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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
Commission file number 0-19352
AGRIBIOTECH, INC.
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(Name of small business issuer in its charter)
Nevada 85-0325742
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2700 Sunset Rd., Suite C-25, Las Vegas, Nevada 89120
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (702) 798-1969
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Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.001 per share.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of the 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 [].
The issuer's revenues for its most recent fiscal year were
$25,961,541.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of September 25, 1996, was $22,302,685 (assuming solely
for purposes of this calculation that all directors, officers and greater than
5% stockholders of the Registrant are "affiliates").
The number of shares outstanding of the issuer's common stock, par
value $.001 per share, as of September 25, 1996, was 10,761,303.
Documents Incorporated by Reference: Not Applicable.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
AgriBioTech, Inc. (the "Company") is a full service seed company
specializing in forage seed and turf grass seed. The Company is becoming the
leader in the forage and turf grass seed industry through an acquisition program
initiated in January 1995. The Company is becoming vertically integrated
through the acquisition of research companies, production companies (having seed
cleaning, conditioning, processing and packaging facilities) and distribution
companies throughout the United States. The Company has completed ten
acquisition transactions since January 1, 1995 and has one pending. These
eleven acquisitions will give the Company complete vertical integration
throughout the alfalfa and sorghum sundangrass hybrid forage seed industry with
distribution in forty-three states and six foreign countries. Closing of the
eleventh acquisition would make the Company the fourth largest Company in the
forage seed industry in the United States with historical annualized revenues of
approximately $57 million.
The statements discussed in this Report include forward looking statements
that involve a number of risks and uncertainties. These include the Company's
lack of profitability, need to manage its growth, intense competition in the
seed industry, seasonality of quarterly results, and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission.
The Company, a Nevada corporation, was formed under the laws of the State
of Colorado on December 31, 1987, under the name Sussex Ventures, Ltd.
("Sussex"). The Company was an inactive development stage company until
September 30, 1993 when it acquired all of the outstanding stock of AgriBioTech,
Inc., a Nevada corporation ("ABT"). ABT was treated as the acquiring
corporation in the transaction, which was accounted for as a reverse purchase.
In June 1994, the Company merged with and into ABT, then a wholly-owned
subsidiary of the Company, and changed its name to AgriBioTech, Inc. The
Company had limited revenues until 1995, when it commenced its acquisition
program.
The Company's principal executive offices are located at Suite C-25, 2700
Sunset Road, Las Vegas, Nevada 89120, and its telephone number is (702) 798-
1969.
BUSINESS STRATEGY
The Company's strategy is to continue to acquire attractive companies that
specialize in the forage and turf grass seed industry, with the objective of
becoming the largest marketer of forage seed in the United States during the
fiscal year ending June 30, 1997. The Company's long-term goal is to achieve a
45% market share of the $1.1 billion forage and turf grass seed sectors in the
year 2000. The Company considers three parts of the seed cycle to be suitable
and necessary for the successful implementation of the consolidation and
vertical integration goals of the Company: research, production and
distribution.
[An omitted graphic illustration of the seed production/distribution cycle
appears here. It shows a circular progression using arrows and several small
(less than one inch high) illustrations and includes the following text:
Research. Develops Genetically Superior Proprietary Products. Seed Stocks
(Foundation Seed): Provided to individual farmers under contract. Farmer
Grows: Commercial Seed (Certified Seed) under contract with Regional Production
Companies. Uncleaned Seed Delivered to Production Company. Seed Cleaning
Plant: Production Company cleans, processes, coats and bags seed. Seed sold to
Regional Distribution Companies. Regional Distribution Companies warehouse,
market wholesale &/or retail seed and deliver to Local Outlet. Customer: i.e.,
forage farmer, homeowner, golf course.]
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1. Research: Varieties are developed by research companies with desirable
value added improvements such as yield, disease and insect resistance and
quality. Research companies license the varieties to distribution companies or
production companies. Research companies produce "foundation seed stocks" which
are the proprietary source seed used to plant seed fields for growing commercial
seed for distribution.
2. Farmer Grows: Seed farmers plant the proprietary "foundation seed
stocks" and grow commercial or "certified" seed under two-to-four year contracts
with fixed contract prices for a part or all of the contract life. Farmers
assume the risks of farming associated with fluctuating weather and prices. The
Company does not consider the acquisition of farms to be appropriate for its
business strategy.
3. Seed Cleaning Plant (seed production companies): The seed farmer
delivers uncleaned seed to production companies, which clean, coat and package
the seed in unit sizes appropriate for the end customer which is generally fifty
pound bags for forage seeds and larger turf grass seed users, while one to three
pound packages are common for homeowner turf grass seed customers.
4. Regional Distribution Companies: Regional distribution companies store
the seed and distribute it wholesale to local farm supply outlets and directly
to large forage farmers. The regional turf grass seed distribution companies
market to mass merchandisers such as K-Mart or Home Depot for sale to
homeowners, to larger forage farmers and to large turf grass seed users such as
golf courses, municipalities and sod farmers.
5. Local Retail Outlet: Local outlets generally service small geographic
areas. In most instances, the local outlets are general farm supply stores who
supply a combination of seed, feed and fertilizers to local farmers and
homeowners in rural America. Occasionally, larger farmers act as outlets to
handle seed for their own use and that of their neighbors. The Company does not
plan to acquire local retail outlets.
6. Customer: The end customers for forage seeds are farmers generally
located in the regions with large numbers of beef and dairy cattle. Hay sales
to dairies often have quality price premiums. Consequently, breeding products
for high quality generally provides a good return on investment. The ultimate
customers for turf grass seeds are centralized in densely populated areas due to
their aesthetic and recreational uses.
The Company's strategy for the past eighteen months has been to develop,
through its acquisition program, a strong platform of forage seed companies in
order to vertically integrate research, production and distribution. The
Company is continuing to focus, in the near term, on integrating the eleven
acquisitions into a cohesive, vertically integrated company. In fiscal 1997,
the Company expects to continue to make acquisitions in the forage seed sector
and to commence acquisitions focused on the turf grass seed sector.
ACQUISITION PROGRAM
Since the Company commenced its acquisition program in January 1995, it has
acquired all or part of ten seed companies and has signed a letter of intent to
acquire another seed business. The Company's Chief Executive Officer, Johnny R.
Thomas, its Vice President of Seed Operations and Acquisitions, Kathleen L.
Gillespie and its Chief Financial Officer, Henry A, Ingalls are spearheading the
acquisition program. One factor in the Company's ability to complete these
acquisitions on what it considers to be generally favorable terms is that many
regional seed companies are operated by older owners without heirs who seek an
exit vehicle with upside potential if they take a portion of the purchase price
in the Company's stock.
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The Company has anticipated and budgeted losses during the early stages of
the acquisition plan, through the second quarter of fiscal 1997. Fiscal 1995
and 1996 losses are primarily the result of building infrastructures ahead of
revenue and a time lag for implementing synergies gained through consolidation
and vertical integration. The Company believes that revenue growth will
continue to significantly exceed growth in general and administrative expenses.
There is a time lag before all synergies can be achieved because (i) of seed
production contracts which are generally three years for perennial crops and
(ii) Company management desires to nurture certain existing business
relationships.
During the first two quarters of fiscal 1997, the Company is expected to
have losses due to seasonality of the seed business, coupled with the two
reasons given above. Fiscal 1997 is projected to be the Company's first
profitable year.
The forage and turf grass seed industries utilize many of the same
resources. Consequently, additional synergies may be achieved by combining the
forage and turf grass seed sectors under one consolidated ownership. In so
doing, the Company will also decrease the seasonality of its cash flow
requirements and revenues.
OPERATING SYNERGIES AND ECONOMIES OF CONSOLIDATION
The Company's acquisitions are operated as regional wholly-owned operating
subsidiaries and divisions of the Company. This approach enables the Company to
attempt to retain the value associated with the acquisitions' past operations,
while adding value through additional capital resources, improvements to the
product line and decreased cost of goods sold.
The forage and turf grass seed industries currently have low gross margins
relative to the other previously consolidated seed sectors such as corn,
vegetables and flowers. Company management believes that the gross margins in
the forage and turf grass seed industries can move toward those of other seed
industry sectors as the forage and turf grass seed industries are consolidated
and transformed into similar profiles. Low gross margins for the industry are a
result of a variety of factors, including (i) small companies with fragmented
ownership, (ii) lack of vertical integration, (iii) current ownership focuses on
service and price rather than proprietary, value added products sold on an extra
yield and quality basis and (iv) owners cannot afford to spend amounts on
research and development comparable to those being spent in other seed sectors
and (v) use of the Plant Variety Protection Act ("PVPA") to protect proprietary
products in the forge and turf grass industry is at an early stage of evolution.
See "Patents and Trademarks" below.
Small regional seed companies which developed research programs for
proprietary seed varieties are spending excessive capital for such purposes
relative to their market share, thereby adversely affecting their profitability.
Management believes that the Company's ability to provide these regional
operations with wider distribution for new varieties will provide substantial
economies of scale. Most regional companies are selling a high percentage of
publicly developed, "non-proprietary" varieties. Management believes that the
Company will provide these operations with access to proprietary varieties, thus
improving gross margins and profitability.
The Company believes that vertical integration of the forage and turf grass
seed industry through consolidation of research, production and distribution
companies will also decrease the cost of goods sold for the Company, as
illustrated by the example in the table below. Currently, due to fragmented
ownership, individual companies specializing in either research, production or
distribution receive only fifteen to twenty-four percent of revenues from the
seed production/distribution chain (the "Seed Dollar"). The Company believes,
however, that vertical integration should allow the Company to receive as much
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as fifty-four percent of the Seed Dollar for proprietary products. Due to the
diversity of forage and turf grass species, and the lack of proprietary products
for many of these species, improvements in gross margins for the Company, as a
whole are expected to occur gradually over a number of years.
ALLOCATION OF THE WHOLESALE SEED DOLLAR (ALFALFA EXAMPLE)
<TABLE>
<CAPTION>
Public Proprietary
Varieties Varieties
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<S> <C> <C> <C> <C>
Grower $1.10 59% $1.20 46%
Research Company $0.00 0% $0.40 15%
Production Company $0.35 19% $0.40 15%
Distribution Company $0.40 22% $0.60 24%
----- --- ----- ---
Wholesale seed price/pound $1.85 100% $2.60 100%
</TABLE>
SEED INDUSTRY BACKGROUND
DEFINITIONS
FORAGE CROPS. Forages are crops where the entire plant vegetation is
harvested for consumption by livestock, as opposed to crops where the seeds are
harvested for human and livestock diets. Forages, the primary component of most
livestock diets, are harvested directly by grazing animals or through mechanical
methods, as hay, silage or greencrop.
TURF GRASS SEED. Turf grass seeds are the seeds planted for home lawns,
golf courses, parks and other recreational playgrounds. The Company's business
is focused on cool season turf grass species rather than the warm season
perennial species common in the southern United States. Warm season turf
grasses would not provide the desired operating synergies when operations are
combined with the cool season operations of the Company.
MARKET SIZE
Annual seed sales of forage and turf grass seed in the United States are
approximately $1.1 billion, with sales evenly divided between the two seed
sectors. Alfalfa is the leading forage crop with twenty-four million acres
harvested annually. All other forage crops are harvested on thirty-five million
acres annually. In comparison, there are approximately fifteen million acres of
cotton, sixty million acres of soybeans and eighty million acres of corn grown
annually in the United States.
The number of acres planted with forage crops is level or slightly
declining, while turf grass seed volumes are increasing as the number of homes
and recreational facilities increase. The world's farmland base has declined 8%
since 1980 and is continuing to decline. These changes are particularly
favorable for seed companies with high yielding proprietary varieties which are
needed to meet increasing world demand as the ability to pay for food increases
in developing countries.
ECONOMIC IMPORTANCE
FORAGE CROPS. Forage crops harvested as hay generate approximately $7.6
billion in annual revenues. This represents 11% of farmers' cash receipts,
ranking hay third, as a cash crop, behind soybeans and corn. These revenues
dramatically understate the economic contribution of forages, since millions of
acres are grazed directly or mechanically harvested and consumed by livestock on
the farm where forages are raised. Consequently, the revenues from these
millions of acres are reported as animal product sales and not as sales of hay.
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In addition to their direct cash economic contribution, legume forage
crops contribute many additional benefits. Legumes are well known as soil
building plants. Inclusion of forage legumes in the crop rotation can
dramatically improve organic matter, decrease nitrogen fertilizer usage for
subsequent crops and improve soil structure.
TURF GRASS CROPS. Turf grasses gain their economic significance through
their widespread appeal to a wide variety of end users, including home owners
for their lawns, golf courses, parks and recreational facilities.
FORAGE AND TURF GRASS CROP SPECIES
FORAGE CROPS. There is a diversity of species which are considered
forage crops. The species generally fall into two groups, legumes and grasses.
Legumes are plants which bear seeds in pods. Small seeded legumes, such as
alfalfa, the clovers and birdsfoot trefoil are generally forage crops where the
vegetation is grown for animal consumption, while the large seeded legumes,
including beans, peas, peanuts and soybeans produce seeds for use in human and
livestock diets. Several of the grass species are used as forages in pure stands
in certain geographic areas, such as tall fescue, Kentucky bluegrass, ryegrasses
and sorghum sudangrass hybrids. However, a high percentage of most grass
species are seeded in mixtures with legumes. The grass component of the mixture
is generally included to decrease bloat, improve ground cover, thereby
decreasing weeds, and spread out seasonal peaks of forage production.
Alfalfa is clearly the predominant forage crop. Alfalfa alone accounts
for 40.8% of the forage acres and 54.6% of the $7.6 billion in annual hay cash
crop revenues. Alfalfa's high yield, excellent feed quality, high protein
content and persistence make it "the Queen of the forages". Significant forage
grasses include orchardgrass, tall fescue, annual ryegrass, perennial ryegrass,
bromegrass, reed canaygrass, sorghum-sudan hybrids and pearl millet.
The Company estimates that each of the top five alfalfa research
companies spends more money on proprietary alfalfa variety development than is
spent by all industry members on variety development for all other forage
species combined. The minimal research expenditures on variety development for
secondary forage species is caused by the current fragmented nature of the
forage industry. However, there are small breeding programs contributing new
varieties of red clover, white clover, orchardgrass, ryegrass, sorghum-sudan
hybrids and pearl millet.
TURF GRASS SPECIES. There are a number of cool season turf grass species
which are economically significant, including bluegrass, bentgrass, tall fescue,
perennial ryegrasses and annual ryegrasses. Private research expenditures by
United States companies for turf grass genetic research also lag behind
comparable expenditures for the consolidated seed sectors. However, a higher
percentage of turf grass companies carry on some research activities than is
true of forage seed companies. Many of these programs build off the basic
genetic material developed by universities. University genetic breakthroughs
are generally licensed to distribution companies for royalties.
SEED PRODUCTION
Oregon and Washington have evolved as among the best areas in the world
to grow forage and turf grass seeds. Most alfalfa and clover seed production is
geographically centered in eastern Washington, eastern Oregon, Idaho, Nevada,
Montana and California. Favorable climatic conditions for growing seed in the
Pacific Northwest, combined with farmers who specialize in growing seed, results
in high yields of excellent quality seed. Seed yields are generally 700-1,500
pounds per acre in these areas. The hot, humid rainy conditions prevalent in
most of the areas where forage crops are grown and consumed by livestock
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dramatically decrease seed yield and seed quality, and generally yields of only
50-400 lbs. per acre are achieved in these areas. Consequently, there is no
economic incentive for farmers to attempt to grow their own seed for forage and
turf grass crops.
Seed production of sorghum-sudan grass hybrids and pearl millet is
concentrated in the State of Texas. These seeds are distributed throughout the
normal forage production areas, but they are sold mostly in the southern United
States for use as an annual summer forage source.
The Company owns seed cleaning and packaging facilities in Washington,
Oregon, Idaho, Oklahoma and Texas and is able to process most of its own seed
for distribution. The Company contracts with individual farmers to grow the
seed, generally for terms of two to four years at a fixed price. The Company
also contracts with a number of production companies.
NON-SEED PRODUCTS
BLOATENZ PLUS(R)
Bloatenz Plus(R) is a liquid bloat preventative, which is administered in
the drinking water of cattle, permitting them to safely graze on growing alfalfa
without bloating and dying. Bloatenz Plus(R) is licensed to the Company on an
exclusive basis by EcoLab, Inc. ("EcoLab") for certain markets. The Company is
currently selling Bloatenz Plus(R) in Mexico and expects to expand sales into
Argentina in the near future. The Company has suspended its efforts to gain FDA
approval for Bloatenz Plus(R) and currently does not anticipate selling the
product in the United States.
PDS-1000
The Company intends to market the PDS-1000 in conjunction with the sale
of Bloatenz Plus(R). The PDS-1000 is a proprietary micro-processor controlled
precision dispensing system designed to proportionally inject (dispense) water
soluble solutions into the drinking water of livestock at a preset dosage rate.
The PDS-1000 is being field-tested in Mexico. The Company hopes to conclude
testing in the fourth quarter of Fiscal 1997, at which time, if testing is
successful, the Company intends to begin producing the PDS-1000 for commercial
sale.
COMPETITION
Approximately 80% of the 2,000 United States seed companies are small
family owned businesses. Most of the remaining companies, exclusive of the
Company, are either multinational or large regional seed companies which have
substantially greater financial resources than the Company currently has. These
large companies orient their sales around hybrid seed corn and treat the
remaining farm seed, such as forage and turf grass seed as secondary products.
