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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ________ to _________.
Commission File Number 0-19811
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OPTA FOOD INGREDIENTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3117634
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Wiggins Avenue
Bedford, Massachusetts 01730
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 276-5100
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share
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(Title of Class)
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value, based upon the closing sale price of the
shares as reported by the Nasdaq National Market System, of voting stock held by
non-affiliates (without admitting that any person whose shares are not included
in such calculation is an affiliate) at March 5, 1999 was $24,796,887.
As of March 5, 1999, 11,123,779 shares of the registrant's Common
Stock, $.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report on Form 10-K.
The following discussion of the Company's business in this Annual Report on Form
10-K contains, in addition to historical statements, forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include the factors
discussed in this section under the caption "Cautionary Statement Regarding
Forward-Looking Statements."
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Item 1. Business
GENERAL
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Opta Food Ingredients, Inc. (referred to herein as the "Company" or
"Opta") was incorporated in Delaware on April 23, 1991 and its executive offices
are located at 25 Wiggins Avenue, Bedford, Massachusetts 01730. The Company's
telephone number is (781) 276-5100 and fax number is (781) 276-5101. Opta,
CrystaLean, EverFresh, OptaFil, OptaGlaze, OptaGrade and Optex are registered
trademarks of the Company.
Opta is a leading innovator, manufacturer and marketer of proprietary
texturizing products sold to food processors in North America who focus on the
dairy, dressings/sauces, meat and baked goods categories. Opta applies advanced
enzymology and protein and carbohydrate chemistries to develop innovative food
ingredient products such as fat replacers, bulking agents and other texturizing
agents that solve specific customer problems. Opta creates its products through
the modification of inexpensive, readily available raw materials to produce food
ingredients that it considers to be Generally Recognized As Safe ("GRAS") under
current U.S. Food and Drug Administration ("FDA") regulations. At December 31,
1998, Opta's products were being used in more than 35 applications by nearly 170
different customers, including five of the ten largest U.S. consumer packaged
food companies and three of the world's largest quick service restaurant chains.
INDUSTRY BACKGROUND AND MARKET OPPORTUNITY
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The food industry is experiencing an unprecedented period of
significant, fundamental change worldwide. The pace of change is accelerating
and impacts on every aspect of the food business. Key sectors of the industry
are consolidating through mergers and acquisitions. Indeed, 1998 was another
record year of food company mergers. Driving forces within the industry have
shifted away from the manufacturers to the retailer and, ultimately, to the
consumer. Food safety remains the number one concern of consumers. Public sector
regulatory agencies as well as private sector consumer associations are becoming
more vigilant. Consumer education, recently enacted labeling requirements, and a
high level of popular interest in extending and improving the quality of life
have greatly increased consumer awareness of food and its role in promoting and
maintaining a healthy lifestyle. Since 1994, consumer spending on food prepared
outside the home has exceeded consumer spending on food prepared at home.
Consumers are demanding foods that are safe, convenient, nutritious, healthful,
readily available, competitively priced and that taste great. Food processors
are under tremendous pressure to remove undesirable components such as fat and
sugar or unwanted additives from foods through reformulation of their products.
This trend has now gone a step further. Not only are undesired components being
formulated out, but ingredients with purported health benefits are being
incorporated into a growing number of everyday foods.
In the face of these challenges, consumer food and food service
companies are seeking ways to increase their ability to respond quickly and
effectively to an extremely dynamic marketplace. In addition, as the industry
further consolidates and becomes more competitive, pressure has mounted to cut
costs. Investment in basic research and new product development by consumer food
and foodservice companies over the past decade has not kept pace with these
demands. As a result, a "technology gap" now exists between the demand for
reformulation of current products and the development of new, healthier foods.
This is especially true in the lack of development of new, highly functional
food ingredients that deliver the taste and textural attributes that consumers
are demanding.
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Opta's strategy is to capture the opportunity represented by this
"technology gap" by utilizing its proprietary technologies, know-how and
experience to create healthy, safe, inexpensive food ingredients with taste and
textural qualities that appeal to consumers. Opta is a customer driven,
flexible, responsive food ingredient supplier to consumer food and foodservice
companies with particular emphasis on the dairy, baked goods and meat segments
of the market. Opta's core expertise in the development, modification and
maintenance of specific food textures coupled with the Company's capabilities in
new ingredient development and commercialization has resulted in a portfolio of
highly functional, innovative, GRAS food ingredients. Opta's ingredient
portfolio includes ingredients that have achieved industry recognition and
commercial use as fat replacers as well as agents that function as stabilizers,
bulking agents, thickeners, gelling agents and extenders in a wide variety of
food applications.
According to industry sources, the worldwide market for high
value-added food ingredients is approximately $20 billion per year. Opta's
primary target market of North America accounts for nearly 1/3 of this total.
The Company's products compete functionally within broad categories of the food
ingredients industry, including but not limited to, hydrocolloids, fibers, fat
replacers, emulsifiers and proteins. The Company estimates that the value of the
ingredients with which Opta directly competes is between $500 and $800 million
in North America. Dairy and bakery applications account for a significant
portion of this total opportunity; therefore, Opta has focused its sales and
marketing efforts, as well as its technical efforts, primarily on these two
sectors of the domestic market and more recently has expanded its reach into the
meat category.
OPTA'S STRATEGY
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The Company works closely with consumer food and foodservice companies
to identify product formulation, cost and/or productivity issues and develop
solutions to these problems based on proprietary, value-added, highly functional
food ingredients. Core elements of the Company's strategy include:
Solving Customer Problems Through Innovation. Opta's primary focus is
on solving its customers' problems rapidly through innovation rather than
through the traditional approach of selling basic raw materials or products
derived through chemical syntheses. The Company works closely with its customers
to identify each of their specific needs, establish probable solutions, develop
a prototype food ingredient or formulation and to develop finished products that
meet or exceed the required sensory, functional, physical and nutritional
parameters. Also, the finished food containing Opta's ingredient should fit
existing manufacturing processes in a cost-effective manner. Opta differentiates
itself from its competitors by being dependent neither upon any one raw material
or a single type of technology. This provides Opta the flexibility to take
whatever approach is most appropriate to solve the customer problem at hand.
Opta makes a significant investment in establishing long term
customer/supplier relationships with all its key current and prospective
accounts. This investment includes an outstanding level of service at all phases
of the customer's product development effort, from small scale formulation work
and analytical support through full commercial scale processing in their
manufacturing facilities. The return on this investment is chiefly captured via
ingredient sales, but this approach has other intangible benefits for the
Company including long-term customer relationships and a high degree of
credibility in the marketplace.
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Focusing on Technology Platforms as Sources of Innovation. The Company
intends to continue leveraging the expertise and knowledge base that it has
developed since its inception to further the development of families of related,
highly functional, value-added food ingredients. In order to best exploit both
internal and external resources and play to its strengths, the Company has
organized its product portfolio and continuing new product development efforts
on the basis of two main technology platforms: fiber-based texturizing agents
and starch-based texturizing agents. These technology platforms serve as an
organizing principle around which new learning can be captured, intellectual
property can be expanded new products and applications can be developed, and
existing products can be effectively supported. These platforms have enabled the
development of the Company's current proprietary products and will serve as a
solid base for the addition of future ingredients with physical properties and
functionality targeted to specific end uses and the solution of specific
customer problems.
Opta believes the technology platform approach permits it to solve
multiple customer and industry problems without requiring a separate investment
for each solution while retaining the flexibility to customize solutions for a
wider variety of industry problems. The Company also believes that future growth
will be derived from internally developed technology as well as from
acquisitions of complementary product lines and technologies to which Opta is
confident that it can add value and generate incremental revenue growth.
Employing Sophisticated Science and Practical Food Industry Experience
to Develop GRAS Food Ingredients. The Company relies upon its ability to combine
proprietary technological advances with practical food industry experience to
solve highly complex and specific food formulation problems presented by its
customers. Opta's research and development effort is conducted by a team of
scientists with expertise in the relevant sciences, including enzymology and
protein and carbohydrate chemistries, who work alongside experts in food science
and food engineering. The Company seeks to modify inexpensive raw materials to
produce value-added, natural food ingredients that meet the requirements for
GRAS status and that permit customers to have consumer-friendly labels which may
enable all-natural or other claims for their products.
Utilizing a Technically Sophisticated Customer Account Team and
Marketing Force. Opta believes the most effective way to solve a customer's
problem is to gain a thorough understanding of each customer at all levels,
build solid working relationships throughout the customer's organization, be
knowledgeable of the market segment in which the customer competes, and have a
detailed technical understanding of the customer's problem as well as their
preferred solution. The Company takes a multidisciplinary approach in order to
achieve this level of customer understanding and level of service. Members of
Opta's direct sales force are teamed up with the appropriate technical personnel
to work as "consultants" in defining and developing a range of potential
solutions to their formulation and product development problems. Through an
iterative process, the solution is refined and ultimately delivered according to
the customer's specification. In all cases, Opta's strategy is to provide
outstanding service and responsiveness, which the Company believes, will lead to
additional opportunities with existing and prospective customers.
OPTA'S PRODUCT DEVELOPMENT AND COMMERCIALIZATION PROCESS
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All of the Company's product development efforts are driven by
specifically stated and defined customer or market needs. In order to respond
quickly to market needs that represent credible opportunities for the Company,
Opta employs a simple, efficient system for integrating its development and
commercialization activities. The system has three primary stages: Discovery,
Assessment and Planning, and Execution and Review.
