<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NO. 0-19811
OPTA FOOD INGREDIENTS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-3117634
(State of Incorporation) (I.R.S. Employer Identification No.)
25 WIGGINS AVENUE, BEDFORD, MA 01730
(Address of Principal Executive Offices) (Zip Code)
(617) 276-5100
(Registrant's Telephone No., Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-------- --------
Number of shares outstanding of each of the issuer's classes of common stock as
of July 31, 1996:
COMMON STOCK, PAR VALUE $.01 10,914,488 SHARES OUTSTANDING
1
<PAGE>
OPTA FOOD INGREDIENTS, INC.
FORM 10-Q
- -------------------------------------------------------------------------------
Quarter Ended June 30, 1996
Table of Contents
Page
Number
------
Part I - Financial Information
- ------------------------------
<TABLE>
<CAPTION>
Item 1 - Financial Statements
<S> <C>
Condensed Balance Sheet (Unaudited)
June 30, 1996 and December 31, 1995...................... 3
Condensed Statement of Operations (Unaudited)
for the Three Months Ended June 30, 1996 and 1995........ 4
Condensed Statement of Operations (Unaudited)
for the Six Months Ended June 30, 1996 and 1995.......... 5
Condensed Statement of Cash Flows (Unaudited)
for the Six Months Ended June 30, 1996 and 1995.......... 6
Notes to Condensed Unaudited Financial Statements.......... 7
</TABLE>
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 8
Part II - Other Information
- ---------------------------
Item 1 through Item 6...................................... 12
Signatures................................................. 14
2
<PAGE>
<TABLE>
<CAPTION>
PART I ITEM 1
<S> <C> <C>
OPTA FOOD INGREDIENTS, INC.
CONDENSED BALANCE SHEET
- -------------------------------------------------------------------------------
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 36,266,000 $ 40,174,000
Short-term investments 4,993,000 4,993,000
Accounts receivable, net 1,450,000 1,133,000
Inventories, net 2,843,000 2,234,000
Other current assets 188,000 314,000
-------------- ------------
Total current assets 45,740,000 48,848,000
Fixed assets, net 11,932,000 11,137,000
Intangibles, net 935,000 905,000
Restricted cash 200,000 200,000
Other assets 168,000 179,000
-------------- ------------
$ 58,975,000 $ 61,269,000
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,539,000 $ 1,507,000
Accounts payable 581,000 763,000
Accrued expenses 1,065,000 882,000
-------------- ------------
Total current liabilities 3,185,000 3,152,000
Long-term debt 4,883,000 5,498,000
Deferred revenue 474,000 471,000
Other liabilities 165,000 156,000
-------------- ------------
Total liabilities 8,707,000 9,277,000
Stockholders' equity:
Common stock 109,000 107,000
Additional paid-in capital 78,694,000 78,088,000
Accumulated deficit (28,535,000) (26,203,000)
-------------- -------------
50,268,000 51,992,000
-------------- -------------
$ 58,975,000 $ 61,269,000
============== ============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
OPTA FOOD INGREDIENTS, INC.
CONDENSED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
(Unaudited)
FOR THE THREE MONTHS
ENDED JUNE 30,
---------------------------
1996 1995
-------------- -----------
Revenue:
<S> <C> <C>
Product sales $ 2,457,000 $ 1,582,000
Contract revenue under collaborative
relationships 31,000 67,000
------------- -----------
2,488,000 1,649,000
Cost and expenses:
Cost of revenue 2,065,000 1,439,000
Selling, general and administrative 959,000 710,000
Research and development 1,138,000 730,000
------------- -----------
4,162,000 2,879,000
------------- -----------
LOSS FROM OPERATIONS (1,674,000) (1,230,000)
------------- -----------
Interest income 526,000 136,000
Interest expense (145,000) (93,000)
Other income (expense) 10,000 (23,000)
------------- -----------
391,000 20,000
------------- -----------
NET LOSS $(1,283,000) $(1,210,000)
============= ===========
NET LOSS PER SHARE $(0.12) $(0.16)
============ ===========
Weighted average shares outstanding 10,845,000 7,587,000
============ ===========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
OPTA FOOD INGREDIENTS, INC.
CONDENSED STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
(Unaudited)
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------------
1996 1995
--------------- -----------
Revenue:
<S> <C> <C>
Product sales $ 4,927,000 $ 2,609,000
Contract revenue under collaborative
relationships 63,000 134,000
------------- -----------
4,990,000 2,743,000
Cost and expenses:
Cost of revenue 4,136,000 2,376,000
Selling, general and administrative 1,913,000 1,264,000
Research and development 2,068,000 1,528,000
------------- -----------
8,117,000 5,168,000
------------- -----------
LOSS FROM OPERATIONS (3,127,000) (2,425,000)
------------- -----------
Interest income 1,108,000 307,000
Interest expense (303,000) (182,000)
Other expense (10,000) (27,000)
------------- -----------
795,000 98,000
------------- -----------
NET LOSS $(2,332,000) $(2,327,000)
============ ===========
NET LOSS PER SHARE $(0.22) $(0.31)
============= ===========
Weighted average shares outstanding 10,805,000 7,486,000
============ ===========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
OPTA FOOD INGREDIENTS, INC.