The Company's competitive strategy is to treat forage and turf grass
seed, especially alfalfa, as the primary product so that the Company is viewed
as a specialized distributor. Management believes that the Company's
specialization and size should enable the Company to sell seed which is superior
in performance to other seed, which will normally result in the Company being
able to obtain higher prices for its seed and to achieve higher margins. The
Company has been able to implement this strategy to date due, in part, to the
lack of any other aggressive national buyer in this fragmented market.
There are no large, publicly traded seed companies serving the forage and
turf grass seed industry as their primary focus. Management believes that the
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two largest forage companies in the United States are Cenex/Land
O'Lakes/Research Seed and Helena/AgriPro, each of which is significantly larger
than the Company. The alfalfa sector of the forage seed industry is led by these
two competitors plus Cal/West Seeds and Pioneer Hi-Bred International, Inc.
DISTRIBUTION AND MARKETING
FORAGE CROPS. Since forage crops are grown to be consumed by livestock, the
major geographic forage production areas coincide with geographic areas with
high concentrations of dairy and beef cattle. Consequently, the primary
geographic market areas are as follows:
North Central: Wisconsin, Michigan, Minnesota
North East: New York, Pennsylvania
Central: Texas, Oklahoma, Kansas, Nebraska
Mid-South: Southern Indiana, Southern Ohio, Kentucky, Virginia,
Tennessee
South West: California
Most of these primary forage and livestock production areas are
characterized by humid, rainy conditions during the crop growing season. The
hot, wet weather is conducive to high forage yields.
There are a significant number of customers who do not own livestock, but
who are located in the livestock farming areas. These forage growers plant hay
as a cash crop for sale to their neighbors.
TURF GRASS. There is a strong correlation between population and turf grass
seed consumption. The Company's forage distribution outlets serve rural
homeowner turf grass users well. The heavily populated areas are best served by
large retail outlets such as K-Mart and Home Depot. The Company seeks to
acquire companies with marketing access to these chains for the Company's
proprietary products. To date, about 10% of the Company's sales are turf
grasses, due to the full service nature of the seed companies acquired to date.
Through its ten acquisitions to date, and its pending acquisition, the
Company will be marketing its seed in 43 states and six foreign countries. The
Company has retained key management of certain subsidiaries to insure retention
of customer base and facilitate introduction of new products.
FOREIGN MARKETING. The Company's Mexican marketing efforts are conducted
through a wholly-owned subsidiary. In other countries, the Company markets its
product lines through unaffiliated seed companies.
SEASONALITY OF BUSINESS
The forage and turf grass seed sectors have a seasonal revenues cycle, as do
other seed sectors. Consequently, the Company's quarterly operating revenues
and working capital needs vary widely, with the third fiscal quarter having the
highest, and the first fiscal quarter the lowest, revenues. Weather conditions
and the economic outlook for alternative crops affect seed production yields,
insect population and farmers' planting decisions, which may cause fluctuations
in seed prices and annual revenues. Successful consolidation of the forage and
turf grass seed industry, under Company ownership, is expected to decrease the
seasonality of operating revenues and working capital needs as there is a
significant amount of turf grass sales revenue in the first and second quarters,
primarily for overseeding golf courses.
RESEARCH AND DEVELOPMENT
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To date, the Company has incurred minimal expenses on research and
development. The Company intends to acquire additional genetic breeding
programs through its acquisition strategy. The Company intends to increase its
research and development spending to develop full lines of proprietary products
and to purchase additional proprietary varieties and research programs through
acquisition.
By becoming the industry leader, the Company expects to be able to justify
an increase in research and development expenditures for alfalfa and the other
forage crops. This should enable the Company to develop "value added products"
with improved qualities, such as yield, higher protein content, persistence and
disease and insect resistance. These improved varieties, in turn, are expected
to generate improved gross margins for these secondary forage crops. See
"Business Strategy -- Operating Synergies and Economics of Consolidation" above.
The Company also intends to increase genetic research spending to develop
turf grass varieties with value added improvements to characteristics such as
color, ease of mowing, pest resistance, dwarfness (decreases mowing frequency)
and texture.
The Company sponsored research and development in the amount of $59,836 and
$56,488 during the fiscal year ended June 30, 1996 and the nine months ended
June 30, 1995, respectively.
BIOTECHNOLOGY ACCESS
Biotechnological breakthroughs are being introduced into other seed sectors
such as corn, soybeans and cotton. The Company believes that similar
biotechnology breakthroughs in the forage and turf grass sectors will follow
although there will be a time lag.
The Company is positioning itself to be a leader in marketing forage and
turf grass biotechnology breakthroughs. Three essential criteria have been
established by the owners of biotechnology for seed companies to be granted
biotechnology access at early stages: (i) a superior traditional genetic
breeding program, (ii) significant market share and (iii) a management team
committed to marketing proprietary products with value added attributes.
Closing of the pending acquisition should allow the Company to meet all three
criteria.
PATENTS AND TRADEMARKS
Through acquisitions and licenses, the Company has acquired exclusive
marketing rights and trademarks to proprietary varieties of a wide array of
crops, including alfalfa, red clover, orchardgrass, sorghum-sudan grass hybrids,
corn, soybeans, bluegrass and several turf grass mixtures. The Company will be
able to maintain ownership of and control the use of its proprietary varieties
though trademarks and the PVPA. The PVPA prohibits others from selling seed of
those proprietary varieties for 18 years, when such protection expires. The
Company has licensed a full line of alfalfa varieties specifically selected for
grazing and several hay varieties.
Bloatenz Plus(R) was developed and trademarked by EcoLab, Inc., a non-
affiliated Delaware company. A United States Patent, No. 4,407,790, entitled
Method of Controlling Bloat using Nonionic Surfactants, was granted on October
4, 1983 to EcoLab for this product.
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The Company has filed a patent application in the United States for its
proprietary microprocessor controlled precision dispensing system, Model PDS-
1000 currently under development by the Company. A foreign patent application
is being filed in Argentina. See "Non-Seed Products" above.
EMPLOYEES
As of September 25, 1996, the Company had 138 full-time employees (including
Johnny R. Thomas, President, Scott J. Loomis, Vice President, John C. Francis,
Vice President and Secretary, Kathleen L. Gillespie, Vice President of Seed
Operations and Acquisitions, and Henry A. Ingalls, Vice President, Treasurer and
Chief Financial Officer) and 32 part-time employees, consisting of 43 in
marketing and sales, 42 in administration and 85 distribution and warehouse
personnel. The Company also contracts with a number of independent sales
representatives.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns warehouse facilities in most of its operating locations
which generally also contain administrative office space. The Company owns the
land and buildings for its facilities in New Albany, Indiana; Cactus, Texas;
Tulia, Texas; Hobart, Oklahoma; Trumansburg, New York; Shiremanstown,
Pennsylvania; Croton, Ohio; Ontario Oregon; and Nampa, Idaho. In addition, the
Company owns the building for its facility in Lowden, Washington which is on
land leased from a railroad. The facilities in Idaho, Oregon, Washington, Texas
and Oklahoma include significant amounts of equipment for cleaning, processing
and treating seed. All of the Company's facilities have equipment for mixing
and bagging seed, as well as other equipment such as forklifts, delivery and
sales vehicles, warehouse and office equipment.
The facilities in Idaho and Oregon are pledged under a mortgage through Farm
Credit Services and a promissory note to the former owners of the operation
aggregating $1,429,365. In addition, the facilities in Oklahoma are pledged to
the former owner of that operation to secure the Company's guarantee of the
proceeds to be received by the former owner from the sale of the Company's
common stock. A portion of the facilities in Indiana are pledged under an
industrial revenue bond which had a balance of $41,667 at June 30, 1996.
The Company also leases warehouse and office facilities in Winchester,
Kentucky; Somerset, Kentucky; Prescott, Wisconsin; Hastings, Wisconsin; Torreon,
Mexico and Las Vegas, Nevada, its corporate headquarters. Total commitments for
facility rentals are currently approximately $130,000 per year. Lease and
rental commitments are more fully described in note 9 of the Notes to
Consolidated Financial Statements.
The Company believes that each facility is suitable for its current use, is
in good condition and is adequately insured. Such properties, together, are
adequate for the Company's current needs.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any pending legal or administrative
proceedings, and its property is not subject to any such proceedings, except as
set forth below.
In August of 1996, John Duddleston commenced an action against AgriBioTech
and Halsey Seed Company in the New York State Supreme Court, Tompkins County,
New York. The plaintiff seeks $131,330 pursuant to a contract whereby
AgriBioTech acquired the assets of the Halsey Seed Company from Duddleston.
Under an
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agreement, Duddleston was entitled to receive a certain minimum amount from the
sale of shares of the Company's stock, which he received in exchange for the
assets of Halsey Seed Company. The Company alleges that Duddleston violated the
agreement by selling the stock at a faster rate than was permitted under the
agreement and forfeited his right to be compensated for any shortfall in the
price of the stock. Duddleston claims that the Company waived this breach. The
Company filed an answer, but discovery has not commenced.
On February 9, 1996, Jonathan R. Curshen commenced a lawsuit in the United
States District Court, Middle District of Florida, against the Company, John C.
Francis and Johnny R. Thomas, officers of the Company, and Tammie Winfield (a
shareholder). The plaintiff is seeking unspecified compensatory and punitive
damages based upon an alleged repudiation of an agreement to sell plaintiff
shares of common stock of the Company. The Company and the other defendants
have denied the allegations and are vigorously defending the lawsuit. The
Company believes that the lawsuit has no merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on the Nasdaq SmallCap Market since
May 24, 1995, under the symbol "ABTX." Prior thereto, from December 13, 1993,
the Common Stock traded in the over-the-counter market on the OTC Bulletin Board
first under the symbol "SXVN" and then "ABTX."
The following table sets forth the high and low prices for the Common Stock
for each quarter since July 1, 1994 as reported by the Nasdaq Trading and
Reporting Services for the OTC Bulletin Board through May 23, 1995 and, since
May 24, 1995, on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
OTC Bulletin Board
------------------
Fiscal 1994 High Low
- ----------- ------- -------
<S> <C> <C>
July 1, 1994 - September 30, 1994 $3.1875 $1.875
Fiscal 1995
- -----------
October 1, 1994 - December 31, 1994 $2.4375 $1.25
January 1, 1995 - March 31, 1995 $3.125 $1.75
April 1, 1995 - May 23, 1995 $3.6875 $2.5625
<CAPTION>
Nasdaq SmallCap Market
----------------------
<S> <C> <C>
May 24, 1995 - June 30, 1995 $5.4375 $3.00
Fiscal 1996
- -----------
July 1, 1995 - September 30, 1995 $5.50 $2.5625
October 1, 1995 - December 31, 1995 $3.75 $1.5625
January 1, 1996 - March 31, 1996 $4.1875 $1.9375
April 1, 1996 - June 30, 1996 $5.0625 $3.50
</TABLE>
As of September 25, 1996, the closing price per share of Common Stock was
$2.625.
As of September 12, 1996, the Company had 183 record holders of its Common
Stock. The Company reasonably believes that there are in excess of 1,200
beneficial holders of its Common Stock.
The Company has not paid any cash dividends to date and does not anticipate
paying cash dividends in the foreseeable future. The Board of Directors intends
to retain earnings, if any, for use in the Company's business operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto of the Company included
elsewhere herein. The Company is a specialized distributor of forage (hay
crops), turf grass, corn, soybean and other seeds. The Company had limited
revenues until January 1, 1995, when it commenced an acquisition program (the
"Acquisition Program") to acquire various regional seed companies. The Company's
business strategy is to acquire reputable, regionally based seed companies with
proprietary products and established production and distribution channels in
their respective markets.
Since January 1, 1995, the Company has grown significantly, primarily
through acquisitions of regional seed companies. These acquisitions are more
fully discussed in note 1 of Notes to Consolidated Financial Statements. The
results of operations of the acquired companies are included in the Company's
consolidated results beginning with the effective date of the acquisition in
accordance with the purchase method of accounting. Information concerning the
acquisitions completed by the Company through June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Net sales
Employees included
Effective at June 30, in June 30, 1996
Name Date 1996 consolidated results
---- ---- ---- --------------------
<S> <C> <C> <C>
Seed Resource, Inc. January 1, 1995 23 $2,116,741
Scott Seed Company March 1, 1995 29 7,190,973
Hobart Seed Company April 1, 1995 19 2,606,723
Halsey Seed Company July 1, 1995 15 1,334,850
Arnold Thomas Seed
Service, Inc. October 1, 1995 7 913,171
Clark Seeds, Inc. October 1, 1995 15 4,039,826
Doug Conlee Seed Co. January 1, 1996 2 473,282
Beachley-Hardy Seed February 1, 1996 23 6,703,457
</TABLE>
In addition to the above acquisitions, the Company acquired certain assets
of Sphar Seed Company effective July 1, 1996 to expand the operations of Scott
Seed Company. The Company also created Seed Mart, Inc., a start-up seed
operation in the upper midwest section of the United States. Seed Mart began
operations in the summer of 1995 but did not have significant sales until the
spring of 1996. Net sales of Seed Mart were $866,133 in the year ended June 30,
1996 and it has 13 employees. The Company began limited operations in Mexico in
1994 with net sales of $525,106 in the year ended June 30, 1996 and 5 employees.
Included in the above sales numbers are intercompany sales aggregating $808,721.
The acquisitions and other operations being included in the Company's
consolidated financial statements beginning with each of their effective or
start-up dates significantly affects the meaningfulness of comparisons between
periods.
Effective June 30, 1995, the Company changed its fiscal year end from
September 30 to June 30 since that date better reflects the natural business
year of the Company's business. Therefore, the results of operation for June
30, 1996 reflect up to twelve months of operation, depending on the date of
acquisition or start-up, whereas the June 30, 1995 results of operation includes
a maximum of nine months. Furthermore, the seed business is subject to wide
seasonal fluctuations and, therefore, the results of periods less than twelve
months are not necessarily indicative of results which may be expected for an
entire year.
The above factors have significant impacts on the following discussion and
analysis and should be considered as part of it.
LIQUIDITY AND CAPITAL RESOURCES
The following summarizes certain information concerning the Company's
financial condition since September 30, 1994:
<TABLE>
<CAPTION>
June 30, June 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Working capital $ 6,460,969 3,791,773 375,275
Property, plant, and equipment, net 7,916,145 2,092,265 17,874
Short-term debt 5,088,984 564,291 -
Long-term debt, including
amounts due within one year 1,621,974 271,114 212,780
Total stockholders' equity 14,022,496 6,332,635 503,997
</TABLE>
Changes in the above items are primarily due to the acquisitions completed
by the Company, including changes in these items following the dates of
acquisition due to growth and seasonality of the seed business, and related
financings. Information concerning certain operational assets and liabilities
acquired in acquisitions and other changes is as follows:
<TABLE>
<CAPTION>
Year Ended Nine-Months Ended
June 30, 1996 June 30, 1995
------------- -----------------
Other Other
Acquisitions Changes Acquisitions Changes
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Accounts receivable $1,949,016 4,599,458 1,087,602 (168,331)
Inventories 4,642,531 796,105 2,755,658 (990,006)
Property, plant and
equipment 5,794,703 504,395 2,304,000 111,151
Accounts payable and
accrued expenses 2,388,781 2,215,591 1,232,352 (434,581)
</TABLE>
To finance acquisitions and ongoing operations, the Company has raised
significant amounts of additional equity capital since September 30, 1994. In
the nine-months ended June 30, 1995, the Company received cash proceeds of
$3,760,631 from the exercise of existing warrants, including payments on notes
receivable for warrants exercised. The Company received similar payments
amounting to $2,333,630 during the year ended June 30, 1996. The Company also
completed the private placement of 7,425 shares of its Series B Convertible
Preferred Stock during the year ended June 30, 1996, receiving $7,425,000 before
commissions and expenses. In addition, the Company received cash proceeds of
$1,105,000 related to options for common stock. Subsequent to June 30, 1996, the
Company completed a private placement of its Series C Convertible Preferred
Stock. The Company received subscriptions for $10,000,000 of which it had
received $9,513,100 in gross proceeds from such private placement as of
September 27, 1996. The Company paid commissions equal to 13% of the gross
proceeds. Equity transactions are more fully described in notes 8 and 13 of
Notes to Consolidated Financial Statements.
In connection with one of the acquisitions, the Company assumed a short term
revolving line of credit with an outstanding balance of $419,914 and existing
long-term debt amounting to $795,956. The Company also issued notes payable to
the sellers of this acquisition aggregating $1,250,000.
At June 30, 1996, the Company had a $4,500,000 line of credit with Bank of
America (Nevada), all of which was outstanding. Borrowings under this line of
credit are limited to 70% of eligible accounts receivable and 50% of eligible
inventory. In addition, one of the Company's subsidiaries had the line of
credit described above for up to $721,000, which had an outstanding balance of
$588,984 at June 30, 1996 based on 75% of its accounts receivable and inventory.
As described in note 1 of Notes to Consolidated Financial Statements, the
Company has an acquisition pending to acquire a seed operation with
approximately $19.5 million in annual revenues. The Company anticipates the
purchase price will be approximately $17 million which will be paid in cash at
closing. The Company will utilize the additional equity raised since June 30,
1996 for this acquisition. In addition, the Company is negotiating for a
substantial increase in its line of credit with Bank of America (Nevada). The
Company is also negotiating with another financial institution for an additional
revolving credit facility of up to $12 million designed to provide funds for
acquisitions. Such facility would include a term loan to finance acquired
property, plant and equipment.
