECUTIVE COMPENSATION.
The information set forth under the heading "EXECUTIVE COMPENSATION" in the
Proxy Statement referred to in Item 9 above is hereby incorporated by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the heading "PRINCIPAL SHAREHOLDERS" in the
Proxy Statement referred to in Item 9 above is hereby incorporated by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the heading "CERTAIN TRANSACTIONS" in the
Proxy Statement referred to in Item 9 above is hereby incorporated by reference.
Item 13. 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).
-19-
<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. **
* 10.7 Consep, Inc. 1993 Stock Incentive Plan. **
* 10.8 Consep, Inc. 1997 Stock Incentive Plan. **
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. **
* 10.12 Employment Agreement between the Company and John F. Hetterick,
dated December 1, 1999 **
* 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).
* 10.15 Termination and Consulting Agreement between the Company and
Stanley Goldberg, dated December 6, 1999. **
-20-
<PAGE>
* 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. **
* 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 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).
10.22 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).
10.23 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).
21.1 Subsidiaries of the Registrant **
23.1 Consent of Deloitte & Touche LLP **
24.1 Power of Attorney **
27.1 Financial Data Schedule **
* Management contract or compensation plan or arrangement.
** Filed with this report.
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 December 31, 1999.
-21-
<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.
Verdant Brands, Inc.
By /s/ John F. Hetterick
-------------------------
John F. Hetterick
President & CEO
Dated: March 30, 2000
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/ John F. Hetterick President, CEO and Director March 30, 2000
- -------------------------------- (principal executive officer)
John F. Hetterick
/s/ Volker Oakey Executive Vice President, CFO and Director March 30, 2000
- -------------------------------- (principal financial officer)
Volker Oakey
/s/ Monica Jeffries Vice President, Finance March 30, 2000
- ------------------------------- (principal accounting officer)
Monica Jeffries
Stanley Goldberg* Chairman and Director
Gordon F. Stofer * Director
Robert W. Fischer * Director
Donald E. Lovness * Director
Dr. Franklin Pass * Director
Frederick F. Yanni, Jr. * Director
Richard Mayo * Director
John A. Hinds * Director
* /s/ John F. Hetterick Attorney-in-fact March 30, 2000
------------------------------
John F. Hetterick
</TABLE>
-22-
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report ............................................ F - 2
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F - 3
Consolidated Statements of Operations and Consolidated Statements
of Comprehensive Income (Loss) for the years ended December 31, 1999
and 1998............................................................... F - 4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999 and 1998.............................................. F - 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 ............................................. F - 6
Notes to Consolidated Financial Statements............................... F - 7 to F - 18
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Verdant Brands, Inc.
Bloomington, Minnesota
We have audited the accompanying consolidated balance sheets of Verdant Brands,
Inc. and subsidiaries as of December 31, 1999 and December 31, 1998, and the
related consolidated statements of operations, comprehensive income (loss),
shareholders' equity and cash flows for the years then ended. 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 Verdant
Brands, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 30, 2000
F - 2
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 122,226 $ 1,783,800
Trade accounts receivable, less allowance
for doubtful accounts of $1,224,000, and
1,327,000, respectively 14,512,761 10,838,483
Inventories (Note 3) 19,124,200 18,522,875
Prepaid expenses 801,063 1,813,184
------------- -------------
Total current assets 34,560,250 32,958,342
PROPERTY AND EQUIPMENT, net (Note 4) 6,902,402 6,635,656
INTANGIBLE ASSETS, at cost, less accumulated
amortization of $4,902,910 and
$4,194,196, respectively (Note 1) 10,307,793 19,123,838
OTHER ASSETS 232,627 210,456
------------- -------------
$52,003,072 $58,928,292
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit $ 6,070,296 $ 1,098,247
Accounts payable 12,428,728 13,202,800
Other accrued expenses 3,438,120 4,125,463
Current portion of long-term debt 3,006,338 652,511
------------- -------------
Total current liabilities 24,943,482 19,079,021
LONG-TERM DEBT (Note 6) 14,965,950 16,958,227
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Note 8):
Preferred stock, undesignated, $.01 par value,
authorized 5,000,000 shares, no shares
issued and outstanding
Common stock, par value $.01 per share, authorized
10,000,000 shares, issued and outstanding
5,112,850, and 5,182,850,shares, respectively 51,129 51,829
Additional paid-in capital 49,489,653 49,515,046
Notes receivable from sale of
common stock to officers ( 65,625) ( 249,375)
Accumulated deficit ( 37,030,545) ( 26,129,734)
Cumulative translation adjustments ( 350,972) ( 296,722)
------------- -------------
Total shareholders' equity 12,093,640 22,891,044
------------- -------------
$52,003,072 $58,928,292
============= =============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
NET SALES 74,719,701 $48,151,988
COST OF GOODS SOLD 51,643,193 31,565,514
------------- -------------
Gross margin 23,076,508 16,586,474
OPERATING EXPENSES:
Distribution and warehousing 5,898,838 4,886,473
Sales and marketing 9,765,123 6,793,871
General and administrative 6,032,693 3,190,880
Product registration and development 2,310,996 2,057,076
Impairment of intangible asset (Note 1) 6,360,887 --
Amortization of intangibles 709,496 776,858
Reorganization expense (Note 14) 788,284 --
------------- -------------
31,866,317 17,705,158
------------- -------------
Loss before other
(expense) income ( 8,789,809) ( 1,118,684)
OTHER (EXPENSE) INCOME:
Interest income 183,087 35,358
Interest expense ( 2,319,501) ( 1,293,243)
Royalties, net (Note 7) 38,915 69,001
Other income (expense), net ( 13,503) ( 12,403)
------------- -------------
( 2,110,972) ( 1,201,287)
------------- -------------
NET LOSS $( 10,900,811) $( 2,319,971)
============= =============
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $( 2.12) $( .67)
============= =============
SHARES USED IN CALCULATING NET LOSS
PER SHARE - BASIC AND DILUTED 5,153,042 3,455,390
============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
- ------------------------------------------------------
NET LOSS $( 10,900,811) $( 2,319,971)
Other comprehensive income (no tax effect):
Foreign currency translation adjustments ( 54,250) ( 108,776)
------------- -------------
COMPREHENSIVE LOSS $( 10,955,061) $( 2,428,747)
============= =============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Receivables Cumulative
Number of paid-in from sale Accumulated Translation
shares Amount capital of stock deficit Adjustments Total
----------- ---------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 3,337,612 $ 33,376 $ 37,999,687 $ (262,500) $(23,809,763) $ (187,946) $13,772,854
Note receivable payments 13,125 13,125
Exercise of stock options 3,440 34 22,541 22,575
Issuance of common stock in connection
with the purchase of Consep 1,841,798 18,419 11,492,818 11,511,237
Foreign currency translation adjustments (108,776) (108,776)
Net loss (2,319,971) (2,319,971)
----------- ---------- ------------ ----------- ------------ ----------- -----------
BALANCE AT DECEMBER 31, 1998 5,182,850 51,829 49,515,046 (249,375) (26,129,734) (296,722) 22,891,044
Note receivable payments 183,750 183,750
Issuance of common stock in
settlement of debt (Note 11) 25,000 250 99,750 100,000
Issuance of stock purchase warrants
in connection with renewal of
line of credit (Note 5) 327,032 327,032
Return of common stock from
escrow in connection with
the purchase of SRI (Note 2) (90,000) (900) (420,975) (421,875)
Return of common stock in connection
with the purchase of Consep (Note 2) (5,000) (50) (31,200) (31,250)
Foreign currency translation adjustments (54,250) (54,250)
Net loss (10,900,811) (10,900,811)
----------- ---------- ------------ ----------- ------------ ----------- -----------
BALANCE AT DECEMBER 31, 1999 5,112,850 $ 51,129 $ 49,489,653 $ (65,625) $(37,030,545) $ (350,972) $12,093,640
=========== ========== ============ =========== ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 11)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $( 10,900,811) $( 2,319,971)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,243,158 1,317,335
Amortization of debt issuance costs 49,963 --
Income from investment in joint venture ( 2,113) ( 6,212)
Loss on disposal of assets 29,567 6,996
(Increase) decrease in assets:
Trade accounts receivable ( 1,091,107) ( 850,542)
Inventories ( 3,303,038) ( 836,370)
Prepaid expenses and other 1,053,964 ( 306,712)
Increase (decrease) in liabilities:
Accounts payable ( 611,383) ( 158,150)
Accrued expenses ( 529,208) ( 362,353)
------------- --------------
Net cash provided by (used in) operating activities( 7,061,008) ( 3,515,979)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 590,916) ( 204,597)
Purchase of intangible assets ( 39,441) ( 100,798)
Proceeds from sale of property and equipment 194,014 37,428
Net cash paid relating to acquisition of Consep -- ( 296,460)
Payments on repurchase of common stock ( 31,250) --
------------- -------------
Net cash used in investing activities ( 467,593) ( 564,427)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 4,347,049 6,094,387
Borrowings on long-term debt 2,106,246 --
Proceeds on receivable from sale of common stock 183,750 --
Proceeds from issuance of common stock -- 35,700
Cash received in Consep acquisition -- 1,237,631
Principal payments on long-term debt ( 763,399) ( 1,913,,053)
------------- --------------
Net cash provided by financing activities 5,873,646 5,454,665
Effect of exchange rate changes on cash ( 6,619) ( 13,731)
------------- --------------
(Decrease ) increase in cash and
cash equivalents (1,661,574) 1,360,528
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 1,783,800 423,272
------------- -------------
END OF YEAR $ 122,226 $ 1,783,800
============= =============
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1. BUSINESS, MANAGEMENT'S PLANS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - We develop, manufacture and market pest control and fertilizer
products to the consumer and commercial markets. Our products are sold
under several nationally recognized brand names and a variety of private
labels. We also operate dealerships that sell pest control products and
provide services to the specialty agriculture market.
Managements Plans - During portions of 1998 and 1999, we experienced cash
flow difficulties caused to a large extent by the unexpected cash demands
of Southern Resources, Inc., a wholly-owned subsidiary. Parent company
working capital issues also contributed significantly to cash flow problems
due to slow collections on accounts receivable, excessive inventory levels,
the seasonal nature of our business and continued operating losses. As a
result, during these years, accounts payable were frequently extended
beyond normal payment terms in order to minimize borrowings on the bank
line of credit and to manage short-term cash flow. In July 1999, we
renegotiated our credit facility and obtained a $2 million dollar term
loan, which together provided some additional cash availability to lessen
the cash flow pressures on the business. Even with this additional cash,
cash flow pressures caused a negative impact on operations during the year.
Cash continues to be tight though cash flow is improving. Accounts payable,
however, continue to be extended beyond normal terms as part of managing
cash flow. We continue to evaluate various forms of long-term financing to
augment cash available through our line of credit though such financing may
not be available at terms acceptable to the Company. We have taken steps to
control our operating costs, principally by consolidating several
functions, which we believe will enable us to improve operating results in
2000. If expected profitability is not achieved or additional financing is
not obtained by the fourth quarter of 2000, the Company may need to reduce
costs and adjust its operating expenses to assure adequate liquidity to
fund operations through the end of 2000. These reductions, if necessary,
may cause further negative effects on the results of operations. Management
believes, however, that, either through improved profitability or
additional financing, we will have adequate working capital to fund
operations through 2000.
Principles of consolidation - The consolidated financial statements include
the accounts of Verdant Brands, Inc. and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Revenue recognition - Revenue is recognized on the date of shipment.
Translation of foreign financial statements - Foreign operations are
translated from the 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 periods. Gains and losses resulting from translating
foreign currency financial statements are not included in operations but
are accumulated as a separate component of shareholders' 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 twenty 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 product registrations,
patents and trademarks. Intangible assets are amortized on a straight-line
basis over estimated lives of from five to thirty years.
Intangible assets are regularly evaluated for potential permanent
impairment. Such evaluations take into consideration anticipated future
operating results and cash flows on an un-discounted 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.
F - 7
<PAGE>
In 1999, we recognized a permanent impairment in the value of the goodwill
originally recorded in connection with the acquisition of Southern
Resources, Inc. due to the significantly reduced operations related to the
acquired products. In connection with this impairment evaluation , as
required by Statement of Financial Accounting Standards No. 121, we
recorded a charge to operations of $6,360,887 to write-down the impaired
goodwill to an amount equal to the net present value of estimated future
cash flows. This charge to write down intangible assets is shown as
Impairment of Intangible Asset in our 1999 statement of operations.
Concentration of credit risks - The percentage of consolidated net sales in
the fiscal year ended December 31, 1999 to U.S. consumer, commercial and
commercial dealer markets totaled 43.5%, 16.4% and 33.0%, respectively. The
percentage of consolidated net sales in the fiscal year ended December 31,
1998 to U.S. consumer, commercial and commercial dealer markets totaled
58.3%, 34.4% and 2.1%, respectively. The remaining percentage of
consolidated net sales in the fiscal years ended December 31, 1999 and
1998, of 7.1% and 5.2%, respectively, represent foreign sales, primarily in
Canada. In the fiscal year ended December 31, 1999 and 1998, sales to one
U.S. consumer market retailer accounted for 8.3% and 14.3%, respectively,
of consolidated net sales. Also, during the years ended December 31, 1999
and 1998, sales to one distributor that resells to retailers accounted for
5.1% and 6.4%, 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.
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. Income tax benefits of net
deferred tax assets have been offset by valuation allowances, because it is
uncertain that the benefits will be realized in future periods.
Reverse one-for-five Stock Split - All share and per share amounts have
been restated to reflect the one-for-five reverse split of our common stock
in August 1999.
Loss per share - Loss per common share is computed using the weighted
average number of shares outstanding during each period. The effect of
outstanding options and warrants have been excluded from the computation of
loss per share because their effect is antidilutive.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions. These estimates and assumptions affect
the reported amounts of certain assets and liabilities, the 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.
Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued Statement on Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Investments and Hedging Activities".
SFAS No. 133 requires companies to record derivatives on the balance sheet
as assets or liabilities measured at fair value. Gains or losses resulting
from the change in values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. Management has not completed its review of the effect of the
adoption of this standard.
2. ACQUISITIONS
Merger with Consep, Inc. - In December 1998, we completed a merger with
Consep, Inc. ("Consep"), an Oregon-based developer, manufacturer and
marketer of environmentally sensitive pest control products for the
commercial agriculture and consumer home, lawn and garden markets. Consep
also owns and operates commercial products sales and service dealerships
located in California and Massachusetts. Consep was
F - 8
<PAGE>
previously publicly owned with total sales of approximately $38 million per
year. We acquired all of the outstanding common stock of Consep in exchange
for 1,841,798 shares of the Company's registered common stock valued at
$11,511,237. In addition, we recorded approximately $380,000 in direct
acquisition expenses.
The Consep merger was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair market
values at the date of acquisition. The excess of purchase price over the
estimated fair market value of net assets acquired ("goodwill") was
$1,939,940 and is being amortized on a straight-line basis over thirty
years. This reflects a reduction of approximately $1,215,000 that resulted
from assigning the final fair market values to the net assets acquired
based upon final evaluations by management and appraisals by outside
parties. Since the acquisition, the Company has operated the acquired
business as a wholly-owned subsidiary. Consep operations are included in
the Company's consolidated statements of operations from the effective date
of the acquisition of December 1, 1998.
The following table shows unaudited combined net sales, net loss and loss
per share as if the business combination occurred on January 1, 1998.
Consep operations are included in our consolidated financial statements for
the entire year of 1999. Amounts are in thousands, except loss per share.
Year Ended
December 31,
1998
-------------
Net sales $ 84,807
Net loss $ (4,524)
============
Net loss per share
- basic and diluted $ (.87)
============
Shares used to calculate net loss
per share - basic and diluted 5,181
============
Return of Escrow Shares
On August 4, 1999, the Company received 450,000 shares (90,000 shares after
giving effect to the one-for-five reverse stock split) of the Company's
common stock in settlement of the Company's claim against an escrow account
established in connection with the December 1997 acquisition of Southern
Resources, Inc. ("SRI"). As a result of the return of these shares, the
Company recorded a reduction in its equity and goodwill accounts by
$421,875, which was the fair market value attributed to these shares in the
original purchase accounting entries of the Company.
3. INVENTORIES
Inventories consist of the following:
December 31,
---------------------------
1999 1998
----------- -----------
Raw materials $ 4,140,908 $ 6,547,020
Finished goods 14,983,292 11,975,855
----------- -----------
$ 19,124,200 $ 18,522,875
=========== ===========
F - 9
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
---------------------------
1999 1998
----------- -----------
Land $ 965,801 $ 916,865
Buildings and improvements 3,696,235 3,709,112
Office furniture and equipment 1,516,147 1,977,627
Machinery and equipment 2,537,136 3,952,048
Leasehold improvements 168,096 254,208
Transportation equipment 649,493 1,126,753
----------- -----------
9,532,908 11,956,612
Less accumulated depreciation ( 2,630,506) ( 5,320,957)
----------- -----------
$ 6,902,402 $ 6,635,656
=========== ===========
5. LINE OF CREDIT
On July 14, 1999, we entered into an amended and restated credit agreement
with GE Capital Services ("GE"), which secured a three-year, $37,000,000
million revolving credit facility. This agreement replaces our previous
$25,000,000 million facility with GE. The facility is intended to meet
seasonal working capital needs of the Company and its subsidiaries. The
credit facility is secured by substantially all of the assets of the
Company and its subsidiaries. Borrowings under the 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 (8.85% as of December 31, 1999). The Company
is required to pay a commitment fee of 1/2% on any unused portion of the
line. At December 31, 1999, unused borrowing availability on the GE Capital
Services line of credit was approximately $2.1 million. Outstanding
borrowings under the line of credit totaled $17,445,296 as of December 31,
1999, of which $11,375,000 was classified as long-term debt.
The line of credit contains provisions which require us to maintain a
minimum level of net worth, a minimum interest coverage ratio and a limit
on our expenditures on capital assets. In addition, there are provisions
which create a default on the line of credit agreement if we default on any
of the Company's other debt agreements. We were not in compliance with the
interest coverage and yearly capital expenditures covenants for the quarter
ended December 31, 1999 and with the cross-default provisions of the
agreement at December 31, 1999, however, the lender has granted to us a
waiver of non-compliance.
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.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Line of credit, long-term portion (Note 5) $ 11,375,000 $ 12,000,000
Notes payable 4,965,466 3,638,660
Mortgage loans 1,522,024 1,685,263
Capital lease obligations 109,798 162,934
Other -- 123,881
Less current portion ( 3,006,338) ( 652.511)
---------------- -----------------
$ 14,965,950 $ 16,958,227
=============== ================
</TABLE>
F - 10
<PAGE>
Notes Payable - Notes payable at December 31, 1999 consist of a note
payable on acquisition financing debt and various other term notes related
to loans for the purchase of equipment and vehicles and for working
capital. The notes payable have average annual interest rates of
approximately 9.5%. The notes generally require monthly principal and
interest payments during their term and mature at various times through
2004. Notes payable have carrying values equal to estimated fair values.
At December 31, 1999, Sureco, a wholly owned subsidiary, was in default on
a $1,139,336 note payable with B&I Lending 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.