CONDENSED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
(Unaudited)
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,332,000) $(2,327,000)
------------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 602,000 389,000
Forgiveness of note receivable - 6,000
Change in assets and liabilities:
Increase in accounts receivable (317,000) (353,000)
Increase in inventory (609,000) (1,299,000)
(Increase) decrease in other 126,000 (62,000)
assets
Decrease in accounts payable (182,000) (45,000)
Increase in accrued expenses 183,000 206,000
Increase (decrease) in deferred 3,000 (126,000)
revenue
Increase in other liabilities 9,000 13,000
------------- -----------
Total adjustments (185,000) (1,271,000)
------------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,517,000) (3,598,000)
------------- -----------
Cash flows from investing activities:
Sales of short-term investments - 1,510,000
Purchase of fixed assets (1,292,000) (541,000)
Increase in intangible assets (135,000) (87,000)
Decrease in other assets 11,000 26,000
------------- -----------
NET CASH (USED IN) PROVIDED BY (1,416,000) 908,000
INVESTING ACTIVITIES
------------- -----------
Cash flows from financing activities:
Proceeds from common stock issuances, 608,000 4,349,000
net of expenses
Proceeds from long-term debt 151,000 786,000
Payments on long-term debt (734,000) (159,000)
------------- -----------
NET CASH PROVIDED BY FINANCING 25,000 4,976,000
ACTIVITIES
------------- -----------
Net increase (decrease) in cash (3,908,000) 2,286,000
Cash and cash equivalents, beginning of 40,174,000 11,665,000
period
------------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $36,266,000 $13,951,000
============ ===========
</TABLE>
6
<PAGE>
OPTA FOOD INGREDIENTS, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited condensed financial statements of Opta Food Ingredients, Inc.
("Opta" or the "Company") include, in the opinion of management, all
adjustments (consisting of normal and recurring adjustments) necessary for a
fair presentation of the Company's financial position as of June 30, 1996 and
the results of operations for the three and six months ended June 30, 1996
and 1995. The results of operations are not necessarily indicative of
results for a full year.
These financial statements should be read in conjunction with the financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 filed with the Securities and Exchange Commission
pursuant to Section 15(d) of the Securities Exchange Act of 1934. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations.
2. INVENTORIES (Unaudited)
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
Raw materials $ 277,000 $ 314,000
Finished goods 2,566,000 1,920,000
----------- -----------
$2,843,000 $2,234,000
=========== ===========
</TABLE>
Inventories are stated at the lower of cost or market, cost determined using
the first-in, first-out method.
7
<PAGE>
PART I ITEM 2
OPTA FOOD INGREDIENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Introduction:
Opta Food Ingredients, Inc. is a fully integrated developer, manufacturer and
marketer of proprietary food ingredients used by consumer food companies to
improve the nutritional content, healthfulness and taste of a wide variety of
foods. The Company modifies inexpensive raw materials and produces natural food
ingredients that can be considered GRAS under current FDA regulations.
The Company began shipping its first product, EverFresh(R), in November 1991,
acquired an oat fiber business in June 1992, launched Opta(R) Oat Fibers in
September 1992, began shipping OptaGrade(R) in the fourth quarter of 1993 and
commercialized CrystaLean(R) and OptaFil(R) in 1994 and OptaMist(TM), Optex (R)
and OptaGlaze(R) in June 1996. The Company currently derives substantially all
of its revenue from its Opta Oat Fibers and OptaGrade products. The Company has
not been profitable since inception and expects to incur additional losses. This
discussion should be read in conjunction with the Company's Annual Report on
Form 10-K and the accompanying condensed financial statements and notes thereto.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain forward-looking statements based on the Company's current
expectations. Factors which could cause actual results to differ from these
expectations include the size and timing of significant orders, as well as
deferral of orders, over which the Company has no control; the extended product
testing cycles of the Company's potential customers; the variation in the
Company's sales cycles from customer to customer; increased competition posed by
food ingredient manufacturers; changes in pricing policies by the Company and
its competitors; the need to secure or build additional manufacturing capacity
in order to meet future demand for the Company's products; the Company's success
in expanding its sales and marketing programs and its ability to gain increased
market acceptance for its existing product lines; the Company's ability to
timely develop and introduce new products in its pipeline at acceptable costs;
the ability to scale up and successfully produce its products; the potential
for significant quarterly variations in the mix of sales among the Company's
products; the gain or loss of significant customers; shortages in the
availability of raw materials from the Company's suppliers; the impact of new
government regulations on food products; and general economic conditions.
