SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended April 30, 1996
Commission File Number: 0-24312
AGRI-NUTRITION GROUP LIMITED
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
Riverport Executive Center II
13801 Riverport Drive
Suite 111
Maryland Heights, MO 63043
(314) 298-7330
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 twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
The number of shares of common stock outstanding at June 11, 1996 is 8,409,342
shares.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
INDEX
- --------------------------------------------------------------------------------
PAGE
FINANCIAL INFORMATION
Financial Statements
Consolidated Balance Sheet -
April 30, 1996 (unaudited) and
October 31, 1995 1
Consolidated Statement of Operations -
three months and six months ended
April 30, 1996 and 1995 (unaudited) 2
Consolidated Statement of Shareholders' Equity -
six months ended April 30, 1996
(unaudited) 3
Consolidated Statement of Cash Flows -
six months ended April 30, 1996
and 1995 (unaudited) 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED BALANCE SHEET
PAGE 1
- --------------------------------------------------------------------------------
OCTOBER 31, APRIL 30,
1995 1996
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................... $ 2,330,685 $ 2,846,817
Short-term investments ...................... 1,191,379
Accounts receivable ......................... 3,451,011 4,179,774
Inventories ................................. 4,201,315 5,161,794
Prepaid expenses and other assets ........... 775,614 750,409
------------ ------------
11,950,004 12,938,794
Property, plant and equipment, net ............. 4,826,970 4,839,631
Goodwill ....................................... 6,177,068 6,212,183
Other assets ................................... 519,061 507,024
------------ ------------
$ 23,473,103 $ 24,497,632
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and notes payable ......................... $ 252,692 $ 257,131
Accounts payable ............................ 1,757,973 1,817,945
Accounts payable to Purina .................. 930,954
Accrued compensation expense ................ 449,061 75,044
Accrued expenses ............................ 750,891 615,205
------------ ------------
4,141,571 2,765,325
Long-term debt ................................. 2,614,614 5,354,848
Acquisition notes payable ...................... 2,300,000 2,104,648
Commitments and contingencies (Notes 2 and 8)
Shareholders' equity:
Common stock ($.01 par value;
20,000,000 shares
authorized; 8,401,344 shares
issued and outstanding) ................... 84,013 84,013
Additional paid-in capital .................. 14,734,656 14,734,656
Accumulated deficit ......................... (401,751) (545,858)
------------ ------------
14,416,918 14,272,811
------------ ------------
$ 23,473,103 $ 24,497,632
------------ ------------
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
PAGE 2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE AND SIX MONTHS ENDED APRIL 30,
1995 1996
THREE SIX THREE SIX
MONTHS MONTHS MONTHS MONTHS
<S> <C> <C> <C> <C>
Net sales (including sales of $3.0
million and $7.7 million for the
three and six months ended April 30,
1995, respectively, and $3.0 million
and $6.8 million for the three and six
months ended April 30, 1996,
respectively, to Purina Mills) .................. $ 5,757,502 $ 12,119,959 $ 9,295,950 $ 17,595,016
Cost of sales ...................................... 4,951,176 10,848,620 7,240,037 14,042,400
------------ ------------ ------------ ------------
Gross profit ....................................... 806,326 1,271,339 2,055,913 3,552,616
Selling, general and administra-
tive expenses ..................................... 825,823 1,481,431 1,847,800 3,515,366
Research and development ........................... 35,443 64,084 58,854 115,576
------------ ------------ ------------ ------------
Operating income (loss) ............................ (54,940) (274,176) 149,259 (78,326)
Interest expense ................................... (67,345) (142,036) (142,202) (260,505)
Other income ....................................... 164,221 348,553 44,834 106,724
------------ ------------ ------------ ------------
Income (loss) before income
tax benefit (provision) ........................... 41,936 (67,659) 51,891 (232,107)
Income tax benefit (provision) ..................... 76,000 76,000 (20,000) 88,000
------------ ------------ ------------ ------------
Net income (loss) .................................. $ 117,936 $ 8,341 $ 31,891 $ (144,107)
------------ ------------ ------------ ------------
Primary net income (loss) per
common and common
equivalent share (Note 3) ...................... $ .01 $ -- $ -- $ (.02)
------------- ------------- ------------- -------------
Fully diluted net income (loss)
per common and common
equivalent share (Note 3) ...................... $ .01 $ -- $ -- $ (.02)
------------- ------------- ------------- -------------
Primary common and common
equivalent shares outstanding
(Note 3) ....................................... 9,099,730 9,129,248 9,009,721 8,401,344
------------- ------------ ------------ -------------
Fully diluted common and
common equivalent shares
outstanding (Note 3) ........................... 9,099,730 9,129,248 9,009,721 8,401,344
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
PAGE 3
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED APRIL 30,
1995 1996
OPERATING ACTIVITIES
Net income (loss) .............................. $ 8,341 $ (144,107)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:-
Depreciation and amortization ............... 197,287 399,211
Increase in deferred tax assets ............. (76,000)
Changes in operating assets and
liabilities, excluding the
effects of the Zema acquisition:
Increase in accounts receivable .......... (581,788) (699,399)
Increase in inventories .................. (329,263) (969,861)
(Increase) decrease in prepaid expenses .. 212,627 (46,782)
Decrease in accounts payable ............. (889,444) (870,982)
Decrease in accrued expenses ............. (346,487) (597,089)
------------ ------------
Net cash used in operating activities .......... (1,804,727) (2,929,009)
------------ ------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment ...... (185,391) (271,207)
Sale of short-term investment securities ....... 47,401 1,191,379
Purchase of Zema and St. JON net assets,
net of cash acquired ....................... (3,054,580) (121,120)
------------ ------------
Net cash (used in) provided by
investing activities ........................ (3,192,570) 799,052
------------ ------------
FINANCING ACTIVITIES
(Repayment) borrowings of long-term
debt and notes payable, net ................. (498,745) 2,646,089
------------ ------------
Net cash (used in) provided
by financing activities ...................... (498,745) 2,646,089
------------ ------------
(Decrease) increase in cash and
cash equivalents ............................ (5,496,042) 516,132
Cash and cash equivalents,
beginning of period ......................... 11,185,943 2,330,685
------------ ------------
Cash and cash equivalents,
end of period ............................... $ 5,689,901 $ 2,846,817
------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Effective March 31, 1995, the Company purchased substantially all of the net
assets and business of Zema Corporation for $3,000,000 cash and certain other
contingent future payments (see Note 2). In conjunction with the acquisition,
liabilities were assumed as follows:
Total assets purchased $ 3,945,163
Cash paid 3,059,719
-----------------
Liabilities assumed $ 885,444
-----------------
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PAGE 4
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
ADDITIONAL
NUMBER OF PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Balance, November 1,
1995 8,401,344 $ 84,013 $ 14,734,656 $ (401,751) $ 14,416,918
Net loss (unaudited) (144,107) (144,107)
-------------- ------------ ---------------- ------------ ----------------
Balance, April 30,
1996 (unaudited) 8,401,344 $ 84,013 $ 14,734,656 $ (545,858) $ 14,272,811
-------------- ------------ ---------------- ------------ ----------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PAGE 5
- --------------------------------------------------------------------------------
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 30, 1996, the
consolidated statements of operations for the three and six month periods
ended April 30, 1995 and 1996, the consolidated statement of cash flows
for the six month periods ended April 30, 1995 and 1996 and the
consolidated statement of shareholders' equity for the six month period
ended April 30, 1996 have been prepared by Agri-Nutrition Group Limited
without audit. In the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at and for
the periods ended April 30, 1995 and 1996 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where inapplicable.
The results of operations for the periods ended April 30, 1995 and 1996,
respectively, are not necessarily indicative of the operating results for
the full year.
