SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996
Commission File Number 0-24312
AGRI-NUTRITION GROUP LIMITED
(Exact name of registrant as specified in its charter)
Delaware 43-1648680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Riverport Executive Center II
13801 Riverport Drive, Suite 111
Maryland Heights, Missouri 63043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 298-7330
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
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 .
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 of the registrant's Common Stock held by
non-affiliates of the registrant as of January 27, 1997 (computed by reference
to the closing price of such stock on the NASDAQ/National Market) was
$5,521,778.
As of January 27, 1996, there were 8,384,099 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Portions of the Registrant's definitive Proxy Statement
regarding the 1997 Annual Meeting of Stockholders Part III
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AGRI-NUTRITION GROUP LIMITED
FORM 10-K
CROSS REFERENCE SHEET
ITEM PAGE
Part I
1 Business......................................................... 2
2 Properties....................................................... 6
3 Legal Proceedings................................................ 7
4 Submission of Matters to a Vote of Security Holders.............. 7
4A Executive Officers of the Registrant............................. 7
Part II
5 Market for Registrant's Common Equity and
Related Stockholder Matters............................... 8
6 Selected Financial Data.......................................... 9
7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................................ 10
8 Financial Statements.............................................. 17
9 Changes in and Disagreements With Accountants
on Accounting and Financial
Disclosure....................................................... 17
Part III
10 Directors and Executive Officers of the Registrant................ 17
11 Executive Compensation............................................ 18
12 Security Ownership of Certain Beneficial Owners and Management.... 18
13 Certain Relationships and Related Transactions.................... 18
Part IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K... 18
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PART I
ITEM 1. BUSINESS.
BACKGROUND
Organized in 1993, the Company manufactures and distributes animal
health and pet care products. In September 1993, the Company, through its PM
Resources, Inc. subsidiary ("Resources"), acquired the Health Industries
Business ("HIB") of Purina Mills, Inc., which formulates, manufactures, and
distributes animal health products and, to a lesser extent, home, lawn, and
garden, and other products. Effective March 31, 1995, the Company acquired Zema
Corporation ("Zema"), which formulates, manufactures, and markets healthcare and
grooming products to the pet industry, and in August 1995 the Company acquired
St. JON Laboratories, Inc. ("St. JON"), which formulates, manufactures, and
markets products for the oral hygiene, dermatological, and gastrointestinal
needs of dogs and cats. Although the focus of the Company's business strategy
historically has been the acquisition of animal health and related companies, in
August 1996, management announced the completion of the acquisition phase of the
Company's strategy and its increased focus on internal growth, while continuing
to pursue strategic acquisitions and alliances.
PRODUCTS
The Company's products are generally ingested by or used on animals or
in animal husbandry to promote health and production efficiency, or, in the case
of companion animals, to promote health and hygiene. The Company also
manufactures several products, including home, lawn, and garden products, and
other specialty compounds unrelated to animal health and pet care. The products
manufactured by the Company include:
o medicated treatments to prevent disease and promote growth in animals;
o anthelmetics, or dewormers, to prevent gastrointestinal worms in
livestock and pets;
o nutritional supplements to promote animal growth and reproduction and
ensure efficient feed utilization, and vitamins for dogs and cats;
o pest control products, including pesticides and rodenticides;
o flea and tick products, including shampoos, dip concentrates, collars,
and sprays for dogs and cats, and flea traps;
o oral hygiene products for dogs and cats, including toothpaste and
toothbrushes, sprays, and enzymatic rawhide chews;
o gastrointestinal products for dogs and cats, including hairball
remedies;
o dermatological products for dogs and cats, including anti-itch lotions
and shampoos;
o cleaners and disinfectants for use on animals and in animal
quarters including shampoos, dip concentrates, animal sprays,
surface cleaners, dairy pipeline cleaners, and all-purpose
detergents;
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o home, lawn, and garden products to prevent insect infestation in turf
and shrubs; and
o specialty compounds used by manufacturers in the formulation of
plastics and related products.
The Company also sells feed ingredients (additives and medicated
treatments) to Purina Mills. The percentage of the Company's net sales
attributable to such ingredients decreased during the last fiscal year,
primarily as a result of the Zema and St. JON acquisitions in March and August
1995, respectively, and the Company does not intend to expand this business.
CUSTOMERS
The Company sells its products to approximately 800 customers,
comprised of national or dominant regional companies serving the animal health
and specialty compound markets, pet product distributors, specialty pet retail
stores and superstores, mass merchandisers, warehouse clubs, grocery, drug,
discount, and feed stores, and veterinary clinics. The Company's employees and
independent sales representatives attend all major industry trade shows to
market the Company's products.
Purina Mills is the Company's largest single customer. During the year
ended October 31, 1996, approximately 36% of net sales was attributable to
Purina Mills. In connection with the acquisition of HIB, the Company entered
into a manufacturing and supply agreement with Purina Mills whereby Purina Mills
agreed to purchase sufficient volume and mix of products to generate income (net
of ingredient, direct manufacturing and other direct costs) of approximately
$2.9 million annually for the Company through October 31, 1996. Under the terms
of the agreement, Purina Mills was required to pay the Company for its products
upon delivery. Although Purina Mills continues to be a customer of the Company,
there can be no assurance as to the future level of sales to Purina Mills.
The Company's pet care products are sold primarily under its own brand
names, including Zema, Pulvex, St. JON, VRx, and C.E.T, and, to a lesser extent,
on a private-label basis. The Company's animal health products other than pet
care products are sold primarily on a private-label basis under its customers'
brand names and also as ingredients. During the year ended October 31, 1996,
branded and private-label products accounted for approximately 36% and 43% of
the Company's net sales, respectively. Of the net sales related to private-label
products, approximately half were attributable to products manufactured using
the Company's formulas and registrations, and the other half to products
contract manufactured using customers' registrations and formulas. Approximately
21% of the Company's net sales during the year were attributable the sale of
ingredients.
The Company does business with most of its customers exclusively on a
purchase-order basis. Payment generally is made by the Company's customers
either upon delivery or within 45 days, and the Company generally has been able
to deliver products to its customers on a timely basis. The Company generally
does not provide its customers with extended payment terms or the right to
return products purchased from the Company.
SERVICES
The Company offers its customers a wide range of services in connection
with the products it provides, including laboratory formulation and services,
technical support, registration services, and business and marketing consulting
services. Laboratory formulation and services and technical support includes
assisting customers in developing and refining products, advising them as to
suitable forms for their products or suitable packaging, and assisting them in
testing their products to enable them to provide
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data to their customers or regulators. Registration services consist primarily
of maintaining the Company's Environmental Protection Agency and Food and Drug
Administration and assisting customers in maintaining their registrations. See
"Registrations, Trademarks, and Patents." Business and marketing consulting
services consist of assisting customers in determining new products they might
successfully market, as well as assisting them with the distribution of new and
existing products.
The Company also provides distribution and warehousing services to
numerous customers, including Purina Mills. In connection with the acquisition
of HIB, the Company and Purina Mills entered into a warehousing and distribution
agreement which extended through October 31, 1996, under which Purina Mills paid
the Company $370,000 annually for certain warehousing, distribution, inventory
management, and inventory-reporting services. Although the Company continues to
provide such services to Purina Mills at such rate, there can be no assurance
that the Company will continue to do so in the future.
REGISTRATIONS, TRADEMARKS, AND PATENTS
The Company has numerous EPA and FDA registrations, trademarks, and
patents. The Company's EPA product registrations and subregistrations permit it
to sell pesticide and rodenticide products, as well as ectoparasite products for
the treatment of fleas and ticks on dogs and cats. While EPA registrations do
not expire, the Company is required periodically to reregister certain products
with the EPA. Certain of its facilities are qualified as EPA Registered
Manufacturing Sites, which permits the Company to manufacture products not only
under its own EPA product registrations, but also under the registrations of
other companies.
The Company's FDA New Animal Drug Applications ("NADAs") permit the
Company to sell medicated treatments, anthelmetics, feed additives, and other
animal drug products. NADAs do not expire, but are subject to modification or
withdrawal by the FDA based upon the related drugs' performance in the market.
The Company also has FDA Manufacturing Site Approvals enabling the Company to
manufacture animal drugs covered by NADAs held by other companies.
The Company's trademarks relate primarily to its pet care products and
include the brand names Zema, Pulvex, St. JON, and VRx. The Company's trademarks
also include Petromalt, a hairball remedy for cats originally introduced in
1923; Petrodex and C.E.T., lines of dental products for dogs and cats;
Petrelief, a line of dermatological products for cats and dogs; and Doggydent, a
line of oral hygiene products for dogs. The trademarks must be renewed between
2000 and 2009. In addition, the Company has trademark registrations pending for
various pet care products.
The Company also has several patents covering pet toothbrushes, tartar
remover, pet shampoo, and flea traps, which expire between 2004 and 2009, and
the exclusive right to use several patents relating to enzyme generation
formulae for use in animal toothpaste and on rawhide chews.
In addition, last year the Company acquired the worldwide patents and
other assets and rights to Bromethalin, a highly effective and proprietary
rodenticide serving agricultural and Pest Control Operator (PCO) markets, from
Purina Mills. The Bromethalin patents expire in 1997 and 1999, and the
trademarks "Trounce" and "Farmgard," used to market insecticides and supplements
and rodenticides, respectively, must be renewed in 1998.
The Company intends to aggressively protect its trademarks, patents,
and licensing rights, to reregister products with the EPA, and to renew most of
its trademarks.
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PROCUREMENT OF RAW MATERIALS
The active ingredients in the Company's products are not manufactured
by the Company, but are generally purchased from major raw materials
manufacturers. The Company generally purchases materials on an as-needed basis,
as it is generally unnecessary for the Company to maintain large inventories of
such materials in order to meet rapid delivery requirements or assure itself of
adequate supply. The Company purchases certain raw materials from multiple
suppliers; some materials, however, are proprietary, and the Company's ability
to procure such materials is limited to suppliers with proprietary rights. The
Company considers its relationships with its suppliers to be good. The Company
also purchases certain raw materials the availability of which is subject to
EPA, FDA, or other regulatory approvals. Some of the Company's customers provide
the Company with the raw materials used in the production of their products.
COMPETITION
The Company's competitors fall into roughly four categories: animal
health ingredients distributors; manufacturers, formulators, and blenders of
animal health products; pet care product producers and suppliers; and specialty
chemical and pest control manufacturers. Each of these groups, with the
exception of pet care product producers and suppliers, are comprised primarily
of privately owned regional and local companies, although each also includes
national companies that produce or distribute certain animal health and other
products. The pet care product producer and supplier group is comprised of
national and regional companies.
Many of the Company's competitors in specific market niches are larger
and have greater financial resources than the Company. In addition, regulatory
surveillance and enforcement are accelerating, which is likely to result in
fewer competitors with greater resources. Much of the competition in the
industries served by the Company centers around price. The Company is focusing
on the production of high-performance, valued-added and branded products
designed to be marketed on the basis of quality as well as price.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's operations subject it to federal, state, and local laws
and regulations relating to environmental affairs, health, and safety. These
laws and regulations are administered by the EPA, the FDA, the Occupational
Safety and Health Administration, the Department of Transportation, and various
state and local regulatory agencies.
Governmental authorities, and in some cases third parties, have the
power to enforce compliance with health and safety laws and regulations, and
violators may be subject to sanctions, including civil and criminal penalties
and injunctions. While the Company believes that the procedures currently in
effect at its facilities are consistent with industry standards and that it is
in material compliance with applicable health and safety laws and regulations,
failure to comply with such laws and regulations could have a material adverse
effect on the Company.
The Company's operations subject it to numerous environmental laws and
regulations administered by the EPA, including the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act, the Federal Water Pollution Control Act, the Federal Clean
Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Toxic
Substances Control Act, as well as various state and municipal environmental
laws and regulations. See "Legal Proceedings" for a description of a Notice of
Order to Abate Violations and a Notice of Violations issued to Resources by the
Missouri Department of Natural Resources relating to alleged
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violations of Missouri's hazardous waste laws and regulations. The Company
intends to discontinue the use of underground storage tanks subject to RCRA and
install two above ground storage tanks, which is expected to result in capital
expenditures of approximately $200,000 over the next year.
Although the Company believes it is in material compliance with
applicable environmental laws, regulations, and permits and has a policy
designed to ensure that it continues to operate in material compliance
therewith, there can be no assurance that the Company will not be exposed to
significant environmental liability. The Company could be held liable for
property damage or personal injury caused by the release, spill, or other
discharge of hazardous substances or materials and could be held responsible for
cleanup of any affected sites. In connection with the acquisition of HIB, Zema,
and St. JON, the Company entered into agreements pursuant to which the former
owners of such companies have agreed to indemnify the Company against
liabilities, including certain environmental liabilities, relating to the use,
condition, ownership, or operation of the Company's facilities prior to the
acquisitions.
The Company has an environmental compliance program addressing
environmental and other regulatory compliance issues. Future developments, such
as stricter environmental laws, regulations or enforcement policies, could
increase the Company's environmental compliance costs. While the Company is not
aware of any pending legislation or proposed regulations that, if enacted, would
have a material adverse effect on the Company, there can be no assurance that
future legislation or regulation will not have such effect.
EMPLOYEES
The Company has 201 full-time employees and one part-time employee.
Sixty-one of the full-time employees located at the Bridgeton, Missouri facility
are represented by the International Longshoremen's Association, and eight are
represented by the International Brotherhood of Electrical Workers. Such
employees' wages and benefits are governed by bargaining agreements negotiated
with the unions, which expire on October 31, 1997. The Company also employs an
average of approximately 26 persons on a temporary basis. The number of
temporary employees fluctuates on an annual basis because demand for the
Company's products is seasonal. The Company considers its employee and union
relations to be good.
INSURANCE
The Company believes that it maintains adequate liability and property
insurance coverage. There can be no assurance that the coverage will be
sufficient for all future claims or that insurance will continue to be available
in adequate amounts at reasonable rates.
ITEM 2. PROPERTIES.
The Company owns the Bridgeton, Missouri facility at which Resources'
operations are conducted and most of the equipment located on the site. The
facility consists of a 176,600-square-foot manufacturing and warehousing
building and three buildings for administration, retained sample storage,
equipment, and maintenance.
The Company leases its corporate headquarters in Maryland Heights,
Missouri, and manufacturing, office, warehouse, and distribution facilities
located near Raleigh, North Carolina and Los Angeles, California under
non-cancelable leases expiring in June 1997, April 2000, and August 2000,
respectively. The Company also leases other warehouse and distribution space and
certain equipment under non-cancelable operating leases. Management believes
that the Company's facilities are adequate and suitable for its current
operations.
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ITEM 3. LEGAL PROCEEDINGS.
On November 27, 1994, the Missouri Department of Natural Resources
("MDNR") issued a Notice of Order to Abate Violations to the Company relating to
alleged violations of Missouri's laws and regulations relating to the storage of
hazardous waste at the Bridgeton facility. The order alleges that the Company
had not remedied certain deficiencies relating to the storage of hazardous waste
cited in inspections by the MDNR in May 1993 and March 1994, and directs
remedial action.
On December 21, 1995, the MDNR issued a Notice of Violations to the
Company relating to contamination in the vicinity of an underground collection
system that was removed from the Bridgeton facility in 1994. The notice alleges
that the collection system should have been included in the Company's hazardous
waste storage permit, states that the collection system was classified by the
MDNR as a leaking underground storage tank, and directs remedial action.
The Company is currently in negotiations with the MDNR and the Missouri
Office of the Attorney General regarding civil penalties related to certain
issues raised in the November 1994 Notice of Order to Abate Violations and the
December 1995 Notice of Violations issued by the MDNR that remain unresolved.
Management does not believe that either of the matters pose a significant risk
to human health or the environment, or that the resolution of either of the
claims made by the MDNR will have a material adverse effect on the Company's
financial position or results of operations.
Although the Company is not currently a party to any legal proceedings,
it anticipates that from time to time it may be subject to claims that arise in
the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the
Company's executive officers:
Name Age Position
Bruce G. Baker 53 President and Chief Executive Officer
Robert J. Elfanbaum 33 Vice President and Chief Financial Officer
Bruce G. Baker has been President and Chief Executive Officer of the
Company since November 1, 1996. From March 1994 through October 1996 he was Vice
President and Deputy Chief Executive Officer. He has also been President and
Chief Executive Officer of Resources since September 1993 and a Director of the
Company since August 1993. From 1965 to February 1993, he held various
management positions with Ralston Purina and Purina Mills, including Vice
President - Research and Marketing of Purina Mills from 1990 to February 1993.
This was preceded by responsibilities as Vice President - Consumer Group,
directing research, marketing, manufacturing, sales, and administration for a
division of Purina Mills. Mr. Baker has also served in various capacities
relating to European, Canadian, and Mexican market development and coordination.
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Robert J. Elfanbaum, C.P.A., has been Vice President and Chief
Financial Officer of the Company since August 23, 1996. From November 1994
through August 22, 1996, he served the Company as Assistant Corporate Controller
and Corporate Controller. He was Manager of Internal Auditing for Brown Group,
an international footwear company from February 1993 until he joined the
Company. From August 1985 through February 1993, he was employed by Price
Waterhouse in St. Louis, MO, most recently as a manager in their Middle Market
Group. Mr. Elfanbaum is the president-elect of the St. Louis Chapter of the
Institute of Management Accountants.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ National Market
under the symbol AGNU. The following tables sets forth the quarterly range of
high and low closing sale prices per share for the Common Stock during the
period indicated.
High Low
Fiscal year ended October 31, 1995
First Quarter $ 6.25 $ 4.00
Second Quarter 4.81 3.81
Third Quarter 4.31 3.00
Fourth Quarter 4.00 2.25
Fiscal year ended October 31, 1996
First Quarter 2.81 1.75
Second Quarter 2.56 2.00
Third Quarter 2.41 1.59
Fourth Quarter 2.06 1.38
Fiscal 1997
Through January 16, 1997 1.63 1.13
The Company has not paid any dividends on its Common Stock since its
formation. It presently intends to retain its earnings for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
Further, the Company is prohibited from paying dividends without the consent of
the Company's lender. As of January 27, 1997, the Company had a total of 2,252
stockholders, including 252 stockholders of record and 2,000 persons or entities
holding Common Stock in nominee name.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial data for the year ended
December 31, 1992 and the period from January 1, 1993 through September 8, 1993
for the Health Industries Business ("HIB") of Purina Mills, Inc., the Company's
predecessor, and from July 20, 1993 through October 31, 1993 and for each of the
three years in the period ended October 31, 1996 for the Company. The selected
financial data for the year ended December 31, 1992 and the period January 1,
1993 through September 8, 1993 are derived from the Financial Statements of HIB,
and the selected financial data for the period July 20, 1993 through October 31,
1993 and for each of the three years in the period ended October 31, 1996 are
derived from the Consolidated Financial Statements of the Company, each of which
has been audited by Price Waterhouse LLP, independent accountants. HIB's
financial data have been obtained from the
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historical accounting records of HIB as the Company's predecessor and include
all revenues and costs directly attributable to HIB, including allocations of
the costs of the administrative functions and services performed on behalf of
HIB by Purina Mills. The data should be read in conjunction with the
Consolidated Financial Statements of the Company, and the related notes
thereto,"Management's Discussion and Analysis of Financial Condition and Results
of Operations," and other financial information included herein.
<TABLE>
<CAPTION>
HIB (Predecessor) Company
---------------------------- ---------------------------------------------------------
July 20, 1993
Year Ended Jan.1, 1993 (inception) Fiscal Year Ended
December 31, through through Oct. 31, October 31,
1992 Sept. 8, 1993 1993 (1) 1994 1995 1996
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Net Sales (2)....................... $ 25,593,314 $ 16,095,523 $ 3,653,595 $ 25,683,550 $ 28,977,259 $ 36,383,562
Operating Income (Loss) from
Continuing Operations........... 125,342 386,983 (93,014) (244,913) (257,643) 232,603
Income (Loss) from Continuing
Operations...................... 77,567 236,904 (97,573) (335,611) 31,433 (127,420)
Primary Net Loss per Common and
Common Equivalent Share......... (3) (3) (.01) (.05) .00 (.02)
Primary Common and Common Equivalent
Shares Outstanding.............. --- --- 6,572,872 6,636,811 8,112,851 8,397,686
BALANCE SHEET DATA:
Total Assets........................ $ 9,608,679 $ 8,688,193 $ 8,935,071 $ 21,141,513 $ 23,473,103 $ 26,349,513
Long Term Obligations .............. --- --- --- 3,066,667 4,914,614 7,824,012
</TABLE>
(1) Includes the operating activities of the Company's subsidiary, PM
Resources, Inc., from September 9, 1993, the effective date of the
acquisition.
(2) Net sales to Purina Mills were as follows for the respective periods:...
Year ended December 31, 1992 (HIB, the Predecessor)... $ 19.0 million
January 1, 1993 through September 8, 1993 (HIB,
the Predecessor)............................... $ 11.3 million
July 20, 1993 through October 31, 1993
(the Company, which includes operating
results from September 9, 1993, the date
of the HIB acquisition)........................ $ 2.7 million
Fiscal year ended October 31, 1994................ $ 19.7 million
Fiscal year ended October 31, 1995................ $ 16.0 million
Fiscal year ended October 31, 1996................ $ 13.1 million
(3) Given the historical organization and capital structure of HIB,
earnings per share information is not considered meaningful or relevant.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
Organized in 1993, the Company manufactures and distributes animal
health and pet care products. In September 1993, the Company, through its PM
Resources, Inc. subsidiary ("Resources"), acquired the Health Industries
Business of Purina Mills, Inc. which formulates, manufacturers and distributes
animal health products and to a lesser extent, home, lawn and garden and other
products. 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
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substantially all of the net assets and business of Zema Corporation ("Zema"), a
formulator, manufacturer and supplier of health care and grooming products to
the pet industry. Effective August 31, 1995, the Company purchased substantially
all of the net assets and business of St. JON Laboratories, Inc. ("St. JON"), a
developer, manufacturer and marketer of oral hygiene, dermatological and
gastrointestinal products for dogs and cats. In August 1996, the Company entered
into a letter of intent to acquire Anthony Products Company ("Anthony"), a
private company specializing in the development and manufacturing of
pharmaceutical animal health products. The Company is currently continuing its
due diligence with Anthony. Although the focus of the Company's business
strategy historically has been the acquisition of animal health and related
companies, in August 1996, management announced the completion of the
acquisition phase of the Company's strategy and its increased focus on internal
growth, while continuing to pursue strategic acquisitions and alliances.
Several points are important to note regarding the following discussion
of results of operations from the standpoint of comparability from period to
period. First, 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 in the fiscal year ended October 31, 1995.
Second, the management restructuring related to the Company's increased focus on
internal growth resulted in a non-recurring pre-tax charge in the fourth quarter
of fiscal 1996 of $240,000 for severance-related costs. These costs will be paid
subsequent to October 31, 1996. On an ongoing basis, however, management
anticipates annual savings of approximately $600,000 related to this
restructuring primarily as a result of a reduction in executive salaries.