Results of operations for the three months ended June 30, 1996 and 1995:
Revenue. Revenue for the three months ended June 30, 1996 was $2.5 million, an
increase of $839,000 or 51% over 1995. The increase in revenue from 1995 to
1996 was primarily the result of a 55% increase in product sales due to
increased commercial acceptance of OptaGrade in additional applications and with
more customers. In addition, the Company experienced an increase in Opta Oat
Fibers sales as a group of independent bakeries who supply buns to a quick
service restaurant chain began accepting shipments in June 1995. The Company
8
<PAGE>
OPTA FOOD INGREDIENTS,INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
also received $31,000 in contract revenue under its remaining collaborative
relationship in the second quarter of 1996 as compared to $67,000 in the 1995
period. The decrease was the result of the expiration of an agreement with
National Starch & Chemical Company ("National Starch") at December 31, 1995.
Opta anticipates increased product revenue in 1996 as both OptaGrade and Opta
Oat Fibers products continue to gain acceptance in the market place, although
the amount and timing of customer orders will continue to be unpredictable.
Cost of revenue. Cost of revenue for the three months ended June 30, 1996 was
$2.1 million, an increase of $626,000 or 44% over 1995. Cost of revenue as a
percentage of revenue decreased to 83% in 1996 from 87% in 1995. The increase
in cost of revenue reflects the increased product sales, and the percentage
decrease is primarily due to improved operating efficiencies at the Opta Oat
Fibers facility. Opta believes that its cost of revenue as a percentage of
revenue will be further reduced in the remainder of 1996 due to efficiencies
gained from increased manufacturing capacity.
Selling, general and administrative. Selling, general and administrative
("SG&A") expenses for the three months ended June 30, 1996 were $959,000, an
increase of $249,000 or 35% over 1995. SG&A as a percentage of revenue
decreased to 39% in 1996 from 43% in 1995. The increase in SG&A expenses was
primarily due to the hiring of additional sales and marketing staff and related
travel and entertainment expenses, increased fees related to sales consultants,
increased public relations efforts relative to industry and trade journal
exposure and a severance pay package to a terminated salesperson. Opta
anticipates that SG&A expenses will continue to increase as it aggressively
seeks to market its products to consumer food companies.
Research and development. Research and development ("R&D") expenses for the
three months ended June 30, 1996 were $1.1 million, an increase of $408,000 or
56% over 1995. R&D as a percentage of revenue increased to 46% in 1996 from 44%
in 1995. The increase in R&D expenses was the result of increased salaries and
related benefits, contract research and pilot plant trials relative to new
product applications, recruiting fees, the initial set-up of the Galesburg,
Illinois multi-purpose facility and travel expenses by the applications
development team. Opta expects that R&D expenses will continue to increase as
the Company continues to provide intensive technical support for existing
products, while pursuing research and development opportunities for future
products as well as bringing the Galesburg production facility on line.
Other income. Other income for the three months ended June 30, 1996 was
$391,000, an increase of $371,000 over 1995. The increase reflected the
interest earned on increased cash and cash equivalents balances resulting from
proceeds received in June 1995 from the exercise of warrants associated with the
Company's 1994 private placement, as well as the public offering of the
Company's Common Stock in the third quarter of 1995.
9
<PAGE>
OPTA FOOD INGREDIENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
Results of operations for the six months ended June 30, 1996 and 1995:
Revenue. Revenue for the six months ended June 30, 1996 was $5.0 million, an
increase of $2.2 million or 82% over 1995. The increase was primarily the
result of an 89% increase in product sales due to increased commercial
acceptance of OptaGrade in additional applications and with more customers. In
addition, the Company experienced an increase in Opta Oat Fibers sales as a
group of independent bakeries who supply buns to a quick service restaurant
chain began accepting shipments in June 1995. The Company also received $63,000
in contract revenue under its remaining collaborative relationship in the first
half of 1996 as compared to $134,000 in the 1995 period. The decrease was the
result of the expiration of an agreement with National Starch at December 31,
1995. Opta anticipates increased product revenue in 1996 as both OptaGrade and
Opta Oat Fibers products continue to gain acceptance in the market place,
although the amount and timing of customer orders will continue to be
unpredictable.
Cost of revenue. Cost of revenue for the six months ended June 30, 1996 was
$4.1 million, an increase of $1.8 million or 74% over 1995. Cost of revenue as
a percentage of revenue decreased to 83% in 1996 from 87% in 1995. The increase
in cost of revenue reflected the increased product sales, and the percentage
decrease was primarily due to improved operating results at the Opta Oat Fibers
facility as well as certain improvements in OptaGrade margins resulting from
increased production efficiencies. Opta believes that its cost of revenue as a
percentage of revenue will be further reduced in 1996 due to efficiencies gained
from increased manufacturing capacity.