2. ORGANIZATION
The Company, a Delaware corporation, was founded in 1993 to
acquire and operate businesses in the domestic and international food,
agriculture and pet industries. In September 1993, the Company, through
its PM Resources, Inc. subsidiary ("Resources"), acquired certain assets
and assumed certain liabilities of the Health Industries Business of
Purina Mills, Inc. Resources commenced operations on September 9, 1993,
the effective date of the acquisition of the Business. Resources
formulates, manufactures and distributes feed additives, medicated
treatments, anthelmetics, nutritional supplements, cleaners and
disinfectants, pest control products, home, lawn and garden products, and
specialty compounds.
Effective March 31, 1995, the Company purchased substantially all of the
net assets and business of Zema Corporation ("Zema"). The Company also
purchased substantially all of the net assets and business of St. JON
Laboratories, Inc. ("St. JON") effective August 31, 1995. Zema and St.
JON formulate, package, market and distribute pet health care, veterinary
and grooming products domestically and abroad.
See Note 3 to the Company's Consolidated Financial Statements
included in the Company's annual report to shareholders for the year
ended October 31, 1995 ("1995 Annual Report") for additional information
related to the acquisitions of Zema and St. JON, including information
regarding acquisition notes payable and the additional purchase price
which must be paid to the former owner of Zema if Zema achieves certain
financial goals.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in
Note 5 to the Consolidated Financial Statements included in the 1995
Annual Report. The financial statements included herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in such report.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PAGE 6
- --------------------------------------------------------------------------------
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Net loss per common and common equivalent share is calculated
based on the weighted average number of common and common equivalent
shares outstanding during the periods presented, using the treasury stock
method. The calculation does not reflect common stock equivalent shares
when their inclusion in such calculation would have been anti-dilutive.
4. INVENTORIES
Inventories consist of the following:
OCTOBER 31, APRIL 30,
1995 1996
Raw materials .................... $ 2,806,050 $ 3,528,012
Work-in-process .................. 239,170 61,081
Finished goods ................... 1,255,009 1,679,877
----------- -----------
4,300,229 5,268,970
Less: reserve for
excess and obsolete inventories .... (98,914) (107,176)
----------- -----------
$ 4,201,315 $ 5,161,794
----------- -----------
5. FINANCING
In May 1996, the Company amended its revolving credit agreements
with its primary lender to extend their term through December 31, 1997.
An aggregate of $8.25 million is available under the agreements, $3.4
million of which is subject to a borrowing base calculated from specified
percentages of qualified accounts receivable and inventory and the
balance of which will be reduced by $150,000 per quarter. The interest
rate will range from prime to prime plus 1.125%, depending on the
Company's ratio of debt to net worth, as defined in the agreements. At
April 30, 1996, the interest rate charged on outstanding borrowings was
8.50%. The agreements require the Company and its subsidiaries to comply
with various financial covenants (net worth, debt service coverage ratio,
current ratio and ratio of indebtedness to net worth) and prohibits the
Company from paying dividends without the consent of the Company's
lender.
At April 30, 1996, the Company and its subsidiaries were in
compliance with all covenants related to its various financing
arrangements.
6. RELATED PARTY TRANSACTIONS
See Note 12 to the Company's Consolidated Financial Statements in
the 1995 Annual Report for a discussion regarding related party
transactions. Also, see Note 7 regarding issuance of the Company's Common
Stock and options to purchase the Company's Common Stock granted to
outside directors of the Company in conjunction with the Company's
Director Compensation Program. In addition to the grant of stock and
options, each outside director of the Company receives a $3,000 annual
retainer and $500 for each board meeting attended. The total amount paid
under this program through May 1996 was $31,500.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PAGE 7
- --------------------------------------------------------------------------------
7. EMPLOYEE BENEFIT PLANS
Effective March 7, 1996, the Company adopted the 1996 Incentive
Stock Plan ("1996 ISP"). An aggregate of 1,000,000 shares of the
Company's Common Stock are reserved for issuance to eligible Directors,
officers and other employees, and consultants of the Company under the
1996 ISP. During the three months ended April 30, 1996, options to
purchase 15,000 shares of the Company's Common Stock at exercise prices
of $2.625 per share, which approximated fair value at the date of grant,
were issued to outside directors of the Company under the 1996 ISP. In
addition, the Company issued 7,998 shares of the Company's Common Stock
under the 1996 ISP to these directors in May 1996.
Effective March 9, 1995, the Company adopted the 1995 Incentive
Stock Plan ("1995 ISP"). An aggregate of 500,000 shares of the Company's
Common Stock are reserved for issuance to eligible employees, and
consultants and advisors to the Company under the 1995 ISP. No shares or
options have been issued in connection with the 1995 ISP during 1996. At
October 31, 1995, options to purchase 100,000 shares of the Company stock
at an exercise price of $3.00 per share were outstanding under the 1995
ISP.
During the six months ended April 30, 1996, options to purchase
61,500 shares of the Company's Common Stock were granted to employees
under the Company's Incentive Stock Plan ("1994 ISP") at exercise prices
ranging from $2.00 to $2.19 per share, which approximated fair value at
the date of grant. The options vest ratably up to five years from the
date of grant and will expire ten years after the grant date. An
aggregate of 400,000 shares of the Company's Common Stock are reserved
for issuance to eligible employees under the 1994 ISP. As of April 30,
1996, options to purchase an aggregate of 299,000 shares of the Company's
Common Stock were outstanding and 11,430 shares of the Company's Common
Stock had been issued under the 1994 ISP.
8. COMMITMENTS AND CONTINGENCIES
From time to time, the Company becomes party to various claims and
legal actions arising during the ordinary course of business. Management
believes that the Company's costs and any potential judgments resulting
from such claims and actions will be covered by the Company's product
liability insurance, except for deductible limits. The Company intends to
defend such claims and actions in cooperation with its insurers. It is
management's opinion that, in any event, their outcome would not have a
material effect on the Company's financial position or results of
operations.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 8
- --------------------------------------------------------------------------------
OVERVIEW
The Company was founded in 1993 to acquire and operate businesses in the
domestic and international food, agriculture and pet industries. In September
1993, the Company, through its PM Resources, Inc. subsidiary ("Resources"),
acquired the Health Industries Business of Purina Mills, Inc. In July 1994, the
Company completed its initial public offering of Common Stock ("IPO"), the net
proceeds of which were approximately $12.1 million. Effective March 31, 1995,
the Company purchased substantially all of the net assets and business of Zema
Corporation ("Zema"). The Company also purchased, substantially all of the net
assets and business of St. JON Laboratories, Inc. ("St. JON") effective August
31, 1995. Zema and St. JON formulate, package, market and distribute pet health
care, veterinary and grooming products domestically and abroad. The Company
intends to continue to expand its operations through additional acquisitions,
strategic alliances and joint ventures.
Management's discussion and analysis addresses the three and six month
periods ended April 30, 1996 with comparisons to the preceding comparable
periods. The Company's results of operations presented and discussed herein only
include the results of Zema's and St. JON's operations subsequent to their
acquisition by the Company effective March 31 and August 31, 1995, respectively.
The Company has reported certain financial information for two segments -
ingredients and specialty products. Ingredients consist of feed products that
are purchased or blended by the Company and distributed for Purina Mills (see
Note 13 to the Company's Consolidated Financial Statements included in the 1995
Annual Report). Specialty products consist of all other products formulated,
manufactured, and distributed by the Company to various customers, including
Purina Mills. Included in the specialty products segment are sales of private
label and branded products for which the Company manufactures goods using
registrations and/or formulas owned by the Company, and sales of products
manufactured under contract for which the Company manufactures products using
the customers' registrations and/or formulas. While the Company believes segment
data is meaningful for net sales, the Company does not believe segment data for
costs of sales and administrative costs are necessarily relevant to
understanding the Company's business. Costs of sales, other than raw materials,
and administrative costs incurred in the servicing of the two segments are joint
in nature and essentially invariable, particularly within the levels of sales
volume experienced within the reporting periods. The supporting asset base,
excluding inventories, is also joint in nature.