Mortgage Loans - Mortgage loans at December 31, 1999 consist of mortgages
on office, production and warehouse buildings in Oregon and California
which are owned by wholly-owned subsidiaries of the Company. The mortgages
have annual interest rates of 8.85% and 1.5 percentage points over prime
(10% at December 31, 1999). The mortgages require monthly principal and
interest payments during their term and mature in 2001 and 2007. Mortgage
loans payable have carrying values equal to estimated fair values.
Capital Lease Obligations - Capital lease obligations at December 31, 1999
consist of equipment and vehicle leases with average interest rates of
approximately 15%. Capital leases require monthly principal and interest
payments and mature in 2000 through 2004.
Aggregate maturities of long-term debt by fiscal year are as follows:
Year ending December 31:
2000 $ 3,006,338
2001 1,013,255
2002 12,318,553
2003 72,936
2004 61,076
Thereafter 1,500,130
-------------
$ 17,972,288
=============
7. COMMITMENTS AND CONTINGENCIES
Operating Leases - We lease office and warehouse space and various vehicles
and equipment under noncancellable operating leases. In addition to minimum
lease payments, the leases require us to pay a proportionate share of real
estate taxes, special assessments and maintenance costs. Leases for office
space expire during 2000 through 2002. Leases for warehouse facilities
expire in 2003. The Company is also required to carry liability insurance
on all leased premises and fire insurance at one warehouse location.
Costs incurred under operating leases are recorded as rent expense and
totaled $992,195 and $697,654 for the fiscal years ended December 31, 1999
and 1998, respectively.
Future minimum lease payments due under non-cancelable operating leases are
as follows:
Year ending December 31:
2000 $ 694,655
2001 717,426
2002 717,632
2003 602,804
2004 270,655
Thereafter 39,192
------------
Total minimum obligation $ 3,042,364
============
F - 11
<PAGE>
Royalty agreements - We pay royalties for the use of technologies licensed
in connection with our retail grass patch and butterfly feeder products.
These licenses call for royalty payments of $0.07 per unit produced on each
grass patch product produced and payments of 5% of the net selling price on
butterfly feeders. Payments on these retail product royalty agreements
terminate in 2011. In addition, we pay royalties for the use of
technologies licensed in connection with certain of our commercial
pheromone products. These licenses call for royalty payments of from 2.5%
to 5.0% of direct gross margin, as defined, on certain of these products.
Payment on these commercial royalty agreements terminate in 2012. Royalty
expense incurred under license agreements totaled $46,276 and $30,128 for
the fiscal years ended December 31, 1999 and 1998, respectively.
We also generate royalty income through pesticide technologies licensed to
certain foreign and commercial pesticide distributors for a royalty fee.
Royalty income for the years ended December 31, 1999 and 1998 totaled
$85,191 and $99,129, respectively.
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, accounts
receivable included $2,674,490 relating to inventory to be reassumed under
this agreement.
Consulting agreement - In December 1999, the Company entered into an
agreement with a former officer and current Chairman of the Board of
Directors, This three year agreement requires annual payments of $125,000.
Pursuant to this agreement, the Company issued an option for 50,000 shares
of the Company's common stock at an exercise price of $2.81 per share.
This option vests ratably over the term of the agreement and expires in
five years. Compensation expense will be recognized as services are
performed over the vesting period.
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. We believe 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. We are 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.
8. SHAREHOLDERS' 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 December 31, 1999, a total of 335,793 shares of
common stock were reserved for currently exercisable outstanding warrants
described below. Warrant shares and exercise price have been adjusted to
show the effect of the Company's one-for-five reverse stock split.
Warrant
Expiration Shares Exercise Price
------------------- --------- --------------
March 7, 2007 1,000 $7.20
July 14, 2002 334,793 $5.95
1996 Incentive and Stock Option Plan - In 1999, the shareholders approved
the increase of shares of common stock we have reserved for issuance to
plan participants who exercise options granted under the 1996 Incentive
Stock Option Plan from 100,000 shares to 250,000 shares.
Under the terms of the 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 December 31, 1999 is 7.2 years. Plan activity for 1999 and 1998
is shown below.
<TABLE>
<CAPTION>
Wtd. Average
Option Exercise Price
Shares Per Share
---------- --------------
<S> <C> <C>
Balance, December 31, 1997 (at $6.55 per share) 8,489 $6.55
Granted 35,500 8.55
Expired ( 1,479) 8.25
---------
Balance, December 31, 1998 (at $6.55 to $10.00 per share) 42,510 8.20
Granted 248,600 4.02
Canceled ( 41,110) 6.40
---------
Balance, December 31, 1999 (at $2.00 to $10.00 per share) 250,000 $4.34
=========
Exercisable, December 31, 1999 102,124 $4.51
=========
</TABLE>
1986 Employee Incentive Stock Option Plan - The 1986 Employee Incentive
Stock Option Plan terminated according to its terms on September 17, 1996.
No further stock options have been granted under the Plan after that date.
Previously granted options remain outstanding and exercisable under the
terms of each option. At
F - 12
<PAGE>
December 31, 1999, we had reserved a total of 106,840 shares of common
stock for issuance to participants who exercise outstanding options 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. 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 December 31, 1999
is 1.7 years. Plan activity for 1999 and 1998 is shown below.
<TABLE>
<CAPTION>
Wtd. Average
Option Exercise Price
Shares Per Share
---------- --------------
<S> <C> <C>
Balance, December 31, 1997 (at $6.55 per share) 129,610 $6.55
Exercised (440) 6.55
Canceled (80) 6.55
----------
Balance, December 31, 1998 (at $6.55 per share) 129,090 6.55
Canceled (22,250) 6.55
---------
Balance, December 31, 1999 (at $6.55 per share) 106,840 $6.55
=========
Exercisable, December 31, 1999 105,570 $6.55
=========
</TABLE>
Stock Option Plan for Non-Employee Directors - We have reserved 80,000
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 2,000 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 1,000 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 December 31, 1999
is 2.9 years. Plan activity for 1999 and 1998 is shown below.
<TABLE>
<CAPTION>
Wtd. Average
Option exercise price
Shares per share
---------- --------------
<S> <C> <C>
Balance, December 31, 1997 (at $6.55 to $10.65 per share) 38,000 $7.45
Granted 7,000 5.65
Exercised ( 3,000) 6.55
Canceled ( 11,000) 7.25
---------
Balance, December 31, 1998 (at $6.55 to $10.65 per share) 31,000 7.15
Granted 6,000 2.59
Canceled ( 6,000) 6.56
---------
Balance, December 31, 1999 (at $2.59 to $10.65 per share) 31,000 $6.27
=========
Exercisable, December 31, 1999 31,000 $6.27
=========
</TABLE>
Consep 1992 Stock Incentive Plan - The Consep 1992 Stock Incentive Plan was
converted to a Company plan in connection with the acquisition and merger
with Consep, Inc. in December 1998. Accordingly, options granted under the
plan are options to purchase Verdant Brands, Inc. common stock. We have
reserved 86,000 shares of the Company's common stock for issuance upon the
exercise of stock options granted under the Consep 1992 Stock Incentive
Plan.
Under the terms of the Consep 1992 Stock Incentive Plan, qualified
incentive stock options to purchase shares of the Company's common stock
may be granted at a price not less than 100% of the fair market value of
the stock at the date of grant, and unqualified stock options may be
granted at a price not less than 85% 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
F - 13
<PAGE>
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 December 31, 1999
is 7.9 years. Plan activity for 1999 and 1998 is shown below.
<TABLE>
<CAPTION>
Wtd. Average
Option Exercise Price
Shares Per Share
---------- --------------
<S> <C> <C>
Balance, December 31, 1997 (at $7.79 per share) 29,298 $7.79
Balance, December 31, 1998 (at $7.79 per share) 29,298 7.79
Granted 64,300 2.00
Canceled (7,600) 2.65
----------
Balance, December 31, 1999 (at $2.00 to $7.79 per share) 85,998 $3.92
==========
Exercisable, December 31, 1999 22,768 $9.24
==========
</TABLE>
Consep 1993 Stock Incentive Plan - The Consep 1993 Stock Incentive Plan was
converted to a Company plan in connection with the acquisition and merger
with Consep, Inc. in December 1998. Accordingly, options granted under the
plan are options to purchase Verdant Brands, Inc. common stock. We have
reserved 73,000 shares of the Company's common stock for issuance upon the
exercise of stock options granted under the Consep 1993 Stock Incentive
Plan.
Under the terms of the Consep 1993 Stock Incentive Plan, qualified
incentive stock options to purchase shares of the Company's common stock
may be granted at a price not less than 100% of the fair market value of
the stock at the date of grant, and unqualified stock options may be
granted at a price not less than 85% 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 December
31, 1999 is 8.2 years. Plan activity for 1999 and 1998 is shown below.
<TABLE>
<CAPTION>
Wtd. Average
Option Exercise Price
Shares Per Share
---------- --------------
<S> <C> <C>
Balance, December 31, 1997 (at $15.37 per share) 33,634 $15.37
Balance, December 31, 1998 (at $15.37 per share) 33,634 15.37
Granted 40,500 2.00
Canceled (570) 7.90
----------
Balance, December 31, 1999 (at $2.00 tp $15.37 per share) 73,564 $ 8.01
==========
Exercisable, December 31, 1999 26,262 $14.96
==========
</TABLE>
Consep 1997 Stock Incentive Plan - The Consep 1997 Stock Incentive Plan was
converted to a Company plan in connection with the acquisition and merger
with Consep, Inc. in December 1998. Accordingly, options granted under the
plan are options to purchase Verdant Brands, Inc. common stock. We have
reserved 120,000 shares of the Company's common stock for issuance upon the
exercise of stock options granted under the Consep 1997 Stock Incentive
Plan.
Under the terms of the Consep 1997 Stock Incentive Plan, qualified
incentive stock options to purchase shares of the Company's common stock
may be granted at a price not less than 100% of the fair market value of
the stock at the date of grant, and unqualified stock options may be
granted at a price not less than 85% 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 December
31, 1999 is 9.5 years. Plan activity for 1999 and 1998 is shown below.
F - 14
<PAGE>
<TABLE>
<CAPTION>
Wtd. Average
Option Exercise Price
Shares Per Share
---------- --------------
<S> <C> <C>
Balance, December 31, 1997 (at $7.90 per share) 28,760 $7.90
Balance, December 31, 1998 (at $7.90 per share) 28,760 7.90
Granted 93,900 2.00
Canceled (2,666) 7.90
----------
Balance, December 31, 1999 (at $2.00 to $7.90 per share) 120,000 $3.28
==========
Exercisable, December 31, 1999 12,003 $7.13
==========
</TABLE>
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 40,000 shares of its unregistered, restricted common
stock to two executive officers at a price of $6.5625 per share. In 1999,
both executive officers terminated their employment with the Company. Upon
termination, each executive officer paid the remaining principal and
interest on their promissory note. As part of their severance arrangements,
the Company paid each executive a bonus equal to the remaining principal
and interest on their promissory notes. In connection with these
transactions, we have recognized compensation expense of $112,462, and
$91,497 for the fiscal years ended December 31,1999 and 1998, respectively.
Stock Based Compensation - We have adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." As permitted by SFAS 123, we have 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 our stock options plans had been determined
and recognized based on the "fair value method" under SFAS 123, our net
loss and net loss per share would have been as follows:
Year Ended December 31,
-------------------------------
1999 1998
-------------- -------------
Net loss:
As reported $ (10,900,811) $(2,319,971)
Pro forma $ (10,908,011) $(2,335,371)
Pro forma per share $ (2.12) $ (.68)
The fair value of outstanding options granted under our stock option plans
since 1995 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions and
results:
Year Ended Year Ended
December 31, December 31,
1999 1998
-------------- -------------
Dividend yield 0 0
Expected volatility 64.00% 51.26%
Risk-free interest rate 5.00% 5.00%
Expected life of options 3 years 3 years
Average fair value per share
on date of grant $1.20 $5.65
Options to consultants - In 1999, the Company issued an option for 50,000
shares of the Company's common stock at an exercise price of $2.81 per
share (see Note 7).
F - 15
<PAGE>
9. PROFIT SHARING PLAN
We have defined contribution plans which conform to IRS provisions for
401(k) plans. Employees are eligible to participate in the plans provided
they have attained the age of twenty-one and have completed thirty days of
service. Participants may contribute up to 15% of their earnings, subject
to certain federally mandated limitations. We may also make matching
contributions or profit sharing contributions to the plans at the
discretion and determination of the Board of Directors. There were no
employer matching contributions or profit sharing contributions made for
the years ended December 31, 1999 and 1998.
10. INCOME TAXES
Net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1999 1998
------------ ------------
<S> <C> <C>
Current:
Prepaid expenses $ (5,000) $ (42,000)
Accrued expenses 82,000 192,000
Reserves for doubtful accounts 72,000 529,000
Inventory valuation reserves 243,000 665,000
Expenses capitalized to inventory for tax purposes 612,000 1,049,000
Sales returns and allowance reserves 130,000 257,000
Less valuation allowance (1,134,000) (2,650,000)
----------- -----------
$ -0- $ -0-
=========== ===========
Noncurrent:
Excess of tax over book depreciation (1,606,000) $ (315,000)
Packaging design costs 140,000 130,000
U.S. net operating loss carryforwards 22,624,000 17,473,000
Foreign net operating loss carryforwards 154,000 154,000
U.S. and foreign tax credit carryforwards 266,000 621,000
Less valuation allowances (21,578,000) (18,063,000)
----------- -----------
$ -0- $ -0-
=========== ===========
</TABLE>
At December 31, 1999, we had approximately $65.8 million in combined U.S.
net operating loss carryforwards for federal income tax purposes, which
expire between 2000 and 2017. Of the total, approximately $26.0 million,
$2.9 million, and $20.5 million are U.S. net operating loss carryforwards
of Safer, Inc., Southern Resources, Inc, and Consep, Inc., respectively,
the Company's wholly-owned subsidiaries. The remaining $16.4 million of net
operating loss carryforwards relate to the parent company.
The use of the unexpired net operating loss carryforwards of Verdant
Brands, Inc. and Safer, Inc. are limited to about $1.2 million in any one
year under Internal Revenue Code Section 382 because of a significant
ownership change resulting from the Company's acquisition of SRI and Consep
during 1997 and 1998, respectively.
The use of the net operating losses of SRI are limited to approximately
$222,000 in any one year under Internal Revenue Code Section 382 because of
a significant ownership change resulting from our acquisition in December
1997.
The use of the net operating losses of Consep, Inc. are limited to
approximately $550,000 in any one year under Internal Revenue Code Section
382 because of a significant ownership change resulting from our merger
with Consep, Inc. in December 1998.
At December 31, 1999, we had approximately $469,000 net operating loss
carryforwards in Canada which expire between 2001 and 2003.
F - 16
<PAGE>
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
We (paid) and received cash for the following items:
Year Ended December 31,
------------------------------
1999 1998
------------- -------------
Interest paid $( 2,208,418) $( 1,093,264)
Investing and financing transactions not affecting cash during the years
ended December 31, 1999 and 1998 are described below:
o In July 1999, we issued a warrant for 334,793 common shares at an
exercise price of $5.95 per share in conjunction with amended and
restated credit agreement with GE Capital Services (see Note 5). In
connection with this issuance, the Company recorded $327,032 to
deferred debt issuance costs and additional paid-in capital, which
represented the fair value of the warrant on the date of issuances.
o In August 1999, 90,000 shares of the Company's common stock were
returned in settlement of the company's claim against an escrow account
in conjunction with the Company's acquisition of SRI (see Note 2). In
connection with this retirement, the Company recorded a reduction to
goodwill, common stock and additional paid-in capital of $421,875.
o In August 1999, the Company issued 25,000 shares of its common stock
in settlement of accounts payable worth $100,000.
o In 1998, we issued 1,841,797 shares of the Company's common stock as
consideration paid for the purchase of all of the outstanding capital
stock of Consep, Inc. In connection with this issuance of common stock,
the Company recorded $11,511,237 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 $380,000 in
direct acquisition expenses.
12. FOREIGN OPERATIONS
International sales activity, consisting of sales outside the United
States, primarily in Canada, accounted for approximately 7.1% and 5.2% of
total sales for the year ended December 31, 1999 and 1998, respectively. A
reconciliation for these periods of domestic and foreign activity for net
sales, net income (loss) and identifiable assets for these periods is as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1999: Domestic Foreign Total
----------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $ 69,378,283 $ 5,341,418 $ 74,719,701
Net Income (Loss) (10,522,991) (347,820) (10,900,811)
Identifiable Assets $ 48,623,851 $ 3,379,221 $ 52,003,072
Fiscal Year Ended December 31, 1998: Domestic Foreign Total
------------------------------------ ------------ ------------ ------------
Net Sales $ 45,656,427 $ 2,495,561 $ 48,151,988
Net Income (Loss) (2,356,161) 37,090 (2,319,071)
Identifiable Assets $ 54,482,174 $ 4,446,118 $ 58,928,292
</TABLE>
13. BUSINESS SEGMENTS
We conduct 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.
F - 17
<PAGE>
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 one of our subsidiaries, that sell and distribute 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 our products as well as
products produced by other manufacturers, including traditional pesticides,
fertilizers, seeds and farm supplies.
A reconciliation for the years ended December 31, 1999 and 1998 of segment
activity for net sales, net income (loss) and identifiable assets is as
follows:
<TABLE>
<CAPTION>
Commercial
Fiscal Year Ended December 31, 1999: Consumer Commercial Dealer Total
----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales................................. $ 36,325,813 $ 12,251,806 $ 26,142,082 $ 74,719,701
Net Income (Loss)......................... (8,737,828) (3,331,812) 830,829 (10,900,811)
Depreciation and Amortization............. 7,509,886 415,948 317,324 8,243,158
Interest Expense.......................... 1,960,486 202,541 156,474 2,319,501
Interest Income........................... 8,794 -- 174,293 183,087
Capital Expenditures...................... 224,779 110,683 255,454 590,916
Identifiable Assets....................... $ 27,863,696 $ 13,976,112 $ 10,163,264 $ 52,003,072
</TABLE>
<TABLE>
<CAPTION>
Commercial
Fiscal Year Ended December 31, 1998: Consumer Commercial Dealer Total
----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales................................. $ 37,727,997 $ 9,285,828 $ 1,138,163 $ 48,151,988
Net Income (Loss)......................... (1,707,507) (680,237) 67,773 (2,319,971)
Depreciation and Amortization............. 1,192,405 103,369 21,561 1,317,335
Interest Expense.......................... 1,113,759 164,204 15,280 1,293,243
Interest Income........................... 15,849 8,402 11,107 35,358
Capital Expenditures...................... 187,243 16,195 1,159 204,597
Identifiable Assets....................... $ 31,242,905 $ 17,182,001 $ 10,503,386 $ 58,928,292
</TABLE>
14. REORGANIZATION EXPENSE
Reorganization expense of $788,254 consists of payments and accruals
relating to employee severance arrangements, which resulted from the
closing of the Company's Fort Valley, Georgia and Torrance, California
manufacturing plants and reorganization of management personnel. Related
payments during 1999 totaled $491,577 and $296,677 was included in
other accrued expense at December 31, 1999.
- -------
F - 18
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Pages
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* 10.6 Consep, Inc. 1992 Stock Incentive Plan.
* 10.7 Consep, Inc. 1993 Stock Incentive Plan.