Certain aspects of the Company's balance sheet at October 31, 1996 are
also noteworthy. Cash and cash equivalents and short-term investments total
approximately $2.2 million, which primarily represents the remaining net
proceeds from the IPO. During 1996, the Company utilized approximately $1.4
million of IPO proceeds in conjunction with its acquisition of the worldwide
patents and other assets and rights to Bromethalin, a proprietary rodenticide,
and for other acquisition-related expenditures. Bank debt increased by
approximately $3.1 million in fiscal 1996 due principally to growth in the
Company's working capital.
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 14 to the Company's October 31, 1996 Consolidated Financial Statements).
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 March and August of 1995 and the continued emphasis on growth of the
specialty product segment, the significance of the ingredient segment has
decreased in fiscal 1996. Management expects this trend to continue in the
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future such that at some point, the ingredient segment may no longer meet the
requirements for segment disclosure under generally accepted accounting
principles.
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1996 (IN 000'S EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
Fiscal year ended October 31, 1995 Fiscal year ended October 31, 1996
% of % of
Dollar Net Dollar Net
Amount Sales Amount Sales
<S> <C> <C> <C> <C>
Net sales
Ingredients....................... $ 8,934 30.8 $ 7,722 21.2
Specialty products................ 20,043 69.2 28,662 78.8
Total net sales ............ 28,977 100.0 36,384 100.0
Cost of sales........................ 24,581 84.8 28,173 77.4
Gross profit......................... 4,396 15.2 8,211 22.6
Selling, general and administrative
expenses........................... 4,468 15.4 7,595 20.9
Research and development............. 186 .7 143 .4
Nonrecurring severance costs......... 240 .7
Operating income (loss).............. (258) (.9) 233 .6
</TABLE>
Total net sales increased 25.6% from $29.0 million in fiscal 1995 to
$36.4 million for 1996, primarily reflecting the full year effects of net sales
related to Zema and St. JON. Decreased volume of ingredients shipped compared to
the prior year was the primary factor causing the reduction in ingredients sales
of $1.2 million from $8.9 million in 1995 to $7.7 million in 1996. The reduced
ingredient sales related to lower margin commodity products resulting in minimal
impact on gross profit, as discussed below.
Specialty products sales increased $8.6 million, or 42.7%, compared to
the same period of the prior year, primarily due to the full year effects of
Zema's and St. JON's sales during fiscal 1996, but also due to a 5.5% increase
in specialty product sales at Resources. As was the case throughout the industry
for flea and tick products sold over the counter, Zema sales were negatively
impacted by lower incidence of infestation than normal during the year and by
the introduction of highly promoted new products distributed exclusively through
veterinaries. Furthermore, Zema's sales were adversely affected by the decision
of one of its principal customers to substantially reduce product offerings in
all categories including companion animals. However, partially offsetting these
factors was the introduction by Zema of several new product lines developed in
association with St. JON and Resources.
The Company was a party to a manufacturing and supply agreement with
Purina Mills which provided, among other things, that for the three-year term of
the agreement, Purina Mills would guarantee the Company sufficient annual sales
to generate income, net of ingredient, direct manufacturing, and other direct
costs of approximately $2.9 million (which represents a historically
11
<PAGE>
consistent margin level). Fiscal 1996 income from Purina was approximately $1.2
million less than that required under the agreement. The entire amount of the
shortfall under the agreement was billed to Purina and included in net sales of
specialty products during October 1996; such billing was collected by the
Company in December 1996. The manufacturing and supply agreement expired on
October 31, 1996. Although Purina Mills continues to be a customer of the
company, there can be no assurance as to future level of sales to Purina Mills.
Gross profit increased from $4.4 million in 1995 (15.2% of net sales)
to $8.2 million in 1996 (22.6% of net sales), primarily due to the full year's
gross profit generated by Zema and St. JON in 1996 compared to only recognizing
amounts in 1995 subsequent to their acquisition by the Company effective March
31, 1995 and August 31, 1995, respectively. 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. While not significantly impacting net sales, the acquisition
of Bromethalin also contributed to an increase in gross profit.
Selling, general and administrative expenses increased from $4.5
million or 15.4% of net sales in 1995 to $7.6 million or 20.9% of net sales in
1996. The increase in selling, general and administrative expenses primarily
reflects the impact of costs at Zema and St. JON incurred subsequent to their
acquisition by the Company. As a percent of each of their respective sales, Zema
and St. JON selling, general and administrative expenses have been approximately
33% of net sales during the periods subsequent to their acquisition reflecting
higher selling costs associated with these subsidiaries' sales of branded
products into consumer markets, thereby resulting in the overall increase of
selling, general and administrative expenses as a percent of sales. The decrease
in net sales of ingredients, as discussed above, with relatively little related
change in selling, general and administrative expenses, also contributed to the
increase in selling, general and administrative expenses as a percent of sales.
Research and development expenses incurred in 1996 were generally
consistent with those incurred by the Company in the prior year.
In August 1996, the Company announced a management restructuring
reflecting the increased focus of the Company on internal growth. This
management restructuring resulted in a non-recurring pre-tax charge in the
fourth quarter of fiscal 1996 of $240,000 related to severance payments. On an
ongoing basis, however, management anticipates annual savings of approximately
$600,000 related to this restructuring, primarily as the result of the a
reduction of in executive salaries.
The factors discussed above resulted in operating income of
approximately $.2 million or approximately .6% of net sales in 1996 compared to
an operating loss of approximately $.25 million or .9% of net sales in 1995.
Operating income in 1996 exclusive of one-time payments related to the
aforementioned management restructuring would have been approximately $.5
million or 1% of net sales.
Interest expense in 1996 increased to approximately $.6 million from
approximately $.35 million in 1995 reflecting a full year of the increased debt
incurred in conjunction with the 1995 acquisitions, as well as the impact of
increased investments in working capital during the year. Other income,
consisting primarily of interest income, totaled approximately $.15 million in
1996 compared to approximately $.5 million during 1995, primarily reflecting the
usage of funds in the acquisitions of Zema and St. JON during 1995.
The effective income tax rate of the Company was 142% and 38% for 1995
and 1996, respectively. The effective rate in 1995 is based on the Company's net
loss before taxes during the
12
<PAGE>
period and also reflects the reversal of approximately $.1 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" (FAS 109). The valuation allowance at October 31, 1995 and the related
effective tax rate were adjusted to reflect future tax benefits related to
certain previously unrecognized temporary differences and net operating loss
carryforwards. The effective rate in 1996 more closely reflects the Company's
ongoing effective tax rate based on current operations. The aggregate amount of
the deferred tax asset valuation allowance at October 31, 1996 is approximately
$.1 million.
FISCAL YEAR ENDED OCTOBER 31, 1994 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995 (IN 000'S EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
Fiscal year ended October 31, 1994 Fiscal year ended October 31, 1995
% of % of
Dollar Net Dollar Net
Amount Sales Amount Sales
<S> <C> <C> <C> <C>
Net sales
Ingredients....................... $ 12,012 46.8 $ 8,934 30.8
Specialty products................ 13,672 53.2 20,043 69.2
Total net sales ............ 25,684 100.0 28,977 100.0
Cost of sales........................ 23,607 91.9 24,581 84.8
Gross profit......................... 2,077 8.1 4,396 15.2
Selling, general and administrative
expenses........................... 2,211 8.6 4,468 15.4
Research and development............. 111 .3 186 .7
Operating loss....................... (245) (1.0) (258) (.9)
</TABLE>
Total net sales increased 12.8% from $25.7 million in fiscal 1994 to
$29.0 million for 1995, reflecting additional net sales of $5.2 million related
to Zema and St. JON, offset by decreased sales at Resources which reflects the
impact of economic and environmental conditions of the agricultural markets
which it serves. The unusually mild winter in most parts of the United States
and low levels of profitability in the swine industry resulted in a reduction in
ingredients sales of $3.1 million from $12.0 million in 1994 to $8.9 million in
1995. The reduced ingredient sales related to lower margin commodity products
resulting in minimal impact on gross profit, as discussed below. Specialty
products sales increased $6.4 million, or 46.6%, 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.
The Company was a party to a manufacturing and supply agreement with
Purina Mills which provided, among other things, that Purina Mills would
guarantee the Company sufficient annual sales to generate income, net of
ingredient, direct manufacturing, and other direct costs of approximately $2.9
million. As of October 31, 1995, sales under the agreement from Purina were
approximately $.5 million less than that required under the agreement, $.2
million of which related to periods prior to fiscal 1995. The entire amount of
the shortfall under the agreement was billed to Purina and included in net sales
during October 1995; such billing was collected by the Company in December 1995.
13
<PAGE>
Gross profit increased from $2.1 million in 1994 (8.1% of net sales) to
$4.4 million in 1995 (15.2% of net sales), primarily due to the $2.1 million
gross profit generated by Zema and St. JON subsequent to their acquisition by
the Company effective March 31, 1995 and August 31, 1995, respectively.
Selling, general and administrative expenses increased from $2.2
million or 8.6% of net sales in 1994 to $4.5 million or 15.4% of net sales in
1995. The increase in selling, general and administrative expenses is primarily
related to expenses incurred by Zema and St. JON subsequent to their acquisition
by the Company. As a percent of sales, Zema and St. JON selling, general and
administrative expenses were approximately 31% of net sales during the periods
subsequent to their acquisition reflecting higher selling costs associated with
these subsidiaries' sales of branded products into consumer markets, thereby
resulting in the overall increase of selling, general and administrative
expenses as a percent of sales. The decrease in net sales of ingredients, as
discussed above, with relatively little related change in selling, general and
administrative expenses, also contributed to the increase in selling, general
and administrative expenses as a percent of sales. The increase in 1995 is also
attributable to additional corporate and acquisition expenses incurred by the
Company for consulting fees, executive compensation, travel and other
professional service fees that do not relate to its operating subsidiaries. The
Company's chief executive officer and chief financial officer were added to the
corporate staff in March 1994 and there were no related compensation expenses
during five months of fiscal 1994. In addition, ongoing costs of operating as a
public company and other costs related to implementing the Company's acquisition
strategy were incurred in 1995 that were not incurred prior to the July 1994
IPO. Offsetting the increase in corporate expenses compared to the prior year
was the payment of certain nonrecurring costs aggregating $.3 million in 1994
related to the selection and recruitment of senior management.
Research and development expenses incurred in 1995 increased primarily
due to Zema's expenditures which were not incurred by the Company in the prior
year.
The factors discussed above result in unchanged operating loss compared
to the prior year of approximately $.25 million or 1% of net sales in 1995.
Interest expense was approximately $.35 million in 1994 and 1995
reflecting the impact of the Company's restructured financing and lower net bank
debt balances, which was offset by increased debt incurred in conjunction with
acquisitions during 1995. Other income, consisting primarily of interest income,
of approximately $.5 million during 1995, primarily reflects investment of the
net proceeds of the Company's IPO for the full year, compared to the interest
income of approximately $.2 million earned during the prior year subsequent to
the Company's July 1994 IPO.
The effective income tax rate of the Company was 17% and 142% for 1994
and 1995, respectively. The effective rate for 1994 is based on the Company's
net loss incurred during the period and reflects changes in the valuation
allowance related to deferred tax assets, pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Given the
Company's short operating history, management utilized the most conservative
approach in determining the valuation allowance at October 31, 1994 and the
related effective tax rate by recognizing no future tax benefits related to
temporary differences and net operating loss carryforwards. The effective rate
in 1995 is based on the Company's net loss before taxes during the period and
also reflects the reversal of approximately $.1 million of valuation allowance
recorded in prior periods related to deferred tax assets, pursuant to FAS 109.
The valuation allowance at October 31, 1995 and the related effective tax rate
have been adjusted to reflect future tax benefits related to certain previously
unrecognized temporary differences and net operating loss carryforwards. The
aggregate amount of the deferred tax asset valuation allowance at October 31,
1995 is approximately $.1 million.
14
<PAGE>
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
$2.2 million at October 31, 1996 reflects the remaining net proceeds from the
IPO, which are 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 and will require additional 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. Effective
May 1996, the Company acquired the worldwide patents and other assets and rights
to Bromethalin, which required payments of $1 million including related expenses
at closing, and will require additional consideration based on shipments of
Bromethalin over a five-year period. These 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 remaining net
proceeds of the IPO continue to be invested in high-grade, short-term
interest-bearing obligations (primarily discount and demand notes with
maturities of three months or less, and high grade, corporate bonds and notes)
pending their specific use. Speculative use of derivatives is prohibited by the
Company's investment policy.
During the fiscal year ended October 31, 1994, cash used by operations
approximated $.2 million. Resources generated sufficient cash flows to fund
operating requirements and capital expenditures, as well as to fully service the
Company's existing bank debt and related interest charges. Corporate
administrative and acquisition costs through October 31, 1994, were funded
through interest income earned on the proceeds of the IPO and from the Company's
pre-IPO invested capital.
During the fiscal year ended October 31, 1995, cash used by operations
approximated $.1 million. The Company's operating subsidiaries generated
sufficient cash flows to fund operating requirements and capital expenditures,
as well as to fully service the Company's existing debt and related interest
charges. Corporate administrative and acquisition-related costs, including
payment in 1995 of accrued executive bonuses related to fiscal 1994, were funded
through interest income earned on proceeds from the IPO, excess funds generated
by the Company's operating subsidiaries, and through utilization of
approximately $.7 million, or 6%, of the proceeds from the IPO.
During fiscal 1996, cash used by operations approximated $2.3 million,
primarily related to increased working capital requirements. Inventories
increased by approximately $2 million reflecting investments in adding new
products to the Company's lines and moving existing products and product- lines
from one operating company's distribution channel into distribution channels of
other operating companies. Increases in accounts receivable of approximately $1
million compared to the prior year reflect temporary increases in certain key
accounts that have since been collected subsequent to year end.
In May 1996, the Company amended its revolving credit agreements with
its primary lender to extend their terms through December 31, 1997. At October
31, 1996, an aggregate of $7.95 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 total
available balance of which will be reduced by $150,000 per quarter. At October
31, 1996, outstanding borrowings under the
15
<PAGE>
agreement totaled approximately $5.1 million. The interest rate ranges from
prime to prime plus 1.125% depending on the Company's ratio of debt to net
worth, as defined in the loan agreements. At October 31, 1996, the interest rate
charged on borrowings outstanding was 8.50% which is the bank's prime rate plus
.25%. The agreements allow the Company to sweep all cash balances against
outstanding borrowings, thus reducing the Company's overall interest expense.
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 prohibit the Company from paying
dividends without the consent of the Company's lender. At October 31, 1996, the
Company was in compliance with all debt covenants.
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. During the year ended
October 31, 1996, 25,650 shares of the Company's common stock were repurchased
by the Company at an average price per share of $1.95.
Management believes that the Company will 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 in each of the
years ending October 31, 1995 and 1996 were approximately $.5 million. Future
capital expenditures for the Company's operating subsidiaries are not expected
to significantly exceed historical amounts, which approximate current
depreciation expense.
In August 1996, the Company signed of a letter of intent to acquire
Anthony. The transaction is subject to completion of due diligence and
negotiation of a definitive agreement. Management expects that the purchase
price will be paid with cash and common stock, and the cash portion, if any,
will be funded by a combination of bank financing, available funds and the
issuance of equity securities in private transactions.
INFLATION
The Company's operations and financial condition have not been, nor are
they expected to be, materially affected by inflation.
QUARTERLY EFFECTS AND SEASONALITY
Resources' results of operations have historically been seasonal, with
a high percentage of its volume and earnings being generated in the second
quarter (February through April) and 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 and the
timing of customer orders. Furthermore, new business growth is not expected to
exhibit 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.
16
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standard Board (FASB) issued
the Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(FAS 121). This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity are reviewed (via future cash flow analyses) for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. FAS 121 was adopted during the Company's fiscal 1996,
with no impact on the consolidated financial statements of the Company.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). This
statement establishes a fair value based method of accounting for stock-based
compensation plans. It encourages entities to adopt that method in place of the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
(APB 25) for all arrangements under which employees receive shares of stock or
other equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of its stock. This statement permits an
entity to continue applying APB 25 in determining its net income; however, an
entity that continues to utilize APB 25 must also comply with the disclosure
requirements of FAS 123. The Company intends to continue to utilize the
provisions of APB 25 for purposes of determining net income, and will be
required to disclose the pro forma effects of adopting FAS 123 in its fiscal
1997 consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS.
The Consolidated Financial Statements of the Company, together with the
report thereon of Price Waterhouse LLP dated December 13, 1996 are listed in
Item 14(a)(1), included at the end of this Report on Form 10-K beginning on page
F-1, and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is contained in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders under the captions
"Directors and Nominees" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934," and in Item 4A of this Report on Form 10-K, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is contained in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders under the caption
"Executive Compensation," and is incorporated herein by reference.
17
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is contained in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders under the caption "Common
Stock Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is contained in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders under the caption
"Compensation Committee Interlocks and Insider Participation and Certain
Transactions," and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) (1) LIST OF FINANCIAL STATEMENTS. The following is a list of the
financial statements included at the end of this Report of Form 10-K beginning
on page F-1:
Report of Independent Accountants
Consolidated Balance Sheet as of October 31, 1995 and 1996
Consolidated Statement of Operations for the Years Ended October 31,
1994, 1995 and 1996 Consolidated Statement of Cash Flows for the Years
Ended October 31, 1994, 1995 and 1996 Consolidated Statement of
Shareholders' Equity for the Years Ended October 31, 1994, 1995 and
1996
Notes to Consolidated Financial Statements
(2) LIST OF FINANCIAL STATEMENT SCHEDULES. Schedule VIII -
Valuation of Qualifying Accounts and Reserves is furnished. All other schedules
have been omitted because they are not applicable or not required, or the
required information is provided in the financial statements or notes thereto.
(B) REPORTS ON FORM 8-K.
No Reports on Form 8-K were filed during the last quarter of the fiscal
year covered by this Report on Form 10-K.
(C) LIST OF EXHIBITS. The following is a list of exhibits furnished.
Copies of exhibits will be furnished upon written request of any stockholder at
a charge of $.25 per page plus postage.
2.2(a) Amended and Restated Revolving Credit Agreement between PM Resources,
Inc., Zema Corporation and First Bank, along with accompanying
Guaranty by Agri- Nutrition Group Limited in favor of First Bank,
both dated as of July 14, 1995
2.3(b) Manufacturing and Supply Agreement between Purina Mills, Inc. and PM
Resources, Inc. dated September 9, 1993, along with list of
schedules
2.4(b) Warehousing and Distribution Agreement between Purina Mills, Inc. and
PM Resources, Inc. dated September 9, 1993
18
<PAGE>
2.5(b) Indemnity Agreement between Purina Mills, Inc. and PM Resources, Inc.
dated September 9, 1993
2.6+ Asset Purchase Agreement among Agri-Nutrition Group Limited, Zema
Acquisition Corporation, and Zema Corporation dated April 28, 1995
2.7(c) Asset Purchase Agreement among Agri-Nutrition Group Limited, St. JON
Acquisition Corporation, St. JON Laboratories, Inc., and John Nelson
dated August 30, 1995
3.1(d) Restated Certificate of Incorporation
3.2(d) Amended and Restated By-laws
4(b) Specimen stock certificate
10.1+ Third Restated Employment Agreement between Agri-Nutrition Group
Limited and W.M. Jones, Jr. dated as of November 1, 1996
10.2+ Fourth Restated Employment Agreement between Agri-Nutrition Group
Limited and Bruce G. Baker dated as of November 1, 1996
10.3+ Agreement between Agri-Nutrition Group Limited and George W.
Daignault dated as of August 23, 1996
10.4+ Amended and Restated Stock Option Agreement between Agri-Nutrition
Group Limited and George W. Daignault dated as of August 23, 1996
10.9(e) Revolving Credit Agreement between St. JON Laboratories, Inc. and
First Bank, along with accompanying Guaranty by Agri-Nutrition Group
Limited in favor of First Bank both dated as of January 19, 1996
10.10(b) Form of Indemnification Agreement
10.11(b) 1994 Incentive Stock Plan
10.13(f) Reload Option and Exchange Exercise Plan
10.14(g) 1995 Incentive Stock Plan
10.15(h) 1996 Incentive Stock Plan
10.16(d) Consulting Agreement between Agri-Nutrition Group Limited and Brakke
and Associates, Inc. dated October 11, 1995
10.17(i) 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(i) Amendment to Revolving Credit Agreement between St. JON Laboratories,
Inc. and First Bank dated as of May 31, 1996
19
<PAGE>
22(e) List of subsidiaries
23+ Consents of Price Waterhouse LLP
27+ Financial data schedule
+ Filed herewith.
(a) Filed as exhibit of same number to the Registrant's Form 10-Q for
the Quarterly Period ended July 31, 1995, and incorporated herein
by reference.
(b) Filed as exhibit of same number to the Registrant's Registration
Statement on Form S-1, File No. 33-78646, and incorporated herein
by reference.
(c) Filed as exhibit of the same number to the Registrant's Current
Report on Form 8-K, filed September 13, 1995, and incorporated
herein by reference.
(d) Filed as exhibit of same number to the Registrant's Form 10-Q for
the Quarterly Period ended January 31, 1996, and incorporated
herein by reference.
(e) Filed as exhibit of same number to the Registrant's Form 10-K for
the Fiscal Year ended October 31, 1995, and incorporated herein by
reference.
(f) Filed as exhibit 4.2 to the Registrant's Registration Statement
on Form S-8, File No. 33-86892, and incorporated herein by
reference.
(g) Filed as Exhibit 4.1 to the Registrant's Registration Statement
on Form S-8, File No. 33-93340, and incorporated herein by
reference.
(h) Filed as exhibit of the same number to the Registrant's
Registration Statement on Form S-8, File No. 33-3192, and
incorporated herein by reference.
(i) Filed as exhibit of same number to the Registrant's Form 10-Q for
the Quarterly Period ended April 30, 1996, and incorporated herein
by reference.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AGRI-NUTRITION GROUP LIMITED
By: /s/ Bruce G. Baker
Bruce G. Baker
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Bruce G. Baker President, Chief Executive February 10, 1997
Bruce G. Baker Officer, and Director
/s/ Robert J. Elfanbaum Vice President and Chief February 10, 1997
- --------------------------------------
Robert J. Elfanbaum Financial Officer
(Principal Accounting Officer)
/s/ Alec L. Poitevint, II Chairman of the Board February 10, 1997
- --------------------------------------
Alec L. Poitevint, II
/s/ W.M. Jones, Jr. Director February 10 , 1997
- --------------------------------------
W.M. Jones, Jr.