Given the acquisitions of businesses with branded, consumer-targeted
products in 1995 and the continued emphasis on growth of the specialty product
segment for which gross margins are higher than in the ingredients segment, the
significance of the ingredient segment has decreased in fiscal 1995 and 1996.
Management expects this trend to continue in the future such that at some point,
the ingredient segment may no longer meet the requirements for segment
disclosure under generally accepted accounting principles.
In prior year reporting, the Company utilized a dollar amount margin
concept of income over raw ingredients costs, known as "IOIC." In sales of
ingredients and other commodities, as ingredient prices rise or fall, such
increases or decreases are generally passed on to customers. However, in 1995,
the Company acquired businesses with branded, consumer-targeted products, and
continues to obtain increasing percentages of its operating profit from
non-commodity products. Management believes that given the changes in the
Company's underlying business, IOIC is no longer a meaningful indicator of
revenue contribution for a significant portion of its operations.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN 000'S)
THREE MONTHS ENDED APRIL 30, SIX MONTHS ENDED APRIL 30,
1995 1996 1995 1996
DOLLAR % OF DOLLAR % OF DOLLAR % OF DOLLAR % OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Ingredients ...................... $ 1,374 23.9% $ 1,568 16.9% $ 4,400 36.3% $ 4,052 23.0%
Specialty products ............... 4,383 76.1 7,728 83.1 7,720 63.7 13,543 77.0
Total net sales ................ 5,757 100.0 9,296 100.0 12,120 100.0 17,595 100.0
Cost of sales ....................... 4,951 86.0 7,240 77.9 10,849 89.5 14,042 79.8
Gross profit ........................ 806 14.0 2,056 22.1 1,271 10.5 3,553 20.2
Selling, general and
administrative expense ............ 826 14.3 1,848 19.9 1,481 12.2 3,515 20.0
Research and development ............ 35 .6 59 .6 64 .5 116 .1
Operating income (loss) ............. (55) (1.0) 149 1.6 (274) (2.3) (78) (.4)
</TABLE>
THREE MONTHS ENDED APRIL 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 30, 1995
Total net sales increased 61.5% from $5.7 million in fiscal 1995 to $9.3
million for 1996, primarily reflecting additional net sales of $3.0 million
related to Zema and St. JON. Net sales of ingredients increased 14.1% from $1.4
million in fiscal 1995 to $1.6 million for 1996, primarily due to timing of
certain customer shipments. However, low levels of profitability in the animal
production industry continue to impact the sales of ingredients. Ingredients are
generally priced to customers based on income over ingredient cost, therefore as
the cost of ingredients to the Company changes, the selling price of those
ingredients and resulting net sales also change. The change in ingredient sales
had minimal impact on gross profit. Specialty products sales increased $3.3
million, or 76.3%, compared to the same period of the prior year, primarily due
to the inclusion of Zema's and St. JON's sales during the period, but also due
to a 14.4% increase in specialty products sales at PM Resources.
The Company is party to a manufacturing and supply agreement with Purina
Mills pursuant to which Purina Mills has guaranteed the Company sufficient sales
to generate annual income, net of ingredient, direct manufacturing, and other
direct costs of approximately $2.9 million for the three-year period ending
October 31, 1996. Actual sales under the agreement generated incremental income
of approximately $.63 million and $.45 million for the three-month periods ended
April 30, 1995 and 1996, respectively. For the three months ended April 30,
1996, this was approximately $.3 million below the expected level guaranteed
under the agreement, adjusted for seasonality. However, the Company does not
recognize any benefits related to shortfalls under the agreement until year end.
Although the Company expects to have a supply relationship with Purina Mills
after expiration of the agreement, there can be no assurance that this will be
the case or what level of sales or income will be obtained.
Gross profit increased from $.8 million in 1995 (14.0% of net sales) to
$2.1 million in 1996 (22.1% of net sales), primarily due to increased gross
profit related to the increased specialty products sales in 1996. Gross profit
as a percentage of sales increased due to the higher margins generated by
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 10
- --------------------------------------------------------------------------------
sales of specialty products compared to ingredients, as well as higher margins
realized by Zema and St. JON, compared to margins realized from the Company's
operations prior to these acquisitions.
Selling, general and administrative expenses increased from $.8 million
or 14.3% of net sales in 1995 to $1.8 million or 19.9% of net sales in 1996. The
increase in selling, general and administrative expenses is primarily related to
operating expenses incurred by Zema and St. JON subsequent to their acquisition
by the Company. As a percentage of sales, Zema and St. JON selling, general and
administrative expenses were approximately 32% during the three months ended
April 30, 1996, reflecting higher selling costs associated with these
subsidiaries sales of branded products into consumer markets.
The factors discussed above resulted in operating income of $.15 million
or 1.6% of sales for the three months ended April 30, 1996 compared to an
operating loss of approximately $.05 million or 1.0% of net sales in the prior
year.
Interest expense was approximately $.14 million in 1996, compared to $.07
million in 1995, reflecting increased debt incurred in conjunction with
acquisitions during 1995 and related increases in working capital financing,
which was partially offset by the impact of the Company's restructured financing
and lower interest rates. The decrease in other income from approximately $.16
million in 1995 to approximately $.04 million during 1996 is due to utilization
of certain proceeds of the Company's IPO during 1995 in conjunction with the
acquisitions of Zema and St. JON.
The effective income tax rate of the Company was (181)% and 39% for 1995
and 1996, respectively. The effective rate in 1995 is based on the Company's net
income during the period and also reflects the reversal of $.09 million of
valuation allowance recorded in prior periods related to deferred tax assets,
pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Based on the Company's historical and projected results of
operations, and taking into account the impact of the Zema acquisition, Company
management determined that there was greater than a 50% probability that the
recorded deferred tax assets would be realized. Management accordingly
determined and adjusted the valuation allowance at April 30, 1995 and the
related effective tax rate by recognizing future tax benefits related to certain
previously unrecognized temporary differences and net operating loss
carryforwards. The effective rate for the three months ending April 30, 1996 is
based on the Company's income earned during the period.
SIX MONTHS ENDED APRIL 30, 1996 COMPARED TO SIX MONTHS ENDED APRIL 30, 1995
Total net sales increased 45.2% from $12.1 million in fiscal 1995 to
$17.6 million for 1996, reflecting additional net sales of $5.6 million related
to Zema and St. JON. Decreased volume of ingredients shipped compared to the
prior year was the most significant factor causing a reduction in ingredients
sales of $.3 million from $4.4 million in 1995 to $4.1 million in 1996. Low
levels of profitability in the animal production industry also contributed to
the lower sales of ingredients. The reduced ingredient sales had minimal impact
on gross profit. Specialty products sales increased $5.8 million, or 75.4%,
compared to the same period of the prior year, primarily due to the inclusion of
Zema's and St. JON's sales during the period, but also due to a 8.3% increase in
specialty products sales at PM Resources.
The Company is party to a manufacturing and supply agreement with Purina
Mills pursuant to which Purina Mills has guaranteed the Company sufficient sales
to generate annual income, net of ingredient, direct manufacturing, and other
direct costs of approximately $2.9 million for the three-year period ending
October 31, 1996. Actual sales under the agreement generated incremental income
of approximately $1.2 million and $1.1 million for the six-month periods ended
April 30, 1995 and 1996,
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 11
- --------------------------------------------------------------------------------
respectively. For the six months ended April 30, 1996, this was approximately
$.3 million below the expected level guaranteed under the agreement, adjusted
for seasonality. However, the Company does not recognize any benefits related to
shortfalls under the agreement until year end. Although the Company expects to
have a supply relationship with Purina Mills after expiration of the agreement,
there can be no assurance that this will be the case or what level of sales or
income will be obtained.