The Company believes it has adequate financial resources to close its
pending acquisition and to finance its ongoing operations after such
acquisition. However, the seed business is subject to wide seasonal fluctuations
which results in a significant increase in the level of inventory prior to and
during the heavier selling season in the spring and related higher levels of
accounts receivable following such sales through the early summer. This also
reflects that industry practice dictates a significant amount of sales are made
with extended terms through mid summer. In addition, the seed business can be
significantly impacted by the weather which can alter the timing and nature of
crops planted by farmers which, in turn, affects the timing and nature of seed
sales. Therefore, it is possible that the Company may need to seek additional
financial resources to finance ongoing operations. Furthermore, the Company will
need to obtain additional equity and/or debt financing in order to continue its
Acquisition Program.
RESULTS OF OPERATION
During its fiscal year ended June 30, 1996 ("Fiscal 1996"), the Company had
net sales of $25,961,541 as compared with $4,753,608 during the nine-months
ended June 30, 1995 ("Fiscal 1995"). The Fiscal 1996 revenues reflect the
operation of eight acquisitions (plus Seed Mart and Mexico operations) for
periods of five to twelve months, while Fiscal 1995 revenues reflected
operations of three acquisitions for three to six months (plus Mexico). Customer
retention has been excellent in the operations acquired to date. Adverse weather
throughout the United States during the spring 1996 planting season decreased
revenues by approximately $2 million, impacting the Company's third and fourth
quarters.
Cost of sales, primarily seed cost, were $19,235,670 or 74.1% of net sales
for Fiscal 1996 as compared to $3,397,860 or 71.5% for Fiscal 1995. The increase
in the amount of cost of sales is due to the acquisitions as described above.
The change in the percentage is due primarily to the acquisition of two
production facilities, Clark Seeds and Arnold Thomas Seed Service. These two
acquisitions have historically handled mostly lower margin public seed varieties
and they processed seed for third parties at low margins. The Company plans to
shift these operations to production of higher margin proprietary seed varieties
for marketing by the Company's distribution network. The Company's goal is to
raise gross margins to 37% over five years as a result of industry
consolidation, vertical integration and shifting the product lines from
primarily public varieties (commodities) to proprietary (value added) products.
Operating expenses increased from $2,779,185 in Fiscal 1995 to $9,636,863 in
Fiscal 1996. However, operating expenses as a percent of revenue declined to 37%
in fiscal 1996 as compared to 58% in fiscal 1995. This ratio is expected to
continue to decline as revenue growth continues to exceed growth in expenses and
operating synergies occur with integration of the acquired companies into
cohesive units.
The major components of operating expenses are personnel costs, occupancy
expense, vehicle and shipping expenses, outside services, travel and
advertising, all of which increased substantially in Fiscal 1996 compared to
Fiscal 1995. These increases are primarily due to the seed operations of new
acquisitions and operations for twelve months as compared to nine months in
Fiscal 1995. Total employees, including corporate administrative employees, were
161 at June 30, 1996 compared to 53 at June 30, 1995. At June 30, 1996, the
Company had fourteen warehousing/operating locations comprising approximately
460,000 square feet compared to six locations of approximately 250,000 square
feet at June 30, 1995. After acquisition, the Company has significantly reduced
expenses, as compared to historical operations prior to the effective date of
some acquisitions as a result of operating efficiencies. For example, the
Company has combined what were historically six separate operations into three
operations. Growth in corporate personnel, as planned, has not been as great as
revenue growth. There were eight corporate administrative personnel in June of
1995 and ten in June of 1996 even though revenues increased by 446%. The major
components of operating expenses are as follows:
<TABLE>
<CAPTION>
Year ended Nine-months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Personnel costs $4,938,888 1,001,043
Occupancy expenses 1,452,129 308,102
Vehicle and shipping 825,938 376,235
Outside services 520,566 106,989
Travel 401,641 34,667
Advertising and promotion 443,995 86,656
</TABLE>
Research and development expenditures were $59,836 in Fiscal 1996 as
compared to $56,488 in Fiscal 1995. Expenditures are low in 1996 relative to
revenues due to the dependence of the Company on licensing proprietary
varieties. The Company expects research expenditures to increase dramatically as
acquisitions are completed that include significant genetic research programs.
As the Company transforms its forage and turf grass seed business to proprietary
products and increases gross margins, the Company expects research and
development expenses to eventually be similar to other proprietary seed sectors,
which may exceed 10% of revenues. In Fiscal 1995, research and development
expenses were due to non-seed operations. The Company has suspended all efforts
to gain FDA approval for Bloatenz Plus(R) in the United States, but continues
its marketing in Mexico and expects to expand into Argentina in the near future.
The PDS-1000, for dispensing Bloatenz Plus(R), is continuing field tests.
The Company's interest expenses increased to $464,515 in Fiscal 1996 as
compared to $35,624 for Fiscal 1995. This is primarily due to increasing the
Company's line of credit from $1,000,000 to $4,500,000 during the fiscal year
and additional long-term and short-term debt in connection with acquisitions.
The Company anticipates using more debt to fund future growth.
Net losses for the Company were $3,324,132 for Fiscal 1996 compared to
$1,406,687 for Fiscal 1995. The increased losses were the result of the issues
discussed above. The preceding fiscal year was also a nine-month period.
INFLATION
Management does not consider that inflation has had a significant effect on
the Company's operations to date, nor is inflation expected to have a material
impact in the United States. The cost of seed products is largely affected by
seed yields and alternative crop prices, which have not generally been greatly
impacted by inflation. However, there has been some upward movement in the cost
of goods sold as a result of worldwide shortages of alternative crops such as
corn and wheat. Those costs which are normally impacted by inflation, such as
wages, transportation and energy, are a relatively small part of the Company's
total operations. However, the Company remains subject to possible significant
inflation in Mexico, Argentina and other foreign countries.
ITEM 7. FINANCIAL STATEMENTS
The financial statements to be provided pursuant to this Item 7 begin on
page F-1 of this Report, following Part III hereof.
11
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Directors, executive officers and key employee of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Johnny R. Thomas 55 President, Chief Executive Officer
and Director
Scott J. Loomis 48 Vice President and Director
John C. Francis 47 Vice President, Secretary and
Director
Kathleen L. Gillespie 43 Vice President of Seed Operations and
Acquisitions
Henry A. Ingalls 50 Vice President, Chief Financial
Officer and Treasurer
Kent Schulze 52 Director
Byron D. Ford 53 Director
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Johnny R. Thomas has served as President of the Company since April 1, 1994,
a director of the Company since September 30, 1993, and also a director of ABT
(a Nevada corporation), when it was a wholly-owned subsidiary of Sussex from
October 1993 until June 1994, when Sussex merged with and into ABT (the "June
1994 Reorganization"). From its inception in 1983, until June 30, 1992, Dr.
Thomas was President and a director of ABT. He was President, Chairman of the
Board and Chief Executive Officer of FiberChem, Inc. ("FCI") from its inception
in December 1986 until March 31, 1994. Dr. Thomas received his Ph.D. degree in
genetics/plant breeding from Oregon State University in 1966.
Scott J. Loomis has served as Vice President of the Company since April 1,
1994; was President, Secretary and a director of the Company from September 30,
1993 until March 31, 1994; a director of ABT since February 1988 and President
from June 1992, until the June 1994 Reorganization. He has served as Chairman of
the Board of FCI since August 1995, served as President from April 1994 until
August 1995 and has been a director of FCI since June 1989. He has been a
director of FCI Environmental, Inc., a wholly-owned subsidiary of FCI ("FCI
Environmental") since January 1990. Mr. Loomis has been a licensed attorney in
the State of Arizona since 1974.
John C. Francis has served as Vice President, Secretary and a director of
the Company since April 1, 1994. He was also the Chief Financial Officer of the
Company until April 1996. He was Vice President, Secretary, Treasurer and a
director of ABT from 1983 to June 1992. Mr. Francis served as Vice President,
12
<PAGE>
Chief Financial Officer and a Director of FCI from its inception in December
1986 until March 31, 1994. Mr. Francis also served as a Director of FCI
Environmental from January 1990 until March 31, 1994 and from September 1, 1993
to December 31, 1993 served as Director of Marketing of FCI Environmental.
Kathleen L. Gillespie has served as Vice President of Seed Operations
and Acquisitions of the Company since November 29, 1994. Ms. Gillespie has 19
years of seed experience at all levels of production, marketing, procurement,
acquisitions, operations and management. From 1977 until joining the Company,
Ms. Gillespie was employed by Agway, where as Director of the Seed Division,
sales increased from $20 million per year to $80 million prior to a divestiture.
Ms. Gillespie was instrumental in Agway's acquiring four wholly-owned
subsidiaries. She selected and introduced over 100 proprietary seed varieties
and hybrids during the last 12 years.
Henry A. Ingalls has served as Vice President, Treasurer and Chief
Financial Officer of the Company since April 3, 1996. Until April 1, 1996, Mr.
Ingalls worked for the accounting firm of KPMG Peat Marwick LLP beginning in
1969, and he was elected to the partnership in 1978. Mr. Ingalls has extensive
experience in public company auditing and public offerings.
Kent Schulze was appointed as a director of the Company on May 8,
1996. Mr. Schulze is the President and co-founder of Access Technology, Inc.,
which he founded in April 1996. From 1990 to April 1996, Mr. Schulze was
President and Chief Executive Officer of Northrup King Company, a subsidiary of
Sandoz Corp., the world's second largest seed company. From 1986 to 1990, Mr.
Schulze was President and Chief Operating Officer of DeKalb-Pfizer Genetics,
where he was responsible for that company's seed operations worldwide.
Byron D. Ford was appointed as a director of the Company on May 8,
1996. Mr. Ford has been the Chairman of the Board and Chief Executive Officer
of Walsh & Associates Ltd., a registered investment adviser, since August 1995.
From 1990 to September 1994, Mr. Ford was the Vice President, Marketing &
Operations of DeKalb Genetics Corp., where he was responsible for the North
American seed business. Prior to that, Mr. Ford was a Senior Operating
Executive and Marketing Vice President for EcoLab, Inc., an industrial services
company, where he was responsible for the consumer packaged goods division.
All directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Pursuant to Section 16 of the Exchange Act, the Company's Directors
and executive officers and beneficial owners of more than 10% of the Company's
common stock, par value $.001 ("Common Stock"), are required to file certain
reports, within specified time periods, indicating their holdings of and
transactions in the Common Stock and derivative securities. Based solely on a
review of such reports provided to the Company and written representations from
such persons regarding the necessity to file such reports, the Company is not
aware of any failures to file reports or report transactions in a timely manner
during the Company's fiscal year ended June 30, 1996, except that Ms. Gillespie
filed one late report concerning one transaction, Messrs. Thomas and Francis
each filed one late report concerning one transaction and Mr. Loomis filed two
late reports, each concerning one transaction.
13
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the fiscal year ended June
30, 1996 ("Fiscal 1996"), the nine-month period ended June 30, 1995 ("Fiscal
1995") and the fiscal year ended September 30, 1994 ("Fiscal 1994") by those
persons who served as Chief Executive Officer and any Named Executive Officers
who received compensation in excess of $100,000 during such years.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- ------------
Other Annual Shares
Name and Salary Bonus Compensation Underlying
Principal Position Year ($) ($) ($)(1) Options(#)
- ------------------ ---- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Johnny R. Thomas 1996 $84,000(2) -0- -0- 1,000,000(2)
President and CEO 1995 $63,000(2) -0- -0- -0-
1994 $42,000(2) -0- -0- -0-
</TABLE>
- -------------------------------------
(1) The above compensation figures do not include the cost to the Company
of benefits, including premiums for life and health insurance and any
other personal benefits provided by the Company to such persons in
connection with the Company's business, which were in any event below
reportable thresholds.
(2) Dr. Thomas became Chief Executive Officer of the Company on April 1,
1994. He is being compensated at the rate of $84,000 per annum, as
described in "Employment Agreements" below. He also received options
to purchase up to 1,000,000 shares of Common Stock. Such options vest
over a ten-year period, except that they may all be exercised
immediately for cash. See Option Grants Table below.
OPTION GRANTS IN LAST FISCAL YEAR
The table below includes the number of stock options granted to the
executive officers named in the Summary Compensation Table during the year ended
June 30, 1996 and exercise information.
<TABLE>
<CAPTION>
Individual Grants
---------------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price($/sh) Date
- ------------------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Johnny R. Thomas 1,000,000 17.5% $3.00 3/10/2006
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY END OPTION VALUES
The table below includes information regarding the value realized on option
exercises and the market value of unexercised options held by the executive
officers named in the Summary Compensation Table during the year ended June 30,
1996.
14
<PAGE>
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options Options
Acquired at FY-End(#) at FY-End($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized($) Unexercisable Unexercisable
- ------------------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Johnny R. Thomas -- -- 1,000,000/0* $1,062,500/0*
</TABLE>
- ----------------
* 900,000 of these options are currently exercisable only for cash.
DIRECTOR FEES
Officer-directors currently receive no compensation for serving on the Board
of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. Outside directors receive $9,000 per year for attending
meetings on up to six different days, $1,500 for additional days and
reimbursement of expenses. Each outside director also received options to
purchase 20,000 shares of Common Stock upon joining the Board, 10,000 of which
vested immediately, and 10,000 of which vest after a year of service.
EMPLOYMENT AGREEMENTS
Mr. Loomis was compensated by the Company as a consultant from July 1992 at
the rate of $5,000 per month, which was increased to $7,000 per month on
February 1, 1994, when he entered into an employment agreement with the Company.
Mr. Loomis became Vice President on April 1, 1994, when he also became President
of FiberChem, Inc. The employment agreement is terminable by the Company
without cause on ten days' prior notice. During the term of his agreement, and
for a period of two years following termination of employment, Mr. Loomis will
be prohibited from engaging in activities which are competitive with those of
the Company and its affiliated corporations within the United States and from
disclosing confidential information of the Company. See Item 12. "Certain
Relationships and Related Transactions." See also "Stock Options" below.
On March 10, 1994, the Company entered into an employment agreement with
Johnny Thomas, commencing on April 1, 1994. The agreement contains
substantially the same terms as Mr. Loomis' above-described agreement. See
"Stock Options" below.
As of April 1, 1994, the Company entered into an employment agreement with
John C. Francis. The agreement contains substantially the same terms as Mr.
Loomis' above-described agreement. See "Stock Options" below.
On November 29, 1994, the Company entered into an employment agreement, as
amended, with Kathleen L. Gillespie. The Agreement contains substantially the
same terms as Mr. Loomis' above described agreement. Ms. Gillespie is being
compensated at the rate of $7,000 per month. Ms. Gillespie received options to
purchase 1,250,000 shares of Common Stock, which vest, over six years, except
that all such options are immediately exercisable for cash. See "Stock Options"
below.
On February 13, 1996, the Company entered into an employment agreement with
Henry A. Ingalls. The agreement's term runs from April 3, 1996 for four years.
Mr. Ingalls' compensation rate begins at $170,000 per annum plus a minimum
bonus of $30,000 per year. The compensation is subject to annual escalations at
the greater of 5% or the general inflation rate. The Agreement contains a
covenant by Mr. Ingalls not to compete against the Company, effective during the
term and
15
<PAGE>
for a two-year period thereafter. Upon termination without cause, Mr. Ingalls
would be entitled to two years' compensation. After a change of control of the
Company, in certain circumstances, Mr. Ingalls would be entitled to three years'
compensation. Mr. Ingalls also received options to purchase up to 1,250,000
shares of Common Stock, vesting over five years, but immediately exercisable for
cash. See "Stock Options" below.
STOCK BONUS PLAN
The Company adopted an Employee Stock Bonus Plan (the "Bonus Plan")
effective May 24, 1994 providing for the issuance of up to 40,000 shares of
Common Stock per year to any employee, consultant, officer or director, up to an
aggregate of 400,000 shares for the entire Bonus Plan. Pursuant to the Bonus
Plan employees of the Company are eligible to receive a stock bonus at the
discretion of the managing committee based on length of service and contribution
or potential value to the Company. As of the date hereof, no bonus shares have
been issued to employees of the Company.
STOCK OPTIONS
The Company has established the AgriBioTech, Inc. 1994 Employee Stock Option
Plan (the "Plan"). The Plan is intended to provide the employees, directors,
independent contractors and consultants of the Company with an added incentive
to continue their services to the Company and to induce them to exert their
maximum efforts toward the Company's success. The Plan provides for the grant
of options to qualified directors, employees (including officers), independent
contractors and consultants of the Company to purchase an aggregate of 1,200,000
shares of Common Stock (subject to shareholder approval), but no more than
200,000 options may be granted to any one person in any two year period. The
Plan is currently administered by the Compensation Committee of the Board of
Directors. The Committee determines, among other things, the persons to be
granted options under the Plan, the number of shares subject to each option and
the option price.
The Plan allows the Company to grant incentive stock options ("ISOs"), as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), Non-Qualified Stock Options ("NQSOs") not intended to qualify under
Section 422(b) of the Code and Stock Appreciation Rights ("SARs"; collectively,
"Options") at any time within 10 years from the date the Plan was adopted. The
exercise price of ISOs may not be less than the fair market value of the Common
Stock on the date of grant, provided that the exercise price of ISOs granted to
an optionee owning more than 10% of the outstanding Common Stock may not be less
than 110% of the fair market value of the Common Stock on the date of grant. In
addition, the aggregate fair market value of stock with respect to which ISO's
are exercisable for the first time by an optionee during any calendar year shall
not exceed $100,000. Options shall have a term of no more than ten years,
except that ISOs granted to an optionee owning more than 10% of the outstanding
Common Stock shall have a term of no more than five years and must be granted to
and exercised by employees of the Company (including officers). Options are not
transferable, except upon the death of the optionee.