/s/ Robert E. Hormann Director February 10, 1997
- --------------------------------------
Robert E. Hormann
/s/ Robert W. Schlutz Director February 10, 1997
- --------------------------------------
Robert W. Schlutz
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants..................................... F-1
Consolidated Balance Sheet as of
October 31, 1995 and 1996 ....................................... F-2
Consolidated Statement of Operations for the
Three Years Ended October 31, 1996 .............................. F-3
Consolidated Statement of Cash Flows for the
Three Years Ended October 31, 1996............................... F-4
Consolidated Statement of Shareholders' Equity
for the Three Years Ended October 31, 1996....................... F-6
Notes to Consolidated Financial Statements............................ F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Agri-Nutrition
Group Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders' equity
present fairly, in all material respects, the consolidated financial position of
Agri-Nutrition Group Limited and its subsidiaries at October 31, 1995 and
October 31, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended October 31, 1996, 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.
PRICE WATERHOUSE LLP
St. Louis, Missouri
December 13, 1996
F-1
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31,
1995 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,330,685 $ 2,186,877
Short-term investments 1,191,379
Accounts receivable, net 3,451,011 4,273,452
Income taxes receivable 29,364 87,101
Inventories (Note 7) 4,201,315 6,373,708
Prepaid expenses 558,796 847,211
Deferred income taxes (Note 11) 187,454 254,065
--------------- --------------
11,950,004 14,022,414
Property, plant and equipment, net (Note 8) 4,826,970 4,907,813
Goodwill 6,177,068 6,372,687
Other assets 519,061 1,046,599
--------------- --------------
$ 23,473,103 $ 26,349,513
=============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable (Note 9) $ 252,692 $ 487,169
Accounts payable 1,757,973 2,449,928
Accounts payable to Purina 930,954
Accrued compensation expense 449,061 727,250
Accrued expenses 750,891 538,819
--------------- -------------
4,141,571 4,203,166
Long-term debt and notes payable (Note 9) 2,614,614 5,719,364
Acquisition notes payable (Note 9) 2,300,000 2,104,648
Commitments and contingencies (Notes 3, 4, 8, 15 and 16)
Shareholders' equity (Notes 1, 2 and 10):
Common stock ($.01 par value; 20,000,000 shares
authorized; 8,401,344 and 8,430,949 shares
issued and outstanding, respectively) 84,013 84,309
Additional paid-in-capital 14,734,656 14,817,183
Accumulated deficit (401,751) (529,171)
--------------- -------------
14,416,918 14,372,321
Cost of common stock held in treasury
(0 and 25,650 shares in 1995 and 1996, respectively) (49,986)
--------------- -------------
14,416,918 14,322,335
$ 23,473,103 $ 26,349,513
=============== ==============
</TABLE>
F-2
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31,
1994 1995 1996
-------------------------------------------
<S> <C> <C> <C>
Net sales (including sales to Purina of $19.7 million,
$16.0 million and $13.1
million for the years ended October 31,
1994, 1995 and 1996, respectively) $ 25,683,550 $ 28,977,259 $ 36,383,562
Cost of sales 23,606,348 24,581,025 28,172,891
-------------- -------------- -------------
Gross profit 2,077,202 4,396,234 8,210,671
Selling, general and administrative expenses 2,210,686 4,467,995 7,595,308
Research and development 111,429 185,882 142,760
Nonrecurring severance costs (Note 16) 240,000
-------------- -------------- -------------
Operating (loss) income (244,913) (257,643) 232,603
Interest expense (347,789) (345,779) (596,086)
Interest income and other 187,932 528,361 158,904
-------------- ------------- -------------
Loss before income tax benefit (404,770) (75,061) (204,579)
Income tax benefit 69,159 106,494 77,159
-------------- ------------- -------------
Net (loss) income $ (335,611) 31,433 $ (127,420)
============== ============= ==============
Primary net (loss) income per common and
common equivalent share (Note 6) $ (.05) $ .00 $ (.02)
============== ============= =============
Fully diluted net (loss) income per common
and common equivalent share (Note 6) $ (.05) $ .00 $ (.02)
============== ============= =============
Weighted average of primary common and common
equivalent shares outstanding (Note 6) 6,636,811 8,112,851 8,397,686
=============== ============ =============
Weighted average of fully diluted common and
common equivalent shares outstanding (Note 6) 7,190,565 8,751,327 8,397,686
============== ============ ============
</TABLE>
F-3
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended
October 31,
1994 1995 1996
--------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (335,611) $ 31,433 $ (127,420)
Adjustments to reconcile net (loss) income to
net cash used by operating activities:
Depreciation and amortization 372,265 526,187 861,454
Increase in deferred income taxes (51,094) (140,851) (66,611)
Changes in operating assets and liabilities,
excluding the effects of
acquisitions (Notes 3 and 4):
Increase in accounts receivable (250,922) (219,747) (755,275)
(Increase) decrease in income taxes receivable (53,721) 24,357 (57,737)
Increase in inventories (310,890) (5,951) (1,902,313)
(Increase) decrease in prepaid expenses (25,079) 133,424 (223,783)
Increase (decrease) in accounts payable 277,700 (1,457,790) 850,098
Increase (decrease) in accounts payable to Purina 930,954 (930,954)
Increase in accrued compensation expense 46,779 255,064 278,189
Increase (decrease) in accrued expenses 207,461 (224,349) (214,833)
Decrease in income taxes payable (47,344)
Net cash used by operating activities (170,456) (147,269) (2,289,185)
-------------- -------------- -----------
INVESTING ACTIVITIES
Acquisitions (Note 3), net of cash acquired (8,120,233) (520,189)
Purchase of property, plant and equipment (477,276) (464,052) (592,678)
Purchase of Bromethalin Assets (Note 4) (1,056,097)
(Purchase) sale of short-term investments (2,549,211) 1,357,832 1,191,379
-------------- ------------- -----------
Net cash used by investing activities (3,026,487) (7,226,453) (977,585)
-------------- ------------- -----------
FINANCING ACTIVITIES
Proceeds (repayment) from (of) long-term debt
and notes payable (456,642) (1,731,536) 3,090,125
Proceeds from sale of common stock 12,595,193 250,000 52,823
(Loans) repayments (to) from (loans) employees for
purchase of common stock (30,000) 30,000
Purchase of treasury stock (49,986)
-------------- ------------ ------------
Net cash provided (used) by financing activities 12,108,551 (1,481,536) 3,122,962
-------------- ------------ ------------
Increase (decrease) in cash and cash equivalents 8,911,608 (8,855,258) (143,808)
Cash and cash equivalents, beginning of period 2,274,335 11,185,943 2,330,685
-------------- ------------ ------------
Cash and cash equivalents, end of period $ 11,185,943 $ 2,330,685 $ 2,186,877
============== ============= ============
</TABLE>
F-4
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
For the Year Ended
October 31,
1994 1995 1996
------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 291,600 $ 285,415 $ 363,422
Cash paid for taxes 83,000 10,000 47,189
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
During the year ended October 31, 1995, the Company acquired Zema Corporation
and St. JON Laboratories, Inc. for cash of approximately $6,500,000 (Note 3). As
consideration for the acquisitions of Zema Corporation and St. JON Laboratories,
Inc., the Company also issued aggregate notes payable of $2,300,000 to the
former owners of the acquired companies. Fair value assigned to assets acquired
was approximately $6,000,000, fair value assigned to goodwill was approximately
$6,400,000 and liabilities assumed were approximately $3,500,000.
F-5
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock in
Common Stock Treasury, at Cost
Number Additional Number
of Par Paid in of Accumulated
Shares Value Capital Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 1,
1993 4,498,844 $ 44,988 $ 1,918,362 $ (97,573) $ 1,865,777
Sale of common stock
to employees, net
of employee loans of
$30,000 527,000 5,270 389,731 395,001
Initial public offering
of common stock 2,435,000 24,350 12,046,593 12,070,943
Sale of common stock
pursuant to exercise
of stock warrants 620,000 6,200 93,800 100,000
Employee common stock
forfeitures (930) (9) (742) (751)
Net loss (335,611) (335,611)
Balance, October 31,
1994 8,079,914 80,799 14,447,744 (433,184) 14,095,359
Issuance of common
stock to employees 11,430 114 40,012 40,126
Sale of common stock
pursuant to exercise
of stock options 310,000 3,100 246,900 250,000
Net income 31,433 31,433
Balance, October 31,
1995 8,401,344 84,013 14,734,656 (401,751) 14,416,918
Repayment of employee
stock purchase loans 30,000 30,000
Issuance of stock to
directors and officers 29,605 296 52,527 52,823
Treasury stock
purchased (25,650) $ (49,986) (49,986)
Net loss (127,420) (127,420)
Balance, October 31,
1996 8,430,949 $ 84,309 $14,817,183 (25,650) $ (49,986) $ (529,171) $ 14,322,335
</TABLE>
F-6
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
1. ORGANIZATION
Agri-Nutrition Group Limited (the "Company"), a Delaware corporation, was
organized on July 20, 1993, to acquire and operate businesses in the domestic
and international food, agriculture and pet industries. In September 1993,
through its wholly-owned subsidiary, PM Resources, Inc. ("Resources"), the
Company acquired certain assets and assumed certain liabilities of the Health
Industries Business of the Consumer Products Division (the "Business") of Purina
Mills, Inc. ("Purina"). See Note 2 for further discussion of the acquisition.
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 for further discussion of these acquisitions.
The Company operates in two industry segments, ingredients and specialty
products (Note 14).
2. ACQUISITION - RESOURCES
Resources acquired selected assets and assumed certain liabilities of the
Business for cash of approximately $4,000,000, including acquisition costs of
approximately $600,000, and the assumption of approximately $400,000 of
liabilities. The acquisition was financed with a term loan of $4,000,000 and
investor equity of $1,920,000. The acquisition was recorded pursuant to the
purchase method of accounting. Accordingly, the excess of the fair value of the
net assets acquired over the purchase price of approximately $6,400,000 was
applied to reduce non-current assets at September 9, 1993.
In connection with Resources' acquisition, Purina agreed to purchase sufficient
volume and mix of products to generate income, net of ingredient, direct
manufacturing, and other direct costs of approximately $2,900,000 annually
(which represents a historically consistent margin level) through October 31,
1996. The purchase price allocation reflects the estimated fair value of this
agreement with Purina.
In fiscal 1994, 1995 and 1996, Purina purchased products which generated income,
net of ingredient, direct manufacturing and other direct costs, of approximately
$2,800,000, $3,140,000 and $1,700,000 (which includes the amounts discussed in
the following paragraph), respectively.
For fiscal 1994 and 1995, income, net of ingredient, direct manufacturing, and
other direct costs to date from Purina was approximately $525,000 less than that
required under the agreement. Such amount was billed to Purina and included in
net sales by the Company during October 1995. In fiscal 1996, the shortfall
under the agreement approximated $1,200,000, which amount was billed to Purina
and included in net sales in October 1996, and collected from Purina in December
1996. The manufacturing and supply agreement expired on October 31, 1996.
Although Purina Mills continues to be a customer of the company, there can be no
assurance as to future level of sales to Purina Mills.
F-7
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
3. ACQUISITIONS - ZEMA AND ST. JON
Through the Company's wholly owned subsidiary, Zema Acquisition Corporation,
substantially all of the net assets of Zema (approximately $1,600,000) were
acquired effective March 31, 1995. The sales price included a base price of
$3,000,000 in cash and $300,000 in the form of a note payable to the former
owner of Zema. The note payable is due with interest thereon on or before April
28, 1998 and is conditioned on the continued employment of Zema's president (see
Note 9). As a result of the employment conditions related to the $300,000
payment, a portion of such payment will be accounted for by the Company as
compensation expense ratably over the term of employment. Additional purchase
price is required to be paid by the Company to the former owner of Zema based
upon a percentage of Zema's cumulative earnings before taxes and interest in
excess of $3,345,000 for the five years ending October 31, 1999. Through October
31, 1996, no accrued liability or increase in excess purchase price has been
recorded relative to the contingent purchase price provision. The Company
primarily used proceeds from its initial public offering of Common Stock ("IPO")
to fund the $3,000,000 initial payment and related acquisition expenses of
approximately $200,000.
The acquisition of Zema was accounted for pursuant to the purchase method of
accounting. The purchase price paid for Zema has been preliminarily allocated to
net assets acquired based on their estimated fair values at the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired of approximately $1,700,000 was recorded as goodwill and is being
amortized on a straight-line basis over 40 years. The results of Zema's
operations are included in the Company's consolidated financial statements from
the date of the acquisition.
Substantially all of the net assets of St. JON (approximately $1,100,000) were
acquired through the Company's wholly-owned subsidiary, St. JON Acquisition
Corporation, effective August 31, 1995. The purchase price included a base price
of $3,500,410 in cash and additional purchase price of $2,000,000 in the form of
a promissory note. The note is payable to the former owner of St. JON and is due
in six annual installments, together with interest thereon, commencing March
1997 (see Note 9). The Company primarily used proceeds from its IPO to fund the
$3,500,410 initial payment and the related acquisition expenses of approximately
$200,000. The acquisition of St. JON was accounted for pursuant to the purchase
method of accounting. The purchase price paid for St. JON has been preliminarily
allocated to net assets acquired based on their estimated fair values at the
date of acquisition. The excess of the purchase price over fair value of net
assets acquired of approximately $4,800,000, was recorded as goodwill and is
being amortized on a straight-line basis over 30 years. The results of St. JON's
operations are included in the Company's consolidated financial statements from
the date of the acquisition.
4. ACQUISITION OF CERTAIN BROMETHALIN ASSETS
Effective May 1996, Resources acquired the worldwide patents, active ingredient
inventory, registrations and rights to Bromethalin ("the Bromethalin Assets"), a
highly effective and proprietary rodenticide serving agricultural and Pest
Control Operator (PCO) markets from Purina. The sales price and related
acquisition costs was approximately $1 million, plus an additional consideration
based on subsequent shipments of Bromethalin to Purina over a five-year period.
The Company primarily used proceeds from its July 1994 initial public offering
of its Common Stock to fund the initial payment.
Since the Company historically has manufactured and sold rodenticides containing
Bromethalin, the acquisition of the Bromethalin Assets is expected to have a
minimal impact on the Company's net sales, but is expected to increase the
Company's gross margins related to these products. The Bromethalin Assets
F-8
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
impacted the Company's consolidated financial statements commencing in May 1996,
the effective date of the acquisition.
5. INITIAL PUBLIC OFFERING
In July 1994, the Company completed the initial public offering of 2,435,000
shares of its common stock at $6.00 per share resulting in net proceeds of
approximately $12,100,000 to be used to finance acquisitions, strategic business
alliances and joint ventures, including the payment of certain executive
salaries and other administrative expenses incurred in the implementation of the
Company's acquisition strategy. Pending such use, the proceeds are invested in
high-grade, short-term, interest-bearing obligations. As of October 31, 1996,
approximately $2,040,000 of the net proceeds remain available.
6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions have been
eliminated.
ESTIMATES
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
REVENUE RECOGNITION
Revenue is generally recognized upon shipment of orders. Revenue related to
certain contract manufacturing is recognized upon the completion of the
manufacturing process. Accounts receivable consists of the amounts estimated to
be collectible on sales, after provision for uncollectible amounts, based on
historical experience. At October 31, 1994, 1995 and 1996, the provision for
uncollectible amounts was $0, $47,031 and $53,029, respectively.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company considers
all highly liquid investments with an original maturity of three months or less
to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments are carried at cost, as adjusted for amortized discounts
and premiums, unless a decline in aggregate market value below aggregate
carrying value is considered to be other than temporary.
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115). The statement addresses the accounting
and reporting for investments in debt and equity securities and specifically
requires securities to be classified as held-to-maturity, available-for-sale or
trading. The Company adopted FAS 115 as of November 1, 1994, at which point, all
investment securities were classified as held-to- maturity. As the accounting
treatment for held-to-maturity securities is the same as the amortized cost
basis utilized by the Company prior to implementing FAS 115, there was no impact
on the Company's consolidated financial statements. All investment securities
purchased subsequent to the adoption of FAS 115, including those held at October
31, 1995, were classified by the Company as held-to-maturity.
F-9
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk as defined by Statement of Financial Accounting
Standards No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," consist of cash investments, short-term investments and accounts
receivable.
Cash and cash equivalents are invested with quality financial institutions or in
high-grade commercial paper. Short-term funds are invested in high-grade
commercial paper and other investment-grade securities.
The Company sells its products to customers in the animal health and specialty
chemical businesses throughout the United States and abroad. The three largest
customers accounted for 86%, 63% and 42% of sales in the years ended October 31,
1994, 1995 and 1996, respectively, and 30% and 42% of accounts receivable at
October 31, 1995 and 1996, respectively (see Note 14). The Company generally
does not require collateral from its customers.
RELATIONSHIP WITH SUPPLIERS
The Company purchases certain chemical materials from multiple suppliers, for
which alternative suppliers also exist and are adequate. However, certain
chemical materials are proprietary in nature, and the Company's ability to
procure such chemical materials is limited to those suppliers with proprietary
rights. The Company considers its relationships with its primary suppliers to be
strong.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of financial reporting, the Company has determined that the fair
value of the Company's debt and investments approximates book value at October
31, 1995 and 1996, based on terms currently available to the Company in
financial markets.
INVENTORIES
Inventories are valued at the lower of cost, determined on the average cost
method which approximates the first-in, first-out method, or market.
Inventoriable costs include materials, direct labor and manufacturing overhead.
Inventories are stated net of a reserve for estimated excess and obsolete
inventory.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance and
repairs are charged to operations as incurred; acquisitions, major renewals, and
betterments are capitalized. When property is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts, and
any profit or loss on disposition is credited or charged to income.
The Company provides for depreciation by charging amounts sufficient to amortize
the cost of the properties over their estimated useful lives. The straight-line
method of depreciation is utilized for substantially all asset categories.
F-10
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
A summary of estimated useful lives used in computing depreciation for financial
statement reporting purposes follows:
Estimated
useful life
Building and leasehold improvements 20-30 years
Machinery and equipment 8-12
Furniture and fixtures 5-7
Vehicles 5
GOODWILL
The excess of purchase price over the fair value of net assets acquired in
business combinations is capitalized and amortized on a straight-line basis over
the estimated period benefited which ranges from 30 to 40 years. Goodwill
amortization charged to income for the years ended October 31, 1994, 1995 and
1996, was $0, $50,000 and $195,000, respectively.
The carrying value of goodwill is assessed for recoverability by management
based on an analysis of future expected cash flows from the underlying
operations of the Company. Management believes that there has been no impairment
at October 31, 1996.
OTHER ASSETS
Other assets, which is comprised of deferred compensation, patents, tradenames
and other intangible assets, including those acquired in connection with the
acquisition of the Bromethalin Assets as discussed in Note 4, are being
amortized on a straight-line basis over the lives of the related assets, which
range from one to fifteen years. Amortization expense related to other assets
for the years ended October 31, 1994, 1995 and 1996, was approximately $13,000,
$57,000 and $142,000 respectively.
INCOME TAXES
The Company uses the liability method of accounting for income taxes as mandated
by Statement of Financial Accounting Standards No. 109. Under the liability
method, deferred taxes are recognized for the estimated future tax effects
attributable to temporary differences between the book and tax bases of assets
and liabilities as well as carryforward items. These tax effects are measured
based on provisions of enacted tax laws. The classification of net deferred tax
assets and/or liabilities, i.e., current or non-current, is based primarily on
the classification of the related assets and liabilities.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (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. Common share
equivalents consist of common stock which may be issuable upon exercise of
outstanding stock warrants and options. Pursuant to Securities and Exchange
Commission rules for calculating primary and fully diluted income (loss) per
share in an initial public offering, all shares issued within twelve months of
the offering, including common stock equivalents, are considered to be
outstanding during the first two quarters of the year ended October 31, 1994
using the treasury stock method at the initial public offering price. The
Company's outstanding options were excluded from primary and fully diluted per
share computations for the last two quarters of the year ended October 31, 1994
and for the year ended October 31, 1996, due to their anti-dilutive effect. The
fully diluted per share computation for the year ended
F-11
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
October 31, 1995 includes warrants and options exercised during the year ended
October 31, 1995 on the assumption that the exercises took place at the
beginning of the fiscal year. All share and per share amounts have been adjusted
to give retroactive effect to the stock split described in Note 10.
PREFERRED STOCK
The Company's Board of Directors may, without further action by stockholders,
from time-to-time direct the issuance of shares of preferred stock in series and
may, at time of issuance, determine the rights, preferences and limitations of
each series. No shares of preferred stock have been issued as of October 31,
1996.
ENVIRONMENTAL POLICY
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated.
Purina, and the former owners of Zema and St. JON, have indemnified the Company
from environmental claims resulting from any liabilities or obligations arising
from events occurring prior to the acquisitions which the Company did not
expressly assume in these three respective acquisitions. The Company has been
notified by certain state agencies of non-compliance with certain state and
federal environmental regulations. However, management believes that the
resolution of these issues will have no material effect on the Company's
financial position or results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (FAS 121). This statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. The
statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity are reviewed (via future cash flow analyses)
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. FAS 121 was adopted during
the Company's fiscal 1996, with no impact on the consolidated financial
statements of the Company.
In October 1995, the FASB issued Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" (FAS 123). The statement
establishes a fair value based method of accounting for stock-based compensation
plans. It encourages entities to adopt that method in place of the provisions of
APB Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) for all
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of its stock. This statement permits an entity to
continue applying APB 25 in determining its net income; however, an entity that
continues to utilize APB 25 must comply with the disclosure requirements of FAS
123. FAS 123 will be adopted during the Company's fiscal 1997 and the Company
expects to continue to use the provisions of APB 25 in determining
F-12
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
net income; management does not anticipate that the adoption of this statement
will have a material impact on the consolidated financial statements of the
Company.
7. INVENTORIES
Inventories consist of the following:
October 31,
1995 1996
Raw materials $ 2,806,050 $ 3,700,881
Work-in-process 239,170 312,300
Finished goods 1,255,009 2,508,959
---------------------------------
4,300,229 6,522,140
Less reserve for excess and
obsolete inventories (98,914) (148,432)
---------------------------------
$ 4,201,315 $ 6,373,708
=================================
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
October 31,
1995 1996
Land $ 638,794 $ 638,794
Buildings 1,611,516 1,668,183
Machinery and equipment 3,004,588 3,508,986
Leasehold improvements 179,037 228,880
Furniture and fixtures 103,981 158,607
Vehicles 26,224 39,232
-------------- ---------------
5,564,140 6,242,682
Less accumulated depreciation (847,528) (1,384,511)
-------------- ---------------
4,716,612 4,858,171
Construction in progress 110,358 49,642
-------------- ---------------
$ 4,826,970 $ 4,907,813
============== ===============
The Company leases certain equipment and facilities under noncancelable
operating leases. The primary operating facilities of Zema and St. JON are
leased from related parties (see Note 13). Minimum lease payments for operating
leases, including leases with related parties, at October 31, 1996 are as
follows:
1997 394,889
1998 310,057
1999 277,208
2000 195,005
2001 -
---------------
Total minimum lease payments $ 1,177,159
===============
Rental expense under all operating leases approximated $148,000, $392,000 and
$548,000 for the years ended October 31, 1994, 1995 and 1996, respectively.