* 10.8 Consep, Inc. 1997 Stock Incentive Plan.
10.11 Lease Agreement between Verdant Brands, Inc. and L&A Development, LLC, dated
December 1, 1999.
* 10.12 Employment Agreement between the Company and John F. Hetterick, dated
December 1, 1999.
* 10.15 Termination and consulting agreement between the Company and
Stanley Goldberg, dated December 6, 1999.
* 10.17 Separation agreement and general release between the Company and Mark G.
Eisenschenk, dated December 6, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
* Management contract or compensation plan or arrangement.
<PAGE>
EXHIBIT 10.6
CONSEP, INC.
1992 STOCK INCENTIVE PLAN
(Including Restatement of 1987
Non-Qualified Stock Option Plan)
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement. In addition, shares of the Company's
Common Stock may be sold hereunder independent of any option grant.
The Company's 1987 Non-Qualified Stock Option Plan (the "1987 Plan") is
hereby amended and restated in its entirety. All outstanding options granted
under the 1987 Plan shall be deemed Nonqualified Stock Options under this Plan
and subject to the terms and conditions hereof.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Committee, if one has been appointed, or
-----
the Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Voting Common Stock of the Company.
------------
(d) "Company" shall mean Consep, Inc., an Oregon corporation.
-------
(e) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "Consultant" shall mean any person who is engaged by the Company
----------
or any Subsidiary to render consulting services and is compensated for such
consulting services and any director of the Company whether compensated for such
services or not.
(g) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not more than ninety days or reemployment upon the expiration of such leave
is guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and
--------
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(j) "Nonqualified Stock Option" shall mean an option not intended to
-------------------------
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
-1-
<PAGE>
(k) "Option" shall mean a stock option granted pursuant to the Plan.
------
(l) "Optioned Stock" shall mean the Common Stock subject to an
--------------
option.
(m) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(n) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 425 (e) of the Code.
(o) "Plan" shall mean this Stock Incentive Plan.
----
(p) "Sale" or "Sold" shall include, with respect to the sale of
---- ----
Shares under the Plan, the sale of Shares for consideration in the form of cash
or notes, as well as a grant of Shares without consideration, except past or
future services.
(q) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(r) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and/or
Sold under the Plan is 10,750,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan. If Shares Sold under the Plan are
repurchased by the Company pursuant to restrictions applicable to such Shares,
the number of Shares repurchased shall, unless the Plan shall have been
terminated, become available for future Option grants and/or Sales under the
Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure. The Plan shall be administered by the Board of
---------
Directors of the Company.
(i) Subject to subparagraph (ii), the Board of Directors may
appoint a Committee consisting of not less than three (3) members of the Board
of Directors to administer the Plan on behalf of the Board of Directors, subject
to such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board of Directors. From time to time the Board of Directors may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution thereof, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
Members of the Board who are either eligible for Options and/or Sales or
have been granted Options or Sold Shares may vote on any matters affecting the
administration of the Plan or the grant of any Options or Sale of any Shares
pursuant to the Plan, except that no such member shall act upon the granting of
an Option or Sale of Shares to himself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting of options or Sale of Shares to
him.
(ii) Notwithstanding the foregoing subparagraph (i), if and in
any event the Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, from the effective date of
such registration until six (6) months after the termination of such
registration, any grants of options to officers or directors shall only be made
by the Board; provided, however, that if any member of the Board has received an
option grant or stock award under this Plan or any other stock option or other
stock plan of the Company, or any of its affiliates, at any time within the
preceding year, any grants of options to officers or directors must be made
-2-
<PAGE>
by, or only in accordance with the recommendation of, a Committee consisting of
two or more persons, each of whom must be a member of the Board of Directors of
the Company, appointed by the Board and having full authority to act in the
matter, and none of whom has received any option grant or stock award under this
Plan or any other stock option or other stock plan of the Company, or any of its
affiliates at any time within the preceding year.
(b) Powers of the Board. Subject to the provisions of the Plan, the
-------------------
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options in accordance with Section 422 of the Code, or nonqualified stock
Options; (ii) to authorize Sales of Shares of Common Stock hereunder; (iii) to
determine upon review of relevant information and in accordance with Section 8
(b) of the Plan, the fair market value of the Common Stock; (iv) to determine
the exercise/purchase price per share of Options to be granted or Shares to be
Sold, which exercise/purchase price shall be determined in accordance with
Section 8(a) of the Plan; (v) to determine the Employees or Consultants to whom,
and the time or times at which, Options shall be granted and the number of
Shares to be represented by each Option; (vi) to determine the Employees or
Consultants to whom, and the time or times at which, Shares shall be Sold and
the number of Shares to be Sold; (vii) to interpret the Plan; (viii) to
prescribe, amend and rescind rules and regulations relating to the Plan; (ix) to
determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
option; (x) to determine the terms and provisions of each Sale of Shares (which
need not be identical) and, with the consent of the purchaser thereof, modify or
amend each Sale; (xi) to accelerate or defer (with the consent of the Optionee)
the exercise date of any option, consistent with the provisions of Section 9 of
the Plan; (xii) to accelerate or defer (with the consent of the Optionee or
purchaser of Shares) the vesting restrictions applicable to Shares Sold under
the Plan or pursuant to Options granted under the Plan; (xiii) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an Option or Sale of Shares previously granted or authorized by the
Board; (xiv) to determine the restrictions on transfer, vesting restrictions,
repurchase rights, or other restrictions applicable to Shares issued under the
Plan; (xv) to effect, at any time and from time to time, with the consent of the
affected Optionees, the cancellation of any or all outstanding Options under the
Plan and to grant in substitution therefor new Options under the Plan covering
the same or different numbers of Shares, but having an option price per Share
consistent with the provisions of Section 8 of this Plan as of the date of the
new Option grant; and (xvi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan or Shares Sold under the
Plan.
5. Eligibility.
------------
(a) Persons Eligible. Options may be granted and/or Shares Sold only
----------------
to Employees and Consultants. Incentive Stock options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Sold
Shares may, if he is otherwise eligible, be granted an additional Option or
Options or Sold additional Shares.
(b) ISO Limitation. No Incentive Stock Option may be granted to an
--------------
Employee which, when aggregated with all other Incentive Stock Options granted
to such Employee by the Company or any Parent or Subsidiary, would result in
Shares having an aggregate fair market value (determined for each Share as of
the date of grant of the Option covering such Share) in excess of $100, 000
becoming first available for purchase upon exercise of one or more Incentive
Stock Options during any calendar year.
(c) Section 5(b) Limitations. Section 5(b) of the Plan shall apply
------------------------
only to an Incentive Stock Option evidenced by an "Incentive-Stock Option
Agreement" which sets forth the intention of the Company and the Optionee that
such Option shall qualify as an incentive Stock Option. Section 5 (b) of the
Plan shall not apply to any Option evidenced by a "Nonqualified Stock Option
Agreement" which sets forth the intention of the Company and the Optionee that
such Option shall be a Nonqualified Stock Option.
(d) No right to Continued Employment. The Plan shall not confer upon
--------------------------------
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his right
or the Company's right to terminate his employment or consulting relationship at
any time.
-3-
<PAGE>
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years, unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Incentive Stock Option shall be ten
--------------
(10) years from the date of grant thereof or such shorter term as may be
provided in the Stock Option Agreement. The term of each Nonqualified Stock
Option shall be ten (10) years and one (1) day from the date of grant thereof or
such shorter term as may be provided in the Stock Option Agreement. However, in
the case of an Incentive Stock option granted to an Optionee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Stock Option Agreement.
8. Exercise/Purchase Price and Consideration.
-----------------------------------------
(a) Exercise/Purchase Price. The per-Share exercise/purchase price
-----------------------
for the Shares to be issued pursuant to exercise of an Option or a Sale (other
than a Sale which is a grant for which no purchase price is payable) shall be
such a price as is determined by the Board, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than one hundred
ten percent (110%) of the fair market value per Share on the date of the grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option or Sale granted
or Sold to any person, the per Share exercise/purchase price shall be no less
than eighty-five percent (85%) of the fair market value per Share on the date of
grant or authorization of Sale.
(iii) In the case of an Option granted or Sale authorized on or
after the effective date of registration of any class of equity security of the
Company pursuant to Section 12 of the Exchange Act and prior to six (6) months
after the termination of such registration, the per Share exercise/purchase
price shall be no less than one hundred percent (100%) of the fair market value
per Share on the date of grant or authorization of Sale.
(b) Fair Market Value. The fair market value per Share shall be
-----------------
determined by the Board in its discretion; provided, however, that where there
is a public market for the Common Stock, the fair market value per Share shall
be the mean of the bid and asked prices of the Common Stock for the date of
grant or authorization of Sale, as reported in The Wall Street Journal (or, if
-----------------------
not so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock
is listed on a stock exchange (including NASDAQ), the fair market value per
Share shall be the closing price on such exchange on the date of grant of the
option or authorization of Sale, as reported in The Wall Street Journal.
-----------------------
(c) Consideration. The consideration to be paid for the Shares to be
-------------
issued upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Board and may consist entirely of cash,
check, promissory note, other Shares of Common Stock having a fair market value
on the date of surrender equal to the aggregate exercise/purchase price of the
Shares as to which said option shall be exercised or Sale consummated, or any
combination of such methods of payment for the issuance of Shares.
-4-
<PAGE>
9. Exercise of Option.
------------------
(a) Procedure for Exercise: Rights as a Stockholder. Any option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An option may not be exercised for a fraction of a Share.
An option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Each Optionee who exercises an Option shall, upon notification of the amount due
(if any) and prior to or concurrent with delivery of the certificate
representing the Shares, pay to the Company amounts necessary to satisfy
applicable federal, state and local tax withholding requirements. An Optionee
must also provide a duly executed copy of any stock transfer agreement then in
effect and determined to be applicable by the Board. Until the issuance,(as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. If an
--------------------------------------------------
Employee or Consultant ceases to serve as an Employee or Consultant (as the case
may be), he may, but only within three (3) months (or with respect to
Nonqualified Stock options, such other period of time not exceeding the
limitations of Section 7 above as is determined by the Board at the time of
grant of the Nonqualified Stock option) after the date he ceases to be an
Employee or Consultant (as the case may be) of the Company, exercise his option
to the extent that he was entitled to exercise it at the date of such
termination. To the extent that: he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event an Employee or Consultant is unable to continue his
employment or consulting relationship (as the case may be) with the Company as a
result of his total and permanent disability (as defined in Section 22(e)(3) of
the Code), he may, but only within twelve (12) months (or with respect to
Nonqualified Stock Options, such other period of time not exceeding the
limitations of Section 7 above as is determined by the Board at the time of
grant of the Nonqualified Stock Option) from the date of termination, exercise
his option to the extent he was entitled to exercise it at the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee,
-----------------
during the term of the Option who is at the time of his death an Employee or
Consultant of the Company and who shall have been in Continuous Status as an
Employee or consultant since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months (or such other period of time
not exceeding the limitations of Section 7 above as is determined by the Board
at the time of grant of the Option) following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise as of
the date of death.
10. Nontransferability of Options. An option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of the Optionee only by the Optionee.
-5-
<PAGE>
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no options have yet been granted or sales made or which have been returned
to the Plan upon cancellation or expiration of an Option, as well as the price
per share of Common Stock covered by each such outstanding option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the option shall be
fully exercisable for a period of thirty (30) days from the date of such notice
or such shorter period as the Board may specify in the notice, and the Option
will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that the following revisions or amendments shall require approval of
the stockholders of the Company in the manner described in Section 17 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of Employees or
Consultants eligible to be granted Options; or
(iii) if the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
any material increase in the benefits accruing to participants under the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder
--------------------
approval under Section 13 (a) of the Plan is made subsequent to the first
registration of any class of equity security by the Company under Section 12 of
the Exchange Act, such stockholder approval shall be solicited as described in
Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
-6-
<PAGE>
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an option or a Sale unless the exercise of such
Option or consummation of the Sale and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve months before or after
the date the Plan is adopted. If such stockholder approval is obtained at a
duly held stockholders meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company, such holders
being present or represented and entitled to vote thereon. If and in the event
that the Company registers any class of any equity security pursuant to Section
12 of the Exchange Act, the approval of such stockholders of the Company shall
be:
(a) Solicitation.
-------------
(i) solicited substantially in accordance with Section 14 (a)
of the Exchange Act and the rules and regulations promulgated thereunder, or
(ii) solicited after the Company has furnished in writing to
the holders entitled to vote substantially the same information concerning the
Plan as that which would be required by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(b) Time. Obtained at or prior to the first annual meeting of
----
stockholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.
If such stockholder approval is obtained by written consent, it must
be obtained by the written consent of stockholders of the Company in compliance
with the requirements of applicable state law.
__________________
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<PAGE>
EXHIBIT 10.7
CONSEP, INC.
1993 STOCK INCENTIVE PLAN*
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement. In addition, shares of the Company's
Common Stock may be Sold hereunder independent of any Option grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4.(a) of the
Plan.
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" shall mean a committee appointed by the Board in
---------
accordance with Section 4.(a) of the Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
------------
(f) "Company" shall mean Consep, Inc., an Oregon corporation.
-------
(g) "Consultant" shall mean any person who is engaged by the Company
----------
or any Subsidiary to render consulting services and is compensated for such
consulting services, provided that the term "Consultant" shall not include
Directors who are only paid a director's fee or who are not compensated by
the Company for their services as Directors.
(h) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) any sick leave, military leave,
or any other leave of absence approved by the Board; provided, however,
that for purposes of Incentive Stock Options, any such leave is for a
period of not more than ninety days or reemployment upon the expiration of
such leave is guaranteed by contract or statute; or (ii) transfers between
locations of the Company or between the Company, its Parent, its
Subsidiaries or its successor.
(i) "Director" shall mean a member of the Board.
--------
(j) "Disability" shall mean total and permanent disability as defined
----------
in Section 22(e)(3) of the Code.
(k) "Employee" shall mean any person, including Officers and
--------
Directors, employed by the Company or any Parent or Subsidiary of the
Company. Neither the payment of a director's fee by the Company nor
service as a Director shall be sufficient to constitute "employment" by the
Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
-1-
<PAGE>
(m) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(n) "Maximum Annual Employee Grant" shall have the meaning set forth
-----------------------------
in Section 5.(e).
(o) "Nonqualified Stock Option" shall mean an Option not intended to
-------------------------
qualify as an incentive stock option within the meaning of Section 422 of
the Code.
(p) "Notice of Grant" shall mean a written notice evidencing certain
---------------
terms and conditions of an individual Option grant. The Notice of Grant is
part of the Option Agreement.
(q) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" shall mean a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" shall mean a written agreement between the
----------------
Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(v) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424 of the Code.
(w) "Plan" shall mean this 1993 Stock Incentive Plan.
----
(x) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
(y) "Sale" or "Sold" shall include, with respect to the sale of
---- ----
Shares under the Plan, the sale of Shares for consideration in the form of
cash or notes, as well as a grant of Shares for consideration in the form
of past or future services.
(z) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(aa) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424 of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and/or
Sold under the Plan is 370,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan; provided, however, that Shares that
have actually been issued under the Plan shall not be returned to the Plan and
shall not become available for future distribution under the Plan.
-2-
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect
to Directors, Officers who are not Directors, and Employees who are
neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers
-----------------------------------------------------
Subject to Section 16(b). With respect to Option grants made to
------------------------
Employees who are also Officers or Directors subject to Section 16(b)
of the Exchange Act, the Plan shall be administered by (A) the Board,
if the Board may administer the Plan in compliance with the rules
governing a plan intended to qualify as a discretionary plan under
Rule 16b-3, or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan
under Rule 16b-3. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the
Committee and appoint additional members, remove members (with or
without cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules
governing a plan intended to qualify as a discretionary plan under
Rule 16b-3. With respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3. To the extent any provision
of the Plan or action by the Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator.
(iii) Administration With Respect to Other Persons. With
--------------------------------------------
respect to Option grants made to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted to satisfy the legal
requirements relating to the administration of stock option plans
under applicable corporate and securities laws and the Code. Once
appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board. The Board may increase the size of
the Committee and appoint additional members, remove members (with or
without cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the legal
requirements relating to the administration of stock option plans
under state corporate and securities laws and the Code.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to grant Incentive Stock Options in accordance with
Section 422 of the Code, or Nonqualified Stock Options;
(ii) to authorize Sales of Shares of Common Stock hereunder;
(iii) to determine, upon review of relevant information and in
accordance with Section 8.(b) of the Plan, the fair market value of
the Common Stock;
(iv) to determine the exercise/purchase price per Share of
Options to be granted or Shares to be Sold, which exercise/purchase
price shall be determined in accordance with Section 8.(a) of the
Plan;
-3-
<PAGE>
(v) to determine the Employees or Consultants to whom, and
the time or times at which, Options shall be granted and the number of
Shares to be represented by each Option;
(vi) to determine the Employees or Consultants to whom, and
the time or times at which, Shares shall be Sold and the number of
Shares to be Sold;
(vii) to interpret the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(ix) to determine the terms and provisions of each Option
granted (which need not be identical) and, With the consent of the
holder thereof, modify or amend each Option;
(x) to determine the terms and provisions of each Sale of
Shares (which need not be identical) and, with the consent of the
purchaser thereof, modify or amend each Sale;
(xi) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option;
(xii) to accelerate or defer (with the consent of the Optionee
or purchaser of Shares) the vesting restrictions applicable to Shares
Sold under the Plan or pursuant to Options granted under the Plan;
(xiii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
or Sale of Shares previously granted or authorized by the Board;
(xiv) to determine the restrictions on transfer, vesting
restrictions, repurchase rights, or other restrictions applicable to
Shares issued under the Plan;
(xv) to effect, at any time and from time to time, with the
consent of the affected Optionees, the cancellation of any or all
outstanding Options under the Plan and to grant in substitution
therefor new Options under the Plan covering the same or different
numbers of Shares, but having an Option price per Share consistent
with the provisions of Section 8 of this Plan as of the date of the
new Option grant;
(xvi) to establish, on a case-by-case basis, different terms
and conditions pertaining to exercise or vesting rights upon
termination of employment, whether at the time of an Option grant or
Sale of Shares, or thereafter;
(xvii) to approve forms of agreement for use under the Plan;
(xviii) to reduce the exercise price of any Option to the then
current fair market value if the fair market value of the Common Stock
covered by such Option shall have declined since the date the Option
was granted; and
(xix) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan or
Shares Sold under the Plan.
-4-
<PAGE>
5. Eligibility.
-----------
(a) Persons Eligible. Options may be granted and/or Shares Sold only
----------------
to Employees and Consultants. Incentive Stock Options may be granted only
to Employees. An Employee or Consultant who has been granted an Option or
Sold Shares may, if he or she is otherwise eligible, be granted an
additional Option or Options or Sold additional Shares.
(b) ISO Limitation. To the extent that the aggregate fair market
--------------
value: (i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which (ii) become
exercisable for the first time during any calendar year (under all plans of
the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options shall be treated as Nonqualified Stock Options. For purposes of
this Section 5(b), Incentive Stock Options shall be taken into account in
the order in which they were granted, and the fair market value of the
Shares shall be determined as of the time of grant.