Since the Plan's adoption, 551,500 options have been granted under the Plan,
at prices ranging from $2.00 to $4.06, including 300,000 options to Kathleen L.
Gillespie, a Vice President of the Company, and 20,000 to each of the two
independent directors of the Company.
In addition, as of September 25, 1996, officers of the Company held options
to purchase an aggregate of 5,200,000 shares of Common Stock outside of the
Plan, exercisable for up to ten years ending in 2006, at prices ranging from
$2.00 to $3.00 per share. Of these, Messrs. Thomas, Francis and Loomis have
each been
16
<PAGE>
granted ten-year options to purchase up to 1,000,000 shares of Common Stock at
$3.00 per share. Ms. Gillespie has been granted ten-year options to purchase up
to an aggregate of 950,000 shares of Common Stock at $2.00 per share, and Mr.
Ingalls has been granted ten-year options to purchase up to 1,250,000 shares of
Common Stock at $2.12 per share. Such executives' options vest over five to ten
year periods, but all are immediately exercisable for cash.
RETIREMENT PLAN
The Company has a defined contribution plan the "401(k) Plan" which covers
all employees. Eligible employees may contribute up to 30 percent of their
annual compensation, not to exceed the statutory maximum. The Company may make
discretionary contributions. Participants are immediately vested in their
contribution and vest 20 percent per year in the Company's contributions for
each year of service after the first year. The Company made no contributions to
the 401(k) Plan in 1996 or 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until May 8, 1996, the Company did not have a compensation committee or
another Board committee performing equivalent functions, and the then entire
Board of Directors participated in deliberations concerning executive
compensation. On May 8, 1996, a Compensation Committee consisting of Mr.
Schulze and Mr. Ford was appointed and took over the responsibility of setting
executive compensation. There are no compensation committee (or Board of
directors) interlock relationships with respect to the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 22, 1995 based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each Director (iii) each person named in the Summary
Compensation Table and (iv) all executive officers and Directors as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Beneficial Ownership (1) Common Stock Owned(2)
- ------------------- --------------------------- ---------------------
<S> <C> <C>
Johnny R. Thomas (2) 3,556,497 (3) 27.0%
John C. Francis (2) 2,118,655 (4) 16.9%
Henry A. Ingalls (2) 1,250,000 (5) 10.4%
Scott J. Loomis 1,803,060 (6) 14.6%
5840 N. Genematas
Tucson, AZ 85704
Kathleen L. Gillespie (2) 1,050,000 (7) 8.9%
Byron D. Ford 10,000 (8) *
975 North 2nd Avenue
St. Charles, IL 60174
Kent Schulze 10,000 (8) *
2621 Irving Avenue, South
Minneapolis, MN 55408
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
All executive officers
and directors as a 9,798,212 (9) 52.4%
group (7 persons)
Liviakis Financial 762,500 (10) 7.0%
Communications, Inc.
2118 P Street, Suite C
Sacramento, CA 95816
</TABLE>
_____________________________
*Represents less than 1%.
(1) Includes all securities that can be acquired by such person within 60 days
from the date hereof upon the exercise of warrants or options. The
percentage ownership is determined based on 10,761,303 shares outstanding
as of September 25, 1996.
(2) This person's address is c/o the Company, Quail Park West, 2700 Sunset
Road, Suite C-25, Las Vegas, Nevada 89120.
(3) Includes 1,000,000 shares underlying options currently exercisable (900,000
for cash only), and shares underlying 567,395 currently exercisable Class B
Warrants, 300,000 currently exercisable Class C Warrants and 567,395
issuable Class C Warrants (each Class B Warrant is exercisable for one
share of Common Stock and one Class C Warrant).
(4) Includes shares underlying 314,420 currently exercisable Class B Warrants,
150,000 currently exercisable Class C Warrants and 314,420 issuable Class C
Warrants, and 1,000,000 shares underlying options currently exercisable
(900,000 for cash only).
(5) Includes 1,250,000 shares underlying options currently exercisable
(1,000,000 for cash only).
(6) Includes shares underlying 281,020 currently exercisable Class B Warrants
and 281,020 issuable Class C Warrants. Also includes 1,000,000 shares
underlying options currently exercisable (900,000 for cash only).
(7) Includes 1,050,000 shares underlying options currently exercisable (600,000
for cash only). Excludes 200,000 shares underlying options not currently
exercisable.
(8) Includes 10,000 currently exercisable shares underlying options. Excludes
10,000 shares underlying options not currently exercisable.
(9) Includes the shares underlying warrants and options included for Messrs.
Thomas, Loomis, Francis, Ingalls, Schulze and Ford and Ms. Gillespie,
respectively, in notes (3), (4), (5), (6), (7) and (8) above.
(10) Includes 200,000 shares underlying options currently exercisable. Excludes
112,500 shares underlying options not currently exercisable.
18
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 17, 1992 FiberChem, Inc. ("FCI") signed an agreement to sell ABT to
Johnny R. Thomas, then FCI's President and ABT's Vice President (25% interest);
John C. Francis, then FCI's Vice President and now the Company's Vice President
and Secretary (25% interest); Scott J. Loomis, then a Director of FCI and ABT's
President (25% interest); and Reesor G. Woodling, then a Director of ABT (25%
interest) (the "Purchasers"). The Purchasers agreed to purchase all of the
issued and outstanding shares of Common Stock of ABT, which were all owned by
FCI. The net purchase price of $425,559 was payable in four equal installments
of principal plus interest at a rate of 8% per annum, commencing July 1, 1993
and annually thereafter until paid in full. On July 1, 1992, the Purchasers and
ABT entered into an agreement whereby ABT agreed to assume the Purchasers'
obligation to FCI with respect to the note payable. However, the Purchasers
remained primarily liable for this debt until it was fully paid in July 1996.
During Fiscal 1995 and 1996, the Company paid FCI $106,390 plus interest in
each year.
In connection with the Company's December 1993 Private Placement, Dr. Thomas
purchased 75,000 Units for cash consideration of $150,000; Mr. Loomis purchased
30,333 Units for cash consideration of $20,000 and $40,666 of accrued
compensation and disbursements, and Agri Research and Development, Inc., an
entity controlled by Mr. Loomis, purchased 10,630 Units in exchange for $21,260
of accrued obligations of the Company; Dr. Thomas and Messrs. Francis, Loomis
and Woodling subscribed for 11,250, 11,250, 10,000 and 10,000 Units,
respectively, in exchange for promissory notes for $22,500, $22,500, $20,000 and
$20,000 which Dr. Thomas, Mr. Francis and Mr. Loomis, respectively, agreed to
allow the Company to deduct through monthly payments from salary and/or
directors' compensation. As part of the foregoing private placement, as of March
31, 1994, Dr. Thomas and Messrs. Loomis, Francis and Woodling, as standby
purchasers, irrevocably subscribed for 106,509, 106,509, 107,760, and 107,759
additional Units, respectively, in exchange for negotiable promissory notes in
the amounts of $213,018, $213,018, $215,520 and $215,518, respectively, all of
which notes were paid for with cash during Fiscal 1995.
On March 14, 1995, Dr. Thomas and Mr. Francis guaranteed payment of certain
promissory notes to the Company in the amounts of $2,561,193 and $413,307,
respectively, for the exercise of Class A Warrants by unaffiliated third
parties. The notes were subsequently satisfied in full, and neither Dr. Thomas
nor Mr. Francis received any benefit or suffered any loss with respect to this
transaction.
On March 20, 1995, Dr. Thomas and Mr. Francis guaranteed payment of certain
promissory notes to the Company in the amounts of $900,000 each, for the
exercise of Class B Warrants by unaffiliated third parties. The notes were
subsequently satisfied in full, and neither Dr. Thomas nor Mr. Francis received
any benefit or suffered any loss with respect to this transaction.
On November 21, 1995, Mr. Francis exercised 151,250 Class A warrants as a
standby purchaser and gave a promissory note to the Company for the exercise
price of $468,875 or $3.10 per share. The promissory notes were subsequently
satisfied through Mr. Francis' transfer of an aggregate of 172,055 shares in
connection with the Company's purchase of two companies during Fiscal 1996.
Because of the change in market price between the date of exercise of the
warrants and the dates of transfer of the Common Stock, Mr. Francis transferred
20,805 shares more than he received upon exercise and sustained a loss of
approximately $40,000, based on the market price of the Common Stock on the date
of the last transfer.
19
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Registrant, as amended. (2)
3.2 Amended and Restated By-Laws of the Registrant. (2)
3.3 Articles of Merger of the Registrant.(2)
3.4 Agreement and Plan of Merger.(2)
3.5 Certificate of Designation and Preferences of Series B
Convertible Preferred Stock of the Registrant. (11)
3.6 Certificate of Designation and Preferences of Series C
Convertible Preferred Stock of the Registrant. (13)
4.1 Form of Class B Warrant Certificate. (1)
4.2 Form of Class C Warrant Certificate. (1)
10.1 Employment Agreement between Registrant and Scott J. Loomis dated
February 1, 1994. (2)
10.2 Employment Agreement between Registrant and Johnny R. Thomas
dated March 10, 1994. (2)
10.3 Employment Agreement between Registrant and John C. Francis dated
March 24, 1994. (2)
10.4 1994 Stock Option Plan. (2)
10.5 Employee Stock Bonus Plan. (2)
10.6 License Agreement dated July 11, 1994 by and between the
Registrant and ABI Alfalfa. (3)
10.7 Asset Purchase Agreement, dated March 30, 1995, by and among the
Registrant, Scott Seed Company, Inc. ("Scott Seed") and L.G.
Seeds, Inc. (4)
10.8 Modification Agreement, dated as of June 5, 1995, by and among
the Registrant, Seed Resource, Inc. ("Seed Resource") and
Research Seeds, Inc. ("RSI"). (5)
10.9 Asset Purchase Agreement, dated June 23, 1995, by and among the
Registrant, Seed Resource and Hobart Seed Company. (6)
10.10 Employment Agreement dated November 29, 1994 by and between
Kathleen L. Gillespie and the Registrant. (7)
10.11 Asset Purchase Agreement, dated September 20, 1995, by and among
the Registrant, Halsey Seed Company ("Halsey") and Halsey Farms,
Inc. (7)
10.12 Amendment, dated December 20, 1995, to Employment Agreement
between the Company and Kathleen Gillespie.
20
<PAGE>
10.13 Stock Option Agreement dated as of December 20, 1995 between
Registrant and Kathleen L. Gillespie (ISOs). (12)
10.14 Stock Option Agreement dated as of December 20, 1995 between
Registrant and Kathleen L. Gillespie (NQSOs). (12)
10.15 Asset Purchase Agreement, dated December 20, 1995, by and among
the Registrant, Arnold-Thomas Seed Service, Inc. (Nevada) and
Arnold-Thomas Seed Service, Inc. (8)
10.16 Asset Purchase Agreement, dated as of January 31, 1996, by and
among the Registrant, Clark Seeds, Inc., Fred L. Clark, Brent B.
Clark, Steven D. Jensen and Donald R. Morris. (9)
10.17 Employment Agreement dated February 13, 1996 between Henry A.
Ingalls and the Registrant. (11)
10.18 Stock Option Agreement dated as of February 13, 1996 between
Registrant and Henry A. Ingalls. (12)
10.19 Stock Option Agreement dated as of March 11, 1996 between
Registrant and Johnny R. Thomas. (12)
10.20 Stock Option Agreement dated as of March 11, 1996 between
Registrant and John C. Francis. (12)
10.21 Stock Option Agreement dated as of March 11, 1996 between
Registrant and Scott J. Loomis. (12)
10.22 Form of Subscription Agreement for the Series B Convertible
Preferred Stock of the Registrant. (10)
10.23 Business Loan Agreement, dated as of May 1, 1996, among the
Registrant, certain of its subsidiaries and Bank of America
(Nevada).
10.24 Asset Purchase Agreement, dated May 2, 1996, by and among the
Registrant, Halsey and RSI (Beachley-Hardy division). (11)
10.25 Form of Subscription Agreement for the Series C Convertible
Preferred Stock of the Registrant. (13)
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
___________________
(1) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 for April 29, 1994, as amended (No. 33-78470-NY).
(3) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1994.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
for April 19, 1995.
21
<PAGE>
(5) Incorporated by reference from the Registrant's Current Report on Form 8-K
for June 22, 1995.
(6) Incorporated by reference from the Registrant's Current Report on Form 8-K
for June 23, 1995.
(7) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended June 30, 1995.
(8) Incorporated by reference from the Registrant's Current Report on Form 8-K
for December 22, 1995.
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
for February 1, 1996.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
for April 12, 1996.
(11) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 1996.
(12) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 filed June 28 1996 (No. 333-07123).
(13) Incorporated by reference from the Registrant's Current Report on Form 8-K
for September 13, 1996.
(b) Reports on Form 8-K:
(i) Amendment 1 on Form 8-K/A to Current Report on Form 8-K filed on or about
April 13, 1996 with respect to an event occurring February 1, 1996,
amending Item 7 and setting forth the financial statements of the business
acquired and the pro forma financial information of the Company.
(ii) Current Report on Form 8-K filed on or about April 23, 1996 with respect to
an event occurring April 12, 1996, reporting a private offering by the
Company of its Series B Convertible Preferred Stock in Item 5.
22
<PAGE>
FINANCIAL STATEMENTS OF AGRIBIOTECH, INC.
- -----------------------------------------
<TABLE>
<S> <C>
Independent Auditors' Report.......................... F-2
Consolidated Balance Sheets at
June 30, 1996 and 1995............................... F-3
Consolidated Statements of Operations for
the year ended June 30, 1996 and the
nine-month period ended June 30, 1995................ F-5
Consolidated Statements of Changes in Stockholders'
Equity for the year ended June 30, 1996 and
the nine-month period ended June 30, 1995............ F-6
Consolidated Statements of Cash Flows for the
year ended June 30, 1996 and the nine-month
period ended June 30, 1995.......................... F-7
Notes to Consolidated Financial Statements at
June 30, 1996 and 1995.............................. F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
AgriBioTech, Inc.:
We have audited the accompanying consolidated balance sheets of AgriBioTech,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended June 30, 1996 and the nine-month period ended June 30, 1995. These
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AgriBioTech, Inc.