Gross profit increased from $1.3 million in 1995 (10.5% of net sales) to
$3.6 million in 1996 (20.2% of net sales), primarily due to increased gross
profit related to the increased specialty products sales in 1996. Gross profit
as a percentage of sales increased due to the higher margins generated by sales
of specialty products compared to ingredients, as well as higher margins
realized by Zema and St. JON, compared to margins realized from the Company's
operations prior to these acquisitions.
Selling, general and administrative expenses increased from $1.5 million
or 12.2% of net sales in 1995 to $3.5 million or 20.0% of net sales in 1996. The
increase in selling, general and administrative expenses is primarily related to
operating expenses incurred by Zema and St. JON subsequent to their acquisition
by the Company. As a percentage of sales, Zema and St. JON selling, general and
administrative expenses were approximately 32% during the six months ended April
30, 1996, reflecting higher selling costs associated with these subsidiaries
sales of branded products into consumer markets, and thereby resulting in the
Company's overall increase of selling, general and administrative expenses as a
percentage of sales.
The factors discussed above resulted in decreasing the Company's
operating loss during the six month period to less than $.1 million,
approximately $.2 million less than the prior year amount of approximately $.3
million.
Interest expense was approximately $.26 million in 1996, compared to $.14
million in 1995, reflecting increased debt incurred in conjunction with
acquisitions during 1995 and related increases in working capital financing,
which was partially offset by the impact of the Company's restructured financing
and lower interest rates. The decrease in other income from approximately $.3
million in 1995 to approximately $.1 million during 1996 is due to utilization
of certain proceeds of the Company's IPO during 1995 in conjunction with the
acquisitions of Zema and St. JON.
The effective income tax rate of the Company was 112% and 38% for 1995
and 1996, respectively. The effective rate in 1995 is based on the Company's net
loss during the period and also reflects the reversal of $.05 million of
valuation allowance recorded in prior periods related to deferred tax assets,
pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Based on the Company's historical and projected results of
operations, and taking into account the impact of the Zema acquisition, Company
management determined that there was greater than a 50% probability that the
recorded deferred tax assets would be realized. Management accordingly
determined and adjusted the valuation allowance at April 30, 1995 and the
related effective tax rate by recognizing future tax benefits related to certain
previously unrecognized temporary differences and net operating loss
carryforwards. The effective rate for the six months ending April 30, 1996 is
based on the Company's loss incurred during the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital requirements are primarily to fund
equipment purchases and working capital needs. The Company's cash balance of
$2.8 million at April 30, 1996 consists of net proceeds from the IPO remaining
available for further acquisition funding requirements. During April 1995, the
Company completed the acquisition of Zema, which required utilization of
approximately $3.2 million of net proceeds for the acquisition and related
expenses in 1995 and will require additional
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 12
- --------------------------------------------------------------------------------
payments of $.3 million plus interest prior to April 1998, and additional
payments conditioned upon the achievement of certain operating criteria by Zema
which would be due in April 2000. In August 1995, the Company acquired the net
assets of St. JON, which required approximately $3.5 million of cash paid at
closing, the assumption of certain liabilities aggregating approximately $1.5
million which were paid within four months of closing, and an additional $2
million plus interest to be paid in annual installments over six years
commencing March 31, 1997. The Zema and St. JON acquisitions were financed
through utilization of net proceeds from the Company's IPO. Although the Company
expended available cash to finance these acquisitions, management has utilized
Zema's and St. JON's businesses and net assets to secure approximately $3.5
million of additional financing, as described further below. The net proceeds of
the IPO continue to be invested in high-grade, short-term interest-bearing
obligations pending their specific use. Speculative use of derivatives is
prohibited by the Company's investment policy.
During the six months ended April 30, 1996, cash used by operations
approximated $2.9 million, which was primarily related to funding seasonal
working capital requirements. These requirements were primarily funded through
utilization of available credit facilities. Proceeds from the IPO of
approximately $.3 million were utilized to fund certain acquisition-related
expenses. Long-term debt and notes payable during the period increased by
approximately $2.6 million, primarily due to the cash utilized by operations, as
discussed above.
During the six months ended April 30, 1995, cash used by operations
approximated $1.8 million, which was primarily related to funding seasonal
working capital requirements. These requirements were funded through utilization
of available funds. Approximately $.7 million, or 6%, of the proceeds from the
IPO, were utilized to fund certain acquisition-related expenditures.
In May 1996, the Company amended its revolving credit agreements with its
primary lender to extend their term through December 31, 1997. An aggregate of
$8.25 million is available under the agreements, $3.4 million of which is
subject to a borrowing base calculated from specified percentages of qualified
accounts receivable and inventory and the balance of which will be reduced by
$150,000 per quarter. The interest rate will range from prime to prime plus
1.125%, depending on the Company's ratio of debt to net worth, as defined in the
agreements. At April 30, 1996, the interest rate charged on outstanding
borrowings was 8.50%. The agreements require the Company and its subsidiaries to
comply with various financial covenants (net worth, debt service coverage ratio,
current ratio and ratio of indebtedness to net worth) and prohibits the Company
from paying dividends without the consent of the Company's lender.
In December 1995, the Company's board of directors authorized the
repurchase of up to 500,000 shares of the Company's Common Stock. The amount of
funds required will depend upon the actual number of shares repurchased and the
market price paid by the Company for those shares. The Company will utilize
available funds to implement this stock repurchase. As of April 30, 1996, no
shares had been repurchased under this program.
Management believes that the Company will generally have sufficient cash
to meet the needs of the current operations for the foreseeable future from cash
flows from current operations, available funds, and existing financing
facilities.
The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the six months
ended April 30, 1996 were approximately $.3 million. Future capital expenditures
for the Company's operating subsidiaries are not expected to significantly
exceed historical amounts, which approximate current depreciation expense.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAGE 13
- --------------------------------------------------------------------------------
In May 1996, the Company announced the signing of an agreement in
principle to purchase the worldwide patents, active ingredient inventory,
registrations and rights to Bromethalin, a proprietary rodenticide serving
agricultural and Pest Control Operator (PCO) markets. The agreement is subject
to negotiation of a definitive agreement. Management expects that any amounts
paid under this agreement will be funded by available funds and existing
financing sources.
QUARTERLY EFFECTS AND SEASONALITY
Resources' results of operations have historically been seasonal, with a
low percentage of its volume and earnings in the fourth quarter (August through
October) of the fiscal year. However, such seasonal patterns are highly
dependent on weather, feeding economics, the timing of customer orders and the
timing of recognition of shortfalls, if any, under the manufacturing and supply
agreement with Purina Mills. Furthermore, new business growth has not reflected
historical patterns. The results of Zema's operations are also historically
seasonal with a high volume of its sales and earnings being generated during the
months of April through September. St. JON's sales and earnings have not
historically been seasonal.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
PART II - OTHER INFORMATION
PAGE 14
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The information required by this item was reported in the
Company's 10-Q for the quarterly period ended January 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
10.17 Amendment to Amended and Restated Revolving Credit Agreement
between PM Resources, Inc., Zema Corporation and First Bank
dated as of May 31, 1996.
10.18 Amendment to Revolving Credit Agreement between St. JON
Laboratories, Inc. and First Bank dated as of May 31, 1996.
b. Reports on Form 8-K.
No reports on Form 8-K were filed during the period covered by this
Report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGRI-NUTRITION GROUP LIMITED
/s/ GEORGE W. DAIGNAULT
- -----------------------------------------------------
George W. Daignault
Vice President and Chief Financial Officer
June 12, 1996
AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, made and
entered into as of the 31st day of May, 1996, by and between PM RESOURCES, INC.,
a Missouri corporation and ZEMA CORPORATION, a Delaware corporation
("Borrowers") and FIRST BANK, a Missouri state banking corporation ("Bank").