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The Discovery Stage
The Company's management, marketing, applications and technical
service, research and development personnel, as well as its direct sales team,
maintain close working relationships with leading consumer food and foodservice
companies. Opta actively seeks to assist in the definition and assessment of its
customers' ingredient-related needs whether the issue is quality, functionality,
cost, processibility, or otherwise. Opta assimilates this information on
customer needs into its Opportunity Portfolio, a database of new product ideas
and concepts. The Opportunity Portfolio is reviewed on a regular basis to keep
the pipeline of new developmental ingredients full. The review examines certain
criteria such as technical feasibility, market opportunity, the specific
customer need that is to be fulfilled, ability to patent or maintain as
proprietary, potential manufacturing costs and efficiencies, availability of raw
materials and qualification for GRAS status. Once an opportunity is judged to be
credible and achievable, the program proceeds to the next step.
The Assessment and Planning Stage
In this phase, key questions and critical hurdles regarding successful
outcome of a specific ingredient development effort are identified and
evaluated. An in-depth assessment is then made of the opportunity as technical
hurdles are defined, and a manufacturing strategy is developed. The purpose of
this stage is to ensure that there is a clear and common understanding within
the Company of the exact nature of the opportunity, the resources that will be
required to execute such opportunity and the deadline for its completion.
The Execution and Review Stage
Opta pursues its new product development and commercialization efforts
by employing cross-functional project teams and classic project management
techniques. A clear objective and deadline is set, the appropriate team members
from each of Opta's functional groups are assembled, and a Project Team Leader
is appointed. A formal project plan is put in place that contains the key
milestones, critical path activities, and other pertinent information for
driving the development and commercialization effort. Opta works closely with
its customers at all stages of new ingredient development--bench, pilot and
commercial scale--by the sampling of prototypes to the appropriate customers for
real world testing. This approach is essential in maximizing the chances for
success of newly commercialized ingredients. Another main feature of this
development stage is periodic project review. As any project proceeds, the
original objective and project plan may be modified based on new information or
the results of customer testing. Opta's process allows for flexibility and
provides opportunities to ensure that the ingredient under development is on
target with the customer need to be filled.
Once Opta and a potential customer agree that a test ingredient is
functional and of practical value, production scale-up commences, manufacturing
process is verified and any regulatory clearances are obtained. After launching
a new ingredient, Opta commercializes the ingredient for other applications and
other customers. Whenever possible, Opta manufactures and markets its own
products and distributes them through its direct sales organization within the
U.S. and through strategic partners internationally.
PRODUCTS
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Opta has organized its product portfolio on the basis of two main
technology platforms: fiber-based texturizers which include Opta Oat Fibers,
konjac flour and microcrystalline cellulose (MCC) and starch-based texturizers
which include OptaGrade, OptaMist, Optex, OptaFil, CrystaLean and Opta Baking
Gloss.
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In addition to helping food manufacturers improve the healthfulness of
their food products, Opta's family of texturizing ingredients can improve the
overall quality of food products, reduce formulation costs and meet specific
processing requirements. The Company believes that all of its products are GRAS
under current FDA regulations.
Opta Oat Fibers
Opta Oat Fibers are a family of natural insoluble fiber products
derived from oat hulls. Opta Oat Fibers are used commercially to increase yield
and enhance texture in ground meat products, to add strength and reduce breakage
of taco shells and ice cream cones, and to enhance texture in breads, cookies
and crackers. In addition, Opta Oat Fibers are sold to a group of independent
bakers for use in McDonald's hamburger buns.
Konjac Flour
In 1997, Opta signed an agreement with Shimizu International, Inc. of
Japan to become its exclusive North American distributor for konjac flour. A
unique and very versatile texturizing agent obtained from the konjac plant
commonly cultivated in East Asia, konjac flour provides excellent heat and
freeze thaw stability when used to thicken or gel processed foods. The potential
advantages and uses of konjac flour as a functional ingredient in food are just
beginning to be realized by the North American food industry. In Asia, konjac
flour is valued not only for its use as a food ingredient, but also for its
beneficial role as a soluble fiber in the diet. For example, there are many
published studies, which demonstrate the ability of konjac flour to reduce serum
cholesterol levels in humans. Konjac flour is currently being tested by a number
of food companies for a variety of applications including surimi, vegetarian
burgers and ground meat.
Microcrystalline Cellulose (MCC)
In 1998, Opta signed an agreement with Blanver Farmoquimica, Ltda. of
Brazil to become its exclusive North American distributor for MCC. MCC, commonly
known and labeled as cellulose gel, is a naturally derived stabilizer,
texturizing agent and fat replacer. It is used extensively in reduced fat salad
dressings, numerous dairy products including cheese, frozen desserts and whipped
toppings and bakery products. MCC is currently being tested by a number of food
companies for a variety of applications including reduced fat salad dressings
and sauces.
OptaGrade
OptaGrade is a natural, starch-based texturizing agent that is used
commercially in a variety of dairy products including natural, imitation and
processed cheeses, sour cream, cream cheese and cottage cheese. Fat free cheeses
made with OptaGrade have shown superb meltability with none of the off-taste or
rubbery texture found in most fat free and reduced fat cheeses. By using
OptaGrade in cottage cheese, food manufacturers are able to reduce total
formulation costs while delivering excellent taste, texture and appearance.
OptaGrade is also used to improve the taste and texture of reduced fat and fat
free cream cheeses. In sour cream, OptaGrade is used to create a smooth, creamy
texture and can replace up to eight other ingredients allowing for a "cleaner"
ingredient label.
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OptaMist
OptaMist is also a starch-based texturizing agent that improves the
taste, texture and appearance of dairy products, salad dressings and mayonnaise.
While the functionality of OptaMist is similar to that of OptaGrade, its unique
processing flexibility allows it to be used in food products made within a wide
variety of processing systems.
Optex
Optex is a microparticulated, starch-based texturizing agent that
provides a smooth, fat-like texture and opacity in high viscosity food products
such as reduced fat or fat free mayonnaise, margarine-type spreads and spoonable
salad dressings. Optex is currently being tested by a number of food companies
for a variety of applications including reduced fat peanut butter spread.
OptaFil
Optafil is a starch-based opacifying agent and whitener used in reduced
fat or fat free dairy and non-dairy creamers, whipped toppings, beverages,
cheeses and salad dressings. OptaFil has gained acceptance in the marketplace
because it is easy to use and reduces residue on processing equipment. It is
being used commercially in fat free non-dairy creamers and, in combination with
OptaGrade, in fat free feta cheese.
CrystaLean
CrystaLean is an enzyme-resistant, starch-based bulking and texturizing
agent designed to enhance texture and add fiber to food products including baked
goods and extruded products such as cereals and snack foods. CrystaLean is being
tested by a number of food companies for various applications and is being used
commercially in a nutrition bar specifically marketed to diabetics.
Opta Baking Gloss
Baking Gloss is a ready-to-use product that provides outstanding shine
and adhesion to baked goods. Launched in 1998, it is targeted for use in retail
and in-store bakeries.
Substantially all of the Company's 1998 revenue is derived from sales
of Opta Oat Fibers and OptaGrade.
Opta's priorities over the next few years are to increase market
penetration for OptaGrade in the product categories where it is currently being
sold, as well as to extend its use to other targeted product categories; to
complete the development and commercial launch of a new, starch-based
texturizing product technology that the Company believes will extend the
starch-based technology platform into new applications; to continue the
marketing and commercial development of OptaMist, Optex, CrystaLean, OptaFil,
MCC and konjac flour; and to continue to innovate next generation products and
technologies based upon specific customer needs and requests. There can be no
assurance that the Company will be successful in fulfilling any or all of these
priorities on a timely basis, or at all, or that, for various reasons including
market conditions, available capital and management resources, the Company will
be able to continue to pursue these priorities.
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CUSTOMERS, SALES AND MARKETING
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Customers
At December 31, 1998, Opta's products were being used in more than 35
different applications by nearly 170 different customers, including five of the
ten largest U.S. consumer packaged food companies and three of the world's
largest quick service restaurant chains. In the competitive consumer food and
food service industries, product formulations are competitive assets, and, as a
result, the Company's customers and prospective customers generally require Opta
to retain their identity in strict confidence. As a consequence, Opta is
typically prohibited from revealing any such product or customer information
without their consent.
During 1998, a single customer, Case Swayne, accounted for $5.2 million
or 37% of product sales. In addition, during 1998, 1997 and 1996, $3.9 million,
$3.5 million and $4.1 million of product sales were to a group of independent
bakeries that supply a quick service restaurant chain. There were no individual
customers during the years ended December 31, 1997 and 1996 representing greater
than 10% of total revenue. Export sales were $795,000 ($418,000 to Europe and
$377,000 to the Middle East); $1,209,000 ($376,000 to Europe and $833,000 to the
Middle East); and $1,041,000 ($285,000 to Europe and $756,000 to the Middle
East) for the years ended December 31, 1998, 1997, and 1996, respectively.
Sales and Marketing
Utilizing a technically sophisticated customer account team and
marketing force, Opta believes the most effective way to solve a customer's
problem is to gain a thorough understanding of each customer at all levels,
build solid working relationships throughout the customer's organization, be
knowledgeable of the market segment in which the customer competes, and have a
detailed technical understanding of the customer's problem as well as their
preferred solution. The Company takes a multidisciplinary approach in order to
achieve this level of customer understanding and service. Members of Opta's
direct sales force are teamed up with the appropriate technical personnel to
work as "consultants" in defining and developing a range of potential solutions
to their formulation and product development problems. Through an iterative
process, the solution is refined and ultimately delivered to the customer's
specification. In all cases, Opta's strategy is to provide outstanding service
and responsiveness, which the Company believes, will lead to additional
opportunities with existing and prospective customers.