Selling, general and administrative. SG&A expenses for the six months ended
June 30, 1996 were $1.9 million, an increase of $649,000 or 51% over 1995. SG&A
as a percentage of revenue decreased to 38% in 1996 from 46% in 1995. The
increase in SG&A expenses was primarily due to the hiring of additional sales
and marketing staff and related travel and entertainment expenses, increased
consulting fees related to sales opportunities, increased public relations
efforts relative to industry and trade journal exposure and a severance pay
package to a terminated salesperson. Opta anticipates that SG&A expenses will
continue to increase as it aggressively seeks to market its products to consumer
food companies.
Research and development. R&D expenses for the six months ended June 30, 1996
were $2.1 million, an increase of $540,000 or 35% over 1995. R&D as a
percentage of revenue decreased to 41% in 1996 from 56% in 1995. The increase
in R&D expenses was primarily the result of increased salaries and related
benefits, contract research and pilot plant trials relative to new product
applications, recruiting fees, the initial set-up of the Galesburg, Illinois
multi-purpose facility and travel expenses by the applications development team.
Opta expects that R&D expenses will continue to increase as the Company
continues to provide intensive technical support for existing products, while
pursuing research and development opportunities for future products as well as
bringing the Galesburg production facility on line.
Other income. Other income for the six months ended June 30, 1996 was $795,000,
an increase of $697,000 over 1995. The increase reflected the interest earned
on increased cash and cash equivalents balances resulting from proceeds received
in June 1995 from the exercise of warrants associated with the Company's 1994
private placement, as well as the public offering of the Company's Common Stock
in the third quarter of 1995.
10
<PAGE>
OPTA FOOD INGREDIENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
Liquidity and Capital Resources:
As of June 30, 1996, the Company had $41.3 million in cash and cash equivalents
and short term investments and $42.6 million of working capital. The Company
used approximately $2.5 million of cash in operations during the six months
ended June 30, 1996, compared with approximately $3.6 million in 1995. In 1995,
the Company expended significant efforts to build up inventory balances in
anticipation of the Opta Oat Fibers plant expansion, which began in the second
quarter of 1995. Inventory levels were increased in 1995 to cover customer
demand during the construction. Inventory levels have continued to increase in
1996, which the Company believes are appropriate given the current demand for
Opta's products. The Company expects to continue to incur significant operating
losses as it continues to increase its manufacturing capacity and make new
product introductions. The Company intends to fund its operating losses
principally through product sales, existing cash and cash equivalents, and long-
and short-term debt.
The Company purchased a multi-purpose facility in Galesburg, Illinois during the
second quarter of 1996. The facility will be renovated and it is anticipated
that it will be operational in 1997. When fully functioning, the plant is
expected to significantly increase the Company's production capacity for its
current starch-based food ingredients. The plant will also be used to scale up
commercial quantities of ingredients from new and licensed technologies.
The Company has an available line of credit of $1.2 million; there were no
borrowings against this line at June 30, 1996. The Company's various debt
agreements contain covenants regarding maintenance of minimum cash and tangible
net worth of $4.0 million and $13.5 million, respectively, a 2.5 to 1 quick
asset ratio and a 1 to 1 debt to tangible net worth ratio, among others. The
Company was in compliance or had obtained a waiver with respect to all covenants
and restrictions in its loan agreements at June 30, 1996.
The Company believes that continued expenditure of funds will be necessary to
support its growth. The Company believes that its existing cash and cash
equivalents, long- and short-term debt and product sales, will be adequate to
fund its planned operations, capital requirements and expansion needs through at
least fiscal year 1997. However, the Company may require additional capital in
the longer term, which it may seek through equity or debt financing,
collaborative arrangements with corporate partners, equipment lease financing or
funds from other sources. No assurance can be given that these funds will be
available to the Company on acceptable terms, if at all. In addition, because
of the Company's need for funds to support future operations, it may seek to
obtain funds when conditions are favorable, even if it does not have an
immediate need for additional capital at such time.
11
<PAGE>
OPTA FOOD INGREDIENTS, INC.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEMS 1, 2, 3 AND 5 - Not Applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of Opta Food Ingredients, Inc. was held on Tuesday,
May 14, 1996.
(b) The following individuals were elected to the Board of Directors for a
term expiring in 1996:
<TABLE>
<CAPTION>
Shares voted in favor Votes withheld
--------------------- --------------
<S> <C> <C>
- A. S. Clausi 5,591,064 348,607
- Anthony B. Evnin 5,588,064 351,607
- Harry Fields 5,591,064 348,607
- Christopher F. O. Gabrieli 5,591,064 348,607
- Akiva T. Gross 5,591,064 348,607
- Glynn C. Morris 5,590,864 348,807
- Charles W. Newhall, III 5,591,064 348,607
- Lewis C. Paine, III 5,591,064 348,607
</TABLE>
(c) The stockholders approved an amendment to the 1992 Employee, Director and
Consultant Stock Option Plan ("Plan") to increase the Company's Common
Stock available for issuance under the Plan by 250,000 shares by a vote
of 4,966,639 for, 731,867 against, 1,288 abstaining and 239,877 no vote.