and subsidiaries at June 30, 1996 and 1995, and the results of their operations
and their cash flows for the year ended June 30, 1996 and the nine-month period
ended June 30, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 20, 1996
F-2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,522,309 1,422,943
Accounts receivable, less allowance for
doubtful accounts of $104,773 at June
30, 1996 and $46,661 at June 30, 1995 7,501,725 953,251
Notes receivable from sale of stock -- 1,083,027
Inventories 7,257,795 1,819,159
Other 285,811 46,703
----------- ----------
Total current assets 17,567,640 5,325,083
Property, plant and equipment, net 7,916,145 2,092,265
Intangible assets, net of accumulated amortization 546,327 164,874
Notes receivable from sale of stock -- 350,140
Other assets 153,676 81,640
----------- ----------
Total assets $26,183,788 $8,014,002
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
----------- -----------
<S> <C> <C>
Current liabilities:
Short-term debt $ 5,088,984 564,291
Current installments of long-term debt 567,353 123,057
Accounts payable 4,406,588 702,576
Accrued liabilities 1,043,746 143,386
----------- -----------
Total current liabilities 11,106,671 1,533,310
Long-term debt, excluding current installments 1,054,621 148,057
----------- -----------
Total liabilities 12,161,292 1,681,367
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized
10,000,000 shares; issued and outstanding 6,530
shares at June 30, 1996 (aggregate liquidation
preference of $6,667,002) and none at June 30,
1995 7 --
Common stock, $.001 par value; authorized
30,000,000 shares; issued and outstanding
8,543,757 shares at June 30, 1996 and 7,145,200
shares at June 30, 1995 8,544 7,145
Capital in excess of par value 23,752,051 13,742,327
Accumulated (deficit) (9,711,316) (6,387,184)
----------- -----------
14,049,286 7,362,288
Deferred compensation (26,790) (358,640)
Notes receivable from sale of stock -- (671,013)
----------- -----------
Total stockholders' equity 14,022,496 6,332,635
----------- -----------
Commitments, contingency and subsequent events (notes 9
and 13)
Total liabilities and stockholders' equity $26,183,788 8,014,002
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine-month
Year ended period ended
June 30, June 30,
1996 1995
----------- ------------
<S> <C> <C>
Net sales $25,961,541 4,753,608
Cost of sales 19,235,670 3,397,860
----------- ----------
Gross profit 6,725,871 1,355,748
Operating expenses 9,636,863 2,779,185
----------- ----------
(Loss) from operations (2,910,992) (1,423,437)
----------- ----------
Other income (expense):
Interest expense (464,515) (35,624)
Interest income 87,255 21,861
Other (35,880) 30,513
----------- ----------
Total other income (expense) (413,140) 16,750
----------- ----------
Net (loss) $(3,324,132) (1,406,687)
=========== ==========
Shares of common stock used in
computing loss per share 7,458,594 5,484,527
=========== ==========
Net (loss) per share $ (0.45) (0.26)
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Preferred stock Common stock Capital
-------------------- ----------------------- excess of
Shares Amount Shares Amount par value
------ ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 -- $-- 4,240,000 $4,240 6,150,765
Common stock issued for:
Exercise of warrants -- -- 2,638,000 2,638 6,911,362
Services -- -- 267,200 267 559,733
Reduction of notes for:
Cash -- -- -- -- --
Services -- -- -- -- --
Acquisitions -- -- -- -- --
Notes receivable paid
subsequent to year end -- -- -- -- --
Increase in repayment amount of
notes receivable -- -- -- -- 120,467
Deferred compensation earned -- -- -- -- --
Net (loss) -- -- -- -- --
----- --- --------- ------ ----------
Balance at June 30, 1995 -- -- 7,145,200 7,145 13,742,327
Issuance of preferred stock for cash, net 7,425 8 -- -- 6,608,242
Common stock issued for:
Services -- -- 10,000 10 31,490
Exercise of warrants -- -- 546,000 546 1,967,254
Acquisitions -- -- 162,343 163 608,624
Conversion of preferred stock (895) (1) 280,214 280 (279)
Exercise of options -- -- 250,000 250 624,750
Cancellation of options -- -- 150,000 150 (150)
Reduction of notes for:
Services -- -- -- -- --
Cash -- -- -- -- --
Acquisitions -- -- -- -- (343,777)
Increase in repayment amount of
notes receivable -- -- -- -- 155,736
Restructuring of employee
stock options -- -- -- -- 220,000
Options issued for services -- -- -- -- 185,616
Expenses of stock issuances -- -- -- -- (47,782)
Deferred compensation earned -- -- -- -- --
Net (loss) -- -- -- -- --
----- --- --------- ------ ----------
Balance at June 30, 1996 6,530 $ 7 8,543,757 $8,544 23,752,051
===== === ========= ====== ==========
<CAPTION>
Notes
Accumulated Deferred receivable from
(deficit) compensation sale of stock Total
----------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 (4,980,497) -- (670,511) 503,997
Common stock issued for:
Exercise of warrants -- -- (4,914,000) 2,000,000
Services -- (560,000) -- --
Reduction of notes for:
Cash -- -- 1,760,631 1,760,631
Services -- -- 196,167 196,167
Acquisitions -- -- 1,644,000 1,644,000
Notes receivable paid
subsequent to year end -- -- 1,433,167 1,433,167
Increase in repayment amount of
notes receivable -- -- (120,467) --
Deferred compensation earned -- 201,360 -- 201,360
Net (loss) (1,406,687) -- -- (1,406,687)
---------- --------- ---------- ----------
Balance at June 30, 1995 (6,387,184) (358,640) (671,013) 6,332,635
Issuance of preferred stock for cash, net -- -- -- 6,608,250
Common stock issued for:
Services -- -- -- 31,500
Exercise of warrants -- -- (1,297,800) 670,000
Acquisitions -- -- -- 608,787
Conversion of preferred stock -- -- -- --
Exercise of options -- -- -- 625,000
Cancellation of options -- -- -- --
Reduction of notes for:
Services -- -- 40,499 40,499
Cash -- -- 580,603 580,603
Acquisitions -- -- 1,503,447 1,159,670
Increase in repayment amount of
notes receivable -- -- (155,736) --
Restructuring of employee
stock options -- 260,000 -- 480,000
Options issued for services -- -- -- 185,616
Expenses of stock issuances -- -- -- (47,782)
Deferred compensation earned -- 71,850 -- 71,850
Net (loss) (3,324,132) -- -- (3,324,132)
---------- --------- ---------- ----------
Balance at June 30, 1996 (9,711,316) (26,790) -- 14,022,496
========== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month
Year ended period ended
June 30, June 30,
1996 1995
---------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(3,324,132) (1,406,687)
Adjustments to reconcile net (loss) to net cash
flows from operating activities:
Amortization 103,740 68,154
Depreciation 475,218 70,760
Common stock for services 143,849 397,527
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable (4,599,458) 168,331
Inventories (796,105) 990,006
Other assets 92,862 (49,123)
Payables 1,446,661 (486,259)
Accrued liabilities 768,930 51,678
----------- ----------
Net cash flows from operating activities (5,688,435) (195,613)
----------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (504,395) (111,151)
Additions to intangible assets (155,000) (15,790)
Acquisitions (5,960,585) (3,012,724)
----------- ----------
Net cash flows from investing activities (6,619,980) (3,139,665)
----------- ----------
Cash flows from financing activities:
Net proceeds of short-term debt 4,104,779 564,291
Repayments of long-term debt (696,096) (8,333)
Sale of preferred stock 7,425,000 --
Exercise of options 625,000 --
Exercise of warrants 670,000 2,000,000
Expenses of stock issuance (864,532) --
Restructuring of employee stock option 480,000 --
Payments received on notes receivable from
sale of stock 1,663,630 1,760,631
----------- ----------
Net cash flows from financing activities 13,407,781 4,316,589
----------- ----------
Net decrease in cash and cash equivalents 1,099,366 981,311
Cash and cash equivalents at beginning of period 1,422,943 441,632
----------- ----------
Cash and cash equivalents at end of period $ 2,522,309 1,422,943
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month
Year ended period ended
June 30, June 30,
1996 1995
----------- ------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 364,993 5,284
=========== ==========
Non cash investing and financing activities:
Debt issued in connection with acquisitions $ 1,250,000 --
Increase in warrant exercise price 155,736 120,467
Receivable from exercise of warrants 1,297,800 4,914,000
Reduction of notes receivable for acquisitions 1,853,587 1,644,000
Common stock issued for deferred compensation -- 560,000
Notes receivable paid subsequent to year end -- 1,433,167
Options granted for services 185,616 --
Notes receivable from sale of stock 161,023 --
Discount on notes receivable from sale of stock 343,777 --
=========== ==========
Summary of assets and liabilities acquired through
acquisitions:
Cash $ 5,641 29,165
Accounts receivable 1,949,016 1,087,602
Inventories 4,642,531 2,755,658
Property, plant and equipment 5,794,703 2,034,000
Intangible assets 330,193 --
Other assets 218,390 78,483
Account payable and accrued expenses (2,388,781) (1,232,352)
Long-term and short-term debt (1,216,870) (66,667)
----------- ----------
Net assets acquired $ 9,334,823 4,685,889
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) Corporate Organization and Acquisitions
----------------------------------------
(a) Business
--------
AgriBioTech, Inc. ("ABT" or the "Company") was formed to design,
develop, and market various agricultural products intended to improve
the profitability of farming and ranching. The Company is a
specialized distributor of forage (hay crops), turf grass, corn,
soybean and other seeds throughout the United States. Approximately 5%
of the Company's sales for the year ended June 30, 1996 were to
customers in foreign countries. Since January 1, 1995, the Company has
followed a business strategy to acquire reputable, regionally based
seed companies with proprietary products and established production
and distribution channels in their respective markets in order to
consolidate and vertically integrate the forage and turf grass sector
of the seed industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Effective June 30, 1995, the Company changed its fiscal year end from
September 30 to June 30 since that date better reflects the natural
business year of the Company's business.
(b) Acquisitions
------------
The Company executed an asset purchase agreement to purchase
substantially all of the assets of Scott Seed Co. ("Scott") effective
March 1, 1995. The transaction was recorded using the purchase method
of accounting. The net purchase price was $1,956,411 which includes
inventory, accounts receivable, prepaid assets, and fixed assets, net
of accounts payable and certain assumed liabilities. The purchase
price was paid through 158,000 shares of ABT common stock valued at
$474,000 and cash of $1,482,411.
The Company purchased all of the capital stock of Seed Resource, Inc.
("Seed Resource") effective January 1, 1995. The transaction was
recorded using the purchase method of accounting. The purchase price
of $1,075,500 was paid through 333,334 shares of ABT common stock
valued at $700,000 and cash of $375,500.
The Company executed an asset purchase agreement with Hobart Seed
Company ("Hobart") effective April 1, 1995. The transaction was
recorded using the purchase method of accounting. The purchase price
of $1,653,978 includes inventory, fixed assets, trademarks and trade
names, and a minority interest in the stock of a purchasing
cooperative. The purchase price was paid through 147,451 shares of ABT
stock valued at $470,000 and $1,183,978 of cash.
The Company purchased substantially all of the assets of Halsey Seed
Company ("Halsey") effective July 1, 1995. The transaction was
recorded using the purchase method of accounting. The purchase price
of $1,122,793 includes inventory, accounts receivable, prepaid assets,
and fixed assets, net of accounts
F-9
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
payable and certain assumed liabilities. The purchase price was paid
through cash of $772,653 and 87,535 shares of the Company's common
stock valued at $350,140.
The Company purchased substantially all of the assets of Arnold-Thomas
Seed Service, Inc. ("Arnold-Thomas") effective October 1, 1995. The
transaction was recorded using the purchase method of accounting. The
purchase price of $926,195 includes inventory, accounts receivable,
prepaid assets and fixed assets, net of accounts payable and certain
assumed liabilities. The purchase price was paid through cash of
$666,524 and 105,450 shares of the Company's common stock valued at
$259,671.
The Company purchased all of the capital stock of Clark Seeds, Inc.
("Clark Seed") effective October 1, 1995. The transaction was recorded
using the purchase method of accounting. The purchase price of
$2,150,000 was paid through 400,000 shares of the Company's common
stock valued at $900,000 and promissory notes of $1,250,000.
The Company purchased certain assets of Doug Conlee Seed Company
("Conlee") effective January 1, 1996. The transaction was recorded
using the purchase method of accounting. The purchase price of
$639,606 includes inventory, prepaid assets, fixed assets and
proprietary rights to certain crop varieties. The purchase price was
paid in cash. In addition, the Company must pay the seller 20 percent
of the net margin, after expenses, from the business transferred to
the Company through December 31, 1998, which through June 30, 1996 was
insignificant.
The Company purchased substantially all of the assets of Beachley-
Hardy Seed, a division of Research Seeds, Inc., ("Beachley-Hardy")
effective February 1, 1996. The transaction was recorded using the
purchase method of accounting. The net purchase price of $4,231,981
includes inventory, accounts receivable, prepaid assets, fixed assets
and trademark rights, less accounts payable and certain assumed
liabilities. The purchase price was paid through cash of $3,623,194
and 162,343 shares of the Company's common stock valued at $608,787.
Proforma results of operations (unaudited) assuming the acquisitions
had occurred at the beginning of the periods presented are as follows:
<TABLE>
<CAPTION>
Nine-month
Year ending period ending
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Revenues $29,557,079 23,895,112
Net (loss) (5,189,588) (2,603,799)
Net (loss) per share (0.65) (0.40)
</TABLE>
In May 1996, the Company signed a letter of intent to purchase
substantially all of the assets of a seed operation which markets
corn, forage and turf grass seed in the United States and
internationally. The pending acquisition will expand the Company's
distribution territories and give the Company access to an established
research base and new proprietary seed varieties. This seed operation
has unaudited total assets of approximately $15 million and for its
fiscal year ended September 30, 1995 had revenues of approximately
$19.5 million and a net loss of approximately $0.4 million. The
purchase price is expected to be approximately $17 million, after
reflecting assumed liabilities of approximately $1 million and will be
paid in cash at closing. The purchase price includes accounts
receivable, inventory, property, plant and equipment, and proprietary
rights to certain crop varieties, as well as the genetic breeding base
for the development of additional varieties. In connection with this
acquisition, the Company is negotiating
F-10
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
for a substantial increase in its line of credit, additional debt
funding and the additional equity described in note 13. If this
acquisition does not close because the Company does not have
sufficient financing resources, which the Company considers unlikely,
the Company would be required to issue 250,000 shares of its common
stock to the current owner.
(2) Significant Accounting Policies
-------------------------------
(a) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts have been eliminated.
(b) Cash and Cash Equivalents
-------------------------
Cash equivalents consist of financial instruments with original
maturities of no more than ninety days.
(c) Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(d) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the assets.
(e) Intangible Assets
-----------------
Intangible assets consist of costs of genetic breeding bases for
various proprietary plant varieties, trademarks and covenants not to
compete related to the Company's seed business. In addition, it
includes manufacturing, distribution, and patent rights to proven
technologies acquired by the Company to be utilized for various
agricultural purposes, primarily liquid formulations which are
intended to prevent bloating in cattle, allowing them to safely graze
certain high protein vegetation. Rights to genetic breeding bases are
amortized over the expected lives of such assets using the straight-
line and units-of-production methods. Other intangible assets are
amortized using the straight-line method over eight to fifteen year
periods or the lives of agreements, if applicable.
(f) Income Taxes
------------
Income taxes are provided under Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109
---------------------------
requires that deferred income taxes be provided on temporary
differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes using the asset and
liability method. Under this method, deferred income taxes are
computed based on the enacted tax rates scheduled to be in effect when
such differences reverse.
(g) Revenue Recognition
-------------------
The Company recognizes revenue when product is shipped to customers
and title passes. Revenue is reduced by a reserve for estimated
returns.
F-11
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(h) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
(i) Employee Stock Options
----------------------
Under Accounting Principles Board Opinion No. 25, the Company does not
record compensation for stock options granted to employees unless the
exercise price is less than the quoted market price of the Company's
common stock at the date of grant. To date, the Company has not
granted any stock options to employees under which compensation has
been recorded. The Financial Accounting Standards Board has adopted
SFAS No. 123 which allows the Company to continue its present policy
or, alternatively, to record a compensation element for stock options
granted to employees on the "fair value based method" which generally
uses a modeling technique to calculate the fair value of options
issued. The Company currently anticipates it will continue its present
method of accounting for employee stock options. In such case,
beginning in 1997, the Company will be required to provide proforma
disclosures of net earnings and net earnings per share as if the "fair
value based method" had been utilized.
(j) (Loss) Per Common Stock
-----------------------
(Loss) per share common stock has been computed based upon average
shares outstanding during the periods presented. Contingently issuable
shares have been excluded because of their anti-dilutive effect.
(k) Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform with the
1996 presentation.
(3) Inventories
-----------
Inventories consist of:
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Farm seed and related products $6,815,493 1,143,316
Garden supplies 295,415 138,933
Other products 109,512 214,379
Supplies 37,375 322,531
---------- ---------
Total inventories $7,257,795 1,819,159
========== =========
</TABLE>
(4) Property, Plant, and Equipment
------------------------------
A summary of property, plant, and equipment is as follows:
F-12
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
June 30,
Useful --------
lives 1996 1995
----- ---- ----
<S> <C> <C> <C>
Land -- $1,394,500 244,500
Buildings 12 to 40 years 3,668,555 1,250,770
Equipment 1 to 25 years 3,388,624 669,158
---------- ---------
Total property, plant, and
equipment 8,451,679 2,164,428
Less accumulated depreciation 535,534 72,163
---------- ---------
Property, plant, and
equipment, net $7,916,145 2,092,265
========== =========
</TABLE>
(5) Intangible Assets
-----------------
Intangible assets consist of:
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Genetic breeding bases $ 297,000 -
Covenants not to compete 170,000 -
Manufacturing, distribution
and patent rights 737,825 737,825
Other 18,193 -
---------- -------
Total intangible assets 1,223,018 737,825
Less accumulated amortization 676,691 572,951
---------- -------
Intangible assets, net $ 546,327 164,874
========== =======
</TABLE>
(6) Long-Term Debt
--------------
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Notes payable to former owners of Clark
Seed; payments of $400,000 annually,
plus interest at 6%; secured by property,
plant and equipment of Clark Seed $800,000 -
Mortgage payable to financial institution
due in annual payments of $86,762, including
interest at 8.75%; secured by land and buildings
of Clark Seed 629,365 -
Industrial revenue bond, bearing interest at
75% of the prime rate (6.2% at June 30, 1996),
principal payments of $8,333 plus accrued
interest due semiannually through December 12,
1998; secured by buildings 41,667 58,334
</TABLE>
F-13
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Note payable bearing interest at 8%, principal
payments of $106,390 plus interest due annually 106,390 212,780
Other 44,552 -
---------- -------
Total long-term debt 1,621,974 271,114
Less current installments 567,353 123,057
---------- -------
Long-term debt, excluding current
installments $1,054,621 148,057
========== =======
</TABLE>
Required principal payments are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
-------------------- ------
<S> <C>
1997 $567,353
1998 466,707
1999 55,471
2000 42,287
2001 45,305
</TABLE>
The 8% note payable originated in June 1992, when Fiber Chem, Inc. ("FCI"),
which then owned 100 percent of ABT, sold ABT to four individuals, three of whom
were at that time related parties to FCI and are currently directors of ABT. The
note payable was assumed by ABT although the individuals remained primarily
liable until the note was fully paid in July 1996.
(7) Short-Term Debt
---------------
At June 30, 1996, the Company had a $4,500,000 line of credit with a bank,
all of which was outstanding. The amount available under the line of credit
is limited to the sum of 70 percent of the Company's eligible receivables
less than 90 days old and 50 percent of eligible inventory. The line of
credit expires in November 1996, bears interest at the bank's reference
rate plus 1.5 percent (9.75% at June 30, 1996), and is secured by
inventory, receivables, equipment, and intangibles.
In addition, Clark Seed has a revolving line of credit for up to $721,000,
of which $588,984 was outstanding at June 30, 1996. This line of credit
expires October 1, 1996, bears interest at a variable rate which was 8.45
percent at June 30, 1996 and is secured by Clark Seed's accounts
receivable, inventory and equipment.