MANUFACTURING
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During 1998, the Company expanded its Opta Oat Fibers facility in
Louisville, Kentucky increasing the plant's capacity by 40%. With this
additional capacity, the Company expects that it will be able to meet its
customers' orders. In addition, as a result of growing customer demand for
OptaGrade, in May 1996, the Company acquired a 35,000 square foot manufacturing
facility in Galesburg, Illinois. The facility was renovated during 1997 and
began production in 1998. The Company anticipates the facility to produce all of
its starch-based food ingredient products in 1999. The facility has
significantly increased the Company's production capacity for its starch-based
food ingredient products including OptaGrade, OptaMist and Optex. There can be
no assurance that the demand for the Company's products will increase or remain
at current levels to justify any such additional capacity, or that the Company's
manufacturing capability will otherwise be sufficient to meet customer demands.
The Company does not believe that there are any limitations on sources and
availability of raw materials.
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COMPETITION
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The food ingredients industry is intensely competitive. Competitors
include major chemical companies with food ingredient divisions, other food
ingredient companies and those consumer food companies that also engage in the
development and sale of food ingredients. Many of these competitors have
substantially greater financial and technical resources as well as production
and marketing capabilities than the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in the
testing of new or improved products.
The texturizing agent market is particularly competitive. Many
companies are engaged in the development of fat replacers and other texturizing
agents, and have introduced a number of products. Few of these fat replacers
have succeeded and none has become dominant. Opta believes that specifically
tailored texturizers must be developed to meet the particular textural, taste
and processing requirements of each food category. The Company, therefore, is
developing a number of separate and distinct products with functionality
tailored to a specific end use.
The fiber segment of the texturizing agent market is large and
competitive. Besides competing with other oat fiber companies, Opta competes
directly and indirectly with producers of other types of fiber including soy and
sugar beet fibers. Opta believes that the Company will be able to use its
scientific expertise and proprietary knowledge to manipulate oat fiber so that
it can be used to improve the texture of foods in a manner that offers certain
advantages over competitive fiber products, but there can be no assurance that
any such advantages will be realized.
The Company believes that its success in competing with others will be
based on retaining scientific and technical expertise, identifying customer
needs for food ingredient solutions to solve food processing problems, rapidly
innovating and developing new food ingredients, developing food ingredients
which are GRAS and successfully testing, producing and marketing these products.
PATENTS AND TRADE SECRETS
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The Company's policy is to protect its technology by, among other
things, filing patent applications for technology relating to the development of
its business in the U.S. and in selected foreign jurisdictions. The Company has
32 issued U.S. patents and has 13 pending U.S. patent applications relating to
products at various stages of technological development. Certain of the U.S.
issued patents and pending patent applications have corresponding foreign patent
applications.
The Company's successes will depend, in part, on its ability to protect
its products and technology under U.S. and international patent laws and other
intellectual property laws. The Company believes that it owns or has the right
to use all proprietary technology necessary to manufacture and market its
products under development. There can be no assurance, however, that patent
applications relating to the Company's products or technology will result in
patents being issued or that current or additional patents will afford
protection against competitors with similar technology. In addition, companies
that obtain patents claiming products or processes that are necessary for or
useful to the development of the Company's products can bring legal actions
against the Company claiming infringement.
The Company also relies on trade secrets and proprietary know-how and
confidentiality agreements to protect certain of its technologies and processes.
There can be no assurance that the Company's outside partners and contract
manufacturers will be prevented from gaining access to the Company's
proprietary technology and confidential information.
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REGULATORY FRAMEWORK
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Opta's food ingredient products are regulated under the 1958 Food
Additive Amendments to the Federal Food, Drug and Cosmetic Act of 1938 (the
"Act"), as administered by the FDA. Under the Act, pre-marketing approval by the
FDA is required for the sale of a food ingredient which is a food additive
unless the substance is GRAS under the conditions of its intended use by experts
qualified by scientific training and experience to evaluate the safety of food
ingredients. A food additive is any substance, "the intended use of which
results or may reasonably be expected to result, directly or indirectly, in its
becoming a component or otherwise affecting the characteristics of any food."
Such pre-marketing approval for ingredients that are not GRAS, which is issued
in the form of formal regulation, requires a showing both that the food
ingredient is safe under its intended conditions of use and that it achieves the
function for which it is intended. GRAS status can be established in two ways,
either by "self-affirmation" in which the producer determines on its own that
the ingredient is GRAS, or by the issuance of a "GRAS affirmation regulation" by
the FDA in response to a GRAS petition. A food ingredient may be deemed GRAS
under the conditions of its intended use based upon its history of common use in
foods prior to 1958, or based upon scientific procedures which produce the same
quantity and quality of scientific evidence as would be required for the FDA to
issue a pre-market approval of the sale of a food additive.
In either case, in order to establish that a product is GRAS, it must
not only actually be safe in its intended use, but it must be generally
recognized as such. If a food ingredient is not entitled to GRAS status,
pre-market approval must be sought through the filing of a Food Additive
Petition.
Countries other than the U.S. also regulate the sale of food
ingredients. Regulations vary substantially from country to country, and Opta
takes appropriate steps to comply with such regulations as necessary.
Opta Oat Fibers, OptaGrade, OptaMist, Optex, CrystaLean and OptaFil are
being marketed pursuant to GRAS self-affirmation. Opta believes that the other
products for which it has retained commercial rights will also be determined to
be GRAS. However, such status cannot be determined until actual formulations and
uses are finalized. Thereafter Opta will decide whether self-affirmation
procedures or a GRAS petition will be appropriate. Certain of the Company's
products may require a Food Additive Petition and in the event that one is
required, the Company may elect to sell or license its rights to another party.
There can be no assurance that the Company will be successful in bringing its
products to market based on its determination that such products meet these
criteria. Opta has established an independent Regulatory Board, a panel of
industry experts, to review the publicly available information and certify that
they have reviewed such data and regard an ingredient as GRAS.
HUMAN RESOURCES
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At December 31, 1998, Opta employed 84 full-time employees, 9 of who
hold Ph.D. or other advanced scientific degrees. Many of the Company's
management and professional employees have had prior experience with consumer
food companies. None of the Company's employees is covered by collective
bargaining agreements, and management considers relations with its employees to
be good.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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Statements in this Annual Report on Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as oral statements that may be made by the
Company or by officers, directors or employees of the Company acting on the
Company's behalf, that are not historical fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that could cause the actual results of the
Company to be materially different from the historical results or from any
results expressed or implied by such forward-looking statements. Factors which
could cause actual results to differ from these expectations include the side
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 adequacy of
existing, or the need to secure or build additional manufacturing capacity in
order to meet the 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 successfully 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; potential Year 2000 problems; and
general economic conditions.
Item 2. Properties
The Company owns a 45,000 square foot building in Bedford,
Massachusetts which the Company uses for its headquarters, pilot plant, research
and development laboratories and general corporate offices. Approximately 15,000
square feet of space in this building is leased to a third party under a lease
expiring in September 1999. In addition, the Company subleases approximately
24,000 square feet in Louisville, Kentucky, for a term expiring in 2005. This
space is occupied by the Company's Opta Oat Fibers manufacturing plant,
warehouses, related laboratories and offices. In May 1996, the Company acquired
a 35,000 square foot manufacturing facility in Galesburg, Illinois. This
facility supports the production of the Company's starch-based food ingredient
products.
Item 3. Legal Proceedings
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is currently not a party to any legal proceedings, the adverse outcome
of which, individually or in the aggregate, management believes would have a
material adverse effect on the financial position or results of operations of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-11-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The Company's Common Stock is traded on the Nasdaq Stock Market under
the symbol "OPTS", and is listed on Nasdaq's National Market System. The
following table sets forth the high and low closing sales prices for the
Company's Common Stock as reported by the Nasdaq National Market system for each
of the periods indicated:
Year Ended December 31, 1997 High Low
---------------------------- ---- ---
First Quarter 7 1/2 5 3/8
Second Quarter 8 1/8 4
Third Quarter 7 5/8 5 1/16
Fourth Quarter 7 1/4 4 3/8
Year Ended December 31, 1998
----------------------------
First Quarter 5 7/8 3 3/4
Second Quarter 6 3/16 4 3/4
Third Quarter 5 25/32 3
Fourth Quarter 4 1/2 3 1/16
The Company has never paid a cash dividend. The Company intends to
retain all of its earnings, if any, for use in its business and does not intend
to pay cash dividends in the foreseeable future. In addition, certain of the
Company's loan agreements contain covenants that restrict the Company's ability
to pay dividends. Any future dividend policy will depend upon, among other
factors, the Company's earnings and its financial condition.
As of March 5, 1999, there were approximately 161 holders of record of
the Company's Common Stock and the Company believes that the number of
beneficial holders exceeds 2,400.
-12-
<PAGE>
Item 6. Selected Financial Data (in thousands, except per share data)
- ----------------------------------------------------------------------
The following selected financial data for the five years ended
December 31, 1998 has been derived from the Company's financial statements
audited by PricewaterhouseCoopers LLP, independent accountants.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 13,971 $ 8,799 $ 9,229 $ 7,067 $ 4,821
Cost of revenue 10,146 6,730 7,409 6,340 4,209
Selling, general and admin expenses 4,033 3,874 3,868 2,725 2,397
Research and development expenses 3,665 4,236 4,038 3,102 3,018
Loss from operations (3,873) (6,041) (6,086) (5,100) (4,803)
Net loss (2,482) (4,569) (4,527) (4,197) (4,596)
Basic and diluted net loss per share (1) (.22) (.41) (.42) (.48) (.75)
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
<CAPTION>
December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets $ 34,720 $ 37,808 $ 42,876 $ 48,848 $ 16,055
Total assets 47,888 50,965 55,903 61,269 25,423
Current liabilities 2,685 3,847 3,117 3,152 1,928
Long term liabilities 3,126 2,625 4,417 6,125 4,544
Total stockholders' equity 42,077 44,493 48,369 51,992 18,951
</TABLE>
-13-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
The following Discussion and Analysis of the Company's Financial
Condition and Results of Operations contained in this Annual Report on Form 10-K
contains, in addition to historical statements, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include the factors
discussed in the section titled "Business" under the caption "Cautionary
Statement Regarding Forward-Looking Statements" as well as other factors in this
Annual Report on Form 10-K.