F-13
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
9. FINANCING
REVOLVING CREDIT AGREEMENT
In May 1996, the Company amended its revolving credit agreements with its
primary lender to extend their terms through December 31, 1997. At October 31,
1996, an aggregate of $7.95 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. At October 31, 1996, borrowings
outstanding under the agreements totaled approximately $5.1 million and are
classified as long-term debt. The interest rate ranges from prime to prime plus
1.125%, depending on the Company's ratio of debt to net worth, as defined in the
agreements. At October 31, 1996, the interest rate charged on borrowings
outstanding was 8.50% which is the bank's prime rate plus .25%. Accrued interest
on the revolving credit agreements is approximately $77,000 at October 31, 1996.
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 prohibit the Company from paying
dividends without the consent of the Company's lender. At October 31, 1996, the
Company and its subsidiaries were in compliance with all covenants related to
its various financing arrangements. The agreements allow the Company to sweep
certain cash balances against outstanding borrowings.
ACQUISITION NOTES PAYABLE
In connection with the acquisitions completed during fiscal 1995 (see Note 3),
the Company entered into notes payable agreements with the former owners of Zema
and St. JON. At October 31, 1996, the Company had an outstanding note payable of
$300,000 to the former owner of Zema, of which 55% of that company's common
stock is owned by the president of the Company's Zema subsidiary (see Note 13).
That amount, plus interest accrued monthly at the Wall Street Journal's prime
rate (8.25% at October 31, 1996), is due and payable in full on or before April
28, 1998.
At October 31, 1996, the Company had a $2,000,000 note payable outstanding that
has been assigned to the former owner of St. JON who is the president of the
Company's St. JON subsidiary. The note is due in six annual installments of
principal and interest ($450,556) beginning in March 1997. This note has a fixed
interest rate of 7.6%.
Accrued interest on the St. JON note is approximately $226,873 at October 31,
1996. The aggregate acquisition notes payable balance at October 31, 1996 is
$2,526,873, of which the $450,557 payment due March 31, 1997 is included in
current liabilities.
In connection with the acquisition of St. JON, the Company assumed a note
payable and related accrued interest due to the former owner of St. JON who is
the president of the Company's St. JON subsidiary (see Note 13). Concurrent with
the completion of the acquisition, the Company deposited $1,038,000 in an
irrevocable trust to complete an in-substance defeasance of the note payable.
The funds were placed in trust solely to satisfy the $949,882 note payable (plus
accrued interest) due on December 31, 1995. Accordingly, the restricted cash,
the note payable and the related accrued interest are not included on the
October 31, 1995 and 1996 consolidated balance sheets.
F-14
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
FINANCING AGREEMENTS
The Company entered into agreements to finance certain of its annual insurance
premiums. The financing agreements provide for monthly principal and interest
payments of approximately $28,000 and $30,000, covering periods from July 1995
to July 1996 and July 1996 to August 1997, respectively. The aggregate amount
financed under these agreements are approximately $275,000 and $366,000,
respectively. Of these amounts, approximately $225,000 and $292,000 remain
outstanding at October 31, 1995 and 1996, respectively, and are included in
current portion of long-term debt and notes payable at those dates.
10. COMMON STOCK TRANSACTIONS
In connection with the Company's formation, 1,488,000 shares of common stock
were issued to certain founding shareholders at approximately $.06 per share and
warrants for 620,000 shares of common stock (exercisable at approximately $.16
per share) were issued for an aggregate of $30,000. The warrants were exercised
in August and October 1994 for aggregate consideration of $100,000 (see Note
13).
In December 1993, pursuant to the Stock Purchase Plan for Employees of PM
Resources, Inc., employees and certain other individuals subscribed and remitted
payment of $365,650 for 453,406 shares of common stock and one officer/director
subscribed and remitted payment of $59,350 for 73,594 shares of common stock.
The shares were offered to certain employees of Resources and certain other
individuals at the fair market value price of approximately $.81 per share, as
determined by the Board of Directors based upon previous arms length
transactions (see Note 13).
In December 1993, the Company reached five year agreements in principle with two
individuals regarding said individuals' employment as officers of the Company.
The agreements include the issuance of options for an aggregate of 945,500
shares of the Company's common stock, at an exercise price of approximately $.81
per share, as determined by the Board of Directors based upon previous arms
length transactions. Such options expire in 1999 (see Note 13).
In December 1993, the Company entered into a one-year employment agreement with
its Vice Chairman that granted the Vice Chairman an option to purchase 310,000
shares of common stock at an exercise price of approximately $.81 per share, as
determined by the Board of Directors based upon previous arms length
transactions. Such options were exercised in September 1995. The Vice Chairman
is an officer of a firm with whom the Company had previously entered into an
agreement for consulting services (see Note 13).
In September 1995, the Vice Chairman resigned from the Company.
On April 21, 1994, the Company's Board of Directors authorized the Company to
split its shares of common stock at a rate of 6.2 to 1, thereby increasing
shares issued and outstanding from 725,620 to 4,498,844. All share and per share
amounts in the accompanying consolidated financial statements and notes have
been adjusted to give retroactive effect to the stock split.
During the year ended October 31, 1996, the Company purchased 25,650 shares of
its common stock at an aggregate cost of $49,986. These purchases were the first
under the stock repurchase plan authorized by the Board of Directors in December
1995. At October 31, 1996, the Company had authorization to acquire an
additional 474,350 shares under the stock repurchase plan. The Company expects
to finance additional treasury stock purchases, if any, with available funds.
F-15
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
11. INCOME TAXES
The components of the net income tax benefit are as follows:
For the Year Ended
October 31,
1994 1995 1996
----------------------------------------------
Current:
Federal $ (14,182) $ 10,034 $ (10,548)
State (3,883) 24,323
--------------------------------
(18,065) 34,357 (10,548)
-------------------------------------------------
Deferred:
Federal (43,018) (143,279) (62,567)
State (8,076) 2,428 (4,044)
-------------------------------------------------
(51,094) (140,851) (66,611)
-------------------------------------------------
$ (69,159) $ (106,494) $ (77,159)
=================================================
The net benefit for income taxes differs from the amount of income tax
determined by applying the statutory U.S. federal income tax rate to pretax loss
as a result of the following:
<TABLE>
<CAPTION>
For the Year Ended October 31,
1994 1995 1996
<S> <C> <C> <C>
Income tax benefit at statutory rate $ (137,537) $ (25,521) $ (69,557)
Increase (decrease) in valuation allowance 79,795 (95,732)
State income taxes, net of federal benefit (15,894) 17,655 (2,669)
Other, net 4,477 (2,896) (4,933)
$ (69,159) $ (106,494) $ (77,159)
</TABLE>
F-16
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
Deferred tax (assets) liabilities are comprised of the following at October 31:
<TABLE>
<CAPTION>
1994 1995 1996
--------------------------------------------
<S> <C> <C> <C>
Purchase accounting basis differences $ -- $ 94,573 $ 180,307
Compensation 23,112 4,074
Fixed assets 7,223 50,302
Other 4,239
Gross deferred tax liabilities -- 129,147 234,683
Inventories (18,124) (135,679) (192,329)
Fixed assets (31,028)
Accruals (79,884) (101,943)
Net operating loss carryforward (138,472) (195,065) (271,863)
Other (6,958) (4,823) (21,463)
Gross deferred tax assets (194,582) (415,451) (587,598)
Deferred tax assets valuation allowance 194,582 98,850 98,850
Net deferred tax assets $ -- $ (187,454) $ (254,065)
</TABLE>
The net change in the valuation allowance for deferred tax assets was an
increase of $79,795 for the year ended October 31, 1994 and a decrease of
$95,732 in the year ended October 31, 1995. The changes primarily relate to the
reversal of inventory basis differences originating in connection with the
acquisition of the Business (see Note 2) and net operating loss carryforwards
generated during the year ended October 31, 1994. At October 31, 1996, the
Company has approximately $683,000 of net operating loss carryforwards which are
available to offset future taxable income. These carryforwards begin to expire
in 2010.
12. EMPLOYEE BENEFIT PLANS
The Company maintains four 401(k) savings plans (the Plans). Employees of the
Company and non-union employees of Resources participate in one 401(k) plan; a
separate 401(k) plan was established for union employees of Resources. Employees
of Zema and St. JON each participate in separate plans that were established
prior to the acquisitions of Zema and St. JON by the Company (see Note 3).
Contributions to the Plans result primarily from voluntary contributions from
employees in the form of deferrals of up to 15% of the employees' salaries. The
Plans permit various employer matching contributions. Employer contributions
were $71,700, $135,513 and $227,600 for the years ended October 31, 1994, 1995
and 1996, respectively.
Subsequent to October 31, 1996, the Company implemented a merger of the three
non-union 401(K) plans, maintaining generally similar terms and provisions of
the prior individual plans.
The Company maintained a discretionary, non-contributory profit-sharing plan for
its union employees at Resources. Terms of the plan provided that the Company
contributed $30,000 for the year ended October 31, 1994. The profit sharing plan
was amended effective January 1, 1995 to establish the 401(k) plan for union
employees discussed above.
F-17
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
In September 1993, the Company adopted a Stock Purchase Plan for Employees of
Resources. An aggregate of 527,000 shares of common stock were offered to
employees of Resources and certain other individuals at the fair value price of
$.81 per share as determined by the Board of Directors. In December 1993,
employees and certain other individuals subscribed and remitted payment of
$365,650 for 453,406 shares of common stock and one officer/director subscribed
and remitted payment of $59,550 for 73,594 shares of common stock. The Company
provided financing of $30,000 for certain Resources employees related to their
purchase via notes receivable. These loans were repaid in fiscal 1996.
Effective June 1, 1994, the Company adopted the Incentive Stock Plan (1994 ISP).
An aggregate of 400,000 shares of the Company's common stock are reserved for
issuance to eligible employees under the 1994 ISP. During the year ended October
31, 1994, no shares were issued in connection with the 1994 ISP. Options to
purchase 237,500 and 121,500 shares of the Company's common stock were granted
to employees under the 1994 ISP during the years ended October 31, 1995 and
1996, respectively. The exercise prices of the options granted in fiscal 1995
range from $3.50 to $4.25 per share, and the options granted in fiscal 1996
range from $1.56 to $2.63 per share, all of which approximated fair value on the
dates of grant. These options vest ratably up to three years from the date of
grant and will expire five years after the vesting date. The Company also issued
11,430 and 1,240 shares of common stock to employees under the 1994 ISP, during
the years ended October 31, 1995 and 1996, respectively.
Effective March 9, 1995, the Company adopted the 1995 Incentive Stock Option
Plan (1995 ISP). An aggregate of 500,000 shares of the Company's common stock
are reserved for issuance to eligible employees, consultants and advisors to the
Company under the 1995 ISP. Options to purchase 100,000 shares of the Company's
common stock were granted to a consultant under this plan at an exercise price
of $3.00 per share, under an amended option agreement, which approximated fair
value at the amended date of grant. These options were not exercised and expired
in June 1996. No other shares or options have been issued in connection with the
1995 ISP.
In March 1995, the shareholders of the Company approved the Reload Option and
Exchange Exercise Plan (the Reload Plan) which permits employees holding options
to elect, in accordance with terms of the Reload Plan, to pay the exercise price
of such options by surrendering the shares of the Company's common stock. The
shares surrendered are valued at the reported closing market price of the
Company's common stock on the date that the employee provides the notice of
intent to exercise the option and surrenders the shares in payment of the
exercise price. The Reload Plan also provides for the issuance to the employee
of a new option to acquire the number of shares of the Company's common stock
surrendered in the option exercise with an exercise price per share equal to the
per-share valuation applicable to the shares surrendered. There are 200,000
shares reserved for issuance under the Reload Plan; no options were granted
during the year ended October 31, 1996.
Effective March 7, 1996, the Company's shareholders approved the 1996 Incentive
Stock Option 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 to the Company under the 1996 ISP. Options to
purchase 345,000 shares of the Company's common stock were granted to employees
under the 1996 ISP during the year ended October 31, 1996. The exercise prices
of the options granted range from $1.56 to $2.63 per share, which approximated
fair value on the dates of grant. These options vest ratably up to three years
from the date of grant and will expire ten years from the grant date. During the
year ended October
F-18
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
31, 1996, the Company also issued 28,365 shares of the Company's Common Stock
under the 1996 ISP to executives and outside directors of the Company.
13. RELATED PARTY TRANSACTIONS
In September 1993, the Company entered into an agreement (which expired March
1994) with a consulting firm, the beneficial owner of which is the President,
CEO and Chairman of the Board and a shareholder of the Company. The agreement
provided for a monthly retainer payment of $4,000.
In October 1993, the Company entered into an agreement (which expired May 1994)
with another consulting firm, the officers and directors of which were also
officers and shareholders of the Company. The agreement provided for a monthly
retainer payment of $3,500. In connection with the acquisition of Resources, the
Company paid said consulting firm $275,000 which is included in transaction
costs discussed in Note 2.
In November 1993, the Company entered into a separate agreement effective
through October 1, 1994 with the firm described in the preceding paragraph for
services to be rendered in connection with analysis of the Company's management
needs, coordinating the hiring of its current senior executives, and assisting
such executives in developing the Company's initial acquisition strategy. The
agreement provided for the payment of $250,000 upon completion of the contract;
said contract was fulfilled and the Company remitted the required payment in
April 1994. Such payment is reflected in selling, general and administrative
expenses in the year ended October 31, 1994.
In December 1993, the Company entered into an employment agreement (amended in
November 1996) with the Company's CEO and Chairman, who is also a shareholder of
the Company. The agreement provides for an option to purchase 558,000 shares of
common stock at an exercise price of $.81 per share, as determined by the Board
of Directors based upon previous arms length transactions, as well as a
performance-based bonus.
In December 1993, the Company entered into an agreement (terminated in August
1996) with an officer of the Company. The agreement provides an option to
purchase 387,500 shares of common stock at an exercise price of $.81 per share,
as determined by the Board of Directors based upon previous arms length
transactions, as well as a performance-based bonus. During fiscal 1996, the
option price was increased to $1.56 per share, in conjunction with the
management restructuring discussed in Note 16.
On August 12, 1994, warrants issued to the Vice Chairman were exercised to
purchase 310,000 shares of common stock for an aggregate exercise price of
$50,000. On October 31, 1994, a former officer of the Company exercised warrants
to purchase 310,000 shares of common stock for an aggregate exercise price of
$50,000.
In January 1995, the Company entered into an agreement with the Vice Chairman of
the Company to provide financial services through August 1995. Compensation
under the agreement, including all related expenses, totaled $85,000. The Vice
Chairman resigned from the Company in September 1995.
In April 1995, in connection with the acquisition of Zema (see Note 3), the
Company entered into an operating lease agreement with a limited partnership of
which the general partner is president of the
F-19
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
Company's Zema subsidiary. The lease, which expires in April 2000, with an
option to extend the term for an additional five years, and relates to the land
and building that comprise the primary operating facility for Zema. Rent expense
under this agreement was $47,500 and $95,000 for the years ended October 31,
1995 and 1996, respectively.
In September 1995, options issued to the Company's former Vice Chairman to
purchase 310,000 shares of common stock for an aggregate exercise price of
$250,000 were exercised.
In September 1995, in connection with the acquisition of St. JON (see Note 3),
the Company entered into an operating lease agreement with the former owner of
St. JON and the president of the Company's St. JON subsidiary. The lease expires
in August 2000, with an option to extend the term for an additional five years,
and relates to the land and buildings that comprise St. JON's primary operating
facility. Rent expense under this agreement was $27,884 and $167,301 for the
years ended October 31, 1995 and 1996, respectively.
During the years ended October 31, 1995 and 1996, the Company had net sales of
approximately $822,000 and $954,000, respectively, to a corporation in the
veterinary supplies business that is also a shareholder of the Company. An
officer of such corporation is also a shareholder of the Company and the Vice
Chairman of the Company's Board of Directors. The Company's management considers
sales to said corporation to be arms length transactions.
As discussed in Note 9, the Company entered into acquisition note payable
agreements with the former owners of Zema and St. JON.
14. BUSINESS SEGMENT INFORMATION
The Company operates in two industry segments: ingredients and specialty
products. Given the acquisitions of businesses with branded, consumer-targeted
products in 1995 and the continued emphasis on growth of the specialty product
segment, the significance of the ingredient segment has decreased in fiscal
1996. Management expects this trend to continue in the future such that at some
point, the ingredient segment may no longer meet the requirements for segment
disclosure under generally accepted accounting principles.
Information relating to the Company's two business segments is as follows:
F-20
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
($ in 000s)
At and For the Year Ended
October 31,
1994 1995 1996
-------------------------------------------
Net sales:
Ingredients $ 12,012 $ 8,934 $ 7,722
Specialty products 13,672 20,043 28,662
----------------------------------------------
$ 25,684 $ 28,977 $ 36,384
----------------------------------------------
Operating income (loss):
Ingredients $ 239 $ 229 $ 198
Specialty products 771 1,467 1,942
Corporate (1,255) (1,954) (1,907)
----------------------------------------------
$ (245) $ (258) $ 233
==============================================
Total assets:
Ingredients $ 1,618 $ 1,409 $ 1,847
Specialty products 7,026 19,643 21,464
Corporate 12,498 2,421 3,039
----------------------------------------------
$ 21,142 $ 23,473 $ 26,350
==============================================
Depreciation and amortization expense:
Ingredients $ 26 $ 27 $ 27
Specialty products 346 497 832
Corporate 2 2
----------------------------------------------
$ 372 $ 526 $ 861
==============================================
Capital expenditures:
Ingredients $ 4 $ - $ -
Specialty products 462 421 1,644
Corporate 11 43 5
----------------------------------------------
$ 477 464 $ 1,649
==============================================
Sales of ingredients were made exclusively to one customer. Sales to three major
specialty products customers comprise 68%, 92% and 31% of specialty products
sales for the years ended October 31, 1994, 1995 and 1996, respectively.
Intersegment sales and other intercompany assets are not significant.
15. COMMITMENT 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 would 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
F-21
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Financial Statements
(Continued)
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.
16. OTHER MATTERS
ANTHONY LETTER OF INTENT
In August 1996, the Company announced the signing of a letter of intent to
acquire Anthony Products Company, a private company specializing in the
development and manufacturing of pharmaceutical animal health products. The
transaction is subject to completion of due diligence and negotiation of a
definitive agreement. Management expects that the purchase price will be paid
with cash and common stock, and the cash portion, if any, will be funded by a
combination of bank financing, available funds and the issuance of equity
securities in private transactions.
CORPORATE REORGANIZATION
In August 1996, the Company announced the resignation of the Company's Chief
Executive Officer and President, effective October 31, 1996, and its Chief
Financial Officer effective August 23, 1996. In connection with these
resignations, the Company incurred a non-recurring charge of $240,000 relative
to severance costs in the fourth quarter of fiscal 1996. These costs will be
paid subsequent to October 31, 1996.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of Agri-Nutrition
Group Limited
Our audits of the consolidated financial statements referred to in our report
dated December 13, 1996, appearing on page F-1 of this Annual Report on Form
10-K also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri
December 13, 1996
S-1
<PAGE>
AGRI-NUTRITION GROUP LIMITED
SCHEDULE VIII - RULE 12-09
VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT BALANCE AT
BEGINNING DEDUCTIONS END OF
DESCRIPTION OF PERIOD ADDITIONS - DESCRIBE PERIOD
-------------------------------------------------
CHARGED TO COSTS CHARGED TO OTHER
AND EXPENSES ACCOUNTS - DESCRIBE
<S> <C> <C> <C> <C> <C>
FAS 109 Valuation
Allowance $98,850 -- -- -- $98,850
Inventory Reserve $98,914 $11,518 $38,000(1) -- $148,432
Allowance for
Doubtful Accounts $47,031 $5,998 -- -- $53,029
</TABLE>
(1) Consists of inventory reserves recorded as the result of the
acquisition of the Bromethalin Assets described in Note 4 of the
Company's Notes to Consolidated Financial Statements for the year
ended October 31, 1996.