(d) The stockholders approved the appointment of Price Waterhouse LLP as the
Company's independent accountants for fiscal year 1996 by a vote of
5,938,513 for, 1,050 against and 108 abstaining.
ITEM 6 (A) EXHIBITS
(10.1) Employment Agreement dated as of January 1, 1996 between the Company
and Lewis C. Paine, III (filed herewith).
12
<PAGE>
OPTA FOOD INGREDIENTS, INC.
PART II-OTHER INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------
(11) Loss Per Share Computation:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
1996 1995
<S> <C> <C>
Net loss available to common $(1,283,000) $(1,210,000)
shareholders
-------------- -------------
Weighted average shares
outstanding:
Common stock 10,845,000 7,587,000
-------------- -------------
Net loss per share $ (0.12) $ (0.16)
-------------- -------------
FOR THE SIX MONTHS ENDED
JUNE 30,
1996 1995
Net loss available to common $(2,332,000) $(2,327,000)
shareholders
-------------- -------------
Weighted average shares
outstanding:
Common stock 10,805,000 7,486,000
-------------- -------------
Net loss per share $ (0.22) $ (0.31)
-------------- -------------
</TABLE>
Note that fully diluted loss per share would be identical to the primary loss
per share as presented above and therefore, is not presented.
ITEM 6 (B) REPORTS ON FORM 8-K
- The Company filed Form 8-K dated May 16, 1996, File No. 0-19811, in
connection with the public dissemination of a press release announcing
that the Company had purchased a 35,000 square foot multi-purpose
facility in Galesburg, Illinois, reporting information under items 5 and
7(c) of that form.
- The Company filed Form 8-K dated June 4, 1996, File No. 0-19811, in
connection with the public dissemination of a press release announcing
that the Company's second quarter and 1996 revenue and earnings were
lower than analyst estimates, reporting information under items 5 and
7(c) of that form.
13
<PAGE>
OPTA FOOD INGREDIENTS, INC.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Opta Food Ingredients, Inc.
---------------------------
(Registrant)
DATE: August 6, 1996 BY: /s/ Lewis C. Paine, III
-----------------------
Lewis C. Paine, III
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
DATE: August 6, 1996 BY: /s/ Thomas J. Trometer
----------------------
Thomas J. Trometer
Vice President Finance and
Treasurer (Principal Financial and
Accounting Officer)
14
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of January 1, 1996, is made by and between OPTA
FOOD INGREDIENTS, INC., a Delaware corporation (the "Company"), and LEWIS C.
PAINE, III (the "Employee").
1. FREEDOM TO CONTRACT.
The Employee represents that he is free to enter into this Agreement, and
that he has not made and will not make any agreements in conflict with this
Agreement. The Employee will not, and the Company will not require the Employee
to, disclose to the Company, or use for the Company's benefit, any trade secrets
or confidential information now or hereafter in the Employee's possession which
is the property of any other party.
2. EMPLOYMENT.
The Company hereby employs the Employee, and the Employee hereby accepts
his employment by the Company, upon the terms and conditions set forth herein.
3. EFFECTIVE DATE AND TERM.
This Agreement shall take effect as of January 1, 1996 (the "Effective
Date"), and shall continue in full force and effect for twelve (12) months,
expiring on December 31, 1996, unless terminated prior to such time in
accordance with the provisions of this Agreement.
4. TITLE AND DUTIES.
The Employee shall promote the business and affairs of the Company as
President and Chief Executive Officer of the Company, with responsibility for
performing such duties consistent with such position as the Board of Directors
of the Company may from time to time designate. Without limiting the generality
of the foregoing, the Employee shall be responsible for both strategy and day-
to-day operations and shall emphasize maintaining the continuity of the
executive team. Except as otherwise provided in this Agreement and except for
vacations and absences due to temporary illness, the Employee shall devote his
full time and efforts to the business and affairs of the Company; provided that,
with the Company's prior written consent, the Employee may engage in such other
business activities outside the scope of his employment hereunder as in the
reasonable judgment of the Company will not materially adversely affect the
Employee's ability to perform his obligations under this Agreement.
5. COMPENSATION AND FRINGE BENEFITS.
5.1 Base Salary. In consideration of the services rendered by the
------------
Employee under this Agreement, the Company shall pay the Employee a base salary
(the "Base Salary") at the rate of One Hundred Ninety Thousand Dollars
($190,000) per annum from the Effective Date of this Agreement through December
31, 1996, payable in accordance with the Company's normal payroll practices as
in effect from time to time.