Introduction
Opta 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, in November
1991, acquired an oat fiber business in June 1992 and launched Opta Oat Fibers
in September 1992, began shipping OptaGrade in the fourth quarter of 1993,
commercialized CrystaLean and OptaFil in 1994, introduced OptaMist, Optex and
OptaGlaze in June 1996 and launched Opta Baking Gloss in May 1998. The Company
currently derives substantially all of its revenue from its Opta Oat Fibers,
OptaGrade, OptaMist and CrystaLean products. The Company has not been profitable
since inception and expects to incur additional losses. This discussion should
be read in conjunction with the section titled "Business", the financial
statements, and the notes to the financial statements, included elsewhere in
this Annual Report on Form 10-K.
Results of Operations
1998 Compared to 1997
- ---------------------
Revenue. Revenue for the year ended December 31, 1998 was $14.0 million
representing an increase of $5.2 million or 59% over 1997 revenue of $8.8
million. The increase in 1998 revenue was largely the result of increased demand
from two of the Company's existing major customers as well as the addition of a
new major customer during 1998. In addition, during 1997, the Company relied on
various contract manufacturers to supply certain of the Company's finished goods
for sale to its customers. The Company's 1997 third and fourth quarter revenue
was negatively impacted by one such contract manufacturer's refusal to continue
to supply finished product to Opta for a new major customer. This dispute was
resolved in June 1998 without negatively impacting 1998 revenue.
Cost of Revenue. Cost of revenue for the year ended December 31, 1998
was $10.1 million representing an increase of $3.4 million or 51% over 1997 cost
of revenue of $6.7 million. Cost of revenue as a percentage of revenue decreased
to 73% in 1998 as compared to 76% in 1997. This percentage decrease was largely
the result of certain improvements in Opta Oat Fibers' margins resulting from
production efficiencies related to increased production capacity as well as a
reduction in manufacturing costs. Opta is attempting to further reduce its cost
of revenue as a percentage of revenue in 1999 due to manufacturing efficiencies
gained from increased production volume, although there is no assurance that
such reductions will be realized.
-14-
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the year ended December 31, 1998 were $4.0
million representing an increase of $159,000 or 4% over 1997 SG&A expenses of
$3.9 million. SG&A expenses as a percentage of revenue decreased to 29% in 1998
from 44% in 1997 as a result of the increase in 1998 revenue. The increase in
actual SG&A expenses was principally due to additional staffing and bonus costs
as well as an increase in public/investor relations costs offset by a reduction
in consulting costs in 1998.
Research and Development. Research and development ("R&D") expenses for
the year ended December 31, 1998 were $3.7 million representing a decrease of
$571,000 or 13% over 1997 R&D expenses of $4.2 million. R&D expenses as a
percentage of revenue decreased to 26% in 1998 from 48% in 1997 as a result of
the reduction in 1998 R&D expenses and the increase in 1998 revenue. The
decrease in actual R&D expenses was the result of initial start-up costs of the
Galesburg, Illinois production facility incurred during 1997.
Other Income. Other income for the year ended December 31, 1998 was
$1.4 million representing a decrease of $81,000 or 6% as compared to 1997 other
income of $1.5 million. The decrease is due to decreased interest income on
reduced amounts of cash and cash equivalents offset in part by decreased
interest expense on lower levels of debt during 1998.
1997 Compared to 1996
- ---------------------
Revenue. Revenue for the year ended December 31, 1997 was $8.8 million
representing a decrease of approximately $430,000 or 5% in comparison to 1996
revenue of $9.2 million. The decrease in 1997 revenue was largely the result of
decreased demand from one of the Company's major customers. During 1997, the
Company relied on various contract manufacturers to supply certain of the
Company's finished goods for sale to its customers. As the Company previously
indicated in its Form 10-Q filing for the quarters ended June 30, 1997 and
September 30, 1997, third and fourth quarter revenue was negatively impacted by
one such contract manufacturer's refusal to continue to supply finished product
to Opta for a new major customer. However, this dispute did not negatively
impact 1998 revenue.
Cost of Revenue. Cost of revenue for the year ended December 31, 1997
was $6.7 million representing an decrease of $679,000 or 9% in comparison to
1996 cost of revenue of $7.4 million. Cost of revenue as a percentage of revenue
decreased to 76% in 1997 as compared to 80% in 1996. This percentage decrease
was largely the result of certain improvements in Opta Oat Fibers' margins
resulting from operating efficiencies as well as a reduction in manufacturing
costs.
Selling, General and Administrative Expenses. SG&A expenses for the
year ended December 31, 1997 and 1996 were $3.9 million. SG&A expenses as a
percentage of revenue increased to 44% in 1997 from 42% in 1996.
Research and Development Expenses. R&D expenses for the year ended
December 31, 1997 were $4.2 million representing an increase of $198,000 or 5%
in comparison to 1996 R&D expenses of $4.0 million. R&D expenses as a percentage
of revenue increased to 48% in 1997 from 44% in 1996. The increase in R&D
expenses was the result of initial operating costs of the Galesburg, Illinois
production facility incurred during 1997.
Other Income. Other income for the year ended December 31, 1997 was
$1.5 million representing a decrease of $87,000 or 6% in comparison to 1996
other income of $1.6 million. The decrease was due to decreased interest income
on reduced amounts of cash and cash equivalents offset by decreased interest
expense on lower levels of debt in 1997 as compared to 1996.
-15-
<PAGE>
Income Taxes
At December 31, 1998, the Company had available net operating loss
carryforwards of approximately $31.2 million for income tax purposes. In
addition, the Company had approximately $786,000 of unused research and
development tax credits. Ownership changes, as defined in the Internal Revenue
Code, resulting from the Company's initial public offering in March 1992 and a
second public offering in August 1995, have limited the amount of net operating
loss and tax credit carryforwards that can be utilized annually to offset future
taxable income or tax liabilities. As a result, the amount of these net
operating losses and tax credit carryforwards which can be utilized annually is
$3.0 million for losses incurred prior to March 1992 and $9.1 million for losses
incurred prior to August 1995. These net operating loss and credit carryforwards
expire at various dates between 2006 and 2018. Subsequent changes in ownership
could further affect the limitation in future years.
Liquidity and Capital Resources
At December 31, 1998, the Company had approximately $30.3 million in
cash and cash equivalents and approximately $32 million of working capital. The
Company used approximately $1.4 million of cash in operations during the year
ended December 31, 1998 compared with approximately $2.4 million in 1997. The
Company expects to incur significant operating losses as it continues to
increase its investment in the development, production and marketing of its new
and existing products. The Company intends to fund its operating losses
principally through product sales, existing cash and cash equivalents, short
term investments, equity financing, collaborative arrangements and long and
short term debt.
Capital expenditures for the years ended December 31, 1998 and 1997
were approximately $1.4 million and $1.3 million, respectively. The Company's
various debt agreements contain covenants that restrict the Company's ability to
participate in merger discussions, pay dividends, limit annual capital
expenditures, invest in certain types of securities and obtain additional debt
financing without bank approval. The Company was in compliance with respect to
all covenants and restrictions in its loan agreements at December 31, 1998.
The Company believes that continued expenditure of funds will be
necessary to support its anticipated growth. The Company believes its existing
cash and cash equivalents, short term investments, long and short term debt and
product sales, will be adequate to fund its planned operations, capital
requirements and expansion needs through at least 1999. 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 capital when conditions are favorable, even if it does not
have an immediate need for additional capital at such time.
Year 2000 Compliance
The Year 2000 issue concerns the inability of certain computerized
information systems to properly recognize date sensitive information such as a
date using "00" as the year 2000 rather than the year 1900. This could cause
systems to fail or miscalculate, causing a disruption of operations. The Company
may be at risk both with respect to its own Year 2000 compliance and the Year
2000 compliance of third parties, particularly suppliers of materials and
services as well as customers.
-16-
<PAGE>
The Company relies on computer-based technology and utilizes a variety
of third party hardware and software extensively for financial and
administrative functions, such as accounting and management information. Based
on a recent internal assessment of Year 2000 issues, the Company has identified
and verified that its internal information technology ("IT") systems are deemed
to be Year 2000 compliant, including accounting/financial reporting,
manufacturing/production and sales/invoicing systems.
The Company is in the process of retaining a consultant to review the
Year 2000 compliance of its non-IT systems which include equipment or processes
used in its manufacturing facilities that may contain embedded technology. The
Company expects to receive the consultant's report and assessment of its Year
2000 compliance by the end of the second quarter of 1999. In addition, the
Company is currently evaluating all other non-IT systems including research and
development, telecommunications and general office equipment for Year 2000
compliance utilizing internal resources. The Company expects to complete this
evaluation by the end of the second quarter of 1999.
Management believes that the most significant risk to the Company of
Year 2000 compliance issues is the effect such issues may have on its suppliers
and customers. The Company is taking steps including contacting its significant
suppliers and major customers in 1999 to assess the Year 2000 readiness of its
such suppliers and customers. Upon completion of this assessment which will be
concluded by the third quarter of 1999, the Company will undertake an evaluation
of the potential effects on its operations of any such third-party non-
compliance on the Company's operations. Based on such evaluation, the Company
will determine the most reasonably likely worst case scenarios arising from Year
2000 non-compliance and contingency plans to respond to such scenarios.