(c) Section 5(b) Limitations. Section, 5.(b), of the Plan shall apply
------------------------
only to an Incentive Stock Option evidenced by an Option Agreement which
sets forth the intention of the Company and the Optionee that such Option
shall qualify as an Incentive Stock Option. Section 5.(b) of the Plan
shall not apply to any Option evidenced by a Option Agreement which sets
forth the intentions of the Company and the Optionee that such Option shall
be a Nonqualified Stock Option.
(d) No Right to Continued Employment. The Plan shall not confer upon
--------------------------------
any Optionee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his employment
or consulting relationship at any time.
(e) Maximum Option Grant. The maximum number of Shares with respect
--------------------
to which an Option or Options may be granted to any Employee in any one
calendar year of the Company shall not exceed 75,000 shares (the "Maximum
Annual Employee Grant").
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 17 of the Plan. It shall continue in effect for
a term of ten (10) years, unless sooner terminated under Section 13 of the Plan.
7. Term of Option. The term of each Option shall be stated in the
--------------
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant thereof or such shorter term as may be provided in the Notice
of Grant.
8. Exercise/Purchase Price and Consideration.
-----------------------------------------
(a) Exercise/Purchase Price. The per-Share exercise/purchase price
-----------------------
for the Shares to be issued pursuant to exercise of an Option or a Sale shall be
such price as is determined by the Administrator, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the fair market value per Share on the date of the
grant.
-5-
<PAGE>
(B) granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option or Sale
(A) granted or Sold to a person who, at the time of the
grant of such Option or authorization of such Sale, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise/purchase price shall
be no less than one hundred ten percent (110%) of the fair market value per
Share on the date of the grant or authorization of Sale, unless otherwise
expressly determined by the Administrator.
(B) granted or Sold to any other person, the per Share
exercise/purchase price shall be no less than eighty-five percent (85%) of the
fair market value per Share on the date of grant or authorization of Sale,
unless otherwise expressly determined by the Administrator.
(C) Any determination to sell stock at less than fair
market value on the date of the grant or authorization of Sale shall be
accompanied by an express finding by the Administrator specifying that the sale
is in the best interest of the Company, and specifying both the fair market
value and the grant or sale price of the stock.
(iii) In the case of an Option granted or Sale authorized on
or after the effective date of registration of any class of equity security of
the Company pursuant to Section 12 of the Exchange Act and prior to six (6)
months after the termination of such registration, the per Share
exercise/purchase price shall be no less than one hundred percent (100%) of the
fair market value per Share on the date of grant or authorization of Sale.
(b) Fair Market Value. The fair market value per Share shall be
-----------------
determined by the Administrator in its discretion; provided, however, that where
there is a public market for the Common Stock, the fair market value per Share
shall be the closing price of the Common Stock (or the closing bid if no sales
were reported) for the last market trading day prior to the date of grant of the
Option or authorization of Sale or other determination, as reported in The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by the National
- --------------
Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in
the event the Common Stock is listed on a stock exchange, the fair market value
per Share shall be the closing price on such exchange for the last market
trading day prior to the date of grant of the Option or authorization of Sale or
other determination as reported in The Wall Street Journal.
-----------------------
(c) Consideration. The consideration to be paid for the Shares to be
-------------
issued upon exercise of an Option or pursuant to a Sale, including the method
of payment, shall be determined by the Administrator. In the case of an
Incentive Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist of:
(i) cash;
(ii) check;
(iii) transfer to the Company of Shares which
(A) in the case of Shares acquired upon exercise of an
Option, have been owned by the Optionee for more than six months on the date of
surrender, and
(B) having a fair market value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised;
-6-
<PAGE>
(iv) delivery of instructions to the Company to withhold from
the Shares that would otherwise be issued on the exercise that number of Shares
having a fair market value at the time of such exercise equal to the Option
exercise price;
(v) such other consideration and method of payment for the
issuance of Shares to the extent permitted by legal requirements relating to the
administration of stock option plans under applicable corporate and securities
laws and the Code; or
(vi) any combination of the foregoing methods of payment.
If the fair market value of the number of whole Shares transferred or the
number of whole Shares surrendered is less than the total exercise price of the
Option, the shortfall must be made up in cash or by check. Notwithstanding the
foregoing provisions of this Section 8.(c), the consideration for Shares to be
issued pursuant to a Sale may not include, in whole or in part, the
consideration set forth in subsections (iii) and (iv) above.
9. Exercise of Option.
------------------
(a) Procedure for Exercise, Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under the Option Agreement and
Section 8.(c) of the Plan. Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with delivery
of the certificate representing the Shares, pay to the Company amounts necessary
to satisfy applicable federal, state and local tax withholding requirements. An
Optionee must also provide a duly executed copy of any stock transfer agreement
then in effect and determined to be applicable by the Administrator. Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company.) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock
represented by such stock certificate, notwithstanding the exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option, but only within such period of time as is
determined by the Administrator, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant).
In the case of an Incentive Stock Option, the Administrator shall determine such
period of time (in no event to exceed ninety (90) days from the date of
termination) when the Option is granted. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option with the
time specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
-7-
<PAGE>
(c) Disability of Optionee. In the event that an Optionee's
----------------------
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date, of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in the no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
-
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Optionee was entitled to exercise the Option at
the date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
Inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
10. Nontransferability of Options. An Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will, or by the laws of descent and distribution, and may be exercised during
the lifetime of the Optionee only by the Optionee or, if incapacitated, by his
or her legal guardian or legal representative.
11. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders, of the Company, the number of shares of Common Stock, covered by
each outstanding Option and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or Sales made or which have been returned to the Plan upon cancellation
or expiration of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been effected
without receipt of consideration. Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator. The Administrator may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a Parent
or Subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Administrator
-8-
<PAGE>
makes an Option fully exercisable in lieu of assumption or substitution in the
event of a merger or sale of assets, the Administrator shall notify the Optionee
that the Option shall be fully exercisable for a period of thirty (30) days from
the date of such notice or such shorter period as the Administrator may specify
in the notice, and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such common stock of the consideration received in
the merger or sale of assets was not solely successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
Optionee, provide for the consideration to be received upon the exercise of the
Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option. Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
--------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided, however, that if required to qualify the Plan under Rule 16b-3,
promulgated under Section 16 of the Exchange Act, no amendment shall be made
more than once every six (6) months that would change the amount, price or
timing of the option grants, other than to comport with changes in the Code or
the rules and regulations promulgated thereunder; and provided, further, that if
required to qualify the Plan under Rule 16b-3, no amendment shall be made
without the approval of the stockholders of the company in the manner described
in Section 17 of the Plan if the amendment would.
(i) increase the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the Plan;
(ii) make a change in the designation of the class of
Employees, or Consultants eligible to be granted Options; or
(iii) if the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
cause any material increase in the benefits, accruing to participants under the
Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such stockholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or a Sale unless the exercise of such
Option or consummation of the Sale and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations
-9-
<PAGE>
promulgated thereunder, and the requirements of any stock exchange (including
NASDAQ) upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Liability of Company.
--------------------
(a) Inability to Obtain Authority. Inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
--------------------------------
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional stockholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless stockholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 13 of the Plan.
17. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
18. Six Month Holding Period for Affiliates. If the Company registers any
---------------------------------------
class of any equity security pursuant to Section 12 of the Exchange Act, then
from the effective date of such registration until six (6) months after the
termination of such registration (the Public Period), these limits will apply to
each Officer, Director and beneficial owner of ten percent (10%) or more of any
class of equity securities of the Company (Affiliates.) During the Public
Period, any Affiliate shall hold Shares Sold hereunder at least six (6) months
from the date of Sale. During the Public Period, at least six (6) months must
elapse from the date of grant of an Option to an Affiliate to the date the
Affiliate disposes of the Shares acquired upon exercise of the Option, or (if
the Option is disposed of other than by exercise) to the date of disposition of
the Option itself.
* As amended by the Board of Directors on December 15, 1994 and March 1,
1996, and ratified by the shareholders on May 25, 1995 and May 23, 1996,
respectively.
________________________
-10-
<PAGE>
EXHIBIT 10.8
CONSEP, INC.
1997 STOCK INCENTIVE PLAN*
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement. In addition, shares of the Company's
Common Stock may be sold hereunder independent of any Option grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4.(a) of the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Code", shall mean the Internal, Revenue Code of 1986, as
----
amended.
(d) "Committee" shall mean a committee appointed by the Board in
---------
accordance with Section 4.(a) of the Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
------------
(f) "Company" shall mean Consep, Inc., an Oregon corporation.
-------
(g) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services and any Director of the Company whether compensated for
such services or not.
(h) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) any sick leave, military leave, or
any other leave of absence approved, by the Company; provided, however, that for
purposes of Incentive Stock Options, any such leave is for a period of not more
than ninety days or reemployment upon the expiration of such leave is guaranteed
by contract or statute, provided, further, that on the ninety-first day of such
leave (where re-employment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall automatically convert to a Nonqualified
Stock Option; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.
(i) "Director" shall mean a member of the Board.
--------
(j) "Disability" shall mean total and permanent disability as defined
----------
in Section 22(e)(3) of the Code.
(k) "Employee" shall mean any person, including Officers and
--------
Directors, employed by the Company or any Parent or Subsidiary. Neither the
payment of a director's fee by the Company nor service as a Director shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
-1-
<PAGE>
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or the Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted, by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid, and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonqualified Stock Option" shall mean an Option not intended to
-------------------------
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(p) "Notice of Grant" shall mean a written notice evidencing certain
---------------
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
(q) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" shall mean a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" shall mean a written agreement between the
----------------
Company and an Optionee evidencing the terms and conditions of an individual
Option Grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(v) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1997 Stock Incentive Plan.
----
(x) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(y) "Sale" or "Sold" shall include, with respect to the sale of
---- ----
Shares under the Plan, the sale of Shares for consideration in the form of cash
or notes, as well as a grant of Shares for consideration in the form of past or
future services.
(z) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(aa) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and/or
Sold under the Plan is 600,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
-2-
<PAGE>
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan; provided, however, that Shares that
have actually been issued under the Plan shall not be returned to the Plan and
shall not become available for future distribution under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are neither
Directors nor Officers.
(ii) Administration With Respect to Directors and Officers
-----------------------------------------------------
Subject to Section 16(b). With respect to Option grants made to Employees who
- ------------------------
are also Officers or Directors subject to Section 16(b) of the Exchange Act, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with the rules, governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a Committee designated by the Board
to administer the Plan, which Committee shall be constituted to comply with the
rules, if any, governing a plan intended to qualify as a discretionary plan
under Rule 16b-3. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules, if any, governing a plan intended to qualify as a discretionary plan
under Rule 16b-3. With respect to persons subject to Section 16 of the Exchange
Act, transactions under the Plan are intended to comply with all applicable
conditions of rule 16b-3. To the extent any provision of the Plan or action by
the Administrator fails to comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Administrator.
(iii) Administration With Respect to Other Persons. With
--------------------------------------------
respect to option grants made to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted to satisfy the legal requirements relating to the administration of
stock option plans under applicable corporate and securities laws and the Code.
Once appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board. The Board may increase the size of the
Committee and appoint additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and remove all
members of the Committee and thereafter directly administer the Plan, all to the
extent permitted by the Legal requirements relating to the administration of
stock option plans under state corporate and securities laws and the Code.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to grant Incentive Stock Options in accordance with
Section 422 of the Code, or Nonqualified Stock Options;
(ii) to authorize Sales of Shares of Common Stock hereunder;
(iii) to determine, upon review of relevant information, the
Fair Market Value of the Common Stock;
(iv) to determine the exercise/purchase price per Share of
Options to be granted or Shares to be Sold, which exercise/purchase price shall
be determined in accordance with Section 8.(a) of the Plan;
(v) to determine the Employees or Consultants to whom, and
the time or times at which, Options shall be grant ed and the number of Shares
to be represented by each Option;
-3-
<PAGE>
(vi) to determine the Employees or Consultants to whom, and
the time or times at which, Shares shall be sold and the number of Shares to be
Sold;
(vii) to interpret the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(ix) to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option;
(x) to determine the terms and provisions of each Sale of
Shares (which need not be identical) and, with the consent of the purchaser
thereof, modify or amend each Sale;
(xi) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option;
(xii) to accelerate or defer (with the consent of the Optionee
or purchaser of Shares) the vesting restrictions applicable to Shares Sold under
the Plan or pursuant to Options granted under the Plan;
(xiii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option or Sale of
Shares previously granted or authorized by the Board;
(xiv) to determine the restrictions on transfer, vesting
restrictions, repurchase rights, or other restrictions applicable to Shares
issued under the Plan;
(xv) to effect, at any time and from time to time, with the
consent of the affected Optionees, the cancellation of any or all outstanding
Options under the Plan and to grant in substitution therefor new Options under
the Plan covering the same or different numbers of Shares but having an Option
price per Share consistent with the provisions of Section 8 of this Plan as of
the date of the new Option grant;
(xvi) to establish, on a case-by-case basis, different terms
and conditions pertaining to exercise or vesting rights upon termination of
employment, whether at the time of an Option grant or Sale of Shares, or
thereafter;
(xvii) to approve forms of agreement for use under the Plan;
(xviii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(xix) to determine and whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock; and
(xx) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options granted under, the Plan or Shares
Sold under the Plan.
5. Eligibility.
------------
(a) Persons Eligible. Options may be granted and/or Shares Sold only
----------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Sold
Shares may, if he or she is otherwise eligible, be granted an additional Option
or Options or Sold additional Shares.
-4-
<PAGE>
(b) ISO Limitation. To the extent that the aggregate Fair Market
--------------
Value: (i) of Shares subject to an Optionee's Incentive Stock Options granted
by the Company, any Parent or Subsidiary, which (ii) become exercisable for the
first time during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonqualified Stock Options. For purposes of this Section 5.(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
(c) Section 5.(b) Limitations. Section 5.(b) of the Plan shall apply
-------------------------
only to an Incentive Stock Option evidenced by an Option Agreement which sets
forth the intention of the Company and the Optionee that such Option shall
qualify as an Incentive Stock Option. Section 5.(b) of the Plan shall not apply
to any Option evidenced by an Option Agreement which sets forth the intention of
the Company and the Optionee that such Option shall be a Nonqualified Stock
Option.
(d) No Right to Continued Employment. The Plan shall not confer upon
--------------------------------
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his employment or consulting
relationship at any time, with or without cause.
(e) Other Limitations. The following limitations shall apply to
-----------------
grants of Options to Employees:,
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 75,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 75,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the canceled Option shall be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 17 of the Plan. It shall continue in effect for
a term of ten (10) years, unless, sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Option shall be stated in the Notice
--------------
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Notice of Grant.
8. Exercise/Purchase Price and Consideration.
-----------------------------------------
(a) Exercise/Purchase Price. The per-Share exercise/purchase price
-----------------------
for the Shares to be issued pursuant to exercise of an Option or a Sale shall be
such price as is determined by the Administrator, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the
-5-
<PAGE>
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than one hundred ten percent (110%)of the Fair Market Value per Share on
the date of the grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option or Sale, the
per Share exercise/purchase price shall be determined by the Administrator.
(iii) Any determination to establish an Option exercise price or
effect a Sale of Common Stock at less than Fair Market Value on the date of the
Option grant or authorization of Sale shall be accompanied by an express finding
by the Administrator specifying that the sale is in the best interest of the
Company, and specifying both the Fair Market Value and the Option exercise price
or Sale price of the Common Stock.
(b) Consideration. The consideration, to be paid for the Shares to be
-------------
issued upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Administrator. In the case of an Incentive
Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) transfer to the Company of Shares which
(A) in the case of Shares acquired upon exercise of an
Option, have been owned by the Optionee for more than six months on the date of
surrender, and
(B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares to be acquired;
(v) delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price;
(vi) such other consideration and method of payment for the
issuance of Shares to the extent permitted by legal requirements relating to the
administration of stock option plans and issuances of capital stock under
applicable corporate and securities laws and the Code; or
(vii) any combination of the foregoing methods of payment.
If the Fair Market Value of the number of whole Shares transferred or the
number of whole Shares surrendered is less than the total exercise price of the
Option, the shortfall must be made up in cash or by check. Notwithstanding the
foregoing provisions of this Section 8.(b), the consideration for Shares to be
issued pursuant to a Sale may not include, in whole or in part, the
consideration set forth in subsections (iv) and (v) above.
9. Exercise of Option.
------------------
(a) Procedure for Exercise, a Rights as Shareholder Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment
-6-
<PAGE>
for the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under the Option Agreement and
Section 8.(b) of the Plan. Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with delivery
of the certificate representing the Shares, pay to the Company amounts necessary
to satisfy applicable federal, state and local tax withholding requirements. An
Optionee must also provide a duly executed copy of any stock transfer agreement
then in effect and determined to be applicable by the Administrator. Until the
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock represented by such
stock certificate, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 11 of
the Plan.
Exercise of an option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option, but only within such period of time as is
determined by the Administrator, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant).
In the case of an Incentive Stock Option, the Administrator shall determine such
period of time (in no event to exceed three (3) months from the date of
termination) when the Option is granted. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option with,
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's
----------------------
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out, in whole or in part, for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time, that such offer is made.
10. Nontransferability of Options. Except as otherwise specifically
-----------------------------
provided in the Option Agreement an Option may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will, or by
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee only by the Optionee or, if incapacitated, by his or her legal
guardian or legal representative.
-7-
<PAGE>
11. Adjustments Upon Changes in Capitalization or Merge.
---------------------------------------------------
(a) Changes in Capitalization: Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or Sales made or which have been returned to the Plan upon cancellation
or expiration of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of an class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator. The Administrator may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding Option shalt be assumed or an
equivalent option shall be substituted by such successor corporation or a Parent
or Subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Administrator makes an Option
fully exercisable in lieu of assumption or substitution in the event of a merger
or sale of assets, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty, (30) days from the date of
such notice or such shorter period as the Administrator may specify in the
notice, and the Option will terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
Optionee, provide for the consideration to be received upon the exercise of the
Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in Fair Market
Value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option. Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or
-8-
<PAGE>
quotation system on which the Common Stock is listed or quoted). Such
shareholder approval, if required, shall be obtained, in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or a Sale unless the exercise of such
Option or consummation of the Sale and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange (including NASDAQ) upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Liability of Company.
--------------------
(a) Inability to Obtain Authority. Inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
--------------------------------
by an option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 13 of the Plan.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
____________________
-9-
<PAGE>
EXHIBIT 10.11
LEASE
-----
Lease made December 1, 1999, between L & A Development, L.L.C., a limited
liability company organized under the laws of the State of Missouri, having its
principal office at P.O. Box 447, 200 South Eighth Street, City of St. Joseph,
County of Buchanan, State of Missouri, 64502-0447, herein referred to as
"Lessor", and Verdant Brands, Inc., formerly known as Ringer Corporation, a
corporation organized under the laws of the State of Minnesota, having its
principal place of business at 9555 James Avenue South, Suite 200, Bloomington,
Minnesota, 55431-2543, herein referred to as "Lessee".
RECITALS
1. Lessor is the sole owner of the premises specifically described in
Exhibit "A" attached hereto, upon which is presently a 100,000 square foot
warehouse which is leased by Lessee under the terms and conditions of a certain
lease dated July 13, 1998.
2. Lessor is constructing an 80,000 square foot addition to the warehouse
on the premises.