(8) Capital Stock
-------------
Prior to October 1, 1994, the Company issued warrants to purchase the
Company's common stock. The "A Warrant" entitled the holder to obtain one
share of ABT's common stock and a warrant (the "B Warrant") upon payment of
the exercise price of $3.50 through January17, 1996. The B Warrant
entitles the holder to obtain one share of ABT's common stock and a warrant
(the "C Warrant") upon the payment of the exercise price of $5.00 through
January 17, 1997. The C Warrant entitles the holder to obtain one share of
ABT's common stock upon payment of the exercise price of $7.50 through
January 17, 1998.
On January 30, 1995, in order to accelerate the raising of capital, the
Company's Board of Directors temporarily reduced the exercise price of all
of the 2,160,000 Class A Warrants then outstanding from $3.50 per share to
$2.00 per share until March 1, 1995. As a result, the Company received an
aggregate of $2,000,000 from the
F-14
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
exercise of 1,000,000 Class A Warrants. Effective March 2, 1995, the
exercise price of the Class A Warrants reverted back to $3.50 per share.
In mid-March 1995, to further accelerate the raising of capital, the
Company reduced the exercise price of the Class A Warrants and Class B
Warrants to $3.00 per share in the event the warrant holder exercised on or
before March 30, 1995 using cash or promissory notes. To the extent
exercise was by promissory note, funds due on these promissory notes
increased periodically back to the original exercise price of the warrants.
By March 30, 1995, 1,038,000 Class A Warrants and 600,000 Class B Warrants
were exercised by promissory notes. These promissory notes were
transferable and non-interest bearing. The common stock underlying the
exercise of these warrants was held in escrow by the Company until the
promissory notes were paid. On March 31, 1995, the exercise price of the
unexercised Class A Warrants and Class B Warrants reverted back to $3.50
per share and $5.00 per share, respectively.
In June 1995, the Company entered into a consulting agreement for
assistance with investor relations, strategic planning, funding plans, and
other corporate activities through December 31, 1995. The Company issued
300,000 Class A warrants exercisable at $3.50 per share through January 17,
1996 and the market price on the date of the agreement was $3.00 per share.
The agreement was not deemed to contain significant compensation and,
therefore, no expense was recorded in connection with this agreement.
On October 10, 1995, the Company called all of its 422,000 outstanding
Class A Warrants. The Company paid warrant holders $.01 per warrant for A
Warrants not exercised by November 8, 1995. All of the warrants were then
exercised by "stand-by purchasers" who paid cash, signed promissory notes
or agreed to perform services. The warrants were exercised at $3.50 per
share less a 10% commission.
During the nine-month period ended June 30, 1995, the Company reduced the
notes receivable from sale of stock by $1,644,000 through the acquisition
of Scott, Seed Resource and Hobart for $474,000, $700,000 and $470,000,
respectively. During the year ended June 30, 1996, in connection with the
acquisitions of Arnold-Thomas and Clark Seed, $1,503,447 of the notes were
satisfied by note holders transferring 505,450 shares of stock to the
previous owners of Arnold-Thomas and Clark Seed. To facilitate the Clark
Seed transfer, the notes receivable for sale of stock were discounted by
$343,777 to reflect the then current market price of the stock.
In April 1996, the Company completed a private placement of convertible
preferred stock and issued 7,425 shares of Series B Convertible Preferred
Stock. The Company received cash proceeds, after commissions, of $6,608,250
from the issuance of the Series B Convertible Preferred Stock. The Series B
Convertible Preferred Stock is not entitled to a dividend and is not
mandatorily redeemable by the Company. The Series B Convertible Preferred
Stock has a liquidation preference of $1,000 per share, plus a premium of
10 percent per annum from the date of issuance, which aggregated $6,667,002
at June 30, 1996. The Series B Convertible Preferred Stock is convertible
into shares of common stock equal to the aggregate liquidation preference,
including the 10 percent per annum premium, divided by a conversion price
that is the lesser of (i) 80 percent of the average closing bid price for
the Company's common stock for the five days prior to conversion or (ii) a
set amount of approximately $3.90 per share which escalates to
approximately $5.90 per share over four years. In the event of a conversion
when the average closing bid price of the Company's common stock is $3.75
per share or lower, the Company has the option of redeeming for cash, at
the average closing bid price, the shares of common stock issuable upon
such conversion. The Series B Convertible Preferred Stock will convert into
common stock after being outstanding four years if not been previously
converted.
Between the date of issuance and June 30, 1996, 895 shares of Series B
Convertible Preferred Stock were converted into 280,214 shares of common
stock. At June 30, 1996, the 6,530 shares of Series B Convertible
F-15
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Preferred Stock outstanding were convertible into 2,096,542 shares of
common stock. Between July 1, 1996 and September 20, 1996, 2,932 shares of
Series B Convertible Preferred Stock were submitted to the Company for
conversion. The Company issued 1,061,184 shares of common stock and
redeemed for cash the equivalent of 334,201 shares of common stock
aggregating $853,273. The remaining shares of Series B Convertible
Preferred Stock outstanding on September 20, 1996, were convertible into
1,729,157 shares of common stock.
On January 5, 1996, the Company entered into an eighteen-month consulting
agreement to assist the Company with investor communications and relations.
In consideration of the agreement, the Company granted the consultant a
five-year option to purchase 2,000,000 shares of the Company's common stock
exercisable at $1.81 per share which equaled the market price at the grant
date. In July 1996, 1,500,000 options became exercisable with the remaining
500,000 options becoming exercisable in July 1997. The Company has
determined that the value of the investor communications and relations
services to be received under this agreement is $108,000, which is being
amortized over the term of the agreement. Subsequent to June 30, 1996, the
Company entered into another agreement with the consultant under which the
consultant surrendered rights to 1,550,000 of the options with rights to an
additional 300,000 options being surrendered if such options are not
exercised by October 31, 1996. In exchange, the Company issued 750,000
shares of its restricted common stock to the consultant.
In March 1996, the Company entered into a bridge financing agreement,
pending the completion of the Series B Convertible Preferred Stock issuance
describe above, under which the Company borrowed $1,000,000 from an
individual, who is also a stockholder of the Company. The loan was repaid
from the proceeds of the Series B Convertible Preferred Stock offering.
Under the agreement, interest was paid on the loan at 9 percent per annum
and the lender was granted a five year option to purchase 500,000 shares of
the Company's common stock exercisable at $2.50 per share which equaled the
market price at the grant date. The Company has imputed $27,616 of
additional interest expense under this agreement to reflect the relative
risk undertaken by the lender. In addition, the Company granted a five year
option to purchase 250,000 shares of the Company's common stock exercisable
at $2.50 per share to the agent for the lender, who was also a consultant
to the Company. The Company determined that the compensation attributable
to the agent's services was $50,000, which was amortized over the term of
the loan agreement. In June 1996, the Company entered into an additional
agreement with the holders of these options under which 250,000 of these
options were exercised, along with the conversion of 150,000 Class B
Warrants, with the Company receiving $625,000 in cash, and the remaining
500,000 options were canceled.
The Company has (1) an Employee Stock Option Plan under which options for
the purchase of up to 1,200,000 shares of common stock may be granted to
qualified employees, officers and directors, employees of subsidiaries,
independent contractors, consultants, and other individuals and (2) an
Employee Stock Bonus Plan under which up to 400,000 shares of common stock
may be issued to qualified full-time employees. The Employee Stock Option
Plan is administered by a committee of non-employee members of the
Company's Board of Directors, who have complete discretion to select the
optionee and the terms and conditions of each option. The exercise price of
the options cannot be less than the fair market value of the Company's
common stock on the date of grant and options may not be exercised more
than ten years from the date of grant. At June 30, 1996, the Company had
granted five-year options to non-officer employees for the purchase of
211,500 shares of common stock at $3.75 per share (which was the market
price on the date of grant) under the Employee Stock Option Plan, of which
70,500 were exercisable. In addition, the Company has granted its non-
employee directors ten-year options to purchase an aggregate of 40,000
shares of common stock at $4.06 per share (which was the market price on
the date of grant), of which 20,000 are exerciseable. No options have been
exercised. No shares have been issued under the Employee Stock Bonus Plan.
F-16
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In December 1995, February 1996 and March 1996, the Company granted options
for the purchase of an aggregate of 5,500,000 shares of the Company's
common stock to officers of the Company, including options for 300,000
shares under the Employee Stock Option Plan. These options are exercisable
at prices ranging from $2.00 to $3.00, which equaled the market values at
the respective dates of grant, and expire ten years from the date of grant.
The options become exercisable over periods of five to ten years, with
those becoming exercisable over ten years being subject to accelerated
exercisability if the Company achieves certain levels of revenues. Options
for 1,000,000 shares were vested at June 30, 1996. As part of the Company's
capital raising program, all of the officers' options are exerciseable at
any time for cash.
As of June 30, 1996, the Company had 1,616,000 Class B Warrants, 884,000
Class C Warrants and 174,000 other warrants outstanding. Following is a
summary of activity in the Company's warrants and options:
<TABLE>
<CAPTION>
Warrants Options
-------- -------
Price Number Price Number
----- ------ ----- ------
<S> <C> <C> <C> <C>
Outstanding at
September 30, 1994 $3.50 - 5.00 2,200,000 $ - -
Issued 3.50 - 7.50 2,938,000 - -
Exercised 2.00 - 3.00 (2,638,000) - -
--------- ---------
Outstanding at
June 30, 1995 3.50 - 5.00 2,500,000 - -
Issued 5.00 - 7.50 880,000 1.81 - 4.06 8,501,500
Exercised 3.15 - 5.00 (706,000) 2.50 (250,000)
Canceled - - 2.50 (500,000)
--------- ---------
Outstanding at
June 30, 1996 5.00 - 7.50 2,674,000 1.81 - 4.06 7,751,500
--------- ---------
Vested at June 30, 1996 2,674,000 3,077,900
--------- ---------
</TABLE>
In connection with the acquisitions of Scott, Seed Resource, Hobart,
Halsey, Arnold-Thomas, Clark Seed, and Beachley-Hardy, the former owners of
these entities received ABT common stock that is subject to "lock-up
agreements" which limit the amount of common stock that the former owners
of these entities can sell within specified time periods. In addition, the
Company guaranteed the proceeds to be received by the former owners of
certain of these entities (one of which is currently in effect) from the
sale of the common stock if sold in accordance with the lock up agreements.
At June 30, 1996, the remaining guaranteed proceeds from the sale of ABT
common stock issued in connection with the Hobart acquisition was $267,250
for 99,451 shares which are to be sold through August 31, 1998.
Substantially all of the fixed assets of Hobart secure the guaranteed
proceeds. The former owner of Halsey did not sell ABT common stock in
accordance with the terms of the lock-up agreement for the other
acquisitions which, by its terms, voids the Company's guarantee. However,
the former owner of Halsey did not receive proceeds upon the sale of the
ABT stock which exceeded the guaranteed amount and has filed a lawsuit
alleging the Company is obligated to make up the shortfall of approximately
$137,000 despite his violation of the lock-up agreement. Sales made
pursuant to lock-up agreements for the other acquisitions were made such
that the Company had no obligations under its guarantees.
Any difference between the guaranteed proceeds and the proceeds received by
the previous owners of the above entities will be paid in cash by the
Company. The closing price for the Company's common stock on September 20,
1996 was $2.625 per share and the range of closing prices has been as
follows:
F-17
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
January 1, 1995 - June 30, 1995 $ 4.75 1.75
July 1, 1995 - June 30, 1996 5.4375 1.625
July 1, 1996 - September 20, 1996 4.0625 2.50
</TABLE>
(9) Commitments and Contingency
---------------------------
The Company has entered into employment agreements with officers of the
Company for periods of up to four years. Annual compensation, excluding
bonuses and out-of-pocket expenses, aggregates $536,000 under these
agreements.
The Company has entered into contractual arrangements with suppliers to
purchase approximately $500,000 of seed during the years ending June 30,
1997 and 1998. In addition, the Company contracts with growers to produce a
substantial portion of its proprietary seed requirements which the Company
would be obligated to purchase upon delivery by the growers. These
contracts are typically for one to three growing seasons and are generally
renewed or replaced with other growers.
The Company rents office space, land, warehouse space and equipment under
agreements expiring through the year 2000. Total rent expense was $152,999
for the year ended June 30, 1996 and $79,999 for the nine-month period
ended June 30, 1995. Rent commitments as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1997 $145,596
1998 75,628
1999 12,053
2000 7,252
2001 5,052
</TABLE>
As of June 30, 1996, the Company had entered into agreements for the
construction of additional warehouse facilities with an aggregate cost of
approximately $410,000.
On February 9, 1996, Jonathan R. Curshen commenced a lawsuit in the United
States District Court, Middle District of Florida, against the Company,
John C. Francis and Johnny R. Thomas, officers of the Company, and Tammie
Winfield (a shareholder). The plaintiff is seeking unspecified compensatory
and punitive damages based upon an alleged repudiation of an agreement to
sell plaintiff shares of Common Stock of the Company. The Company and the
other defendants have denied the allegations and are vigorously defending
the lawsuit. The Company believes that the lawsuit has no merit.
(10) Income Taxes
------------
The Company has reported significant losses for income tax purposes.
Utilization of these losses as carryforwards to offset future taxable
income is dependent on having taxable income. The losses which originated
prior to June 30, 1992 are further limited in each year to an amount equal
to the Federal long-term tax exempt interest rate times the entity's market
value at the time of change in ownership. The Company believes that the
effect of these limitations will be to limit the utilization of pre-1993
net operating loss carryforwards to approximately $25,000 annually through
the year 2007. The net operating losses expire, if unused, as follows:
F-18
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Amount
------
<S> <C>
2001 - 2007 $ 375,000
2008 230,000
2009 890,000
2010 1,350,000
2011 3,100,000
</TABLE>
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Net operating loss carryforward $ 2,020,000 57,000
Other 35,000 -
----------- --------
Total gross deferred tax assets 2,055,000 957,000
Less valuation allowance (2,055,000) (957,000)
----------- --------
Net deferred tax assets $ - -
=========== ========
</TABLE>
The tax benefit of the net operating loss carryforward has been fully
offset by a valuation allowance since the Company cannot currently conclude
that it is more likely than not that the benefit will be realized. The
valuation allowance increased by $1,098,000 during the year ended June 30,
1996 and $467,000 during the nine-month period ended June 30, 1995.
(11) Retirement Plan
---------------
The Company has a defined contribution plan which covers all employees.
Eligible employees may contribute up to 30 percent of their annual
compensation, not to exceed the statutory maximum. The Company may make
discretionary contributions. Participants are immediately vested in their
contribution and vest 20 percent per year in the Company's contributions
for each year of service after the first year. The Company made no
contributions to the plan in 1996 and 1995.
(12) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash and cash equivalents, accounts receivables,
accounts payable and short-term debt approximate fair value due to the
short maturity periods of these instruments. The fair value of the
Company's long-term debt is based on the present value of the cash flows
from that debt, assuming interest rates of 10.25% (6.2% for tax exempt
debt) at June 30, 1996 was approximately $1.5 million.
(13) Subsequent Events
-----------------
Subsequent to June 30, 1996, the Company reached an agreement on the form
of subscription agreement for a private placement of up to 10,000 shares of
Series C Convertible Preferred Stock at $1,000 per share. As of September
20, 1996, the Company has received subscriptions for $6,513,100 of such
stock and cash of $6,170,000 has been received by the Company. The Company
will pay commissions and expenses of 13% of the gross proceeds. The Series
C Convertible Preferred Stock has a liquidation preference of $1,000 per
share, plus
F-19
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
a premium of 8 percent per annum from the date of issuance. The Series C
Convertible Preferred Stock is convertible into shares of common stock
equal to the aggregate liquidation preference, including the 8 percent per
annum premium, divided by a conversion price that is the lesser of (i) 80
percent of the average closing bid price for the Company's common stock for
the five days prior to conversion or (ii) a set amount, which is $3.00 for
one-third of the shares, $3.50 for one-third of the shares and $4.00 for
one-third of the shares. In the event of a conversion when the average
closing bid price of the Company's common stock is below the price at the
issuance of the Series C Convertible Preferred Stock, the Company has the
option of redeeming for cash, at the average closing bid price, the shares
of common stock issuable upon such conversion. The Series C Convertible
Preferred Stock will convert into common stock after being outstanding two
years if not been previously converted.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 30, 1996
AGRIBIOTECH, INC.
By: /s/ Johnny R. Thomas
-------------------------
Johnny R. Thomas,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Johnny R. Thomas President (Principal September 30, 1996
- ----------------------- Executive Officer)
Johnny R. Thomas and Director
/s/ Henry A. Ingalls Vice President and Treasurer September 30, 1996
- ----------------------- (Principal Financial and
Henry A. Ingalls Accounting Officer)
/s/ Scott J. Loomis Vice President and Director September 30, 1996
- -----------------------
Scott J. Loomis
/s/ John C. Francis Vice President, Secretary September 30, 1996
- ----------------------- and Director
John C. Francis
/s/ Kent Schulze Director September 30, 1996
- -----------------------
Kent Schulze
/s/ Byron D. Ford Director September 30, 1996
- -----------------------
Byron D. Ford
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.12 Amendment, dated December 20, 1995, to Employment Agreement
between the Company and Kathleen Gillespie.
10.23 Business Loan Agreement, dated as of May 1, 1996, among the
Registrant, certain of its subsidiaries and Bank of America
(Nevada).