The costs related to Year 2000 activities have not been and are not
anticipated to be material and management does not believe that the financial
impact of the Year 2000 issues discussed above will have a material adverse
effect on the Company's financial condition or results of operations; however,
it is uncertain to what extent the Company may be affected by third party Year
2000 compliance issues.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
In January 1997, the Securities and Exchange Commission issued
Financial Reporting Release No. 48, which expands the disclosure requirements
for certain derivatives and other financial instruments. The Company does not
utilize derivative financial instruments. See Notes 1 and 2 to the Financial
Statements. The carrying amounts reflected in the balance sheet of cash and cash
equivalents, trade receivables and trade payables approximates fair value at
December 31, 1998 due to the short maturities of these instruments.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Financial Statements and Supplementary Data appear at pages F-1 through
F-17 of this Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
-17-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
(a) Directors. The information with respect to directors required by
this item is incorporated herein by reference from the section entitled
"Election of Directors" in the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held May 18, 1999 (the "1999 Proxy
Statement"), to be filed with the Securities and Exchange Commission not later
than April 30, 1999.
(b) Executive Officers.
The executive officers of the Company, who are elected to serve at the
discretion of the Company's Board of Directors, are as follows:
Name Age Position
- ---- --- --------
Lewis C. Paine, III 46 Chairman of the Board, President,
Chief Executive Officer and Director
Arthur J. McEvily, Ph.D. 47 Executive Vice President
Joel A. Stone 46 Vice President Operations
Scott A. Kumf 42 Chief Financial Officer, Vice President
Administration and Treasurer
Mr. Paine has served Opta as President and Director since May 1991,
Chief Executive Officer since December 1992, and Chairman of the Board since
June 1993. He served as President of the Food Ingredients Division of Enzytech,
Inc. ("Enzytech"), the Company's predecessor, from October 1990 to May 1991.
Prior to joining Enzytech, Mr. Paine was at Carnation Company and its parent
company, Nestle, S.A., from 1974 to 1990, where he most recently served as Vice
President of Marketing and New Business Development for the Refrigerated
Products Division from December 1987 to October 1990. From April 1986 to
December 1987, he served as an International Marketing Manager for Nestle, S.A.
in Vevey, Switzerland.
Dr. McEvily was named Executive Vice President in January 1999.
Previously, he was named Senior Vice President, Commercial Development in
December 1997 and served as Vice President Applications, Technical Service and
New Product Commercialization from August 1996 to December 1997. He served as
Vice President Sales and Business Development of the Company from December 1993
to July 1996. From May 1991 to December 1993 he held various positions at Opta,
ranging from Senior Research Scientist to Product Director to Director of
Business Development. Dr. McEvily served in various scientific capacities at
Enzytech from October 1988 to May 1991. Dr. McEvily received a B.Sc. in
Biochemistry from Marlboro College, Marlboro, Vermont and a Ph.D. in chemistry
from The University of North Carolina at Chapel Hill. He was a postdoctoral
fellow at Harvard Medical School.
Mr. Stone has served as Vice President Operations and Manufacturing
since May 1991. He served as Senior Director of Manufacturing and Engineering
Management at Enzytech from April 1990 to May 1991. Prior to joining Enzytech,
Mr. Stone was Director of Manufacturing at Genencor, Inc. from August 1988 to
March 1990. From August 1986 to August 1988, Mr. Stone was Manager of Operations
at the Harbert Lummus Joint Venture.
-18-
<PAGE>
Mr. Kumf joined Opta in August 1996 as Chief Financial Officer and Vice
President Administration. He was elected Treasurer and Assistant Secretary in
December 1996. Prior to joining Opta, Mr. Kumf served at BostonCoach, Inc. as
Chief Financial Officer from September 1995 to August 1996. From August 1994 to
May 1995, he was the Chief Financial Officer of Trotter, Inc. and from September
1990 to July 1994 he served as Chief Financial Officer for Polar Corp. Mr. Kumf
is a Certified Public Accountant in Massachusetts.
Item 11. Executive Compensation
- --------------------------------
The information required under this item is incorporated herein by
reference from the section entitled "Executive Compensation" in the 1999 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this item is incorporated herein by
reference from the section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the 1999 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference from the section entitled "Certain Transactions" in the 1999 Proxy
Statement.
-19-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Documents filed as part of this Report:
<TABLE>
<CAPTION>
(1) Financial Statements:
--------------------
<S> <C> <C>
Report of Independent Accountants F-1
Balance Sheet at December 31, 1998 and 1997 F-2
Statement of Operations for the three years ended December 31, 1998 F-3
Statement of Stockholders' Equity for the three years ended December 31, 1998 F-4
Statement of Cash Flows for the three years ended December 31, 1998 F-5
Notes to Financial Statements F-6
(2) All financial statement schedules are omitted because they are not applicable, not
material, or the required information is shown in the financial statements or the notes
thereto.
(3) Exhibits
--------
</TABLE>
Exhibit Number Description
- -------------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company
(Filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-8, Registration No. 33-93518, and incorporated herein by
reference)
3.2 Restated By-Laws of the Company (Filed as Exhibit 3.4 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
4.1 Article 4 of the Amended and Restated Certificate of Incorporation
of the Company (see Exhibit 3.1) (Filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8, Registration No. 33-
93518, and incorporated herein by reference)
4.2 Form of Common Stock Certificate of the Company (Filed as Exhibit
4.2 to the Company's Registration Statement on Form S-1,
Registration No. 33-45700, as amended and incorporated herein by
reference)
4.3 Form of Warrant Certificate of the Company (Filed as Exhibit 4.3 to
the Company's Registration Statement on Form S-3, Registration No.
33-80860, and incorporated herein by reference)
10.1 Form of Unit Purchase Agreement dated as of April 21, 1994 between
the Company and the respective parties thereto (Filed as Exhibit
99.2 to the Company's Form 8-K, Commission File No. 0-19811, and
incorporated herein by reference)
10.2 Amended and Restated Master Food Ingredients Collaborative
Development Agreement, dated August 11, 1994, between the Company
and Pfizer Inc. (Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994, and
incorporated herein by reference)*
-20-
<PAGE>
10.3 Master Food Ingredients License Agreement dated June 13, 1991
between the Company and Pfizer Inc. (Filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)*
10.4 Form of First Amendment to Master Food Ingredients License Agreement
(Filed as Exhibit 10.3 to the Company's Registration Statement on
Form S-1, Registration No. 33-45700, as amended and incorporated
herein by reference)
10.5 Licensed Product Term Sheet dated March 2, 1994 between the Company
and Pfizer Inc. (Filed as Exhibit 10.5 to the Company's 1994 Annual
Report on Form 10-K, Commission File No. 0-19811, and incorporated
herein by reference). *
10.6 License and Technology Transfer Agreement effective as of May 1,
1991 between the Company and Enzytech, Inc. (Filed as Exhibit 10.6
to the Company's Registration Statement on Form S-1, Registration
No. 33-45700, as amended, and incorporated herein by reference)
10.7 Promissory Note and Mortgage Agreement dated August 19, 1993 between
the Company and Springfield Institution for Savings (Filed as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, Commission File No. 0-19811, and
incorporated herein by reference)
10.8 Loan Agreement dated November 5, 1992 between the Company and
Massachusetts Business Development Corporation (Filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, Commission File No. 0-19811, and incorporated
herein by reference)
10.9 Mortgage and Security Agreement dated November 3, 1994 executed by
the Company in favor of the Massachusetts Business Development
Corporation (Filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, Commission File No.
0-19811, and incorporated herein by reference)
10.10 Authorization and Loan Agreement dated May 18, 1992 among the
Company, Massachusetts Certified Development Corporation and U.S.
Small Business Administration (Filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992, Commission File No. 0-19811, and incorporated herein by
reference)
10.11 Fixed Asset Line of Credit dated March 29, 1993 between the Company
and Silicon Valley Bank (Filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993, Commission File No. 0-19811, and incorporated herein by
reference)
10.12 Asset Purchase Agreement dated June 17, 1992, between Williamson
Fiber Products, Inc., The Williamson Group, Inc. and the Company
(Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K
dated June 17, 1992, Commission File No. 0-19811, and incorporated
herein by reference)
-21-
<PAGE>
10.13 Sublease and Consent dated June 17, 1992 among Williamson Fiber
Products, Inc., the Company and Spring Street Developers (Filed as
Exhibit 28.2 to the Company's Current Report on Form 8-K dated June
17, 1992, Commission File No. 0-19811, and incorporated herein by
reference)
10.14 Consulting Agreement, dated January 28, 1992, between the Company
and A.S. Clausi (Filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, Commission
File No. 0-19811, and incorporated herein by reference)#
10.15 Stock Purchase and Repurchase Agreement, dated May 29, 1991, between
the Company and Akiva T. Gross (Filed as Exhibit 10.18 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
10.16 Employment Agreement, dated May 1, 1991, between the Company and
Akiva T. Gross (Filed as Exhibit 10.21 to the Company's Registration
Statement on Form S-1, Registration No. 33-45700, as amended, and
incorporated herein by reference)#
10.17 Letter agreement, dated May 1, 1995, between the Company and Akiva
T. Gross (Filed as Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, Commission File
No. 0-19811, and incorporated herein by reference)#
10.18 Promissory Note dated August 12, 1994 executed by Akiva T. Gross in
favor of the Company (Filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994, Commission File No. 0-19811, and incorporated herein by
reference)
10.19 Pledge Agreement dated August 12, 1994 between Akiva T. Gross and
the Company (Filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994,
Commission File No. 0-19811, and incorporated herein by reference)
10.20 Extension and amendment of Employment Agreement, dated October 1,
1992 between the Company and Lewis C. Paine, III, dated December 31,
1993 (Filed as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, Commission File No.