<PAGE>
5.2 Loan Forgiveness. The Company has made a bridge loan in the amount of
-----------------
$100,000 (the "Bridge Loan") to the Employee. Notwithstanding any prior
agreement with respect to the repayment of the Bridge Loan, the Company agrees
that, so long as the Employee remains employed by the Company, it will forgive
the principal amount of the Bridge Loan in five (5) annual installments of 20%
each on January 8, 1994, 1995, 1996, 1997 and 1998. The Company and the Employee
acknowledge and agree that as of the date hereof 40% of the Bridge Loan has been
forgiven pursuant to the foregoing schedule. In addition, in the event the
Company terminates the employment of Employee other than for cause (as defined
in Section 6.1(c) hereof the Agreement) any remaining principal of the Bridge
Loan will be due and payable on the first anniversary of the date of termination
of Employee's employment.
5.3 Fringe Benefits. The Employee shall be entitled to such life
----------------
insurance, health insurance and other employee fringe benefits as may be offered
or generally made available by the Company to its executive officers from time
to time.
5.4 L.A. Condo Loss Reimbursement. The Company shall reimburse the
------------------------------
Employee for reasonable out-of-pocket costs and any loss relating to his sale of
his Santa Monica, California condominium, an amount up to but not exceeding
Fifty Thousand ($50,000) upon the Employee's reasonable substantiation of an
itemized account for such expenses and/or loss paid or incurred by the Employee.
In addition, the Company shall pay to the Employee the amount of the federal and
state income taxes payable by the Employee with respect to the payments under
this Section 5.4.
5.5 Performance Bonus. In addition to his Base Salary, upon the
------------------
attainment of performance goals to be mutually agreed upon between the Board of
Directors and the Employee, the Employee shall be entitled to a cash bonus. The
Board of Directors (or a compensation committee thereof) shall, as soon as
practicable after December 31, 1996, evaluate the attainment of the performance
goals and determine the amount of any performance bonus payable hereunder. Any
such performance bonus shall be due and payable within one hundred twenty (120)
days after the end of the year to which it relates.
6. TERMINATION.
6.1 Termination of Employment. The Employee's employment hereunder shall
--------------------------
terminate upon the Employee's death or Permanent Disability. For purposes of
this Agreement, "Permanent Disability" shall mean the Employee's inability to
perform his duties hereunder for a continuous period of three (3) months by
reason of his physical or mental illness or incapacity. In the event of any
dispute concerning the existence of a Permanent Disability, such question shall
be determined by a licensed physician selected by the Company and reasonably
acceptable to the Employee, whose determination shall be final and binding upon
the parties. The Employee shall submit to such examinations and furnish such
information as such physician may reasonably request. The Employee's employment
hereunder may also be terminated as follows:
2
<PAGE>
(a) By the Employee at any time upon at least ninety (90) days prior
written notice to the Company; or
(b) By the Company at any time upon at least ninety (90) days prior written
notice to the Employee; or
(c) By the Employer at any time for cause, including but not limited to:
(i) the Employee's gross negligence or willful misconduct with
respect to the business and affairs of the Company; or
(ii) the Employee's material breach of this Agreement not cured
within ten (10) days after receipt of written notice thereof from
the Company; or
(iii) the commission by the Employee of an act involving moral
turpitude or fraud; or
(iv) the Employee's conviction of any felony.
The provisions of Sections 6.2, 7, 8, 9, and 10 shall survive any termination of
the Employee's employment hereunder and shall continue in effect until such time
as all obligations of the parties described therein have been satisfied.
6.2 Compensation Following Termination; Severance Pay.
--------------------------------------------------
(a) If the Employee voluntarily terminates his employment hereunder
pursuant to Section 6.1(a) hereof, or if such employment is terminated by the
death or Permanent Disability of the Employee, or if the Company terminates the
employment of the Employee pursuant to Section 6.1(b) hereof, the Employee shall
be entitled to severance pay in an amount equal to one times his Base Salary (as
in effect on the date upon which he ceases to be employed hereunder (the
"Employment Termination Date")), payable in equal monthly installments, provided
--------
that the Employee shall use reasonable efforts to secure new employment at a
level of responsibility substantially equivalent to his responsibilities
hereunder (as in effect on the Employment Termination Date) and provided,
--------
further, that upon such new employment of the Employee, the Employee's right to
- -------
severance pay hereunder shall terminate. In addition, the Employee shall be
entitled to the fringe benefits provided hereunder for the period during which
he is receiving severance payments as provided in the foregoing sentence.
(b) If the Company terminates the employment of the Employee for cause
pursuant to Section 6.1(c) hereof, the Employee shall not be entitled to
compensation or fringe benefits hereunder beyond the Employment Termination
Date.
3
<PAGE>
7. INTELLECTUAL PROPERTY MATTERS.
7.1 Inventions. All discoveries, inventions, improvements, techniques,
-----------
trademarks and innovations, whether or not patentable or subject to copyright
protection (including all data and records pertaining thereto), which the
Employee may invent, discover, originate or make during the term of his
employment with the Company either alone or with others and whether or not
during working hours or by the use of facilities of the Company, and which
relate to, or are, or may likely be useful in connection with the business of
the Company ("Inventions"), shall be the exclusive property of the Company. The
Employee shall promptly and fully disclose Inventions to the Company and shall
promptly record Inventions in such form as the Company may request.