3. Lessee desires to lease 50,000 additional square feet of the 80,000
square foot addition to be used as additional space for warehouse and
distribution for chemical products and other goods so that the total leased
space will be 150,000 square feet.
4. The parties desire to cancel that lease entered into between them
dated July 13, 1998 referenced in Paragraph 1 hereof, and substitute, in its
stead, this lease agreement defining the rights and liabilities relating to the
150,000 square feet of space leased.
In consideration of the mutual covenants contained herein, the parties
agree as follows:
1. Subject and Purpose. Lessor leases 150,000 square feet of the
-------------------
warehouse building and land, located in the County of Buchanan, State of
Missouri, and more particularly described on Exhibit "A" attached hereto, to
Lessee for Lessee's use as follows: a warehouse and distribution center for
chemical products and other goods.
2. Term and Rent. Lessor demises the above premises for a term of five
-------------
(5) years, commencing on the completion of construction of the 80,000 square
foot addition, which addition is expected to be complete on or about November
15, 1999, and terminating on the fifth anniversary of the commencement of the
lease at 5:00 p.m. or sooner as provided herein, at the annual rate of Three
Hundred Sixty-four Thousand Sixty-eight Dollars ($364,068), payable in equal
installments of Thirty Thousand Three Hundred Thirty-nine Dollars ($30,339.00)
in advance on the first day of each month for that month's rental, during the
term of this lease. All rental payments shall be made to Lessor at the address
specified above. Lessee shall pay the rent as specified herein and in Section
Three hereof. Lessee shall pay
<PAGE>
Lessor a late charge of Five Percent (5%) of any monthly rental installment
received more than ten (10) days after the due date for such rental installment.
3. Additional Rent. All taxes, charges, costs, and expenses that Lessee
---------------
assumes or agrees to pay hereunder, together with all interest and penalties
that may accrue thereon in the event of the failure of Lessee to pay those
items, and all other damages, costs, expenses, and sums that Lessor may suffer
or incur, or that may become due, by reason of any default of Lessee or failure
by Lessee to comply with the terms and conditions of this lease, shall be deemed
to be additional rent, and, in the event of nonpayment, Lessor shall have all
the rights and remedies as herein provided for failure to pay rent.
4. Alterations, Additions and Improvements.
---------------------------------------
(a) Subject to the limitation that no substantial portion of the
building on the demised premises shall be demolished or removed by Lessee
without the prior written consent of Lessor, and, if necessary, of any
mortgagee, Lessee may at any time during the lease term, subject to the
conditions set forth below and at his own expense, make alterations, additions,
or improvements in and to the demised premises and the building. Alterations
shall be performed in a workmanlike manner and shall not weaken or impair the
structural strength, or lessen the value, of the building on the premises, or
change the purposes for which the building, or any part thereof, may be used.
(b) Conditions with respect to alterations, additions, or
improvements are as follows:
(1) Prior to commencement of any work Lessee shall pay the
amount of any increase in premiums on insurance policies provided for herein
because of endorsements to be made covering the risk during the course of work.
In addition, if the estimated cost of work shall exceed Ten Thousand Dollars
($10,000), Lessee shall, without cost to Lessor, furnish Lessor with a
performance bond written by a surety acceptable to Lessor in an amount equal to
the estimated cost of the work, guaranteeing the completion of work, free and
clear of liens, encumbrances, and security interests, according to the approved
plans and specifications.
(c) All alterations, additions, and improvements on or in the demised
premises at the commencement of the term, and that may be erected or installed
during the term, shall become part of the demised premises and the sole property
of Lessor, except that all movable trade fixtures installed by Lessee shall be
and remain the property of Lessee.
5. Repairs. Lessee shall, at all times during the lease and at its own
-------
cost and expense, repair, replace, and maintain in good, safe and substantial
condition, all buildings and any improvements, additions, and alterations
thereto, on the demised premises, and shall use all reasonable precaution to
prevent waste, damage or injury to the demised premises.
6. Taxes. Lessee shall pay on or before the last day on which payment
-----
may be made without penalty or interest, all taxes, assessments, or
other governmental charges that shall or may during the lease term be imposed
on, or arise in connection with the use of, the demised
2
<PAGE>
premises or any part thereof, prorated so as to conform to the term of this
lease. Lessee shall pay all taxes assessed in lieu of or in addition to the
foregoing under all present or future laws of all governmental authorities
whatsoever. Lessee shall have the right to apply for the conversion of any
special assessment for local improvements in order to cause the same to be
payable in installments, and on the conversion Lessee shall be obligated to pay
only those installments that may become due during the lease. Lessee shall
within thirty (30) days after the time provided for the payment of any tax or
other governmental charge by Lessee, produce and exhibit to Lessor satisfactory
evidence of the payment. It is the intention of the parties that the rent herein
is net rental, and Lessor shall receive the same free from all taxes that are
made payable by Lessee.
7. Utilities. All applications and connections for necessary utility
---------
services on the demised premises shall be made in the name of Lessee only, and
Lessee shall be solely liable for utility charges as they become due, including
those for sewer, water, gas, electricity, and telephone services.
8. Security Deposit. Lessee shall deposit Ten Thousand Dollars ($10,000)
----------------
with Lessor, which amount shall be held by Lessor as security for the full and
timely performance by Lessee of the terms and conditions herein and for the
payment of any final judgment that may be rendered against Lessee for a breach
of those terms and conditions. The rights of Lessor against Lessee for a breach
of this lease shall in no way be limited or restricted by this security deposit,
but Lessor shall have the absolute right to pursue any available remedy to
protect its interest herein, as if this security deposit had not been made. The
deposit shall accrue interest at Five Percent (5%) per annum and shall be
returned to Lessee at the expiration of this lease provided that all the terms
and conditions herein contained have been fully performed by Lessee. Should the
demised premises be sold, Lessor may transfer or deliver this security deposit
to the purchase of the interest, and Lessor shall then be discharged from any
further liability with respect to the security deposit.
9. Insurance.
---------
(a) During the term of the lease and for any further time that Lessee
shall hold the demised premises, Lessee shall obtain and maintain at his expense
the following types and amounts of insurance:
(1) Fire Insurance. Lessee shall keep all buildings,
--------------
improvements, and equipment on the demised premises, including all alterations,
additions, and improvements, insured against loss or damage by fire, with all
standard extended coverage that may be required by any first mortgagee, and
against loss or damage due to war or nuclear agents, if that insurance is
available and required by any first mortgagee. The insurance shall be in an
amount sufficient to prevent Lessor and Lessee from becoming co-insurers under
provisions of applicable policies of insurance, but in any event in an amount
not less than One Hundred
3
<PAGE>
Percent (100%) of the full insurable value of the demised premises, excluding
the cost of excavation and of foundations. If at any time there is a dispute as
to the amount of such insurance the same shall be settled by arbitration.
(2) Personal Injury and Property Damage Insurance. Insurance
---------------------------------------------
against liability for bodily injury and property damage and machinery insurance,
all to be in amounts of not less than One Million Dollars ($1,000,000.00) per
occurrence, and in forms of insurance policies as may from time to time be
required by Lessor, shall be provided by Lessee. This requirement shall
specifically include plate glass insurance, covering the glass in the demised
premises.
(3) Other Insurance. Lessee shall provide and keep in force
---------------
other insurance in amounts that may from time to time be required by Lessor
against other insurable hazards as are commonly insured against for the type of
business activity that Lessee will conduct.
(b) All insurance as provided by Lessee as required by this section
shall be carried in favor of Lessor and Lessee as their respective interests may
appear, and in the case of insurance against damage to the demised premises by
fire or other casualty, shall provide that loss, if any, shall be adjusted with
and be payable to Lessor. If requested by Lessor, any insurance against fire or
other casualty shall provide that loss shall be payable to the holder under a
standard mortgage clause. Rent insurance and use and occupancy insurance may be
carried in favor of Lessee, but the proceeds are hereby assigned to Lessor to be
held by Lessor as security for the payment of the rent and any additional rent
hereunder until restoration of the premises. All insurance shall be written with
responsible companies that Lessor shall approve, and the policies shall be held
by Lessor or, when appropriate, by the holder of any mortgage, in which case
copies of the policies or certificates of insurance shall be delivered by Lessee
to Lessor. All policies shall require thirty (30) days' notice by certified mail
to Lessor of any cancellation or change affecting any interest of Lessor.
10. Unlawful or Dangerous Activity. Lessee shall neither use nor occupy
------------------------------
the demised premises or any part thereof for any unlawful, disreputable, or
ultrahazardous business purpose nor operate or conduct his business in a manner
constituting a nuisance of any kind. Lessee shall immediately, on discovery of
any unlawful, disreputable, or ultrahazardous use, take action to halt such
activity.
11. Indemnity. Lessee shall indemnify Lessor against all expenses,
---------
liabilities and claims of every kind, including reasonable counsel fees, by or
on behalf of any person or entity arising out of either (1) a failure by Lessee
to perform any of the terms and conditions of this lease, (2) any injury or
damage happening on or about the demised premises, (3) failure to comply with
any law of any governmental authority, or (4) any mechanics lien or security
4
<PAGE>
interest filed against the demised premises or equipment, materials or
alterations of buildings or improvements thereon.
12. Default or Breach. Each of the following events shall constitute a
-----------------
default or breach of this lease by Lessee:
(a) If Lessee, or any successor or assignee of Lessee while in
possession, shall file a petition in bankruptcy or insolvency or for
reorganization under any bankruptcy act, or shall voluntarily take advantage of
any such act by answer or otherwise, shall make an assignment for the benefit of
credits.
(b) If involuntary proceedings under any bankruptcy law or insolvency
act shall be instituted against Lessee, or if a receiver or trustee shall be
appointed of all or substantially all of the property of Lessee, and such
proceedings shall not be dismissed or the receivership or trusteeship vacated
within thirty (30) days after the institution or appointment.
(c) If Lessee shall fail to pay Lessor any rent or additional rent
when the rent shall become due and shall not make the payment within ten (10)
days after notice thereof in writing by Lessor to Lessee.
(d) If Lessee shall fail to perform or comply with any of the
conditions of this lease and if the nonperformance shall continue for a period
of ten (10) days after notice thereof by Lessor to Lessee or, if the performance
cannot be reasonably had within the ten-day period, Lessee shall not be in good
faith have commenced performance within the ten-day period and shall not
diligently proceed to completion of performance.
(e) If Lessee shall vacate or abandon the demised premises.
(f) If this lease or the estate of Lessee hereunder shall be
transferred to or shall pass to or devolve on any other person or party, except
in the manner herein permitted.
(g) If Lessee fails to take possession of the demised premises on the
term commencement date, or within thirty (30) days after notice that the demised
premises are available for occupancy, if the term commencement date is not fixed
herein or shall be deferred as herein provided.
13. Effect of Default. In the event of any default hereunder, as set forth
-----------------
in Section Twelve, the rights of Lessor shall be as follows:
(a) Lessor shall have the right to cancel and terminate this lease,
as well as all of the right, title and interest of Lessee hereunder, by giving
to Lessee not less than thirty (30) days' notice of the cancellation and
termination. On expiration of the time fixed in the notice, this lease and the
right, title and interest of Lessee hereunder, shall terminate in the same
manner and with the same force and effect, except as to Lessee's liability, as
if the date fixed in the notice of cancellation and termination were the end of
the term herein originally determined.
5
<PAGE>
(b) Lessor may elect, but shall not be obligated, to make any payment
required of Lessee herein or comply with any agreement, term, or condition
required hereby to be performed by Lessee, and Lessor shall have the right to
enter the demised premises for the purpose of correcting or remedying any such
default and to remain until the default has been corrected or remedied, but any
expenditure for the correction by Lessor shall not be deemed to waive or release
the default of Lessee or the right of Lessor to take any action as may be
otherwise permissible hereunder in the case of any default.
(c) Omitted.
(d) Lessor may re-let the premises or any part thereof for any term
without terminating the lease, at the rent and on the terms as Lessor may
choose. Lessor may make alterations and repairs to the premises. The duties and
liabilities of the parties if the premises are relet as provided herein shall be
as follows:
(1) In addition to Lessee's liability to Lessor for breach of
the lease, Lessee shall be liable for all expenses of the reletting, for the
alterations and repairs made, and for the difference between the rent received
by Lessor under the new lease agreement and the rent installments that are due
for the same period under this lease.
(2) Lessor shall have the right to apply the rent received from
reletting the premises (A) to reduce the indebtedness of Lessee to Lessor under
the lease, not including indebtedness for rent, (B) to expenses of the re-
letting and alternations and repairs made, (C) to rent due under the lease, or
(D) to payment of future rent under this lease as it becomes due.
If the new Lessee doe not pay a rent installment promptly to
Lessor, and the rent installment has been credited in advance of payment to the
indebtedness of Lessee other than rent, or if rentals from the new Lessee have
been otherwise applied by Lessor as provided for herein and during any rent
installment period are less than the rent payable for the corresponding
installment period under this lease, Lessee shall pay Lessor the deficiency,
separately for each rent installment deficiency period, and before the end of
that period. Lessor may at any time after a re-letting terminate the lease for
the breach on which Lessor had based the re-entry and subsequently re-let the
premises.
(e) After re-entry, Lessor may procure the appointment of a receiver
to take possession and collect rents and profits of the business of Lessee, and,
if necessary to collect the rents and profits. The receiver may carry on the
business of Lessee and take possession of the personal property used in the
business of Lessee, including inventory, trade fixtures, and furnishings, and
use them in the business without compensating Lessee. Proceedings for
appointment of a receiver by Lessor, or the appointment of a receiver and the
conduct of the business of Lessee by the receiver, shall not terminate and
forfeit this lease unless Lessor has given written notice of termination to
Lessee as provided herein.
6
<PAGE>
14. Destruction of Premises. In the event of a partial destruction of the
-----------------------
premises during the term from any cause, Lessor shall forthwith repair the same,
provided the repairs can be made within thirty (30) days, or such other period
of time upon which Lessor and Lessee shall agree, under the laws and regulations
of applicable governmental authorities. Any partial destruction shall neither
annul nor void this lease, except that the Lessee shall be entitled to a
proportionate reduction of rent while the repairs are being made, any
proportionate reduction being based on the extent to which the making of repairs
shall interfere with the business carried on by Lessee in the premises. If the
repairs are made within thirty (30) days, this lease shall continue in full
force and effect and the rent shall be proportionately rebated as previously set
forth in this section. In the event that Lessor does not elect to make repairs
that cannot be made in the specified time, or those repairs cannot be made under
the laws and regulations of the applicable governmental authorities, this lease
may be terminated at the option of either party. In the event of any partial
destruction that Lessor is obligated to repair or may elect to repair under the
terms of this paragraph, the provisions of any applicable law-authorizing Lessee
to make repairs at the expense of Lessor, are hereby waived by Lessee. Should
the building in which the demised premises are situated be destroyed to the
extent of not less than Forty Percent (40%) of the replacement cost thereof,
this lease shall be terminated. Any dispute between Lessor and Lessee relative
to the provisions of this section shall be subject to arbitration, pursuant to
Section 25, below. Each party shall select an arbitrator and the two arbitrators
so selected shall select a third arbitrator between them, the controversy being
heard by the three arbitrators so selected. The decision of the three
arbitrators shall be final and binding on both Lessor and Lessee, who shall bear
the cost of the arbitration equally between them.
15. Condemnation. Rights and duties in the event of condemnation are as
------------
follows:
(a) If the whole of the demised premises shall be taken or condemned
by any competent authority for any public or quasi-public use or purpose, this
lease shall cease and terminate as of the date on which title shall vest thereby
in that authority, and the rent reserved hereunder shall be apportioned and paid
up to that date.
(b) If only a portion (less than 40%) of the demised premises shall
be taken or condemned, this lease and the term hereof shall not cease or
terminate, but the rent payable after the date on which Lessee shall be required
to surrender possession of such portion shall be reduced in proportion to
decreased use suffered by Lessee as the parties may agree or as shall be
determined by arbitration.
(c) In the event of any taking or condemnation in whole or in part,
the entire resulting award of consequential damages shall belong to Lessor
without any deduction therefrom for the value of the unexpired term of this
lease or for any other estate or interest in
7
<PAGE>
the demised premises now or later vested in Lessee. Lessee assigns to Lessor all
his right, title, and interest in any and all such awards.
(d) In the event of a partial taking, Lessee shall promptly proceed
to restore the remainder of the building on the demised premises to a self-
contained architectural unit, and Lessor shall pay to a Lessee the cost of
restoration but in no event to exceed a sum equal to the amount of the separate
award made to and received by Lessor for consequential damages. In the event
there is no separate award for consequential damage, the value shall be fixed
and settled by arbitration as herein provided. The balance of any separate award
or allocated amount not so used shall belong to and be retained by Lessor as its
sole property.
(e) In case of any governmental action not resulting in the taking or
condemnation of any portion of the demised premises but creating a right to
compensation therefor, or if less than a fee title to all of any portion of the
demised premises shall be taken or condemned by any governmental authority for
temporary use or occupancy, this lease shall continue in full force and effect
without reduction or abatement of rent, and the rights of the parties shall be
unaffected by the other provisions of this section, but shall be governed by
applicable law.
16. Subordination. This lease and all rights of Lessee hereunder shall be
-------------
subject and subordinate to the lien of any and all mortgages that may now or
hereafter affect the demised premises, or any part hereof, and to any and all
renewals, modifications, or extensions of any such mortgages. Lessee shall on
demand execute, acknowledge, and deliver to Lessor, without expense to Lessor,
any and all instruments that may be necessary or property to subordinate this
lease and all rights therein to the lien of any such mortgage or mortgages and
each renewal, modification, or extension, and if Lessee shall fail at any time
to execute, acknowledge, and deliver any such subordination instrument, Lessor
in addition to any other remedies available in consequence thereof, may execute,
acknowledge, and deliver the same as Lessee's attorney in fact and in Lessee's
name. Lessee hereby irrevocably makes, constitutes, and appoints Lessor, its
successors and assigns, his attorney in fact for that purpose.
17. Access to Premises; Signs Posted by Lessor. Lessee shall permit Lessor
------------------------------------------
or its agents to enter the demised premises at all reasonable hours to inspect
the premises or make repairs that Lessee may neglect or refuse to make in
accordance with the provisions of this lease, and also to show the premises to
prospective buyers. At any time within one year prior to expiration of the term,
Lessor may show the premises to persons wishing to rent the premises. Lessee
shall, within three (3) months prior to expiration of the term, permit the usual
notices of "For Rent" and "For Sale" to be placed on the demised premises and to
remain thereon without hindrance and molestation.
18. Easements, Agreements or Encumbrances. The parties shall be bound by
-------------------------------------
all existing easements, agreements, and encumbrances of record relating to the
demised premises,
8
<PAGE>
and Lessor shall not be liable to Lessee for any damages resulting from any
action taken by a holder of an interest pursuant to the rights of that holder
thereunder.
19. Quiet Enjoyment. Lessor warrants that Lessee shall be granted
---------------
peaceable and quiet enjoyment of the demised premises free from any eviction or
interference by Lessor if Lessee pays the rent and other charges provided
herein, and otherwise fully and punctually performs the terms and conditions
imposed on Lessee.