WITNESSETH:
WHEREAS, Borrowers heretofore jointly and severally executed and delivered to
Bank a Revolving Credit Note dated July 14, 1995, in the principal amount of up
to Six Million Nine Hundred Thousand Dollars ($6,900,000.00), payable to the
order of Bank as therein set forth (the "Note"); and
WHEREAS, the Note is described in a Amended and Restated Revolving Credit
Agreement dated July 14, 1995 (as amended, the "Loan Agreement") between
Borrowers and Bank; and
WHEREAS, Borrowers and Bank desire to amend the Loan Agreement and the Note to
extend the term thereof and to make certain other amendments thereto on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual provisions and
agreements hereinafter set forth, the parties hereto do hereby mutually promise
and agree as follows:
1. The Note shall be amended and restated in the form of that certain Revolving
Credit Note attached hereto as Exhibit C, to extend the maturity thereof to
December 31, 1997 and to make certain amendments as set forth therein. All
references in the Loan Agreement to the "Note," the "Revolving Credit Note" and
other references of similar import shall hereafter be amended and deemed to
refer to the Note in the form of the Revolving Credit Note, as amended and
restated in the form attached hereto as Exhibit C.
2. The first paragraph beginning with the word "WHEREAS" on the first page
of the Loan Agreement shall be deleted in its entirety and in its place
shall be substituted the following:
WHEREAS, Borrowers have applied for a joint and
several revolving credit loan from Bank in an aggregate principal
amount of up to Six Million Nine Hundred Thousand Dollars
($6,900,000.00) for a period of time up to and including December 31,
1997, as extended thereafter in Bank's discretion for subsequent one
year periods, One Million Six Hundred Thousand Dollars ($1,600,000.00)
of which shall be subject to a Borrowing Base (as set forth herein)
("Facility A"), and the remaining Five Million Three
- 1 -
<PAGE>
Hundred Thousand Dollars ($5,300,000.00) of which shall be a reducing
revolving credit line from Bank ("Facility B"); and
3. Section 1 of the Loan Agreement shall be deleted in its entirety
and in its place shall be substituted the following:
The "Term" of this Agreement shall commence on the
date hereof and shall end on December 31, 1997, unless earlier
terminated upon the occurrence of an Event of Default under this
Agreement, or unless subsequently extended by Bank, in its sole
discretion and without obligation to do so, pursuant to the terms of
Section 3.9 herein.
4. Section 3.9 of the Loan Agreement shall be deleted in its entirety and in
its place shall be substituted the following:
3.9 Maturity. All Loans not paid prior to December
31, 1997, together with all accrued and unpaid interest thereon, shall
be due and payable on December 31, 1997 (as from time to time extended,
if any, pursuant to this Section, the "Maturity Date"); provided,
however, that in the event Bank, in its sole and absolute discretion,
shall deliver to Borrowers a written notice signed by Bank on or before
the date one year prior to the then current Maturity Date (and prior to
any subsequent Maturity Date thereafter if extended under this Section
3.9) of Bank's intention to extend the term of this Agreement for an
additional year, then the Maturity Date of this Agreement shall be
extended for a period of one additional year following the then current
Maturity Date. Following any such extension of the Maturity Date by
Bank, all of the outstanding principal and all accrued and unpaid
interest, fees and other amounts due under this Agreement and the Note
shall be due and payable on such new Maturity Date, unless it is again
extended by Bank, in its sole and absolute discretion, under the
foregoing sentence.
5. Section 7.1(i)(i) of the Loan Agreement shall be deleted in its entirety
and in its place shall be substituted the following:
(i) Maintain a ratio of Indebtedness (determined on a
consolidated basis for Borrowers and all of their respective
Consolidated Subsidiaries and in accordance with Generally Accepted
Accounting Principles consistently applied, but excluding Subordinated
Debt) to Consolidated Tangible Net Worth of not more than 3.75 to 1.0
at all times up to and including May 31, 1996, of not more than 3.25 to
1.0 at all times from June 1, 1996 up to and including October 31,
1996, of not more than 2.75 to 1.0 at all times from November
- 2 -
<PAGE>
1, 1996 up to and including June 30, 1997, and of not more than 2.25 to
1.0 at all times thereafter during the Term hereof;
6. Section 7.1(i)(iv) of the Loan Agreement shall be deleted in its entirety and
in its place shall be substituted the following:
(iv) Maintain at all times a ratio of Consolidated
Funded Debt to Consolidated Tangible Net Worth of not more than 2.50 to
1.0 at all times up to and including October 31, 1996, of not more than
2.25 to 1.0 at all times from November 1, 1996 up to and including June
30, 1997, and of not more than 1.75 to 1.0 at all times thereafter
during the Term hereof;
7. In consideration of the amendments set forth herein, Borrowers jointly and
severally agree to pay to Bank on the date hereof a fee in the amount of Two
Thousand Five Hundred Dollars ($2,500.00).
8. Borrowers hereby represent and warrant to Bank that:
(a) The execution, delivery and performance by Borrowers of this
Amendment to Amended and Restated Revolving Credit Agreement and the amended and
restated Revolving Credit Note are within the corporate powers of Borrowers,
have been duly authorized by all necessary corporate action and require no
action by or in respect of, or filing with, any governmental or regulatory body,
agency or official. The execution, delivery and performance by Borrowers of this
Amendment to Amended and Restated Revolving Credit Agreement and the amended and
restated Revolving Credit Note do not conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default under or result
in any violation of, and neither of the Borrowers is now in default under or in
violation of, the terms of the Articles of Incorporation or Bylaws of such
Borrower, any applicable law, any rule, regulation, order, writ, judgment or
decree of any court or governmental or regulatory agency or instrumentality, or
any agreement or instrument to which either of the Borrowers is a party or by
which either of them is bound or to which either of them is subject;
(b) This Amendment to Amended and Restated Revolving Credit Agreement
and the amended and restated Revolving Credit Note have been duly executed and
delivered and constitute the legal, valid and binding obligations of Borrowers
enforceable in accordance with their terms; and
(c) As of the date hereof, all of the covenants, representations and
warranties of Borrowers set forth in the Loan Agreement are true and correct and
no "Event of Default" (as defined therein) under or within the meaning of the
Loan Agreement has occurred and is continuing.
9. All references in the Loan Agreement to "this Loan Agreement" and any other
references of similar import shall henceforth mean the Loan Agreement as amended
by this Amendment to Amended and Restated Revolving Credit Agreement.
- 3 -
<PAGE>
10. This Amendment to Amended and Restated Revolving Credit Agreement and the
amended and restated Revolving Credit Note shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that Borrowers may not assign, transfer or delegate any of its rights or
obligations hereunder.
11. This Amendment to Amended and Restated Revolving Credit Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Missouri.
12. In the event of any inconsistency or conflict between this Amendment to
Amended and Restated Revolving Credit Agreement and the Loan Agreement, the
terms, provisions and conditions of this Amendment to Amended and Restated
Revolving Credit Agreement shall govern and control.
13. The Loan Agreement, as hereby amended and modified, and the amended and
restated Revolving Credit Note, as hereby amended and restated, are and shall
remain the binding obligations of Borrowers and all of the provisions, terms,
stipulations, conditions, covenants and powers contained therein shall stand and
remain in full force and effect, except only as the same are herein and hereby
specifically varied or amended, and the same are hereby ratified and confirmed.
If any installment of principal or interest on the amended and restated
Revolving Credit Note shall not be paid when due as provided in the amended and
restated Revolving Credit Note, the holder of the amended and restated Revolving
Credit Note shall be entitled to and may exercise all rights and remedies under
the amended and restated Revolving Credit Note and the Loan Agreement, as
amended.
14. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH
DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWERS AND BANK FROM ANY
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWERS AND BANK
COVERING SUCH MATTERS ARE CONTAINED IN THE LOAN AGREEMENT, AS AMENDED BY THIS
AGREEMENT, WHICH CONSTITUTES A COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENTS BETWEEN BORROWERS AND BANK EXCEPT AS BORROWERS AND BANK MAY LATER
AGREE IN WRITING TO MODIFY. THE LOAN AGREEMENT, AS AMENDED BY THIS AGREEMENT,
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND
SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO
THE SUBJECT MATTER HEREOF.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the
date first written above on this 31st day of May, 1996.