S-2
ASSET PURCHASE AGREEMENT
AMONG
AGRI-NUTRITION GROUP LIMITED,
ZEMA ACQUISITION CORPORATION
and
ZEMA CORPORATION
April 28, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
ASSET PURCHASE AGREEMENT
ARTICLE I PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES..... 1
1.1 Purchase of Assets.................................1
1.2 Assumption of Liabilities..........................2
1.3 Employees..........................................2
1.4 Further Assurances.................................3
ARTICLE II PURCHASE PRICE.....................................3
2.1 Purchase Price.....................................3
2.2 Allocation.........................................3
2.3 Payments...........................................4
ARTICLE III CLOSING............................................4
3.1 The Closing Date...................................4
3.2 The Closing........................................4
3.3 Physical Possession................................4
3.4 Transfer Taxes.....................................4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER...........5
4.1 Organization and Qualification.....................5
4.2 Corporate Power and Authority......................5
4.3 No Violation.......................................5
4.4 Financial Statements...............................6
4.5 Absence of Undisclosed Liabilities.................6
4.6 Conduct of Business Since the Date of the March
Balance Sheet Date...............................6
4.7 Tangible Properties................................7
4.8 Premises...........................................7
4.9 Licenses and Permits...............................8
4.10 Intellectual Property..............................8
4.11 Outstanding Commitments............................8
4.12 Title to Assets....................................9
4.13 Litigation.........................................9
4.14 Compliance with Law................................9
4.15 Labor and Employee Relations......................10
4.16 Certain Employees.................................10
4.17 Employee Benefits.................................10
4.18 Insurance.........................................10
4.19 Taxes.............................................11
4.20 Brokers...........................................11
4.21 Environmental Laws................................11
4.22 Books and Records.................................12
4.23 Disclosure........................................12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER...........12
5.1 Organization......................................12
5.2 Buyer's Power and Authority.......................12
5.3 No Violation......................................12
5.4 Broker............................................13
5.5 Financings........................................13
5.6 Disclosure........................................13
5.7 Capitalization and Authorization to Issue Stock...13
ARTICLE VI COVENANTS OF SELLER...............................13
6.1 Best Efforts Cooperation..........................13
6.2 Access............................................13
6.3 Insurance.........................................14
6.4 Compliance with Laws..............................14
6.5 Keeping of Books and Records......................14
6.6 Actions Prior to Closing..........................14
6.7 Litigation........................................14
6.8 Continued Effectiveness of
Representations and Warranties..................15
6.9 Discharge of Liabilities..........................15
6.10 No Negotiations...................................15
6.11 Monthly Statements................................15
6.12 Charter Amendments................................15
6.13 Issuance of Stock.................................15
6.14 Change of Name....................................15
6.15 Covenant Not To Compete...........................16
6.16 Certain Agreements................................16
ARTICLE VII COVENANTS OF THE BUYER............................16
7.1 Best Efforts Cooperation..........................16
7.2 Financing.........................................16
7.3 Employee Bonuses..................................16
7.4 Taxes.............................................16
<PAGE>
ARTICLE VIII MUTUAL COVENANTS..................................17
8.1 General Covenants.................................17
8.2 Public Announcements..............................17
8.3 Confidentiality...................................17
ARTICLE IX CONDITIONS TO BUYER'S OBLIGATIONS.................18
9.1 Representations and Warranties True...............18
9.2 Performance 18
9.3 Consents..........................................18
9.4 No Material Adverse Change........................18
9.5 No Actions, Suits or Proceedings..................19
9.6 No Material Adverse Economic Event................19
9.7 Employment Agreement and Facilities Lease.........19
9.8 Shareholder's Guaranty............................19
9.9 Opinion of Counsel................................19
9.10 Closing Documents.................................19
9.11 Approval of the Buyer and Its Counsel.............20
9.12 Continued Employment of Bowman....................20
ARTICLE X CONDITIONS TO SELLER'S OBLIGATIONS................20
10.1 Representations and Warranties to be True
and Correct.....................................20
10.2 Performance.......................................20
10.3 Opinion of the Buyer's Counsel....................21
10.4 No Actions, Suits or Proceedings..................21
10.5 Employment Agreement..............................21
10.6 Closing Documents.................................21
10.7 Approval of Seller and its Counsel................21
ARTICLE XI INDEMNIFICATION...................................21
11.1 Survival..........................................21
11.2 Indemnification by Seller.........................21
11.3 Indemnification by Buyer..........................22
ARTICLE XII TERMINATION.......................................22
12.1 Termination.......................................22
12.2 Effect of Termination.............................23
<PAGE>
ARTICLE XIII MISCELLANEOUS......................................23
13.1 Notices............................................23
13.2 Entire Agreement 24
13.3 Modifications and Amendments.......................25
13.4 Waivers and Consents...............................25
13.5 Assignment.........................................25
13.6 Parties in Interest................................25
13.7 Governing Law......................................25
13.8 Jurisdiction and Service of Process................26
13.9 Severability.......................................26
13.10 Interpretation.....................................26
13.11 Headings and Captions..............................26
13.12 Choice of Remedies and Enforcement.................26
13.13 Expenses...........................................27
13.14 Counterparts.......................................27
SCHEDULES
1.1(a) - Equipment
1.1(c) - Intellectual Property
1.1(d) - Contracts
1.2 - March 31, 1995 Balance Sheet
2.1(c) - Interest Calculation Model
2.2 - Purchase Price Allocation
2.3 - Payment Assignees
4.3 - Consents, etc.
4.4 - Financial Statements
4.7 - Tangible Properties
4.8 - Leased Premises
4.9 - Permits
4.11 - Terminating Customers
4.13 - Litigation
4.14 - Compliance with Law
4.16 - Certain Employees
4.17 - Employee Benefits
4.18 - Insurance
4.21 - Environmental Claims
9.7(a) - Employment Agreement
9.7(b) - Facilities Lease
9.8 - Shareholder Guaranty
9.9 - Opinion of Seller's Counsel
10.3 - Opinion of Buyer's Counsel
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into on April 28,
1995, effective as of March 31, 1995, by and between Agri-Nutrition Group
Limited, a Delaware corporation ("Buyer"), Zema Acquisition Corporation, a
Delaware corporation that is a wholly owned subsidiary of Buyer ("Acquisition"),
and Zema Corporation, a North Carolina corporation ("Seller").
W I T N E S S E T H
WHEREAS, Seller owns and operates a business consisting of the
formulation, packaging, and marketing of pet health care and grooming products
located at Raleigh, North Carolina (the "Business"); and
WHEREAS, Buyer desires, through Acquisition, to purchase, and Seller
desires to sell, the Business as a going concern;
THEREFORE, in consideration of the premises, and the mutual covenants,
terms and conditions contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES
1.1 Purchase of Assets. Upon the terms and subject to the
conditions hereinafter set forth, at the Closing (as hereinafter defined) Seller
shall sell, assign, transfer and deliver to Buyer, and Buyer shall purchase,
acquire and take assignment and delivery from Seller, all of the Seller's right,
title and interest in and to all assets (wherever located) related to or used in
conjunction with the Business as they existed on March 31, 1995 (the "Purchased
Assets"). The Purchased Assets include (but are not necessarily limited to) the
following, as they existed on March 31, 1995:
(a) Equipment. All of the machinery, equipment, fixtures, furniture, tools,
spare parts, supplies, maintenance equipment and supplies, computer hardware and
software, automobiles owned by Seller and used in the Business (the
"Equipment"), including the Equipment described on Schedule 1.1(a);
(b) Inventories. All of the Business's inventories, including all raw
materials, work in process, and finished goods inventories, wherever located
(the "Inventories");
(c) Intellectual Property. All United States and foreign patents, patent
applications, patent licenses, trade names, trademarks, trade name and trademark
registrations and applications therefor, trade secrets, inventions, processes,
designs, software, know-how and formulae that are in any way connected to the
business, including the specific patents, trade names and trademarks described
on Schedule 1.1(c) (the "Intellectual Property");
(d) Contracts. All contracts, agreements, leases, arrangements, and
commitments related to the Business, including the specific contracts described
on Schedule 1.1(d) (the "Contracts");
(e) Records. All business and financial records, files, correspondence,
books, manuals, documents, and trade secrets relating to the Business, including
all records relating to suppliers and customers (the "Records");
(f) Licenses. All licenses and permits held by the Seller relating to the
operation of the Business (the "Licenses");
(g) Other Intangibles. All other intangible assets, including all goodwill,
related to, or used in conjunction with, the Business;
(h) Accounts Receivable. Any and all accounts receivable, trade
receivables, notes receivable, and other receivables arising out of the
operation of the Business (the "Accounts Receivable"); and
(i) Other Assets. All other assets used in or related to the Business,
including deposits, claims and causes of action, cash, and cash equivalents.
1.2 Assumption of Liabilities. At the Closing Buyer shall
assume and undertake to perform (i) any and all obligations that are reflected
as "trade accounts payable" and "accrued expenses" on Seller's balance sheet as
of March 31, 1995 (the "March Balance Sheet"), which appears as Schedule 1.2;
(ii) any and all trade accounts payable incurred and expenses accrued subsequent
to the date of the March Balance Sheet; (iii) any and all contractual
obligations that are required to be performed by Seller under the Contracts
described on Schedule 1.1(d) and under any additional contracts entered into by
Seller in the ordinary course of business subsequent to the date of the March
Balance Sheet accruing, arising or relating to periods following the Closing;
and (iv) all obligations with respect to employees of Seller assumed by Buyer
pursuant to Section 1.3. The obligations of Seller to be assumed by Buyer as
defined in the preceding sentence are hereinafter referred to collectively as
the "Assumed Liabilities." Buyer shall be liable only with respect to the
Assumed Liabilities and shall not assume or be liable for any other liabilities,
debts, or obligations of Seller whatsoever.
1.3 Employees. Prior to the Closing Date Buyer shall offer
employment, effective immediately after the Closing, to all employees of Seller
existing on March 31, 1995, such offers of employment to be on substantially the
same terms and conditions under which said employees are currently employed by
Seller. With respect to each employee accepting such offer, Buyer shall assume
his or her accrued vacation and sick time, severance pay, and other
termination-related liabilities and claims. Seller shall remain liable for any
and all employment-related liabilities and costs, whether accrued or unaccrued
in accordance with Seller's employment policies or generally accepted accounting
principles, relating to any and all employees who do not accept Buyer's offer of
employment.
1.4 Further Assurances. At any time and from time to time
after the Closing Date, at the request of Buyer and without further
consideration, Seller will execute and deliver such other instruments of sale,
transfer, conveyance, assignment and confirmation as may be reasonably requested
in order more effectively to transfer, convey and assign to the Buyer and to
confirm the Buyer's title to the Purchased Assets.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The purchase price for the Purchased
Assets shall consist of the Base Purchase Price (as hereinafter defined) and the
Additional Purchase Price (as hereinafter defined, and together with the Base
Purchase Price, the "Purchase Price") determined and paid as follows:
(a) Base Purchase Price. The "Base Purchase Price" shall be
$3,300,000, of which $3,000,000 shall be paid at the Closing and
$300,000, together with interest , shall be paid on or before the third
anniversary of the Closing.
(b) Additional Purchase Price. The "Additional Purchase Price"
shall be (i) 35 percent of the cumulative earnings before taxes and
interest ("EBIT") of Acquisition for the five years ending October 31,
1999 in excess of $3,345,000 to the extent that such excess is
$3,255,000 or less and (ii) 25 percent of such cumulative EBIT in
excess of $3,345,000 to the extent that such excess is greater than
$3,255,000. The Additional Purchase Price, together with interest
computed as provided in Section 2.1(c), shall be paid on or before the
tenth day following completion of the audit of the financial statements
of such business for the year ending October 31, 1999. EBIT shall be
determined in accordance with generally accepted accounting principles
("GAAP"); provided, that EBIT shall be adjusted to eliminate (i) all
effects of any increase in Seller's book value of the Purchased Assets
over that reflected in the March 31 Balance Sheet and (ii) all
corporate management charges of Buyer, except charges for the fair and
reasonable value of tangible services actually provided by Buyer with
the consent of Seller, which consent shall not be unreasonably
withheld.
(c) Interest. Interest shall be at the prime interest rate
published by The Wall Street Journal computed on the basis of the
average rate as of the first day of each month during the period for
which the computation is made. Interest with respect to that portion of
the Base Purchase Price payable on the third anniversary of the Closing
shall be computed from the Closing Date through the date of payment.
Interest with respect to the Additional Purchase Price shall be
computed with respect to each of the five years ending October 31, 1999
in accordance with the hypothetical calculation set forth in Schedule
2.1(c).
2.2 Allocation. The Purchase Price shall be allocated
among the categories of Purchased Assets and the covenant not to compete (set
forth in Section 6.15) based upon fair market value as set forth in Schedule
2.2. Buyer and Seller agree that any reporting of the Purchase Price or the
allocation thereof on any federal or state tax return shall be consistent with
Schedule 2.2.
2.3 Payments. All payments of the Purchase Price shall be to
the order of Seller; provided, that in the event Seller's corporate existence
shall be terminated, all such payments due thereafter shall be made to the
individuals, at the addresses, and in the proportionate amounts set forth in
Schedule 2.3.
ARTICLE III
CLOSING
3.1 The Closing Date. Subject to the satisfaction or waiver of
each of the conditions contained in Articles IX and X of this Agreement, the
closing of the transaction contemplated by this Agreement (the "Closing") shall
be effective as of March 31, 1995 and shall take place at the offices of Wyrick,
Robbins, Yates and Ponton L.L.P., 4101 Lake Boone Trail, Suite 300, Raleigh,
North Carolina 27607, at 10:00 a.m. on April 28, 1995 or such other date
agreeable to the parties within five business days after the satisfaction or
waiver of all conditions to Closing set forth in Articles IX and X, or on such
other date or at such other location or time as may be agreed upon by the
parties (such date and time being called the "Closing Date"), but in no event
later than the Termination Date (as defined in Section 12.1(c)), unless extended
pursuant to Section 12.1(c).
3.2 The Closing. At the Closing, Seller shall deliver to the
Subsidiary or other designee of Buyer (i) such good and sufficient deeds, bills
of sale with covenants of warranty, endorsements, assignments, lessor's consents
and estoppels, mortgagee non-disturbance agreements, and other good and
sufficient instruments of conveyance and assignment, in form and substance
satisfactory to Buyer, necessary or desirable to vest in the Subsidiary or such
other designee all of the Seller's right, title and interest in and to the
Purchased Assets and (ii) such other certificates, instruments, documents and
opinions as are set forth in Article IX. Such delivery is being made against
delivery by Buyer to Seller of (i) a certified or bank check or wire transfer to
Seller in the amount of $3,000,000, (ii) such instruments and agreements, in
form and substance satisfactory to Seller, necessary or desirable to effect the
assumption by the Subsidiary or such designee of all liabilities and obligations
of Seller to be assumed hereunder pursuant to Section 1.2 and (iii) such other
certificates, instruments, documents and opinions as are set forth in Article X.
3.3 Physical Possession. Simultaneously with the
Closing, Seller shall deliver to Acquisition or other designee of Buyer
possession of all of the tangible Purchased Assets.
3.4 Transfer Taxes. Buyer and Seller shall each be responsible
for 50 percent of any sales, use and transfer taxes imposed by federal, state,
county or local law with respect to the sale of the Purchased Assets to Buyer.
1
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Organization and Qualification. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
state of North Carolina and is qualified as a foreign corporation in each
jurisdiction where it is required to be so qualified, except where the failure
to be so qualified would have no material adverse effect on the Business.
4.2 Corporate Power and Authority. Seller has full corporate
power and authority to carry on its business as now being conducted and to own,
operate and lease its properties in the places where such business is now
conducted and such properties are now owned, leased or operated. The outstanding
capital stock of Seller consists of 85,354 shares of common stock. This
Agreement and the transactions contemplated hereby have been duly approved by
the Board of Directors and the holders of a majority of the outstanding shares
of common stock of Seller, the only class of voting stock outstanding. Seller
has full corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, and this Agreement and each of
the other agreements to be executed and delivered by Seller in connection
herewith constitute and will constitute the legal, valid and binding obligations
of Seller enforceable against it in accordance with their respective terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting creditors' rights generally from time to time in effect and
to general equitable principles.
4.3 No Violation. Except as set forth in Schedule 4.3, neither
the execution and delivery of this Agreement and the other documents and
instruments contemplated hereby and the consummation of the transactions
contemplated hereby or thereby, nor the performance of this Agreement and such
other documents and instruments in compliance with the terms and conditions
hereof and thereof, will (i) violate, conflict with or result in any breach of
any trust agreement, charter documents, bylaw, judgment, decree, order, statute
or regulation applicable to Seller, (ii) to Seller's knowledge, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, (iii) violate, conflict with or
result in a breach, default or termination or give rise to any right of
termination, cancellation or acceleration of the maturity of any payment date of
any obligation of Seller or, to Seller's knowledge, increase or otherwise affect
the obligations of Seller under any law, rule, regulation or any judgment,
decree, order, governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note, license, agreement or
other instrument or obligation related to Seller or to Seller's ability to
consummate the transactions contemplated hereby or thereby, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents, in form and substance satisfactory to Buyer, have
been or will be obtained in writing and provided to Buyer at or prior to the
Closing,
(iv) to Seller's knowledge, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or (v) to Seller's knowledge,
result in the creation of any liability, claim, assessment, security interest,
lien, restriction, encumbrance, or right, title or interest in others
(collectively, a "Claim") upon or against the Purchased Assets.
4.4 Financial Statements. The financial statements of Seller
and other financial data attached hereto in Schedule 4.4 fairly present the
financial position of Seller as of their respective dates and the results of
operations of Seller for the periods presented therein, as the case may be, all
in conformity with GAAP, consistently applied, except as otherwise noted
therein.
4.5 Absence of Undisclosed Liabilities. Except as set forth or
reserved against in the March Balance Sheet, Seller (i) did not have as of the
date of the March Balance Sheet any material liability or obligation of any
nature, whether accrued, absolute, contingent, or otherwise and whether due or
to become due, including without limitation liabilities that may become known or
arise after the date hereof and which relate to transactions entered into or any
state of facts existing on or before the date of the March Balance Sheet that
would be required under GAAP to be shown in such balance sheet or referenced in
the notes thereto, and (ii) has not incurred since the date of the March Balance
Sheet any material liability or obligation except in the ordinary course of
business.
4.6 Conduct of Business Since the Date of the March Balance
Sheet. Since the date of the March Balance Sheet, there has been no material
adverse change in the condition of the Purchased Assets or the Business (a
"Material Adverse Change") nor is any such Material Adverse Change threatened,
contemplated or anticipated, and Seller has not, except as agreed in writing by
Buyer, taken or agreed to take any action that would obligate Seller to have:
(a) Entered into any transaction, agreement or commitment
with respect to the Business other than in the ordinary course of
business;
(b) Entered into or agreed to enter into any transaction,
agreement, or commitment, or suffered the occurrence of any event or
events, (i) that has interfered or is reasonably likely to interfere
with the normal and usual operations of the Business or (ii) that,
singly or in the aggregate, has resulted or is reasonably likely to
result in a Material Adverse Change;
(c) Mortgaged, pledged or otherwise encumbered, or, other than
in the ordinary course of business, sold, transferred or otherwise
disposed of, any of the properties or assets (tangible or intangible)
of Seller, including any claims held by Seller with respect to the
Business;
(d) Made any investment of a capital nature or entered
into a commitment for such investment with respect to the Business;
(e) Paid any bonus compensation to any employee or
otherwise increased the compensation paid or payable to any such
person; or
(f) Paid any dividend or made any other distribution to
stockholders.
4.7 Tangible Properties. Schedule 1.1(a) and Schedule 4.7
contain a true and complete list of all Equipment, Inventories, and other
tangible personal property owned by or leased to Seller and used in the Business
(the "Tangible Personal Property"). Except as shown on Schedule 4.7 with respect
to leased Tangible Personal Property, Seller has good and marketable title free
and clear of all agreements, liabilities, claims, assessments, security
interests, liens, restrictions, and encumbrances (collectively referred to as
"Claims") to the Tangible Personal Property listed as owned by Seller. With
respect to any Tangible Personal Property listed as leased by Seller, all
leases, conditional sale contracts, franchises or licenses pursuant to which
Seller may hold or use (or permit others to hold or use) such Tangible Personal
Property are valid and in full force and effect, and there is not under any of
such instruments any existing default or event of default or event which with
notice or lapse of time or both would constitute such a default; and Seller's
possession and use of such property has not been disturbed and no claim has been
asserted against Seller adverse to its rights in such leasehold interests. All
Tangible Personal Property is conveyed "as is" and "with all faults," and Seller
disclaims any warranty of fitness for a particular purpose or merchantability
with respect thereto; provided that Seller knows of no condition rendering any
Tangible Property currently inadequate or unsuitable for the purpose for which
it is currently used, except as set forth on Schedule 1.1(a) and Schedule 4.7.
The Equipment listed on Schedule 1.1(a) comprises substantially all the
Equipment that is materially necessary for the continuing operation of the
Business in the manner in which it has been operated to date.
4.8 Premises. Seller owns no real property in connection with the Business.
The real property (the "Leased Premises") and the leases (the "Leases")
described on Schedule 4.8 represent all the real property leased or subleased
and real property leases and subleases entered into in connection with the
Business, and the descriptions of such Leased Premises and Leases are true and
complete. Each Lease is in full force and effect, and there is not under any of
the Leases any existing material default or event of default or event which with
notice or lapse of time or both would constitute such a default. Each Lease
conveys good and marketable leasehold title to the leased real estate purported
to be conveyed thereunder, is enforceable by Seller, provides exclusive
possession of the Leased Premises, and upon any assignment to Buyer at the
Closing will be enforceable by Buyer in accordance with its terms. Seller has
the right to use the Leased Premises in accordance with the terms of each
respective Lease free and clear of all Claims. The Leased Premises are leased
"as is"; provided that Seller knows of no condition rendering any Leased
Premises currently inadequate or unsuitable for the purpose for which it is
currently used, except as set forth on Schedule 4.8. To Seller's knowledge,
except as set forth in Section 4.21, all structures, improvements and fixtures
on the Leased Premises and the current uses of the Leased Premises conform in
all material respects to any and all material applicable federal, state, county
and local laws, building, health and safety and other ordinances, laws, rules
and regulations. There is no violation of any material covenant, restriction or
other agreement or understanding, oral or written, affecting or relating to
title or use of any Leased Premises. To Seller's knowledge, there are no pending
or threatened condemnation or similar proceedings or assessments affecting any
of the Leased Premises, nor to Seller's knowledge is any such condemnation or
assessment contemplated by any governmen tal authority. Seller has delivered to
Buyer true and correct copies of all Leases, as amended to date. At or prior to
the Closing, Seller will have delivered to Buyer non-disturbance agreements
executed and delivered by each mortgagee of each Leased Premises listed on
Schedule 4.8, in form and substance satisfactory to Buyer.
4.9 Licenses and Permits. Schedule 4.9 lists all material
licenses, permits, product registrations, pending applications, consents,
approvals and authorizations of or from any public or governmental agency, used
in or otherwise necessary for the conduct of the Business (collectively, the
"Permits") together with any conditions imposed thereon, each of which, except
as disclosed on Schedule 4.9, will be duly and validly transferred to Buyer on
the Closing Date. To Seller's knowledge, Seller has complied with all material
conditions and requirements imposed by the Permits and has not received any
notice that any appropriate authority intends to cancel, terminate, or suspend
any of the Permits and has no reason to believe that valid grounds for such
cancellation, termination, or suspension exist. Seller owns or has the right to
use the Permits in accordance with the terms thereof without any conflict or
alleged conflict or infringement with the rights of others and subject to no
Claim, and each Permit is valid and in full force and effect and, except as
disclosed in Schedule 4.9, no Permit transferred to Buyer will be subject to
termination, terminated, or adversely affected by such transfer.
4.10 Intellectual Property. To Seller's knowledge, Seller
owns, or is licensed or otherwise has the full and unrestricted right to use,
all patents, trademarks, trade names, copyrights, technology, know-how, trade
secrets, processes, formulas and techniques used in connection with the
operation of the Business, including all Intellectual Property described on
Schedule 1.1(c). Seller has not granted to any other person any license or other
right to use in any manner any of the Intellectual Property, whether or not
requiring the payment of royalties. To the knowledge of Seller (i) no other
person has a right or license granted directly or indirectly by or through
Seller to use any Intellectual Property; (ii) none of the Intellectual Property
is being infringed by others, or is subject to any outstanding order, decree,
judgment or stipulation; and (iii) there are no claims or demands of any other
person, and no proceedings have been instituted, or are pending or threatened,
relating to the Intellectual Property.
4.11 Outstanding Commitments. The Contracts described on
Schedule 1.1(d) constitute all existing material contracts, agreements, leases,
subleases, commitments, licenses and franchises, whether written or oral,
relating to the Business. Seller has delivered or made available to Buyer true,
correct and complete copies of all material written Contracts, and Schedule
1.1(d) contains an accurate and complete description of all material Contracts
that are not in writing. All of the Contracts are in full force and effect,
Seller and each other party to each of the Contracts has performed all the
obligations required to be performed by it to date, and there is not under any
of the Contracts any material existing default or event of default or
event which with notice or lapse of time or both would constitute such a
default. Seller has no present expectation or intention of not fully performing
all its obligations under each of the Contracts and has no knowledge of any
breach or anticipated breach by any other party to any of the Contracts. None of
the Contracts has been terminated or notice of termination given with respect
thereto, no notice has been given by any party thereto of any alleged default
thereunder by any party thereto, and Seller is aware of no intention or right of
any party to any Contract to declare a default by another party to any Contract.