7.2 Assignments. The Employee shall assign to the Company all right, title
------------
and interest to all Inventions reduced to writing, drawings or practice by or
for the Employee during the term of his employment. The Employee shall execute
upon the Company's request at any time, and at the Company's sole expense, any
applications, assignments and other documents that the Company may deem
necessary or desirable to protect or perfect its rights including any patent
rights in Inventions, and shall assist the Company, at the Company's sole
expense, in obtaining, defending and enforcing its rights hereon. The Employee
hereby appoints the Company his attorney-in-fact for purposes of effecting any
or all of the foregoing.
7.3 Confidential Information. The Employee acknowledges that all
-------------------------
information acquired by the Employee from the Company, its customers, suppliers
or others, or developed by the Employee alone or in conjunction with others
during the term of his employment with the Company which relates directly or
indirectly to the present or potential business of the Company, including any
ideas, formulae, processes, know-how, data, test results, raw materials,
prospective products or services, techniques, models, computer programs, plans,
schedules, sketches, notebooks, drawings, process sheets, customer or supplier
lists, and financial information ("Confidential Information"), is a valuable and
unique asset of the Company for the Company's sole benefit. The Employee shall
not, at any time during or after the term of his employment, use for himself or
others, or disclose or communicate to any person, firm, corporation,
association, or other entity for any reason or purposes whatsoever (other than
to Directors, officers and employees of the Company in the regular course of the
Company's business or to others subject to appropriate confidentiality
restrictions), any Confidential Information without the prior written consent of
the Company; provided, however, that the confidentiality and nondisclosure
-------- --------
provisions of this Section 7.3 shall not apply to (i) a disclosure of any
Confidential Information which, as of the time of such disclosure, shall have
previously become a part of the public knowledge through no fault of the
Employee, (ii) a disclosure of Confidential Information by the Employee to a
governmental entity in fulfillment of a legal obligation of the Employee or the
Company to such governmental authority, (iii) Confidential Information that the
Employee can establish was lawfully in his possession at the time of disclosure
by the Company, and (iv) Confidential Information which the Employee lawfully
receives from a third party, provided, however, that such Confidential
Information was not obtained by said third party directly or indirectly from the
Company.
4
<PAGE>
7.4 Proprietary Items. All originals, copies and summaries of manuals,
------------------
memoranda notes, photographs, notebooks, records, reports, plans, drawings and
other documents or items of any kind concerning any matters affecting or
relating to the present or potential business of the Company, whether or not
they contain Confidential Information, are, and shall continue to be, the
property of the Company, and all of such documents or items in the possession or
control of Employee shall be delivered to the Company by the Employee
immediately upon the Company's request or termination of the Employee's
employment hereunder.
8. AGREEMENT NOT TO COMPETE.
In view of the unique nature of the business of the Company and the need of
the Company to maintain its competitive advantage in the industry through the
protection of its trade secrets and proprietary information, the Employee agrees
that during the term of his employment with the Company and for a period of one
(1) year thereafter, the Employee shall not, directly or indirectly, within the
United States of America or its territories or possessions, or within any other
country in which the Company conducts or plans to conduct its business or
distributes any of its products or renders any services (determined in each case
as of the Employment Termination Date), engage in business with, own an interest
in, be employed by, or consult or advise for, any person or entity (except as a
holder of not more than a five percent (5%) equity interest in a publicly-traded
entity) which engages in significant activities in competition with the business
of the Company, provided that the foregoing shall not preclude the Employee's
--------
employment by any multi-divisional employer having a division which engages in
activities in competition with the business of the Company so long as the
Employee shall not be involved in the operations or management of such
competitive division. If at any time the foregoing provisions shall be deemed to
be invalid or unenforceable or are prohibited by the laws of the state or place
where they are to be performed by reason of being vague or unreasonable as to
duration or place of performance, this section shall be considered divisible and
shall become and be immediately determined to be reasonable and enforceable by
the court or other body having jurisdiction over this Agreement; and the
Employee and the Company expressly agree that this section, as so amended, shall
be valid and binding as though any invalid or unenforceable provision had not
been included herein. The Employee further agrees that he shall not solicit any
other employee of or consultant or advisor to, or client, supplier customer or
partner of the Company to terminate or modify his or her relationship with the
Company for a period of at least one (1) year after the Employment Termination
Date.
9. REMEDIES.
The Company and Employee agree and acknowledge that the rights and
obligations set forth under this Agreement are of a unique and special nature
and that the Company is, therefore, without an adequate legal remedy in the
event of Employee's violation of the covenants set forth in this Agreement. The
Company and Employee agree, therefore, that the covenants made by the Employee
under this Agreement shall be specifically enforceable in equity, in addition to
all other rights and remedies, at law or in equity or otherwise (including
5
<PAGE>
termination of employment) that may be available to the Company. Such remedies
may be sought in any court of competent jurisdiction.