PM RESOURCES, INC.
By: /s/ GEORGE W. DAIGNAULT
George W. Daignault,
Vice President and Treasurer
ZEMA CORPORATION
By: /s/ HAL K. BOWMAN
Hal K. Bowman, President
FIRST BANK
By: /s/ BRENDA J. LAUX
Brenda J. Laux,
Vice President
- 5 -
<PAGE>
CONSENT TO AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
The undersigned hereby consents to the terms of the foregoing Amendment to
Amended and Restated Revolving Credit Agreement and the amended and restated
Revolving Credit Note referenced therein, and acknowledges that the execution
and delivery by PM Resources, Inc. of said Amendment and said Note will not
affect or impair the undersigned's obligations to and agreements with Bank under
(i) that certain Guaranty dated July 14, 1995 made by the undersigned in favor
of Bank, (ii) that certain Agreement of Pledge (Third Party) dated July 14, 1995
made by the undersigned in favor of Bank, or (iii) that certain Subordination
Agreement dated July 14, 1995 made by the undersigned in favor of Bank, which
obligations and agreements are hereby ratified and confirmed. The undesigned
further acknowledges and agrees that all references in the Guaranty, the
Agreement of Pledge (Third Party) and in the Subordination Agreement to the
"Amended and Restated Revolving Credit Agreement" and other references of
similar import shall henceforth mean the Amended and Restated Revolving Credit
Agreement as amended by the foregoing Amendment to Amended and Restated
Revolving Credit Agreement, as the same may from time to time be further
amended, and all references in the Guaranty, the Agreement of Pledge (Third
Party) and in the Subordination Agreement to the "Note," the "Revolving Credit
Note" and other references of similar import shall henceforth mean the Revolving
Credit Note as amended and restated, and as the same may from time to time be
further amended.
Dated: as of May 31, 1996.
AGRI-NUTRITION GROUP LIMITED
By: /s/ GEORGE W. DAIGNAULT
George W. Daignault, Vice President,
Chief Financial Officer and Secretary
- 6 -
<PAGE>
EXHIBIT C
Revolving Credit Note
$6,900,000.00 St. Louis, Missouri
May 31, 1996
FOR VALUE RECEIVED, on December 31, 1997 (or such subsequent anniversary thereof
as determined pursuant to Section 3.9 of the Loan Agreement (hereinafter
identified)), the undersigned, PM RESOURCES, INC., a Missouri corporation, and
ZEMA CORPORATION, a Delaware corporation (collectively, the "Borrowers"), hereby
jointly and severally promise to pay to the order of FIRST BANK, a Missouri
state banking corporation ("Bank"), the principal sum of Six Million Nine
Hundred Thousand Dollars ($6,900,000.00), or such lesser sum as may then be
outstanding hereunder. The aggregate principal amount which Bank shall be
committed to have outstanding under Facility A hereunder at any one time shall
not exceed the lesser of (i) One Million Six Hundred Thousand Dollars
($1,600,000.00), or (ii) the "Borrowing Base" (as defined in the Loan Agreement
(as hereinafter defined)), which amount may be borrowed, paid, reborrowed and
repaid, in whole or in part, subject to the terms and conditions hereof and of
the Loan Agreement hereinafter identified. The aggregate principal amount which
Bank shall be committed to have outstanding under Facility B hereunder at any
one time shall not exceed the lesser of (i) Five Million Three Hundred Thousand
Dollars ($5,300,000.00) as reduced from time to time pursuant to Section 3.1(b)
of the Loan Agreement hereinafter identified, which amount may be borrowed,
paid, reborrowed and repaid, in whole or in part, subject to the terms and
conditions hereof and of the Loan Agreement hereinafter identified.
Borrowers further jointly and severally promise to pay to the order of Bank
interest on the principal amount from time to time outstanding hereunder prior
to maturity from the date disbursed until paid at the rate or rates per annum
required by the Loan Agreement or otherwise selected by either of the Borrowers
as set forth in the Loan Agreement. All accrued and unpaid interest with respect
to each principal disbursement made hereunder shall be payable (a) monthly on
the fifteenth (15th) day of the month following the month in which such interest
accrued, commencing with the fifteenth (15th) day of the month following the
month in which any such disbursement was made, and on the fifteenth (15th) day
of each month thereafter, (b) if such disbursement is a Treasury Rate Loan, such
accrued interest shall also be payable on the last day of the Interest Period
with respect thereto, and (c) at the maturity of this Note, whether by reason of
acceleration or otherwise. After the maturity of this Note, whether by reason of
acceleration or otherwise, interest shall accrue and be payable on demand on the
entire outstanding principal balance hereunder until paid at a rate per annum
equal to Four and One-Eighth Percent (4.125%) over and above the Prime Rate,
fluctuating as and when said Prime Rate shall change. All payments hereunder
(other than prepayments) shall be applied first to the payment of all accrued
and unpaid interest, with the balance, if any, to be applied to the payment of
principal. All prepayments hereunder shall be applied solely to the payment of
principal.
- 7 -
<PAGE>
All payments of principal and interest hereunder shall be made in lawful
currency of the United States in Federal or other immediately available funds at
the office of Bank situated at 1281 Graham Road, Florissant, Missouri 63031, or
at such other place as the holder hereof shall designate in writing. Interest
shall be computed on an actual day, 360-day year basis.
Bank may record the date and amount of all loans and all payments of principal
and interest hereunder in the records it maintains with respect thereto. Bank's
books and records showing the account between Bank and Borrowers shall be
admissible in evidence in any action or proceeding and shall constitute prima
facie proof of the items therein set forth.
This Note is the Note referred to in that certain Amended and Restated Revolving
Credit Agreement dated July 14, 1995 made by and between Borrowers and Bank (as
the same may from time to time be amended, the "Loan Agreement"), to which Loan
Agreement reference is hereby made for a statement of the terms and conditions
upon which the maturity of this Note may be accelerated, and for other terms and
conditions, including prepayment, which may affect this Note. All capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
such terms in the Loan Agreement.
This Note is secured by that certain Security Agreement dated as of July 14,
1995 and executed by PM Resources, Inc. in favor of Bank and by that certain
Security Agreement dated as of July 14, 1995 executed by Zema Corporation in
favor of Bank (as the same may from time to time be amended, the "Security
Agreements, to which Security Agreements reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain Deed of Trust and Security Agreement
dated September 9, 1993 and executed by PM Resources, Inc. in favor of Katherine
D. Knocke, as trustee for Bank (as the same may from time to time be amended,
the "Deed of Trust"), to which Deed of Trust reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain Agreement of Pledge (Third Party)
dated July 14, 1995 and executed by Agri-Nutrition Group Limited in favor of
Bank (as the same may from time to time be amended, the "Pledge Agreement"), to
which Pledge Agreement reference is hereby made for a description of the
additional security and a statement of the terms and conditions upon which this
Note is further secured.
If either of the Borrowers shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
an "Event of Default" (as defined therein) shall occur under or within the
meaning of the Loan Agreement, either of the Security Agreements, the Deed of
Trust or the Pledge Agreement, Bank may, at its option, terminate its obligation
to make any additional loans under this Note and Bank may further declare the
entire outstanding principal balance of this Note and all accrued and unpaid
interest thereon to be immediately due and payable.
- 8 -
<PAGE>
In the event that any payment of any principal of or interest on this Note shall
not be paid when due, whether by reason of acceleration or otherwise, and this
Note shall be placed in the hands of an attorney or attorneys for collection or
for foreclosure of either of the Security Agreements, the Deed of Trust or the
Pledge Agreement securing payment hereof or for representation of Bank in
connection with bankruptcy or insolvency proceedings relating hereto, Borrowers
jointly and severally promise to pay, in addition to all other amounts otherwise
due hereon, the reasonable costs and expenses of such collection, foreclosure
and representation, including, without limitation, reasonable attorneys' fees
and expenses (whether or not litigation shall be commenced in aid thereof). All
parties hereto severally waive presentment for payment, demand, protest, notice
of protest and notice of dishonor.