There exists no actual or, to the knowledge of Seller, threatened termination,
cancellation or limitation of the business relationship of Seller with any party
to any Contract. Except as stated in Schedule 4.11, no customer of Seller has
notified Seller that it intends to terminate or materially change its business
relationship with the Business following the consummation of the transactions
contemplated hereby.
4.12 Title to Assets. Seller will transfer to Buyer at the
Closing, good, marketable and undivided title to and possession of all of the
Purchased Assets, free and clear of any material Claim.
4.13 Litigation. Except as set forth on Schedule 4.13 and
Schedule 4.21, there is no material (i) action, suit, claim, proceeding or
investigation pending or, to the best of Seller's knowledge, threatened against
or affecting Seller (whether or not Seller is a party or prospective party
thereto) or any of the Purchased Assets, at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) pending or,
to the best of Seller's knowledge, threatened arbitration proceeding relating to
Seller or (iii) governmental inquiry, to the best of the Seller's knowledge,
pending or threatened against or involving Seller, and there is no basis for any
of the foregoing. Except as set forth on Schedule 4.13, Seller has not received
any opinion or memorandum or legal advice from legal counsel to the effect that
it is exposed, from a legal standpoint, to any liability or disadvantage which
may be material to the prospects, financial condition, operations, property or
affairs of the Business. Except as set forth on Schedule 4.13, to Seller's
knowledge, there are no outstanding orders, writs, judgments, injunctions or
decrees of any court, governmental agency or arbitration tribunal against,
involving or affecting Seller, and there are no facts or circumstances which may
result in institution of any action, suit, claim or legal, administrative or
arbitration proceeding or investigation against, involving or affecting Seller,
the Purchased Assets or, the transactions contemplated hereby.
4.14 Compliance with Law. Seller is not subject to any
judgment, order, writ, injunction or decree. Except as set forth in Schedule
4.14, Seller has complied in all material respects with and is not in default
under, all material laws, ordinances, legal requirements, rules, regulations and
orders applicable to it, its operations, properties, assets, products and
services. Seller is not aware of any existing law, rule, regulation or order, or
proposed law, rule, regulation or order, whether federal or state, that would
prohibit or materially restrict Buyer from, or otherwise materially adversely
affect the Buyer in, conducting the Business or owning the Purchased Assets.
4.15 Labor and Employee Relations. Seller is not party to or
bound by any collective bargaining agreement with any labor organization, group,
or association covering any of its employees, and Seller has no knowledge of any
attempt to organize any of their employees by any person, unit, or group seeking
to act as their bargaining agent. There are no pending or threatened charges (by
employees, their representatives or governmental authorities) of unfair labor
practices or of employment discrimination or of any other wrongful action with
respect to any aspect of employment of any employee of Seller.
4.16 Certain Employees. Schedule 4.16 lists the names of all
of the employees and consultants employed by Seller in connection with the
Business, together with the title or job classification of each such person and
his or her current compensation. Except as set forth on Schedule 4.16, none of
such persons has (i) an employment agreement or understanding, whether oral or
written, with Seller that is not terminable on thirty (30) days or less notice
by Seller in order to perform his or her duties without cost or other liability
to Seller or (ii) a non-competition non-disclosure and/or non-solicitation
agreement or understanding with Seller, whether written or oral, and all such
employment and other agreements are set forth on Schedule 1.1(d). Except as
otherwise stated therein, no person listed on Schedule 4.16 has indicated that
he or she intends to terminate his or her employment with Seller or seek a
material change in his or her duties or status. Set forth on Schedule 4.16 is
the amount, if any, of Seller's severance liability with respect to each person
there listed.
4.17 Employee Benefits. Schedule 4.17 lists all pension,
profit sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, vacation, severance, disability, hospitalization, medical
insurance, life insurance, fringe benefit, welfare, and other employee benefit
plans, programs or arrangements to which Seller's employees are or may be
entitled. Each "Employee Welfare Benefit Plan" (as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
covering any present or former employee of Seller subject to the requirements of
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") has
complied with all requirements for continuation coverage under group health
benefit plans under COBRA, and there are no claims against Seller for a failure
or alleged failure to comply with the COBRA continuation requirements. Each
employee plan that is subject to ERISA conforms to, and its operation and
administration are in compliance with, all applicable requirements of ERISA.
There are no actions, suits or claims pending (other than routine claims for
benefits) or threatened against any employee plan or against the assets of any
employee plan.
4.18 Insurance. Schedule 4.18 correctly describes (by type,
carrier, policy number, limits, premium and expiration date) the insurance
coverage carried by the Sellers with respect to the Business, which insurance
will remain in full force and effect with respect to all events occurring prior
to the Closing. Seller shall use its best efforts to name Buyer as an additional
insured under all of Seller's liability insurance policies applicable to
occurrences within five years prior to the Closing Date or to obtain the
insurers' consent to the assignment of Seller's rights under such policies to
Buyer. Seller (i) has not failed to give any notice or
present any claim under any such policy or binder in due and timely fashion,
(ii) has not received notice of cancellation or non-renewal of any such policy
or binder, (iii) is not aware of any threatened or proposed cancellation or
non-renewal of any such policy or binder and (iv) has not received notice of and
is not otherwise aware of any insurance premiums that will be materially
increased in the future. There are no outstanding claims under any such policy
which have gone unpaid for more than 45 days, or as to which the insurer has
disclaimed liability.
4.19 Taxes. Seller has filed all tax returns and reports
required to be filed, including returns and estimated returns, with respect to
federal, state, foreign and local taxes, and have paid in full all taxes shown
due thereon and all estimated taxes when due (together with all interest,
penalties, assessments and deficiencies assessed in connection therewith due
through the date hereof).
4.20 Brokers. No agent, person or firm acting on behalf of
Seller or under its authority is or will be entitled to a financial advisory
fee, brokerage commission, finder's fee or like payment in connection with the
transactions contemplated hereby.
4.21 Environmental Laws. To Seller's knowledge, and except as described in
Schedule 4.21, Seller has operated and continues to operate the Business in
compliance in all material respects with all Laws (as hereinafter defined)
relating to (i) pollution or protection of the environment, natural resources or
human health from any Hazardous Substances (as hereinafter defined) or (ii)
nuisance, trespass or "toxic tort", including, without limitation, Laws relating
to emissions, discharges, releases or threatened releases of any Hazardous
Substance or otherwise relating to the manufacture, processing, importation,
distribution, use, generation, treatment, storage, disposal, transportation or
handling of any Hazardous Substance (collectively, "Environmental Laws"). To
Seller's knowledge, and except as described in Schedule 4.21, no Leased Premises
nor, to the knowledge of Seller, any real property contiguous thereto, is or has
been designated by any state, local or federal agency or body as a hazardous
waste disposal site or a site or location requiring investigation concerning, or
management, clean-up or removal of, any Hazardous Substance. Except as described
on Schedule 4.21, there is no material civil, criminal or investigative action,
suit, litigation, hearing, communication (written or oral), demand, claim,
citation, notice or notice of violation, warning, consent decree, judgment or
order by any person or entity alleging, claiming, concerning or finding
liability or potential liability arising out of, based on or resulting from, in
whole or in part, (a) the actual or alleged presence, threatened release,
release, emission, disposal, storage, treatment, transportation, generation,
manufacture or use of any Hazardous Substance at or from any location or (b)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Laws (collectively, "Environmental Claims"), pending or threatened
against Seller or against any person or entity whose liability for any
Environmental Claim Seller has or may have retained or assumed either
contractually or by operation of law. Except as described on Schedule 4.21,
Seller has received no notice from any state, local or federal agency or body of
any material past or present actions, activities, circumstances, conditions,
events, incidents or practices, including the release, threatened release,
emission, discharge, disposal, storage, treatment, transportation, generation,
manufacture or use of any Hazardous Substance that could form the basis of any
Environmental Claim against Seller or, to the Seller's knowledge, against any
person or entity whose liability for any Environmental Claim Seller has or may
have retained or assumed either contractually or by operation of law. As used
herein, "Hazardous Substance" means any chemical, pollutant, contaminant, waste
(including toxic, hazardous, infectious, sanitary, solid, radioactive and
petroleum waste, toxic substance, hazardous substance, extremely hazardous
substance, hazardous material, radioactive material, oil and petroleum product,
as such terms, or any similar terms, are or shall be used under any applicable
federal, state, local and foreign laws, regulations, rules, ordinances, permits
(including, without limitation, authorizations, approvals, registrations and
licenses), administrative orders, judicial decisions or the like (all,
collectively, "Laws") relating to pollution or protection of the environment,
natural resources or human health.
4.22 Books and Records. The books, records, accounts, ledgers
and files of Seller are accurate and complete in all material respects and have
been maintained in accordance with good business and bookkeeping practices.
4.23 Disclosure. All documents and schedules delivered or to
be delivered by or on behalf of Seller in connection with this Agreement and the
transactions contemplated hereby are complete, and all such documents and
schedules, together with the schedules to this Agreement, contain no untrue
statement of a material fact nor omit a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware.
5.2 Buyer's Power and Authority. Buyer has full corporate
power and authority to carry on its business as now being conducted and to own,
operate and lease its properties in the places where such business is now
conducted and such properties are now owned, leased or operated. This Agreement
and the transactions contemplated hereby have been duly approved by the Board of
Directors of Buyer. Buyer has full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby, and this
Agreement and all other agreements to be executed and delivered by Buyer in
connection herewith constitute the legal, valid and binding obligations of Buyer
enforceable against it in accordance with their respective terms.
5.3 No Violation. Neither the execution and delivery of this Agreement and
the other documents and instruments contemplated hereby, the consummation of the
transactions contemplated hereby or thereby, nor the performance of this
Agreement and such other documents and instruments in compliance with the terms
and conditions hereof and thereof will (i) conflict with or result in any breach
of any trust agreement, charter documents, bylaw, judgment, decree, order,
statute or regulation applicable to Buyer, (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, (iii) result in a breach of or default (or give rise to
any right of termination, cancellation or acceleration) under any law, rule or
regulation or any judgment, decree, order, governmental permit, license or order
or any of the terms, conditions or provisions of any mortgage, indenture, note,
license, agreement or other instrument to which Buyer is a party or (v) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Buyer.
5.4 Broker. No agent, broker, person or firm acting on behalf
of Buyer or under its authority is or will be entitled to a financial advisory
fee, brokerage commission, finder's fee or like payment from Seller in
connection with any of the transactions contemplated hereby.
5.5 Financings. Buyer has sufficient funds available to purchase the
Assets.
5.6 Disclosure. All documents and schedules delivered or to be
delivered by or on behalf of Buyer in connection with this Agreement and the
transactions contemplated hereby are complete and neither contain any untrue
statement of a material fact nor omit a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
made, not misleading.
5.7 Capitalization and Authorization to Issue Stock. Buyer is
authorized to issue 20,000,000 shares of common stock, $.01 par value per share,
of which 8,079,914 shares are issued and outstanding. At the Closing Date, all
of the shares of Buyer's common stock proposed to be issued in connection with
the transactions contemplated hereby will be duly authorized and reserved for
issuance.
ARTICLE VI
COVENANTS OF SELLER
Seller covenants and agrees with Buyer as follows:
6.1 Best Efforts Cooperation. Until the Closing, Seller shall
use its best efforts in good faith to perform and fulfill all conditions and
obligations to be fulfilled or performed by it hereunder, to the end that the
transactions contemplated hereby will be fully and timely consummated.
6.2 Access. Until the Closing, Seller shall give Buyer, its
attorneys, accountants, and other authorized representatives complete access,
upon reasonable notice and at reasonable times, to Seller's offices, suppliers,
employees, business and financial records, contracts, business plans, budgets
and projections, agreements and commitments and other documents and information
concerning Seller and the Business and persons employed by or
doing business with Seller. In order that Buyer may have full opportunity to
make such examination and investigation as it may desire of the Business, the
Sellers will furnish the Buyer and its representatives during such period with
all such information as such representatives may reasonably request and cause
the respective officers, employees, consultants, agents, accountants, and
attorneys of Seller to cooperate fully with the representatives of Buyer in
connection with such review and examination and to make full disclosure to Buyer
of all material facts affecting Seller's financial condition and the operations,
properties, and prospects of the Business; provided, that Buyer will, until the
Closing, hold the documents and information concerning Seller and the Business
confidential in accordance with Section 8.3 hereof. Following the Closing,
Seller shall provide Buyer with access to, and upon request will deliver
originals of, any and all records relating to the Business that remain in the
possession of accountants, attorneys, and other parties.
6.3 Insurance. Until the Closing, Seller shall maintain with
financially sound and reputable insurers, insurance against such casualties and
contingencies and of such types and in such amounts as is customary for
companies similarly situated. In the event Seller is unable to name Buyer as an
additional assured or to obtain the consents to assignment of Seller's rights
under liability insurance policies as provided for in Section 4.18, Seller shall
maintain its corporate existence for a period of five years following the
Closing and shall submit to the jurisdiction of any court in which a claim shall
have been asserted against Buyer based upon events occurring prior to the
Closing and shall invoke any insurance coverage applicable to such events.
6.4 Compliance with Laws. Until the Closing, Seller shall
conduct the Business in compliance in all material respects with all applicable
laws, rules, regulations and orders.
6.5 Keeping of Books and Records. Until the Closing, Seller
shall keep adequate records and books of account, in which complete entries will
be made in accordance with GAAP consistently applied, reflecting all financial
transactions and in which all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with the Business shall be made.
6.6 Actions Prior to Closing. Seller shall conduct the
Business pending the Closing only in the ordinary and usual course consistent
with past practice. Without limiting the generality of the foregoing, Seller
will not, except in the ordinary and usual course, without the prior written
consent of Buyer, (i) make any acquisition or disposition of assets used in
connection with the Business, (ii) enter into any contract or release or
relinquish any material contract or other right relating to the Business, or
(iii) enter into or renew any employment agreement with any employee or grant
any increase in the compensation or benefits to, or agree to pay any bonus,
severance or termination payment or other special compensation to such person.
6.7 Litigation. Until the Closing, Seller will promptly notify Buyer of any
lawsuits, claims, proceedings, or investigations that are threatened or
commenced against or by Seller or its affiliates, or against any employee,
consultant or director of Seller.
6.8 Continued Effectiveness of Representations and Warranties.
From the date hereof up to and including the Closing Date, (i) Seller will
conduct the Business in a manner such that the representations and warranties
contained herein shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date, except for changes and events
arising as a consequence of the Closing, or actions in the ordinary and usual
course of business after the date hereof which do not have a material adverse
effect on the properties, assets, operations, or condition (financial or
otherwise) or prospects of the Business; and (ii) Seller will advise Buyer
promptly in writing of any condition or circumstance occurring from the date
hereof up to and including the Closing Date that could cause any material
representa tions or warranties of Seller to become untrue.
6.9 Discharge of Liabilities. Following the Closing, Seller
shall promptly and fully discharge all liabilities and obligations of or
relating to the Business or its operation incurred, accrued or relating to
periods prior to the Closing Date other than the Assumed Liabilities.
6.10 No Negotiations. Until the Closing, or the earlier
termination of this Agreement in accordance with its terms, Seller and each
officer, director, employee, consultant, advisor, or agent of Seller shall not,
directly or indirectly, initiate, solicit or continue discussions with, engage
in negotiations with, or provide any information to any corporation,
partnership, person or other entity or group involving the possible sale,
directly or indirectly, transfer or joint venture of any part of the Purchased
Assets, the Business, or the capital stock of Seller to any person or entity
other than Buyer.
6.11 Monthly Statements. Until the Closing, Seller will deliver to Buyer
monthly financial statements of Seller and the Business within 10 days after the
end of each month.
6.12 Charter Amendments. Until the Closing, Seller will not
amend or propose to amend its charter documents in any manner that could have
the effect of increasing the shareholder vote necessary to authorize the
transactions contemplated by this Agreement.
6.13 Issuance of Stock. Until the Closing, Seller will not issue or cause
to be issued any additional shares of its capital stock.
6.14 Change of Name. Within 10 days following the Closing, Seller shall
take all actions, and shall make all filings, necessary to change the corporate
name of Seller to a new name not containing the word "Zema" or "Pulvex" or
otherwise confusingly similar, in the sole discretion of Buyer, to the corporate
name or products of Buyer or any of its affiliates. From and after the Closing,
without the prior consent of Buyer, Seller shall not create or cause to be
created any corporation, partnership, joint venture or other business entity
that uses all or any part of the existing corporate name of Seller, name of any
existing product of the Business, or any term likely to be confused with all or
any part of any such name.
6.15 Covenant Not To Compete. For a period of seven years
following the Closing Date, neither Seller nor its President, Hal K. Bowman
("Bowman"), shall engage or become interested in, as owner, employee, partner,
through stock ownership (except for ownership of less than one percent interest
of any class of securities which are listed for trading on a national securities
exchange), investment of capital, lending of money or property, rendering of
services or otherwise, either alone or in association with others, in the
operation, management or supervision of any type of business or enterprise that
is engaged in the business of formulating, packaging, or marketing animal health
care or grooming products.
6.16 Certain Agreements. Seller will not agree to do or cause to be done
any of the acts that it has covenanted not to do under this Article VI.
ARTICLE VII
COVENANTS OF THE BUYER
7.1 Best Efforts Cooperation. Buyer covenants and agrees that
it shall use its best efforts in good faith to perform and fulfill all
conditions and obligations to be fulfilled or performed by it hereunder to the
end that the transactions contemplated hereby will be fully and timely
consummated.
7.2 Financing. Buyer covenants and agrees that at the Closing,
it will have sufficient funds with which to pay that portion of the Base
Purchase Price required by Section 2.1(a) to be paid at the Closing.
7.3 Employee Bonuses. Buyer covenants and agrees that
following the Closing it will pay to those employees, and in such respective
proportions, designated by Bowman and approved by Buyer, whose approval shall
not be unreasonably withheld, bonuses in the aggregate amount of 10 percent of
the annual EBIT of Acquisition, calculated as provided in Section 2.1(b), for
each of the five years ending October 31, 1999 in excess of $669,000, said
bonuses to be paid in the form of shares of Buyer's common stock valued at the
closing sales price on the NASDAQ National Market on October 31 of the
respective year as to which such bonus is payable.
7.4 Taxes. As soon as is reasonably practicable after the
final results of Seller's operations through April 28, 1995 are available, Buyer
shall cause Acquisition to pay to Seller such amount as shall be necessary to
reimburse Seller's shareholders for any net income tax liability with respect to
the income of Seller subsequent to December 31, 1994.
2
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ARTICLE VIII
MUTUAL COVENANTS
8.1 General Covenants. Following the execution of this Agreement, Buyer and
Seller agree:
(a) If any event should occur, either within or without the
knowledge or control of any party, that would prevent fulfillment of
the conditions to the obligations of any party hereto to consummate the
transactions contemplated by this Agreement, to use its or their
reasonable efforts to cure the same as expeditiously as possible;
(b) To cooperate fully with each other in preparing, filing,
prosecuting, and taking any other actions that may be reasonable and
necessary to obtain the consent of any governmental instrumentality, or
any third party to accomplish the transactions contemplated by this
Agreement;
(c) To deliver such other instruments of title, certificates,
consents, endorse ments, assignments, assumptions, and other documents
or instruments, in form reasonably acceptable to the party requesting
the same and its counsel, as may be reasonably necessary to carry out
and/or to comply with the terms of this Agreement and the transactions
contemplated herein; and
(d) To confer on a regular basis with the other, report on
material operational matters and promptly advise the other orally and
in writing of any change or event having, or which, insofar as can
reasonably be foreseen, could have, a material adverse effect on such
party or which would cause or constitute a material breach of any of
the representations, warranties or covenants of such party contained
herein.
8.2 Public Announcements. The parties shall consult with each
other prior to the issuance by either party of any press release or any written
statement with respect to this Agreement or the transactions contemplated
hereby.
8.3 Confidentiality. As used herein, "Confidential Information" means any
information or data that a party has acquired from another party that is
confidential or not otherwise available to the public, whether oral or written,
including any analyses, computations, studies or other documents prepared from
such information or data by or for the directors, officers, employees, agents or
representatives of such party (collectively, the "Representatives"), but
excluding information or data that (i) the party can demonstrate it lawfully
obtained or developed prior to its first meeting with the other party, (ii)
became available to the public other than as a result of such party's violation
of this Agreement, (iii) became available to such party from a source other than
the other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iv) is required to be disclosed by applicable law, provided that promptly after
being compelled to disclose any such information or data, the party being so
compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other,appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose all Confidential Information, except to its Representatives
who need to know such information and keep it confidential. Each party shall be
responsible for any breach of this provision by its Representatives. In the
event that the Closing does not occur, each party will promptly return to the
other all copies of such other party's Confidential Information.
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of Buyer to pay the Purchase Price on and after the
Closing Date in accordance with Section 1.2 and to consummate the other
transactions contemplated hereby is subject to the satisfaction, on or before
the Closing Date, of the following conditions each of which may be waived by
Buyer in its sole discretion:
9.1 Representations and Warranties True. All of the
representations and warranties of Seller contained in this Agreement or in any
schedules or other documents attached hereto or referred to herein or delivered
pursuant hereto or in connection with the transactions contemplated hereby shall
be true, correct and complete in all material respects on and as of the date
hereof and on and as of the Closing Date, as if made on and as of the Closing
Date. On the Closing Date, the President of Seller shall have executed and
delivered to Buyer a certificate, in form and substance reasonably satisfactory
to Buyer and its counsel, to such effect.
9.2 Performance. Seller shall have performed and complied with
all covenants and agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date. The President of Seller
shall have executed and delivered to Buyer a certificate, in form and substance
reasonably satisfactory to Buyer and its counsel, to such effect and to the
further effect that all of the conditions set forth in this Article IX have been
satisfied.
9.3 Consents. Seller shall have obtained all requisite
approvals and consents of, and made all requisite filings with, all governmental
entities and third parties which are necessary to be obtained or made to (i)
permit the valid execution, delivery, and performance by Seller of this
Agreement, including the transfer and assignment of the Purchased Assets or (ii)
prevent any material Permit or agreement relating to the Business from
terminating prior to its scheduled termination as a result of the consummation
of the transactions contemplated hereby. In addition, Buyer shall have received
or obtained all licenses, permits, consents, approvals and authorizations from
any public or governmental agency or any third party reasonably necessary for
Buyer to own the Purchased Assets and operate the Business on and after the
Closing Date, and any appeal period with respect to the same shall have expired
without an objection thereto having been filed.
9.4 No Material Adverse Change. No Material Adverse Change shall have
occurred or be threatened.