10. PROVISIONS OF GENERAL APPLICATION.
10.1 Disputes. Except as provided in Section 9, in the event of any
---------
dispute touching or concerning this Agreement, the parties will submit to the
exclusive jurisdiction and venue of any court of competent jurisdiction sitting
in Suffolk County, Massachusetts and the parties agree to comply with all
requirements necessary to give such court jurisdiction over the parties and the
controversy.
10.2 Governing Law. This Agreement and the rights and obligations of the
--------------
parties hereunder shall be construed, interpreted and determined in accordance
with the laws of The Commonwealth of Massachusetts.
10.3 Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one and the same instrument. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
10.4 Other Agreements. This Agreement represents the entire understanding
-----------------
and agreement between the parties as to the subject matter hereof and supersedes
all prior or concurrent oral or written agreements relating thereto.
10.5 Amendment. This Agreement may be amended only by a written instrument
----------
executed in one or more counterparts by the parties hereto.
10.6 Waiver. No consent to or waiver of any breach or default in the
------
performance of any obligation hereunder shall be deemed or construed to be a
consent to or waiver of any other breach or default in the performance of any of
the same or any other obligation hereunder. Failure on the part of either party
to complain of any act or failure to act of the other party or to declare the
other party in default, irrespective of the duration of such failure, shall not
constitute a waiver of rights hereunder and no waiver hereunder shall be
effective unless it is in writing, executed by the party waiving the breach or
default hereunder.
10.7 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their successors and assigns. This Agreement
may be assigned by the Company to any Affiliate (as hereinafter defined) and to
a successor of its business to which this Agreement relates (whether by purchase
or otherwise). For purposes of this Agreement, "Affiliate" shall mean any person
or entity which, directly or indirectly, controls or is controlled by or is
under common control with the Company and, for the purposes of this definition,
"control" (including the terms "controlled by" and "under common control with"),
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of another, whether though
the ownership of voting securities or holding of office in another, by contract
or otherwise. The Employee may not assign or transfer any of his rights or
obligations under this Agreement.
6
<PAGE>
10.8 Headings. The headings of sections and subsections of this Agreement
--------
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement or to affect the meaning of any of its provision.
10.9 Severability. If any provision of this Agreement shall, in whole or
-------------
in part, prove to be invalid for any reason, such invalidity shall affect only
the portion of such provision which shall be invalid, and in all other respects
this Agreement shall stand as if such invalid provisions, or the invalid portion
thereof, had not been a part hereof.
10.10. Notices and Other Communications. All notices and other
---------------------------------
communications required hereunder shall be in writing and delivered or sent by
certified or registered mail, return receipt requested (a) if to the Employee,
at 90 Sears Road, Wayland, MA 01778; and (b) if to the Company, at 25 Wiggins
Avenue, Bedford, Massachusetts 01730, or to such other persons or addresses as
the parties hereto may specify by a written notice to the other from time to
time. Such notices shall be effective four (4) business days after so mailed or,
if earlier, upon actual receipt.
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its
duly authorized officer, and by the Employee, as of the date first above
written.
OPTA FOOD INGREDIENTS, INC. EMPLOYEE:
By: /s/ Anthony B. Evnin /s/ Lewis C. Paine, III
------------------------ ------------------------
Name: Anthony B. Evnin Lewis C. Paine, III
Title: Director and Member of
Compensation Committee
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from quarter
ended June 30, 1996 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 0 36,266,000
<SECURITIES> 0 4,993,000
<RECEIVABLES> 0 1,450,000
<ALLOWANCES> 0 0
<INVENTORY> 0 2,843,000
<CURRENT-ASSETS> 0 45,740,000
<PP&E> 0 14,159,000
<DEPRECIATION> 0 2,227,000
<TOTAL-ASSETS> 0 58,975,000
<CURRENT-LIABILITIES> 0 3,185,000
<BONDS> 0 0
0 0
0 0
<COMMON> 0 109,000
<OTHER-SE> 0 50,159,000
<TOTAL-LIABILITY-AND-EQUITY> 0 58,975,000
<SALES> 2,457,000 4,927,000
<TOTAL-REVENUES> 2,488,000 4,990,000
<CGS> 2,034,000 4,073,000
<TOTAL-COSTS> 2,065,000 4,136,000
<OTHER-EXPENSES> 2,097,000 3,981,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 145,000 303,000
<INCOME-PRETAX> $(1,283,000) $(2,332,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,283,000) $(2,332,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> $(1,283,000) $(2,332,000)
<EPS-PRIMARY> $(0.12) $(0.22)
<EPS-DILUTED> 0 0
</TABLE>