This Note shall be governed by and construed in accordance with the internal
laws of the State of Missouri.
PM RESOURCES, INC.
By: /s/ GEORGE W. DAIGNAULT
George W. Daignault,
Vice President and Treasurer
ZEMA CORPORATION
By: /s/ HAL K. BOWMAN
Hal K. Bowman, President
- 9 -
AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS AMENDMENT TO REVOLVING CREDIT AGREEMENT, made and
entered into as of the 31st day of May, 1996, by and between ST. JON
LABORATORIES, INC., a California corporation ("Borrower") and FIRST BANK, a
Missouri state banking corporation ("Bank").
WITNESSETH:
WHEREAS, Borrower heretofore executed and delivered to Bank a Revolving Credit
Note dated January 19, 1996, in the principal amount of up to One Million Eight
Hundred Thousand Dollars ($1,800,000.00), payable to the order of Bank as
therein set forth (the "Note"); and
WHEREAS, the Note is described in a Revolving Credit Agreement dated January 19,
1996 (as amended, the "Loan Agreement") between Borrower and Bank; and
WHEREAS, Borrower and Bank desire to amend the Loan Agreement and the Note on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual provisions and
agreements hereinafter set forth, the parties hereto do hereby mutually promise
and agree as follows:
1. The Note shall be amended and restated in the form of that certain Revolving
Credit Note attached hereto as Exhibit C, to extend the maturity thereof to
December 31, 1997 and to make certain amendments as set forth therein. All
references in the Loan Agreement to the "Note," the "Revolving Credit Note" and
other references of similar import shall hereafter be amended and deemed to
refer to the Note in the form of the Revolving Credit Note, as amended and
restated in the form attached hereto as Exhibit C.
2. The first paragraph beginning with the word "WHEREAS" on the first page of
the Loan Agreement shall be deleted in its entirety and in its place shall be
substituted the following:
WHEREAS, Borrower has applied for a revolving credit
loan from Bank in the principal amount of up to One Million Eight
Hundred Thousand Dollars ($1,800,000.00) subject to a Borrowing Base
(as herein set forth) for a period of time up to and including December
31, 1997, as extended thereafter in Bank's discretion for subsequent
one year periods; and
3. Section 1 of the Loan Agreement shall be deleted in its entirety and in
its place shall be substituted the following:
The "Term" of this Agreement shall commence on the
date hereof and shall end on December 31, 1997, unless earlier
- 1 -
<PAGE>
terminated upon the occurrence of an Event of Default under this
Agreement, or unless subsequently extended by Bank, in its sole
discretion and without obligation to do so, pursuant to the terms of
Section 3.8 herein.
4. Section 3.8 of the Loan Agreement shall be deleted in its entirety and in its
place shall be substituted the following:
3.8 Maturity. All Loans not paid prior to December
31, 1997, together with all accrued and unpaid interest thereon, shall
be due and payable on December 31, 1997 (as from time to time extended,
if any, pursuant to this Section, the "Maturity Date"); provided,
however, that in the event Bank, in its sole and absolute discretion,
shall deliver to Borrower a written notice signed by Bank on or before
the date one year prior to the then current Maturity Date (and prior to
any subsequent Maturity Date thereafter if extended under this Section
3.9) of Bank's intention to extend the term of this Agreement for an
additional year, then the Maturity Date of this Agreement shall be
extended for a period of one additional year following the then current
Maturity Date. Following any such extension of the Maturity Date by
Bank, all of the outstanding principal and all accrued and unpaid
interest, fees and other amounts due under this Agreement and the Note
shall be due and payable on such new Maturity Date, unless it is again
extended by Bank, in its sole and absolute discretion, under the
foregoing sentence.
5. Borrower hereby represents and warrants to Bank that:
(a) The execution, delivery and performance by Borrower of this Amendment
to Revolving Credit Agreement and the amended and restated Note are within the
corporate powers of Borrower, have been duly authorized by all necessary
corporate action and require no action by or in respect of, or filing with, any
governmental or regulatory body, agency or official. The execution, delivery and
performance by Borrower of this Amendment to Revolving Credit Agreement and the
amended and restated Note do not conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under or result in
any violation of, and Borrower is not now in default under or in violation of,
the terms of the Articles of Incorporation or Bylaws of Borrower, any applicable
law, any rule, regulation, order, writ, judgment or decree of any court or
governmental or regulatory agency or instrumentality, or any agreement or
instrument to which Borrower is a party or by which it is bound or to which it
is subject;
(b) This Amendment to Revolving Credit Agreement and the amended and
restated Note have been duly executed and delivered and constitute the legal,
valid and binding obligations of Borrower enforceable in accordance with their
terms; and
- 2 -
<PAGE>
(c) As of the date hereof, all of the covenants, representations and
warranties of Borrower set forth in the Loan Agreement are true and correct and
no "Event of Default" (as defined therein) under or within the meaning of the
Loan Agreement has occurred and is continuing.
6. All references in the Loan Agreement to "this Loan Agreement" and any other
references of similar import shall henceforth mean the Loan Agreement as amended
by this Amendment to Revolving Credit Agreement.
7. This Amendment to Revolving Credit Agreement and the amended and restated
Note shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that Borrower may not assign,
transfer or delegate any of its rights or obligations hereunder or thereunder.
8. This Amendment to Revolving Credit Agreement shall be governed by and
construed in accordance with the internal laws of the State of Missouri.
9. In the event of any inconsistency or conflict between this Amendment to
Revolving Credit Agreement and the Loan Agreement, the terms, provisions and
conditions of this Amendment to Revolving Credit Agreement shall govern and
control.
10. The Loan Agreement, as hereby amended and modified, and the Note, as amended
and restated, are and shall remain the binding obligations of Borrower and all
of the provisions, terms, stipulations, conditions, covenants and powers
contained therein shall stand and remain in full force and effect, except only
as the same are herein and hereby specifically varied or amended, and the same
are hereby ratified and confirmed. If any installment of principal or interest
on the Note, as amended and restated, shall not be paid when due as provided in
the Note, the holder of the Note shall be entitled to and may exercise all
rights and remedies under the Note and the Loan Agreement.
11. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH
DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND BANK FROM ANY
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER AND BANK
COVERING SUCH MATTERS ARE CONTAINED IN THE LOAN AGREEMENT, AS AMENDED BY THIS
AGREEMENT, WHICH CONSTITUTES A COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENTS BETWEEN BORROWER AND BANK EXCEPT AS BORROWER AND BANK MAY LATER AGREE
IN WRITING TO MODIFY. THE LOAN AGREEMENT, AS AMENDED BY THIS AGREEMENT, EMBODIES
THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDES
ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO THE
SUBJECT MATTER HEREOF.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the
date first written above on this 31st day of May, 1996.
ST. JON LABORATORIES, INC.
By: /s/ JOHN J. NELSON
John J. Nelson, President
FIRST BANK
By: /s/ BRENDA J. LAUX
Brenda J. Laux,
Vice President
- 4 -
<PAGE>
CONSENT TO AMENDMENT TO REVOLVING CREDIT AGREEMENT
The undersigned hereby consents to the terms of the foregoing Amendment to
Revolving Credit Agreement, and acknowledges that the execution and delivery by
St. Jon Laboratories, Inc. of said Amendment will not affect or impair the
undersigned's obligations to and agreements with Bank under (i) that certain
Guaranty dated January 19, 1996 made by the undersigned in favor of Bank, (ii)
that certain Agreement of Pledge (Third Party) dated January 19, 1996 made by
the undersigned in favor of Bank, or (iii) that certain Subordination and
Standby Agreement dated January 19, 1996 made by the undersigned in favor of
Bank, which obligations and agreements are hereby ratified and confirmed. The
undesigned further acknowledges and agrees that all references in the Guaranty,
the Agreement of Pledge (Third Party) and in the Subordination Agreement to the
"Revolving Credit Agreement" and other references of similar import shall
henceforth mean the Revolving Credit Agreement as amended by the foregoing
Amendment to Revolving Credit Agreement, as the same may from time to time be
further amended and all references in the Guaranty, the Agreement of Pledge
(Third Party) and in the Subordination and Standby Agreement to the "Note," the
"Revolving Credit Note" and other references of similar import shall henceforth
mean the Revolving Credit Note, as amended and restated, and as the same may
from time to time be further amended.