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 10.12
MEMORANDUM
DATE: December 20, 1995
TO: KATHY GILLESPIE
FROM: JOHNNY THOMAS
RE: EMPLOYMENT AGREEMENT
CC: SCOTT LOOMIS, JOHN FRANCIS
This letter will confirm our agreement to amend your employment terms
effective January, 1995, pursuant to our verbal agreements during your contract
negotiations (December, 1994), re-affirmed in January, 1995 and throughout the
year.
ABT agrees to amend your contract in order to provide incentives and
rewards which encourage you to remain a part of ABT's management team for
several years, as stated herein.
Kathleen L. Gillespie, employee, agrees to amend the Employment Agreement
as stated herein, all other terms of the Employment Agreement remain unchanged.
Kathleen L. Gillespie and ABT mutually agree to equity compensation through
common stock options, instead of common stock shares.
Kathleen L. Gillespie agrees, as of this date, that all common stock issued
in her name, "vested" or "unvested", shall be assigned for ABT use, as ABT deems
appropriate. The shares shall be returned to ABT treasury or assigned to third
parties, as deemed appropriate by ABT, provided ABT receives at least $2.00 per
share for compensation. Kathleen L. Gillespie acknowledges that she retains no
interest or ownership in said shares and affirms that she has received no
benefit from said shares being temporarily issued in her name while evaluating
performance and negotiating an options compensation package.
It is agreed by Kathleen L. Gillespie and ABT that Kathleen L. Gillespie
shall receive the following stock option package.
Kathleen L. Gillespie shall be granted 1,250,000 options to purchase ABT
common stock. The shares shall be vested on the following schedule:
a) 250,000 options vest December 20, 1995.
b) 200,000 options vest June 30, 1996.
c) 200,000 options vest June 30, 1997.
d) 200,000 options vest June 30, 1998.
<PAGE>
e) 200,000 options vest June 30, 1999.
f) 200,000 options vest June 30, 2000.
Vesting of the options in items b)-f), above, are subject to Kathleen L.
Gillespie remaining employed by the Corporation. If options are exercised before
employment ceases, the shares remain the property of Kathleen L. Gillespie, in
spite of the above vesting schedule.
The options shall be exerciseable at $2.00 per share at any time through
December 19, 2005. The options shall be non-callable by ABT and ABT shall
register the options in the first appropriate registration statement filed with
the SEC. Part of the options may be incentive stock options, payment for the
options may be cash, tendering of ABT common stock owned by Kathleen L.
Gillespie, or other compensation deemed appropriate by the Board of Directors at
the time of exercise. In the event an unaffiliated party purchases ABT, and
Kathleen L. Gillespie's employment is terminated as a result of said
acquisition, Kathleen L. Gillespie shall be vested in all options scheduled to
be vested in items b)-f), above.
/s/Johnny R. Thomas /s/ Kathleen L. Gillespie
- ------------------- -------------------------
Johnny R. Thomas, Kathleen L. Gillespie
CEO/President Employee
2
<PAGE>
EXHIBIT 10.23
[LOGO OF BANK OF AMERICA]
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY)
This Agreement dated as of May 1, 1996 is between Bank of America Nevada (the
"Bank") and AGRIBIOTECH, INC., a Nevada corporation ("AI"), SCOTT SEED COMPANY,
a Nevada corporation ("SSC"), SEED RESOURCE, INC., a Nevada corporation ("SRI"),
HALSEY SEED COMPANY, a Nevada corporation ("HSC"), SEED MART, INC., a Nevada
corporation ("SMI"), ARNOLD-THOMAS SEED SERVICE, INC., a Nevada corporation
("ATSSI") and CLARK SEEDS, INC., an Idaho corporation ("CSI"); ("AI", "SSC",
"SRI", "HSC", "SMI", "ATSSI" and "CSI" are sometimes referred to collectively as
the "Borrowers" and individually as the "Borrower.")
1. DEFINITIONS In addition to the terms which are defined elsewhere in this
Agreement, the following terms have the meanings indicated for the purposes of
this Agreement:
1.1 "BORROWING BASE" means the lesser of:
(a) Four Million Five Hundred Thousand and No/100 Dollars; or
(b) the sum of:
(i) 70% of the balance due on Acceptable Receivables; and
(ii) 50% of the value of Acceptable Inventory.
It is provided, however, the aggregate amount under subparagraph
(b)(ii) above, may not exceed 70% of the Borrowing Base; provided,
further, that this cap shall be reduced to 50% of the Borrowing Base
for six (6) consecutive months during any twelve (12) month period.
For the purposes of these calculations, this "twelve (12) month
period" shall be deemed to have commenced as of December 1, 1995.
In determining the value of Acceptable Inventory to be included in the Borrowing
Base, the Bank will use the lowest of (i) the Borrower's cost, (ii) the
Borrower's estimated market value, or (iii) the Bank's independent determination
of the resale value of such inventory in such quantities and on such terms as
the Bank deems appropriate.
1.2 "ACCEPTABLE RECEIVABLE" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the performance of
services by any Borrower in the ordinary course of such Borrower's
business.
(b) There are no conditions which must be satisfied before the Borrowers are
entitled to receive payment of the account. Accounts arising from COD
sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to payment and has
not asserted any counterclaims against the Borrowers.
(d) The account represents a genuine obligation of the debtor for goods sold
and accepted by the debtor, or for services performed for and accepted by
the debtor.
(e) The Borrowers have sent an invoice to the debtor in the amount of the
account.
(f) The account is owned by the Borrowers free of any title defects or any
liens or interests of others except the security interest in favor of the
Bank.
1
<PAGE>
(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of any Borrower, or an
entity which has common officers or directors with any Borrower.
(ii) the U.S. government or any agency or department of the U.S.
government unless the Bank agrees in writing to accept the
obligation and the Borrowers comply with the procedures in the
Federal Assignment of Claims Act of 1940 with respect to the
obligation.
(iii) any state, county, city, town or municipality.
(iv) any person or entity located in a foreign country.
(v) any person or entity to whom any Borrower is obligated for goods
purchased by such Borrower or for services performed for such
Borrower.
(h) The account is not in default. An account will be considered in default if
any of the following occur:
(i) The account is not paid within the 30 day period starting on its due
date, provided, however, that the due date will not be later than
ninety (90) days from the invoice date;
(ii) The debtor obligated upon the account suspends business, makes a
general assignment for the benefit of creditors, or fails to pay its
debts generally as they come due; or
(iii) Any petition is filed by or against the debtor obligated upon the
account under any bankruptcy law or any other law or laws for the
relief of debtors;
(i) The account, when added to all other accounts that are obligations of the
same debtor, does not cause that debtor's total obligations to the
Borrowers to exceed 15% of the balance due on all of the Borrowers'
accounts.
(j) The account is not the obligation of a debtor who is in default (as defined
above) on 25% or more of the accounts upon which such debtor is obligated.
(k) The account does not arise from the sale of goods which remain in any
Borrower's possession or under any Borrower's control.
(l) The account does not arise from the sale of minerals (including oil and
gas) at the wellhead or minehead;
(m) The account is not evidenced by a promissory note or chattel paper.
(n) The account is otherwise acceptable to the Bank.
In addition to the foregoing limitations, the dollar amount of accounts included
as Acceptable Receivables which are the obligations of a single debtor shall not
exceed the concentration limit established for that debtor. To the extent the
total of such accounts exceeds a debtor's concentration limit, the amount of any
such excess shall be excluded. The concentration limit for each debtor shall be
equal to 15% of the total amount of the Borrowers Acceptable Receivables at that
time.
1.3 "ACCEPTABLE INVENTORY" means inventory that satisfies the following
requirements:
(a) The inventory is owned by the Borrowers free of any title defects or any
liens or interests of others except the security interest in favor of the
Bank.
(b) The inventory is permanently located at locations which the Borrowers have
disclosed to the Bank and which are acceptable to the Bank. If the
inventory is covered by a negotiable document of title (such as a warehouse
receipt) that document must be delivered to the Bank. Inventory which is
in transit is not acceptable unless it is
2
<PAGE>
covered by a commercial letter of credit issued by the Bank and the seller
of the inventory is required to present shipping or title documents to the
Bank as a condition to obtaining payment.
(c) The inventory is held for sale or use in the ordinary course of the
Borrowers business and is of good and merchantable quality. Inventory
which is obsolete, unsalable, damaged, defective, discontinued or slow-
moving or which has been returned by the buyer, is not acceptable. Display
items, work-in-process and packing and shipping materials are not
acceptable.
(d) The inventory is not placed on consignment.
(e) The inventory is otherwise acceptable to the Bank.
1.4 "CREDIT LIMIT" means the amount of Four Million Five Hundred Thousand
Dollars and No/100 ($4,500,000.00).
2. LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrowers. The amount of the line of credit (the
"Commitment") is equal to the lesser of (i) the Credit Limit or (ii) the
Borrowing Base.
(b) This is a revolving line of credit. During the availability period, the
Borrowers may repay principal amounts and reborrow them.
(c) The Borrowers agree not to permit the outstanding principal balance of the
line of credit exceed the Commitment. If the Borrowers exceed this limit,
the Borrowers will immediately pay the excess to the Bank upon the Bank's
demand. The Bank may apply payments received from the Borrowers under this
Paragraph to the obligations of the Borrowers to the Bank in the order and
the manner as the Bank, in its discretion, may determine.
2.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and November 30, 1996 (the "Expiration Date") unless any Borrower
is in default.
2.3 CONDITIONS TO EACH EXTENSION OF CREDIT. Before each extension of credit
under the line of credit, including the first, the Borrowers will deliver the
following to the Bank if requested by the Bank:
(a) a borrowing certificate, in form and detail satisfactory to the Bank,
setting forth the Acceptable Receivables and the Acceptable Inventory on
which the requested extension of credit is to be based;
(b) copies of the invoices or the record of invoices from each Borrower's sales
journal for such Acceptable Receivables and a listing of the names and
addresses of the debtors obligated thereunder; and
(c) copies of the delivery receipts, purchase orders, shipping instructions,
bills of lading and other documentation pertaining to such Acceptable
Receivables.
2.4 INTEREST RATE.
(a) The interest rate is the Reference Rate plus 1.50 percentage points.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by Bank of America National Trust and Savings Association ("BofA
California") as its "reference rate". The Reference Rate is set by BofA
California based on various factors, including BofA California's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans. The Bank and BofA California
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate will take effect at the opening of
business on the day specified in the public announcement of a change in
BofA California's Reference Rate.
3
<PAGE>
2.5 REPAYMENT TERMS.
(a) The Borrowers will pay interest on May 31, 1996 and on the last day of each
month thereafter until payment in full of any principal outstanding under
this line of credit.
(b) The Borrowers will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
3. FEES AND EXPENSES.
3.1 FEES.
(A) LOAN FEE. The Borrowers agree to pay an annual loan fee in the amount of
Ten Thousand and No/100 Dollars ($10,000.00).
(b) DOCUMENTATION FEE. The Borrowers agree to pay a Six Hundred Forty-Five
and No/100 Dollars ($645.00) fee due and payable at loan closing.
(c) UNUSED COMMITMENT FEE. The Borrowers agree to pay a fee on any difference
between the Credit Limit amount and the amount of credit it actually uses,
determined by the weighted average loan balance maintained during the
specified period. The fee will be calculated at 0.50% per year.
This fee is due as of the last day of each quarter until the expiration of
the availability period, and is payable upon billing by Bank.
3.2 EXPENSES. The Borrowers agree to immediately repay the Bank for expenses
that include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, survey fees and documentation fees.
3.3 REIMBURSEMENT COSTS.
(a) The Borrowers agree to reimburse the Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
(b) The Borrowers agree to reimburse the Bank for the cost of periodic audits
and appraisals of the personal property collateral securing this Agreement,
at such intervals as the Bank may reasonably require. The audits and
appraisals may be performed by employees of the Bank or by independent
appraisers.
4. COLLATERAL
4.1 PERSONAL PROPERTY. The Borrowers' obligations to the Bank under this
Agreement will be secured by personal property the Borrowers now own or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrowers.
In addition, all personal property collateral securing this Agreement shall also
secure all other present and future obligations of the Borrowers or any one of
them to the Bank (excluding any consumer credit covered by the federal Truth in
Lending law, unless the Borrowers have otherwise agreed in writing). All
personal property collateral securing any other present or future obligations of
the Borrowers or any one of them to the Bank shall also secure this Agreement.
(a) Machinery, equipment and furniture.
(b) Inventory.
(c) Receivables.
(d) General Intangibles.
4
<PAGE>
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
5.2 DISBURSEMENTS AND PAYMENTS Each disbursement by the Bank and each payment
by the Borrowers will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrowers to sign one or more promissory notes.
5.3 TELEPHONE AND TELEFAX AUTHORIZATION.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments given by any one of the individual signer(s) of this Agreement
or a person or persons authorized by any one of the signer(s) of this
Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from AI's
account number 851001305, or such other of the Borrower's accounts with the
Bank as designated in writing by the Borrowers.
(c) The Borrowers indemnify and excuse the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone or telefax instructions it reasonably
believes are made by a signer of this Agreement or a person authorized by a
signer. This indemnity and excuse will survive this Agreement's
termination.
5.4 DIRECT DEBIT.
(a) The Borrowers agree that interest and any fees will be deducted
automatically on the due date from AI's account number 851001305, or such
other of the Borrower's accounts with the Bank as designated in writing by
the Borrowers (the "Designated Account").
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrowers will maintain sufficient funds in the account on the dates
the Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date the Bank enters any debit
authorized by this Agreement, the debit will be reversed.
5.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in Nevada. All payments and disbursements which would be due on a day
which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
5.6 TAXES. The Borrowers will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes or charges on any
payments made by the Borrowers, the Borrowers will pay the taxes or charges and
will also pay to the Bank, at the time interest is paid, any additional amount
which the Bank specifies as necessary to preserve the after-tax yield the Bank
would have received if such taxes had not been imposed. Upon request by the
Bank, the Borrowers will confirm that it has paid the taxes by giving the Bank
official tax receipts (or notarized copies) within 30 days after the due date.
However, the Borrowers will not pay the Bank's net income taxes.
5
<PAGE>
5.7 ADDITIONAL COSTS. The Borrowers will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency. The costs and losses will be allocated to
the loan in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
5.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360 day year and
the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.
5.9 INTEREST ON LATE PAYMENTS. In the event any payment required hereunder is
received by the Bank fifteen (15) days after its due date, a late charge of five
percent (5.00%) of each overdue payment may be charged for the purpose of
defraying the expenses incident to handling said delinquent payments and as an
inducement to Borrowers to make timely payment. Acceptance of a scheduled
payment fifteen (15) days after its due date shall not waive any appropriate
late charge, nor shall it constitute a waiver of any event of default.
5.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.00 percentage point(s)
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
5.11 OVERDRAFTS. At the Bank's sole option in each instance, the Bank may do
one of the following:
(a) The Bank may make advances under this Agreement to prevent or cover an
overdraft on any account of any Borrower with the Bank. Each such advance
will accrue interest from the date of the advance or the date on which the
account is overdrawn, whichever occurs first, at the interest rate
described in this Agreement.
(b) The Bank may reduce the amount of credit otherwise available under this
Agreement by the amount of any overdraft on any account of any Borrower
with the Bank.
This paragraph shall not be deemed to authorize any Borrower to create
overdrafts on any of the Borrower's accounts with the Bank.
5.12 PAYMENTS IN KIND. The proceeds of collections of the Borrowers' accounts
receivable, when received by the Bank in kind, shall be credited to interest,
principal, and other sums owed to the Bank under this Agreement in the order and
proportion determined by the Bank in its sole discretion. All such credits will
be conditioned upon collection and any returned items may, at the Bank's option,
be charged to the Borrowers.
6. CONDITIONS The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrowers under this Agreement:
6.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
each Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
6.2 GOVERNING DOCUMENTS. A copy of each Borrower's articles of incorporation.
6.3 SECURITY AGREEMENTS. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.
6.4 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
6.5 INSURANCE. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
6
<PAGE>
6.6 LEGAL OPINION. A written opinion from the Borrowers' legal counsel,
covering such matters as the Bank may require. The legal counsel and the terms
of the opinion must be acceptable to the Bank.
6.7 GOOD STANDING. Certificates of good standing for each Borrower from its
state of incorporation and from any other state in which such Borrower is
required to qualify to conduct its business.
6.8 PAYMENT OF FEES. Payment of all accrued and unpaid expenses incurred by
the Bank as required by the paragraph entitled "Reimbursement Costs".
6.9 APPRAISALS. Appraisals prepared by appraisers acceptable to the Bank with
respect to the liquidation value of the Borrowers' inventory.
6.10 OTHER ITEMS. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES When the Borrowers sign this Agreement, and
until the Bank is repaid in full, each Borrower makes the following
representations and warranties. Each request for an extension of credit
constitutes a renewed representation:
7.1 ORGANIZATION OF BORROWER. Each Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within each Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 ENFORCEABLE AGREEMENT. This Agreement, and each other agreement or
document executed and delivered to the Bank in connection with this Agreement,
is a legal, valid and binding agreement of each Borrower, enforceable against
each Borrower in accordance with its terms, and any instrument or agreement
required hereunder, when executed and delivered, will be similarly legal, valid,
binding and enforceable.
7.4 GOOD STANDING. In each state in which each Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
7.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement,
or obligation by which any Borrower is bound.
7.6 FINANCIAL INFORMATION. All financial and other information that has been
or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrowers'
financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
7.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against any Borrower, which, if lost, would impair the Borrowers' or
any Borrower's financial condition or ability to repay the loan, except as have
been disclosed in writing to the Bank prior to the date of this Agreement.