0-19811, and incorporated herein by reference)#
10.21 Stock Purchase and Repurchase Agreement, dated May 29, 1991, between
the Company and Lewis C. Paine, III (Filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
10.22 Amended and Restated Promissory Note dated as of September 19, 1990
executed by Lewis C. Paine, III in favor of the Company (Filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, Commission File No. 0-19811, and
incorporated herein by reference)
10.23 Promissory Note dated January 8, 1993, executed by Lewis C. Paine,
III in favor of the Company (Filed as Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992,
Commission File No. 0-19811, and incorporated herein by reference)
-22-
<PAGE>
10.24 Pledge Agreement dated January 8, 1993, between Lewis C.
Paine, III and the Company (Filed as Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992,
Commission File No. 0-19811, and incorporated herein by reference)
10.28 Employee Agreement for Protection of Company Property, dated May 1,
1991, in the form executed by Officers of the Company (Filed as
Exhibit 10.23 to the Company's Registration Statement on Form S-1,
Registration No. 33-45700, as amended, and incorporated herein by
reference)
10.29 1992 Employee, Director and Consultant Stock Option Plan, as amended
through March 10, 1993 (Filed as Exhibit 28.1 to the Company's
Registration Statement on Form S-8, Registration No. 33-65406, and
incorporated herein by reference)#
10.30 Amendment to 1992 Employee, Director and Consultant Stock Option
Plan, adopted January 19, 1995 (filed as Exhibit 10.30 to the
Company's 1994 Annual Report on Form 10-K, Commission File No.
0-19811, and incorporated herein by reference)#
10.31 Employee Stock Purchase Plan, as amended and restated (Filed as
Exhibit 28.3 to the Company's Registration Statement on Form S-8,
Registration No. 33-48624, and incorporated herein by reference)#
10.32 Amendment to Employee Stock Purchase Plan, adopted February 16, 1993
(Filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992, Commission File No. 0-19811,
and incorporated herein by reference)#
10.33 Press Release dated June 4, 1996, announcing that the Company's
revenue and earnings for the second quarter and 1996 as a whole are
likely to be lower than Wall Street estimates. (Filed as Exhibit
99.1 to the Company's Current Report on Form 8-K dated June 4, 1996,
Commission File No. 0-19811, and incorporated herein by reference)
10.34 Amendment to 1992 Employee, Director and Consultant Stock Option
Plan, adopted March 5, 1996 (filed as Exhibit 10.34 to the Company's
1998 Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference)#
10.35 Amendment to 1992 Employee, Director and Consultant Stock Option
Plan, adopted February 26, 1998 (filed as Exhibit 10.35 to the
Company's 1998 Annual Report on Form 10-K, Commission File No. 0-
19811, and incorporated herein by reference)#
10.36 Employment Agreement dated December 8, 1998 between the Company and
Lewis C. Paine, III (filed as Exhibit 10.36 to the Company's 1998
Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference) #
23 Consent of PricewaterhouseCoopers LLP (filed herewith)
* Confidential treatment has been granted by the Securities and Exchange
Commission.
# Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1998.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
OPTA FOOD INGREDIENTS, INC.
Date: March 12, 1999 By: /s/ Lewis C. Paine, III
-----------------------------------
Lewis C. Paine, III
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Lewis C. Paine, III Chairman of the Board, March 12, 1999
- --------------------------- President, Chief Executive
Lewis C. Paine, III Officer and Director
(principal executive officer)
/s/ Scott A. Kumf Chief Financial Officer,
- --------------------------- Vice President Administration March 12, 1999
Scott A. Kumf and Treasurer (principal financial
and accounting officer)
/s/ A.S. Clausi Director March 12, 1999
- ---------------------------
A.S. Clausi
/s/ Anthony B. Evnin Director March 12, 1999
- ---------------------------
Anthony B. Evnin
/s/ Harry Fields Director March 12, 1999
- ---------------------------
Harry Fields
/s/ Glynn C. Morris Director March 12, 1999
- ---------------------------
Glynn C. Morris
/s/ Charles W. Newhall, III Director March 12, 1999
- ---------------------------
Charles W. Newhall, III
/s/ Frederic Stevenin Director March 12, 1999
- ---------------------------
Frederic Stevenin
-24-
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Opta Food Ingredients, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) on page 20 present fairly, in all material respects, the financial
position of Opta Food Ingredients, Inc. at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 1999
F-1
<PAGE>
Opta Food Ingredients, Inc.
Balance Sheet (in thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 30,315 $ 33,689
Accounts receivable, net 1,950 1,409
Inventories, net 2,071 2,548
Prepaid expenses and other assets 384 162
------------ ------------
Total current assets 34,720 37,808
Fixed assets, net 12,473 12,208
Patents and trademarks, net 626 791
Other assets 69 158
------------ ------------
$ 47,888 $ 50,965
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long term debt $ 426 $ 1,485
Accounts payable 1,003 1,303
Accrued expenses 1,256 1,059
------------ ------------
Total current liabilities 2,685 3,847
Long term debt 3,126 2,625
Commitments (Note 16) - -
Stockholders' equity:
Preferred stock, $.01 par value; 3,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.01 par value; 15,000,000 shares authorized,
11,096,002 and 11,079,833 shares issued and outstanding at
December 31, 1998 and 1997, respectively 111 111
Additional paid-in capital 79,747 79,681
Accumulated deficit (37,781) (35,299)
------------ ------------
42,077 44,493
------------ ------------
$ 47,888 $ 50,965
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
Opta Food Ingredients, Inc.
Statement of Operations (in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Product revenue $ 13,971 $ 8,799 $ 9,229
Cost and expenses:
Cost of revenue 10,146 6,730 7,409
Selling, general and administrative 4,033 3,874 3,868
Research and development 3,665 4,236 4,038
----------- ---------- ----------
17,844 14,840 15,315
----------- ---------- ----------
Loss from operations (3,873) (6,041) (6,086)
Interest income 1,637 1,906 2,146
Interest expense (263) (418) (569)
Other income (expense), net 17 (16) (18)
----------- ---------- ----------
Net loss $ (2,482) $ (4,569) $ (4,527)
=========== ========== ==========
Basic and diluted net loss per share $ (.22) $ (.41) $ (.42)
=========== ========== ==========
Weighted average shares outstanding 11,084 11,034 10,877
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Opta Food Ingredients, Inc.
Statement of Stockholders' Equity (in thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional Total
Number of Par Paid-in Accumulated Stockholders'
Shares Value Capital Deficit Equity
------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 10,745,532 $ 107 $ 78,088 $ (26,203) $ 51,992
Sale of common stock pursuant to exercise of stock options 135,145 2 423 - 425
Sale of common stock pursuant to exercise of stock warrants 76,000 1 421 - 422
Sale of common stock under employee stock purchase plan 9,004 - 57 - 57
Net loss - - - (4,527) (4,527)
------------- ----------- ---------- ------------ ------------
Balance at December 31, 1996 10,965,681 110 78,989 (30,730) 48,369
Sale of common stock pursuant to exercise of stock warrants 85,526 1 615 - 616
Sale of common stock pursuant to exercise of stock options 21,918 - 45 - 45
Sale of common stock under employee stock purchase plan 6,708 - 32 - 32
Net loss - - - (4,569) (4,569)
------------- ----------- ---------- ------------ ------------
Balance at December 31, 1997 11,079,833 111 79,681 (35,299) 44,493
Sale of common stock pursuant to exercise of stock options 3,000 - 16 - 16
Sale of common stock under employee stock purchase plan 13,169 - 50 - 50
Net loss - - - (2,482) (2,482)
------------- ----------- ---------- ------------ ------------
Balance at December 31, 1998 11,096,002 $ 111 $ 79,747 $ (37,781) $ 42,077
============= =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Opta Food Ingredients, Inc.
Statement of Cash Flows (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,482) $ (4,569) $ (4,527)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,412 1,226 1,206
Forgiveness of notes receivable 40 40 20
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (541) (406) 130
(Increase) decrease in inventories, net 477 942 (1,256)
(Increase) decrease in prepaid expenses and other assets (222) (26) 178
Increase (decrease) in accounts payable (300) 545 (5)
Increase (decrease) in accrued expenses 197 192 (15)
Decrease in other liabilities - (300) (327)
-------- -------- --------
Total adjustments 1,063 2,213 (69)
-------- -------- --------
Net cash used in operating activities (1,419) (2,356) (4,596)
Cash flows from investing activities:
Purchase of short term investments - (3,944) (5,970)
Maturity of short term investments - 4,586 10,321
Purchase of fixed assets (1,449) (1,304) (1,783)
Increase in patents and trademarks (63) (124) (178)
Decrease in other assets 49 32 129
-------- -------- --------
Net cash (used in) provided by investing activities (1,463) (754) 2,519
Cash flows from financing activities:
Proceeds from issuance of common stock, net 66 693 904
Proceeds from issuance of long term debt 955 - 151
Principal payments on long term debt (1,513) (1,499) (1,547)
-------- -------- --------
Net cash used in financing activities (492) (806) (492)
Net decrease in cash and cash equivalents (3,374) (3,916) (2,569)
Cash and cash equivalents at beginning of year 33,689 37,605 40,174
-------- -------- --------
Cash and cash equivalents at end of year $ 30,315 $ 33,689 $ 37,605
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 263 $ 404 $ 551
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Basis of Presentation
Opta Food Ingredients, Inc. (the "Company") is a leading innovator,
manufacturer and marketer of proprietary food ingredients that improve the
nutritional content, healthfulness, texture and taste of its customers'
food products. Opta is committed to finding solutions to customers'
formulation challenges by providing texturizing agents that it markets
primarily in North America to the dairy, dressings and sauces, meat and
baked goods categories. The Company was legally incorporated on April 23,
1991.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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 revenue and expense during
the year. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue for product sales is recognized upon shipment. Revenue from product
licensing and contract research agreements is recognized as earned pursuant
to the related agreement terms. Advance payments received under these
agreements are recorded as deferred revenue.