9.5 No Actions, Suits or Proceedings. As of the Closing Date,
no action, suit, investigation or proceeding brought by any governmental agency
or instrumentality shall be pending or, to the knowledge of the parties to this
Agreement, threatened, before any court or governmental body (i) to restrain,
prohibit, restrict or delay, or to obtain damages or a discovery order in
respect of this Agreement or the consummation of the transactions contemplated
hereby, (ii) which has resulted or may result in a Material Adverse Change, or
(iii) which has or may materially adversely affect the operation of the
Purchased Assets or has or may result in the imposition of material liability on
Buyer. No order, decree or judgment of any court or governmental body shall have
been issued and remain in effect at the Closing restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated by
this Agreement. No insolvency proceeding of any character including without
limitation, bankruptcy, receivership, reorganization, dissolution or arrangement
with creditors, voluntary or involuntary, affecting Seller shall be pending, and
Seller shall not have taken any action in contemplation of, or which would
constitute the basis for, the institution of any such proceedings.
9.6 No Material Adverse Economic Event. There shall not have
occurred (i) any general suspension of trading in, or limitation on prices for
securities on the New York Stock Exchange or NASDAQ National Market, (ii) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) any material limitation (whether or not
mandatory) by any governmental authority on lending institutions, or (iv) in the
case of any of the foregoing existing on the date hereof, a material
acceleration or worsening thereof.
9.7 Employment Agreement and Facilities Lease. Buyer and
Bowman shall have entered into an employment agreement (the "Employment
Agreement") in substantially the form set forth in Schedule 9.7(a) and Buyer
shall have entered into a lease of the premises used by Seller as its principal
facility in Raleigh, North Carolina with the owner of said premises (the
"Facilities Lease") in substantially the form set forth in Schedule 9.7(b).
9.8 Shareholder's Guaranty. Bowman shall have executed a personal guaranty
of the payment of up to $300,000 of Seller's indemnity obligation under Section
11.2 in the form set forth in Schedule 9.8.
9.9 Opinion of Counsel. Buyer shall have received the opinion of counsel to
the Sellers in substantially the form set forth as Schedule 9.9 hereto.
9.10 Closing Documents. Seller shall have delivered all of the resolutions,
certificates, documents and instruments required by this Agreement, including:
(a) Resolutions of the Board of Directors and shareholders of
Seller, certified by its Secretary, and evidence reasonably
satisfactory to Buyer that the requisite approval of the shareholders
of Seller has been obtained;
(b) Certificates of Good Standing with respect to Seller
issued by the Secretary of State of North Carolina and of any state
where it is qualified to do business as a foreign corporation;
(c) Estoppel Certificates from the lessors under each of
the Leases in form and substance reasonably satisfactory to Buyer; and
(d) Non-disturbance agreements executed and delivered by each
mortgagee of each Licensed Premises listed on Schedule 4.8 in form and
substance satisfactory to Buyer.
9.11 Approval of the Buyer and Its Counsel. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, Seller hereunder or incident to its performance
hereunder, and all other related matters, shall be reasonably satisfactory as to
form and substance to Buyer and its counsel.
The obligation of Buyer to pay the $300,000 portion of the Base
Purchase Price on or before the third anniversary of the Closing Date is subject
to the satisfaction, as of said third anniversary, of the following additional
condition which may be waived by Buyer in its sole discretion:
9.12 Continued Employment of Bowman. Bowman shall continue to
be employed by Buyer or an affiliate of Buyer unless his failure to be so
employed shall have resulted from his death or disability or from a termination
of the Employment Agreement by Buyer or any of its subsidiaries or other
affiliates for any reason other than "Just Cause" as defined by the Employment
Agreement.
ARTICLE X
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to transfer the Purchased Assets to Buyer and
of Seller to consummate the other transactions contemplated hereby are subject
to the satisfaction, on or before the Closing Date, of the following conditions,
each of which may be waived by Seller in its sole discretion:
10.1 Representations and Warranties to be True and Correct.
The representa tions and warranties contained in Article V shall be true,
complete and correct, on and as of the Closing Date, as if made on and as of
such date, and Buyer shall have delivered to Seller a certificate, in form and
substance reasonably satisfactory to Seller and its counsel, to such effect.
10.2 Performance. Buyer shall have performed and complied with
all agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and Buyer shall have delivered a certificate to
Seller, in form and substance reasonably satisfactory to Seller and its counsel
to such effect.
10.3 Opinion of the Buyer's Counsel. Seller shall have
received from Dyer, Ellis, Joseph & Mills, counsel to Buyer, an opinion dated as
of the Closing Date substantially in the form of Schedule 10.3 hereto.
10.4 No Actions, Suits or Proceedings. As of the Closing Date,
no action, suit, investigation or proceeding brought by any governmental agency
or instrumentality shall be pending or, to the knowledge of the parties to this
Agreement, threatened, before any court or governmental body to restrain,
prohibit, restrict or delay, or to obtain damages or a discovery order in
respect of this Agreement or the consummation of the transactions contemplated
hereby. No order, decree or judgment of any court or governmental body shall
have been issued and remain in effect at the Closing restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated by
this Agreement. No insolvency proceeding of any character including without
limitation, bankruptcy, receivership, reorganization, dissolution or arrangement
with creditors, voluntary or involuntary, affecting the Buyer shall be pending,
and Buyer shall not have taken any action in contemplation of, or which would
constitute the basis for, the institution of any such proceedings.
10.5 Employment Agreement. Buyer and Bowman shall have entered into an
employment agreement in substantially the form set forth in Schedule 9.7.
10.6 Closing Documents. Buyer shall have delivered all of the resolutions,
certificates, documents and instruments required to be delivered by it by this
Agreement.
10.7 Approval of Seller and its Counsel. All actions, proceedings,
consents, instruments and documents required to be delivered by, or at the
behest or direction of, Buyer hereunder or incident to its performance
hereunder, and all other related matters, shall be reasonably satisfactory as to
form and substance to Seller and its counsel.
ARTICLE XI
INDEMNIFICATION
11.1 Survival. Every representation, warranty, covenant, and
agreement of the parties set forth in this Agreement and every one of the rights
and remedies of the other party for any one or more breaches thereof shall
survive, and not be deemed waived by, the Closing, and shall be effective
regardless of any investigation that may have been made at any time by or on
behalf of any party or its directors, officers, employees or agents; provided
that the representations and warranties of Seller set forth in Article IV shall
not survive that date which is 30 days following completion of the audit of
Buyer's financial statements for the year ended October 31, 1995.
11.2 Indemnification by Seller. Seller agrees to exonerate,
indemnify, and hold harmless Buyer and its, affiliates, successors, and assigns
from, against and in respect of any and all liabilities, losses, costs, damages,
charges or expenses (all such liabilities, losses, costs,
damages, charges and expenses, including any assessments, judgments, recoveries,
interest, penalties, costs and expenses (including reasonable attorneys" fees)
related thereto, being hereinafter referred to as the "Damages") based upon,
resulting from or arising as a result of (i) the failure of Seller to transfer
to Buyer good, marketable, and undivided title to the Purchased Assets free and
clear of all Claims; (ii) non-compliance with any so-called bulk sales law of
any state applicable to the transactions contemplated hereby; (iii) any and all
material liabilities of Seller of any nature, whether absolute, contingent or
otherwise, not specifically assumed by the Buyer pursuant to Section 1.2 hereof,
including liabilities for federal, state, county, local, foreign and applicable
taxes of every kind and description; (iv) any material liabilities arising under
Environmental Laws or with respect to any Environmental Claim (other than such
liabilities relating to the premises subject to the Principal Facility Lease
resulting from events occurring during Buyer's occupancy of said premises); (v)
any material misrepresentation, breach of warranty or nonfulfillment of any
agreement on the part of Seller contained in this Agreement or in any of the
instruments, documents or agreements delivered pursuant hereto; and (vi) any
material actions, claims, suits, proceedings and demands relating to any of the
foregoing; provided that (A) Seller shall have no liability under this Section
11.2 until Buyer's aggregate Damages exceed $15,000, (B) Seller's aggregate
liability under this Section 11.2 shall not exceed $600,000, (C) the first
$300,000 of such liability shall be payable solely by offset of the $300,000
portion of the Base Purchase Price or, if not payable because the condition set
forth in Section 9.12 has not been fulfilled, by Bowman pursuant to the guaranty
provided for in Section 9.8, and (D) the remaining $300,000 of such liability
shall be payable solely by offset of the first $300,000 of the Additional
Purchase Price that shall be otherwise payable; and provided further that the
resulting Damages do not arise out of any material breach of Buyer's
representations, warranties, covenants or agreements set forth in this
Agreement.
11.3 Indemnification by Buyer. Buyer agrees to exonerate,
indemnify and hold harmless Seller and its shareholders, officers, directors,
affiliates, successors, and assigns from, against and in respect of any and all
Damages based upon, resulting from, or arising as a result of (i) any actions,
claims, suits, proceedings and demands arising after the Closing and relating to
events occurring after the Closing; (ii) any misrepresentation, breach of
warranty or nonfulfillment of any agreement on the part of Buyer contained in
this Agreement or in any of the instruments, documents or agreements delivered
pursuant hereto or thereto; and (iii) any actions, claims, suits, proceedings
and demands relating to any of the foregoing; provided that the resulting
Damages do not arise out of any material breach of Seller's representations,
warranties, covenants or agreements set forth in this Agreement.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(a) By mutual written consent duly authorized by the
Boards of Directors of Seller and Buyer;
(b) By Seller or Buyer if
(i) any court or governmental body of competent
jurisdiction shall have issued an order, decree or ruling, or
taken any other action, permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this
Agreement, provided that no termination shall be permitted
under this paragraph unless the party seeking such termination
shall have used its reasonable best efforts to oppose such
issuance or taking; or
(ii) the other party commits any material breach of
its representations, warranties, or covenants set forth herein
and such breach has not been cured within 7 days after notice
is given to terminate this Agreement as a result of such
breach; or
(c) By Seller or Buyer if the conditions set forth in Articles
IX or X, respectively, have not been satisfied or waived by June 30,
1995 (the "Termination Date"), or by such later date not more than
three months thereafter that Seller and Buyer shall mutually select.
Upon the occurrence of any of the events specified in this Section 12.1
(other than paragraph (a) hereof), written notice of such event shall forthwith
be given to the other party to this Agreement, whereupon this Agreement shall
terminate.
12.2 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 12.1, this Agreement,
except for the provisions of Section 8.3 and Articles XI, XII, and XIII, shall
forthwith become void and be of no effect, without any liability on the part of
any party or its affiliates, directors, officers or shareholders; provided that
nothing in this Section 12.2 shall relieve any party to this Agreement of
liability for breach of this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission with a confirmatory copy
by regular mail, (iii) sent by recognized overnight courier or (iv) sent by
registered or certified mail, return receipt requested, postage prepaid.
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If to the Seller:
Zema Corporation
6514 Chapel Hill Road
Raleigh, North Carolina 27607
Attn: Hal K. Bowman
Facsimile telephone number: 919-859-2170
with a copy to:
Wyrick, Robbins, Yates & Ponton L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Attn: Larry E. Robbins
Facsimile telephone number: 919-781-4865
If to the Buyer:
Agri-Nutrition Group Limited
13801 Riverport Drive, Suite 111
Maryland Heights, Missouri 63043
Attn: George W. Daignault
Facsimile telephone number: 314-298-0902
With a copy to:
Dyer, Ellis, Joseph & Mills
600 New Hampshire Ave., N.W.
Washington, D.C. 20037
Attn: Linda K. Rosenthal
Facsimile telephone number: 202-944-3068
All notices, requests, consents and other communications hereunder shall be
deemed to have been properly given (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service or (iv) if sent by registered or
certified mail, on the fifth business day following the day such mailing is
made.
13.2 Entire Agreement. This Agreement together with the Schedules hereto
and the other documents executed and to be executed in connection herewith
(together, the "Documents") embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in the Documents shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
13.3 Modifications and Amendments. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by all
parties hereto.
13.4 Waivers and Consents. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or provisions. No
such waiver or consent shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
13.5 Assignment. Neither this Agreement, nor any right
hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties; provided that Buyer may assign this
Agreement to Acquisition and Seller may (i) at any time following the Closing
assign this Agreement to its shareholders and (ii) at any time following the
dissolution of Seller, assign this Agreement to any parties specified in writing
to Buyer by Seller, subject to Buyer's consent thereto, which consent shall not
be unreasonably withheld.
13.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their permitted
assigns, and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Nothing in this Agreement shall be
construed to create any rights or obligations except among the parties hereto,
and no person or entity shall be regarded as a third-party beneficiary of this
Agreement.
13.7 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of the State of North Carolina, without giving
effect to the conflict of law principles thereof.
13.8 Jurisdiction and Service of Process. Any legal action or
proceeding with respect to this Agreement may be brought in the courts of the
State of North Carolina or of the United States of America for the Eastern
District of North Carolina. By execution and delivery of this Agreement, each of
the parties hereto accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. The parties
hereby irrevocably waive any objection or defense that they may now or hereafter
have to the assertion of personal jurisdiction by any such court in any such
action or to the laying of the venue of any such action in any such court, and
hereby waive, to the extent not prohibited by law, and agree not to assert, by
way of motion, as a defense, or otherwise, in any such proceeding, any claim
that it is not subject to the jurisdiction of the above-named courts for such
proceedings. Each of the parties hereto irrevocably consents to the service of
process of any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered mail, postage prepaid, to the party
at its address set forth in Section 13.1 hereof. Nothing in this Section 13.8
shall affect the rights of the parties to commence any such action in any other
forum or to serve process in any such action in any other manner permitted by
law.
13.9 Severability. In the event that any court of competent
jurisdiction shall finally determine that any provision, or any portion thereof,
contained in this Agreement shall be void or unenforceable in any respect, then
such provision shall be deemed limited to the extent that such court determines
it enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall determine any such provision, or portion thereof
wholly unenforceable, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
13.10 Interpretation. The parties hereto acknowledge and agree
that: (i) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the rule
of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
13.11 Headings and Captions. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
13.12 Choice of Remedies and Enforcement. The parties shall be entitled to
pursue any and all remedies available to them, in law or in equity, in the event
of a breach of this Agreement. Each of the parties hereto acknowledges and
agrees that the rights acquired by each party hereunder are unique and that
irreparable damage would occur in the event that any of the provisions of this
Agreement to be performed by the other party were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, in addition
to any other remedy to which the parties hereto are entitled at law or in
equity, each party hereto shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other party and to enforce
specifically the terms and provisions hereof in any federal or state court to
which the parties have agreed hereunder to submit to jurisdiction.
Notwithstanding the foregoing provisions of this Section 13.12, any dispute
between the parties with respect to the calculation of EBIT for purposes of
Section 2.1(b) and Section 7.3 shall be determined by a national accounting firm
mutually agreeable to the parties, whose decision shall be final and binding.
13.13 Expenses. Each of the parties hereto shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated.
13.14 Counterparts. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of
the day and year first above written.
AGRI-NUTRITION GROUP LIMITED ZEMA CORPORATION
By: By:
Title: Title:
ZEMA ACQUISITION CORPORATION
By:
Title:
THIRD RESTATED EMPLOYMENT AGREEMENT
THIS THIRD RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into by and between Agri-Nutrition Group Limited, a Delaware corporation
having its principal place of business in Maryland Heights, Missouri
(hereinafter the "Company"), and W. M. Jones, Jr., a resident of Tiger, Georgia
(hereinafter the "Employee"), as of the 1st day of November 1996.
R E C I T A L S
WHEREAS, Employee is employed by the Company under the terms of the
Second Restated Employment Agreement dated as of the 1st day of November 1995 by
and between the Company and Employee; and
WHEREAS, the Company and Employee desire to restate the terms of
Employee's employment agreement in order to reflect Employee's resignation as
President and Chief Executive Officer and appointment as Vice President -
Development of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties to this Agreement,
the parties agree as follows:
1. Term of Employment. Subject to the provisions of Section 9
below, Employee shall be employed by the Company as Vice President - Development
of the Company through October 31, 1999.
2. Position.
(a) Employee shall be employed by the Company to serve as Vice
President Development of the Company. In carrying out his responsibilities,
Employee shall have such authority or limitations on such authority as is
provided in the By-Laws of the Company, as is customary under Delaware law, and
as may be established by the Board of Directors of the Company from time to
time.
(b) During the term of his employment hereunder, Employee
shall devote that portion of his business time as the parties determine in good
faith is required in order for Employee to fulfill his responsibilities as Vice
President - Development of the Company. Employee shall use his best efforts with
respect to the performance of services hereunder and shall not engage in any
other business, profession, or occupation for compensation or otherwise that
would conflict with the rendition of such services without the prior written
consent of the Board of Directors.
3. Salary.
The Company shall pay Employee an annual salary of $10,000
during the term of this Agreement, $3,000 of which shall be payable in cash and
$7,000 of which shall be
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payable in shares of the Company's common stock. Employee's entire salary for a
given year ending October 31 shall be paid on or before January 31 of such year.
(For example, Employee's salary for the year ending October 31, 1997 shall be
paid on or before January 31, 1997.) The stock portion of Employee's salary
shall be valued based upon the closing price of the Company's common stock on
the NASDAQ National Market on the date of grant.
4. Bonuses.
(a) Employee shall be entitled to a bonus of $190,751 in the
event that the Company consummates the acquisition of Anthony Products Company
prior to October 31, 1997. Employee shall be paid fifty percent of such bonus in
cash. The remaining fifty percent shall be paid with a combination of the
Company's common stock plus cash required to satisfy related tax withholding.
For purposes of determining the number of shares of stock to be granted pursuant
to this Subsection 4(a), such stock shall be valued at $1.5625 per share. Any
payment pursuant to this Subsection 4(a) shall be made within 30 days following
the consummation of such acquisition.
(b) Employee shall be entitled to a cash bonus of $150,000
payable on January 31, 1997.
(c) Any shares of stock issued pursuant to this Section 4
shall be subject to the lock-up agreement by and between Employee and the
Company dated October 12, 1995 (and any amendments thereto) prohibiting Employee
from selling, transferring or otherwise disposing of, more than five percent of
the aggregate number of shares of the Company's stock owned by Employee in any
quarter through January 1, 1998.
5. Reimbursement of Expenses. The Company, in accordance with the rules and
regulations which it may establish from time to time, shall reimburse Employee
for reasonable and necessary business expenses incurred in the performance of
his duties on behalf of the Company or its subsidiaries.
6. Initial Award of Stock Options. As an additional inducement to the
Employee to accept employment with the Company and in order to provide
additional incentive in the form of the opportunity for an ownership position in
the Company, the Company previously granted to Employee options to purchase
558,000 shares of stock of the Company at a price of $.81 per share, exercisable
immediately. If Employee's employment under this Agreement is terminated prior
to exercise of the options provided for herein, Employee shall have three months
following such termination to exercise such options.
The Company agrees to register, at its expense, under the Securities
Act of 1933, as amended, the shares of stock underlying such options at the
request of the Employee so as to permit the Employee to sell such shares
publicly from time to time thereafter through the remaining term of this
Agreement.
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7. Confidentiality. Employee will not at any time (whether during or
after his employment with the Company or its subsidiaries) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, or the
business and affairs of the Company generally, or of any subsidiary or affiliate
of the Company, provided that the foregoing shall not apply to information that
is not unique to the Company or that is generally known to the industry or the
public other than as a result of Employee's breach of this covenant. All files
and records relating to the Company compiled by the Employee shall be the
property of the Company and shall be returned to the Company upon termination of
Employment.
8. Non-Competition; Restrictive Covenant.
(a) Restrictions. Employee recognizes and understands that in
performing the responsibilities of his employment, he will occupy a position of
fiduciary trust and confidence pursuant to which he will develop and acquire
experience and knowledge with respect to the Company's business. Employee
further understands and agrees that the Company conducts its business within a
specialized market that is highly competitive and that it would be detrimental
to the Company if the Employee used his knowledge gained with the Company or
information obtained during his employment to compete, directly or indirectly,
with the Company. Therefore, during the term of this Agreement and for a period
of one year following expiration of this Agreement according to its terms or the
termination of employment, Employee shall not as an employee, employer,
consultant, agent, principal, partner, shareholder, officer, director, or in any
other individual or representative capacity, engage or participate in any
business that is in direct competition with the business of the Company or its
subsidiaries within the United States or within any country where the Company's
products are sold.
(b) Remedies. Further, it is expressly understood and agreed
that, although Employee and the Company consider the restrictions contained in
this Section 8 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Agreement is an unenforceable restriction against
Employee, the provisions of this Agreement shall not be rendered void but shall
be deemed amended to apply as to such maximum time and territory and to such
maximum extent as such court may judicially determine or indicate to be
enforceable. Alternatively, if any court of competent jurisdiction finds that
any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any of the other restrictions contained herein.
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9. Termination of Employment.
In the event of termination of Employee's employment hereunder
for any reason by Employee or the Company, Employee shall be entitled to retain
all salary payments pursuant to Section 3 hereof made prior to such termination
(including any payments relating to services to be performed after such
termination), but shall not be entitled to receive any additional salary
payments (including any payments related to services performed prior to such
termination). Such termination shall not extinguish Employee's right to receive
(i) bonus payments to which he would otherwise be entitled pursuant to Section 4
hereof or (ii) reimbursement to which he is entitled as of the date of
termination pursuant to Section 5 hereof. Any purported termination of
employment by the Company or by Employee shall be communicated by written notice
of termination to the other party hereto in accordance with Subsection 10(g)
hereof.
10. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
(b) Entire Agreement; Amendments. This Agreement contains the
entire understanding of the parties with respect to the employment of Employee
by the Company and supersedes all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
employment of Employee by the Company and/or its subsidiaries. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of either party to insist, in one
or more instances, upon the performance of any of the terms, covenants,
agreements or conditions of this Agreement, or to exercise any rights hereunder
shall not be construed as a waiver or relinquishment of such party's right to
insist upon the future performance of such term, covenant, agreement or
condition, or the future exercise of any such right and the obligations of the
other party with respect to such future performance shall continue in full force
and effect.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable
by Employee.
(f) Successors; Binding Agreement. This Agreement shall
inure to the benefit of and be binding upon personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees of the parties hereto.
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(g) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when mailed by the United States registered
mail, return receipt required, postage prepaid, addressed to the respective
addressees set forth on the execution page of this Agreement, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
(h) Survival. Except as otherwise expressly provided in
Sections 6, 7, 8, and 9, all of the agreements and obligations of the parties
hereto contained herein or in other writing delivered pursuant hereto or in
connection herewith shall terminate and expire, and shall cease to be of any
force and effect, on the date the Employee ceases employment with the Company,
and any and all liability of the parties hereto with respect to such agreements
and obligations shall thereupon be extinguished.
(i) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. In addition,
facsimile transmission copies of the executed signature page of this Agreement
shall have the same effect as a signed original.