Dated: as of May 31, 1996.
AGRI-NUTRITION GROUP LIMITED
By: /s/ GEORGE W. DAIGNAULT
George W. Daignault, Vice President,
Chief Financial Officer and Secretary
- 5 -
<PAGE>
CONSENT TO AMENDMENT TO REVOLVING CREDIT AGREEMENT
The undersigned hereby consent to the terms of the foregoing Amendment to
Revolving Credit Agreement, and acknowledge that the execution and delivery by
St. Jon Laboratories, Inc. of said Amendment will not affect or impair the
undersigned's obligations to and agreements with Bank under that certain
Intercreditor Agreement dated January 19, 1996 made by the undersigned in favor
of Bank, which obligations and agreements are hereby ratified and confirmed. The
undesigned further acknowledge and agree that all references in the
Intercreditor Agreement to the "Revolving Credit Agreement" and other references
of similar import shall henceforth mean the Revolving Credit Agreement as
amended by the foregoing Amendment to Revolving Credit Agreement, as the same
may from time to time be further amended, and all references in the
Intercreditor Agreement to the "First Bank Note," the "Revolving Credit Note"
and other references of similar import shall henceforth mean the Revolving
Credit Note, as amended and restated, and as the same may from time to time be
further amended.
Dated: as of May 31, 1996.
/s/ JOHN J. NELSON
John J. Nelson
JOHN J. NELSON, INC.
By: /s/ JOHN J. NELSON
John J. Nelson, President
- 6 -
<PAGE>
EXHIBIT C
Revolving Credit Note
$1,800,000.00 St. Louis, Missouri
May 31, 1996
FOR VALUE RECEIVED, on June 30, 1997 (or such subsequent anniversary thereof as
determined pursuant to Section 3.8 of the Loan Agreement (as hereinafter
defined)), the undersigned, ST. JON LABORATORIES, INC., a California corporation
("Borrower"), hereby promises to pay to the order of FIRST BANK, a Missouri
state banking corporation ("Bank"), the principal sum of One Million Eight
Hundred Thousand Dollars ($1,800,000.00), or such lesser sum as may then be
outstanding hereunder. The aggregate principal amount which Bank shall be
committed to have outstanding hereunder at any one time shall not exceed the
lesser of (i) One Million Eight Hundred Thousand Dollars ($1,800,000.00), or
(ii) the "Borrowing Base" (as defined in the Loan Agreement (as hereinafter
defined)), which amount may be borrowed, paid, reborrowed and repaid, in whole
or in part, subject to the terms and conditions hereof and of the Loan Agreement
hereinafter identified.
Borrower further promises to pay to the order of Bank interest on the principal
amount from time to time outstanding hereunder prior to maturity from the date
disbursed until paid at the rate per annum required by the Loan Agreement. All
accrued and unpaid interest with respect to each principal disbursement made
hereunder shall be payable monthly on the fifteenth (15th) day of the month
following the month in which such interest accrued, commencing with the
fifteenth (15th) day of the month following the month in which any such
disbursement was made, and on the fifteenth (15th) day of each month thereafter,
and at the maturity of this Note, whether by reason of acceleration or
otherwise. After the maturity of this Note, whether by reason of acceleration or
otherwise, interest shall accrue and be payable on demand on the entire
outstanding principal balance hereunder until paid at a rate per annum equal to
Four and One-Eighth Percent (4.125%) over and above the Prime Rate, fluctuating
as and when said Prime Rate shall change. All payments hereunder (other than
prepayments) shall be applied first to the payment of all accrued and unpaid
interest, with the balance, if any, to be applied to the payment of principal.
All prepayments hereunder shall be applied solely to the payment of principal.
All payments of principal and interest hereunder shall be made in lawful
currency of the United States in Federal or other immediately available funds at
the office of Bank situated at 1281 Graham Road, Florissant, Missouri 63031, or
at such other place as the holder hereof shall designate in writing. Interest
shall be computed on an actual day, 360-day year basis.
Bank may record the date and amount of all loans and all payments of principal
and interest hereunder in the records it maintains with respect thereto. Bank's
books and records
- 7 -
<PAGE>
showing the account between Bank and Borrower shall be admissible in evidence in
any action or proceeding and shall constitute prima facie proof of the items
therein set forth.
This Note is the Note referred to in that certain Revolving Credit Agreement
dated as of January 19, 1996 made by and between Borrower and Bank (as the same
may from time to time be amended, the "Loan Agreement"), to which Loan Agreement
reference is hereby made for a statement of the terms and conditions upon which
the maturity of this Note may be accelerated, and for other terms and
conditions, including prepayment, which may affect this Note. All capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
such terms in the Loan Agreement.
This Note is secured by that certain Security Agreement dated January 19, 1996
and executed by Borrower in favor of Bank (as the same may from time to time be
amended, the "Security Agreement, to which Security Agreement reference is
hereby made for a description of the security and a statement of the terms and
conditions upon which this Note is secured.
This Note is also secured by that certain Agreement of Pledge (Third Party)
dated January 19, 1996 and executed by Agri-Nutrition Group Limited in favor of
Bank (as the same may from time to time be amended, the "Pledge Agreement"), to
which Pledge Agreement reference is hereby made for a description of the
additional security and a statement of the terms and conditions upon which this
Note is further secured.
If Borrower shall fail to make any payment of any principal of or interest on
this Note as and when the same shall become due and payable, or if an "Event of
Default" (as defined therein) shall occur under or within the meaning of the
Loan Agreement, the Security Agreement or the Pledge Agreement, Bank may, at its
option, terminate its obligation to make any additional loans under this Note
and Bank may further declare the entire outstanding principal balance of this
Note and all accrued and unpaid interest thereon to be immediately due and
payable.
In the event that any payment of any principal of or interest on this Note shall
not be paid when due, whether by reason of acceleration or otherwise, and this
Note shall be placed in the hands of an attorney or attorneys for collection or
for foreclosure of the Security Agreement or the Pledge Agreement securing
payment hereof or for representation of Bank in connection with bankruptcy or
insolvency proceedings relating hereto, Borrower promises to pay, in addition to
all other amounts otherwise due hereon, the reasonable costs and expenses of
such collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
- 8 -
<PAGE>
This Note shall be governed by and construed in accordance with the internal
laws of the State of Missouri.
ST. JON LABORATORIES, INC.
By: /s/ JOHN J. NELSON
John J. Nelson, President
- 9 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 2,846,817
<SECURITIES> 0
<RECEIVABLES> 4,179,774
<ALLOWANCES> 0
<INVENTORY> 5,161,794
<CURRENT-ASSETS> 12,938,794
<PP&E> 4,839,631
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,497,632
<CURRENT-LIABILITIES> 2,765,325
<BONDS> 0
0
0
<COMMON> 84,013
<OTHER-SE> 14,188,798
<TOTAL-LIABILITY-AND-EQUITY> 24,497,632
<SALES> 17,595,016
<TOTAL-REVENUES> 17,595,016
<CGS> 14,042,400
<TOTAL-COSTS> 14,042,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260,505
<INCOME-PRETAX> (232,107)
<INCOME-TAX> (88,000)
<INCOME-CONTINUING> (144,107)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144,107)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