Cash and Cash Equivalents and Concentration of Credit Risk
Cash and cash equivalents include investments with initial maturities of
three months or less. The Company does not believe that it is subject to
any unusual credit risk beyond the normal credit risk related to operating
its business.
Accounts Receivable
Accounts receivable are reflected net of an allowance for doubtful accounts
of $90,000 and $107,000 at December 31, 1998 and 1997, respectively.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, primarily cash
equivalents, at December 31, 1998 and 1997, approximates its fair value due
to the short maturity or holding period.
Inventories
Inventories are stated at the lower of cost or market, cost determined
using the first-in, first-out method. Inventories are reflected net of
reserves of $80,000 and $250,000 at December 31, 1998 and 1997,
respectively.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets, which range from five
to thirty-nine years. Maintenance and repair costs are expensed.
Patents and Trademarks
Patent and trademark costs are capitalized and amortized on a straight-line
basis over the shorter of the estimated economic lives or the stated terms
of the patent or trademark. Amortization periods are eight and ten years,
respectively.
F-6
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Stock Compensation
The Company's stock option plans are accounted for using the intrinsic
value method to measure compensation expense in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". In 1996, the Company adopted only the footnote disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123", Note 12) which
discloses the pro forma effect of compensation expense of all equity
instruments issued to employees.
Net Loss Per Share
Basic net loss per share is determined by dividing the net loss by the
weighted average number of common shares outstanding during the year. All
common stock equivalents have been excluded from weighted average shares
outstanding for calculating diluted net loss per share because such
equivalents are anti-dilutive.
Reclassifications
Certain reclassifications have been made to the prior years financial
statements to conform to current presentation. These reclassifications have
no effect on the Company's results of operations or financial position.
3. Cash Equivalents
Following is a summary of the fair market value of available-for-sale
securities by balance sheet classification (in thousands):
December 31,
----------------------
1998 1997
-------- --------
Cash equivalents:
Money market funds $ 24,280 $ 24,783
Commercial paper 4,725 3,975
U.S. government obligations 995 1,895
Repurchase agreement 456 1,119
-------- --------
$ 30,456 $ 31,772
======== ========
Gross unrealized gains and losses at December 31, 1998 and 1997 and
realized gains and losses on sales of securities for the years then ended
were not significant.
F-7
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
4. Notes Receivable
At December 31, 1998 and 1997, notes receivable from an officer and an
employee are included in other assets. The terms of the notes forgive the
principal and related interest ratably over a five year period as long as
the officer and employee remain employed by the Company or if terminated
without cause. The officer's note receivable was satisfied during 1998.
Balances of these notes are as follows (in thousands):
December 31,
---------------------
1998 1997
------- -------
Unsecured note bearing interest at 8% $ 60 $ 80
Non-interest bearing note receivable, secured
by the Company's common stock owned by officer - 20
------- -------
$ 60 $ 100
======= =======
5. Inventories
Inventories consist of the following (in thousands):
December 31,
---------------------
1998 1997
------- -------
Raw materials $ 420 $ 333
Finished goods 1,651 2,215
------- -------
$ 2,071 $ 2,548
======= =======
F-8
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. Fixed Assets
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Plant equipment $ 10,271 $ 8,994
Land, building and improvements 5,816 5,794
Office furniture and equipment 726 604
Lab equipment 590 562
--------- ---------
17,403 15,954
Accumulated depreciation (4,930) (3,746)
--------- ---------
$ 12,473 $ 12,208
========= =========
</TABLE>
7. Patents and Trademarks
Patents and trademarks consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Patents and trademarks $ 1,886 $ 1,822
Accumulated amortization (1,260) (1,031)
--------- ---------
$ 626 $ 791
========= =========
</TABLE>
8. Accrued Expenses
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Bonuses $ 670 $ 242
Payroll costs and benefits 154 89
Professional fees 123 127
Other 309 601
---------- ----------
$ 1,256 $ 1,059
========== ==========
</TABLE>
F-9
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
9. Borrowings
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Mortgage payable to a bank due in quarterly installments of $27
including interest at 7.37% with the remaining balance of $1,678 due
June 2002, secured by the Company's corporate headquarters $ 2,145 $ 2,225
Equipment line of credit due in quarterly installments of $80 plus
interest at LIBOR plus 2.5% (7.75% at December 31, 1998) beginning
August 1999, secured by certain fixed assets, due March 2002 955 -
Note payable to a bank due in quarterly installments of $275 plus interest
at prime plus 1%, secured by certain fixed assets - 1,100
Note payable to a state government agency and guaranteed by the U.S.
Small Business Administration due in monthly installments of $6
including interest at 5.554% due July 2003, secured by certain fixed assets 269 320
Note payable to a state government agency due in monthly installments
of $6 plus interest at prime plus 2 1/2 % (10.25% at December 31, 1998)
due June 2000, secured by certain fixed assets 107 179
Note payable to a state government agency due in monthly installments
of $3 including interest at 3% due July 2001, secured by certain fixed assets 76 103
Other - 183
------------ ------------
3,552 4,110
Current portion (426) (1,485)
------------ ------------
$ 3,126 $ 2,625
============ ============
</TABLE>
Maturities of long term debt for each of the years ended December 31 are as
follows (in thousands):
1999 $ 426
2000 553
2001 502
2002 2,011
2003 60
--------
$ 3,552
========
F-10
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Company has a $5 million equipment line of credit from a bank with
interest at prime or 90 day LIBOR plus 2.5%. The line of credit is
available through March 1999 and expires in March 2002. At December 31,
1998, the Company had $4,045,000 available to borrow under the equipment
line of credit. The Company's debt agreements contain certain financial
covenants and restrict the Company's ability to participate in merger
discussions, pay dividends, limit annual capital expenditures, invest in
certain types of securities and obtain additional debt financing without
bank approval. At December 31, 1998, the Company was in compliance with the
terms of these agreements.
10. Income Taxes
Deferred tax benefits consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Federal $ 918 $ 1,548 $ 1,563
State 220 389 411
-------- --------- ---------
1,138 1,937 1,974
Increase in valuation allowance (1,138) (1,937) (1,974)
-------- --------- ---------
$ - $ - $ -
======== ========= =========
</TABLE>
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 12,571 $ 11,576
Research and development credit 1,033 889
Other state tax credits 20 27
Expense accruals and other 489 483
---------- ----------
Gross deferred tax assets 14,113 12,975
Valuation allowance (14,113) (12,975)
---------- ----------
$ - $ -
========== ==========
</TABLE>
F-11
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Company has provided a valuation allowance for the full amount of the
deferred tax assets since realization of these future benefits is not
sufficiently assured. As the Company achieves profitability, these deferred tax
assets may be available to offset future income tax liabilities and expense.
A reconciliation between the amount of reported tax expense and the amount
computed using the U.S. federal statutory rate of 35% follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax benefit at statutory rate $ (869) $(1,599) $(1,584)
State tax benefit, net (129) (234) (247)
Stock option exercises - (3) (135)
Research and development credits (160) (146) (114)
Other state credits 24 28 29
Other (4) 17 77
------------ ------------ ------------
(1,138) (1,937) (1,974)
Increase in valuation allowance 1,138 1,937 1,974
------------ ------------ ------------
$ - $ - $ -
============ ============ ============
</TABLE>
At December 31, 1998, the Company had federal net operating loss carryforwards
and research and development credits which may be used to offset future federal
taxable income and tax liabilities as follows (in thousands):
Research
Net and
Year of Operating Development
expiration Loss Credit
---------------- ------------ -------------
2006 $ 1,219 $ 76
2007 4,247 128
2008 5,570 144
2009 3,720 112
2010 4,991 70
2011 4,713 48
2012 4,335 101
2018 2,377 107
---------- --------
$ 31,172 $ 786
========== ========
F-12
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
A portion of the net operating loss carryforwards and valuation allowances
totaling $1,938,000 and $754,000, respectively, relates to deductions for
non-qualified stock option exercises and incentive stock option
disqualifying dispositions. This amount will be credited to additional
paid-in capital upon realization.
Ownership changes, as defined in the Internal Revenue Code, resulting from
the Company's initial public offering in March 1992 and a second offering
in August 1995, have limited the amount of net operating loss and tax
credit carryforwards that can be utilized annually to offset future taxable
income or tax liabilities. As a result, the amount of these net operating
loss carryforwards which can be utilized annually is $3,000,000 for losses
incurred prior to March 1992 and $9,077,000 for losses incurred prior to
August 1995. Subsequent changes in ownership could further affect the
limitation in future years.
11. Stockholders' Equity
Preferred Stock
Shares of preferred stock may be issued at the discretion of the Board of
Directors of the Company with such designations, rights and preferences as
the Board may determine from time to time.
Common Stock
In June 1994, the Company completed the sale and issuance of 2,274,052
units in a private placement to institutional investors resulting in net
proceeds of $10,053,000. Each unit consists of one share of the Company's
common stock and one-half of one common stock purchase warrant. Each full
warrant may be exercised over a three year period beginning in June 1994
for one share of common stock at a per share price of $5 during year one,
$6 during year two and $7 during year three. The aggregate fair value of
the common stock purchase warrants of $1,592,000 was recorded as additional
paid-in capital. During 1997 and 1996, 85,526 and 76,000 shares of common
stock were issued pursuant to exercises of such warrants resulting in net
proceeds of $616,000 and $422,000, respectively.