(j) Incorporation of Recitals. The recitals set forth
in the preliminary portion of this Agreement are hereby incorporated in and made
an integral part hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AGRI-NUTRITION GROUP LIMITED 13801
Riverport Drive, Suite 111 Maryland
Heights, Missouri 63043
By:
Bruce G. Baker
President and Chief Executive Officer
W. M. JONES, JR.
Saga Mountain Road
P.O. Box 90
Tiger, Georgia 30576
FOURTH RESTATED EMPLOYMENT AGREEMENT
THIS FOURTH RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into by and between Agri-Nutrition Group Limited, a Delaware corporation
having its principal place of business in Maryland Heights, Missouri (the
"Company"), and Bruce G. Baker, a resident of Chesterfield, Missouri (the
"Employee"), as of the 1st day of November 1996.
R E C I T A L S
WHEREAS, Employee is employed by the Company under the terms of the
Third Restated Employment Agreement dated as of the 1st day of November 1995 by
and between the Company and Employee; and
WHEREAS, Employee possesses significant business and management
experience relative to the operations of the Company and its subsidiaries; and
WHEREAS, the Company and Employee desire to restate the terms of
Employee's employment in order to promote Employee to the positions of Chief
Executive Officer and President of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties to this Agreement,
the parties agree as follows:
1. Term of Employment. Subject to the provisions of Section 10
below, Employee shall be employed by the Company through October 31, 2001.
2. Position.
(a) Employee shall be employed by the Company to serve as
Chief Executive Officer and President of the Company. In carrying out such
responsibilities, Employee shall have such authority or limitations on such
authority as is provided in the By-Laws of the Company, as is customary under
Delaware law, and as may be established by the Board from time to time.
(b) During the term of his employment hereunder, Employee will
devote his business time (to the extent required by the Company) and best
efforts to the performance of his duties hereunder and will not engage in any
other business, profession, or occupation for compensation or otherwise that
would conflict with the rendition of such services, without the prior written
consent of the Board.
3. Salary. Commencing November 1, 1996 continuing through the
term of this Agreement the Company shall pay Employee at least $195,000 per
year. Salary shall be payable in installments in accordance with the Company's
normal payroll schedule for executives and shall be subject to the provisions
of Section 10 below.
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4. Performance Bonus. At the end of each fiscal year during the term of
this Agreement, Employee may be granted a cash bonus of up to 120% of Employee's
salary, as recommended by the Compensation Committee and approved by the Board.
In addition, the Board may establish a performance-based stock bonus program for
Employee. Any such bonuses shall be payable within 90 days of the end of the
Company's fiscal year. Any shares of stock issued pursuant to this Section 4
shall be subject to the lock-up agreement by and between Employee and the
Company dated October 12, 1995 (and any amendments thereto) prohibiting Employee
from selling, transferring or otherwise disposing of, more than five percent of
the aggregate number of shares of the Company's stock owned by Employee in any
quarter through January 1, 1998.
5. Employee Benefits. Employee shall be entitled to participate in any
qualified pension plan, qualified profit-sharing plan, group term life insurance
plan, employee stock option plan, health care plan, and any other employee
benefit plan that may be established by the Company, subject to and in
accordance with the terms and conditions of any such plan. The Company shall
reimburse directly to Employee that portion of his, and his covered dependents',
expenses actually incurred but not reimbursed under the Company's health
insurance plan. In addition, the Company shall provide to Employee a car
allowance of $1,000 a month.
6. Reimbursement of Expenses. The Company, in accordance with
the rules and regulations which it may establish from time to time, shall
reimburse Employee for reasonable and necessary business expenses incurred in
the performance of his duties on behalf of the Company or its subsidiaries.
7. Vacation. Employee shall be entitled to not less than five weeks of
paid vacation during each fiscal year, and shall be allowed to carry forward to
the next fiscal year a maximum of five unused vacation days. Such vacation shall
be taken in such segments, and at such times, as may be mutually agreed upon by
Employee and the Company.
8. Confidentiality. Employee will not at any time (whether during or
after his employment with the Company or its subsidiaries) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, or the
business and affairs of the Company generally, or of any subsidiary or affiliate
of the Company, provided that the foregoing shall not apply to information that
is not unique to the Company or that is generally known to the industry or the
public other than as a result of Employee's breach of this covenant. All files
and records relating to the Company compiled by the Employee shall be the
property of the Company and shall be returned to the Company upon termination of
Employment.
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9. Non-Competition; Restrictive Covenant.
(a) Restrictions. Employee recognizes and understands that in
performing the responsibilities of his employment, he will occupy a position of
fiduciary trust and confidence pursuant to which he will develop and acquire
experience and knowledge with respect to the Company's business. Employee
further understands and agrees that the Company conducts its business within a
specialized market that is highly competitive and that it would be detrimental
to the Company if the Employee used his knowledge gained with the Company or
information obtained during his employment to compete, directly or indirectly,
with the Company. Therefore, during the term of this Agreement and for a period
of one year following expiration of this Agreement according to its terms on
October 31, 2001 or the termination of employment, Employee shall not as an
employee, employer, consultant, agent, principal, partner, shareholder, officer,
director, or in any other individual or representative capacity, engage or
participate in any business that is in direct competition with the business of
the Company or its subsidiaries within the United States or within any country
where the Company's products are sold, provided that in order to enforce the
restrictions contained in this Section 9(a) following the expiration of this
Agreement according to its terms on October 31, 2001, the Company must pay the
Employee 150% of his salary during the one year period following such expiration
and notify the Employee no later than June 30, 2001 of its intent to enforce
such restrictions and make such payments.
(b) Remedies. Further, it is expressly understood and agreed
that, although Employee and the Company consider the restrictions contained in
this Section 9 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Agreement is an unenforceable restriction against
Employee, the provisions of this Agreement shall not be rendered void but shall
be deemed amended to apply as to such maximum time and territory and to such
maximum extent as such court may judicially determine or indicate to be
enforceable. Alternatively, if any court of competent jurisdiction finds that
any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any of the other restrictions contained herein.
10. Termination of Employment.
(a) For Just Cause by the Company Employee's employment
hereunder may be terminated by the Board for "Just Cause". For purposes of this
Agreement, "Just Cause" shall mean (i) dishonesty in the performance of
Employee's duties hereunder, (ii) an act or acts on Employee's part constituting
a felony under the laws of the United States or any state thereof, or (iii) a
breach of the covenants of Sections 8 or 9 hereof. If Employee is terminated for
Just Cause, he shall be entitled to receive his salary through the date of
termination. All other benefits due Employee following Employee's termination of
employment pursuant to this Section 10(a) shall be determined in accordance with
the plans, policies and practices of the Company. If Employee is terminated for
Just Cause, it shall be without prejudice to any other remedy or right to which
the Company may be entitled at law, in equity, or pursuant to this Agreement.
3
<PAGE>
(b) Disability or Death. Employee's employment hereunder shall
terminate upon his death or if Employee becomes physically or mentally
incapacitated such that he is unable for a period of six consecutive months or
for an aggregate six months in any twenty-four consecutive month period to
perform his duties (such incapacity is hereinafter referred to as "Disability").
Any questions regarding the existence of Employee's Disability as to which
Employee and the Company cannot agree shall be determined in writing by a
qualified independent physician mutually acceptable to Employee and the Company.
If Employee and the Company cannot agree on a qualified independent physician,
each shall appoint such a physician and those two physicians shall select a
third who shall make such determination in writing. The determination of
Disability made in writing to the Company and Employee shall be final and
conclusive for all purposes of the Agreement. Upon termination of Employee's
employment hereunder for Disability, Employee shall receive his salary through
the date on which Employee is first eligible to receive payment of disability
benefits in lieu of salary under the Company's employee benefit plans as then in
effect. In the event that Employee dies prior to the expiration of the term of
this Agreement, any compensation that may be due to him from the Company
pursuant to this Agreement as of the date of such death, shall be paid by the
Company to the personal representative of the Employee's estate or to any person
or persons as may be designated by applicable law. All other benefits due
Employee following Employee's termination for Disability or death shall be
determined in accordance with the plans, policies and practices of the Company.
(c) Without Just Cause by the Company. If Employee's
employment is terminated by the Company without Just Cause, Employee shall be
paid his salary through October 31, 1999 and shall be paid $10,000 per month for
a period of 24 months commencing on (i) November 1, 1999, in the event that such
termination occurs on or before October 31, 1999, or (ii) the date of such
termination, in the event that such termination occurs after such date;
provided, however, that the Company shall not be required to pay Employee
$10,000 per month following the commencement of other full-time employment by
Employee. In addition, Employee shall be entitled Employee Benefits as provided
in Section 5 hereof for the period during which he is entitled to payments under
this Section 10(c).
(d) Change of Control of the Company. If Employee's employment
is terminated as a result of a "Change of Control," Employee shall be entitled
to the payments and other benefits set forth in Section 10(c) of this Agreement.
For purposes of this Agreement, "Change of Control" shall mean (i) the
approval of any consolidation or merger of the Company in which the Company is
not the continuing or surviving Company or pursuant to which shares of the
capital stock of the Company would be converted into cash, securities or other
property, (ii) the approval of any sale, lease or other transfer of all, or
substantially all, of the assets of the Company, (iii) the approval of any plan
or proposal for the liquidation or dissolution of the Company, or (iv) the sale
or transfer of 50% or more of the beneficial ownership of the outstanding voting
securities of the Company.
4
<PAGE>
(e) Termination by Employee. If Employee terminates his
employment with the Company for any reason, he shall be entitled to receive his
salary and the same health and dental coverage and reimbursement benefits
described in Section 5 hereof for a period of one year following such
termination.
(f) Notice of Termination. Any purported termination of
employment by the Company or by Employee shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 11(g)
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
(g) Arbitration. In the event of a dispute respecting any
matters contained within this Section 10, Employee and the Company hereby agree
to submit such dispute to binding arbitration in accordance with the rules and
procedures of the American Arbitration Association. Each party shall pay its own
costs in connection with such arbitration.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
(b) Entire Agreement; Amendments. This Agreement contains the
entire understanding of the parties with respect to the employment of Employee
by the Company and supersedes all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
employment of Employee by the Company and/or its subsidiaries. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of either party to insist, in one
or more instances, upon the performance of any of the terms, covenants,
agreements or conditions of this Agreement, or to exercise any rights hereunder
shall not be construed as a waiver or relinquishment of such party's right to
insist upon the future performance of such term, covenant, agreement or
condition, or the future exercise of any such right and the obligations of the
other party with respect to such future performance shall continue in full force
and effect.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable
by Employee.
5
<PAGE>
(f) Successors; Binding Agreement. This Agreement shall
inure to the benefit of and be binding upon personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees of the parties hereto.
(g) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when mailed by the United States registered
mail, return receipt required, postage prepaid, addressed to the respective
addressees set forth on the execution page of this Agreement, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
(h) Survival. Except as otherwise expressly provided in
Sections 8 and 9, all of the agreements and obligations of the parties hereto
contained herein or in other writing delivered pursuant hereto or in connection
herewith shall terminate and expire, and shall cease to be of any force and
effect, on the date the Employee ceases employment with the Company, and any and
all liability of the parties hereto with respect to such agreements and
obligations shall thereupon be extinguished.
(i) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. In addition,
facsimile transmission copies of the executed signature page of this Agreement
shall have the same effect as a signed original.
(j) Incorporation of Recitals. The recitals set forth
in the preliminary portion of this Agreement are hereby incorporated in and
made an integral part hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AGRI-NUTRITION GROUP LIMITED
By:
Its:
BRUCE G. BAKER
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into by and
between Agri- Nutrition Group Limited, a Delaware corporation having its
principal place of business in Maryland Heights, Missouri (the "Company"), and
George W. Daignault, a resident of Chesterfield, Missouri, as of the 23rd day of
August 1996.
R E C I T A L S
WHEREAS, Mr. Daignault and the Company wish to terminate the Second
Restated Employment Agreement, dated as of the 1st day of November 1995, under
which Mr. Daignault has served the Company as its Chief Financial Officer; and
WHEREAS, the Company wishes to employ Mr. Daignault to assist the
Company with acquisitions, particularly the acquisition of Anthony Products
Company, through April 30, 1997, and Mr. Daignault wishes to be employed in such
capacity; and
WHEREAS, the Company and Mr. Daignault wish to set forth in writing the
terms pursuant to which the parties have agreed to the termination of such
agreement and such employment;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties to this Agreement,
the parties agree as follows:
1. Termination of Employment Agreement. The Second Restated Employment
Agreement dated as of the 1st day of November 1995 between the Company and Mr.
Daignault (the "Employment Agreement") is hereby terminated in its entirety and
neither party shall have any obligations to the other pursuant to the same;
provided, however, that Section 8 of the Employment Agreement relating to
confidentiality shall remain in full force and effect.
2. Terms of Employment. Mr. Daignault shall assist the Company with
acquisitions as requested by the Company, particularly the acquisition of
Anthony Products Company. Such assistance shall be provided on a full-time basis
through October 31, 1996 and ten hours per month from November 1, 1996 until
April 30, 1997, unless more of Mr. Daignault's time is required in order to
complete the Anthony Products Company acquisition. Mr. Daignault shall not be an
officer of the Company.
Mr. Daignault shall be paid a salary of $15,000 per month through April
30, 1997, plus $5,000 per month for each month from November 1996 through April
1997 in which work on the Anthony Products Company acquisition is required. In
the event that Mr. Daignault's employment hereunder is terminated by either
party prior to April 30, 1997, Mr. Daignault shall be entitled to severance
payments of $15,000 per month until April 30, 1997.
1
<PAGE>
3. Continuation of Health Care Benefits. Mr. Daignault shall continue to
receive substantially the same health insurance benefits to which he was
entitled under Section 5 of the Employment Agreement through April 30, 1998,
regardless of whether Mr. Daignault's employment hereunder is terminated prior
to April 30, 1997 pursuant to Section 2 of this Agreement.
4. Anthony Payment. In the event that the Company consummates the
acquisition of Anthony Products Company prior to October 31, 1997, the Company
shall pay Mr. Daignault $137,351. Mr. Daignault shall be paid fifty percent of
such bonus in cash. The remaining fifty percent shall be paid with a combination
of the Company's common stock plus cash required to satisfy related tax
withholding. Such payment shall be made regardless of whether Mr. Daignault's
employment hereunder is terminated prior to April 30, 1997 pursuant to Section 2
of this Agreement.
All payments made pursuant to this Section 4 shall be made within 30
days following the consummation of such acquisition. For purposes of determining
the number of shares of stock to be granted pursuant to this Section 4, such
stock shall be valued at $1.5625 per share. Any shares of stock issued pursuant
to this Section 4 shall be subject to the lock-up agreement by and between Mr.
Daignault and the Company dated October 12, 1995 (and any amendments thereto)
prohibiting Mr. Daignault from selling, transferring or otherwise disposing of,
more than five percent of the aggregate number of shares of the Company's stock
owned by Mr. Daignault in any quarter through January 1, 1998.
5. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(b) No Waiver. The failure of either party to insist, in one
or more instances, upon the performance of any of the terms, covenants,
agreements or conditions of this Agreement, or to exercise any rights hereunder
shall not be construed as a waiver or relinquishment of such party's right to
insist upon the future performance of such term, covenant, agreement or
condition, or the future exercise of any such right and the obligations of the
other party with respect to such future performance shall continue in full force
and effect.
(c) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions shall not be affected thereby.
(d) Assignment. This Agreement shall not be assignable by Mr. Daignault.
2
<PAGE>
(e) Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be binding upon personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees of the
parties hereto.
(f) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when mailed by the United States registered
mail, return receipt required, postage prepaid, addressed to the respective
addressees set forth on the execution page of this Agreement, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
(g) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. In addition,
facsimile transmission copies of the executed signature page of this Agreement
shall have the same effect as a signed original.
(h) Incorporation of Recitals. The recitals set forth in the preliminary
portion of this Agreement are hereby incorporated in and made an integral part
hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AGRI-NUTRITION GROUP LIMITED 13801
Riverport Drive, Suite 111 Maryland
Heights, Missouri 63043
By:
Its:
GEORGE W. DAIGNAULT
16444 Farmers Mill Lane
Chesterfield, Missouri 63005
AMENDED AND RESTATED STOCK OPTION AGREEMENT
THIS AMENDED AND RESTATED STOCK OPTION AGREEMENT (the "Agreement")
is made and entered into as of the 23rd day of August, 1996, by and between
Agri-Nutrition Group Limited, a Delaware corporation having its principal place
of business in Maryland Heights, Missouri (the "Company"), and George W.
Daignault.
WITNESSETH:
WHEREAS, the Company and Mr. Daignault are parties to a Stock Option
Agreement dated as of January 10, 1994; and
WHEREAS, the Company and Mr. Daignault wish to amend and restate such
Stock Option Agreement in order to increase the exercise price of the options
subject to such agreement, extend the period during which such options may be
exercised, and incorporate certain terms related to the options set forth in
Section 7 of the Second Restated Employment Agreement between the Company and
Mr. Daignault dated as of the 1st day of November 1995;
NOW THEREFORE, for and in consideration of the premises and the
covenants contained in herein, the Company and Mr. Daignault agree to amend and
restate the Stock Option Agreement between the parties dated as of January 10,
1994 in its entirety as follows:
1. The Company hereby grants Mr. Daignault a non-assignable option (the
"Option") to purchase from it, on the terms and conditions set forth in this
Agreement, an aggregate of Three Hundred Eighty-Seven Thousand Five Hundred
(387,500) shares of the Common Stock of the Company at a price per share equal
to $1.5625 (the "Option Price").
2. The Option may be exercised in whole or in part, and if in part may
be exercised from time to time, provided, however, that the Option shall not be
exercisable after October 31, 1999 (the "Expiration Date").
3. The Option shall be exercised by written notice directed to the
Company at its principal place of business, accompanied by a check in payment of
the Option Price for the number of shares as to which the Option is being
exercised, and the Company covenants to issue or cause the transfer agent for
its Common Stock to issue certificates evidencing the shares purchased within
ten business days following its receipt of notice of exercise and payment.
4. In the event that the Company shall from and after the date of this
Agreement effect any stock dividend, stock split, combination, recapitalization
or similar transaction involving its Common Stock, the unexercised portion of
this Option shall be adjusted equitably by (i) computing the aggregate exercise
price of the unexercised portion of the Option, (ii) computing the number of
shares of Common Stock into which the unexercised portion of the Option would
have been if outstanding on the record date for such event, which number shall
be the new number of shares to which the Option relates, (iii) dividing the
price obtained in (i) by the number obtained in (ii), and (iv)
<PAGE>
rounding the result in (iii) to the nearest cent, which shall be the adjusted
Option Price per share. In the event any transaction to which this provision
otherwise relates involves the issuance of a security other than the Company's
Common Stock as part of such recapitalization, the Board of Directors shall
effect an equitable adjustment of the number of shares subject to the Option or
the Option Price as in its discretion is deemed appropriate. In no event shall
cash dividends or distributions in respect of the Common Stock give rise to any
adjustment in the Option Price or the number of shares subject to this Option.
5. In the event of any merger or consolidation involving the Company,
the unexercised portion of the Option shall be adjusted by applying the relevant
conversion rate or other consideration to the number of shares covered by the
unexercised portion of this Option and, as appropriate, adjusting the Option
Price per share by the reciprocal of such conversion rate. In the event of any
liquidation or dissolution of the Company or in the event of any merger or
consolidation in which the Common Stock of the Company is to be converted solely
into cash, the Company (or the surviving or resulting corporation in such merger
or consolidation) shall have the right to settle and terminate this option by
paying to Mr. Daignault the amount, if any, by which the cash consideration per
share distributable in respect of the Common Stock exceeds the then applicable
Option Price per share.
6. The Option granted hereby is not transferrable by Mr. Daignault other
than by will or the laws of descent and distribution, and is exercisable during
Mr. Daignault's lifetime only by Mr. Daignault.
7. As of the date of this Agreement and continuing through until the
Expiration Date, the Company agrees to register, at its expense, under the
Securities Act of 1933, as amended, the shares of stock underlying the Option at
the request of Mr. Daignault so as to permit Mr. Daignault to sell such shares
publicly.
8. The shares underlying this Option are subject to the lock-up
agreement by and between Mr. Daignault and the Company dated October 12, 1995
(and any amendments thereto) prohibiting Mr. Daignault from selling,
transferring or otherwise disposing of, more than five percent of the aggregate
number of shares of the Company's stock owned by Mr. Daignault in any quarter
through January 1, 1998.
9. This Agreement is binding upon and shall inure to the benefit of the
parties hereto and their respective voluntary and involuntary successors,
assigns, heirs, executors, administrators and personal representatives. This
Agreement constitutes the entire understanding of Mr. Daignault and the Company
in respect of the subject matter hereof and may not be modified or amended
except by an instrument in writing executed by Mr. Daignault and on behalf of
the Company pursuant to express authorization of the Board of Directors of the
Company.
10. Any notice provided for in this Agreement shall be given in writing
and shall be sent by courier or express delivery or by next-day postal service,
addressed to Mr. Daignault at his address given below or to the Company at its
principal executive offices. Notices shall be deemed given as of the date of
receipt.
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Stock Option Agreement is
executed and delivered as of the date first above written.
AGRI-NUTRITION GROUP LIMITED
George W. Daignault Robert J. Elfanbaum
16444 Farmers Mill Lane Chief Financial Officer
Chesterfield, MO 63005
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 33-86880) of
Agri-Nutrition Group Limited of our report dated December 13, 1996 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
February 11, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No.33-86892) of
Agri-Nutrition Group Limited of our report dated December 13, 1996 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
February 11, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 33-93340) of
Agri-Nutrition Group Limited of our report dated December 13, 1996 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
February 11, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-94622) of
Agri-Nutrition Group Limited of our report dated December 13, 1996 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
February 11, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 333-3192) of
Agri-Nutrition Group Limited of our report dated December 13, 1996 appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
appearing on page S-1 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
St. Louis, Missouri
February 11, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> OCT-31-1996
<CASH> $2,186,877
<SECURITIES> $0
<RECEIVABLES> $4,273,452
<ALLOWANCES> $0
<INVENTORY> $6,373,708
<CURRENT-ASSETS> $14,022,414
<PP&E> $4,907,813
<DEPRECIATION> $0
<TOTAL-ASSETS> $26,349,513
<CURRENT-LIABILITIES> $4,203,166
<BONDS> $0
$0
$0
<COMMON> $84,309
<OTHER-SE> $14,238,026
<TOTAL-LIABILITY-AND-EQUITY> $26,349,513
<SALES> $36,383,562
<TOTAL-REVENUES> $36,383,562
<CGS> $28,172,891
<TOTAL-COSTS> $28,172,891
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $596,086
<INCOME-PRETAX> ($204,579)
<INCOME-TAX> ($77,159)
<INCOME-CONTINUING> ($127,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ($127,420)
<EPS-PRIMARY> ($0.02)
<EPS-DILUTED> ($0.02)
</TABLE>