20. Liability of Lessor. Lessee shall be in exclusive control and
-------------------
possession of the demised premises, and Lessor shall not be liable for any
injury or damages to any property or to any person on or about the demised
premises nor for any injury or damage to any property of Lessee, except where
such injury or damage shall be the result of gross negligence or criminal
conduct on the part of the Lessor, Lessor's agents, employees or
representatives. The provisions herein permitting Lessor to enter and inspect
the demised premises are made to insure that Lessee is in compliance with the
terms and conditions thereof and makes repairs that Lessee has failed to make.
Lessor shall not be liable to Lessee for any entry on the premises for
inspection purposes.
21. Rent Abatement. No abatement, diminution, or reduction of rent shall
--------------
be claimed or allowed to Lessee or any person claiming under him under any
circumstances, whether for inconvenience, discomfort, interruption of business
or otherwise, arising from the making of alterations, improvements, or repairs
to the premises, because of any governmental laws or arising from and during the
restoration of the demised premises after the destruction or damage thereof by
fire or other cause or the taking or condemnation of a portion only of the
demised premises except as provided in Section Fifteen.
22. Representations by Lessor. At the commencement of the term Lessee
-------------------------
shall accept the buildings and improvements and any equipment in their existing
condition and state of repair, and Lessee agrees that no representations,
statements or warranties, express or implied, have been made by or on behalf of
Lessor in respect thereto except as contained in the provisions of this lease,
and Lessor shall in no event be liable for any latent defects.
23. Waivers. The failure of either party to insist on a strict performance
-------
of any of the terms and conditions hereof shall be deemed a waiver of the rights
or remedies that a party may have regarding that specific instance only, and
shall not be deemed a waiver of any subsequent breach or default in any terms
and conditions.
24. Notice. All notices to be given with respect to this lease shall be in
------
writing. Each notice shall be sent by registered or certified mail, postage
prepaid, and return receipt requested, to the party to be notified at the
address set forth herein or at such other address as either party may from time
to time designate in writing.
Every notice shall be deemed to have been given at the time it shall be
deposited in the United States Mails in the manner prescribed herein. Nothing
contained herein shall be
9
<PAGE>
construed to preclude personal service of any notice in the manner prescribed
for personal service of a summons or other legal process.
25. Arbitration. In a situation where this lease provides for the
-----------
settlement of a dispute or question by arbitration, the same shall be settled by
arbitration in accordance with the current rules of the American Arbitration
Association, and judgment on the award rendered may be entered in any court
having jurisdiction hereof.
26. Assignment, Mortgage, or Sublease. Neither Lessee nor his successors
---------------------------------
or assigns shall assign, mortgage, pledge, or encumber this lease or sublet the
demised premises in whole or in part, or permit the premises to be used or
occupied by others, nor shall this lease be assigned or transferred by operation
of law, without the prior consent in writing of Lessor in each instance. If this
lease is assigned or transferred, or if all or any part of the demised premises
is sublet or occupied by anybody other than Lessee, Lessor may, after default by
Lessee, collect rent from the assignee, transferee, subtenant, or occupant, and
apply the net amount collected to the rent reserved herein, but no such
assignment, subletting, occupancy, or collection shall be deemed a waiver of any
agreement or condition hereof, or the acceptance of the assignee, transferee,
subtenant, or occupant as Lessee. Lessee shall continue to be liable hereunder
in accordance with the terms and conditions of this lease and shall not be
released from the performance of the terms and conditions hereof. The consent by
Lessor to an assignment, mortgage, pledge, or transfer shall not be construed to
relieve Lessee from obtaining the express written consent of Lessor to any
future transfer of interest.
27. Option to Renew. Lessor grants to Lessee an option to renew this lease
---------------
for a period of five (5) years after expiration of the term of this lease. The
amount of monthly rent payable for the renewal term shall be based on the cost-
of-living index published by the United States Department of Labor, Bureau of
Labor Statistics, Office of Economic Analysis, Kansas City region-all items,
using the period of 1998-99 = 100 as the base period. The monthly rent for the
first renewal term shall be computed by dividing the sum of the base rent set
forth in Paragraph 2 above, which is the monthly rent installment for the
initial term of the lease, by the index number for the calendar month
immediately preceding the commencement of the renewal term, by the index number
for the first month of the initial term of this lease, and then multiplying that
amount by the index number for the month immediately preceding the initial month
of the renewal term of this lease, with all other terms and conditions of the
renewal term to be the same as those herein. To exercise this option Lessee must
give Lessor written notice of the intention to do so at least one hundred twenty
(120) days before the initial lease term expires.
28. Early Lease Termination Option. Lessor hereby grants to Lessee an
------------------------------
option to terminate this agreement after the initial five (5) year term, if the
option to renew shall have been exercised by Lessee. Such option shall permit
Lessee to cancel this agreement by
10
<PAGE>
providing to Lessor a 60-day written notice of intent to cancel the lease early,
effective on the next anniversary date during the second five (5) years of this
lease or during any subsequent renewal term of this lease, along with payment of
an early termination fee equal to twelve months' rental.
29. Lessee's Right to Sublet. Lessee shall at all times be permitted to
------------------------
sublet any or all of the demised property, subject to the prior written consent
of the Lessor, which shall not be unreasonably withheld.
30. Surrender of Possession. Lessee shall, on the last day of the term, or
-----------------------
on earlier termination and forfeiture of the lease, peaceably and quietly
surrender and deliver the demised premises to Lessor free of subtenancies,
including all buildings, additions, and improvements constructed or placed
thereon by Lessee, except movable trade fixtures, all in good condition and
repair. Any trade fixtures or personal property not used in connection with the
operation of the demised premises and belonging to Lessee, if not removed at the
termination or default, and if Lessor shall so elect, shall be deemed abandoned
and become the property of Lessor without any payment or offset therefor. Lessor
may remove such fixtures or property from the demised premises and store them at
the risk and expense of Lessee if Lessor shall not so elect. Lessee shall repair
and restore all damage to the demised premises caused by the removal of
equipment, trade fixtures, and personal property. Lessee and Lessor agree that a
Phase II Environmental Site Assessment ("Assessment"), including testing for
soil contamination, shall be performed by an environmental audit contractor to
be selected jointly by Lessor and Lessee. Lessee shall reimburse Lessor for the
entire cost of the Assessment and shall indemnify and hold Lessor harmless from
all actual costs required for abatement or redemption of hazardous substances,
as determined by the Assessment, including any redemption and cleanup of
contamination from any hazardous substances used by Lessee on the leased
premises during the term of the lease.
31. Remedies of Lessor.
------------------
(a) In the event of a breach or a threatened breach by Lessee of any
of the terms or conditions hereof, Lessor shall have the right of injunction to
restrain Lessee and the right to invoke any remedy allowed by law or in equity,
as if the specific remedies of indemnity or reimbursement were not provided
herein.
(b) The rights and remedies given to Lessor in this lease are
distinct, separate and cumulative, and no one of them, whether or not exercised
by Lessor, shall be deemed to be in exclusion of any of the other herein by
law or by equity provided.
(c) In all cases hereunder, and in any suit, action, or proceeding of
any kind between the parties, it shall be presumptive evidence of the fact of
the existence of a charge
11
<PAGE>
being due if Lessor shall produce a bill, notice, or certificate of any public
official entitled to give that notice to the effect that such charge appears of
record on the books in his office and has not been paid.
(d) No receipt of money by Lessor from Lessee after default or
cancellation of this lease in any lawful manner shall (1) reinstate, continue,
or extend the term or affect any notice given to Lessee, (2) operate as a waiver
of the right of Lessor to enforce the payment of rent and additional rent then
due or falling due, or (3) operate as a waiver of the right of Lessor to
recover possession of the demised premises by proper suit, action, proceeding,
or other remedy. After (1) service of notice of termination and forfeiture as
herein provided and expiration of the time specified therein, (2) the
commencement of any suit, action, proceeding, or other remedy, or (3) final
order or judgment for possession of the demised premises, Lessor may demand,
receive, and collect any monies due, without in any manner affecting such
notice, order or judgment. Any and all such monies so collected shall be deemed
to be payment on account of the use and occupation of the demised premises or at
the election of Lessor, on account of the liability of Lessee hereunder.
32. Total Agreement; Applicable to Successors. This lease contains the
-----------------------------------------
entire agreement between the parties and cannot be changed or terminated except
by a written instrument subsequently executed by the parties hereto. This lease
and the terms and conditions hereof apply to and are binding on the heirs, legal
representatives, successors, and assigns of both parties.
33. Applicable Law. This agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Missouri.
34. Time of the Essence. Time is of the essence in all provisions of this
-------------------
lease.
IN WITNESS WHEREOF, the parties have executed this lease at St. Joseph,
Missouri, the day and year first above written.
L & A DEVELOPMENT, L.L.C. VERDANT BRANDS, INC.
(formerly known as Ringer Corporation)
By: /s/ Ronald F. Butts By: /s/ Paul J. DiCicco
------------------------------- ------------------------------------
Ronald F. Butts, Manager Name: Paul J. DiCicco
Title: Sr. VP, Operations
Attest:
/s/ Monica Jeffries
---------------------------------------
Secretary
LESSOR LESSEE
12
<PAGE>
EXHIBIT "A"
A TRACT OF LAND IN THE NORTHWEST ONE-QUARTER OF THE SOUTHWEST ONE-QUARTER OF
SECTION THIRTY-SIX (36), TOWNSHIP FIFTY-SEVEN (57) NORTH, RANGE THIRTY-SIX (36)
WEST, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT 160 FEET EAST OF THE NORTHWEST
CORNER OF THE SOUTHWEST ONE-QUARTER OF SECTION THIRTY-SIX (36), TOWNSHIP FIFTY-
SEVEN (57) NORTH, RANGE THIRTY-SIX (36) WEST, THENCE EAST ALONG THE HALF-SECTION
LINE 1169.41 FEET TO THE NORTHEAST CORNER OF THE NORTHWEST QUARTER OF THE
SOUTHWEST ONE-QUARTER, THENCE SOUTH 195.38 FEET TO THE CENTER OF THE PUBLIC
ROAD, THENCE IN A SOUTHWESTERLY DIRECTION ALONG THE CENTER OF THE ROAD 1179.85
FEET TO A POINT 160 FEET EAST OF THE WEST LINE OF SAID SECTION, THENCE NORTH 340
FEET TO THE POINT OF BEGINNING,
ALSO, THE SOUTH ONE-HALF OF THE SOUTHWEST QUARTER OF THE NORTHWEST ONE-QUARTER
OF SECTION THIRTY-SIX (36), TOWNSHIP FIFTY-SEVEN (57) NORTH, RANGE THIRTY-SIX
(36) WEST, ALL IN BUCHANAN COUNTY, MISSOURI.
13
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 1, 1999, by and between Verdant
Brands, Inc. a Minnesota corporation (the "Company"), and John F. Hetterick , an
individual resident of Minneapolis, Minnesota ("Executive").
WHEREAS, Executive has heretofore been rendering services for the Company
as its Chief Operating Officer; and
WHEREAS, the Company and Executive wish to restate the terms and conditions
upon which Executive will render services for the Company or its affiliates in
the future.
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 or its
affiliates, 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 be deemed to
----
commence on the date of this agreement and shall continue until terminated in
accordance with section 8 of this agreement (the "Term").
3. Position and Duties.
-------------------
3.01 Service with Company. During the Term, 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 titles
of President and Chief Executive Officer and shall serve as a 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 and
---------------------
its affiliates 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 or its
affiliates during the Term. Executive hereby confirms 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.
4. Compensation.
------------
4.01 Base Salary. As compensation for all services to be rendered
-----------
by Executive under this agreement during the first year of the Term, the Company
shall pay to Executive a base salary of $200,000, 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 shall be reviewed and adjusted by the Company's Board of
Directors annually, but in no event shall the base salary for any year be less
than the base salary for the previous year.
4.02 Incentive Compensation. In addition to the base salary described
----------------------
in section 4.01, Executive shall be eligible to participate in an executive
compensation incentive plan that will provide
-1-
<PAGE>
for aggregate bonus payments of up to 60% of base salary based on a combination
of financial and non-financial objectives that are established by the Company's
Board of Directors.
4.03 Automobile Allowance. In addition to the compensation described
--------------------
in sections 4.01 and 4.02, the Company shall provide Executive with an
automobile allowance of $500 per month to cover the costs associated with owning
and operating an automobile for business purposes.
4.04 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. In addition, the Company shall make reimburse Executive, up
to an annual amount not to exceed Five Thousand Dollars ($5,000), for the
premium costs incurred by Executive for life insurance and long-term disability
income insurance policies which Executive maintains personally.
4.05 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.
4.06 Incentive Stock Options. Effective as of the date of next annual
-----------------------
meeting of the shareholders of the Company and subject to the approval by the
shareholders of an amendment to the Company's employee incentive stock option
plan to permit the Company is issue options for the purchase of more than
100,000 shares in any calendar year, the Company shall issue to Executive
incentive stock options for the purchase of 150,000 shares of the Company's
common stock at an exercise price equal to the fair market value of the
Company's common stock on the date of issuance of such stock options. Such stock
options shall vest in equal monthly installments over a three (3) year period.
In the event Executive is terminated by the Company without "Cause" or following
a "Change of Control" (as such terms are defined in section 8.05), all unvested
options shall become fully vested and immediately exercisable.
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 himself 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 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
-2-
<PAGE>
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 term
------------------------
of his employment by the Company or its affiliates and for a period of two (2)
years 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 development, manufacture, distribution, marketing, or
selling of products, accessories, devices or systems relating to, the products
or services being sold by the Company or its affiliates.
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 their 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 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 or its affiliates 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
-3-
<PAGE>
(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,
or
(e) Executive shall notify the Company within six (6) months of
Change of Control that he is terminating his employment with the Company.
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) without "cause" or is terminated by
Executive pursuant to subsection 8.01(e), 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 the event of such termination, the Company shall also pay
to Executive, as severance pay, (i) his base monthly salary for a period of
twenty four (24) months after the date of termination of employment, and
(ii) an amount equal to the average bonus paid to Executive for the two (2)
years immediately prior to the year of termination for 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 (1) lump sum within thirty (30) days
after the date of termination.
(b) In the event of any termination of the employment of Executive
by the Company pursuant to subsection 8.01(d) or by Executive pursuant to
subsection 8.01(e), Executive shall use reasonable best efforts to obtain
other comparable employment as promptly after such termination as is
possible. Notwithstanding the provisions of subsection 8.02(a), 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 twelve (12) 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 other than in accordance with subsection 8.01(e), 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)
-4-
<PAGE>
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
insurance for its executive-level employees, if Executive is unable, because of
illness or incapacity, to render normal employment services pursuant to this
agreement with reasonable accommodations for a period of ninety (90) days out of
any consecutive 180 day period.
8.04 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.
8.05 Definitions. As used in this agreement, the following terms
-----------
shall have the meanings set forth below:
(a) "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
responsibilities.
(b) A "Change of Control" shall mean the occurrence of any of the
following events:
-5-
<PAGE>
(i) a change of control of the Company of a nature required to
be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended ("Exchange Act"); or
(ii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of
the Company representing more than 50% of the combined
voting power of the Company's then outstanding securities;
or
(iii) the sale, lease, exchange or other transfer, directly or
indirectly, of all or substantially all of the assets of
the Company, in one transaction or in a series of related
transactions; or
(iv) a merger or consolidation to which the Company is a party
if the shareholders of the Company immediately prior to
the effective date of such merger or consolidation have
"beneficial ownership" (as defined in Rule 13d-3
promulgated under the Exchange Act) immediately following
the effective date of such merger or consolidation of
securities of the surviving company representing fifty
percent (50%) or more of the combined voting power of the
surviving corporation's then outstanding securities,
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.
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
-6-
<PAGE>
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 9.05. 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.
VERDANT BRANDS, INC.
By /s/ Stanley Goldberg
-------------------------------------------
Stanley Goldberg, Chairman
/s/ John F. Hetterick
----------------------------------------------
John F. Hetterick
-7-
<PAGE>
EXHIBIT 10.15
AGREEMENT
Agreement, dated as of December 6, 1999, by and between Verdant Brands,
Inc., a Minnesota corporation (the "Company"), and Stanley Goldberg, an
individual resident of Eden Prairie, Minnesota ("Goldberg").
WHEREAS, Goldberg has heretofore rendered executive employment services for
the Company as its President and CEO and, more recently as Chairman of its Board
of Directors; and
WHEREAS, Goldberg and the Company are parties to an Employment Agreement
dated September 23, 1992 and amended December 5, 1997 (the "Employment
Agreement"), which sets forth the terms and conditions of Goldberg's employment
by the Company; and
WHEREAS, pursuant to an Agreement, dated April 29, 1997 (the "Stock
Purchase Agreement"), the Company sold 30,000 (on a post reverse stock split
basis) shares of its common stock to Goldberg, and Goldberg made payment of the
purchase price of such shares by delivering to the Company his installment
promissory note which currently has an outstanding principal balance of $65,625
(the "Note"); and
WHEREAS, the Company and Goldberg have mutually agreed to terminate the
employment relationship between Goldberg and the Company, to enter into a
consulting agreement, pursuant to which Executive will render ongoing personal
services for the Company as its Chairman, and to modify Goldberg's equity and
other interests in the Company, on the terms and subject to the conditions set
forth in this agreement.
NOW THEREFORE, in consideration of the premises, the respective
undertakings of the Company and Goldberg set forth below and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Goldberg and the Company agree as follows:
1. Termination of Employment.
-------------------------
1.01. Resignation. Effective as of December 1, 1999 (the "Effective
-----------
Date"), Goldberg shall resign as the Chairman, Chief Executive Officer and an
employee of the Company.
1.02 Termination of Employment Agreement. Effective as of the
-----------------------------------
Effective Date, the Employment Agreement shall be terminated, shall be null and
void and shall have no continuing legal force or effect on either Goldberg or
the Company, except that the Company shall be obligated to make payment to
Goldberg of any salary, automobile allowance or expense reimbursement owing to
Goldberg for periods prior to the Effective Date.
1.03 Severance Payment. On the Effective Date, the Company shall
-----------------
make a cash severance payment to Goldberg in the amount of $235,000. Such
payment shall be in lieu of, and in complete satisfaction of, any obligations to
make severance or termination payments under the Employment Agreement or
otherwise. Such amount shall be inclusive of all amounts owing to Goldberg for
salary, accrued bonus, or vacation pay owing to Goldberg as of the Effective
Date. In addition, through the first anniversary of the Effective Date, the
Company shall, at its cost, provide medical, dental and disability income
insurance for Goldberg and his dependents under the Company's employee insurance
programs. After the first anniversary of the Effective Date and so long as
Goldberg is continuing to render services to the Company under the Consulting
Agreement described in section 3, the Company shall continue to provide such
insurance coverage for Goldberg so long as he can be covered
<PAGE>
under the Company's insurance programs, but Goldberg shall reimburse the Company
for the cost of such insurance coverage.
1.04 Release. As essential inducement to the Company to enter into
-------
this agreement, and as consideration for the commitments of the Company set
forth in this agreement, Goldberg agrees as follows:
(a) By this agreement Goldberg and the Company intend to settle any
and all claims Goldberg has or may have against the Company as a
result of its hiring Goldberg, Goldberg's employment with the Company,
and the cessation of Goldberg's employment with the Company, and
Goldberg acknowledges and agrees that the severance payment described
in section 1.03, the consulting arrangement contemplated by section 3
and the equity restructurings described in section 2 constitute
adequate consideration for the release set forth in this section 1.04.