12. Stock Option and Stock Purchase Plans
During 1992 and 1991, the Company established the 1992 Employee, Director
and Consultant Stock Option Plan and the 1991 Non-Employee Stock Option
Plan, respectively. These plans provide for the issuance of non-qualified
or incentive stock options to key employees, directors and consultants of
the Company. The Board of Directors determines the term, price, number of
shares and the vesting period of each option grant. However, the price may
be no less than the par value of the common shares for non-qualified
options, and no less than the fair market value of the shares on the date
granted for incentive stock options (or no less than 110% of the fair
market value in the case of holders of more than 10% of the voting stock of
the Company). Additionally, the term of incentive stock options cannot
exceed ten years (five years for options granted to holders of more than
10% of the voting stock of the Company).
In May 1998, the stockholders approved an increase in the number of common
shares authorized for issuance under the 1992 Employee, Director, and
Consultant Stock Option Plan from 1,666,667 to 1,916,667. The number of
common shares authorized for issuance under the 1991 Non-Employee Stock
Option Plan is 101,244.
F-13
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Company has reserved 1,601,569 shares of common stock for issuance under the
1992 Employee, Director and Consultant Stock Option Plan and 9,838 shares for
issuance under the 1991 Non-Employee Stock Option Plan at December 31, 1998.
At December 31, 1998, options to purchase 1,551,500 shares were outstanding
under the plans, of which 623,929 were exercisable. There were 59,907 shares
available for future grant under the plans at December 31, 1998.
Stock option plan transactions were as follows:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
-------------- --------------------
<S> <C> <C>
Options outstanding at December 31, 1995 934,387 $ 5.62
Granted 562,353 $10.53
Exercised (135,145) $ 3.14
Cancelled (254,756) $ 9.25
--------------
Options outstanding at December 31, 1996 1,106,839 $ 7.58
Granted 644,497 $ 5.90
Exercised (21,918) $ 2.08
Cancelled (512,938) $ 9.83
--------------
Options outstanding at December 31, 1997 1,216,480 $ 5.86
Granted 390,050 $ 4.79
Exercised (3,000) $ 5.25
Cancelled (52,030) $ 6.23
--------------
Options outstanding at December 31, 1998 1,551,500 $ 5.58
==============
</TABLE>
F-14
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- ---------------------------------
Range of Number of Weighted Average Weighted Number of Weighted
Exercise Options Remaining Average Options Average
Prices Outstanding Contractual Life Exercise Price Outstanding Exercise Price
- ------------------- -------------- ---------------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ .06 - $ .45 63,735 2.40 $ .14 61,235 $ 0.13
3.94 - 5.50 493,570 8.70 4.88 77,260 5.11
5.53 - 9.00 938,969 6.80 6.02 442,394 6.11
10.00 - 15.50 55,226 4.70 10.62 43,040 10.39
-------------- --------------
1,551,500 623,929
============== ==============
</TABLE>
In 1992, the stockholders approved the Employee Stock Purchase Plan. This plan
enables eligible employees to purchase common shares at 85% of the fair market
value of the shares during two six month periods beginning January 1 and July 1
of each year. The Company has authorized 200,000 shares of the Company's common
stock for issuance under this plan. At December 31, 1998, 143,190 shares remain
available for issuance under this plan.
The Company has adopted the disclosure only provisions of FAS 123. Accordingly,
no compensation cost has been recognized for the stock plans. Had compensation
cost for the Company's stock plans been determined based on fair value at the
grant dates for awards in 1998 and 1997 as prescribed by FAS 123, the Company's
net loss and net loss per share would have been as follows (in thousands, except
for per share amounts):
December 31,
--------------------------
1998 1997
------------ ------------
Net loss:
As reported $(2,482) $(4,569)
Pro forma (2,827) (5,025)
Net loss per share:
As reported $ (.22) $ (.41)
Pro forma (.26) (.51)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0%, risk-free interest rate of 5%, expected volatility of 64.9%, and an
option term of 8 years. The weighted average fair value of options granted
during the years ended December 31, 1998 and 1997 was $3.45 and $4.20,
respectively.
F-15
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
13. Retirement Savings Plan
The Company has a 401(k) Plan which is available to employees of the
Company who meet certain eligibility requirements. This plan is qualified
under Section 401(k) of the Internal Revenue Code and is subject to
contribution limitations as set annually by the Internal Revenue Service.
Eligible employees may enroll January 1 and July 1 of each year. The
Company does not make matching contributions.
14. Related Party Transactions
In 1991, the Company licensed to Pfizer the exclusive worldwide right to
manufacture and market EverFresh for use in seafood processing and the
exclusive rights outside of the U.S. to manufacture and market certain Opta
Oat Fibers and OptaGrade products in exchange for license fees and royalty
payments. The Company provided applications development and marketing
support for certain products for additional cash payments from Pfizer
through June 1996. In January 1997, all agreements with Pfizer were
terminated except for the EverFresh license agreement which was assigned to
an unrelated third party. Revenue recognized under these agreements in
1998, 1997 and 1996 was $100,000, $125,000 and $509,000, respectively.
15. Sales to Major Customers and Export Sales
During 1998, a single customer accounted for $5.2 million or 37% of product
sales. In addition, during 1998, 1997, and 1996, $3.9 million, $3.5 million
and $4.1 million of product sales were to a group of independent bakeries
that supply a quick service restaurant chain. There were no major
individual customers during 1997 and 1996.
Export sales were $795,000 ($418,000 to Europe and $377,000 to the Middle
East); $1,209,000 ($376,000 to Europe and $833,000 to the Middle East); and
$1,041,000 ($285,000 to Europe and $756,000 to the Middle East) for the
years ended December 31, 1998, 1997 and 1996, respectively.
F-16
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
16. Commitments
Leases
The Company leases certain equipment and facilities under noncancellable
operating leases. Total future minimum payments under these leases are as
follows (in thousands):
Year ended December 31,
1999 $ 144
2000 144
2001 136
2002 150
2003 150
Thereafter 323
---------
$ 1,047
=========
Rent expense for the years ended December 31, 1998, 1997, and 1996 was
$157,000, $159,000 and $141,000, respectively.
F-17
<PAGE>
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 8, 1998, 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, 1999 (the "Effective
Date"), and shall continue in full force and effect for twelve (12)
months, expiring December 31, 1999 (the "Term"); provided, however, that the
Term shall be extended automatically for additional one (1) year periods
thereafter, unless terminated in accordance with the provisions hereof, or
Employee or the Company shall have given written notice of non-renewal to the
other party at least one hundred (100) days prior to the expiration of the Term
or such additional one year period.
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 judgement of the Company will not materially adversely affect the
Employee's ability to perform his obligations under this Agreement.
<PAGE>
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 Two Hundred Thirty-Five Thousand Dollars
($235,000.00) per annum from the Effective Date of this Agreement through
December 31, 1999; provided, further that the Base Salary for each additional
one year extension of the Term shall be such amount as approved by the Board of
Directors of the Company. The Base Salary shall be payable in accordance with
the Company's normal payroll as in effect from time to time.
5.2 Fringe Benefits. The Employee shall be entitled to such life
insurance, health insurance and other fringe benefits as may be offered or
generally made available by the Company to its executive officers from time to
time.
5.3 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, up
to a percentage of his Base Salary determined annually by the Board of Directors
or a Compensation Committee thereof (which percentage shall be 45% for 1999),
for each calendar year of service rendered to the Company pursuant to the terms
and provisions of this Agreement. The Board of Directors (or a compensation
committee thereof) shall, as soon as practicable after completion of each
calender year of service rendered, 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.
5.4 Acceleration of Options. In the event the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the vesting schedule of
all stock options held by Employee for the purchase of Opta Common Stock shall
be accelerated such that, in addition to the number of shares vested under each
such option prior to the Acquisition, each such option shall become immediately
exercisable for the greater of (i) such additional number of shares as would
have vested under each such option on each of the two (2) vesting dates (or such
lesser number of vesting dates as then remain under such option) occurring
immediately subsequent to the closing date of the Acquisition or (ii) such
additional number of shares as would be vested under each such option pursuant
to the terms of the Acquisition.
6. TERMINATION.
6.1 Termination of Employment. The Employee's 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
<PAGE>
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:
(a) By the Employee at any time upon at lease 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 note 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 1.25 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. The
performance bonus for the then current calendar year shall be determined and
paid as provided in Section 5.3 hereof, provided that the amount of such bonus,
if any, shall be reduced pro rata to exclude events subsequent to the Employment
Termination Date.
<PAGE>
(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, performance bonus or fringe benefits hereunder beyond the
Employment Termination Date.
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 Assignment. 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 to 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 fulfilment 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)
<PAGE>
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.
7.4 Proprietary Items. All originals, copies, and summaries of manuals,
memoranda notes, photographs, notes, photographs, notebooks, records, 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
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
<PAGE>
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 termination of employment) that may be available to the Company. Such
remedies may be sought in any court of competent jurisdiction.
10. PROVISIONS OR 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 i one or more counterparts b the parties hereto.
10.6 Waiver. No consent to or waiver of any breach 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 or to
declare the other party in default, irrespective of the duration of such
failure, shall not constitute a waiver of rights hereunder and to waiver
hereunder shall be effective unless it is in writing, executed by the party
waiving the breach of default hereunder.
10.7 Assignment. This Agreement shall be binding 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
on 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
<PAGE>
and policies of another, whether through 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.
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 pat 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.
10.0 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/ /s/ Lewis C. Paine, III
Name: -----------------------------
Title: Director and Member of Lewis C. Paine, III
Compensation Committee
<PAGE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-48624 and No. 65406) of Opta Food Ingredients,
Inc. of our report dated February 9, 1999 appearing on page F-1 of this Form
10-K.
PricewaterhouseCoopers LLP
Boston, MA
March 23, 1999
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<PAGE>
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 1,950,000
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