7.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 PERMITS, FRANCHISES. Each Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged without conflict of the rights
of others.
7.10 OTHER OBLIGATIONS. No Borrower is in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7
<PAGE>
7.11 INCOME TAX RETURNS. No Borrower has any knowledge of any pending
assessments or adjustments of its income tax for any year.
7.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
7.13 MERCHANTABLE INVENTORY. All inventory which is included in the Borrowing
Base is of good and merchantable quality and free from defects.
7.14 ERISA PLANS.
(a) Each Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.
(c) No action by any Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(ii) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by any Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
7.15 LOCATION OF BORROWER. Each Borrower's place of business (or, if any
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrowers' signature on this Agreement.
8. COVENANTS The Borrowers agree, so long as credit is available under this
Agreement and until the Bank is repaid in full:
8.1 USE OF PROCEEDS. To use the proceeds of the credit only for working
capital purposes.
8.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 120 days of AI's fiscal year end, AI's annual financial statements.
These financial statements must be audited by a Certified Public Accountant
("CPA") acceptable to the Bank and prepared on a consolidated basis and
consolidating basis. In addition, AI's Form 10-K is required within 120
days of fiscal year end.
(b) Within 30 days of the period's end, each Borrowers' monthly financial
statements. These financial statements may be Borrower prepared.
8
<PAGE>
(c) Within 45 days of the period's end, AI's quarterly financial statements.
These financial statements may be Borrower prepared. The statements shall
be prepared on a consolidated and consolidating basis. In addition, AI's
Form 10-Q is required within 60 days of the period's end.
(d) Within the period provided in (c) above, a compliance certificate of each
Borrower signed by an authorized financial officer of such Borrower setting
forth (i) the information and computations (in sufficient detail) to
establish that such Borrower is in compliance with all financial covenants
at the end of the period covered by the financial statements then being
furnished and (ii) whether there existed as of the date of such financial
statements and whether there exists as of the date of the certificate, any
default under this Agreement and, if any such default exists, specifying
the nature thereof and the action such Borrower is taking and proposes to
take with respect thereto.
(e) A borrowing certificate setting forth the respective amounts of Acceptable
Receivables and Acceptable Inventory within fifteen (15) days of each semi-
monthly period.
(f) Statements showing an aging and reconciliation of each Borrower's
receivables within thirty (30) days after the end of each month.
Statements shall include names, addresses and telephone numbers of all
debtors.
(g) A statement showing an aging of accounts payable within thirty (30) days
after the end of each month.
(h) If the Bank requires the Borrowers to deliver the proceeds of accounts
receivable to the Bank upon collection by the Borrowers, a schedule of the
amounts so collected and delivered to the Bank.
(i) An inventory listing within thirty (30) days after the end of each month;
the listing must include a description of the inventory, its location and
cost, and such other information as the Bank may require.
(j) A listing of the names and addresses of all debtors obligated upon each
Borrower's accounts receivable within forty-five (45) days after the end of
each quarter.
(k) Promptly upon the Bank's request, such other statements, lists of property
and accounts, budgets, forecasts or reports as to the Borrowers and as to
each guarantor of the Borrowers' obligations to the Bank as the Bank may
request.
8.3 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible net
worth equal to at least Eleven Million and No/100 Dollars ($11,000,000.00),
measured quarterly.
"Tangible net worth" means the gross book value of the Borrowers' assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles and
monies due from affiliates, officers, directors or shareholders of the
Borrowers) less total liabilities, including but not limited to accrued and
deferred income taxes, and any reserves against assets.
8.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a
consolidated basis a ratio of Total Liabilities to Tangible Net Worth not
exceeding 1.00:1.0, measured quarterly.
"Total Liabilities" means the sum of current liabilities plus long term
liabilities.
8.5 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts or lease obligations (other than those to the Bank), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and lines of credit in existence on the date of this Agreement
disclosed in writing to the Bank.
9
<PAGE>
(e) Additional debts for business purposes which do not exceed a total
principal amount of One Million and No/100 Dollars ($1,000,000.00)
outstanding at any one time.
8.6 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property any Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.
(d) Additional purchase money security interests in personal property acquired
after the date of this Agreement, if the total principal amount of debts
secured by such liens does not exceed One Million and No/100 Dollars
($1,000,000.00) at any one time.
8.7 LOANS TO OFFICERS. Not to make any loans, advances or other extensions of
credit to any Borrower's executives, officers, or directors or shareholders (or
any relatives of any of the foregoing).
8.8 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Hundred Thousand and No/100 Dollars ($100,000.00)
against any one or more Borrowers.
(b) any substantial dispute between any Borrower and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in any Borrower's financial condition or
operations.
(e) any change in any Borrower's name, legal structure, place of business, or
chief executive office if such Borrower has more than one place of
business.
8.9 BOOKS AND RECORDS. To maintain adequate books and records.
8.10 AUDITS. To allow the Bank and its agents to inspect the Borrowers'
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrowers' properties, books or records are in
the possession of a third party, the Borrowers authorize that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
8.11 COMPLIANCE WITH LAWS. To comply with the laws, (including any fictitious
name statute), regulations, and orders of any government body with authority
over each Borrower's business.
8.12 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises each Borrower now has.
8.13 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep each Borrower's properties in good working condition.
8.14 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.15 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
8.16 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
10
<PAGE>
Bank. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender's loss payable endorsement in favor of
the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance satisfactory to the
Bank as to amount, nature and carrier covering property damage (including
loss of use and occupancy) to any of the Borrowers' properties, public
liability insurance including coverage for contractual liability, product
liability and workers' compensation, and any other insurance which is usual
for the Borrowers' business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, deliver to the Bank a
copy of each insurance policy or, if permitted by the Bank, a certificate
of insurance listing all insurance in force.
8.17 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrowers' or any Borrower's present business.
(b) liquidate or dissolve the Borrowers' business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrowers' or any
Borrower's business or the Borrowers' or any Borrower's assets except in
the ordinary course of the Borrower's business.
(e) sell or otherwise dispose of any assets for less than fair market value or
enter into any sale and leaseback agreement covering any of its fixed or
capital assets.
8.18 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(b) Any action by any Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
9. HAZARDOUS WASTE INDEMNIFICATION The Borrowers will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance. This
indemnity will apply whether the hazardous substance is on, under or about the
Borrowers' or any Borrower's property or operations or property leased to the
Borrowers or any Borrower. The indemnity includes but is not limited to
attorneys' fees (including the reasonable estimate of the allocated cost of in-
house counsel and staff). The indemnity extends to the Bank, its parent,
subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrowers' obligations to the Bank.
10. DEFAULT If any of the following events occur, the Bank may do one or more
of the following: declare the Borrowers in default, terminate this Agreement,
stop making any additional credit available to the Borrowers, and require the
Borrowers to repay its entire debt immediately and without prior notice. If an
event of default occurs under the paragraph entitled "Bankruptcy," below, with
respect to any Borrower, then the entire debt outstanding under this Agreement
will automatically be due immediately.
10.1 FAILURE TO PAY. Any Borrower fails to make a payment under this
Agreement when due.
11
<PAGE>
10.2 LIEN PRIORITY. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for the extensions of credit under
this Agreement.
10.3 FALSE INFORMATION. Any Borrower has given the Bank false or misleading
information or representations.
10.4 DEATH. Any principal officer or majority stockholder dies of any
Borrower dies.
10.5 BANKRUPTCY. Any Borrower files a bankruptcy petition, a bankruptcy
petition is filed against any Borrower, or any Borrower makes a general
assignment for the benefit of creditors.
10.6 RECEIVERS. A receiver or similar official is appointed for any
Borrower's business, or the business is terminated.
10.7 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against any one or more of the Borrowers in an aggregate amount
of One Hundred Thousand and No/100 Dollars ($100,000.00) or more in excess of
any insurance coverage.
10.8 JUDGMENTS. Any judgments or arbitration awards are entered against any
one or more of the Borrowers, or any one or more of the Borrowers enters into
any settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of One Hundred Thousand and No/100 Dollars ($100,000.00) or
more in excess of any insurance coverage.
10.9 GOVERNMENT ACTION. Any government authority take action that the Bank
believes materially adversely affects any Borrower's financial condition or
ability to repay.
10.10 MATERIAL ADVERSE CHANGE. A material adverse change occurs in any
Borrower's financial condition, properties or prospects, or ability to repay the
extensions of credit under this Agreement.
10.11 CROSS-DEFAULT. Any default occurs under any agreement in connection
with any credit any Borrower has obtained from anyone else or which any Borrower
has guaranteed.
10.12 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
10.13 OTHER BANK AGREEMENTS. Any Borrower fails to meet the conditions of, or
fails to perform any obligation under any other agreement any Borrower has with
the Bank or any affiliate of the Bank.
10.14 ERISA PLANS. The occurrence of any one or more of the following events
with respect to any Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject such Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
such Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or such Borrower's full or partial withdrawal from a Plan.
10.15 OTHER BREACH UNDER AGREEMENT. Any Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
12
<PAGE>
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 NEVADA LAW. This Agreement is governed by Nevada law.
11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrowers' and
the Bank's successors and assignees. The Borrowers agree that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrowers with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrowers.
11.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between any one or more of the Borrowers and the Bank, including but not
limited to those that arise from:
(i) This Agreement (including any renewals, extensions or modifications of
this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
any one or more of the Borrowers and the Bank, including claims for
injury to persons, property or business interests (torts).
(b) At the request of any Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by Nevada law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrowers or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
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<PAGE>
(h) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrowers or the Bank, including
the suing party, to submit the controversy or claim to arbitration if the
other party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
11.6 COSTS. If the Bank incurs any expenses in connection with administering
or enforcing this Agreement, or if the Bank takes collection action under this
Agreement, it is entitled to costs and reasonable attorney's fees, including any
allocated costs of in-house counsel.
11.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator.
11.8 JOINT AND SEVERAL LIABILITY.
(a) Each Borrower agrees that it is jointly and severally liable to the Bank
for the payment of all obligations arising under this Agreement, and that
such liability is independent of the obligations of the other Borrower(s).
The Bank may bring an action against any Borrower, whether an action is
brought against the other Borrower(s).
(b) Each Borrower agrees that any release which may be given by the Bank to the
other Borrower(s) or any guarantor will not release such Borrower from its
obligations under this Agreement.
(c) Each Borrower waives any right to assert against the Bank any defense,
setoff, counterclaim, or claims which such Borrower may have against the
other Borrower(s) or any other party liable to the Bank for the obligations
of the Borrowers under this Agreement.
(d) Each Borrower agrees that it is solely responsible for keeping itself
informed as to the financial condition of the other Borrower(s) and of all
circumstances which bear upon the risk of nonpayment. Each Borrower waives
any right it may have to require the Bank to disclose to such Borrower any
information which the Bank may now or hereafter acquire concerning the
financial condition of the other Borrower(s).
(e) Each Borrower waives all rights to notices of default or nonperformance by
any other Borrower under this Agreement. Each Borrower further waives all
rights to notices of the existence or the creation of new indebtedness by
any other Borrower.
(f) The Borrowers represent and warrant to the Bank that it will derive
benefit, directly and indirectly, from the collective administration and
availability of credit under this Agreement. The Borrowers agree that the
Bank will not be required to inquire as to the disposition by any Borrower
of funds disbursed in accordance with the terms of this Agreement.
(g) Each Borrower waives any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory or otherwise),
including without limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, which
such Borrower may now or hereafter have against any other Borrower with
respect to the indebtedness incurred under this Agreement. Each Borrower
waives any right to enforce any remedy which the Bank now has or may
hereafter have against any other Borrower, and waives any benefit of, and
any right to participate in, any security now or hereafter held by the
Bank.
11.9 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
14
<PAGE>
(a) represent the sum of the understandings and agreements between the Bank and
the Borrowers concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrowers concerning this credit; and
(c) are intended by the Bank and the Borrowers as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.10 EXCHANGE OF INFORMATION. The Borrowers agree that the Bank may exchange
financial information about any Borrower with BankAmerica Corporation affiliates
and other related entities.
11.11 DISPOSITION OF SCHEDULES, REPORTS, ETC. DELIVERED BY BORROWER. The Bank
will not be obligated to return any schedules, invoices, statements, budgets,
forecasts, reports or other papers delivered by the Borrowers. The Bank will
destroy or otherwise dispose of such materials at such time as the Bank, in its
discretion, deems appropriate.
11.12 RETURNED MERCHANDISE. Until the Bank exercises its rights to collect
the accounts receivable as provided under any security agreement required under
this Agreement, the Borrowers may continue its present policies for returned
merchandise and adjustments. Credit adjustments with respect to returned
merchandise shall be made immediately upon receipt of the merchandise by the
Borrowers or upon such other disposition of the merchandise by the debtor in
accordance with the Borrowers' instructions. If a credit adjustment is made
with respect to any Acceptable Receivable, the amount of such adjustment shall
no longer be included in the amount of such Acceptable Receivable in computing
the Borrowing Base.
11.13 VERIFICATION OF RECEIVABLES. The Bank may at any time, either orally or
in writing, request confirmation from any debtor of the current amount and
status of the accounts receivable upon which such debtor is obligated.
11.14 INDEMNIFICATION. The Borrowers agree to indemnify the Bank against, and
hold the Bank harmless from, all claims, actions, losses, costs and expenses
(including attorneys' fees and allocated costs for in-house legal services)
incurred by the Bank and arising from any contention whether well-founded or
otherwise, that there has been a failure to comply with any law regulating the
Borrowers' sales or leases to or performance of services for debtors obligated
upon the Borrowers' accounts receivable and disclosures in connection therewith.
This indemnity will survive repayment of the Borrowers' obligations to the Bank
and termination of this Agreement.
11.15 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrowers may specify from time to time in writing.
11.16 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
11.17 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
11.18 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Business Loan
Agreement (Receivables) entered into as of June 6, 1995, between the Bank and
the Borrowers, as such agreement has been amended from time to time prior to the
date hereof, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.
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<PAGE>
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA NEVADA AGRIBIOTECH, INC.
a Nevada corporation
By: /s/ Bill Paredes By: /s/ John C. Francis
------------------------------- -------------------------------
Bill Paredes, Vice President John C. Francis, Vice President
SCOTT SEED COMPANY
a Nevada corporation
Address where notices to the Bank
are to be sent: By: /s/ John C. Francis
-------------------------------
John C. Francis, Vice President
Commercial Banking Division -
South #2006
300 South Fourth Street,
Second Floor
Las Vegas, Nevada 89101 SEED RESOURCE, INC.
a Nevada corporation
By: /s/ John C. Francis
-------------------------------
John C. Francis, Secretary
SEED MART, INC.
a Nevada corporation
By: /s/ John C. Francis
-------------------------------
John C. Francis, Secretary
HALSEY SEED COMPANY
a Nevada corporation
By: /s/ John C. Francis
-------------------------------
John C. Francis, Secretary
ARNOLD-THOMAS SEED SERVICE, INC.
a Nevada corporation
By: /s/ John C. Francis
-------------------------------
John C. Francis, Secretary
CLARK SEEDS, INC.
an Idaho corporation
By: /s/ John C. Francis
-------------------------------
John C. Francis, Secretary/Treasurer
Address where notices to the Borrower
are to be sent:
Quail Park West
2700 Sunset Road, Suite 40
Las Vegas, Nevada 89120
16
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EXHIBIT 21.1
AGRIBIOTECH, INC.
Subsidiaries
------------
<TABLE>
<CAPTION>
Percentage
Country of Voting
Other Names Under or Securities
Which Subsidiary State of Owned by the
Name of Subsidiary Does Business Incorporation Company
- ------------------ ------------------------- ------------- ------------
<S> <C> <C> <C>
Halsey Seed Company Beachley-Hardy Seed Nevada 100%
Company
Seed Resource, Inc. Hobart Seed Company Nevada 100%
Scott Seed Company Sphar & Company Nevada 100%
Seed Mart, Inc. Michigan Hybrid Seed Co. Nevada 100%
AgriBioTech S.A. Mexico 100%
de C.V. beneficial(1)
Arnold-Thomas Seed
Service, Inc. Nevada 100%
Clark Seeds, Inc. Idaho 100%
</TABLE>
________________________
(1) An officer of the Company holds a nominal record interest in this company,
as required by Mexican law.
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
-----------------------------
The Board of Directors
AgriBioTech, Inc.:
We consent to incorporation by reference in the registration statement on Form
S-8 (dated June 28, 1996) of AgriBioTech, Inc. of our report dated September 20,
1996, relating to the consolidated balance sheets of AgriBioTech, Inc. and
subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year ended June 30, 1996 and the nine-month period ended June 30, 1995,
which report appears in the June 30, 1996 annual report on Form 10-KSB of
AgriBioTech, Inc.
/s/ KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,522,309
<SECURITIES> 0
<RECEIVABLES> 7,606,498
<ALLOWANCES> 104,773
<INVENTORY> 7,257,795
<CURRENT-ASSETS> 17,567,640
<PP&E> 8,451,679
<DEPRECIATION> 535,534
<TOTAL-ASSETS> 26,183,788
<CURRENT-LIABILITIES> 11,106,671
<BONDS> 1,504,621
0
7
<COMMON> 8,544
<OTHER-SE> 14,013,945
<TOTAL-LIABILITY-AND-EQUITY> 26,183,788
<SALES> 25,961,541
<TOTAL-REVENUES> 25,961,541
<CGS> 19,235,670
<TOTAL-COSTS> 19,235,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 464,515
<INCOME-PRETAX> (3,324,132)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,324,132)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,324,132)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