(b) Goldberg, on behalf of himself and his heirs, personal
representatives, successors and assigns, and each of them, hereby
releases, acquits and forever discharges the Company and its officers,
directors, insurers, agents and employees and each of them (the
"Released Parties"), from any and all liabilities, claims, demands and
causes of action, either in law or in equity, known or unknown,
liquidated or unliquidated, which Goldberg ever had, has, or may claim
to have, for, upon, or by reason of any matter, act or thing prior to
the date of this agreement, including but not limited to, any cause of
action Goldberg could have asserted in any litigation against any of
the Released Parties, any cause of action or claim relating to
Goldberg's association with or employment by the Company, and/or any
cause of action or claim relating to the cessation of Goldberg's
employment with the Company. This release specifically encompasses,
but is not limited to, claims that could be brought under the
Minnesota Human Rights Act, Minn. Stat section 363.01 et seq., Title
VII, 42 U.D. C. section 2000(e) et seq., the Age Discrimination in
Employment Act, 29 U.S.C. section 621 et seq., the Americans with
Disabilities Act, 42 U.S.C. sections 12101-122213, and any other state
or federal statute, including any attorneys' fees that could be
awarded in connection with these or any other claims. This release
also specifically encompasses any and all claims grounded in contract
or tort theories, including, but not limited to breach of contract,
interference with contractual relations, promissory estoppel, breach
of the implied covenant of good faith and fair dealing, breach of
employee handbooks, manuals or other policies, wrongful discharge,
wrongful discharge in violation of public policy, defamation,
intentional or negligent infliction of emotional distress, breach of
fiduciary duty, negligent hiring, retention or supervision or any
other tort theory based on intentional or negligent conduct; provided,
however, that this release does not cover any claims arising from (i)
the commitments of the Company described in this agreement or the
exhibits to this agreement, or (ii) the officer and director
indemnification provisions of the Company's bylaws.
(c) Goldberg understands that he has twenty-one (21) days to consider
whether he should execute this agreement. Goldberg further
understands, however, that he is not required to take the entire
twenty-one (21) day period to decide whether he wishes to execute this
agreement and that he may do so on an accelerated basis without
prejudice to his own or the Company's rights under this agreement.
(d) Goldberg understands that he has the right to rescind or revoke
this agreement for any reason within fifteen (15) days after he signs
it. Goldberg understands that if he wishes to rescind, the rescission
must be in writing an must be hand-delivered or mailed
2
<PAGE>
to John Hetterick, the Company's President at the Company's offices at
9555 James Avenue South, Suite 200, Bloomington, Minnesota. Goldberg
also understands that if he elects to rescind this agreement, all
payments made to him concurrently with the execution of this agreement
or prior to such rescission will be immediately returned to the
Company.
(e) Goldberg acknowledges that the benefits contained in this
agreement which flow to Goldberg from the Company are subject to
termination, reduction, or cancellation in the event that Goldberg
takes any action or engages in any conduct deemed by the Company to be
in violation of this agreement.
(f) The parties agree that the terms and conditions of this agreement
are to be held in strict confidence. Goldberg agrees not to disclose
the terms and conditions of this agreement to any past, present, or
future employee of the Company, or any other individual or entity,
except his attorney, accountant, tax consultant, state and federal tax
authorities, or as may be required by law; and the Company also agrees
not to disclose the terms and conditions of this agreement, except as
it deems necessary to its managers, officers, directors, shareholders,
insurers, attorneys, accountants, auditors, state and federal tax
authorities, as may be required by disclosure requirements of
applicable securities laws or as may otherwise be required by law.
(g) This agreement shall not in any way be construed as an admission
by the Company that it has acted wrongfully with respect to Goldberg
or any other person, or that Goldberg has any rights whatsoever
against the Company, and the Company specifically disclaims any
liability to, or wrongful acts against, Goldberg or any other person,
on the part of itself, its employees or its agents.
2. Restructuring of Goldberg's Equity Interests.
--------------------------------------------
2.01 Cancellation of Stock Purchase Indebtedness. Effective as of the
-------------------------------------------
Effective Date, the Company shall cancel the Note and Goldberg shall thereafter
be released from any continuing obligation to make payment to the Company of his
obligations under the Note. As soon as practicable after the Effective Date,
the Company shall deliver to Goldberg (a) the original copy of the Note marked
"PAID IN FULL", and (b) the certificates evidencing the shares of the Company's
common stock which have been pledged to the Company to secure the payment of the
Note. As of the Effective Date, the Stock Purchase Agreement, the Note and the
stock pledge agreement entered into by Goldberg pursuant to the Stock Purchase
Agreement shall terminate, shall be null and void and shall be of no continuing
legal force or effect, except that the Company shall continue to be obligated to
make the cash bonus payment specified in section 6(a)(ii) of the Stock Purchase
Agreement to Goldberg on or before December 31, 1999.
2.02 Issuance of Stock Options. Concurrently with the execution of
-------------------------
this agreement, Company shall issue to Goldberg nonqualified stock options for
the purchase of 52,000 shares of the Company's common stock at an exercise price
equal to the fair market value of such shares on the Effective Date. Such stock
options shall be fully vested, shall have a term of five (5) years from the
Effective Date and shall be evidenced by a stock option agreement in the form
attached to this agreement as exhibit A.
3
<PAGE>
3. Future Services by Goldberg/Consulting Agreement.
------------------------------------------------
3.01 Chairman of the Board. Commencing as of the Effective Date,
---------------------
Goldberg shall be retained by the Company to render consulting and advisory
services to the Company, on the terms and conditions set forth in this section
3, as Chairman of the Company's Board of Directors. In such capacity, Goldberg
shall provide the Company and its senior executives with consultation and advice
on such strategic undertakings as shall be approved by the Company's Board of
Directors and, at the request of the Board or the Company's Chief Executive
Officer, shall provide oversight and/or become involved in operational matters
or business development initiatives that the Company undertakes. Goldberg shall
render such services for up to one-third of his business time and during the
balance of his business time shall be entitled to render such other services to
other entities as are not inconsistent with his responsibilities under this
section 3, his fiduciary responsibilities to the Company or his ongoing
noncompetition or nondisclosure commitments to the Company under sections 4 and
5 of this agreement, although the rendering of services by Goldberg pursuant to
this section 3 shall constitute one of Goldberg's primary business activities
during the Term (as defined in section 3.02). The consulting arrangement
contemplated by this section 3 shall be referred to as the "Consulting
Agreement".
3.02 Term. Unless terminated at an earlier date pursuant to section
----
3.07, the term of the Consulting Agreement shall extend for a period of three
(3) years after the Effective Date (the "Term").
3.03 Compensation. For services rendered by Goldberg pursuant to the
------------
Consulting Agreement, the Company shall pay Goldberg an annual fee of $125,000,
which amount shall be paid to him on a semi-monthly basis.
3.04 Status. In rendering services for the Company pursuant to the
------
Consulting Agreement, Goldberg shall be acting as an independent contractor and
not as an employee, partner or agent of the Company. As an independent
contractor, Goldberg shall have no authority, express or implied, to commit or
obligate the Company in any manner whatsoever, except as specifically authorized
from time to time in writing by the Company's Board of Directors or its Chief
Executive Officer, which authorization may be general or specific. Goldberg
shall be responsible for the payment to applicable tax authorities of all
federal, state or local income and FICA taxes payable with respect to
compensation payable to Goldberg for services rendered pursuant to the
Consulting Agreement; provided, however, that if the Company is determined to be
liable for collection and/or remittance of any such taxes, Goldberg shall
immediately reimburse the Company for all such payment made by the Company.
3.05 Expense Reimbursement. Goldberg shall be reimbursed by the
---------------------
Company in accordance with the policies and procedures that are established from
time to time by the Company for all reasonable and necessary out-of-pocket
expenses that are incurred by Goldberg in performing his duties under the
Consulting Agreement; provided, that (a) reimbursement for travel expenses
incurred by Goldberg shall be prorated if Goldberg also renders services for any
other entity during any trip on which he renders services for the Company, and
(b) Goldberg shall not be entitled to any reimbursement by the Company for
commuting between his personal residence and the Company's principal place of
business.
3.06 Grant of Options. As an incentive to Goldberg to render
----------------
consulting services pursuant to the Consulting Agreement which will increase the
value of the Company's stock, the Company shall grant to Goldberg an option for
the purchase of up to 50,000 shares of the Company's common stock at a purchase
price equal to the fair market value of the Company's stock on the Effective
Date. Such option shall have a term of five (5) years and shall vest and be
exercisable on a monthly basis in equal installments over the Term, with
acceleration of vesting on a sale or "change of control" of the Company and,
subject to section 3.07(c), termination of all unvested options at such time as
Goldberg ceases rendering consulting services for the Company pursuant to the
Consulting Agreement. Such option shall be evidenced by a nonqualified stock
option agreement in the form attached to this agreement as exhibit B which shall
be executed by Goldberg and the Company
4
<PAGE>
concurrently with the execution of this agreement. During the Term, Goldberg
shall not be entitled to participate in the Company's Non-employee Director
Stock Option Plan.
3.07 Termination.
-----------
(a) The provisions of the Consulting Agreement shall be terminated
prior to the expiration of the Term upon any of the following events:
(i) Goldberg's death, or
(ii) The Board of Directors of the Company determines (with
Goldberg abstaining from such determination if he is then
a member of the Board of Directors) that Goldberg has
become disabled, or
(iii) The Board of Directors notifies Goldberg that the
Consulting Agreement is being terminated for "cause", or
(iv) Either the Company or Goldberg elects to terminate the
Consulting 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,
(v) Goldberg is not reelected to the Company's Board of
Directors by the shareholders of the Company.
(b) For purposes of this section 3.07, the term "cause" shall mean:
(i) Goldberg has breached the provisions of section 4 or 5 of
the Consulting Agreement in any material respect, or
(ii) Goldberg has engaged in willful and material misconduct,
including willful and material failure to perform his
duties under the Consulting Agreement, or
(iii) Goldberg has committed fraud, misappropriation or
embezzlement in connection with the Company's or its
affiliates' business, or
(iv) Goldberg has been convicted or has pleaded guilty or nolo
contendere to criminal misconduct constituting a gross
misdemeanor or a felony, or
(v) Goldberg's use of narcotics, liquor or illicit drug has
had a detrimental effect on the performance of his
responsibilities under the Consulting Agreement.
(c) In the event that (i) the Consulting Agreement is terminated
pursuant to section 3.07(a)(v), or (ii) the Company (through a vote of
a majority of the Company's Board of Directors) elects to terminate
Goldberg's engagement pursuant to section 3.07(a)(iv) without "cause",
then (x) the Company shall pay to Goldberg, as severance pay, his
monthly fee for the balance of the Term, and (y) all options which
would otherwise have vested under section 3.06 during the contract
year of termination (i.e. the fiscal period ending on the next
November 30th) shall be accelerated and shall become fully vested as
of the date of termination; provided, however that the Company's
obligation to make such severance payments pursuant to this section
3.07(c)(i) subsequent to the second
5
<PAGE>
anniversary of the Effective Date shall be offset by any consideration
in excess of $200,000, which Goldberg receives from the rendering of
personal services for any other entity.
3.08 Office Space. For a period of twelve (12) consecutive months,
------------
commencing at the election of Goldberg (but no later than April 1, 2000), the
Company shall reimburse Goldberg up to $1,000 per month for the costs of
maintaining off-site office space and support services, although the Company
shall have no obligation to make such expense reimbursement to Goldberg after
March 31, 2001. To the extent that office space is available (on a workable
basis) at the Company's principal offices in Bloomington, Minnesota, the Company
will also make an office space and support services available to Goldberg at
that site for use by Goldberg in rendering services under the Consulting
Agreement.
3.09 Business Development Incentive Bonus. If during the Term, (a)
------------------------------------
(i) the Board of Directors of the Company requests Goldberg's assistance in
completing a sale of the Company, or (ii) the Board of Directors or the Chief
Executive Officer of the Company requests Goldberg's assistance in completing a
sale of any business unit of the Company or the acquisition of any other
business, and (b) Goldberg actively participates in the negotiations leading to
the completion of such sale or acquisition as one of the Company's principal
representatives, the Company shall pay to Executive, concurrently with the
closing of any such sale or acquisition, a fee equal to the lesser of (aa)
$250,000, or (bb) 1% of the consideration paid or received by the Company or its
shareholders in such sale or acquisition transaction; provided, however, that
the fee shall be reduced to .5% of the sale or acquisition consideration if the
Company is obligated to pay a success fee to any investment banker or business
broker in connection with such transaction.
4. Confidentiality Agreement. Except as permitted or directed by the
-------------------------
Company's Board of Directors, during the term of the Consulting Agreement or at
any time thereafter, Goldberg 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
that Goldberg has acquired or become acquainted with or will acquire or become
acquainted with prior to the termination of (a) his employment by the Company or
(b) the Consulting Agreement, whether developed by himself 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. Goldberg
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 that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company would be
wrongful and would cause irreparable harm to the Company. Both during and after
the term of the Consulting Agreement, Goldberg 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 shall not apply to any
knowledge or information that 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
Goldberg.
5. Noncompetition Covenant.
-----------------------
5.01 Agreement Not to Compete. During the Term, Goldberg shall not,
------------------------
directly or indirectly, engage in any activities (e.g., as an advisor,
consultant, principal, agent, partner, officer, director, employee or otherwise)
on behalf of any entity which involves (a) the rendering of services or the
providing of counsel or advice on matters in which such entity is in competition
with any business
6
<PAGE>
then being conducted by the Company or with respect to which the Company is
actively seeking to becoming engaged, or (b) rendering counsel, advice or
assistance to any entity in connection with the acquisition of any business
which is competition with any business then being conducted by the Company or
respect to which the Company is actively seeking to become engaged. During the
Term and for a period of one (1) year after the termination of the Consulting
Agreement, Goldberg shall not hire any person who was an employee of the Company
at any time during the Term, or induce or cause any such employee to leave the
employment of the Company.
5.02 Geographic Extent of Covenant. The obligations of Goldberg under
-----------------------------
this section 5 shall apply to any geographic area in which the Company (a) has
engaged in business during the Term through production, promotional, sales or
marketing activity, or otherwise, or (b) has otherwise established its goodwill,
business reputation or any customer or supplier relations.
5.03 Limitation of Covenant. This covenant shall not preclude
----------------------
Goldberg from rendering services for any entity (the "Other Entity") that is
engaged in a business that is competitive with any business that is being
conducted by the Company so long as (a) the services rendered by Goldberg only
relate to a non-competitive component of the Other Entity's business operations,
(b) Goldberg notifies the Company's Board of Directors and Chief Executive
Officer in writing of the identity of the Other Entity and the nature of the
services to be provided for the Other Entity prior to commencement of services
for the Other Entity, and (c) Goldberg does not otherwise violate the provisions
of section 4 of this agreement or any fiduciary responsibilities to the Company
that arise from his membership on the Company's Board of Directors.
6. Miscellaneous.
-------------
6.01 Governing Law. This agreement is made under and shall be
-------------
governed by and construed in accordance with the laws of the state of Minnesota.
6.02 Entire Agreement. This agreement evidences the entire agreement
----------------
of Goldberg and the Company relating to the Consulting Agreement and the other
matters discussed herein and supersedes all prior agreements and understandings,
whether written or oral, relative to such 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. No amendment or modification
of this agreement shall be deemed effective unless made in writing and signed by
both the Company and Goldberg.
6.03 Assignment. This agreement and the rights and obligations of the
----------
Company and Goldberg hereunder shall not be assignable, in whole or in part, by
either party without the prior written consent of the other party.
6.04 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.
6.05 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 extend 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
7
<PAGE>
which may validly and enforceably be covered. Goldberg 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.
6.06 Injunctive Relief. Goldberg 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 4 and/or
5 of this agreement. Accordingly, Goldberg 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.
6.07 Legal Review. Goldberg acknowledges that he has been advised
------------
by the Company to consult with legal counsel prior to executing this agreement
and that he has entered into this agreement after securing such legal advice as
he as determined to be necessary to understand the legal significance to him of
the release set forth in section 1.04 and the other provisions of this
agreement.
IN WITNESS WHEREOF, Goldberg and the Company have executed this agreement
as of the date set forth on the first paragraph.
VERDANT BRANDS, INC.
By /s/ John Hetterick
-------------------------------------
John Hetterick, President
/s/ Stanley Goldberg
---------------------------------------
Stanley Goldberg
8
<PAGE>
Exhibit A
VERDANT BRANDS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
(FULLY-VESTED)
Stock Option Agreement, made and entered into as of the 1/st/ day of
December, 1999, between Verdant Brands, Inc., a Minnesota corporation (the
"Company"), and Stanley Goldberg, an individual resident of the state of
Minnesota ("Goldberg").
WHEREAS, Goldberg and the Company have entered into a separate
agreement, dated December 6, 1999, pursuant to which the Company has agreement
to issue certain stock options to Goldberg in connection with the termination of
his employment with the Company; and
WHEREAS, the Company has adopted the Verdant Brands, Inc.1996
Incentive and Stock Option Plan (the "Plan") which permits issuance of stock
options for the purchase of shares of common stock of the Company, and the
Company has taken all necessary actions to grant the following option pursuant
and subject to the terms of the Plan.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and Goldberg hereby agree
as follows:
1. Grant of Option. The Company hereby grants Goldberg the right
---------------
and option (hereinafter called the "Option") to purchase all or any part of an
aggregate of fifty-two thousand (52,000) shares of the Company's common stock
(the "Shares") at the option price of $2.81 per share on the terms and
conditions set forth in this agreement and in the Plan. The Option shall not be
an Incentive Stock Option governed by the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended. A copy of the Plan will be furnished
upon request of Goldberg.
2. Exercise of Option Rights. The Option may be exercised by
-------------------------
Goldberg, in whole or in part, at any time prior to the close of business on
December 1, 2004, but the Option shall expire and Goldberg shall have no rights
under the Option or this agreement subsequent to such date. Goldberg shall not
have any of the rights of a shareholder with respect to any of the Shares until
such Shares shall be issued to Goldberg upon the proper exercise of the Option.
3. Method of Exercise of Option. Subject to the foregoing, the
----------------------------
Option may be exercised in whole or in part from time to time by serving written
notice of exercise on the Company at its principal office in Bloomington,
Minnesota. The notice shall set forth the number of Shares for which the Option
is being exercised and shall be accompanied by payment of the purchase price of
the Shares being purchased.
4. Miscellaneous.
-------------
(a) Neither Goldberg nor Goldberg's legal representative, legatees or
distributees, as the case may be, will be or will be deemed to be the holder of
any Shares subject to the Option unless and until the Option has been exercised
and the purchase price of the Shares purchased has been paid.
(b) The Option may not be transferred, except by will or the laws of
descent and distribution or except to persons who are related to Goldberg by
blood or marriage (or trusts for the benefit of Goldberg or any such persons).
9
<PAGE>
(c) If there shall be any change in the stock subject to the Option
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split or other change in the corporate structure of the Company,
appropriate adjustments shall be made by the Company in the number of Shares and
the purchase price of the Shares in order to prevent dilution or enlargement of
the option rights granted hereunder.
(d) The Company shall at all times during the term of the Option
reserve and keep available such number of shares of the Company's common stock
as will be sufficient to satisfy the requirements of this agreement.
IN WITNESS WHEREOF, the Company and Goldberg have executed this
agreement on the date set forth in the first paragraph.
VERDANT BRANDS, INC.
By /s/ John Hetterick
-----------------------------------
John Hetterick, President
[the "Company"]
/s/ Stanley Goldberg
--------------------------------------
Stanley Goldberg
["Goldberg"]
10
<PAGE>
Exhibit B
VERDANT BRANDS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
(CONSULTANT)
Stock Option Agreement, made and entered into as of the 1/st/ day
of December, 1999 (the "Effective Date"), between Verdant Brands, Inc., a
Minnesota corporation (the "Company"), and Stanley Goldberg, an individual
resident of the state of Minnesota ("Goldberg").
WHEREAS, Goldberg and the Company have entered into a separate
agreement, dated December 6, 1999, pursuant to which the Company has agreed to
issue certain stock options to Goldberg in connection with the performance by
Goldberg of consulting services to the Company (the "Consulting Agreement"); and
WHEREAS, the Company has adopted the Verdant Brands, Inc. 1996
Incentive and Stock Option Plan (the "Plan") which permits issuance of stock
options for the purchase of shares of common stock of the Company, and the
Company has taken all necessary actions to grant the following option pursuant
and subject to the terms of the Plan.
NOW THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and Goldberg hereby
agree as follows:
1. Grant of Option. The Company hereby grants Goldberg the
---------------
right and option (hereinafter called the "Option") to purchase all or any part
of an aggregate of fifty thousand (50,000) shares of the Company's common stock
(the "Shares") at the option price of $2.81 per share on the terms and
conditions set forth in this agreement and in the Plan. The Option shall not be
an Incentive Stock Option governed by the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended. A copy of the Plan will be furnished
upon request of Goldberg.
2. Exercise of Option Rights. (a) Subject to earlier
-------------------------
termination as set forth in section 2(c) of this Agreement, the Option shall in
all events terminate five (5) years after the Effective Date and shall
thereafter be null and void.
(b) Except as otherwise provided in section 2(a) or section 2(c) of
this Agreement, the Option shall vest and shall be exercisable with respect to
1388 Shares for each full calendar month between the Effective Date and the
earlier of (i) the date of termination of the Consulting Agreement, or (ii) the
date of exercise.
(c) Notwithstanding the foregoing, (i) if (x) the Consulting
Agreement is terminated by the Company without "cause" pursuant to section
3.07(a)(iv) of the Consulting Agreement, or (y) the Consulting Agreement is
terminated pursuant to section 3.07(a)(v) thereof, the Option shall be deemed to
vest with respect to the number of Shares that would have vested in the year of
termination if the Consulting Agreement had not been terminated, and (ii) if, at
a time when the Consulting Agreement is in effect, (x) the Company or
substantially all of its assets are sold or otherwise acquired, by merger or
otherwise, or (y) a "change of control", as defined in section 2(d) occurs with
respect to the Company, the Option shall be immediately exercisable with respect
to all of the Shares.
(d) For purposes of section 2(c), the term "change of control" shall
mean the occurrence of any of the following events: (i) a public announcement
that any person has acquired or has the right to acquire
11
<PAGE>
beneficial ownership of 51% or more of the then outstanding shares of common
stock of the Company and, for this purpose, the terms "person" and "beneficial
ownership" shall have the meanings provided in Section 13(d) of the Securities
Exchange Act of 1934 or related rules promulgated by the Securities and Exchange
Commission; (ii) the commencement of or public announcement of an intention to
make a tender or exchange offer for 51% or more of the then outstanding shares
of the common stock of the Company; or (iii) the Board of Directors of the
Company, in its sole and absolute discretion, determines that there has been a
sufficient change in the stock ownership of the Company to constitute a change
in control of the Company.
3. Method of Exercise of Option. Subject to the foregoing, the
----------------------------
Option may be exercised in whole or in part from time to time by serving written
notice of exercise on the Company at its principal office in Bloomington,
Minnesota. The notice shall set forth the number of Shares for which the Option
is being exercised and shall be accompanied by payment of the purchase price of
the Shares being purchased.
4. Miscellaneous.
-------------
(a) Neither Goldberg nor Goldberg's legal representative, legatees or
distributees, as the case may be, will be or will be deemed to be the holder of
any Shares subject to the Option unless and until the Option has been exercised
and the purchase price of the Shares purchased has been paid.
(b) The Option may not be transferred, except by will or the laws of
descent and distribution or except to persons who are related to Goldberg by
blood or marriage (or trusts for the benefit of Goldberg or any such persons).
(c) If there shall be any change in the stock subject to the Option
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split or other change in the corporate structure of the Company,
appropriate adjustments shall be made by the Company in the number of Shares and
the purchase price of the Shares subject to the Option in order to prevent
dilution or enlargement of the option rights granted hereunder.
(d) The Company shall at all times during the term of the Option
reserve and keep available such number of shares of the Company's common stock
as will be sufficient to satisfy the requirements of this agreement.
IN WITNESS WHEREOF, the Company and Goldberg have executed this
agreement on the date set forth in the first paragraph.
VERDANT BRANDS, INC.
By /s/ John Hetterick
---------------------------------------
John Hetterick, President
[the "Company"]
/s/ Stanley Goldberg
-----------------------------------------
Stanley Goldberg
["Goldberg"]
12
<PAGE>
EXHIBIT 10.17
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
THIS SEPARATION AGREEMENT AND GENERAL RELEASE ("Agreement") is entered into
this 6/th/ day of December, 1999, by and between Mark G. Eisenschenk, an
individual resident of North Oaks, Minnesota ("Eisenschenk"), and Verdant
Brands, Inc., a Minnesota corporation formerly known as Ringer Corporation
("Verdant").
WHEREAS, Eisenschenk has been an exemplary employee of Verdant for more
than five (5) years and currently serves as Verdant's Executive Vice President,
Chief Financial Officer, Treasurer and Secretary;
WHEREAS, Verdant and Eisenschenk have mutually agreed that it is in each of
their best interests for Eisenschenk's employment with Verdant to cease at the
close of business on December 1, 1999 (the "Termination Date"); and
WHEREAS, as an inducement to Verdant to enter into this Agreement,
Eisenschenk is willing to provide Verdant with a full and complete release of
all actual and potential claims which Eisenschenk may have against Verdant,
including, but not limited to, any claim that might arise out of Eisenschenk's
employment with Verdant or the termination thereof;
NOW, THEREFORE, in consideration of the premise, the respective promises
contained herein, and other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Eisenschenk and Verdant agree as
follows:
1. Eisenschenk and Verdant agree that Eisenschenk's employment with
Verdant shall be deemed to have terminated at the close of business on the
Termination Date.
2. In full settlement of all charges, rights, suits, demands,
controversies, claims and/or causes of action which Eisenschenk may have, or
claim to have, against Verdant, Verdant agrees to make the following payments to
Eisenschenk and provide the following benefits to Eisenschenk for the period
beginning on the Termination Date and ending on November 30, 2000 (the
"Severance Period"), unless otherwise noted:
(a) The sum of $125,000, as severance pay, paid ratably on a semi-
monthly basis, less legally required deductions and withholdings, during the
Severance Period;
(b) One hundred percent (100%) of his Verdant-sponsored group health,
dental and long-term disability insurance benefits providing for family
coverages for health and dental coverages, or at the option of Eisenschenk,
reimbursement for 100% of the cost of similar health, dental and long-term
disability insurance policies if such policies are obtained by Eisenschenk from
other insurance carriers;
(c) An executive office space allowance of $1,000 per month for a
period of one (1) year beginning on the earlier of (i) date in which Eisenschenk
first secures and occupies such office space; or (ii) March 1, 2000; and
(d) Transfer to Eisenschenk of the personal computer system which is
currently utilized by Eisenschenk at Verdant, consisting of a computer
processor, monitor and printer.
Notwithstanding the above, if during the Severance Period, Eisenschenk
obtains full-time employment from an employer other than Verdant, (i) the amount
of compensation he receives from such
-1-
<PAGE>
other employment from and after the date which is six (6) months after the
Termination Date shall be offset dollar-for-dollar against Verdant's severance
obligations under this Agreement, and (ii) the insurance benefits provided under
section 2(b) shall terminate as of the date that comparable coverage under such
new employment commences.
3. Effective as of the Termination Date, the Company shall cancel that
certain promissory note, dated April 29, 1997 (the "Note"), which was delivered
to the Company by Eisenschenk in connection with the purchase by Eisenschenk of
10,000 (post-reverse stock split) shares of the Company's common stock pursuant
to an agreement, dated April 29, 1997 (the "Stock Purchase Agreement"), and
Eisenschenk shall thereafter be released from any continuing obligation to make
payment to the Company of his obligations under the Note. As soon as
practicable after the Termination Date, the Company shall deliver to Eisenschenk
(a) the original copy of the Note marked "PAID IN FULL", and (b) the
certificates evidencing the shares of the Company's common stock which have been
pledged to the Company to secure the payment of the Note. As of the Termination
Date, the Stock Purchase Agreement, the Note and the stock pledge agreement
entered into by Eisenschenk pursuant to the Stock Purchase Agreement shall
terminate, shall be null and void and shall be of no continuing legal force or
effect, except that the Company shall continue to be obligated to make the cash
bonus payment specified in section 6(a)(ii) of the Stock Purchase Agreement to
Eisenschenk on or before December 31, 1999.
4. During the Severance Period, any claim submitted by Eisenschenk under
Verdant's group health and/or dental insurance programs is a matter between
Eisenschenk and the insurance carrier, and Verdant does not represent or warrant
that any such claim will be paid. All other items of remuneration not
specifically mentioned above, including, but not limited to, unused or accrued
vacation, bonuses, and commissions have been resolved and are included in the
Severance Pay.
5. (a) By this Agreement, Eisenschenk and Verdant intend to settle any
and allclaims Eisenschenk has or may have against Verdant as a result of its
hiring Eisenschenk, Eisenschenk's employment with Verdant, and/or the cessation
of Eisenschenk's employment with Verdant and Eisenschenk acknowledges and agrees
that the severance payment and other consideration transferred to Eisenschenk
pursuant to this Agreement provide adequate consideration for the release set
forth below.
(b) For the payment and considerations expressed herein, Eisenschenk
on behalf of himself and his heirs, personal representatives, successors and
assigns, and each of them, hereby releases and discharges Verdant, its officers,
employees, agents, assigns, insurers, representatives, counsel, successors,
shareholders, and/or directors from all liability for damages and agrees not to
institute any claim for damages, by charge or otherwise, nor authorize any other
party, governmental or otherwise, to institute any claims for damages via
administrative or legal proceedings against Verdant for any such claims,
including any and all claims relating to discrimination of any kind; and any
contract, quasi contract, or tort claims, whether developed or undeveloped,
arising from or related to Verdant's hiring of Eisenschenk, Eisenschenk's
employment with Verdant, and/or the cessation of Eisenschenk's employment with
Verdant; however, Eisenschenk does not waive any claims arising after the
execution of this Agreement (including claims for expense reimbursement under
section 10).
(c) Eisenschenk has been informed of his right to revoke this
Agreement as it relates to and extends to potential claims under the Age
Discrimination in Employment Act 29 U.S.C. (S)(S) 621, et seq. by informing
------
Verdant of his intent to revoke this Agreement within seven (7) calendar days
following his execution of this Agreement. This Agreement shall not become
effective or enforceable until such seven (7) day period has expired.
(d) The terms of this Agreement shall be open for acceptance by him
for a period of fourteen (14) days during which time he may consider whether to
accept this Agreement. Such fourteen
-2-
<PAGE>
(14) day period shall begin to run on the date of this Agreement, and this
Agreement shall not become effective or enforceable until such seven (7) day
period has expired.
6. During each of the first three (3) months of the Severance Period,
Eisenschenk agrees to provide Verdant with up to ten (10) hours of his time to
assist Verdant with issues to which Eisenschenk has special knowledge. To the
extent Eisenschenk provides services to Verdant in excess of ten (10) hours per
month during the first three (3) months of the Severance Period, Verdant shall
compensate Eisenschenk at the rate of $75 per hour, which compensation shall be
paid to Eisenschenk within fourteen (14) days of Eisenschenk's presentation of
billing for such services.
7. During the Severance Period, Eisenschenk shall not participate in
activities deemed to be in direct competition with Verdant in any phase of its
business, including the rendering of services relating to the design,
development, manufacture, distribution, marketing, leasing or selling of
accessories, devices or systems related to the products or services currently
being sold by Verdant. However, advisory services provided by Eisenschenk to
businesses in the lawn and garden, agricultural, pest control and
environmentally sensitive products industries which relate to general corporate,
business development and corporate financing matters are not a violation of this
covenant not-to-compete with Verdant.
8. The benefits contained in this Agreement which flow to Eisenschenk
from Verdant are subject to termination, reduction, or cancellation in the event
that Eisenschenk takes any action or engages in any conduct deemed by Verdant to
be in violation of this Agreement.
9. Eisenschenk agrees not to disclose the terms and conditions of this
Agreement to any past, present, or future employee of Verdant, or any other
individual or entity, except his attorney, accountant, tax consultant, state and
federal tax authorities, or as may be required by law; and Verdant also agrees
not to disclose the terms and conditions of this Agreement, except as it deems
necessary to its managers, officers, directors, shareholders, insurers,
attorneys, accountants, auditors, state and federal tax authorities, or as may
be required by law.
10. Eisenschenk will submit any final open expense reports to Verdant for
reimbursement by December 20, 1999. After the Termination Date, Eisenschenk
shall no longer be authorized to incur any expenses, obligations or liabilities
on behalf of Verdant, unless such items have been pre-approved by Verdant's
President.
11. (a) This Agreement is personal to Eisenschenk and may not be assigned
by Eisenschenk to any person or entity with the exception of Eisenschenk's
surviving spouse and/or estate without the written agreement of Verdant.
(b) This Agreement shall not in any way be construed as an admission
by Verdant that it has acted wrongfully with respect to Eisenschenk or any other
person, or that Eisenschenk has any rights whatsoever against Verdant, and
Verdant specifically disclaims any liability to, or wrongful acts against,
Eisenschenk or any other person, on the part of itself, its employees or its
agents.
(c) In the event that federal or state agencies request information
from Verdant concerning the date Eisenschenk left his employment at Verdant,
Verdant will respond that his employment terminated upon the close of business
on the Termination Date.
(d) This Agreement contains the entire agreement between the parties.
Eisenschenk here by affirms that his rights to payments or benefits from Verdant
are specified exclusively and completely in this Agreement. Any modification
of, or addition to, this Agreement must be in writing signed by Eisenschenk and
by Verdant.
-3-
<PAGE>
(e) To the extent any clause or provision of this Agreement shall be
determined to be invalid and unenforceable, such clause or provision shall be
deleted and the validity and enforceability of the remainder of this Agreement
shall be unaffected.
(f) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Minnesota.
(g) Eisenschenk hereby affirms and acknowledges that he has been
advised to consult with an attorney prior to executing this Agreement.
Eisenschenk warrants and represents that he understands the meaning of the terms
of this Agreement and their effects and that he enters into this Agreement
freely and voluntarily.
IN WITNESS WHEREOF, Eisenschenk and Verdant have executed this Agreement by
their signatures below.
/s/ Mark G. Eisenschenk
------------------------------------
Mark G. Eisenschenk
VERDANT BRANDS, INC.
By /s/ Stanley Goldberg
----------------------------------
Stanley Goldberg, Chairman
-4-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Safer, Inc.:
A wholly-owned subsidiary of Verdant Brands, Inc., incorporated under the
laws of the State of Delaware.
Safer, Ltd.:
A wholly-owned subsidiary of Safer, Inc., incorporated under the laws of
Canada.
Southern Resources, Inc.:
A wholly-owned subsidiary of Verdant Brands, Inc., incorporated under the
laws of the State of Georgia.
Sureco, Inc.:
A wholly-owned subsidiary of Southern Resources, Inc., incorporated under
the laws of the State of Georgia.
Peach County Property, Inc.:
A wholly-owned subsidiary of Southern Resources, Inc., incorporated under
the laws of the State of Georgia.
Consep, Inc.:
A wholly-owned subsidiary of Verdant Brands, Inc., incorporated under the
laws of the State of Oregon.
Pacoast, Inc. (d/b/a Pacoast Chemical Company; Protech Spray Service; Central
California Ag Service)
A wholly-owned subsidiary of Consep, Inc., incorporated under the laws of
the State of California.
Richard Hunt, Inc. (d/b/a Sierra Ag Chemical):
A wholly-owned subsidiary of Consep, Inc., incorporated under the laws of
the State of California.
Valley Green Center, Inc.:
A wholly-owned subsidiary of Consep, Inc., incorporated under the laws of
the State of Massachusetts.
Farchan Laboratories, Inc.:
A wholly-owned subsidiary of Consep, Inc., incorporated under the laws of
the State of Florida.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Verdant Brands, Inc.
We consent to the incorporation by reference in Registration Statement numbers
33-37806, 33-72666, 333-88781 and 333-88785 of Verdant Brands, Inc. and
subsidiaries on Form S-8 of our report dated March 30, 2000, appearing in this
Annual Report on Form 10-KSB of Verdant Brands, Inc. and subsidiaries for the
year ended December 31, 1999.
Deloitte & Touche LLP
March 30, 2000
Minneapolis, Minnesota
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John Hetterick and Volker Oakey and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution for him and in his name, place and stead, in any and all
capacities, to sign the Verdant Brands, Inc. (the "Company") Annual Report on
Form 10-KSB for the year ended December 31, 1999 (the "1999 Form 10-KSB") under
the Securities Exchange Act of 1934, as amended, and any and all amendments
thereto, and to file such 1999 Form 10-KSB and any and all such amendments, with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, state securities administrations and any and
all other agencies or administrations as may be deemed necessary or advisable by
said attorneys-in-fact and agents, and each of them, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on the 27th day
of March 2000, by the following persons:
/s/ Gordon F. Stofer /s/ Robert W. Fischer
- ------------------------------- ---------------------
Gordon F. Stofer Robert W. Fischer
/s/ Stanley Goldberg /s/ Donald E. Lovness
- ------------------------------- ---------------------
Stanley Goldberg Donald E. Lovness
/s/ John R. Hetterick /s/ Franklin Pass
- ------------------------------- ---------------------
John R. Hetterick Franklin Pass
/s/ Frederick F. Yanni, Jr. /s/ Richard Mayo
- ------------------------------- ---------------------
Frederick F. Yanni, Jr. Richard Mayo
/s/ Volker Oakey /s/ John A. Hinds
- ------------------------------- ---------------------
Volker Oakey John A. Hinds
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 122,226
<SECURITIES> 0
<RECEIVABLES> 15,736,761
<ALLOWANCES> (1,224,000)
<INVENTORY> 19,124,200
<CURRENT-ASSETS> 34,560,250
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0
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<COMMON> 49,540,782
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<TOTAL-LIABILITY-AND-EQUITY> 52,003,072
<SALES> 74,719,701
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<TOTAL-COSTS> 31,866,317
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<INCOME-PRETAX> (10,900,811)
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